To spur economic growth, President Donald Trump plans to propose what his Treasury Secretary said Wednesday would be the largest tax cut in the country's history.
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The plan calls for 15% tax rates on all businesses, deeper than the rate cuts proposed by House Republicans. Those rates are likely to drive Democrats away and to cause complications in Congress because changes in tax policy that the Senate can pass on a party-line vote, under the budget procedure known as reconciliation, aren't allowed to create long-run budget deficits.
Treasury Secretary Steven Mnuchin said at an event Wednesday morning that the administration wants permanent policy changes, but that temporary cuts could be considered, too.
"This is going to be the biggest tax cut and the largest tax reform in the history of our country," he said at a conference in Washington sponsored by The Hill newspaper.
Mr. Mnuchin said the tax proposal would seek to prevent wealthy individuals from taking advantage of a 15% rate for owner-operated small businesses.
"What this is not going to be is a loophole to let rich people who should be paying higher rates pay 15%," he said. It isn't clear how the administration plans to do that.
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Most U.S. businesses are pass-throughs, called that because their income and deductions pass through to their owners' individual returns. That group includes many small firms, but also large global law firms, hedge funds and Mr. Trump's own real estate and branding businesses. These businesses don't pay the corporate tax rate.
The White House is set to release general principles for tax legislation this afternoon, which will open months of negotiations in Congress. Other administration officials have said a full proposal wasn't likely before June and won't be included in the release of the president's budget later next month.
House Speaker Paul Ryan said Republicans have consensus on the goals and aims for reducing tax rates. "We're in agreement on 80%, and then that 20%, we're in the same ballpark," the Wisconsin Republican said at a separate event.
Mr. Mnuchin said the administration's proposal won't endorse the border-adjustment feature that is central to the House GOP plan. The provision attempts to raise revenue by taxing imports, but not exports. Mr. Mnuchin said the administration wasn't opposed to the provision in concept and that he liked aspects of it. But he said, "We don't think it works in its current form."
Mr. Ryan hasn't backed down on the border-adjustment idea, but he said Wednesday that he knows the proposal needs modifications in response to criticism from retailers and others. "We don't want to have severe disruptions," Mr. Ryan said.
Mr. Mnuchin said he hoped Democrats would support the plan, but Republicans have been working for months under the assumption they will need to pass legislation without Democratic votes. "I hope they won't stand in the way," said Mr. Mnuchin. "As you know, there's multiple ways of doing this, and the president is determined that we will have tax reform."
To advance legislation through the Senate with a 51-vote majority, a tax bill can't add to deficits beyond a decade. Tax cuts passed by President George W. Bush, for example, lapsed after a decade because they increased deficits, though Congress later made some provisions permanent.
"The goal is to make it permanent, but there's lots of levers here," said Mr. Mnuchin. "If we have them for 10 years, that's better than nothing, but we'd like permanence to it."
Senate Democratic leader Chuck Schumer of New York said the proposal to cut tax rates for pass-through businesses would just benefit high-income people like the president himself.
"The very wealthy are doing pretty well in America," Mr. Schumer said on the Senate floor on Wednesday. "God bless them. Let them do well. They don't need another huge tax break."
The White House has said it believes its tax plans can boost the U.S. growth rate from around 2% over the past decade to 3%, a feat many economists say would require a sharp turnaround in the productivity of the workforce, which has slumped.
"The president and I and others in this administration fundamentally think we can get to 3% sustained economic growth," said Mr. Mnuchin.
Trump administration officials say they will rely on those optimistic growth projections to assume any cuts will generate substantial higher revenues to offset declines from lower rates. Most tax specialists say such cuts are unlikely to fully pay themselves.
Mr. Mnuchin said many of the details of any tax overhaul would be spelled out later. The administration wasn't likely to specify which tax credits or deductions it might target, if any, as part of a broader overhaul.
Still, Wednesday's announcement from the administration is notable because two weeks ago, Mr. Trump said he wasn't prepared to discuss tax policy until after Congress had made more headway on a stalled health care bill. He reversed course last week in announcing plans to release some principles on taxes.
Analysts said the health-care imbroglio highlighted the long road ahead for taxes.
"The sugar high of tax cut headlines could turn into a nagging headache once stakeholders return to the painstaking consideration of process and pay-fors," said Isaac Boltansky, an analyst at Compass Point Research & Trading, an investment firm focused on the financial services sector, in a client note Wednesday.
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(END) Dow Jones Newswires
April 26, 2017 12:08 ET (16:08 GMT)