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Nov. 30 — Lowering the corporate tax rate to 15 percent now appears to be the goal for both lawmakers and President-elect Donald Trump’s pick for Treasury secretary, Steven Mnuchin.
The Treasury-designate, a former Goldman Sachs & Co. banker and Hollywood producer with little political experience, doubled down on promises made during Trump’s campaign in a Nov. 30 interview with CNBC.
“Our most important priority is sustained economic growth,” Mnuchin said, predicting growth of 3 percent to 4 percent over an extended period. “To get there, our No. 1 priority is tax reform.”
He said middle-class tax cuts and a reduced corporate tax rate of 15 percent are key factors in the Trump administration’s tax plans. Dynamic scoring, in which economic changes caused by the tax cuts factor into federal budgeting, will be used, Mnuchin said.
House Ways and Means Committee Chairman Kevin Brady (R-Texas), who spoke to Fox Business News later in the day, said House Republicans will consider cutting the corporate rate to 15 percent as proposed by Trump. This is a 5 percentage-point decrease from the 20 percent tax rate on corporate income proposed in the House GOP’s “A Better Way” blueprint released in June.
A 15 percent rate would be a large drop from the current rate of 35 percent. In the interview, Brady also said Trump and House Republicans are having conversations to determine other areas where they can reach common ground.
“We’re going to have presidential leadership on tax reform,” he said. “These are good days for those of us who want to fix America’s broken tax code.”
Separately, Brady said in a Nov. 30 statement that he looks forward to working with Mnuchin and that the nominee’s private-sector experience will be an asset in creating ways to promote economic growth.
One analyst noted, however, that questions still remain regarding Trump’s tax plan and how that will impact tax overhaul efforts.
“As of today, there’s still a question of how exactly the Trump tax plan is going to treat passthrough business income,” said Kyle Pomerleau, director of federal projects at the conservative-leaning Tax Foundation.
During the campaign, Trump’s team told the Tax Foundation that passthrough businesses wouldn’t be taxed at the lower 15 percent corporate rate, but then informed other groups that such entities would benefit from the lower rate. Taxing passthroughs at a flat 15 percent rate may prompt workers to try to cut their tax bills by turning themselves into self-employed contractors, without leaving their current employers.
That ambiguity forced the Tax Foundation to analyze the plan from two different angles, Pomerleau said. Taxing passthrough income at 15 percent would dramatically increase the deficit, he said.
That is contrary to Brady’s comments that he would like a tax overhaul plan to be “deficit-neutral” with dynamic scoring. “Trump’s tax plan currently does not accomplish this,” Pomerleau said. “Whether it’s dynamically scored or not, it still increases the deficit significantly.”
Pomerleau also addressed Mnuchin’s comment in the CNBC interview that “any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class.”
“Mnuchin is correct that in the tax plan there is a cap on itemized deductions,” Pomerleau said. “And it is true that under current law, itemized deductions produce the largest tax benefit for the top because they face the highest marginal tax rate. So if you put two and two together, capping itemized deductions raises taxes on the” rich, he said.
At the same time, Trump’s plan calls for significant cuts to the marginal tax rates on the wealthy, including a reduction in the tax rate on ordinary income from 39.6 percent to 33 percent and the potential that passthrough businesses will get to use the lower 15 percent corporate rate, he said.
“That’s two significant tax cuts for the top 1 percent that outweighs the limitation on itemized deductions in the plan,” Pomerleau said.
He added that while it seems apparent that tax overhaul is a serious priority in the Trump administration, based on Mnuchin’s comments, it is unclear how the Mnuchin will work within the Treasury Department and what role he will play in a tax revamp.
For one tax professor, the answer to Pomerleau’s question is that Mnuchin’s role in overhauling the U.S. tax system will be minimal.
“He’s not a tax guy,” said Daniel N. Shaviro, a tax professor at the New York University School of Law. From the standpoint of tax overhaul, it doesn’t appear that Mnuchin’s appointment is that “important, in the sense that I think it’s mainly going to come from the Hill.”
Shaviro, who spent three years on the Joint Committee on Taxation staff, where he worked extensively on the Tax Reform Act of 1986, said Trump’s desire to let lawmakers take the reins on a comprehensive tax overhaul is shown, in part, by the convergence of his plan with the House Republican blueprint during the campaign. Trump adopted many of the GOP’s proposals, including a provision that would allow U.S. manufacturers to elect to expense capital investment and forfeit the deductibility of corporate interest expense.
The Trump administration doesn’t appear to have the personnel on hand to develop a “well-designed” tax proposal, Shaviro said. Conversely, the Hill has the staff and the expertise to draft such a plan, though whether they choose to do so remains to be seen, he said.
Trump may also push tax overhaul efforts to the Hill to create leverage for future battles with lawmakers, Shaviro said. He may use tax policy changes to befriend conservatives on Capitol Hill “because he’s going to fight with them” on other issues.
With assistance from Aaron E. Lorenzo in Washington.
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Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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