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5 questions Trump needs to answer in his new tax plan

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5 questions Trump needs to answer in his new tax plan

President Trump promised last week that he would present his new tax reform plan on Wednesday.
Actually, it’s more likely to be a preview of his plan.
In the wake of Trump’s promise, the White House walked back expectations that a comprehensive plan would be ready. Treasury Secretary Steven Mnuchin has only said that “more details” of the plan will be revealed.
In any case, what the White House does put out tomorrow will offer some guideposts to where Trump will start negotiations with tax writers on the Hill, who have been busy for months working on their own tax reform proposals.
So here’s what to look for.
1. Just how different will Trump’s new guidelines be?
The president already put out broad outlines for tax reform at least twice on the campaign trail. In them he called for much lower tax rates for businesses and individuals and tax simplification.
Trump also outlined how much he’d like to cut rates. In the most recent iteration he proposed reducing the number of tax brackets for individuals from seven to just three: 12%, 25% and 33%.
He also proposed lowering the top tax rate for all businesses — both corporations and so-called pass-throughs — to 15%.
Yesterday, White House sources suggested he may come out tomorrow and again call for a 15% corporate tax rate, although no mention was made of a rate cut for so-called pass-through businesses, which include everything from small businesses to big law firms and investment partnerships.
2. Will he call for real tax reform or just tax cuts?
They’re not the same thing.
Tax cuts are easy. Comprehensive, permanent tax reform is hard, because it would restructure the tax code and involve tough political tradeoffs to pay for any tax cuts that might be proposed.
Given that nearly half the year is over and progress has been slow, getting comprehensive reform done in 2017 is virtually impossible.
So the question is will Trump simply propose tax cuts, with promises to do real reform later?
And if he opts for tax cuts, how will he propose paying for them? What tradeoffs, if any, is he willing to make? Experts have already thrown cold water on assertions from Mnuchin that Trump’s tax plan will be paid for by economic growth.
If Trump doesn’t mind adding substantially to deficits, that will undercut efforts by Republican leaders in Congress to make the changes permanent because of complicated legislative rules.
The concern for deficit hawks, meanwhile, is that if tax cuts add a lot to the country’s debt, that could end up hurting growth and making it that much harder to put the country on a sustainable fiscal path.
3. Will Trump kill chances for a border adjustment tax?
House Republicans’ tax reform proposal would be paid for in large part by a so-called border adjustment tax, which would fundamentally alter how imports and exports are taxed.
The idea has divided the business community. A large swath is vociferously opposed, arguing it will hurt American consumers.
And the president has hardly given the BAT much of an endorsement. He’s suggested he’d prefer something different that would tax imports, and even mentioned something called a “reciprocal” tax without much explanation as what a reciprocal tax is or how it would work.
Policy observers will look to his outline on Wednesday to see if it includes a BAT at all — and if so, how it would be structured differently than the BAT proposed by the House GOP.
4. Will he focus first on corporate tax cuts?
Some have suggested that Trump and Congress do reform piecemeal, and focus on corporate tax reform first.
If that’s what Trump proposes, expect big pushback from pass-through entities, which make up the majority of U.S. businesses. While they use many of the same tax breaks as corporations, they are taxed through the individual tax code, where the top rate is 39.6%.
Small businesses, which include a lot of pass-throughs, worry that Congress will reduce their tax breaks to pay for lower corporate tax rates, but won’t lower the top rate for pass through owners and shareholders much, if at all.
5. What’s in it for the middle class?
Mnuchin has said repeatedly that a top priority of Trump’s tax plan will be tax relief for the middle class.
On the campaign trail, Trump talked about big tax cuts for everyone, though distributional analyses of his proposals showed the top 1% would benefit the most by far.
It will also be interesting to see whether Trump’s new outline will call for tax breaks to help families with child care costs. Late in the campaign he proposed two, but an independent analysis found that such breaks — coupled with a few other of Trump’s tax proposals — could unintentionally raise taxes on millions of low- to middle-income families.

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