Major tax overhaul poses test for Trump

WASHINGTON - President Donald Trump's call for a dramatic overhaul of the tax code sets in motion his most ambitious legislative initiative yet, testing whether he can cut a deal on an issue that has long bedeviled Congress.

Wednesday, Trump issued a one-page outline for changes in the tax code, pinpointing numerous changes he would make that could affect almost every American.

He wants to replace the seven income tax brackets with three new ones, cut the corporate tax rate by more than 50 percent, abolish the alternative-minimum tax and estate tax and create new incentives to simplify filing returns.

But the White House stopped short of answering key questions that could decide the plan's fate. For example, administration officials didn't address how much the plan would reduce federal revenue or grow the debt. They also didn't specify what income levels would trigger the new system for paying individual income taxes.

The goal, White House officials said, was to cut taxes so much and so fast that it leads to immediate economic growth, creating more jobs and producing trillions in new revenue over a decade.

Despite its brevity - it was less than 200 words and contained just seven numbers - the document marks the most pointed blueprint Trump has presented Congress on any matter.

'This is about economic growth, job creation, America first, and that's what (Trump) cares about,” White House National Economic Council Director Gary Cohn said.

OBSTACLES AHEAD

But the plan must navigate a legislative and political gantlet on Capitol Hill that has killed numerous other efforts to rework the tax code.

Business groups were already squaring off. The National Association of Realtors called it a 'non-starter.” But the Chamber of Commerce said it would 'help drive job creation, investment, and economic growth.”

President Ronald Reagan was the last to shepherd a major tax overhaul through Washington, but he did it by working with Democrats.

Treasury Secretary Steven Mnuchin said Wednesday he would like to negotiate details with Democrats, but would cut them out if necessary and seek only support from Republicans.

If he goes that route, the code changes could escape a 60-vote threshold in the Senate, but then expire in 10 years.

Trump's proposal actually poses key tests for both parties.

Republicans, who for years chided President Barack Obama about any plan to raise the deficit, must decide whether to back a plan that many experts believe will add to record debt.

But so far, key Republicans praised the core of Trump's plan and signaled a willingness to negotiate. House Speaker Paul D. Ryan, R-Wis., called Trump's framework 'a critical step forward in this effort.”

Democrats must decide whether to negotiate with an unpopular president who is threatening to pull revenue that pays for many of their cherished social programs.

'This is an unprincipled tax plan that will result in cuts for the (wealthiest Americans), conflicts for the president, crippling debt for America and crumbs for the working people,” said Sen. Ron Wyden, D-Ore., who is on the Senate Finance Committee.

Trump's plan includes changes to both of the major elements of the tax code, the individual side and the business side.

FEWER TAX BRACKETS

For individuals, it would eliminate the seven existing brackets and replace them with three, containing new rates of 10, 25 and 35 percent, based a person's income. White House officials haven't specified which income levels would hit the higher tax brackets.

The proposal would also roughly double the standard deduction that Americans can use to reduce their taxable income. The deduction for married couples would rise from $12,600 to $24,000. This would incentivize people not to itemize and instead use the larger standard deduction, simplifying the process and potentially saving them thousands of dollars each year.

It might also change how people value certain tax breaks: For example, fewer people might decide to buy instead of rent a home because of the mortgage interest deduction - which would be useless if those taxpayers choose not to itemize their taxes.

The plan would eliminate the alternative-minimum tax and the estate tax, provisions that raise billions of dollars each year and mainly raise the taxes paid by wealthier Americans.

MOST DEDUCTIONS GO

To offset the loss of revenue, Cohn and Mnuchin said they were proposing to eliminate nearly all tax deductions that Americans claim.

Cohn said they would preserve tax breaks for mortgage interest, retirement savings and charitable giving. But almost all others would go.

This includes the deduction people can claim for the state taxes, a provision that saves taxpayers more than $1 trillion every 10 years.

For businesses, Trump's proposal would lower the corporate tax rate from 35 to 15 percent. It also would allow millions of small businesses, structured in such a way that they are affected by the individual tax rate, to use the 15 percent rate as well. These businesses, known as 'pass-throughs” or 'S corporations,” are often family-owned firms.

But they also can be large law firms and lobbying shops, with highly paid top executives.

Mnuchin said special protections would ensure that the wealthiest of these earners don't take advantage of the 15 percent rate, although he didn't say how the White House would do this.

The White House is also proposing a one-time tax 'holiday” to encourage companies to bring several trillions of dollars held in other countries back into the United States. They didn't specify what that tax rate would be, saying it's part of negotiations.

But they said they believed providing this incentive would bring money back for investment and hiring.