Earlier this week, Treasury Secretary Steven Mnuchin had touted the tax reform announcement as what would be "the biggest tax cut and the largest tax reform in the history of the country."
Mnuchin expressed urgency when commenting that the focus of the bill would be centered on "creating economic growth and jobs." According to Mr. Mnuchin, the rate of economic growth could be boosted by up to 3 percent, which will hopefully cover the federal budget shortfalls.
Much of the bold rhetoric emanating from the White House is in line with Trump's ostentatious promises during last year's presidential campaign. However, Republicans have had a tax reform plan in the works for some time, calling for drastic and permanent changes to the tax code.
On Wednesday afternoon, Mnuchin and White House National Economic Council Director Gary Cohn jointly announced an ambitious plan that aims to reduce government debt significantly. America's debt currently sits at nearly $20 trillion, and many budget experts believe that Trump's new plan won't do anything to reverse that number, but rather that it could increase the debt.
So what are the details?
At the press briefing, it was announced that Trump's tax reform proposal would sharply reduce individual and corporate income tax. The number of individual tax brackets will be reduced to three, namely 10, 25, and 35 percent, based on annual revenue. It has not been revealed which income amounts would fall into these new brackets.
In order to simplify the process of submitting tax returns, the standard deductions that Americans use to reduce their actual annual income would be doubled. A couple, for example, would not be taxed on the first $24 000 of their earnings, instead of the current $12 600. The administration hopes that this cut will encourage people to use the standard deduction instead of itemizing their tax returns. Mortgage interest, retirement savings and charitable contribution deductions would not be affected, while estate tax and alternative minimum tax would fall away completely.
According to the Trump administration, any shortfalls created by the new tax cuts would be offset by eliminating nearly all individually claimable deductions. Steven Mnuchin said that the plan includes deductions that people usually claim for local state taxes, which can be very high in some high-income tax states.
"It's not the federal government's job to be subsidizing the states. It's the state's independent decision as to do what they want to tax."As expected, Trump has proposed the lowering of corporate tax to 15 percent, down from 35 percent. Small businesses would benefit from the reduction as they would be eligible to use the 15 percent limit. The administration also signaled a shift towards a "territorial tax" system that would exempt companies that earn income abroad from paying taxes. However, these companies would be encouraged to keep their main business and head offices within the United States.
Without going into details, it was announced that Trump wants to offer companies a "one-time" opportunity to repatriate their offshore cash reserves – a combined amount that is believed to be up to trillions of dollars – to bring that wealth back into the country.
Families that are burdened by childcare costs would be receiving a break that would see an end to the 3.8 percent investment tax that was implemented by Obamacare.
The New York Times reported that permanent changes to the tax code might not be a given, even though Republicans control both the Senate and the White House. If the tax cuts increase government debt and the budget shortfall, the legislation would have to be reviewed in 10 years. This did not seem to deter Steven Mnuchin, who commented that the "goal is to make it permanent, but there are lots of levers here. If we have them for 10 years, that's better than nothing."
There is the possibility of a filibuster by the Democrats, who have expressed concerns that these proposed tax cuts would only serve to embolden the wealthy and increase the wealth gap. Democratic Party Chairman, Tom Perez, said that Trump's proposals are another conflict of interest for the president, who personally stands to benefit from the new legislation.
"Trump's latest proposal is another gift to corporations and billionaires like himself. Trump must release his tax returns, as millions of Americans are demanding, before Congress can consider any Trump tax plan. We must know how much Trump would personally financially benefit from his own proposal."There is further concern that high-income earners could use the new laws to avoid paying 40 percent tax and structuring their finances in such a way that they only pay 15 percent. However, Steven Mnuchin, offering no details on how it would work, said that measures would be put in place so that companies and wealthy individuals would not be able to take advantage of the 15 percent rate.
Senate minority leader Chuck Schumer lashed out at the Trump administration, saying that the new proposed tax cuts are unnecessary.
"We don't need a tax plan that allows the very rich to use pass-throughs to reduce their rates to 15 percent while average Americans are paying much more. That's not tax reform. That's just a tax giveaway to the very, very wealthy that will explode the deficit."[Featured Image by Evan Vucci/AP Images]