U.S. President Donald Trump and congressional Republicans are proposing a far-reaching, $5 trillion US plan that would cut taxes for individuals and corporations, simplify the tax system and nearly double the standard deduction used by most Americans.
The plan is sweeping in scope but omits critical, controversial details that are likely to take months to work out in a bitterly divided, GOP-led Congress. The political stakes are high for Republicans and for Trump, whose agenda has largely stalled as the GOP abandoned efforts to repeal the Obama-era health law. Republicans see tax overhaul as a once-in-a-generation opportunity that could produce a large political payoff, though some polls show the public is skeptical that average Americans will benefit much.
“Too many in our country are shut out of the dynamism of the U.S. economy, which has led to the justifiable feeling that the system is rigged against hardworking Americans,” says the blueprint, obtained by The Associated Press. “With significant and meaningful tax reform and relief, we will create a fairer system that levels the playing field and extends economic opportunities to American workers, small businesses, and middle-income families.”
The public unveiling of the plan was set for later Wednesday. There are no details on how much it would cost, though estimates by outside experts put the tax cuts in the range of $5 trillion over the next 10 years. The net cost to the federal debt would be far less — probably in the range of $1.5 trillion under deal hatched by Senate budget committee Republicans — and the real battles ahead will come as lawmakers quarrel over which tax breaks might be eliminated to help pay the balance.
Number of personal tax brackets drops
The plan nearly doubles the standard deduction to $12,000 for individuals and $24,000 for families. This basically increases the amount of personal income that is tax-free.
It collapses the number of personal tax brackets from seven to three. By simplifying the system, most Americans would be able to file their taxes on a postcard, the plan says.
“This is our once-in-a-generation opportunity to fundamentally rethink our tax code. We can unleash the economy — promoting growth, attracting jobs, and improving American competitiveness in the global market,” said Senate Majority Leader Mitch McConnell. “We can lower taxes for individuals and families, so hardworking Americans are able to keep more of their hard-earned money.”
Deductions for mortgage interest and charitable giving would remain, but the plan seeks to end most other itemized deductions that can reduce how much affluent families pay.
But a battle is already brewing among Republicans over a move to eliminate the deduction for state and local taxes, which is especially valuable to people in high-tax states such as New York, New Jersey and California. Republicans from those states are vowing to fight it.
It retains existing tax benefits for college and retirement savings such as 401(k) contribution plans.
The individual tax rates would be 12 per cent, 25 per cent and 35 per cent — and the plan recommends a surcharge for the very wealthy. But it does not set the income levels at which the rates would apply, so it’s unclear just how much of a tax change there might be for a typical family.
The plan would seek to help families by calling for an increased child tax credit and opening it to families with higher incomes. The credit currently is $1,000 per child.
Also proposed is a new tax credit of $500 to help pay for the care of the elderly and the sick who are claimed as dependents by the taxpayer.
The estate tax — which is paid by those with multimillion-inheritances — would be eliminated, a boon for wealthy individuals who inherit businesses, investments and real estate.
Lower tax rates for companies
Companies would find themselves paying substantially lower tax rates, part of an effort to make U.S. businesses more competitive globally. The plan would impose a new, one-tax, lower tax on corporate profits stashed overseas, and create a new tax structure for overseas business operations of U.S. companies.
Corporations would see their top tax rate cut from 35 per cent to 20 per cent. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments.
New benefits would be given to firms in which the profits double as the owners’ personal income. They would pay at a 25 per cent rate, down 39.6 per cent. This creates a possible loophole for rich investors, lawyers, doctors and others, but administration officials say they will design measures to prevent any abuses.
The administration says the tax plan is focused on helping middle-class families. But — despite six months of talks with congressional leaders — the outline still lacks vital details about how middle-class families would fare. There are also signs that the wealthiest sliver of Americans could still reap tremendous benefits from the proposed changes, even though Trump has suggested that the rich will not be better off.