The Trump administration released an outline for tax reform on April 26 that includes the president's bold proposals to slash rates but leaves many of the difficult questions unanswered.
The much-anticipated release could renew momentum for tax reform efforts, but the onepage outline itself is not a fully formed plan and is largely a restatement of campaign goals with a couple of key adjustments. The outline may be a way for President Trump to reassert more control over the direction of tax reform, yet many of the elements would face both political and procedural hurdles as currently envisioned.
Like his campaign platform, the outline calls for cutting the corporate rate to 15%, and administration officials said small- and medium-sized pass-through businesses would qualify for the reduced rate. The administration offered no new information on the size threshold for qualifying for the reduced rate, or how the business income of larger passthroughs would be taxed. Administration officials said they would prevent pass-through owners from enjoying the lower rate on income that is better characterized as investment of compensation income, but offered no details on how those rules would be written.
The plan reiterates several other campaign promises:
- Repealing the alternative minimum tax
- Repealing the 3.8% tax on net investment income
- Doubling the standard deduction
- Enhancing tax relief for child and dependent care expenses.
- Leaving the dividend and capital gains rate at 20%
In a break from his campaign, Trump is proposing to lower the top individual rate to just 35%. His tax platform released before the election included a top individual rate of 33%, and earlier proposals included a top rate as low as 25%. In another shift, Trump dropped his proposal to end deferral and impose a global minimum tax of 15%, and instead joined House Republicans in calling for a shift to a territorial tax system that exempts certain foreign income. The outline does not specify the rate of the exemption. Trump still proposes a one-time tax on unrepatriated earnings, also at an unspecified rate. His campaign had called for a 10% rate.
The outline retains the repeal of the estate tax, but does not mention a campaign proposal to impose a capital gains tax on assets in an estate at death. He also dropped any mention of a proposal to allow certain taxpayers to elect full expensing if they forgo their interest deduction. The outline generally calls for eliminating "tax breaks and deductions" for businesses and cutting all individual benefits except those for charitable giving, mortgage interest and retirement.
The descriptions of the proposals in the outline make up less than 125 words total and include almost no detail on how any of the rules would work. Congress will clearly still need to craft the details of any legislation that moves forward, but President Trump appears to be looking for more control over the direction of reform and willing to spend political capital on the effort. It's unclear how much direction Congressional Republicans are willing to take. A joint statement from House Speaker Paul Ryan, R-Wis., Senate Majority Leader Mitch McConnell, R-Kent., House Ways and Means Committee Chair Kevin Brady, R-Texas, and Senate Finance Committee Chair Orrin Hatch, R-Utah, stopped well short of endorsing the outline, saying only that the "principles" would "serve as critical guideposts."
The outline's goals face hurdles. As a whole, it would appear to lose significant revenue even assuming robust economic growth. Under current rules, Republicans cannot pass a permanent tax bill in the Senate without Democratic votes if the legislation loses revenue outside the 10-year budget window. House Republicans released a letter from the Joint Committee on Taxation indicating that even sunsetting corporate tax cuts would violate this rule because of carryover issues if the cuts are in place longer than two years.
The administration could add revenue by endorsing House Republican proposals like border adjustability, but they would still likely face a revenue gap. And Treasury Secretary Steven Mnuchin said the administration doesn't support border adjustability in its current form. Brady is currently working to appease opponents of the border adjustability proposal with modifications, such as a delayed effective date or exemptions for items that can't be sourced from within the U.S.
For now, House Republicans appear committed to continuing to work on a full legislative draft based on their blueprint, but the outline and discussions with the administration will undoubtedly influence the process. A full side-by-side comparison of the Trump plan and the blueprint are provided below. The Trump column is based both on the outline and statements from administration officials during its release. Where noted, it includes information on earlier proposals from the campaign platform.
COMPARISON OF GOP TAX PLANS
Issue | House Republican blueprint | Trump outline |
Individual income |
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Individual tax benefits |
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Investment income |
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Estate tax |
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Alternative minimum tax (AMT) |
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Corporate rate |
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Pass-through tax rate |
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Business benefits |
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Depreciation |
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Interest deduction |
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Incentives for domestic activity |
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International |
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Net investment income tax |
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