The White House made its opening bid for what officials called the “biggest tax cut” in U.S. history — with cuts that would benefit businesses, the middle class and certain high-earning individuals — but left unanswered questions about whether the plan would be paid for, or how.
A list of goals for the tax overhaul, unveiled by President Donald Trump’s top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin Wednesday, calls for slashing the federal income-tax rate to 15 percent for corporations, small businesses and partnerships of all sizes. It also imposes a one-time tax on about $2.6 trillion in earnings that U.S. companies have parked overseas.
The plan would end the taxation of corporations’ offshore income by moving to a territorial system, in which most foreign profits would be exempt from U.S. taxes. Currently, the U.S. taxes business income no matter where it’s earned.
On the individual side, it proposes condensing the existing seven income-tax rates to just three, cutting the individual top rate to 35 percent from 39.6 percent.
It would also end a 3.8 percent net investment income tax that applies only to individuals who earn more than $200,000 a year, repeal the alternative minimum tax and eliminate the estate tax, which currently applies only to estates worth more than $5.49 million for individuals and $10.98 million for couples.
At the same time, the plan would eliminate the federal income-tax deduction allowed for state and local taxes — a provision that would hit high earners in high-tax states, including New York and New Jersey. The only itemized deductions that would be preserved under the plan would be for home mortgage interest and charitable contributions.
“We are determined to move as fast as we can and get this done this year,” Mnuchin said.
The move to tax partnerships, limited liability companies and other so-called “pass-throughs” at 15 percent would represent a major tax cut for many businesses — from mom-and-pop grocers to hedge funds — including Trump’s own business empire.
Under current law, those companies pass their earnings and deductions through to their owners, who then are taxed at their individual income tax rates.
Shortly after the election, Mnuchin said Trump’s tax plan would provide “no absolute tax cut for the upper class.”
It wasn’t immediately clear Wednesday whether the plan would pay for itself; Mnuchin and others have said it would stimulate enough economic growth to cover the cost of the tax cuts.
Economists have called that proposition into question — raising questions about whether any tax cuts it proposes would have to be temporary under congressional rules.