President Donald Trump and Republican leaders were poised to launch an urgent effort to get a major legislative win this year, announcing a long-awaited tax plan that will immediately set off a fight over how much top earners should pay.
The framework proposes cutting the top individual rate to 35% — but leaves it up to Congress to decide whether to create a higher bracket for those at the top of the income scale, according to a copy obtained by Bloomberg News. The White House confirmed its authenticity Wednesday.
The rate on corporations would be set at 20%, down from the current 35%, and businesses would be allowed to immediately write off their capital spending for at least five years, three people familiar with the plan told Bloomberg News. Pass-through businesses would have their tax rate capped at 25%.
U.S. stocks pushed toward all-time highs, with a Goldman Sachs basket of companies that pay the highest tax rates pacing gains. The group added 0.5% at 10:20 a.m. in New York, poised to outperform the broader market for a sixth straight day.
The tax plan will set out three tax brackets for individuals — 12%, 25% and 35%, down from the existing seven rates, which top out at 39.6%. But that’s not firmly set, as congressional tax-writing committees will be given flexibility to add a fourth rate for the highest earners — an effort to prevent the overhaul from providing too much of a benefit for the wealthy.
Congress members haven’t signaled that they’ll take that option. Key Republicans on the tax-writing Ways and Means Committee, including Chairman Kevin Brady, have said they’re committed to offering across-the-board tax relief. Trump has repeatedly said he’s focusing on middle-class individuals.
At the same time, though, the tax plan calls for repealing the alternative minimum tax, the estate tax and the generation-skipping estate tax, all of which would be a boon for higher earners and the wealthy.
The release of the plan — which Trump is expected to tout Wednesday during a speech in Indiana — is the result of a months-long process to craft a tax overhaul that was a key promise in Trump’s campaign. But it marks only the start of what could be a brutal fight in Congress among lawmakers who disagree on key elements of the framework. One influential skeptic has been Senate Finance Committee Chairman Orrin Hatch, a Utah Republican, who pledged his committee would not be a “rubber stamp” for the plan.
The tax effort begins one day after Senate leaders decided not to move forward with a vote on repealing Obamacare, one of the most central promises of Trump’s presidential campaign. But Trump has said that tax legislation — which he calls essential for stimulating economic growth — has been his main focus.
Trump has told others that he expects lawmakers to work at a brisk pace. If not, he and the Republican Congress would end 2017 without a single major legislative victory.
On the international side, the plan would move toward a “territorial” approach that would scale back the U.S.’s unique worldwide approach to taxing corporate profits regardless of where they’re earned. But it includes “rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.” The amount of that reduced rate isn’t specified.
Companies with accumulated offshore profits would be subject to a one-time tax on those earnings — clearing the way for that income to return to the U.S. The rate that would be applied is unclear, but it would vary depending on whether the income was held in cash or less liquid investments. Firms would be able to pay the new tax over several years.
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Under current law, companies can defer paying U.S. tax on their offshore earnings until they bring them to the U.S. As a result, U.S. firms have stockpiled an estimated $2.6 trillion in profit offshore.