President Donald Trump’s call to slash the corporate tax rate to 15 percent -- a number that many economists say would boost the deficit so much that the cut would be short-lived -- may be less about policy and more about deal-making.
“Is this an opening, somewhat unrealistic gambit to a negotiation?” asked James Sweeney, who leads the U.S. economics team and co-heads the global strategy and economics team at Credit Suisse. “And the broader economics -- what are the other components to tax reform? We’d be silly to pencil in the 15 percent rate and adjust our expectations accordingly.”
As a candidate, Trump portrayed his tax plan -- which included the 15 percent tax rate for corporations -- as more a bargaining position than a policy prescription. “When I’m negotiating with the Democrats, I’m putting in a plan,” he told ABC News last May. “I’m putting in my optimum plan. It’s going to be negotiated. It’s not going to stay there.”
If that’s still how President Trump thinks, then his administration is scheduled on Wednesday to make its opening bid on taxes -- just days ahead of his 100th day in office. White House officials say he’ll offer a list of principles -- and those that have surfaced so far bear a striking resemblance to the plan Trump pitched as a candidate.
On Tuesday evening, a White House official familiar with the president’s plan laid out a few other pieces of the plan -- also familiar to those who followed Trump’s campaign: He wants the same 15 percent tax rate applied to earnings of so-called pass-through companies, and he wants a 10 percent tax rate applied to U.S. companies’ stockpiled offshore earnings. Treasury Secretary Steven Mnuchin confirmed the plan’s 15 percent rate for corporations and small business during an event in Washington on Wednesday morning.
Ryan’s Plan
One thing Trump doesn’t want: a border-adjusted tax, of the type proposed by House Speaker Paul Ryan. Ryan wants to replace the existing 35 percent corporate income tax with a 20 percent levy on U.S. companies’ domestic sales and imports. Their exports would be exempt. Trump doesn’t intend to include the provision in his proposals Wednesday, said the White House official, who asked not to be named because the discussions are private.
Ryan said Wednesday that even the BAT’s backers agree “it needs to be modified.” Regarding Trump’s plans, he said: “We’ve seen a sneak preview of it, we like it a lot, we’re on the same page” with about 80 percent of the items on Trump’s list. “At the end of the day, where we all agree is we want the most internationally competitive tax system,” he said.
Eliminating or modifying the BAT would probably leave a major revenue hole in any tax plan. The tax was estimated to raise more than $1 trillion over 10 years -- revenue that would have helped cover the cost of the business tax cuts. Achieving a revenue-neutral tax plan is important, largely because of rules set up by the U.S. Senate to bypass that chamber’s normal requirement for legislation to have 60 votes. Trump’s Republican party controls only 52 of the Senate’s 100 seats.
If Senate leaders are unable to muster 60 votes for a tax bill, they could still pass one with a simple majority -- but only if the legislation didn’t add to the federal deficit outside the normal 10-year window that lawmakers apply to budget legislation.