Trump’s tax cut hopes face an uphill battle

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WASHINGTON, D.C.: Slash corporate taxes and hope the resulting bounce in economic growth brings in enough government revenue to stop the budget deficit from ballooning.

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This is the centerpiece of a sweeping new tax policy outline that President Donald Trump is due to unveil Wednesday.

The move will come with the 100-day mark of Trump’s young presidency fast approaching and Congress working to pass spending legislation to avoid a government shutdown Friday night.

Officials have described Wednesday’s announcement as a statement of principles rather than the unveiling of precise legislation. But no president has overseen a comprehensive reform of the US tax code since 1986—and several have tried.

Still, Trump has said he may seek to enact the biggest cuts to corporate and individual tax rates ever, with such pledges helping US stocks rally ever higher on Tuesday.

Trump’s efforts will no doubt be complicated by his plans to revive health care reform after a prior attempt fell victim to disagreements among Republican lawmakers last month.

And the corporate tax cut pledge —which would see marginal tax rates for companies fall from 35 percent to as little as 15 percent —as well as other ideas advanced by the administration will have to contend with the complex realities of US fiscal policy and a starkly divided Congress.

Republican lawmakers are loath to increase deficits and passage of tax cuts frequently involves delicate compromises on the countless deductions offered by the tax code.

Yet various estimates say dropping corporate taxes to 15 percent as favors doing could add north of $2 trillion to the budget deficit over a decade. Republicans in Congress have proposed a somewhat higher rate of 20 percent.

As details of the tax plan began to emerge, The Wall Street Journal reported Tuesday that Trump likewise planned to slash the top tax rate for “pass-through” companies to 15 percent.

The category includes most US businesses, including Trump’s own real estate firms, and describes the passage of income to the business owners, according to the Journal.

The Trump administration also plans to cut taxes on the middle class, according to Treasury Secretary Steven Mnuchin. The president’s daughter Ivanka, meanwhile, has likewise promoted the idea of a tax break for child care.

Calculations using so-called dynamic scoring, which assumes that economic growth will replace revenues otherwise lost to tax cuts, could lessen the forecast fiscal burden created by Trump’s tax proposals.

On the sidelines of the World Bank-International Monetary Fund spring meetings last week, Mnuchin said
Trump’s tax proposals “will pay” for themselves with growth, a view often greeted with skepticism by Democrats.

“These promises about all kinds of growth and investment that are going to be triggered by these tax cuts never appear, and the empirical historical record is clear on that,” Jared Bernstein, a former economic advisor to then vice president Joe Biden, told The Wall Street Journal.

Trump has also proposed reducing the number of income tax brackets from seven to three (33 percent, 25 percent and 12 percent) while increasing annual US economic growth to three percent or higher.

Economists, however, say that without major increases in productivity and the size of the labor force, such tax cuts are unlikely to be deficit neutral, meaning that they do not add to the deficit.

Mnuchin was optimistic last week, saying that the Trump administration “fundamentally believes in dynamic scoring.”

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