Rich peoples tax plan...

Trump hits the road to sell tax plan – but some worry what he'll say

The president has repeatedly expressed his desire to hit a 15 percent corporate tax rate, but the current Big Six proposal calls for a 20 percent top rate.

By NANCY COOK and BEN WHITE

President Donald Trump is expected to tout the Republicans’ new tax blueprint as one of the biggest tax cuts in recent American history at a Wednesday rally in Indiana – but Republican lawmakers, lobbyists and others are worried about exactly what he’ll say.

Administration officials and top congressional leaders are calling for a 20 percent top rate for corporations. But the president has demanded in multiple meetings that tax negotiators stick with a 15 percent corporate rate even as senior congressional Republicans and members of his own administration including National Economic Council Director Gary Cohn told him such a number wasn’t possible without blowing up the deficit.

“He’s the one guy left in Washington who still wants a 15 percent corporate rate,” said one person close to the president and the tax reform discussions. “They could put 20 percent down on paper and he could go out and say 15 percent anyway. He goes to these tax meetings and people just hammer him but he still wants 15 percent.”

Trump has a habit of going off-script at public events, editorializing and extemporizing. That’s exacerbating fears that the president could upend months of behind-the-scenes negotiations by the so-called Big Six—a group of White House officials, Hill Republican leaders, and committee heads—over the blueprint document Trump will introduce to the greater public in Indiana.

“Politically, he should be focused on what he does best – by calling the blueprint the greatest, biggest, super, all of the superlatives – and then allow everyone to focus on filling in the blanks of a tax bill,” said one Republican lobbyist with ties to the administration.

Treasury Secretary Steven Mnuchin, a long-time Trump loyalist dating back to the campaign, has tried to convince the president that the proposal is a good starting point that can be improved through the legislative process, said an adviser with close ties to the administration.

“It’s not as fundamental reform as many of us would like it to be,” said Republican Rep. Devin Nunes of California following a meeting of the House tax writing committee on Monday, “but we can get real reform.”

The White House did not respond to a request for comment.

The Republican blueprint, developed by administration officials, congressional leaders, and heads of the House and Senate tax-writing committees, will suggest deep cuts to both the corporate and individual tax rates; a new type of international tax system called a territorial system; the temporary phasing in of full expensing for five years to allow businesses to immediately deduct capital investments; and the doubling of the standard deduction for individuals and an expansion of the child tax credit, a pet project of the president’s daughter and adviser Ivanka Trump, according to several people familiar with the plan.

It will also call for the elimination of the deduction for state and local taxes, a benefit that primarily helps voters in blue states such as California, Massachusetts, New Jersey and New York. But the proposal will not go into detail as to which other deductions congressional lawmakers might target to pay for deep rate cuts, except for noting the mortgage interest and charitable deductions are no longer on the table.

The negotiators opted to leave out the deductions they wanted to eliminate because they could not agree on the final list and did not want to provoke D.C.’s well-paid army of tax lobbyists, according to two people familiar with the negotiations.

“K Street lives and gets paid to kill tax reform,” said Douglas Holtz-Eakin, president of the conservative think tank, American Action Forum, and a former director of the Congressional Budget Office. “That is the generic issue with tax reform. It is routinely blown up by the business community.”

But at the moment, the bigger concern is the divide between the Big Six tax proposal and the president’s personal preferences, because it leads to a lack of confidence in the negotiations, said one former House Republican aide.

“Lawmakers are worried about having the rug pulled out from them,” the aide said.

Other congressional aides trusted the process of constructing a tax bill and seeking Republican lawmaker support more than they trusted the White House.

“The president is always full of surprises. That is something built into our psyches as we move forward,” said one senior congressional aide. “That is why it is important to have a document, so the White House, House, and Senate are on the record, saying ‘This is what we want to achieve.’ There is a clear recognition on the part of the members that failure of tax reform will have deep consequences for 2018. That kind of motivation helps.”

The Big Six blueprint is expected to suggest bringing the corporate rate down to 20 percent, while condensing individual tax rates to three income brackets of 12 percent, 15 percent and 35 percent. That would represent an increase in the bottom rate of 2 percent, something Democrats are likely to attack on Wednesday.

But administration officials say that the doubling of the standard deduction and other credits in the bill will actually make most low-income tax filers better off under the new proposal. The blueprint will also suggest that lawmakers writing the tax bill could add another, higher top rate for the highest incomes. That would be aimed at deflecting Democrats’ nascent arguments that the tax plan would be a boon for the wealthy.

On Tuesday morning, Trump told a group of bipartisan tax writers at a White House meeting that the top rates for individuals was “negotiable,” contradicting the Big Six document that suggests lowering it to 35 percent.

It will be hard for analysts to assess the actual impact on Americans’ bottom lines because the blueprint will not include details on the ranges of incomes that the rates will apply to and exactly which deductions will change – leaving voters with a half-portrait of how their financial lives could change under this potential tax overhaul.

The president has also repeatedly said he does not want to cut taxes on the wealthy, something that will be very difficult for Capitol Hill Republicans to pull off if they kill the alternative minimum tax and the estate tax while lowering the rate that individuals pay on “pass-through” business income.

Sources close to the process said the plan would include a proposed 25 percent rate for business entities and individuals who report business income on their personal returns along with “guardrails” to prevent abuse of that rate by wealthy doctors, lawyers and other professionals trying to reclassify their ordinary income as business income. But the people close to the process say this is mostly a placeholder and that there is no real mechanism available yet to create these guardrails.

The question of how to tax, or even define, businesses that fall under the proposed 25 percent rate has vexed the tax negotiators. The Big Six officials also could not agree on the issue of full expensing – which allows businesses to immediately deduct capital investments such as equipment but is also a costly provision.

In the end, they opted to include a phase-in of full expensing temporarily for five years as a win for House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady. Those House leaders had to stand by earlier this summer as Big Six negotiators abandoned one of their key ideas to raise revenue through a border adjustment tax.

At a dinner on Monday night with conservative leaders, the president spoke about tax reform in an upbeat and engaged manner, said one attendee.

“He didn’t get everything he wanted out,” said the source who attended the dinner with social conservative leaders. “If he could wave a magic wand, it’s not going to be that proposal but it will still be very good.”