Donald Trump has pledged the largest tax cut in US history, announcing a $US5 trillion ($6.3 trillion) plan to make the system simpler and fairer.
The US President yesterday proposed slashing the corporate tax rate from 35 per cent to 20 per cent. Reducing seven brackets of income tax to three — 12 per cent, 25 per cent and 35 per cent — would ease the burden for the middle class, he said.
But the plan lacked key details that will determine whether it wins the backing of a divided Republican Party.
These include the overall impact on revenue and the national deficit and whether it would lead to tax cuts for the wealthy.
By declining to say at what income level the new tax brackets would apply, it is impossible to quantify the size and scope of tax breaks for the middle class — which is Mr Trump’s key selling point. These details will be negotiated, but the aim of the framework is to gather support for the broad concepts of the reform.
“This is a once-in-a-generation opportunity and I guess it’s something I could say that I’m very good at,” Mr Trump said as he released the nine-page framework. “I’ve been waiting for this for a long time”
“We’re going to cut taxes for the middle class, make the tax code simpler and more fair for everyday Americans and we are going to bring back the jobs and wealth that have left our country.”
He said he wanted a tax reform plan that was pro-jobs, progrowth, pro-worker and pro-family.
“Under our framework, we will dramatically cut the business tax rate so that American companies and American workers can beat our foreign competitors and start winning again,” he said.
Mr Trump had originally called for the corporate tax rate to be cut to 15 per cent, but claimed yesterday that was a strategic ploy to end up at 20 per cent after negotiations.
Mr Trump denied cutting the top marginal tax rate from 39.6 per cent to 35 per cent would benefit the rich.
His plan would also abolish estate taxes — another boon for the wealthy.
Democrat Senate minority leader Chuck Schumer said abolishing the estate tax would contribute to ballooning the federal deficit by awarding a $US269 billion tax break to the richest 0.02 per cent of Americans.
Cutting corporate taxes, he said, was “a revolutionary change, and the biggest winners will be middle-class workers as jobs start pouring into our country, as companies start competing for American labour, and as wages continue to grow.”
However, the plan includes the potential for “an additional top rate” above 35 per cent to be levied on “the highest-income taxpayers” to ensure the reform “does not shift the tax burden from high-income to lower and middle-income taxpayers”.
The proposals, which must be approved by congress, face a rocky road. Democrats oppose any tax relief for the wealthy, and many Republicans reject tax hikes for the wealthy.
The plan fails to state which tax breaks would be removed to help pay for the trillions of dollars in lost revenue. This is partly a tactic to avoid early criticism by businesses and other groups that will lose tax breaks in the negotiation process.
The tax plan is a key part of Mr Trump’s agenda. Its passage has become more vital to the administration in recent months following the failure to repeal president Barack Obama’s healthcare reforms and the stalled infrastructure package.
Senator Schumer said the tax proposals “would result in a massive windfall for the wealthiest Americans and provide almost no relief to middle-class taxpayers who needed it most. It seems that President Trump and Republicans have designed their plan to be cheered in the country clubs and the corporate boardrooms.”
Failure on taxes, after the collapse of healthcare repeal, could cost the GOP dearly in next year’s mid-term elections with its house majority at stake.
“This is a now-or-never moment,” said Republican House Speaker Paul Ryan, who built his reputation on tax and budget issues.
“Hard-working families and small businesses cannot afford to wait any longer.”
But the Republican-led congress faces critical decisions on eliminating or reducing tax breaks and deductions, with the GOP intent on producing a package without Democratic votes by year’s end.
The last major overhaul, in 1986, was bipartisan, and Mr Trump was courting Democrats. One vulnerable incumbent, Indiana senator Joe Donnelly, accompanied the President on his trip to Indianapolis yesterday to sell the tax proposals.
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