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President Donald Trump
debuted his long-awaited tax-reform proposal on Wednesday.
But experts say it’s too early to read anything into the fine
print of the plan.
The rough outline of “principles,” as the White House called
them, contains a number of ambitious proposals, including
cutting the federal corporate tax rate to 15% from the current
35% and shifting to three personal income tax brackets.
But most analysts agree that it would be very unlikely for the
proposed changes to make their way to Trump’s desk in their
While nearly all Democrats are likely to oppose the Trump plan,
the biggest obstacle to the proposals could come
concerned with the budget deficit.
For years, conservative Republicans have railed against deficit
increases under President Barack Obama, and most leading
Republicans — including House Speaker Paul Ryan — have advocated
for a deficit-neutral tax plan.
Treasury Secretary Steven Mnuchin told reporters that the
tax plan would “pay
for itself” with increased economic growth, but most
economists and experts don’t think that justification will
placate the deficit hawks in the GOP, leading to adjustments in
The biggest adjustment will likely come to the corporate tax rate
of 15%, analysts said.
JPMorgan economists Jesse Edgerton and Daniel Silver
wrote in a note to clients on Thursday that the
Congressional Budget Office would likely be harsh on the 15%
proposal when it comes to the deficit.
“The Congressional Budget Office has scored every 1%-pt
reduction in the corporate tax rate with a budgetary cost of
about $100 billion over 10 years,” Silver and Edgerton wrote.
“Thus, reducing the corporate tax rate from 35% to 15% would be
scored as adding about $2 trillion in deficits over the next 10
Given such a drastic potential increase in the
deficit, the JPMorgan economists said the “likelihood of
its passage through Congress was slim.”
Michael Zezas, a strategist at Morgan Stanley, also doubted the
corporate rate would be anywhere close to Trump’s proposed
“Unless you believe a bipartisan approach is possible and could
somehow include this level of corporate and pass-through rate cut
(we think it is very unlikely), then achieving this level is a
function of what is politically and procedurally possible through
the budget reconciliation process,” Zezas said in a note to
“In that context, a 15% level does not seem realistic, in our
view, and therefore tells us little about what is actually
acceptable to the White House.”
As Zezas wrote, the plan is being taken through the budget
reconciliation process by Republicans to avoid a filibuster by
Democrats in the Senate. One issue with that process is that
any bill passed through reconciliation can’t increase the
deficit 10 years after its effective date, limiting the options
of the White House.
Beyond the corporate tax rate, a number of deductions the Trump
plan proposes to eliminate are popular.
Take the deduction for state and local taxes, for instance.
Currently, individuals are able to deduct their payments on
state and local taxes from their federal taxes. Trump’s plan
would eliminate that deduction, along with all other itemized
deductions besides charitable donations and mortgage payments.
Some lawmakers from Republican states could come
out against eliminating this provision. While
the lion’s share of people taking the
deduction are in the traditionally liberal states
of New York and California, residents in
states like Texas and Tennessee, where Trump won handily
in November, also take advantage of it. The New York Times’ Nate
Cohn reported that swing Republican-leaning
districts would actually be hit hardest by the repeal the
Treasury Secretary Steven Mnuchin
suggested Thursday that once a tax bill gets through
Congress, the plan may end up looking very different when (or
if) it arrives on Trump’s desk. Mnuchin told “Good Morning
America” anchor George Stephanopoulos that he could not make
guarantees about the eventual outcome of the bill because he
wasn’t sure what it would eventually look like.
“We’re working with the House and the Senate, we’re having
listening sessions, and this is about turning it into a bill that
will get signed,” Mnuchin aid.