Trump Sends a Tax-Reform Grenade to Congress

Republicans on Capitol Hill spent Thursday trying to avoid a government shutdown, negotiate a repeal of Obamacare, and ponder what will happen if war breaks out on the Korean peninsula.

It was almost easy to forget that just the day before, President Donald Trump’s two economic advisers unveiled the Trump tax-reform plan, which Treasury Secretary Steven Mnuchin called the “biggest tax cut and largest tax reform in the history of our country.”

“I was excited [Trump] went bold.”

Indeed, for now, the concerns about Trump’s other top economic lieutenant, Gary Cohn, seem addressed. While past GOP advisers have sometimes pushed Republican presidents to raise taxes, Cohn, a onetime Democrat from Wall Street, told a packed West Wing briefing room on Wednesday that the time for tax reform was overdue.

Both Mnuchin and Cohn said the tax code, largely unreformed since 1986, need an overhaul. Especially in need of a fix is the top rate for corporations — 39.1 percent — the highest in nations within the Organization for Economic Cooperation and Development. The OECD includes “most advanced, industrialized nations,” according to PolitiFact. Out of the 34 member nations, the OECD average is 24.1 percent.

Now the ball is moved to Congress, where, as of late, it seems GOP campaign promises have gone to dwell in purgatory. Republicans, who control both the House of Representatives and Senate, are still struggling to repeal the Affordable Care Act, aka Obamacare, something even moderates in the so-called Tuesday Group caucus have promised for seven years.

Still, Republicans were cautiously optimistic that Trump and Congress could negotiate on cutting taxes while trying to decrease the deficit. Some even said it was high time the GOP delivered on their lofty tax-reform rhetoric.

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“I was excited [Trump] went bold” with tax reform, said Rep. Marsha Blackburn (R-Tenn.), an early Trump supporter, speaking to LifeZette outside of the House chamber.

Blackburn suggested past presidents were afraid of going bold on tax reform, but Trump was not.

But despite initial praise from GOP lawmakers for the cuts, the package the White House offered does not offer a solution for the massive budget impact of such dramatic cuts.

Critics have noted the plan is likely to contribute mightily to annual deficits and the already $20 trillion national debt.

Mnuchin, in response to a question from LifeZette, said on Wednesday there is still plenty of horse-trading to do — a likely reference to plugging the fiscal gap. A top Senate Republican said he is ready.

“Yesterday the administration introduced a plan to serve as the guideline for modernizing and simplifying America’s tax code,” said Senate Majority Leader Mitch McConnell (R-Ky.), in a statement. “This process is long overdue … By bringing down tax rates for individuals, we can help ease the burden on middle-class families. And by lowering taxes for American businesses, both small and large, we can foster job creation here at home while making our country more competitive in an increasingly competitive international economy.”

Tax reform on a large scale has not been done since President Ronald Reagan worked with House Democrats and Senate Republicans on signing the Tax Reform Act, in 1986. Reagan and Congress drove the top individual rate to 28 percent.

The top individual rate has since crept up to its current 39.6 percent, with two other rates also over 28 percent.

The corporate rate has also made the nation non-competitive, said Cohn and Mnuchin. On that, even President Barack Obama’s bipartisan debt commission agreed.

The commission, known as Simpson-Bowles, recommended to Obama in late 2010 that Congress lower the corporate rate to 28 percent. Obama and congressional Democrats largely ignored the findings.

But Trump has revived the recommendations and put a deeper GOP polish on them. The commission wanted three individual income-tax rates. There are currently seven.

Trump on Thursday recommended three.

Among other recommendations:

• A doubling of the standard deduction.
• Elimination of targeted tax cuts and loopholes for the wealthy.
• Repeal of the Alternative Minimum Tax.
• Repeal of the death tax.
• Repeal of the 3.8 percent tax on investments and dividends that Democrats installed to help pay for the Affordable Care Act, aka Obamacare.
• New income tax brackets of 10 percent, 25 percent, and 35 percent.

Trump even took a shot at wealthy, liberal states on both coasts, proposing that the deduction for state income taxes be abolished.

A New York Post editorial on Thursday admitted the deduction helped “subsidize” high-tax states.

But the elimination of particular deductions for wealthy states and corporations are not expected to make up for losses in revenue caused by a cutting of the corporate rate, and by reductions in the individual income-tax burden.

Rep. Dave Brat (R-Va.), a key member of the House Freedom Caucus, said now the tax cuts have to be paid for. Yet Brat is eager to find a way forward. He said that when the corporate rate is 39.1 percent in America and less than 15 percent in Ireland, companies will move overseas to Ireland.

“Where would you rather be?” he asked.