White House considers abandoning some tax cuts for the wealthy

Washington Post

White House and GOP leaders are considering major changes to upcoming tax legislation, including scaling back plans for large-scale tax cuts for the wealthy, as Republicans seek to win support from Democrats in Congress, three people briefed on the discussions said.

The White House is considering, among other things, keeping the top tax rate for individuals at 39.6 percent, decreasing the benefits top earners would see in the tax package by scrapping an earlier proposal that would have cut that rate to 35 percent.

White House negotiators are also considering giving up on a push to repeal the estate tax, which is levied on individuals who die with more than $5.49 million in their estates. Republicans have long called for repealing the tax, but Democrats have raised objections, saying repeal would benefit only the wealthy and would add to the federal debt.

The White House and GOP leaders are debating how to proceed, and they could end up proposing changes to both the top tax rate and the estate tax, according to the three people. The people spoke on the condition of anonymity because they were not authorized to publicly discuss the party's internal deliberations.

The White House and GOP leaders remain committed to reducing the corporate tax rate and delivering tax cuts for the middle class, the three people said.

Senate Finance Committee Chairman Orrin Hatch, R-Utah, a key negotiator in the talks, said Tuesday that the plan as of now is "basically not cutting taxes very much for the wealthy."

"Yeah, I think they want to do a middle-class tax cut — at least that's what everybody has said so far," he said.

Trump has sought to reframe the tax discussions as a way to help businesses and the middle class rather than just the wealthiest Americans. He faced criticism after details of an earlier version of the tax effort suggested that the majority of the benefits would go to the wealthy, a flip from the populist economic rhetoric Trump frequently deploys.

The reconsideration of major points of the proposal, just a week before GOP leaders have said they'll unveil a plan, also suggests there could be a flurry of late changes and reversals.

Trump has been consistent in his push to lower tax rates but has said he is flexible on the details, willing to accept whatever can get the most political support. He met with numerous Democrats last week as he tried to lure centrists on board; a big sticking point for some Democrats was that any tax cut plan should be focused on helping the middle class over the wealthy. Trump's advisers, many of whom are playing central roles in helping write the House and Senate tax bills, have been more sympathetic to calls for cutting taxes on the wealthiest Americans, and it remains to be seen how and whether they will change their approach.

In Congress, Senate GOP leaders are taking steps that would allow them to eventually pass a sweeping tax cut plan with just 51 votes, nine fewer than normally needed to pass legislation.

They hope to achieve this by crafting a Senate budget resolution that allows them to cut as much as $1.5 trillion in taxes over 10 years, people briefed on the negotiations said. To sway lawmakers who are squeamish about adding that much money to the federal debt, the White House and Republican leaders are expected to use optimistic economic-growth projections that have never before been used by the Congressional Budget Office or the Joint Committee on Taxation, two bodies long seen as Congress's independent scorekeepers.

Cutting taxes by that much would lead to a huge surge in economic growth, the White House and GOP leaders will argue, offsetting the impact of any lost revenue.

If the House and Senate pass matching budget resolutions, then they can enact tax changes with a majority of votes and not the 60 votes typically needed to proceed. Republicans control 52 votes in the 100-seat Senate, and passing a budget resolution would give them more flexibility during negotiations.

In April, the White House put out a one-page blueprint of its tax plan that would have repealed the estate tax, eliminated the alternative-minimum tax and cut the top individual tax rate from 39.6 to 35 percent. These changes and others would serve as a huge windfall for the wealthiest Americans, budget experts found. The Tax Policy Center estimated that roughly half of all the tax changes would benefit the top 1 percent of all earners, with each person in that group receiving an average tax cut of $175,000.

Senior White House officials for months defended the calls for tax cuts that would benefit the wealthy, saying they were necessary to help people invest in the economy and hire more workers. But Trump last week stated that the tax plan would not, on net, reduce the taxes for wealthy Americans, and he predicted that some could even pay more.

Americans pay income taxes on a tiered system, and there are seven tiers. Upper-income Americans pay a 39.6 percent rate on all income above $418,400. They pay a 35 percent rate on all income between $416,700 and $418,400. And they pay a 33 percent rate on income between $191,650 and $416,700. There are four other tax rates for income earned below that amount.

The White House had proposed collapsing these seven brackets into three brackets, with the new top bracket sitting at 35 percent. If it decides to keep the top bracket at 39.6 percent and create two new brackets, it could still give everyone a tax cut but lessen the size of that cut for the wealthy.

Sen. Ron Wyden, D-Ore., said that even if the top tax rate was preserved, the Trump tax plan would still largely benefit the wealthiest, and that it was "just absurd" to believe otherwise. He said, for example, that the White House planned to make large reductions in tax rates paid by small businesses that would effectively lower the income tax rate for many wealthy Americans.

"In virtually all this stuff where they go out, they use the presidential megaphone to say this will be for the middle class, it won't be for the wealthy, but then people like me start going through the fine print, and all you do is see are these big gifts to the rich and few," he said.

The White House and GOP leaders are planning to provide more information next week about their tax push, though they could leave out key details as they continue to negotiate with members of Congress. The White House is hoping a tax cut plan can be completed by the end of the year, and support from even a few Democrats could help to reach an agreement sooner.

As the White House and GOP leaders continue hashing out details, Senate Republicans hope to coalesce around a budget resolution within days. Senate Majority Leader Mitch McConnell, R-Ky., has said the tax cut plan probably would not add to the government's debt, but the current budget resolution would acknowledge that the tax cuts could cost as much as $1.5 trillion in revenue over 10 years.

This marks a dramatic shift from past years, when Republicans blasted the Obama administration for not doing more to cut the deficit. Many Republicans say that large tax cuts will spur economic growth and that these benefits are more important than adding to the government's $20 trillion debt.

The Senate Budget Committee on Tuesday inched toward announcing a deal on the budget resolution that could pave the way for a tax bill that would cost a trillion dollars or more in tax revenue. At a Tuesday morning meeting in McConnell's office, deficit hawks and devotees of supply-side economics were able to reach a compromise, said Sen. Bob Corker, R-Tenn., a Budget Committee member and fiscal hawk.

Corker said the deal could pave the way for committee action as soon as next week. He also signaled the budget resolution could make it look like the tax plan would end up adding to the deficit, but he said in his view the money would end up being recouped quickly because of the economic growth the tax plan would create.

"At the end of the day, when it's all said and done, no deficit increase," Corker said. He added later, "I'm going to want to believe in my heart that we're going to be lessening deficits, not increasing deficits."

Corker said he was willing to agree to a budget resolution that contemplated a significant deficit increase to give the tax-writing Finance Committee the "headroom" to craft a bill without having to worry about procedural roadblocks. But Corker insisted his vote on the resulting bill would be conditioned on whether it ultimately kept deficits in check. That analysis, he added, would not necessarily have to come from Congress's official scorekeepers on tax matters — the Joint Committee on Taxation, which can account for the macroeconomic effects of legislation in limited circumstances.

Sen. Patrick Toomey, R-Pa., said Tuesday he was hopeful that Republicans would cut more than $1.5 trillion in taxes, a sentiment shared by Sen. Tim Scott, R-S.C.

"I don't think that's been definitively established yet," Toomey said. "I'd like to see a bigger number than that."

"We're certainly happy to go higher," Scott said.

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