From the WSJ: “With Wednesday’s proposals—which include a 15% tax rate for all businesses, lower individual rates, a bigger standard deduction to benefit middle-income households and the repeal of the estate and alternative minimum taxes—Mr. Trump hopes to speed up economic growth and make his mark as a historic tax cutter.
What the administration delivered Wednesday largely hews to tax-cut proposals Mr. Trump made during his campaign last year, but includes some crucial changes. Most notably, he is proposing to repeal a provision of the tax code that allows individuals to deduct the state and local taxes they pay from their reportable income. That will hurt residents of high-tax states such as Mr. Trump’s home state of New York, New Jersey and California, and is already spurring objections from Republican lawmakers in those largely Democratic states.
Such a repeal has the potential to raise more than $1 trillion over a decade, which would help fund the reduction in rates and get the tax plan through Congress, which is focused on deficits in part because of budget rules.”
“Unless Mr. Trump can attract votes from Democrats—which appears unlikely—the plan must comply with legislative procedures that allow for a party-line vote in the Senate, where Republicans have 52 seats out of 100.
The key to those procedures: Any tax plan can’t increase budget deficits beyond a 10-year period. The Committee for a Responsible Federal Budget said Wednesday that the plan would cost about $5.5 trillion in lost revenue over a decade. Those limitations could lead Republicans to make some or all of the tax cuts temporary to limit the long-run fiscal effect.
Mr. Trump’s team intends to argue that his tax cuts will spur economic growth and increase revenue, which would help avert increased deficits. Lawmakers and Congress’s nonpartisan tax policy scorekeepers—the Joint Committee on Taxation—need to agree for the plan to proceed. Independent experts cautioned that the administration’s growth assumptions appear optimistic.”
As more details of this plan emerge, we can assess its merits and pitfalls.