WASHINGTON – President Donald Trump has instructed advisers to drastically cut the corporate tax rate even though doing so will expand the deficit and grow the national debt, sticking to one of his campaign pledges but shattering another.
Trump instructed advisers last week that he wants the corporate tax rate to be lowered from 35 percent to 15 percent, a senior White House official said, speaking on the condition of anonymity. This is the same rate that Trump pursued during his 2016 campaign, but officials had not signaled since the election whether he would stick to the pledge.
By doing so – but not committing to measures that would offset the revenue loss – Trump is making clear he is putting a priority on cutting taxes over the national debt. It also potentially creates a tension point with House Republicans, who have spent years advancing a vision for tax restructuring of their own.
The White House decision comes at a crucial time. White House officials plan to unveil the broad principles of their tax plan Wednesday, though details of what would be in the release remained fluid Monday, another White House official said.
When Trump proposed the 15 percent rate during the campaign, the nonpartisan Tax Policy Center projected that this would reduce federal revenue by $2.4 trillion over 10 years. But White House officials have said that the tax cuts will create such a jump in economic growth that it will create new revenue, an assumption that has divided experts.
“The tax plan will pay for itself with economic growth,” Treasury Secretary Steven Mnuchin said Monday.
The Wall Street Journal first reported Trump’s request to cut the corporate tax rate to 15 percent Monday afternoon.
Businesses are projected to pay $340 billion in corporate taxes in 2018, roughly 10 percent of all revenue collected by the government.
If the amount of taxes paid by businesses falls, it could put more pressure on other taxpayers to make up the difference. But Trump has said he wants to put in place a “massive” cut for the middle class, which means all tax revenue could fall. This would expand the budget deficit unless there is a giant contraction in federal spending, which so far has not been proposed.
At 35 percent, the United States has one of the highest corporate tax rates in the world, but most companies pay a much lower effective rate because the tax code is riddled with deductions. Still, lawmakers from both parties have said the corporate tax rate must be reduced to make the United States more competitive.
House Republicans have pursued lowering the corporate tax rate to 20 percent, with the belief that anything lower than that is very difficult to do.
Trump also said that he would reduce the deficit, but top advisers have signaled that his tax plan will grow the deficit because tax rates will be cut so substantially for individuals and businesses.
White House officials have said there are several basic principles to their tax plan. They want to simplify the tax code, cut the corporate tax rate, pass a giant middle-class tax cut, and create a way to punish companies that move overseas and ship goods back into the country. They also want to incentivize U.S. companies to move money back into the United States.
Trump’s push for unveiling his tax plan began last week during several meetings in the Oval Office where he expressed his frustration with the slow pace of legislation on several fronts, including taxes, according to two officials who were not authorized to speak publicly.
Trump urged his top economic advisers, including Mnuchin, to ready a rollout for this week and to keep the details of the plan controlled as much as possible by Trump advisers and Cabinet members rather than by GOP lawmakers, the officials said.
Trump’s motivation, the officials added, was to showcase progress on tax restructuring ahead of the 100-day mark of his presidency and to quiet critics, especially in the business and financial community, about whether there would be movement on taxes this year.
Talking to aides, Trump underscored the need for the tax plan to include sweeping cuts for both corporations and individuals and did not focus on or express extensive concern about revenue issues or the deficit. As one of the officials described Trump’s outlook, “he wants high growth and high employment.”
Several House Republicans close to House Speaker Paul D. Ryan, R-Wis., said that they were privately taken aback over the weekend about the White House’s efforts and said Trump risked alienating the speaker and his allies on Capitol Hill if they got behind a proposal that had weak or fragile support in the chamber. They noted that Ryan has already outlined the House’s tax plan over the past year and secured buy-in from members on the general outline of rates and the inclusion of a border-adjustment tax.
The plan Ryan supports is much different from the one Trump is pursuing. It has the 20 percent corporate tax rate, as well as a border adjustment tax that would raise costs for importers but incentivize U.S. exporters.