Trump's 15pc tax plan sets up clash with Speaker Ryan
President Donald Trump's plan to slash the US corporate tax rate to 15pc is setting up a showdown with House Speaker Paul Ryan, who has called for a tax plan to pay for itself.
Mr Trump intends to lay out broad tax principles tomorrow, including cutting the federal corporate tax rate to 15pc from 35pc, a White House official said. A rate that low would make it difficult to find ways to increase revenue or eliminate deductions to offset it - meaning a plan wouldn't be revenue-neutral, or permanent.
The Ryan-backed House Republican blueprint released in June calls for replacing the 35pc rate with a 20pc rate applied to companies' domestic sales and imported goods, while exempting their exports. Ryan has questioned whether a 15pc rate can realistically be paid for, and he and Kevin Brady, chairman of the tax-writing House Ways and Means Committee, are committed to revenue neutrality.
The Urban-Brookings Tax Policy Centre estimates that cutting the corporate rate to 20pc would lower federal tax revenue by $1.8trn over a decade, while cutting it to 15pc would decrease revenue by $2.4trn.
"It's hard to imagine you're going to make that revenue-neutral," Roberton Williams, an expert with the Tax PolicyCentre, said referring to a 15pc corporate rate.
"It's a big number. The kind of changes you'd need to make to claw that much money back are not consistent with the kinds of things Trump has talked about," Williams said. "They'd have to do something that raises taxes elsewhere."
It's unclear what kind of revenue-raisers Trump's plan will include. He isn't likely to endorse a border-adjusted tax in Wednesday's plan, a senior administration official has said.
The border-adjusted tax is a centrepiece of the House Republican plan because it's estimated to raise $1.1trn over a decade, helping to pay for individual and corporate tax cuts. President Trump hasn't called for doing away with corporate deductions for interest, as laid out in the House plan - that would raise an estimated $1.2 trn over a decade. Instead Trump and senior officials have touted the economic growth that would result from the cuts.
If a tax overhaul adds to the deficit after the initial 10-year window, it's likely to run foul of Senate budget rules for what can pass with a simple majority. Republicans have 52 members and can only spare two votes.
"It produces uncertainty for businesses. You can't completely redesign the budget tax system for nine-and-a-half years, and then flip it back in 10 years," Ryan has said. (Bloomberg)