5 Questions About President Trump's Tax Plan

WASHINGTON, DC — Assuming lawmakers can keep the government running, the next big item on the legislative agenda is tax reform. After President Trump promised a "big announcement" on this issue from his top advisers, Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn briefed reporters on a tax plan with few details.

While the broad outlines of the proposal are clear — corporations and families will get tax rate cuts, and deductions and other "loopholes" will be eliminated — many of the details of the plan are uncertain. And in tax policy, as in many aspects of life, the details are extremely important. Though there would surely be changes made to any administration plan once it reaches Congress, having the president present a coherent vision of a policy gives lawmakers a useful starting point.

For example, when asked what a family of four earning $60,000 a year could expect from the reform, Cohn couldn't get any more specific than saying a "tax cut." Later, Mnuchin said he couldn't promise that middle class taxes wouldn't go up under the administration's proposal.

So here are five major questions we're still asking about the plan.

1. What will the new rates be?

We know that the administration wants to lower corporate tax rates from 36.9 percent to 15 percent. But what about everyone else?

Currently, the American tax code has seven brackets. The Trump administration wants to cut this down to three: 10 percent, 25 percent and 35 percent. But who will pay which rate? The answer to this question makes all the difference, but the public has been given no clue.

2. Will everyone be able to call themselves "businesses"?

By dropping down the corporate tax rate below the top personal tax rates, the plan will open up a troubling incentive. If individuals declare themselves "pass-through entities," under this plan, they can be taxed at the corporate tax rate.

So under the current proposal, it seems anyone who didn't want to pay the 25 or 35 percent rate could claim the corporate rate instead. This isn't mere idle speculation — Kansas tried a similar proposal and found itself in this very situation.

3. What will this do to Trump's taxes?

Despite his promises, Trump still has not publicly released his tax returns. Most observers agree the tax plan under discussion would almost certainly lower his own taxes, given that most of his income comes from the Trump Organization that would be taxed at 15 percent.
But until we actually get to see his taxes, it will be very difficult to know how much of a benefit Trump himself is getting from his tax plan.

4. Will it be deficit neutral?

Republicans have long bemoaned the state of the national budget, the federal deficit and the country's growing debt. In this spirit, Mnuchin has said the administration wants its tax reform plan to be deficit-neutral.

But with the significant cuts to corporate taxes, personal taxes, as well as the elimination of the estate tax and the Obamacare taxes, it's very difficult to see how all the numbers add up. Since details of the plan haven't been released, it's hard to calculate its cost, but some estimates project it would add $7 trillion to the deficit over 10 years.

The administration believes the plan will increase growth and thus pay for itself, but predicting the pace of economic growth is notoriously difficult. Relying on growth, whether spurred by the cuts themselves or not, to balance the budget is a highly uncertain endeavor.

5. Will it pass Congress?

If the plan is not deficit neutral beyond the 10-year time horizon, Trump will need to convince some Senate Democrats to vote for the bill. At the moment, Democrats are very reluctant to help the president achieve any legislative victories and are unlikely to side with Republicans to cut taxes for corporations.

But taxes are complicated, and many of the other provisions in the plan could anger even some conservatives. For instance, the administration wants to eliminate taxpayers' ability to deduct state and local taxes on their federal returns, which would hurt the constituents of some Republicans in Congress. If that's the case, Trump might even lose support of some in his own party.

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