Featured Articles

Trump Urges Public, Congress to Back ‘Pro-American Tax Reform’

Posted on August 31, 2017 by Luca Gattoni-Celli Jonathan Curry

In his first major speech on tax reform August 30, President Trump made populist and nationalistic appeals for the public and all members of Congress to unite around the issue as part of a new “American model” for prosperity.

Speaking in Springfield, Missouri, Trump kicked off what the White House has said will be a series of public events as it ramps up a major sales pitch for tax reform. The House and Senate taxwriting committees are expected to take the lead on developing a more fleshed-out tax reform plan when Congress returns from its August recess after Labor Day, working from the framework being negotiated by the so-called Big Six of senior administration officials and congressional Republicans.

As widely expected, Trump’s speech focused on messaging and shed little light on tax reform’s nuts and bolts as he laid out what he called his four principles for it: a simpler, fairer, and more understandable code that closes “loopholes” for the wealthy and special interests; a code that creates more jobs and higher wages by encouraging companies to compete for American workers; tax relief for middle-income families, including helping them pay for child care; and repatriation of trillions of dollars of offshore corporate earnings to spur domestic investment.

A White House fact sheet released in conjunction with the speech outlined those same principles.

Those principles largely track the ones previously described in the July joint statement released by the Big Six. However, several analyses of Trump’s tax proposals so far, including the proposals in the one-page reform outline released by the administration in April, have estimated that the benefits would skew largely to the wealthiest taxpayers and that in fact, many middle-income taxpayers could see a tax increase.

The one-page plan included a 15 percent business tax rate, a goal Trump reiterated despite recent  reports that GOP tax reformers no longer expect to reach it. “Ideally, and I say this for our Secretary of the Treasury [Steven Mnuchin], we would like to bring our business tax rate down to 15 percent,” Trump said.

That plan also proposed repealing the estate tax and the alternative minimum tax, almost doubling the standard deduction, and reducing the number of tax brackets from seven to three, with a top rate of 35 percent.

Addressing employees of the Loren Cook Co., a manufacturer of industrial fans and exhaust systems, Trump tied his case to blue-collar anxieties about the loss of U.S. manufacturing jobs and a decline in business competitiveness with economic peers such as France and Germany, as well as developing exporters such as China and Mexico. Trump said tax reform would reduce the U.S. trade deficit, linking the issue to his denunciation of NAFTA and other trade deals.

A senior White House official told reporters August 29 that Trump’s speech was not intended to fill in policy gaps. “The details of the plan are extraordinarily important, but right now what the president is doing is casting a vision, and that’s just as important,” the official said.

The official also declined to preview any future tax reform events Trump would appear at, saying those details would come “at a later time.”

A Call for Unity

Trump called for public unity and challenged all lawmakers to dispense with partisan posturing and support “pro-American tax reform.” Republican lawmakers were not spared in Trump’s remarks. “I don’t want to be disappointed by Congress, do you understand me?” Trump said, pointing in the audience at Missouri’s GOP representatives and Sen. Roy Blunt. The president added that he thinks Congress will “make a comeback,” a likely reference to its failure to repeal and replace the Affordable Care Act.

Trump also took swipes at congressional Democrats, saying they would obstruct tax reform, and he singled out Senate Finance Committee member Claire McCaskill, D-Mo., who faces reelection next year in a state Trump won. If she does not support tax reform, Missourians should vote her out of office, Trump said.

In an August 26 release, McCaskill welcomed Trump’s visit to her state and expressed optimism that she and Trump would “find common ground” on tax reform issues like eliminating special interest tax breaks and lowering the corporate tax rate. “I’m looking forward to working with him to make bipartisan tax reform a reality,” she said.

The senior White House official said that Trump’s message of making the tax code more competitive for businesses and ending special interest tax loopholes is “something that cuts across partisan lines.” The official also suggested that with tax reform pivoting from a GOP leadership-driven plan to the regular order process in Congress, Republicans are meeting one of the preconditions for Democratic engagement on a bipartisan reform effort outlined by Senate Democrats in an August 1 letter to Republican tax reform leaders.

In response to the speech, many congressional Democrats said they stand ready to work with Trump on tax reform but expressed skepticism about the administration’s claims to seeking bipartisanship.

“If President Trump’s previous tax plans are any indication, the wealthy and big corporations will be the ultimate winner at the expense of the middle class,” House Ways and Means ranking minority member Richard E. Neal, D-Mass., said in a release. “I think this is the wrong approach. Giving huge tax cuts to businesses in the hopes that wealth will magically trickle down to hardworking Americans is pure folly, and not supported by the facts.”

Similarly, Frank Clemente of Americans for Tax Fairness blasted Republicans’ tax proposals in a pre-speech statement. “Make no mistake, what Trump and Republican leaders in Congress are proposing is not tax reform. They simply want massive tax cuts for millionaires, billionaires, and big corporations, at the expense of everyone else,” he said.

According to Clemente, those tax cuts will in turn necessitate spending cuts on programs for low- and middle-income Americans, making it a non-starter for a bipartisan effort. “It’s Trumpcare all over again, and it must be blocked,” he said, referring to the Republican attempt to repeal and replace the ACA.

As Trump targeted McCaskill, the White House also appeared ready to pressure Sen. Joe Manchin III, D-W.Va., sending Vice President Mike Pence to appear alongside him the evening of August 30 at a business summit hosted by the West Virginia Chamber of Commerce. White House officials have repeatedly stated that they are intentionally scheduling tax reform events in states where vulnerable Democratic senators face reelection in 2018.

Republicans at the Ready

Republican lawmakers, including Big Six members, largely cheered Trump’s speech.

Ways and Means Chair Kevin Brady, R-Texas, said his committee is prepared to begin work on tax legislation that can pass by the end of the year. And Senate Finance Committee Chair Orrin G. Hatch, R-Utah, said that he shared Trump’s goal of having bipartisan reform. “I hope we will be able to find consensus and unite behind pro-growth policies to help lift our nation and increase the standard of living for Americans across the country,” Hatch said.

House Speaker Paul D. Ryan, R-Wis., echoed Trump’s calls to support American businesses and cut taxes for individuals, and he emphasized in a statement that both the White House and Republican lawmakers are “united in our determination to get this done.”

One Republican noticeably silent on Trump’s speech was Senate Majority Leader Mitch McConnell, R-Ky., who has occasionally been the target of the president’s Twitter ire over failure to move healthcare legislation. A McConnell spokesman, when asked for reaction to Trump’s speech, referred Tax Analysts to McConnell’s remarks on tax reform “over the last month throughout his visits in Kentucky.”

Trump’s performance drew positive reviews off Capitol Hill from many tax reform observers, though several cautioned that work remains to be done.

Michael Mundaca, co-director of EY’s national tax department, praised Trump for signaling that his objective is a “pro-worker tax reform plan” that lowers rates, broadens the base, and simplifies the tax code. Those goals, and Trump’s involvement in advancing tax reform, are “all good news,” Mundaca said.

“The four goals that President Trump laid out for tax reform are all perfectly laudable, and accomplishing any one of them is certainly doable,” John Gimigliano, head of federal tax legislative services at KPMG LLP, told Tax Analysts. “But achieving all four of them at the same time, in the same bill, is going to be a significant challenge.”

Brent Gardner of Americans for Prosperity said Trump’s speech “demonstrates the administration’s deep commitment to achieving real tax reform, which would be a huge win for families everywhere.” Tax reform “will require all hands on deck,” with the administration partnering with lawmakers to “unrig the American economy,” Gardner said. The Koch-backed conservative groups Americans for Prosperity and Freedom Partners launched a pro-tax-reform campaign earlier this year, centered on a message of unrigging the economy.

Picking up on that theme, Bill Riggs, a Freedom Partners spokesman, told Tax Analysts that the focus of Trump’s speech “was where it should be, and that’s restoring fairness to the American people and unrigging the tax code.” The president “articulated a lot of the key principles we’ve been advocating,” Riggs said, adding that it was “good to hear him hit those key themes and then take the message right to the American people and explain what tax reform means to them.”

Praise for the speech even came from within the administration’s own ranks, with press releases from many federal departments, including Commerce, Health and Human Services, Interior, and State, praising the president’s focus on tax reform.

Details Still Thin

Harry Stein of the Center for American Progress was less enthusiastic about what he termed the president’s “amorphous set of talking points.”

“Aside from the clarity about cutting taxes at the very top, the details seem to get thinner and thinner with each iteration of this,” Stein said. The lack of detail explaining exactly how low- or middle-income families will benefit from tax reform or how the corporate tax rate reduction will be paid for “should make people who aren’t CEOs of huge multinational corporations very nervous that they’re going to be the ones stuck with the bill,” Stein said.

Stein said that the lack of detail at this stage in the tax reform process suggests Republicans recognize that what they are proposing to do, such as cutting the corporate tax rate, “is an unpopular agenda and that this is not what the American people are looking for.”

Trump’s speech also did little to convince Alan Viard of the American Enterprise Institute that tax reform is gaining momentum.

Like Stein, Viard noted that while Trump’s speech was punctuated with many populist sentiments, the idea of cutting the corporate tax rate remains deeply unpopular with the public, even if many economists on both sides of the ideological spectrum agree that it should be reduced.

“The president is obviously trying to build some support for this by stressing the link to jobs and wages, and economically, that’s largely right,” Viard said. A lower corporate rate would draw investment to the United States, making U.S. workers more productive and boosting wages, Viard explained, but he added that Trump left completely unanswered the question of how to pay for the tax cuts.

“If you’re just adding to the deficit, that could drive up interest rates and undermine investment. And furthermore, the cuts might need to be financed by higher taxes in the future, which could undermine investment when it comes along or even before then if people expect them,” Viard said.

Viard also said he was surprised by the prominence that Trump ascribed to repatriation in his address, noting that it was one of the four main principles the president listed.

“I view repatriation as just another detail,” Viard said. While a policy that allows for repatriation would make financial management more efficient, repatriation by itself “doesn’t have many profound implications for the amount of buildings or factories or equipment that’s going to be constructed in the U.S.,” he added.

As for whether Trump’s bipartisan appeals will convince Democrats to join the tax reform effort, both Viard and Stein were skeptical. Viard argued that the policy differences are stark and that politically, Democrats “probably view their better play as just standing firm against Trump.”

Stein pointed out that Democrats made clear in their August 1 letter that they’re willing to engage on tax reform negotiations if three key preconditions are met: that tax reform doesn’t add to the deficit, that it doesn’t provide tax cuts to the wealthy at the expense of the middle class, and that it be done in a bipartisan way.

“Their principles are really quite reasonable, so which principles do they disagree with? Apparently, it’s one of them,” Stein said.

David van den Berg contributed to this article.

Follow Luca Gattoni-Celli (@TheGattoniCelli) and Jonathan Curry (@jtcurry005) on Twitter for real-time updates.