U.S. President Donald Trump will address Congress on Tuesday evening, where he is expected to outline his legislative agenda. Major tax cuts for both individuals and businesses are expected to be at the top of the list for Congress and the White House.
While Trump is not expected to lay out his entire tax proposal during the address, the president and Congress are on the same page when it comes to many important elements of the plan.
The Trump administration is looking to simplify the tax code, narrowing down the current complex system to three main brackets. Trump is also aiming to lower the top tax rate from 39% to 33%.
Thus far, Trump has not provided any details about the proposed tax law changes other than the three brackets. While it is still uncertain as to whether Trump will unveil his plan Tuesday evening, he recently said he would reveal a “phenomenal” plan in March.
Both Trump’s and the GOP’s proposed tax reform plans would give major tax breaks to the wealthiest of Americans. That’s a stark contrast to Trump’s rhetoric on the campaign trail, during which he said the wealthy should pay more in taxes.
The White House is also aiming to reduce the tax burden on businesses. Under Trumps’ plan, the highest corporate tax rate would be reduced to 15% from 35%. Non-corporate businesses, like partnerships and sole proprietors, would also pay the lower rate.
Top Republicans in Congress are also hoping to make significant changes to the business tax code. BAT, or border adjustment tax, would be among the biggest changes to the tax code. BAT would levy a 20% tax on the imports of services and goods to the U.S. Exports of U.S. goods, on the other hand, would not be taxed.
The border adjustment tax, proponents say, would keep business operations in the U.S. and allow for more job growth. Those against BAT argue that it would increase the cost of imported goods significantly.
President Trump has said the BAT is too complicated, while Treasury Secretary Mnuchin said the tax had “interesting aspects” but also raises concerns.
But economists estimate that the BAT would generate $100 billion in new tax revenue each year.
The Tax Foundation, however, still estimates that the sweeping tax cuts proposed in the House plan would lead to a $240 billion loss in tax revenue each year.
Without the BAT, Congress will have a difficult time finding a way to make its tax plan “revenue neutral.” A tax plan cannot pass the Senate by a simple majority if the plan isn’t revenue neutral.
Stronger growth would be one such way to offset revenue losses from lower tax rates. Trump has stated in the past that his policies would help generate a 4% growth rate per year. Economists, however, doubt that the White House can reach such a height.
Under the Obama administration, the economy grew about 2% each year on average.
The Congressional Budget Office, or CBO, is the arbiter of tax plans being considered by Congress. The office will likely forecast a figure far below Trump’s prediction.