Trump's Tax Reform Plan: A Cheatsheet Of What Is Known, Leaked, And Is Still Unknown

On Wednesday, the President will reveal a "broad-stroke" vision on his tax reform plan. Coutest of Citi and various media sources, here is a detailed cheatsheet of what is known, what remains unknown and what has been leaked.

All the latest: Tax reform, shutdown, protectionism & Fed buzz

• To keep the Administration tax reform priorities live amid Congressional budget shutdown aversion negotiations, President Trump has signaled the release of a preview of the pending June OMB budget, this Wednesday. That means tax reform details.
• There is no set time for President Trump’s announcement. Spicer did not commit to timing during the daily White House briefing but there’s been a chorus of warnings:
  • Spicer said: “And so we will continue to engage in that discussion and outside stakeholders to try to get a plan really put together and details laid out in the next several weeks once we make the announcement tomorrow.”
  • Mulvaney says budget with detailed scoring still is projected for release in June, but the White House will focus upon “principles, ideas, and [tax] rates” for Wednesday.
  • Senate Majority Lead Mitch McConnell has provided similar sentiments, saying that reform rumors “not worth anything at this point.” He favors treating all businesses “similarly” when it comes to tax reform and says it’s clear Congress will need to use a reconciliation vehicle for tax reform.
  • “We will be disappointed on Wednesday when we see that this is the big announcement,” one lobbyist told Politico. “They should not be building this up for a big nothing burger.”
• Remember, US Treasury Secretary Mnuchin is slated to discuss tax reform initiatives as a part of The Hill’s Newsmaker Series on Wednesday from 8:00 EDT to 9:35 EDT. The Hill previews this event saying that he will be interviewed, “about the administration’s priorities and timeline for tax reform.” See the announcement here, which also notes: “After the interview with the Treasury secretary, tax and budget experts will participate in a panel discussion about the prospects for tax reform.
• On Tuesday, the market saw the following leak. Note that most of this is no different from the vision Trump has communicated before:
  • WSJ says Trump’s plan intends to extend the 15% corporate tax rate to pass-through businesses, which while a standing part of Trump’s vision, an important detail.
  • WSJ also claims White House officials also are considering proposing a territorial tax system, the people said. In such a system, US corporations would pay little or no tax on future foreign earnings.” Read more here.
  • Politico has published an article detailing what is currently expected of the Trump tax plans. It claims:
    • Marquee policy ideas are expected to include infrastructure spending and a childcare tax credit. Infrastructure looks to be linked to corporate repatriation.
    • Not likely to include the border adjustment tax (BAT), which House Speaker Paul Ryan hoped would generate USD1.2bn in revenues to fund other aspects of reform. NYT followed in late NY backing this with reports, which also suggest that BAT–lite is out the picture as well.
    • Expected to tout a corporate rate of 15% (as noted other places); and not expected to include details on ways to offset new spending, or deep tax cuts.”
  • Senate Majority Lead Mitch McConnell has lifted spirts by saying he’s hopeful well get a spending agreement in the next few days; doesn’t want to talk about a short-term CR yet.
• Late on Tuesday, Bloomberg reported that repatriation of corporate foreign earnings will be taxed at 10% in President Trump’s tax plan, according to a White House official.
• CNBC reports that Trump's tax reform plan may include a placeholder for border tax, citing an official.
• Trump’s tax proposal doesn’t call for repealing the corporate alternative minimum tax, as Trump’s campaign plan stated
• There have been no major leaks regarding how defense will fit in the big picture but note these are important aspects of the conversation. Citi Economics expects the plan to up spending in these areas at the expense of nondefense.
• There have also been no major leaks (outside of the childcare tax credit) regarding personal income tax changes. Trump, before, has been a proponent of:
  • Alleviating taxes for Americans making less than 50k
  • Simplifying the American tax code into four brackets – 33%, 35% and 12% - down from seven brackets ranging 10% to 39.6%, while also eliminating the marriage penalty and Alternative Minimum Tax.
  • Eliminating the death tax
• As Mnuchin has emphasized in recent days, the reform plan is based on the idea of dynamic scoring.  Dynamic analysis accounts for the macroeconomic impacts of tax, spending, and regulatory policy, while dynamic scoring uses dynamic analysis in estimating the budgetary impact of proposed policy changes. Ultimately, the Trump Administration believes its policies will generate growth above 3.0%YoY, which can pay for the plan. The challenge is that it has to sell this view to Congress.
• McConnell is aiming for a long-term government bill and sees it clear that Congress will need to use a reconciliation vehicle for tax reform. This point is very important but to illustrate this, one has to understand the reconciliation process.
  • The Center on Budget and Policy Priorities helps define it. Created by the Congressional Budget Act of 1974, reconciliation allows for expedited consideration of certain tax, spending, and debt limit legislation. In the Senate, reconciliation bills are approved with a simple majority of 51. To start the reconciliation process, the House and Senate must agree on a budget resolution that includes “reconciliation directives” for specified committees in the House and Senate. Those committees must report legislation by a certain date that does one or more of the following:
    • Increases or decreases spending (outlays) by specified amounts over a specified time;
    • Increases or decreases revenues by specified amounts over a specified time; or
    • Raises or lowers the public debt limit by a specified amount. 
• Republicans could pursue tax reform under the budget reconciliation process, meaning the Senate would pass bills related to the budget – but reconciliation requires a bill to reduce the deficit over the long-term.Post 10y, scoring has to indicate that the bill will be revenue neutral or revenue positive or it doesn’t work.  
• That looks to be exactly why Republicans wanted to prioritize healthcare reform: the Congressional Budget Office estimated the American Health Care Act would reduce federal deficits by USD337 billion over the next 10y. Given that tax reform estimates signal a revenue burden, various political analysts posit that Republicans have been looking to repeal Obamacare to pay for some parts of tax reform.
• Without healthcare reform, Republicans could face challenges getting a revenue neutral, long-term tax reform.
  • The Tax Policy Center estimates that Trump's plan for a 15% corporate tax rate would decrease federal revenues by USD2.3tn between 2016 and 2026. Trump's campaign tax plan for corporations and individuals could cause revenue to drop by roughly USD6tn between 2016 and 2026, according to the projections.
  • The Tax Policy Center is left-leaning but is being heard out. Even Senate Finance Chairman Orrin Hatch has said a 15% corporate tax would increase the deficit and if the overall plan doesn’t include border adjustment tax – or borrow funds via healthcare reform – Republicans will haveto find revenue streams.