RIP BAT - the Border Adjustment Tax, which was floated in November under a proposal from Paul Ryan and which met with fierce resistance, is effectively dead. According to Bloomberg, Trump’s "tremendous" tax plan to be revealed next week likely won’t include the controversial border-adjusted tax.
To be sure, White House Budget Director Mick Mulvaney said that Trump’s position on the border-adjusted tax is still under discussion, however he added that administration officials are grappling on how well that portion of Ryan’s plan would contribute to economic growth. The border-tax concept is estimated to raise more than $1 trillion in revenue over 10 years; without that the plan would be unable to achieve revenue-neutrality, which in turn makes the entire budget reconciliation process seem untenable absent substantial revenue increases elsewhere.
In any case, absent more deferrals, Trump is expected to release a tax plan for individuals and businesses next week that may not include every component that will go into final legislation, Bloomberg notes. The plan, which Trump said will be released Wednesday, will contain the administration’s priorities, although it was not clear what those are since every day the Trump administration appears to be flipflopping on every major issue depending on what feedback it gets from various Goldman economists.
Adding to the confusion, Mulvaney, in an interview with Bloomberg Television, provided few details of Trump’s plan, saying it’s aimed at providing 3% annual growth. “We’re trying to backfill from there,” he said -- by incorporating tax policy that would provide for that ambitious growth target. Again, it was not clear how such a pace of growth could be achieved. The Consensus outlook for 2017 GDP is 2.2%.
Mulvaney also raised the possibility that the plan might not be revenue-neutral, meaning that it might provide for only temporary tax cuts that would have to expire after 10 years. “Deficits are not driving the discussion,” he said. An odd statement coming from a man who was notorious for making deficits the only part of the discussion.
Earlier on Friday, the AP reported Friday said his plan would result in “massive” tax cuts for both individuals and businesses. The cuts will be “bigger I believe than any tax cut ever.” Later, while signing an executive order related to a broad review of tax regulations from 2016 and 2017, Trump said he wants Treasury Secretary Steven Mnuchin “to begin the process of tax simplification.”
In a stark departure from previous occasions when stocks soared on Trump promises of "imminent" tax cuts, today the S&P completely ignored the latest guidance. There is precedent for that: Trump said on Feb. 9 that he would be releasing a “phenomenal” tax plan to overhaul the tax code within two to three weeks. It is now almost three months later. The word that he’ll release a plan next week comes as he approaches the end of his first 100 days in office on April 29.
The most surprising reaction to Trump's announcement, ironically, came out of Congress, where the reaction was muted. Senate Majority Leader Mitch McConnell’s office referred questions to the White House.
As Bloomberg adds, the Senate Finance Committee has not even seen final details of the Goldman White House plan - said to be unveiled in 5 days - a congressional aide said Thursday.
That's not all: tax-related challenges presented by the 2010 Affordable Care Act remain in place amid Republicans’ disagreement on how to dismantle the health-care law they’ve criticized for years. Mulvaney repeated Friday that Trump would like to see health-care legislation tackled first - because it could help pave the way for larger tax cuts overall.
In the House, where any tax legislation would have to begin, “our intention has always been and continues to be to coalesce around a unified GOP plan and those conversations continue,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan.
So no Obamacare repeal still, but vocal promises of "massive" tax cuts contained in a plan that nobody has seen and which may eliminate local and state tax deductions, resulting in even higher tax burdens for many taxpayers? Our forecast of the most likely outcome: a government shutdown.