White House and members of Congress are “pretty close to finalizing” a bill, senior official says
WASHINGTON: Two top Trump administration officials said it may not be possible for President Donald Trump to deliver on his promise to cut corporate tax rates to 15 per cent.
In separate appearances Tuesday, Treasury Secretary Steven Mnuchin and Marc Short, Trump’s legislative affairs director, both said Trump is still committed to that rate cut — down from the current 35 per cent — but acknowledged the potential for compromise.
“The president has made it clear since the campaign, ideally he’d like to get it down to 15 per cent. I don’t know if we’ll be able to achieve that given the budget issues, but we’re going to get this down to a very competitive level,” Mnuchin said Tuesday at CNBC’s Delivering Alpha conference in New York. “What the exact number is is less important, what’s important is making sure we have a competitive system.”
“Ultimately there’s probably compromise to get to the best deal,” Short told reporters at an event sponsored by the Christian Science Monitor. He also said that Trump continues to believe that a 15 per cent corporate rate would best stimulate the economy, while convincing American businesses to keep their tax addresses in the US.
Trump also wants to apply the same rate to certain pass-through businesses, such as S corporations (ordinary business corporations) and partnerships, which don’t pay taxes themselves, but pass their earnings through to their owners, who pay taxes at their individual rates, Mnuchin said. However, he said “service companies that are pass-throughs will not get the benefit of the rate.”
“If you earn money that’s clearly income, if you’re an accountant firm and that’s clearly income, you’ll be taxed at income rates — you won’t be taxed at pass-through rates,” Mnuchin said. “If you’re a business that’s creating manufacturing jobs you’re going to get the benefit of that rate because that’s going to be passed through to help create jobs and better wages.”
Mnuchin also repeated that Trump is committed to eliminating the special tax treatment of carried interest — but not for all the investment firms that make use of it. “The president’s been very clear that hedge funds will not have the benefit of carried interest,” he said. But other firms — “entities that do create jobs,” Mnuchin said — may still qualify.
Carried interest is the portion of an investment fund’s returns that are paid to investment managers. It’s currently taxed as capital gains, at rates as low as 20 per cent. The top individual income tax rate is 39.6 per cent, though Trump and congressional Republicans have proposed cutting it to 35 per cent.
Trump is planning an aggressive travel schedule, taking him to as many as 13 states over the next seven weeks, to sell the idea of a tax overhaul as the administration tries to avoid repeating the communications failures of its attempt to repeal Obamacare. However, Republican leaders have yet to unveil details of what Trump has called a “massive” tax regime change, including such basic matters as where to set the corporate tax rate and how to set up individual tax brackets. Mnuchin and Short both said details will come later this month.
The White House and members of Congress are “pretty close to finalising” a bill and have settled many of the disagreements that divided their effort early in the process, Short said. The White House is wary of relying solely on Republican support for the legislation after seeing the health care bill collapse and is genuinely seeking Democratic support, Short said.
While the president is eager for a bipartisan tax deal — and his tax tour will visit states where Democrats hold Senate seats — Mnuchin said that if needed the administration will encourage Republicans to use the reconciliation process. Doing so would allow them to bypass a Senate filibuster and pass a bill on a partisan basis.
Mnuchin also said that he is considering backdating any tax changes to January 1 of this year, which “would be a big boon for the economy.”
While Trump is committed to a permanent tax overhaul, Mnuchin has at times appeared to be managing down those expectations. “As I said this is a pass-fail exercise. Passing tax reform, which hasn’t been done in 31 years, that’s a win,” the Treasury chief said Tuesday, adding that stock markets have a “built-in” expectation of success.
Trump last week cut a short-term debt ceiling and government spending deal with Democrats to clear the deck for a major tax bill, but the agreement could complicate tax efforts by sowing doubt among the GOP about its unpredictable president. As Mnuchin worked to sell an 18-month debt-ceiling increase to Republicans and Democrats during a meeting in the Oval Office last week, Trump abruptly decided to go for a three-month increase in line with what Democrats wanted.
“We could have done a one-year deal, this wasn’t widely reported, on the debt ceiling,” Mnuchin said Tuesday. “But the president wants to raise military spending. That’s one of his main priorities, particularly in the mix of what’s going on in North Korea and other areas. The president wants to increase military spending and that’s something he is going to demand for December.”