WASHINGTON — President Trump plans on Wednesday to unveil a plan to dramatically slash the corporate tax rate and collapse individual income tax brackets — and he'll try to sell it by applying a hard lesson from the failing effort to repeal Obamacare: enlist a few Democrats.
In a speech in Indianapolis on Wednesday, Trump will make his opening appeal to Americans for a plan that would lower the corporate rate to 20% and collapse the current individual tax brackets from seven to three: 12%, 25% and 35%, according to lobbyists briefed on the plan who requested anonymity. In a dinner Monday night with grassroots supporters, the president did not specify the income thresholds for these rates. Currently the lowest tax rate is 10% and the highest is 39.6%.
Trump said he has asked his staff to confirm that the plan would represent "the biggest tax cut in American history" by comparing the rates to the 1986 tax plan passed under former President Ronald Reagan, according to a dinner attendee.
While Trump wants to cut individual rates in most brackets, he said he is convinced that the best way to drive the U.S. gross domestic product to 4% or 5% growth is by lowering corporate rates, and he repeatedly mentioned to his dinner guests the competitive disadvantage of U.S. companies vis-a-vis countries like India, this attendee said.
"We're the highest-taxed nation in the developed world, and we want to become one of the lowest, and that's what we'll be doing," Trump said Tuesday before meeting with bipartisan members of the House tax-writing committee. "The jobs will start pouring in from all over the world coming back to our country," he said.
Trump will make the announcement alongside Indiana Sen. Joe Donnelly, a Democrat planning to travel with the president, and in tandem with the plan’s release by Republican negotiators on Capitol Hill. Donnelly is considered one of the most endangered Democratic senators up for reelection in 2018; he will make the trip unless he is needed in Washington for Senate votes.
Since the congressional push to repeal Obamacare collapsed Tuesday, Trump is hoping to champion an across-the-board tax cut as his final and perhaps best chance to accomplish a major legislative achievement by the end of this calendar year — and before next year's midterm election season sets in.
Trump told dinner attendees that he thought a previous event in North Dakota, where he was accompanied by that state's Democratic senator, Heidi Heitkamp, was a success and that he wants to model future events off it. Yet one Democrat who attended the Tuesday meeting with Trump said Democrats haven't been consulted on a plan that will favor the wealthy, create more incentives to ship jobs overseas and force cuts to Medicare and Social Security.
"Trump asked for Democrats to jump on the caboose after the tax train has already left the station. I saw no Democrat ready to jump on board," said Rep. Lloyd Doggett, the top Democrat on the tax committee. "Claiming that tax breaks will magically pay for themselves is like claiming Mexico will pay for his wall," he said in a statement.
The second major plank of the White House strategy is to feature small business owners like John Gannon, owner of a custom wood fencing company in Indianapolis. Gannon is among the individuals the White House is planning to highlight during Trump's speech on Wednesday, according to details shared with USA TODAY.
"The outreach is far more significant in advance this time. Secondly there’s more receptivity to doing this in a bipartisan manner," said Marc Short, White House legislative affairs director.
When it comes to small-business owners, "our tax system is outdated," said Short. "That’s the reason many businesses have decided to relocate off our shores," he said in an interview previewing the speech. "You’ll continue to see that be a focus of his venues. They personify why the president wants to make these changes," Short said.
The White House also wants to focus on individuals like Indiana's Kip Tom, a 7th generation farmer. Tom Farms is one of the largest corn, soybean, and seed growers in the state, according to the White House. In selecting Tom's story to highlight, it’s also clear the president will push for a repeal of the estate tax, an issue that Republicans have been pushing for years.
The Tom family claims that under current estate taxes, they may have to sell off a significant amount of assets in order to pass the business to the next generation. The estate tax only affects estates worth more than $5.5 million. Tom ran for Congress last year, was part of Trump’s agriculture advisory committee, and was considered for a top spot at the U.S. Department of Agriculture.
Republican lawmakers are working to clear one of the big obstacles necessary for tax changes — adopting a budget that makes room for the tax cuts — with a tentative deal between top budget committee Republicans.
Unlike the debate over repealing Obamacare, outside groups allied with the White House are united and well organized for the tax fight. For months, conservative groups including Americans for Prosperity and the Job Creators Network have been meeting with White House officials and holding town halls, a bus tour and other events across the country.
White House outside advisers say that Trump, as a lifelong business executive intimately familiar with the tax code, is far more engaged in discussing the specifics of tax reform than he was during health care. During Obamacare discussions, Trump would often defer to Budget Director Mick Mulvaney and other advisers when it came to details and process questions.
The White House will sell the plan as a middle-class cut by emphasizing the proposed end to preferences and deductions – including the state and local write-off that allows taxpayers who itemize on their federal income tax returns to deduct state and local real estate and personal property taxes. Short has previously said the plan won’t touch the politically popular home mortgage interest and charitable giving deductions, though eliminating those deductions could create huge savings that could be used to pay for tax cuts.
Critics say there’s no way to eliminate enough loopholes to compensate for the advantage the wealthy will enjoy from a major rate cut. What's more, critics are already pointing to a rate increase for the lowest earners, from 10% to 12%.
“If you add up the gross benefit of all of those tax cuts, it far exceeds the offsetting increase from any eliminating deductions," said Seth Hanlon, a senior fellow at the Center for American Progress, "which means the top 1% inevitably ends up with a net tax cut."
A source briefed by Republican negotiators said that would be offset by an increase in the personal exemption, or the level of income exempt from tax. Republicans are also considering just cancelling the bottom rate, the source said.
Framing the argument by focusing on small businesses and middle-class taxpayers would make it easier to pressure some Democrats to line up behind it, namely members like Sens. Heitkamp and Joe Manchin of West Virginia, who have many small businesses in their states and are both up for reelection.
“We’ve urged the White House to focus on fairness,” said Tim Phillips, president of Americans for Prosperity, a conservative political action group. “That’s something that Republicans in the past have not really done on taxes,” he said.
“The current tax code is not fair. It treats the wealthy and powerful in a far more advantageous way," he said. The president needs "to drive home to the American people that the tax reform we’re talking about unrigs the economy, makes it more fair,” said Phillips.
By contrast, he said: “On health care we did not have a similar kind of message, in large part because there was no unity and there had not been the time to build coalitions and a large, cohesive infrastructure to support it.”
The plan faces political headwinds from both sides of the aisle, including from the same conservative House Freedom Caucus that helped torpedo an Obamacare replacement plan. These members are already expressing concern about ballooning the nation’s deficit. Further, ending the state and local tax deduction will cause fierce pushback from lawmakers, including Republicans representing states like New Jersey and New York that rely heavily on it.
If GOP leaders can’t unite their conference, they’ll have to work with Democrats. Yet lowering the individual income tax rate for top earners will prompt howls from many Democrats about “tax cuts for the rich.”
Contributing: Herb Jackson