The Trump administration unveiled its long-awaited tax reform plan on Wednesday, proposing massive cuts to individual, corporate and other business taxes in what would be the largest change to the tax code since at least 1986.
Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn briefed reporters on the plan at the White House.
Cohn spoke first, detailing the changes the plan would bring to individual rates, replacing the current seven-bracket system with just three rates: 10, 25 and 35 percent. The plan doubles the standard deduction, repeals the estate tax and also repeals the alternative minimum tax, a rule that caused Donald Trump to have to pay $31 million more in federal income tax in 2005 than he would have otherwise owed, according to documents uncovered by MSNBC in March.
The plan would eliminate all other personal tax deductions except for charitable donations and the mortgage interest deduction.
Doubling the standard deduction, however, would greatly reduce the number of people who could take advantage of the mortgage interest deduction, something much of the brokerage and homebuilding lobby has warned against.
The plans for personal income taxes also return the top capital gains tax rate to 20 percent, removing the extra 3.8% percent that President Obama added.
After Cohn, Mnuchin took the podium to detail changes to business taxes, and was comparatively light on details. Mnuchin announced a 15 percent “business rate” which would apply to corporations that currently pay up to 35 percent in income taxes as well as “small and medium-sized business.” It would also apply to LLCs and other business-related pass-through entities, which is how most real estate is owned in New York City and also how President Trump structured most of his holdings.
Mnuchin said that the plan, however, would include “protections so wealthy people don’t make pass-throughs to avoid paying income they should be paying on the individual side,” though it’s not clear how that would happen.
“We believe we can get back to three percent or higher GDP [growth],” Mnuchin said of the overall plan.
To help pay for the sweeping tax cuts, Mnuchin proposed a one-time tax on trillions of offshore income. Cohn and Mnuchin declined to say whether or not they would support a plan that included a border-adjustment or import tax to help make up revenue, something that many House Republicans have pushed for.
They further declined to say what would happen to many key business tax deductions, except that they would eliminate breaks for special interests. For real estate, like-kind exchanges, which allow property owners to defer paying income taxes on a sold property by investing the profits in another, are still in limbo. Previous plans floated by Congress were also silent on these exchanges. Other open questions include the low-income housing tax credit, an unlikely target as it has wide bipartisan support and is the key funding mechanism for most affordable housing built in the United States.
“We will let you know the specific details at the appropriate moment,” Cohn told reporters at the White House.
“The mortgage interest deduction and the state and local tax deduction make homeownership more affordable, while 1031 like-kind exchanges help investors keep inventory on the market and money flowing to local communities,” William Brown, president of the nation’s largest real estate lobby, the National Association of Realtors, said in a statement after the White House tax briefing. “Those tax incentives are at risk in the tax plan released today.”
It’s up to Congress to pass a plan Trump will sign. Cohn said the White House was working with elected officials to roll out a full plan as quickly as possible.