Preparing to do battle with the Democratic and establishment-media charge that its tax-reform plan benefits the rich at the expense of the middle class, White House Press Secretary Sarah Sanders led off her daily briefing with a story.
Sanders, illustrating to reporters the social dynamics of the initial House tax reform bill the Ways and Means Committee is introducing Wednesday, used an example of how 10 reporters out drinking might divide a $100 bar bill according to their economic means, with the four poorest paying nothing and the richest one paying $59.
When the bar owner offers the loyal customers a discount of $20 on their bill the next time they come in, Sanders continued at the briefing Monday, the reporters complain that the richest reporter ended up saving the most money, even though the others also paid less.
“And that, ladies and gentlemen, is how our tax system works,” Sanders said with a wry smile. “The people who already pay the highest taxes will naturally benefit from a tax reduction, but not the largest percent benefit.
Her story concluded with a clear warning to critics of across-the-board tax cuts: “Taxing them too much – attack them – and they might start drinking overseas, where the atmosphere is somewhat friendlier.”
The White House has said the president’s plan – which was scheduled to be released Wednesday but has been delayed until Thursday – will lower taxes for Americans in every tax bracket, simplify the tax code and reduce the U.S. corporate tax rate, which is one of the highest in the world. The broad framework of the bill released last month by Trump and congressional Republican leaders called for the 20 percent corporate rate as one of several tax-rate cuts for businesses and individuals.
The initial bill is expected to reduce the personal tax brackets from seven to three – 12, 25 and 35 percent – and nearly double the standard deduction.
But in an apparent attempt to weaken the Democrats “benefit the rich” card, House Speaker Paul Ryan has said the Republican plan could include a fourth tax rate, for millionaires, as high as 42-44 percent.
The Wall Street Journal editorial board called Ryan’s proposal a “bow to the lords of political envy” that “undermines the purpose and much of the benefit of tax reform.”
National Review analyst Ramesh Ponnuru also criticized the proposal, writing: “Republicans are thinking about this ‘millionaire tax’ for, one assumes, two reasons: to bring in revenues so that their bill doesn’t increase the deficit too much, and to blunt charges that their tax cut favors the rich.”
President Trump promoted the Republican plan Tuesday at the White House in a meeting with supportive business leaders.
“The Democrats will say our tax bill is for the rich, but they know it’s not,” Trump said. “They don’t even know the tax bill. But I think we’ll have some Democrats join us because it’s a tax bill for the middle class and it’s a tax bill for jobs.”
Trump confirmed Tuesday he wants the House to pass a tax-reform bill by Thanksgiving that he can sign by Christmas.
‘Relitigating’ the Reagan cuts
The tax cuts will cost $1.5 trillion over the next decade, according to the Joint Committee on Taxation’s conventional scoring. But the White House argues, pointing to the impact of major cuts by Presidents Kennedy and Reagan, that consequent economic growth will increase tax revenue.
The Heritage Foundation has points out that despite the top individual tax rate fluctuating between 91 and 28 percent over the past 50 years, total individual tax receipts have remained fairly stable. The top rate increased in 2013 and is now at 39.6 percent.
Former Republican senator Phil Gramm recalled the 1981 Reagan tax cuts in a recent Wall Street Journal editorial, noting the impact “is now being relitigated in the debate on the Republicans’ proposed tax reform.”
Gramm, who chaired the Senate Banking Committee in 2001, wrote: “To refute claims that the Reagan tax cuts slashed federal revenue, in the words of President Reagan, ‘well, let’s take them on a little stroll down memory lane.'”
The former senator pointed out that when Reagan left office, real federal revenue was more than 19 percent higher than it was the day of his first inauguration.”
Gramm said the current Republican tax-reform program “combines the 1981 tax cuts and the 1986 tax reform with a deregulatory effort through legislation, agency rule-making and executive action constituting the most dramatic deregulatory effort since the Carter-Reagan reforms.”
The influential Club for Growth said the “goal of tax policy should be to raise only the amount of money needed to fund legitimate functions of government while doing the least amount of damage to the economy and respecting the principle of treating taxpayers equally.”
The House last week narrowly approved a Senate version of the 2018 federal budget, clearing the way for the Republican-controlled Senate to pass its tax cuts later this year.
Passing the Senate version was crucial to the Republican’s strategy, because it initiated the reconciliation process through which the Senate can pass legislation with only a simple majority. Otherwise, a 60-vote supermajority is required to end debate and move to a vote on a bill.
Trump wants immediate corporate-rate cut
Trump originally floated cutting the corporate rate to 15 percent. But as the Republican framework emerged in September, he endorsed the 20 percent target as “a perfect number.”
Trump’s Council of Economic Advisers estimates that cutting the rate to 20 percent would accelerate economic growth, growing the economy 3 to 5 percent larger than otherwise. The advisory team’s analysis also concludes the corporate-rate cut would increase average household income by at least $4,000, although other economists dispute the claim.
Arguing they need to offset revenue losses, Republican lawmakers have considered a gradual, phased-in schedule for the corporate tax cut that would lower it by 3 percent each year from its current rate of 36 percent, finally arriving at 20 percent by 2022.
However, Trump said Tuesday at the White House he wants the rate dropped to 20 percent immediately.
“Hopefully not,” Trump said of the phase-in proposal. “It’s something, some people have mentioned that. But hopefully not.”
Conservative tax lobbyist Ryan Ellis said a proposed phase-in for the corporate rate would be “very disappointing if true,” Bloomberg reported, arguing it would “delay business allocation of capital by the same five years.”
Grover Norquist, the head of Americans for Tax Reform, has urged frontloading the cuts so they can be used to Republicans’ advantage in the 2018 midterm elections.
House Ways and Means Chairman Kevin Brady, R-Texas, who is leading the writing of the bill, and several Republican members have discussed offsetting revenue loss by eliminating state and local reductions or by adjusting the cap on pre-tax contributions to 401(k) retirement savings accounts, Bloomberg reported.
But Brady said Monday taxpayers will be able to continue to deduct local property taxes on their federal income-tax returns.
“At the urging of lawmakers, we are restoring an itemized property-tax deduction to help taxpayers with local tax burdens,” he said.
Nevertheless, Senate Majority Leader Charles Schumer, D-N.Y., speaking from the House floor Monday, insisted the compromise isn’t enough and the Republican framework benefits the rich at the expense of the middle class.
New York Gov. Andrew Cuomo said the problem for citizens of high-tax states such as New York is that under the Republican plan, taxpayers would no longer be able to deduct their local or state sales or income taxes on their federal returns.
Republican Reps. Tom Reed and Chris Collins of New York, who helped force the compromise on property taxes, argued the overall tax legislation would benefit most of the state’s taxpayers through a combination of lower overall rates and a much higher standard deduction.
“We can lower the tax burden for all of the people of New York state as well as across the country, as we’re doing under tax reform,” Reed, a member of the Way and Means Committee, told the Buffalo News. “And if we all unite on that process, that’s going to empower generations of people to have more money in their pockets and to create the opportunities for generations to come.”
Asked to respond to Schumer’s criticism, Rep. Mike Kelly, R-Pa., said in a Fox News Channel interview that Democrats are trashing the plan even before they’ve read it.
Kelly praising the Republican bill as a reform that will have “generational” and “global” implications.
Meanwhile, House Ways and Means Chairman Brady said Tuesday he won’t add the repeal of Obamacare’s individual mandate to the tax reform bill.
“What I don’t want to do is to add things that could again kill tax reform like health care died over there,” said Brady in a radio interview with Hugh Hewitt, reported the Washington Examiner.
Brady was referring to the failure of the health-care bill to pass in the Senate in July.