Trump’s proposed tax plan contains cuts for individuals, corporations

This is an archived article and the information in the article may be outdated. Please look at the time stamp on the story to see when it was last updated.

WASHINGTON -- The Trump administration has finally outlined its new proposal for tax reform, which leans heavily on tax cuts.

So far, President Donald Trump wants to slash individual tax rates -- cutting the top rate from 39.6 percent to 35 percent and reduce the number of rates from seven to three.

He also wants to cut the top tax rate for all businesses to 15 percent, far below the current top rates.

The administration's tax outline still leaves many questions unanswered and will be met with a lot of skepticism, even though Republicans control Congress.

In fact, some GOP aides suggest the White House -- with its emphasis on tax cuts and few details on how they'd be paid for -- is not constructively contributing to a serious discussion of tax reform.

"It's not tax reform," one senior GOP aide said. "Not even close."

The proposal calls for reducing the number of tax brackets from seven to three for individuals, which would be set at 10 percent, 25 percent and 35 percent. That's well below today's top rates of of 28 percent, 33 percent and 39.6 percent.

During the campaign, Trump had originally called for those rates to be 10 percent, 20 percent and 25 percent. He later amended his plan, calling for somewhat higher rates to match what House Republicans have been calling for: 12 percent, 25 percent and 33 percent.

The proposal also calls for doubling the standard deductions.

Treasury Secretary Steven Mnuchin has said the new tax proposal will offer "the biggest tax cut and the largest tax reform in the history of this country."

Trump still wants to slash the top tax rate for all businesses to 15 percent, as he proposed during the campaign. That's well below the top rate of 35 percent for corporations today, although the real top rate they pay is less after tax breaks.

A drop to 15 percent would also be a huge drop from the 39.6 percent top rate paid by owners and shareholders of so-called pass-through businesses.

Those run the gamut from mom-and-pop shops to law firms and hedge funds. In a pass-through business, the owners and shareholders report profits on their personal tax returns.

The president might again call for a low, one-time tax on the $2.6 trillion of profits that were earned overseas by U.S. multinational corporations and were technically never brought back to the United States.

The Tax Policy Center estimated last fall that such a provision could raise $148 billion over a decade, money that could be used to offset the cost of some of Trump's desired tax cuts.

Today, U.S. companies must pay tax on all their profits, regardless of where in the world those profits are earned.

Trump joins Republicans who want to switch to a territorial system for businesses. That would mean U.S. companies would only owe U.S. tax on what they earn in the United States.

Trump is not expected to back a controversial provision known as the border adjustment tax that was proposed by House Republicans.

"We don't think it works in its current form, and we will have discussions with [House tax writers] about revisions," Mnuchin said.

A border adjustment tax would fundamentally alter how imports and exports are taxed. Under the House plan, companies could no longer deduct the cost of their imported goods, and sales of their exports would no longer be subject to U.S. tax.

Such a provision could raise more than $1 trillion over a decade, which the House GOP was counting on to help offset the cost of their proposed rate cuts.

Trump has been a proponent of a selective import tax -- and has suggested he might favor a "reciprocal" tax. But he has yet to explain what that means.

The plan calls for tax relief for families, but didn't give much detail.

During the campaign, Trump called for two tax breaks to help ease families' child care costs. One would let parents deduct the average cost of child care in their state, based on their child's age.

The other would give a tax break to anyone who sets aside up to $2,000 a year to cover costs associated with child care and elder care.

The contributions would be tax deductible, then grow tax free.

Tax and child care policy experts have said both breaks, as proposed, would disproportionately benefit wealthier families.

And in the case of millions of low- and middle-income families, the breaks would raise their tax burden when combined with Trump's other proposals to eliminate head of household status, repeal personal exemptions and raise the lowest income tax rate to 12 percent from 10 percent currently.

Eliminate most deductions: Trump may align himself with House Republicans, by calling for the elimination of all deductions except those for mortgage interest and charitable contributions.

Originally he'd called for a cap on itemized deductions.

AlertMe