Donald Trump

Key Things to Know As Trump Tries to Change Tax Policy

House Republicans and the Trump administration will be working to push through a tax bill this year. Here's what to watch out for

President Donald Trump's administration released a broad outline of his tax plan Wednesday, three days ahead of his 100th day in office.

Trump suggested his plan will include "maybe the biggest tax cut we've ever had," prior to the announcement by Treasury Secretary Steven Mnuchin and Director of the National Economic Council Gary Cohn. The claim would suggest a cut of more than $600 billion a year to exceed former President Ronald Reagan's 1981 action, according to The Associated Press.

Among many changes, the plan seeks a corporate tax rate reduction, but also abandons a so-called border adjustment tax included in a plan released by House Republicans last year.

Here's a breakdown of what to keep an eye on as the White House and congressional Republicans attempt to push a tax bill through Congress this year.

Corporate Tax Rate:
The corporate tax rate is the rate that corporations pay on their net income.

The U.S. now has a 35 percent corporate tax rate, which is relatively high by international standards, said Joe Rosenberg of the Tax Policy Center.

Trump's proposal will seek to reduce the corporate tax rate from 35 percent to 15 percent, a policy he set during the campaign, it was announced Wednesday.

The House tax plan included a decrease of the corporate tax rate to 20 percent.

Lowering the corporate rate to 15 percent, critics argue, may make it difficult for the Trump plan to pay for itself with increased revenue elsewhere.

The nonpartisan Joint Committee on Taxation said in a letter to House Speaker Paul Ryan this week that a three-year cut to 20 percent would reduce revenue by a third in those years and lead to a $489.7 billion hole over 10 years, The Washington Post reported.

The Trump administration, however, maintains the decreased rate will spur economic growth and be revenue neutral despite an even bigger tax cut.

"The tax plan will pay for itself with growth," Steven Mnuchin, Trump's treasury secretary, said last week.

Individual Tax Bracket:
The individual tax bracket refers to the amount a taxpayer owes in federal income tax based on their income. The U.S. tax code now has seven tax brackets that range from a high of 39.6 percent to a low of 10 percent.

The tax plan proposed by House Republicans would reduce the number of individual tax brackets to three. Depending on income, taxpayers will be subject to either a 12, 25 or 33 percent income tax rate under the House plan.

The House plan would lower the top tax rate of 39.6 percent to 33 percent, but raise the lowest rate of 10 percent to 12 percent.

The Trump plan would also limit the number of individual brackets to three, but at rates of 10, 25 and 35 percent, Cohn announced Wednesday. 

During the campaign, however, Trump had called for the rates in the three brackets to be lower than his proposal, at 10, 20 and 25 percent.

Border-Adjustment Tax:
The so-called border-adjustment tax is a measure included in the House blueprint under the "destination-based cash flow tax."

The first piece of that policy -- "destination-based" -- is where the border adjustment comes in. The policy would make goods produced in the U.S. that are sold abroad tax-exempt. At the same time, it would tax goods produced outside of the U.S. and sold within the country.

Trump's plan will not include the controversial tax for now, though it might be revisited later, a person briefed on the rollout told The New York Times. This again puts the White House's plan at odds with the House's. The House GOP sought to use the increased revenue from the tax to offset tax breaks elsewhere.

Critics of the policy argue it would hurt retailers and consumers because tons of imported products -- cars, clothing, appliances -- would suddenly become more expensive.

Beyond the border adjustment, the House's destination-based cash flow tax makes other broad changes to the way corporations are taxed in the U.S.

Instead of taxing corporations on income, the current tax scheme, the plan would tax their cash flow.

Revenue-Neutral Tax Plan:
A revenue-neutral tax plan is one that includes a combination of tax changes, but leaves the overall federal revenue constant.

This means if taxes for corporations or individuals are cut, they must be offset by some combination of revenue increases elsewhere.

Trump's proposal for a 15 percent corporate tax rate conflicts with House Republicans, whose plan called for a 20 percent corporate tax. The House rate would be in keeping with a revenue-neutral tax plan, they say.

There's a disparity in the numbers, but the economic theory in both plans is the same: tax cuts will pay for themselves because they spur economic growth.

"I'm not convinced that cutting taxes is necessarily going to blow a hole in the deficit," Sen. Orrin Hatch, R-Utah, the chairman of the Senate Finance Committee, told the AP. "Now, whether 15 percent is the right figure or not, that's a matter to be determined."

A revenue-neutral tax plan is especially important because tax cuts that add to the deficit may expire after 10 years.

Senate Republicans can use a process called reconciliation, which allows the passage of a bill with a simply majority, to pass a tax bill. Under the rules of the Senate, a tax bill passed through reconciliation cannot add to the federal deficit over 10 years.

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