The debate over how to fund a tax cut has taken a turn for the worse this week as the two sides in the debate, the Trump administration and the Republicans in Congress, have clashed over the details of a plan that the White House and GOP leaders have been working on since January.
The plan, which Trump called the “Bailout for American Families,” would cut the corporate tax rate to 20% from 35% and the corporate minimum tax rate from 35%, both of which were eliminated under former President Barack Obama.
The tax cuts would be for companies with gross profits above $1 billion, while the stimulus would be paid for by taxing capital gains and dividends at the lower rate.
The two plans are also very different in terms of how the tax cuts and stimulus would affect individual income.
The Trump administration has argued that the corporate stimulus would disproportionately benefit wealthier Americans while the tax cut would disproportionately impact lower- and middle-income Americans.
In the weeks since the election, Republicans in the House and Senate have come to agreement on a plan to pay for the corporate and tax cuts by eliminating the corporate rate, but the details haven’t yet been hammered out.
“It is not clear that the tax reduction would be fully offset by additional revenues, including by the elimination of the tax on capital gains,” according to the Joint Committee on Taxation, which is advising the White Senate on the tax bill.
“The president has said he would like to see a deal, but he is trying to get his priorities across.
And we have to keep working with him on the details.”
The White House has also been pushing for changes to the corporate income tax to make it more favorable for companies.
On Thursday, Trump signed an executive order that would require companies to pay more to the government for every dollar of their profits, while on Friday, White House Press Secretary Sean Spicer said that the administration wants to see the tax code change to allow companies to deduct capital gains from their taxes.
The Republican plan, however, does not call for such a change.
The president has also proposed that the companies that get a tax credit should pay more than half the amount of that credit.
“This is an incredibly simple and fair deal for the American people and the middle class,” Spicer said Friday.
“What we need to do is get tax reform done and get it done quickly so that it can get passed on to the American public.”
A recent study from the Tax Policy Center, a conservative think tank, found that a 20% corporate tax increase would add $3.5 trillion to the national debt over the next decade.
The Tax Foundation, a nonpartisan think tank that has long pushed for corporate tax cuts, found in May that the Tax Reform Act of 2017 would add more than $3 trillion to deficits over the course of the decade.
“If we do nothing, our deficits would jump by about $5 trillion,” the Tax Foundation’s Peter Wehner said in a May 21 statement.
“We could pay for this tax cut by cutting the corporate rates down to 25%, cutting the minimum wage, increasing the capital gains tax from 35 to 35%, and allowing the deduction for qualified dividends and other capital gains.”
The Tax Policy Group, a think tank focused on tax policy and economics, also argued that Trump’s corporate tax proposal would have a negative impact on the economy.
“There is no evidence to support Trump’s claim that a tax increase will lead to increased demand, job creation, higher economic activity, or increased economic output,” the group wrote in a statement.
The Joint Committee has also said that a corporate income-tax cut that reduces the corporate share of income would boost the economy by a total of $6.4 trillion over the decade, but it added that it would be unlikely that the plan would produce the same economic impact as a corporate investment in infrastructure.
“That would be a bit of a wild card,” the committee said.
The American Enterprise Institute, a right-leaning think tank in Washington, has also weighed in on the debate.
“President Trump has not done a great job of explaining the details in the plan,” AEI Policy Analyst Adam Davidson told Business Insider.
“His argument has always been that it will create jobs, boost the American economy, and boost the federal budget.
But his economic advisers have consistently told him that the exact opposite is true.
We have repeatedly found this argument to be wrong.”