Trump Pitches Tax Plan to Policy Group That Helped Write It

Updated on
  • Heritage Foundation speech contrasts with health-care approach
  • President wants organization to help generate tax momentum

Trump: Tax Plan Gives Households a $4,000 Raise

President Donald Trump sought to rally support for his effort to overhaul the nation’s tax code on Tuesday at a conservative policy group that helped write the plan.

Trump made his argument for a dramatic cut in tax rates for corporations and many individual Americans at the Heritage Foundation’s annual President’s Club meeting -- and asked for the group’s help in getting legislation passed by year’s end.

“So let’s give our country the best Christmas present of all -- massive tax relief,” Trump said.

The White House wants groups like Heritage to help generate momentum for the tax legislation and provide a legislative win for the president, who so far has seen his top priorities stall on Capitol Hill. The approach stands in contrast to Trump’s advocacy for the Obamacare repeal that failed in the Senate, when Trump didn’t barnstorm the country with weekly speeches on the legislation’s behalf and the White House did far less outreach.

Trump and Republican congressional leaders have proposed cutting the corporate tax rate to 20 percent from 35 percent and taking the top rate for business income from partnerships and limited liability companies to 25 percent from 39.6 percent. They also want to condense the existing seven individual income tax rates to three or four. Congress would have the option of creating the fourth rate for the highest earners.

In his speech, Trump emphasized the conservative policy group’s history of supporting tax cuts, pointing to its work on behalf of former President Ronald Reagan’s successful plan in the 1980s. He singled out economist Stephen Moore, a Heritage Foundation veteran who advised Trump’s presidential campaign on tax policy, for recognition. “We’ve been working long and hard together,” the president said.

‘Pay Raise’

Trump argued that prior tax cuts resulted in employment and overall economic growth, and he repeated the White House’s projection that his plan would offer a $4,000 “pay raise” to the average American household.

“And that’s money that would be spent in our economy,” he said.

Trump repeated his message that his tax plan would offer benefits for “everyday, working Americans,” noting its provisions for almost doubling the standard deduction and expanding the child tax credit.

“We will lift our people from welfare to work, from dependence to independence, and from poverty to total beautiful prosperity,” Trump said. “Which is why we need the help of the Heritage Foundation and everyone here tonight to get our tax cuts through the House, through the Senate and to my desk for signature.”

Democrats have sought to undercut Trump’s middle-class message by emphasizing benefits for high earners -- including the proposal to slash the top tax rate on pass-through business income. That effort is expected to continue Wednesday: The left-leaning Center for American Progress announced plans for a news conference on how the plan “would give Trump’s cabinet a $3.5 billion tax cut” simply by repealing the estate tax.

On Tuesday night, Trump called the estate tax “horrible and very unfair.” The tax applies a 40 percent rate to estates worth more than $5.49 million for individuals or $10.98 million for couples.

Economists’ Responses

Critics of the president’s proposal have dismissed the White House’s claim of a $4,000 benefit for average households from the corporate tax cut as overly optimistic and based on incomplete information. In a blog post on Tuesday, economist Lawrence Summers of Harvard University wrote that “the claim is absurd on its face.”

Summers, who was Treasury secretary under President Bill Clinton and economic adviser to President Barack Obama, argued the economy is near full employment and the cost of capital is already at record low levels -- diluting the potential for the tax cut to spur economic growth. He also said that tax cuts would “put upward pressure on interest rates” and that ending the global approach to taxing multinational corporations -- as Trump and congressional leaders propose to do -- “will encourage outsourcing.”

The White House’s projection has found at least some support from other economists. A paper published Monday by a trio of researchers at Boston University and the Massachusetts Institute of Technology projected that the tax framework would boost real wages by roughly $3,500 annually. Still, the authors wrote, they were concerned that the plan “could disproportionately benefit the top 1 percent.”

A senior administration official speaking on a conference call under the condition of anonymity defended the $4,000 claim on Tuesday. The person said the White House’s model explicitly only factored in a cut in corporate tax rates, without considering still-to-be-determined changes to individual tax rates.

Prior Tax Cuts

A fact sheet distributed by the White House before the speech cited three instances of tax cuts since the 1960s, arguing that the economy responded by creating jobs in the administrations of presidents John F. Kennedy, Ronald Reagan and George W. Bush.

But it’s hard to prove that tax cuts spur job growth. In citing 14.8 million jobs created in five years after Reagan’s tax cuts, the White House ignored an inconvenient fact: More jobs were created in the five years after President Bill Clinton raised taxes in 1993, according to data from the U.S. Bureau of Labor Statistics.

The fact sheet also cited 7.8 million jobs created in the five years after Bush’s 2003 tax cuts. That number leaves out 2.3 million jobs lost in 2001 and 2002, after Bush’s first round of cuts.

— With assistance by Ben Steverman

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