Trump in Missouri Lays Groundwork for Tax Overhaul but Offers No Details

Trump in Missouri Lays Groundwork for Tax Overhaul but Offers No Details
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“Lower taxes on American business means higher wages for American workers,” he added.

Many economists believe it is not that simple. They argue that large corporate tax cuts would do relatively little — particularly in the near term — to boost wages or create jobs. Instead, they would boost corporate profits and benefit the wealthiest Americans who own the most corporate stock. There is little evidence that large tax cuts will prompt American corporations to invest more; they are already sitting on nearly $2 trillion in cash.

And with the economy growing at 3 percent — Mr. Trump exulted over the figure during his speech on Wednesday, saying, “I happen to be one who thinks it can go much higher” — the Federal Reserve has warned that it would move to curb faster growth for fear of inflation.

“Corporate profits are at record highs,” said Michael Linden, a fellow at the Roosevelt Institute. “Corporations are sitting on a vast amount of capital. Reducing their tax burden would have absolutely no effect on workers.”

Business groups eager to see substantial tax cuts argued the opposite.

“A reform package that lowers tax rates and encourages investment will enable and encourage more people to start businesses,” Karen Kerrigan, the president of the Small Business and Entrepreneurship Council, said in a statement. “Of course, if small-business owners can keep more of their hard-earned capital, they will reinvest those resources back into their employees and enterprises.”

That is a minority view among economists, but one that has been gaining ground.

For many years, experts agreed that corporate taxes did not affect wages. American companies were stuck in the United States, so they had no leverage to lower workers’ wages. Instead, taxes reduced profits.

The rise of globalization changed that calculus — particularly in industries like manufacturing, where it is relatively easy to move jobs overseas. The conventional estimate now is that workers bear about a quarter of the burden of taxation, but some estimates are much higher.

“If a firm faces a higher tax rate, you’re not going to pass that off to shareholders or consumers because you’re competing in a global marketplace,” said Aparna Mathur, a resident scholar at the American Enterprise Institute, a conservative research organization. “So it’s labor that bears the brunt.”

It follows that when taxes are reduced, labor gets some of the benefit.

Mr. Trump called on Republicans and Democrats on Wednesday to come together to support the effort. He then singled out Senator Claire McCaskill, Missouri’s Democratic senator, who faces re-election next year, for a pointed threat.

“She must do this for you,” the president said of delivering on his tax-cut promises. “And if she doesn’t do it for you, you have to vote her out office.”

Beyond the politics, Mr. Trump made plain the broad outlines of his vision for overhauling the tax code: a combination of deep cuts for businesses large and small as well as for investors and the wealthiest, along with reductions for middle-class people, only partly paid for by eliminating some deductions and boosting economic growth. He spoke of a “business” tax cut rather than strictly a corporate one, a nod to his proposal to allow small businesses and large partnerships to take advantage of the same rate as corporations, a costly change.

In 2012, the neighboring state of Kansas slashed its taxation of business income, prompting a stampede by wealthy Kansans — including the head football coach at the University of Kansas — to turn themselves into businesses for tax purposes.

Democrats seized on the disconnect between Mr. Trump’s tax-cutting message and the large reductions for businesses and high earners that he has championed.

“If the president wants to use populism to sell his tax plan, he ought to consider actually putting his money where his mouth is and putting forward a plan that puts the middle class, not the top 1 percent, first,” Senator Chuck Schumer of New York, the Democratic leader, said in a conference call organized by progressive groups that are planning an intensive advertising and advocacy campaign to oppose Mr. Trump’s tax-cutting initiative.

Mr. Trump portrayed his plan as an evenhanded approach that would help both businesses and working people, suggesting that his call for scrapping deductions would harm wealthy people such as himself.

“I’m speaking against myself when I do this, I have to tell you,” remarked Mr. Trump.

Mr. Trump has not released his tax returns, making it impossible to assess the personal effect of his proposals. But independent analyses of the broad outlines have concluded that wealthy taxpayers would get most of the benefits. One proposal, the elimination of estate taxation, would benefit only the wealthy.

Private negotiations among Gary D. Cohn, Mr. Trump’s top economic adviser; Steven Mnuchin, the Treasury secretary; and Republican congressional leaders and tax writers have yet to yield a proposal embraced by the White House and Republican lawmakers.

Mr. Trump may be forced to temper his ambitions. . Administration officials are now discussing a plan that would cut the 35 percent corporate tax rate to 20 to 25 percent, substantially higher than the 15 percent the president called for in April.

In his speech, Mr. Trump hinted at the challenge of securing a cut of the scale he wants, saying, “Ideally — and I say this for our secretary of the Treasury — we would like to bring our business tax rate down to 15 percent.”

Administration officials are also weighing leaving the top individual tax rate, which they wanted to lower to 35 percent, at its current 39.6 percent level.

The timetable has slipped considerably, as well. Mr. Mnuchin noted last week that his goal to produce a tax proposal by August never materialized.

In laying out what he called his principles for a tax overhaul, Mr. Trump made no mention of insisting that cuts be offset by corresponding increases to avoid adding to the deficit, essentially acknowledging publicly what his aides have privately for weeks: that he is willing to accept a plan that adds to the deficit, which had long been considered anathema to many conservative Republicans.

If Mr. Trump lacked specifics for his plan, the White House made sure he would not lack for cheerleaders. In the hours after he spoke, several members of his cabinet, including some who have little to do with his economic agenda, issued statements praising the president’s effort. Among them were Rex W. Tillerson, the secretary of state, and Ryan Zinke, the secretary of the interior, who said it would allow families to better afford vacations to national parks.

But many Republicans, even those broadly supportive of Mr. Trump’s plans, have scaled back their ambitions, conceding that the calendar makes a full-scale tax rewrite unlikely and resolving instead to push through the largest tax cut possible by New Year’s.

“It’s important to get this done this year,” said Senator Roy Blunt, Republican of Missouri, “and at some point, we’ll have to make the decision, ‘O.K., how much of the tax-code fight can we get into and still have the kinds of reduction in rates and achievable results that mean more American jobs and better American jobs?’”



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