President Donald Trump will once again tout tax cuts for the middle class and small businesses Wednesday—amid suggestions that high earners would benefit most.
Trump will emphasize populist themes as he takes his sales pitch for a proposed tax overhaul to Springfield, Missouri, the first of what senior White House officials have said will be several stops in the Midwest. But his administration and congressional leaders have produced only a basic list of goals so far—Congress will take charge of drafting the legislation—raising questions about whether Trump’s tone will reflect the bill’s actual content.
White House officials described Trump’s speech as focusing on “why” tax laws need to be changed, not “how.” Bringing tax relief to the middle class and “ending the rigged economy” will be a top priority of the administration, White House Press Secretary Sarah Sanders said in a statement.
With taxes, though, details matter. One example looms less than two miles from the spot where Trump will speak: the national headquarters of Bass Pro Shops. The privately held chain of hunting and fishing emporiums is owned by a limited liability company—a so-called pass-through entity for tax purposes. Pass-throughs don’t pay income taxes themselves, but pass their earnings to their owners, who then pay at their individual rates.
Trump wants to cut the tax rate for such entities—which can include corner grocers and freelancers along with doctors, lawyers and vastly profitable hedge funds—to 15 percent, down from a top rate of 39.6 percent. Like many other pass-throughs, Bass Pro Group LLC isn’t exactly a mom-and-pop operation. The nationwide chain easily reaches several billion dollars in annual sales; it has offered to acquire rival Cabela’s Inc. in a pending cash deal valued at about $5 billion.
‘A Windfall’
Treasury Secretary Steven Mnuchin said in May that tax writers would ultimately craft procedures for ensuring that only small and medium-sized businesses qualify for a lower pass-through rate. But no specifics have emerged, and much depends on where Congress ultimately decides to set the rate.
For Bass Pro founder John Morris and other high-income owners of partnerships or pass-through businesses, “cutting the rate would be a windfall,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. “If you are the great American small business owner, you might actually see a tax increase,” since some small business owners already pay comparatively lower income tax rates. Bass Pro didn’t respond to a request for comment.
The pass-through question is just one of many that Congress will begin addressing when it returns from a recess next week. What rate will multinational corporations pay? How will individual tax brackets be set? What tax breaks should be canceled in order to offset lower rates? Will the changes be permanent or temporary?
Trump isn’t expected to unveil those answers during his speech. The tax plan itself is now in the hands of Congress’s tax-writing committees. Instead, White House officials hope the president will be able to harness the potency of his political rallies to build support and ratchet up pressure on lawmakers who so far have failed to give the president a signature legislative accomplishment.
Route 66
One of the senior White House officials said there would be ample time to discuss specifics later, but that it was equally important to rally Americans behind the notion that changes would benefit the middle class. The destination of Springfield, the start of Route 66, was a deliberate choice intended to underscore how a tax overhaul could benefit the Main Street America that thrived during the iconic highway’s heyday, a second White House official said.
The Trump administration may have also targeted Missouri in an effort to help to flip a Senate seat. In a message on Twitter Sunday, the president touted his 19-point victory in Missouri last fall—and that Senator Claire McCaskill, the Democrat facing a tough re-election fight next year— “is opposed to big tax cuts.” Trump went on to predict that McCaskill would be ousted by her eventual Republican opponent.
McCaskill’s office issued a statement saying she was “optimistic” that she could find “common ground” with Trump on taxes.
The president plans to go to other swing 2018 states to sell a tax revamp to put pressure on Democrats to support the legislation, according to a person familiar with the White House’s thinking who requested anonymity to discuss internal plans.
Top Earners
Republican leaders may indeed find broad agreement that the statutory rate for corporations—which at 35 percent is far higher than most other developed nations’—must be cut. They may also find support for revising corporate taxes to keep U.S. companies competitive while limiting their ability to shift profit overseas and enabling them to return more than $2.6 trillion in offshore profit to the U.S. at a lower rate.
On changes for individual taxpayers, congressional Democrats on Wednesday reiterated their preconditions for supporting Trump’s tax plan: It can’t add any burden on the middle class, it must leave out tax relief for the wealthiest 1 percent of Americans, and it can’t add to the U.S. budget deficit. Forty-five Senate Democrats signed a letter earlier this month promising unity around those demands, as well as a requirement that tax legislation be considered under Senate rules that would require some bipartisan backing.
“This is going to be one of the biggest fights of the next three or four months, and Democrats are ready for it,” Senate Minority Leader Chuck Schumer said on a conference call with reporters.
Representative Emanuel Cleaver, a Missouri Democrat, called Trump’s tax ideas “reverse Robin Hood at its best,” and said early signs indicate the White House is giving little thought to its plan’s impact on working-class people.
Tax policy experts have said the dozen bullet points the White House released in April outlining its principles would undoubtedly mean lower taxes for top earners, while the impact on middle incomes was less clear. The plan calls for cutting the top income-tax rate to 35 percent from 39.6 percent; eliminating the Alternative Minimum Tax, which raises the tax bills of certain taxpayers on the higher side of the income scale; and repealing the estate tax, which applies to individuals with estates worth more than $5.49 million. However, it would also eliminate state and local tax deductions, which tend to benefit high-income filers in Democratic states.
For middle-class benefits, the White House tax plan has recommended doubling the standard deduction and providing tax relief for families with child- and dependent-care expenses.
‘Off Message’
Ahead of Trump’s Missouri trip, a coalition of groups released a statement saying the White House tax proposal would mean an average tax cut of $190,560 for people making more than $1 million a year—and $240 for people making less than $45,000 a year.
As for pass-through entities like Bass Pro, Trump’s 15 percent rate would provide a windfall to wealthy individuals who own the entities, according to the Center on Budget and Policy Priorities. At that rate, more than three-quarters of the cut would go to the top 1 percent of households, which make at least $700,000 a year, according to the Tax Policy Center. Those filers would get an average annual tax cut of about $76,000.
Now lawmakers will be waiting to see if Trump’s tax tour will hurt or help the push to get an overhaul signed before the end of the year. So far at least one Senate Republican is skeptical.
“I think the President has gotten off message too often, and hasn’t been able to be an effective spokesman for his own agenda,” Senator Pat Toomey, a member of the tax-writing Senate Finance Committee, said in a radio interview earlier this week. “I want to get things done.”
