U.S. President Donald Trump's plan to slash the corporate tax rate to 15 per cent is setting up a showdown with House Speaker Paul Ryan, who has called for a tax plan to pay for itself.
Mr. Trump intends to lay out broad tax principles on Wednesday, including cutting the federal corporate tax rate to 15 per cent from the current 35 per cent and calling for consideration of a child-care tax credit, a senior administration official said. A corporate rate that low would make it difficult to find ways to increase revenue or eliminate deductions to offset it, meaning the plan wouldn't be revenue-neutral or permanent.
The Ryan-backed House GOP blueprint released in June calls for replacing the 35-per-cent rate with a 20-per-cent rate applied to companies' domestic sales and imported goods, while exempting their exports. Mr. Ryan has questioned whether a 15-per-cent rate can realistically be paid for, and he and Kevin Brady, chairman of the tax-writing House Ways and Means Committee, have said they're committed to revenue neutrality.
The Urban-Brookings Tax Policy Center estimates that cutting the corporate rate to 20 per cent would lower federal tax revenue by $1.8-trillion (U.S.) over a decade, while cutting it to 15 per cent would decrease revenue by $2.4-trillion.
"It's hard to imagine you're going to make that revenue-neutral," Roberton Williams, an expert with the Tax Policy Center, said referring to a 15-per-cent corporate rate.
"It's a big number. The kind of changes you'd need to make to claw that much money back are not consistent with the kinds of things Trump has talked about," Mr. Williams said. "They'd have to do something that raises taxes elsewhere."
It's unclear what kind of revenue raisers Mr. Trump's plan will include. He isn't likely to endorse a border-adjusted tax in Wednesday's plan, a senior administration official said last week. The border-adjusted tax is a centrepiece of the House GOP plan because it's estimated to raise $1.1-trillion over a decade, helping to pay for individual and corporate tax cuts.
Mr. Trump hasn't called for doing away with corporate deductions for interest, as laid out in the House plan – a move that would raise an estimated $1.2-trillion over a decade. Instead Mr. Trump and senior officials have touted the economic growth that would result from the cuts.
Expanding the existing earned-income tax credit and creating a dependent-care savings account to help with costs for caring for children and dependent adults is a "major priority" for the administration and will be part of comprehensive tax reform, Ivanka Trump said Tuesday at a conference in Berlin.
If a tax overhaul adds to the deficit after the initial 10-year window, it's likely to run afoul of Senate budget rules for what can pass the Senate with a simple majority. Republicans have 52 members in the chamber; they can only spare two votes.
"It produces a lot of uncertainty for businesses. You can't completely redesign the budget tax system for nine-and-a-half years, and then flip it back in 10 years," Mr. Ryan said in February during a PBS NewsHour interview. "We do envision revenue-neutral tax reform that is permanent."
White House economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin were to meet with Republican leaders late Tuesday on Capitol Hill to go over the President's tax plan. Mr. Cohn and Mr. Mnuchin have said they've been meeting with congressional leaders on tax issues, but the announcement about a tax plan coming Wednesday surprised the congressional leaders.
Senate leadership seemed skeptical of a business rate of 15 per cent, which was part of Mr. Trump's campaign tax plan. Senate Finance Committee chairman Orrin Hatch said he doubted that a corporate rate that low could be achieved.
"I'd like to, but I don't know," he told reporters on Monday.
"It'd be great if we could get there," said Senator Pat Toomey, a Pennsylvania Republican. He declined to comment on whether tax reform should be revenue-neutral.
Douglas Holtz-Eakin, a Republican economist and president of the American Action Forum, said Mr. Trump campaigned more on tax cuts than revenue-neutral tax reform. He said the White House's demands will be central to the debate.
"The only way tax reform gets done is to have tremendous White House involvement, effort and persuasion," he said.
Mr. Mnuchin indicated on Monday that the administration is less concerned with tax cuts adding to the deficit. He said the President is "very determined" that the U.S. can achieve sustained annual economic growth of 3 per cent or greater, which would pay for the tax cuts along with "trillions of dollars" brought in from offshore havens.