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The White House just outlined its tax plan. Here’s what’s in it

Top White House officials outlined President Donald Trump‘s tax plan Wednesday, a proposal they said would be the “biggest tax cut” in U.S. history.

White House chief economic advisor Gary Cohn and Treasury Secretary Steven Mnuchin summarized the plan in a briefing to reporters at the White House. It largely echoes the proposal Trump outlined as a candidate and did not include some key details, according to a fact sheet provided by the White House.

  • Trump’s plan will cut the number of income tax brackets from seven to three, with a top rate of 35 percent and lower rates of 25 percent and 10 percent. It is not clear what income ranges will fall under those brackets. It would also double the standard deduction.
  • The proposal will chop the corporate tax rate to 15 percent from 35 percent.
  • It would eliminate tax deductions, with only a few exceptions, including the mortgage interest and charitable contribution deductions.
  • The White House said there will be a “one-time tax” on the trillions of dollars held by corporations overseas. However, Mnuchin said the rate for that tax has yet to be determined. Mnuchin said the White House is “working with the House and Senate” on a repatriation rate, saying it would be “very competitive.”
  • The plan would get rid of the estate tax, otherwise known as the “death tax.” Cohn said the move will help privately held businesses and American farmers. Analysis of the estate tax reveals that it affects only a very small portion of Americans.
  • Mnuchin also said the U.S. would go to a “territorial” tax system. Though further details were not forthcoming, such systems typically exclude most or all of the income that businesses earn overseas.
  • Trump’s plan would also repeal the alternative minimum tax and 3.8 percent Obamacare taxes.
 

Mnuchin would not answer if the plan would be “revenue neutral,” meaning whether it would result in a larger U.S. budget deficit. He contended that it would “pay for itself with growth and with … reduction of different deductions and closing loopholes.”

 

Mnuchin: This plan will lower debt-to-GDP

Even before the Trump advisors outlined parts of the plan, many Democrats criticized it. Democrats argued that Trump’s campaign plan would help corporations and the wealthy more than middle-class Americans.

Most independent analyses of Trump’s campaign tax plan said it would balloon the budget deficit over time even after higher tax revenue from greater economic growth is factored in.

The White House appears not to support one possible revenue-raising tool, the controversial border adjustment provision included in the House tax plan.

“We don’t think it works in its current form, and we’re going to continue to have discussions with them about revisions,” Mnuchin said at an event hosted by The Hill on Wednesday morning.

He said earlier that the White House wants a “combined plan” with the House and Senate, which could potentially clash with the administration over some provisions.

It is not yet clear when Congress could introduce legislation on tax reform. Mnuchin said Wednesday that he wants to see it passed by the end of the year. He previously set an August goal for passing a tax-reform plan, but the White House has backed off that timeline recently.

 
Mnuchin: This is massive tax reform & simplification

“We’ve been briefed on what they’re going to do, and it’s basically along exactly the same lines that we want to go. … We see this as progress is being made and we’re moving and getting on the same page,” Ryan told reporters at a news conference with House GOP leaders.

Asked Wednesday afternoon if he thought some Republicans could oppose the plan, Mnuchin said there is “a lot of desire from everybody” to pass tax reform.

Cohn said Wednesday the White House is in “constant dialogue” with the House and Senate about the proposal and eventually will release “very firm” details.

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Here’s what was missing from Trump’s tax plan that Wall Street really wanted

Mnuchin: We will make sure wealthy people can't create passthroughs

Stocks like Apple with large overseas cash hoards fell Wednesday after Trump’s tax plan failed to reveal a specific rate for repatriating overseas profits.

Ahead of the Wednesday afternoon announcement, an administration official told Reuters the proposal would include a sharp reduction in the tax rate from the current 35 percent to 10 percent for repatriation of profits — overseas earnings brought back to the U.S.

However, the memo from the White House just stated, “one-time tax on trillions of dollars held overseas.”

 
U.S. National Economic Director Gary Cohn (L) and Treasury Secretary Steven Mnuchin arrive to unveil the Trump administration's tax reform proposal in the White House briefing room in Washington, U.S, April 26, 2017.

Treasury Secretary Steven Mnuchin said the actual rate has yet to be determined and that the White House is “working with the House and Senate” on a repatriation rate, saying it would be “very competitive.”

“The market had big expectations. They were expecting a lot of specifics and a specific rate on repatriation and they’re not getting it,” said Lawrence McDonald, author of “The Bear Traps Report” newsletter.

The repatriation tax “is definitely coming, they just don’t want to show their whole hand to the Democrats,” he said.

Apple shares intraday performance (beginning from around noon ET)

Source: FactSet

Apple, Microsoft, Alphabet, Cisco and Oracle are the five companies with the largest overseas cash holdings, according to an April 17 note by S&P Global Ratings’ Andrew Chang.

  • The iPhone maker’s stock erased gains to trade about a third of a percent lower Wednesday afternoon. Shares are up nearly 30 percent since the U.S. presidential election.
  • Microsoft shares also turned negative, trading about 0.1 percent lower. The stock has gained more than 12 percent since the election.
  • Shares of Google parent Alphabet also traded into the red. Shares have climbed more than 9 percent since the election.

Technology is the top performer in the S&P 500 for the year so far and the second best performer since the election — financial stocks are still the first.

Many on Wall Street have expected that much of any repatriated cash would go towards share buybacks.

Back in November, after Trump’s election win, Goldman Sachs’ chief U.S. equity strategist David Kostin forecast that S&P 500 buybacks would surge by 30 percent this year if there is repatriation, but by just 5 percent without tax reform. Kostin estimated that lower tax rates on repatriated profits should add $150 billion to a total expected $780 billion in buybacks, only the second time in 20 years for which buybacks will account for the largest share of total cash use by S&P 500 companies.

Apple has also topped the list of S&P 500 companies with the largest quarterly buybacks and share count reduction in history, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

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