White House officials are looking at a strategy to pass a sharp, short-term tax cut if President Trump’s effort to pursue a broader overhaul of the tax code falters, according to multiple people briefed on the administration’s planning.
The plan for a more narrow tax cut, which officials could begin pursuing as soon as September, is a recognition of the challenges the broader overhaul faces, with the Republican Party struggling to find consensus on key parts of tax reform.
The administration officials are willing to consider multiple scenarios if the tax code overhaul that Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn are hashing out with congressional Republicans fails to come together, according to the people briefed, who spoke on the condition of anonymity to discuss internal deliberations.
The top advocates for the targeted tax cut have been Larry Kudlow and Steve Moore, who were both top economic advisers during Trump’s campaign and remain in frequent contact with officials in the West Wing.
Kudlow met with top NEC staffers two weeks ago and also had a private meeting with Trump, in which he urged them to consider pursuing tax cuts this year if they are unable to marshal agreement on a broader change to the tax code.
“I’ve been down there several times,” said Kudlow, who lives in New York. “I feel like I’m a bullpen closer.”
Kudlow and Moore have been pitching a plan they call “Three Easy Pieces,” which would — for 10 years — cut the corporate tax rate from 35 percent to 15 percent, double the standardized deduction that millions of Americans claim in their taxes, and allow companies to bring money back from overseas without a significant tax penalty.
Moore said in an interview that these changes would probably cost between $2 trillion and $3 trillion over 10 years, but he said it would give a jolt to economic growth and allow White House and congressional Republicans to take more time to look at a broader revamp of the tax code.
This plan would be a major departure from what Mnuchin and Cohn have worked on for months, and both men have not shown much interest in entertaining the idea so far, people close to the discussions said. Mnuchin and Cohn are looking at ways to cut taxes but also eliminate numerous tax breaks to offset some — but not all — of the lost revenue. House and Senate Republican leaders have also so far remained in lockstep that they should stay focused on overhauling the tax code, not targeted tax cuts.
Mnuchin, meeting with agriculture industry officials in the White House on Tuesday, told them he and Cohn were still very committed to the rewriting the tax code, something that hasn’t happened in more than 30 years. They are hoping to advance a joint agreement with House and Senate Republicans by September.
“We’ve been working closely with the House and the Senate in coming up with a joint plan,” Mnuchin told them. “And we are determined to get this done this year.”
Mnuchin, Cohn and numerous lawmakers involved in the tax overhaul talks have said they believe their discussions are going very well, but they still have major decisions to make before they can share their plan with colleagues.
They must decide, for example, whether to pursue a temporary or permanent change in the tax code (Mnuchin has said permanent is ideal, but short-term is better than nothing).
They also must decide whether to offset all of the tax rate reductions they pursue by eliminating tax numerous tax breaks, or design their plan as a giant tax cut that would widen the deficit.
White House officials have described both scenarios as being under consideration.
Trump has said the tax plan will probably lead to a decrease in federal revenue for the first few years, but he believes future economic growth would eventually compensate for this.
The White House in April — after prodding from Moore and Kudlow — issued a one-page blueprint for how it planned to overhaul the tax code, which included lowering corporate and personal rates, eliminating certain tax brackets, and cutting the estate tax, the alternative minimum tax, and taxes on capital gains. They called for getting rid of the tax deduction people can take on the state and local taxes they pay.
The proposal was warmly received by Republicans but met with skepticism from Democrats, many of whom pointed to studies that found it would add more than $5 trillion to the debt over the next decade.
Trump has said a major tax package is one of his top domestic priorities, and he said the plan will be the largest tax cut in U.S. history. He is also pushing lawmakers to complete a repeal of parts of the Affordable Care Act, though that process remains in flux and it is unclear how lawmakers will proceed. Separately, the $1 trillion infrastructure plan that Trump has promised has gained little traction and planning has taken longer than expected.
But reworking the tax code is very difficult, and Mnuchin and Cohn have been working diligently at it but neither of them have experience cutting a major political deal with lawmakers on Capitol Hill.
The tax cut plan Moore and Kudlow are pushing would also probably face supporters and skeptics in Congress. Passing tax cuts is often popular by lawmakers, but it can be a more challenging vote if it widens the deficit and adds to the federal debt. Also, passing a large tax cut is very difficult to do along party lines, and Republicans only control 52 seats in the 100-chamber Senate.