Trump pitches tax cuts on business as aiding middle class

SPRINGFIELD, Mo. — President Donald Trump on Wednesday pitched a sweeping tax overhaul that he said would unleash the U.S. economy and help ordinary people, promising that a large corporate tax cut and trims to individual income tax rates would boost the middle class.

The president wrapped his message in the populist rhetoric that powered his presidential campaign. But he described a plan that on its surface appears to offer relatively little to ordinary Americans, granting instead huge tax cuts — "the biggest ever," he said — to corporations and their shareholders.

Trump gave few specifics beyond a goal of slashing the corporate tax rate to 15 percent, from 35 percent, and eliminating "loopholes and complexity that primarily benefit the wealthiest Americans and special interests," a reference to his call to scrap some itemized deductions.

The politically difficult legislation has yet to be drafted despite months of private negotiations among members of the Trump administration and Republicans on Capitol Hill. Time is running out for enactment of the bill before year's end, and the White House is keenly aware that if Trump fails to deliver his promised tax cuts, he will emerge from his first year in office devoid of any major legislative accomplishments.

"This is our once-in-a-generation opportunity to deliver real tax reform for everyday hard-working Americans," the president said as he stood in front of a giant American flag at the Loren Cook Co., a fan manufacturer. "And I don't want to be disappointed by Congress."

"Lower taxes on American business means higher wages for American workers," he added.

Many economists say 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 U.S. corporations to invest more; they are already sitting on nearly $2 trillion in cash. And with the economy growing at 3 percent — Trump exulted over the figure during his speech, 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 big 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, 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 has gained ground.

For many years, experts agreed that corporate taxes did not affect wages. U.S. 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.

Trump called on Republicans and Democrats to come together to support the effort. He then singled out Sen. 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 of office."

Beyond the politics, 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 to turn themselves into businesses for tax purposes.

Democrats seized on the disconnect between 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," Sen. Chuck Schumer of New York, the Senate Democratic leader, said in a conference call organized by progressive groups that are planning an intensive advertising and advocacy campaign to oppose Trump's tax-cutting initiative.

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," he remarked.

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, 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.

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 20-25 percent, substantially higher than the 15 percent the president called for in April. In his speech, 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. 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, 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 anathema to many conservative Republicans.

If 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 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 Sen. Roy Blunt, R-Mo., "and at some point, we'll have to make the decision, 'OK, 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?'"

Julie Hirschfeld Davis reported from Springfield, and Binyamin Appelbaum from Washington.