As you have no doubt heard by now, the Trump administration yesterday released a tax reform “plan” that filled just one side of a single sheet of paper. Which is to say, the plan is light on details. The “goals for tax reform” are outlined:
- “Grow the economy and create millions of jobs
- Simplify our burdensome tax code
- Provide tax relief to American families – especially middle-income families
- Lower the business tax rate from one of the highest in the world to one of the lowest”
Some of the specifics include reducing the number of tax brackets, doubling the standard deduction while eliminating a number of itemized deductions (but preserving the deductibility of mortgage interest and charitable gifts), repealing the inheritance tax and alternative minimum tax, reducing the corporate rate to 15%, and switching to a territorial system of taxation for corporations.
Aside from the elimination of some tax deductions, the only other offset mentioned is a one-time tax on overseas earnings, or repatriation. This is notable if you care about infrastructure. The repatriation funding has long been considered the primary way to pay for a significant infrastructure investment. Even the president has mentioned this possibility in the past. With some $2.3 trillion parked overseas, a 10% tax could bring in hundreds of billions of dollars. But the new plan does not specifically tie repatriation to infrastructure, at least not at the outset.
Rep. John Delaney (D-MD), who has introduced bi-partisan legislation that would use repatriated funds specifically for infrastructure, called yesterday’s announcement a “punch in the gut.” His release on the tax plan states: “Strategically, this is a strong sign by President Trump that they’re not serious about infrastructure, it’s a punch in the gut on infrastructure, frankly. Today the White House essentially announced they aren’t doing infrastructure. After working on this issue for four years, it is clear to me that the only way you can pay for a real infrastructure program is by using revenues from repatriation.”
There is still a long path from here to passage of a tax package. But as a first draft, yesterday’s proposal would result in massive increases in the federal deficit and potentially make a large infrastructure package next to impossible. Let’s hope there’s more here than meets the eye, and that the president remains committed to ensuring we invest in the nation’s infrastructure as a major part of his economic plan.