Trump's tax reform plan may include placeholder for border tax, official says

Key Points
  • President Donald Trump is set to unveil more details on his tax reform plan on Wednesday.
  • An official told CNBC that the plan includes provisions that would cap the tax rate for corporations and "pass throughs" at 15 percent.
  • The official said the plan could also include a placeholder for the border tax.
Corporate tax rate concerns
Corporate tax rate concerns

A senior administration official told CNBC that President Donald Trump is expected to unveil a tax plan on Wednesday that includes a slew of provisions including one that is designed to balance out cuts in the plan.

The official said that the plan will have a revenue placeholder designed to dampen claims that it would drastically increase the federal deficit.

It's possible that the placeholder could be turned into the much-debated border adjustment tax, which had been part of a blueprint drafted by Republican leaders, according to the official.

The border adjustment tax, which favors exports over imports, has proven divisive. While it incentivizes domestic production and manufacturing, raising the taxes on imports would likely lead to higher costs for consumers.

The official told CNBC that the tax plan will include a 15 percent top rate for corporations and "pass through" income, earnings that passes through a business to the individual returns of the business' owners.

The cut fulfills a proposal Trump floated in August, lowering the tax on pass-through income, which is currently taxed at the individual rates, or a maximum of 39.6 percent.

A senior Treasury staffer told CNBC that Treasury Secretary Steven Mnuchin and White House chief economic advisor Gary Cohn are set to conduct a joint news conference around 1:30 p.m. ET.

When Trump proposed the cut as a candidate in August, he said it is intended to help small businesses. While the measure would help small businesses, it would also be a windfall for the wealthy.

In August, analysis by the Center on Budget and Policy Priorities found that more than two-thirds of pass-through business income flows to the top 1 percent of tax filers. Much of Trump's sprawling network of businesses consists of entities that would benefit from a lower tax on "pass through" entities.

The official also told CNBC that the top individual rate will be between 33 percent and 39.6 percent. They also said that the announcement will include something significant for the middle class, which could include an expansion of personal exemptions, child-care credits or both.

— Reporting by CNBC's John Harwood. Written by Christine Wang. Robert Frank and Lori Ann Larocco contributed reporting.

Watch: Kudlow says no border adjustment tax

Kudlow: There will be no withdrawl from NAFTA, no border adjustment tax
Kudlow: There will be no withdrawl from NAFTA, no border adjustment tax