Trump tax plan would slash corporate deductions

Key Points
  • "We're really looking at effective rates," a senior administration official says about the Trump tax plan.
  • "You can't go from 35 [percent] to 15 and still allow deductions. It's just algebra," the official says.
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The Trump administration wants to substantially slash the number of corporate tax deductions, a senior official says.

"We're really looking at effective rates," the administration official said Thursday. "When you have a 15 percent corporate tax rate, we don't believe that you have to give people a lot of deductions. And look — to pay for it you have to broaden the base. So you can't go from 35 to 15 and still allow deductions. It's just algebra."

The official, who spoke on condition of anonymity in order to speak more candidly, said companies would have to get used to a new type of tax code under the Trump plan. "A lot of deductions that corporates have taken are going to have to disappear. It's just math."

Though the top corporate tax rate officially is 35 percent, most companies pay less based on a thicket of deductions that shield them from paying the full amount. Eliminating those deductions would subject more profit to the new, lower rates.

A CNBC analysis found that the changes would be felt unevenly from one industry to another.

Politically, the official said, it may be easier to eliminate nearly all corporate deductions than to stage fights over specific carve outs. "If you're trying to pick and choose a few of them, it's a big fight," he said. "My view is, if you try to eliminate them all, it's not as big of a fight. If I'm trying to pick winners and losers it's a fight. If they're all losers it's a lot less of a fight. And what's the value of them at 15 percent? The value is substantially less."

In addition, the official said the administration's "intent" is to "get rid of carried interest rules."

Pressed for a specific rate for the one-time tax repatriation deal the administration is proposing, the official would only say Trump envisions a rate "greater than zero and less than 15 percent."

As a result of the elimination of deductions, National Economic Council Director Gary Cohn was asked if President Donald Trump's tax plan would be a tax increase for companies paying effective rates less than 15 percent. "I'm OK with that," Cohn said.