Trump tax plan short on critical details

Call it a plan for a tax plan.

American taxpayers eagerly awaiting details of President Donald Trump's ambitious tax reform plan Wednesday were left with more questions than answers.

Building on a single page of campaign bullet points promising to simply the sprawling U.S. tax code, give middle-class workers a break and help businesses compete, the administration unveiled a long-awaited "framework" that provided only broad brush outlines of an overhaul proposal.

But while the nine-page outline proposes sweeping changes, the impact of any reforms are all but impossible to estimate until congressional committees and lawmakers on Capitol Hill agree on specific provisions, let alone bring a bill to a vote.

"We have gone from one page of detail to nine pages of detail," said Paul Christopher, a market strategist at Wells Fargo. "That's still not a complete tax plan."

To be sure, the White House document acknowledges the reality of the task ahead in building a consensus among multiple congressional committees with jurisdiction over budget and tax policy.

The effort is further complicated by a GOP divided between fiscal "hawks" who want any tax cuts paid for by closing tax breaks to raise revenue and "supply-siders" who believe tax cuts will eventually pay for themselves by spurring economic growth.

That's why the long-awaited document is being billed as a "framework" for tax reform, not an actual plan.

One of the biggest unknowns starts with the basic tax brackets used to assess how much each American household owes the Treasury every April 15. To simplify the current system of seven separate income cutoffs, from 10 percent to the top 39.6 percent rate, the plan proposes cutting that to three – 12 percent, 25 percent and 35 percent.

But the most important detail – when each bracket kicks in — has yet to be spelled out.

"The framework will have specific rates on businesses and families but the actual income parameters will be hammered out later," a senior White House official told reporters in a briefing Tuesday.

Further confounding those trying to estimate the impact, the plan hints that an additional "fourth bracket" may be needed to assure that the wealthiest earners pay their fair share.

Families would lose a popular tax break for dependents but get a bigger child tax credit and a $500 credit for dependents other than children.

The plan clearly spells out a call to nearly double the so-called standard deduction from the current level to $12,000 for individuals and $24,000 for married couples. That would effectively shield that income from taxation for those at the bottom end of the income ladder.

But anyone making more than that is left to wonder which of the dozens of lucrative tax breaks in the current tax code may be eliminated. The administration signaled at Tuesday's briefing that the popular deduction for taxes paid to state and local governments will be eliminated, but that repeal was not spelled out in Wednesday's nine-page framework.

Nor did the plan address the prospects for repeal of popular deductions – the tax breaks for mortgage interest, charitable donations or medical expenses – that can lower a household's annual tax burden by thousands of dollars.

The document also outlined various provisions for businesses, including a cut in the corporate tax rate to 20 percent. But while promising to "modernize" the dozens of tax breaks that favor specific companies and industries, those details remain to be spelled out. That process is certain to set off a fierce lobbying campaign by those favored by each provision.

The document also called for a repeal of the alternative minimum tax, a provision originally intended to tax wealthy households that now reaches well into the middle class. And the plan also calls for eliminating the estate tax.

Repealing those provisions may be politically popular. But doing so will be costly the U.S. Treasury.

One way to make up the shortfall — and pay for lower tax rates on businesses and individuals —would be to close some of the many deductions, exemptions and exclusions that cost the government nearly $1.4 trillion in fiscal 2017, according to the Treasury. Targeting those tax breaks would spark a hard-fought political tug of war.

That's why some lawmakers are hoping to avoid those battles by promising to make up any lost revenue with the prospect that tax cuts will spur the economy. Proponents of the argument claim that faster growth will generate enough new individual income and corporate profits to make up for lower rates.

But the theory has numerous critics, including many economists who argue that the idea hasn't worked in the past.

And, with the economic recovery now in its eighth year and unemployment at historic lows, it's unlikely a tax cut will have much impact.

"All the evidence shows that tax cuts, tax reform can be very effective, if there is considerable slack in the labor market if unemployment is relatively high," said Joachim Fels, a global economic advisor at Pimco. "If you get a fiscal boost and tax reform this late in the cycle where most of the slack in the market is eroded, you're not going to get a lot of bang for your buck."