On the corporate side, Republicans are calling for slashing the top tax rate to 20 percent from 35 percent. The plan would also bring the top “pass-through” business rate down to 25 percent from its current level of 39.6 percent. That is the top rate that sole proprietorships, partnerships, and S corporations—meaning many small businesses—pay. It would also encourage businesses to bring back profits stashed overseas with a special rate cut.
The cuts will revitalize small businesses, aid the middle class, and boost job-creation and economic growth, Trump has promised. “America has the highest business tax rate in anywhere in the developed world. We’re the highest-taxed nation in the developed world, and I think in the undeveloped world too,” he said. “But you know, I have to be very accurate with these people because they’ll start claiming all sorts of things. So we’ll just keep it in the developed world.” (The United States does have the highest statutory corporate tax rate on Earth, but its effective average tax rate on corporations is not the highest in the developed world. Nor is the United States close to the highest-taxed nation, as a general point.)
What will all this add up to? How big will the tax cuts be? Would Trump himself pay more in taxes? At the moment, many crucial details remain unknown and it is difficult to say what outcomes they would lead to.
First and foremost, the unified plan—negotiated by Treasury Secretary Steven Mnuchin, Gary Cohn of the National Economic Council, Ways and Means Chairman Kevin Brady, House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and Orrin Hatch, the head of the Senate Finance Committee—does not specify how much the tax reform would cost, with the range of possibilities extending into the many trillions of dollars. Senator Bob Corker of Tennessee has indicated that Republicans would need to eliminate deductions and loopholes worth $4 trillion to make up for the reduction in tax rates in the plan—deductions and loopholes that the plan does not enumerate. External analysts have suggested that the Republican wish list would cost something like $5 trillion over a decade, with the current Republican budget blueprint giving them only $1.5 trillion of room to maneuver. How Republicans might make up those multitrillion-dollar differences remains unclear.
Another question is how much growth would make up for any revenue losses, and how much growth might figure into the Republican accounting process. Trump has indicated that the tax plan would boost growth up to as much as 6 percent a year. “The jobs will start pouring in from all over the world coming back to our country. They’ve left our country, so many of the jobs, and they’ll be coming back in because we have a non-competitive tax structure right now, and we’re going to go super-competitive,” he promised this week. Republicans have indicated the plan might be revenue-neutral, after accounting for souped-up economic growth. But economists broadly describe 6 percent growth as fantastical, and argue that tax cuts do not pay for themselves.