President Donald Trump and Republican leaders will launch anurgent effort to get a major legislative win this year, announcinga long-awaited tax plan that will immediately set off a fight overhow much top earners should pay.

The framework they're set to release Wednesday proposes cuttingthe top individual rate to 35%—but leaves it up to Congress todecide whether to create a higher bracket for those at the top ofthe income scale.

The rate on corporations would be set at 20%, down from thecurrent 35%, and businesses would be allowed to immediately writeoff their capital spending for at least five years, three peoplefamiliar with the plan told Bloomberg News. Pass-through businesseswould have their tax rate capped at 25%.

The White House didn't respond to a request for comment.

The plan will set out three tax brackets for individuals — 12%,25% and 35%, down from the existing seven rates, which top out at39.6%. But that's not firmly set, as congressional tax-writingcommittees will be given flexibility to add a fourth rate for thehighest earners—an effort to prevent the overhaul from providingtoo much of a benefit for the wealthy.

Congress members haven't signaled that they'll take that option.Key Republicans on the tax-writing Ways and Means Committee,including Chairman Kevin Brady, have said they're committed tooffering across-the-board tax relief. Trump has repeatedly saidhe's focusing on middle-class individuals.

At the same time, though, the tax plan calls for repealing thealternative minimum tax and the estate tax, both of which would bea boon for higher earners and the wealthy.

The announcement of the plan, which Trump is expected to toutWednesday during a speech in Indiana, is the result of amonths-long process to craft a tax overhaul that was a key promisein Trump's campaign. But it marks only the start of what could be abrutal fight in Congress among lawmakers who disagree on keyelements of the plan. One influential skeptic has been SenateFinance Committee Chairman Orrin Hatch, a Utah Republican, whopledged his committee would not be a “rubber stamp” for theframework.

The tax effort begins one day after Senate leaders decided notto move forward with a vote on repealing Obamacare, one of the mostcentral promises of Trump's presidential campaign. But Trump hassaid that tax legislation, which he calls essential for stimulatingeconomic growth, has been his main focus.

Trump has told others that he expects lawmakers to work at abrisk pace. If not, he and the Republican Congress would end 2017without a single major legislative victory.

International Plans

On the international side, the plan would move toward ending theU.S.'s unique worldwide approach to taxing corporate profitsregardless of where they're —and focus on multinationals' domesticearnings only.

Companies with accumulated offshore profits would be subject toa one-time tax on those earnings—clearing the way for that incometo return to the U.S. The rate that would be applied is unclear,but it would vary depending on whether the income was held in cashor less liquid investments. Firms would be able to pay the new taxover several years.

Under current law, companies can defer paying U.S. tax on theiroffshore earnings until they bring them to the U.S. As a result,U.S. firms have stockpiled an estimated $2.6 trillion in profitoffshore. Going forward, the tax-writing committees will beresponsible for determining ways to prevent companies from shiftingU.S. profits overseas.

So-called pass-through entities, which include partnerships andlimited liability companies, would see their rate capped at 25%.Currently, those businesses, which can range from mom-and-popgrocers to hedge funds, don't pay income tax themselves but passtheir earnings through to their owners, who then pay tax based ontheir individual rates.

While the pass-through rate cut would represent a major taxbreak for lucrative pass-throughs, tax writers would craft measuresaimed at preventing individuals from recharacterizing theirpersonal wages as business income, according to the people, whoasked not to be identified because the framework is not yetpublic.

Middle-Class Benefits

In terms of middle-class benefits, the framework outlines a neardoubling of the standard deduction —to $12,000 for individuals and$24,000 for married couples—and calls for “significantlyincreasing” the child tax credit from the current $1,000 per childunder 17.

The tax plan will still lack extensive details about ways tooffset its rate cuts with additional revenue. It says most itemizeddeductions for individuals should be eliminated, without providingspecifics, while calling for mortgage interest and charitablegiving deductions to be preserved.

However, the state and local tax deduction would be abolished,according to one of the people. Ending that break, which tends tobenefit high-income filers in Democratic states, would raise anestimated $1.3 trillion over a decade. The move faces someRepublican headwinds from lawmakers in districts that use thededuction heavily.

The plan would also limit the interest deduction companies cantake on their borrowing, but no additional details wereprovided, the people said. Congress's tax-writing committees willbe tasked with limiting other business credits to help generateadditional revenue.

Seeking Offsets

House leaders have proposed abolishing the corporate interestdeduction, a move opposed by debt-reliant industries like privateequity and commercial real estate. Senate leaders, including Hatchand John Thune, the chamber's No. 3 Republican, have said they wantto maintain the deduction at some level at least.

The lack of consensus on how to offset tax cuts—a prerequisiteto making them permanent under the procedure that Senate leadersplan to use to pass the legislation —poses hurdles. If they fail toraise enough money to avoid a long-term hit to the deficit, atleast part of the package would have to expire within a decadeunder current rules.

But as tax writers surface ideas to raise revenue by closingloopholes or ending specific tax breaks, they'll unleash a torrentof lobbying similar to the campaign that killed a proposedborder-adjusted tax earlier this year.

“We're already working on it,” said Carlos Curbelo, a member ofthe Ways and Means panel, in reference to finding offsets.

“There are a number of pay-fors out there that are not justpay-fors, but also good elements of tax reform that will level theplaying field across the economy and lead to greater growth,” saidCurbelo, a Florida Republican. He said the committee's goal is tomake the tax changes as permanent as possible.

“So we're in search of it and we're getting close, very close,”he said.

From: Bloomberg News

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