President Donald Trump on Wednesday released a one-page tax reform outline proposing tax cuts to businesses and wealthy individuals. The corporate income tax rate under the plan would fall from 35% to 15%.
Notably absent from the page was the Republican-based border adjustment tax, which would have installed a 20% tax on imported (but not exported) goods, including those manufactured overseas for U.S. retailers. Retail stocks rose Wednesday on that news.
Retail trade groups such as the NRF and RILA hailed the document, agreeing with Treasury Secretary Steven Mnuchin that tax cuts would stimulate growth. But the dearth of details in the document, in particular no indication of how the cuts would be paid for, led several economists to question the proposal’s benefit to the wider economy.
Retailers have found themselves on both sides of the Trump administration’s tax policy — fighting the idea of import tariffs and celebrating when it comes to corporate tax cuts.
Brian Dodge, senior executive vice president for public affairs at the Retail Industry Leaders Association, said Wednesday the trade group welcomed the president's outline on tax reform. “Retailers pay among the highest effective tax rates of all U.S. businesses and provide jobs to more Americans than any other industry. Reform that substantially lowers the rates that retailers ultimately pay will generate job growth and benefit American families in countless ways,” he said in a press release emailed to Retial Dive. “The President’s tax reform plan recognizes the importance of a globally competitive tax code that allows American businesses to compete around the world and grow, and for consumers to have more money to save or spend.”
But Dodge added that his organization will continue to fight “the harmful border adjustment tax proposed by House Republicans.”
The very words “tax cuts” are usually sweet music to businesses’ ears, especially left unaccompanied by details or complexity about how to balance cuts with spending reductions. The lack of such details allowed Mnuchin, many Congressional Republicans and tax cut advocates (including retail industry leaders) to support the plan because they didn’t have to confront its spending or deficit consequences.
Some observers said the plan was released this week in order to have a tax plan on the record during Trump’s first 100 days. “We've been working on this for a long time,” Gary Cohn, director of the National Economic Council told reporters on Wednesday, according to a transcript provided by the White House. “We have agreed on many of the important principles of tax reform. We look forward to working together with the House and the Senate, very closely, in the weeks ahead.”
But some economists and others warned that there simply aren’t enough details contained in the plan, suggesting that there’s more work to be done. Rather than simply focusing on cuts, which were emphasized by Cohn and Mnuchin Wednesday, White House budget mavens and members of Congress should be tackling more comprehensive reforms, according to Joe Kennedy, senior fellow at think tank Information Technology and Innovation Foundation and formerly chief economist at the Commerce Department during the George W. Bush and Barack Obama administrations.
“While some of the provisions are critical for boosting U.S. economic growth, like a lower corporate tax rate and a so-called ‘territorial’ system for taxing companies’ foreign profits, the plan is silent on many other key measures that are necessary to boost productivity and competitiveness,” he said in a statement emailed to Retail Dive. “Critically, the plan also would add trillions of dollars to the deficit over the next decade, an issue the administration further aggravates by proposing to cut taxes on so-called ‘pass-through’ businesses. The unfortunate effect of these flaws will be to divert attention away from other proposals that have a greater chance of passing Congress, which will slow progress toward much-needed tax reform to boost the U.S. economy."