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| President Trump signed an executive order on tax reform at the Treasury Department on Friday.Gabriella Demczuk for The New York Times |
President Trump promised on Friday that he would unveil a “massive” tax cut for Americans next week, vowing a “big announcement on Wednesday,” but he revealed no details about what is certain to be an enormously complicated effort to overhaul the nation’s tax code.
Mr. Trump offered his tax tease in an interview and again during remarks at the Treasury Department on Friday afternoon as he raced to stack up legislative accomplishments before his 100th day in office at the end of next week.
His announcement surprised Capitol Hill and left Mr. Trump’s own Treasury officials speechless as he arrived at the Treasury offices to sign directives to roll back Obama-era tax rules and financial regulations. Earlier in the day, when reporters asked Steven Mnuchin, the Treasury secretary, how far away a tax overhaul proposal was, he said he could not give an answer. “Tax reform is way too complicated,” he said.
Mr. Trump told The Associated Press in the interview that his tax reductions would be “bigger, I believe, than any tax cut ever.” But he faces an enormous fight among clashing vested interests as Congress tries to rewrite the tax code
Starting that fight next week is further complicated by Mr. Trump’s hopes to revive the Republican health care plan that collapsed last month. And it would mean trying a tax overhaul as his White House faces the prospect of a government shutdown if lawmakers cannot agree on a funding bill by April 28.
The details of Mr. Trump’s tax plans remain the subject of intense speculation, with stock markets regularly gyrating when White House officials discuss the subject. Since taking office, the president has suggested that he wants to enact the deepest cuts to individual and corporate tax rates in history.
But despite Mr. Trump’s statement on Friday that his tax overhaul “really formally begins on Wednesday,” White House officials quickly cautioned against high expectations that Mr. Trump would provide the legislative text of a detailed tax plan next week.
Instead, a senior administration official said the president would release only the “parameters” that Mr. Trump expected a tax plan to follow in the long congressional debate that would surely follow. Another official said the information released next week would be more like a “broad” outline. Wall Street, which tends to celebrate tax cuts, barely reacted; the Standard & Poor’s 500-stock index was down 0.3 percent Friday.
The administration has maintained that middle-income tax cuts, a simplification of personal income taxes, and making business taxes more competitive with other countries are the top priorities. Mr. Trump insisted that his plans were on track and that his strategy to remake the economy would change history.
“This is really the beginning of a whole new way of life that this country hasn’t seen in many, many years,” Mr. Trump said as he sat at the desk of Mr. Mnuchin, near a portrait of Alexander Hamilton, the first Treasury secretary.
He said, “We’ve lifted one terrible regulation after another at a record clip from the energy sector to the auto sector.”
Despite Mr. Trump’s enthusiasm, the directives he signed at the Treasury Department on Friday to review measures put in place by the Obama administration were largely preliminary. As business groups cheered the moves, some skeptics were left questioning whether Mr. Trump was keeping his campaign promises to give working-class Americans a higher priority than Wall Street bankers.
“From our perspective, it is a direction that is dramatically backwards on financial stability,” said Lisa Donner, executive director of Americans for Financial Reform.
The presidential order asks Mr. Mnuchin to review the tax regulations imposed by President Barack Obama in 2016. Those include efforts to clamp down on “corporate inversions” — in which American companies merge with foreign companies to take advantage of lower tax rates abroad.
Viewed alone, undoing the rules would appear to be at odds with Mr. Trump’s campaign pledge to reduce incentives for companies to move overseas to minimize taxes.
Last year Mr. Obama’s Treasury Department, concerned about Pfizer’s $152 billion bid to acquire Allergan, which makes Botox, issued rules to thwart the practice. Among those efforts were regulations to prevent moves like “earnings-stripping,” in which an American subsidiary borrows from a parent company and uses the interest payments on the loans to offset its earnings. It was intended to make the financial relocations less attractive.
The uproar over inversions dogged a number of transactions over the last five years including Burger King’s takeover of the Canadian chain Tim Hortons and the drug maker AbbVie’s planned acquisition of an Irish rival, Shire.
But the major target of the outrage was the Pfizer-Allergan deal, by far the biggest effort by a company to give up its American citizenship to cut its taxes. Pfizer executives braced themselves for opposition from the Obama administration — but were surprised by how aggressively the White House fought the deal. Within a few months, Pfizer and Allergan surrendered and ended their agreement.
Robert Willens, an independent tax consultant, said reversing these rules would be a gift to Wall Street bankers and lawyers who have complained that they have hampered international deal making.
“They’ll be dancing in the streets and jumping for joy,” Mr. Willens said.
Memorandums with the executive order ask Mr. Mnuchin to review the Orderly Liquidation Authority, a tool created by the Dodd-Frank law of 2010 for unwinding financial institutions that are on the verge of collapse. Many banks have hoped that Congress will repeal the system. The administration is examining whether it encourages excessive risk-taking or exposes taxpayers to potential liabilities.
The Treasury is also reviewing the Financial Stability Oversight Council, which designates financial institutions as “systemically important,” better known as “too big to fail.” It requires them to hold more capital in reserve in the event of financial emergencies.
Both provisions, which were part of the Dodd-Frank law, are delayed by a 180-day review by the Treasury.
Democrats warned that Mr. Trump was putting vulnerable middle-class Americans in danger. “Simply eliminating these regulations and putting nothing in their place leaves a hole in the tax system that sophisticated corporations will continue to take advantage of, to the detriment of the country,” said David Kamin, a New York University law professor who worked on the Obama administration’s National Economic Council.
Senator Sherrod Brown, Democrat of Ohio, assailed Mr. Trump for trying to undermine rules that were put in place to protect the economy. “Any actions to undermine these protections encourage Wall Street’s risky behavior and leave taxpayers and our economy exposed to another catastrophe,” he said.
Mr. Brown said that Mr. Trump appeared to be breaking a campaign promise by making it easier for companies to use inversions. “We should be working to lower taxes for hardworking families and workers across Ohio, not helping multimillion-dollar corporations cheat the system to avoid paying their fair share,” he said.
Mr. Mnuchin insisted that would not be the case and argued the tax overhaul legislation plan that they would propose will address the problem of companies moving overseas.
Mr. Trump has shown an affinity for tariffs. He proposed a “reciprocal” tax this month that matches the import taxes other countries impose on American goods.
It remains unclear if Mr. Trump is on board with the “border adjustment” tax that is central to the plan being promoted by Speaker Paul D. Ryan and House Republicans. The concept would allow Republicans to raise more than $1 trillion of revenue, making it possible for them pass legislation without adding to the deficit.
Mr. Trump has been cool to that plan in interviews, and recently his advisers have been making the case that a surging economy, rather than Mr. Ryan’s border adjustment tax, will pay for deep rate cuts.
“The plan will pay for itself with growth,” Mr. Mnuchin said an Institute for International Finance conference on Thursday.
Mr. Trump’s economic team had initially set an August deadline to get tax legislation passed, but that target was delayed to the end of the year after Republicans expended time on their failed health plan.
After The Associated Press reported on Mr. Trump’s accelerated timeline to put out their tax plan, Treasury officials who were awaiting Mr. Trump’s visit to their office smiled broadly and chuckled nervously as they digested news on their smartphones.
But during his visit, Mr. Trump expressed confidence that Mr. Mnuchin and his team were ready to move on a tax overhaul, a mammoth legislative undertaking that has not occurred since 1986. After a brief tour of the building, Mr. Trump praised his Treasury secretary’s financial acumen and said he was sure that Mr. Mnuchin would be among the best to do the job.
“I think Hamilton is tough to beat, but maybe you can do that too,” Mr. Trump said.
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