Calling it the “biggest tax cut” in US history, officials outlined cuts that would benefit businesses, the middle class and certain high-earning individuals.
The plan cuts the income tax rate paid by public corporations to 15 percent from 35 percent. It also reduces the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent.
It will apply a one-time, low rate to an estimated $2.6 trillion in offshore profits that have so far avoided US taxes.
President Donald Trump’s top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin unveiled proposals that simplify the system by eliminating seven existing tax brackets, replacing them with three brackets at rates of 10 per cent, 25 per cent and 35 per cent.
The package also includes child-care benefits, a cause promoted by Mr Trump’s daughter Ivanka. It raises standard deductions for individuals, and repeals inheritance taxes on estates.
It changes the rules where about $2.6 trillion in profits are being held tax-exempt abroad by US multinationals, where those profits are taxed only if they are brought into the United States, or repatriated.
Mr Trump has proposed requiring repatriation, but at the lower rate.
“This is going to be the biggest tax cut and the largest tax reform in the history of our country and we are committed to seeing this through,” Mr Mnuchin said.
Mr Mnuchin did not say what that rate would be. All he said was that the administration was working with Congress on a low rate.
It is not clear whether the tax plan will pay for itself and how it will contribute to the US deficit.
Mr Mnuchin said the costs would be covered by economic growth. The package, he said, would “unlock the economic growth that’s been held back for too long in this country.”
However, economists are questioning that claim. “It’s a pretty big tax cut, but it doesn’t result in a significant amount of economic growth,” said economist Kyle Pomerleau from the conservative Tax Foundation.
House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans responded coolly, saying in a statement that the plan served as “critical guideposts” for negotiation.
US stocks initially closed lower because of a lack of clarity about Trump’s policies and concern over his failure to push through a healthcare bill.
“We have a pretty good idea that he (Trump) is targeting lower corporate taxes, lower individual taxes and a simplification of the process, but all that is in an ideal world,” Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey told Reuters.
“The market will not interpret the plan negatively, but there are obstacles in that course, just like with anything that Trump says and does.”