WASHINGTON—President Donald J. Trump will propose a sweeping rewrite of the federal tax code on Wednesday, outlining a plan to reduce rates for corporations and individuals and eliminate some popular deductions, in a move that will set off a scramble among powerful groups eager to protect their tax breaks.
The proposal will call for slashing the corporate tax rate to 20 percent from 35 percent, doubling the standard deduction for individual taxpayers and slightly increasing the bottom tax rate to 12 percent from 10 percent, according to two officials briefed on the details of the blueprint.
The framework, which has been agreed upon by Republican leaders in the House and Senate, leaves most of the details to Congress but proposes a reduction in the current top individual rate to 35 percent, from 39.6 percent, while leaving the door open for an unspecified, higher bracket for the wealthiest Americans.
The plan would also, for the first time, create a 25-percent tax for “pass-through” businesses, which account for the vast majority of business income in the United States and are currently taxed at individual rates.
Pulling the tax-code levers inevitably creates winners and losers, but the scant details of the plan, including how it will be paid for and which deductions are on the chopping block, make it impossible to determine the distributional effects and whether it will actually help middle-class taxpayers and not the wealthiest Americans.
At a dinner with conservative and evangelical leaders on Monday evening at the White House, Trump spoke extensively about his tax plan and said that referring to “tax reform” as “tax cuts” was a much better way of communicating the effort.
Trump also said that repatriation of taxes on corporate profits kept offshore would be part of the plan. He did not describe changes to carve-outs or deductions, according to a person in the room.
At one point, Trump said that getting the corporate rate down was the key to getting the economy to grow. The president said that he had grown tired of listening to foreign leaders, like India’s Narendra Modi, describe a GDP increase close to 10 percent, while Trump had nothing comparable to show, according to the person, who asked for anonymity because it was a private dinner.
The White House is trying to navigate a narrow path on an issue that administration officials believe can reboot Trump’s presidency. It is an attempt to assuage the demand for lower taxes among wealthy party donors without being perceived by Trump’s working-class base as giving a windfall to the rich.
wTrump promised after meeting with lawmakers on Tuesday that “we will cut taxes tremendously for the middle class.”
He will make his pivot to overhauling the tax code official on Wednesday during a speech in Indiana where he will unveil details of a plan that he has promised will be the biggest tax cut in history.
After the failure of Republicans to repeal the Affordable Care Act, passing tax legislation has become all the more crucial, and it is no accident that the Trump administration has chosen the Hoosier State, a reliably Republican part of the country. It is also the home to Vice President Mike Pence, its former governor, and it has a Democratic senator, Joe Donnelly, whose support Trump may need.
For Republicans who have been scarred by the experience of seeing tax cuts lead to fiscal shortfalls in states, such as Kansas, South Carolina and Tennessee, Indiana represents a case study of where tax cuts worked.
“Our history of being a state that has reduced the size of government, specifically through Pence tax cuts in 2013, makes us an example of ‘here’s these tax cuts,’ and then seeing economic growth,” said Justin Stevens, the Indiana head of the conservative group Americans for Prosperity.