Last week the Administration unveiled a broad outline of what they are seeking in terms of tax changes and tax reforms. The press conference and the one page document that the White House released provided only the broadest of indications of what they are seeking to do. Those changes revolve around simplifying the tax code with massive tax reductions but even at that it was unclear how far the tax reductions would go beyond reducing the number of tax brackets for individuals and providing a 20-point reduction in current tax levels for corporations from 35 percent to 15 percent.
The outline of the proposal also indicated that they will eliminate most deductions in an effort to simplify the code although they did indicate that a few items would remain including charitable deductions, the home mortgage interest deduction and an expansion of the dependent and child care tax credit.
The President did indicate during the campaign his support for expanding child care assistance but the proposals that have been broadly described would likely benefit higher income families able to use tax deductions and credits. As reported earlier, a new analysis indicates that more than 200,000 children will lose child care subsidies next year if Congress fails to fund the Child Care and Development Block Grant (CCDBG) to meet new regulatory requirements. A CLASP factsheet projects that up to 217,000 children would lose child care assistance. The CCDBG participation is at an all-time low, with the number of children receiving CCDBG-funded child care on the decline for five straight years. At current investment levels, only about 15 percent of children who are eligible receive child care assistance. Child care advocates indicate that an increase of $1.4 billion is needed in FY2018 to fully fund the bipartisan 2014 CCDBG reauthorization without further reducing the number of children served.
A major issue that was raised by the presidential outline is how the Administration proposes to pay for what could be an expensive proposal ranging anywhere from $2 trillion to $5 trillion according to various think tank estimates. The Administration’s response is that they would not offset the cost of the tax reductions rather they envision greater economic growth would balance the budget or offset the revenue decreases. That is an approach and argument used by the Reagan Administration in 1981 and the George W. Bush Administration in 2001 in regard to their significant tax cut packages. Neither proposal helped balance the budget (Reagan) or maintaining the existing surplus (Bush).
The Administration would like to pass a tax reform package by the end of the calendar year. That would require a lot of work and strategy including whether or not they attempt to use the fast track reconciliation process that would likely shut out Democrats (and require the tax cuts to expire in ten years) or whether they attempt to get bipartisan agreement.
