A budget deficit challenge for Trump's tax plan


WASHINGTON (AP) — President Donald Trump plans to stick with his campaign pledge to slash the corporate tax rate from 35 percent to 15 percent, but the dramatic cut raises a problematic question for the White House: How can the president deliver the "massive" tax cut he promised without also blowing a massive hole in the budget?

A senior administration official confirmed the planned reduction to corporate rates, speaking on condition of anonymity in order discuss details of the plan the president is expected to unveil Wednesday.

Most outside economic analyses say the type of tax cuts being promoted by Trump would likely fuel even larger deficits for a federal government already projected to see its debt steadily rise.

The lowered tax rates are also unlikely to generate Trump's ambitious promised growth rate of 3 percent a year, roughly double the 1.6 percent growth achieved last year. These two factors are related because the Trump administration is counting on faster economic growth to produce additional tax revenues that could then close the deficit. The concept was popularized as "trickle-down" economics during the Reagan years.

The problem is the economy can't grow quickly enough to cover the likely hole in the deficit.

"There's no pure tax cut that pays for itself," said Alan Cole, an economist at the right-leaning Tax Foundation.

Reducing the corporate tax rate as much as Trump intends would cause a $2 trillion budget shortfall over a decade, according to guidelines from the congressional Joint Committee on Taxation.

Trump has promised to release the outlines of his tax plan Wednesday and has said the plan would give Americans a tax cut bigger than "any tax cut ever." During the campaign, he backed cutting the corporate tax rate – and the personal income tax rate to 33 percent from a top marginal rate of 39.6 percent.

Although he did not disclose details, Treasury Secretary Steven Mnuchin said Monday the lower tax rates would generate so much economic growth that it would hold the deficit in check.

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