Trump Unveils "Phase Two" Of His Tax Plan

Speaking at a roundtable discussion on tax reform and tax cuts on Wednesday evening at Boeing in Missouri alongside Treasury Secretary Steve Mnuchin, President Trump hinted at his intention to eventually begin a "phase two" of his new tax plan.

"We're actually going for a phase two, which, additionally to the middle class, will help companies. It's going to be something, I think, very special", Trump said.

Underscoring the biggest accomplishment of his administration, Trump touted his tax reform plan as something "bigger than anything ever passed in the history of our country" and also went at Democrats for not having a single vote in favor of the tax reform plan. "Now they're regretting it," he said.

Meanwhile, speaking on CNBC, Trump's new chief economic advisor Larry Kudlow shone some more light on what this next iteration of Trump's plan will be, saying that tax cuts for individuals should be made permanent under "phase two" of the tax overhaul.

“Individuals deserve a permanent break,” Kudlow told a CNBC audience on Wednesday afternoon following Trump’s earlier comments that a second phase of tax changes would be coming, although he didn’t expect a phase two to cut the corporate rate further.

"Talk about capital gains, possibly lowering the rate, but possibly indexing them for inflation, which is something many of us argued for years. We index, the individual code for inflation, because of the 70s experience, index capital gains because you are paying taxes on illusionary or inflationary profits, which is unfair to investors and its anti-entrepreneurship" Kudlow explained.

CNBC's Ylan Mui countered with a question whether this is a policy proposal or a political proposal ahead of the 2018 midterm elections:

The question here is whether this is going to be a policy proposal or a political proposal. Democrats have already put out their own plan for what tax bill would look like post-2018, including raising the corporate rate to 25%, reinsating things like the alternative minimum tax to individuals and corporations. Now you are seeing republicans hitting democrats on their plan going forward, but they also want their own plan going forward. They don’t want to just run on past accomplishments, so I think that what you'll see in phase two is really something that’s more geared towards a 2018 midterm messaging rather than something that’s going to actually pass before November.

Kudlow responded that "Phase Two" is not just a political straw man but real policy: "Look, there’s always politics in this stuff, I get it you’re reporting is always great, but I will tell you this, Kevin Brady was really the instigator and he sold president Trump on it, and Trump acknowledged it in a meeting or a speech someplace, and as I spoke to president Trump in recent days, he's referred to it a number of times. I’ll just say I understand politics and election years, but these are serious proposals, trust me whether they get them or not remains to be seen they are serious proposals."

Under the GOP tax overhaul passed in December, tax changes for individuals are set to expire at the end of 2025, while the corporate rate cut to 21% from 35% is permanent. Republicans had to comply with Senate budget rules that dictated the tax bill couldn’t add more than $1.5 trillion to the deficit over the next decade.

Trump has previously referenced a so-called phase two of tax cuts - sometimes in a joking manner. As Bloomberg adds,  earlier this week, he said he was “serious” about asking House Ways and Means Chairman Kevin Brady to get it done.

There is just one problem with a permanent tax cut, however. Or 500 billion problems rather, as making the tax changes permanent would add $500 billion to the budget deficit. At the same time, this change would also triple the amount of economic growth according to a paper earlier this month from Harvard economists, however many disagree. The nonpartisan Joint Committee on Taxation estimated in December that the tax cuts would add about $1 trillion to the deficit after economic growth was taken into account. It was not immediately clear how much greater the US budget deficit would be under a permanent tax cut.