Treasury Secretary Mnuchin and White House chief economic adviser Gary Cohn outlined President Trump’s new tax plan in a briefing held Wednesday afternoon.

U.S. National Economic Director Gary Cohn (L) and Treasury Secretary Steven Mnuchin unveil the Trump administration’s tax reform proposal in the White House briefing room in Washington, U.S, April 26, 2017. REUTERS/Kevin Lamarque

In what Mnuchin said would be the “biggest tax cut” in US history and the first tax reform since 1986, the White House emphasized the president’s goals to create jobs and grow the economy.

Key provisions of the plan include:

For individuals, reducing the seven tax brackets to three, while cutting the top rate to 35% from 39.6%.

For businesses, reducing the tax rate to 15% from 35%.

Shift to “territorial system” for companies

While Mnuchin and Cohn presented the “core principles” of the plan, they did not include details on how the plan would be paid for or when it would be enacted.

On the personal tax front, the White House announced a reduction from seven tax brackets to three: 10%, 25%, and 35%. They also doubled the standard deduction, so married couples won’t pay taxes on the first $24,000 they earn. And it aims to provide tax relief for families with child and dependent care expenses.

The plan would also repeal the alternative minimum tax (AMT), estate tax—which currently applies only to estates worth more than $5.49 million for individuals and $10.98 million for couples. It would also repeal ObamaCare’s 3.8% tax on net investment income for high earners (individuals who earn more than $200,000) would all be eliminated.

The White House said it will also eliminate all deductions other than mortgage interest and charitable giving. This includes elimination of the federal income-tax deduction allowed for local and state taxes.

On the corporate side, rates will be reduced from 35% to 15%, according to the White House plan.

The plan also includes a shift to a territorial system of taxation (taxation of income within one’s borders) that countries around the world have embraced and away from the worldwide system (taxation of income no matter where it’s earned) currently used by the US.

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There would also be a one-time tax on trillions of dollars held overseas, according to the White House tax memo, though details were not revealed around a specific number.

Timeline

Mnuchin said the administration had originally aimed to pass tax reform by August. But he recently changed that deadline, saying it wants to pass a plan by the end of the year.

One key hold-up is likely to be the clash over the deficit.

The president’s proposal to cut the corporate tax rate to 15% sets up a face-off with House Speaker Paul Ryan, a deficit hawk who has called for the tax plan to pay for itself.

The Ryan-backed House GOP plan, released in June, called for replacing the 35% corporate tax rate with 20%. Ryan’s plan also adds a border-adjustment tax (BAT) proposal, which the Trump plan does not include.

Ryan, along with Kevin Brady, chairman of the House Ways and Means Committee, have said they’re committed to revenue neutrality, a tougher hurdle after the failure to pass healthcare reform.

The current federal budget deficit, at 2.9% of GDP, is expected to grow to 8.8% of GDP by 2046, according to the nonpartisan Congressional Budget Office. And the national debt is forecasted to rise to 141% of GDP, 40 percentage points higher than its historic peak after the substantial financing for World War II.

Ryan, on Wednesday morning, tried to present a unified front when speaking to reporters at a news conference with House GOP leaders.

“We’ve been briefed on what they’re going to do and it’s basically along exactly the same lines that we want to go. … We see this as progress is being made and we’re moving and getting on the same page,” he said.

On Wednesday, Mnuchin and Cohn both said they had been working closely with Congress on details to make sure this proposal sees its way to becoming a bill that can be passed.

Mnuchin said the plan will pay for itself, even with a more stark corporate tax rate cut and without the revenue-raising border-adjustment tax that retail companies opposed.

“This will pay for itself with growth and reduced reduction of different deductions and closing loopholes,” said Mnuchin, who has said that 3% growth is “very achievable.”

The prospect of tax reform has helped to drive the stock market rally following Trump’s election. More recently, though, political realities—including the failure of the US house healthcare bill to repeal and replace Obamacare—have tempered expectations for the likelihood of a significant tax overhaul.

Why tax reform is so fundamental

The US has not kept up with the rest of the world in tax policy, hurting competitiveness, Cohn said.

In the 30 years since the last major tax reform in the US (the Reform Act of 1986), other countries have responded to dramatic world economy changes, including globalization and digitization. But the US tax system has largely stayed the same.

“The US tax system has become a significant competitiveness problem given dramatic changes abroad and inaction at home,” Michael Porter wrote in a recent Harvard Business School report, highlighting in particular the US statutory rate standing 10 percentage points higher than the average OECD rate.

“The forces of globalization have amplified the inefficiencies and complexities of the current tax system and demand that reform make the U.S. less of an outlier in key tax policy areas – particularly corporate tax policy,” according to Michael Porter.

This has caused US multinational companies to hold larges sums of cash abroad. These companies have used tax inversions and cross-border M&A that favor foreign acquirers, and corporations have actively shifted income around the world to avoid high tax rates.

“We have a once in a generation opportunity to do something very big,” Cohn said. With the initial plan outlined, now the big question is exactly what will get passed through… and when.

In the Senate, tax cuts that increase the deficit would need 60 votes to pass, meaning the bill would need the approval of Democrats, as Republicans control just 52 seats in the chamber. Without 60 votes, Republicans would only be able to pass tax cuts that expire after ten years or a tax reform plan that is revenue neutral because of reconciliation rules.

“We look forward to working with the House and Senate,” Cohn said, though Mnuchin added that “the core principles are non-negotiable.”

Nicole Sinclair is markets correspondent for Yahoo Finance.

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