LDN - Business

Trump could find Democratic allies on tax reform: lawmaker

[December 15, 2016] By David Morgan

WASHINGTON (Reuters) - In the looming tax reform and infrastructure spending fight on Capitol Hill, President-elect Donald Trump may find unlikely allies among Democrats, says the lawmaker soon to be the party's top tax-law writer in the U.S. House of Representatives.

Representative Richard Neal of Massachusetts, who is in line to become the top Democrat on the House tax committee, said that in some crucial ways, Trump was more closely aligned to Democrats on tax issues than to his fellow Republicans.

Citing the example of tax cuts for the middle class, Neal said Democrats were "more likely to be allies" to Trump than Republicans in Congress.

A House Republican "blueprint" for overhauling the tax code "still overwhelmingly favors people at the top. ... I am open to a middle-class tax cut that we should pay for," Neal said in a recent interview.

The Tax Policy Center, a nonpartisan research group in Washington, said Trump's tax plan would give middle-class households an average tax cut of $1,010, or 1.8 percent of after-tax income. The center said Trump's plan would give much larger tax savings to high-income taxpayers.

Trump's advisers have said that lower tax rates for the wealthy in the Trump plan are offset by loophole closures, resulting in no net tax cut for high earners.

The center said that House Republicans' tax "blueprint" would give middle-class households an average $260 tax cut, much smaller than Trump's. It added that three-quarters of the blueprint's tax cuts would go to the top 1 percent.

On infrastructure spending, another component of the emerging fiscal policy debate, Neal said he did not accept the $1 trillion price tag on Trump's plan or its emphasis on revenue-producing projects.

He said, however, that he saw infrastructure spending as an important job creator for blue-collar constituents that Democrats should back.

"We traditionally have been the party of infrastructure investment and it tends to be investment that puts our people to work," said Neal. “We need to do something that's conducive to more investment and more job creation.”

The Trump team and Republicans in Congress are trying to hammer out an agreement on tax reform by early 2017. Trump advisers have called for bipartisan legislation. Representative Kevin Brady, the Republican chairman of Neal's tax committee, said on Wednesday he had invited Democrats to offer their best ideas on tax reform.

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HIGH HOPES FOR OVERHAUL

With Trump due to be inaugurated on Jan. 20 and Republicans in control of the House and Senate, hopes are running high for the biggest tax overhaul in 30 years.

Businesses are eager to see a cut in the 35 percent corporate income tax rate. Trump wants it down to 15 percent, while House Republicans want it cut to 20 percent.

Neal has been in Congress since 1989 and is known in the business community as a moderate. He is replacing Michigan Democrat Sander Levin as the committee's ranking member.

He said the odds of a tax reform deal were "at best 50-50" given the range of political and economic interests involved.

It would be hard to cut the corporate rate below 28 percent, he said, without endangering tax breaks popular with the middle class, including deductions for home mortgages and charitable donations and the employer-sponsored health insurance deduction.

Lower rates and infrastructure spending should be paid for with revenues raised from repatriation of $2.6 trillion in U.S. corporate profits now stashed overseas, Neal said.

The repatriated profits should go to capital investments and infrastructure, not stock buybacks or dividends, as happened after a Bush-era tax holiday more than a decade ago.

"It strikes me that there is some room to talk about how that money might be invested in America, and then we can argue about the rate once we’ve decided the parameters of what we think it might be moved for," he said.

(Editing by Kevin Drawbaugh and Peter Cooney)

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