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What to Look for in President Trump’s Speech to Congress

5 min readBy: Scott Greenberg

Tonight, President Trump will deliver his first address to a joint session of Congress, in which he is expected to call for “taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. and regulatory reform to get relief to hardworking Americans and American businesses,” according to a list of talking points released by the White House.

In all likelihood, the speech will focus more on broad themes than specific policy proposals. Nevertheless, the tax policy community will be paying close attention, to see if the speech contains any hints about how the Trump administration plans to approach tax policy over the coming months.

Here are three things to look for in the president’s speech tonight:

1. Will Trump preview any of the details of his upcoming tax plan?

So far, the tax policy conversation this year has largely centered around a tax reform proposal released by Republicans in the House of Representatives last June. However, the Trump administration has indicated that it hopes to release its own tax plan in the near future.

It is not clear what approach the administration’s upcoming tax proposal will take. It will probably be somewhat similar to the most recent tax plan from the Trump campaign, which proposed aggressive rate cuts for businesses and individuals. However, the Trump administration has been relatively quiet about some of the other major issues that will have to be settled before a tax bill can be passed.

For instance, the Trump administration has not yet taken a firm position on the signature features of the House Republican tax reform proposal: full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. for capital investment, a “flip” in the tax treatment of interest, a territorial tax systemA territorial tax system for corporations, as opposed to a worldwide tax system, excludes profits multinational companies earn in foreign countries from their domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. for foreign-source income, and a border adjustment of the federal income tax, to name a few. All of these issues would have to be addressed, in some form or another, by the White House’s upcoming tax plan.

It is possible that the president’s speech tonight will allude to some of these questions, and his address may shed new light on what the administration’s forthcoming tax plan will include.

2. Will Trump reference “border taxes”? Will he discuss the House GOP border adjustment proposal?

In recent months, President Trump and his advisors have repeatedly called for a “border tax,” levied on transactions with foreign countries. Unfortunately, it’s not entirely clear what they actually mean by a “border tax.” Sometimes, the administration seems to be talking about a tariffTariffs are taxes imposed by one country on goods or services imported from another country. Tariffs are trade barriers that raise prices and reduce available quantities of goods and services for U.S. businesses and consumers. on foreign imports, which would increase the price of goods produced abroad and sold in the U.S. Other times, administration officials use “border tax” to refer to a targeted tax on companies that outsource U.S. jobs.

One possibility is that Trump is referring, in an oblique way, to the “border adjustment” proposal that is part of the House Republican tax plan. The border adjustment would modify the federal income tax to apply to business income from sales in the U.S., rather than income from production in the U.S. In the context of the House Republican plan, the border adjustment acts as both a way to keep the overall tax plan from adding to the deficit, as well as a measure that prevents companies from avoiding taxes through international maneuvers.

The Trump administration has gone back and forth on the House GOP border adjustment proposal. At one point, the president said that a border adjustment would be “too complicated,” but later appeared to go back on his remarks. As of a few days ago, the administration is still undecided about whether it supports the House GOP’s proposed border adjustment.

If the President references a “border tax” in his address tonight, it will be important to pay attention to how he frames his proposal: will he call for a targeted tax on products from foreign countries, or a comprehensive re-envisioning of how the U.S. tax system works?

3. Will Trump indicate whether he wants tax reform to be revenue-neutral?

During the campaign, Trump proposed two tax plans, both of which would have greatly reduced federal revenue collections. The first plan, released in September 2015, would have decreased federal revenue by at least $10.1 trillion, while the second, from September 2016, would have reduced federal tax collections by at least $2.6 trillion.

Now that Trump is in the White House, however, it may prove more difficult to advocate for tax plans that dramatically reduce federal revenue. For instance, several congressional leaders, including Paul Ryan, Mitch McConnell, and Kevin Brady, have indicated that they would like tax reform to be revenue-neutral – meaning that it would neither increase nor decrease federal revenue. In addition, if Republicans attempt to pass a tax bill through the reconciliation process (which would allow them to bypass the filibuster in the Senate), they would need to design a tax package that did not increase the federal deficit in the long run.

Given these constraints, it is possible that the Trump administration will decide to alter its approach to tax policy, and focus more on changing the structure of the tax code than reducing the overall level of tax collections. On the other hand, the administration could choose to proceed full-steam ahead with its plans to decrease federal revenue, funded either by a reduction in spending levels, or by an increase in the budget deficit.

Consequently, in the president’s speech tonight, it will be instructive to see whether he talks about tax reform in terms that suggest an overall decrease in federal revenue. This could shed light on whether or not the administration is pursuing a revenue-neutral approach to tax reform.