Trumps initial tax plan eliminates estate tax, leaves out BAT

Trumpês initial tax plan eliminates estate tax, leaves out BAT

Trumpês first foray into tax policy is more of a one-page outline than a plan. But itês a useful starting point, with a couple of points of particular interest to dealers.

First, Trump proposes eliminating the estate tax. There are many Republicans in Congress who would be happy to let it expire. On the other hand, eliminating that tax would increase the deficit, as would most other measures in Trumpês tax plan. And some Republicans who would vote on the tax remain deficit hawks.

Second, Trumpês plan makes no mention of the border adjustment tax (BAT) that has been strongly opposed by dealers and others in the auto industry and other retail sectors. The BAT was House Speaker Paul Ryanês way of paying for the corporate tax cut that is at the center of Trumpês plan. But with the auto industry so globally interconnected, AIADA has estimated that a 20 percent BAT would add an average of $1,700 to the retail price of each new vehicle.

Trumpês plan would cut the top corporate tax rate by more than half, to 15 percent. General Motors and Ford were among those praising that part of the plan. Tax cuts abound in the initial outline, with the hard work of deciding how to pay for them still to be done. Treasury Secretary Steven Mnuchin said that the growth resulting from the tax cuts would offset the drop in federal revenue. Critics are skeptical that there would be enough income to make up for the loss and say the deficit would balloon even further. Suffice it to say that the jury is still out, as many details remain to be filled in.

As for economic growth, the Commerce Department last week announced unexpectedly low first-quarter growth of 0.7 percent. Although growth is expected to pick up in the second quarter, the first-quarter figure still shows that Trumpês targeted 3 percent annual growth is ambitious. Consumer optimism is high, polls say, but the report shows that consumers have been reluctant to spend.

One area that the Commerce Department noted has dropped is car sales. But there are industry-specific reasons for that, such as the end of pent-up demand and an expected sales plateau after several years of growth.