Trump promises 'biggest tax cut ever' will be unveiled Wednesday

Donald Trump has promised Americans tax cuts that will be "bigger I believe than any tax cut ever."

In an interview with  Associated Press, the US president said his tax reform plan will be released on "Wednesday or shortly thereafter."

He would not give any details ahead of that time, bar saying that his package would include cuts for both individuals and businesses and a simplification of the tax code [UPDATE: leaks indicate Trump will seek to slash the corporate rate to 15%].

Despite Wall Street enthusiasm for tax cuts, the major indexes closed fractionally lower as Mr Trump's comments were delivered Friday US time – perhaps in recognition that long and complicated battles lie ahead.

The Wednesday announcement will largely be about PR and positioning.

Treasury Secretary Steven Mnuchin has already abandoned his goal of passing tax reform before Congress goes into recess in August. His new deadline is the end of the year.

In part, the delays reflect the technical challenges of overhauling the complex US tax code.

But there is also a divide between the White House and Republicans over a proposed 20% border tax.

And it is still not clear if Mr Trump – who is heavily invested in real estate – will get behind House Republicans' push to abolish tax deductions for interest payments by business. The powerful real estate lobby, whose members are the most active users of the deduction, vigorously opposes the plan, as outlined in House Republicans' "A Better Way" policy paper.

Complicating matters, there is also a looming government shutdown if a tide-over spending bill can't be passed by this Friday – something that seemed straightforward until Mr Trump's last minute bid to tack on funding for his wall with Mexico. Many Republicans in Congress are luke-warm on the $25 billion project, which Mexico is refusing to pay for [UPDATE: Trump has now backed off asking for funding for the wall. He's expected to have another go in September].

And then there's concern from some conservatives that the Trump administration is trying to do too much, too soon – and that the White House is sending mixed signals over areas of focus.

An op-ed for the New York Times, co-authored by anti-tax activist, publisher and two-time Republican presidential nominee Steve Forbes, plus fellow members of his Committee to Unleash Prosperity,  which advised the Trump campaign, bemoans that: "Unfortunately, the White House seems all over the map on the subject. One day there is a trial balloon for a value-added tax. The next, the idea of a carbon tax or a reciprocal tax. And now we are hearing the curve ball of a payroll tax cut."

Mr Forbes and co urge the Trump White House to learn from its healthcare reform failure and "keep it simple, stupid" with a series of bite-size reforms.

They recommend the administration starts with three relatively straightforward changes:

First, cut the federal corporate and small-business highest tax rate to 15 percent from 35 percent, which is now one of the highest corporate tax rates in the world.

Second, allow businesses to immediately deduct the full cost of their capital purchases. Full expensing of new factories, equipment and machinery will jump-start business investment, which since 2000 has grown at only one-third the rate recorded from 1950 to 2000.

Third, impose a low tax on the repatriation of foreign profits brought back to the United States. This could attract more than $2 trillion to these shores, raising billions for the Treasury while creating new jobs and adding to the United States’ gross domestic product.

To help win over Democratic votes in the House and Senate, we would also suggest another component: What many workers across the country want most from President Trump is infrastructure funding. As part of this bill, we should create a fund dedicated to rebuilding America’s roads, highways, airports and pipelines, and modernizing the electric grid and broadband access — financed through the tax money raised from repatriation of foreign profits.

The third point already seems problematic. 

A new presidential order, issued as part of Mr Trump's broad effort to eliminate regulation, asks the Treasury Secretary to review tax regulations imposed by President Barack Obama in 2016. The NYT says those include efforts to clamp down on “corporate inversions” – in which American companies merge with foreign companies to take advantage of lower tax rates outside the US (including some territories that offer lower corporate tax rates lower than those proposed in any Republican tax cut plan).

Another complication is caused by failure to repeal the Affordable Care Act (aka Obamacare), which the neutral Congressional Budget Office said would save $US200 billion over 10 years. Had that spending cut been achieved, the Trump Administration could possibly have pushed tax cuts through without the need to ask Congress to raise America's debt ceiling. Now it almost definitely will, and that won't sit well with deficit hawks.

Mr Forbes says tax cuts will stimulate the economy, leading to major benefits over the next decade.

But "decade" is the operative word. In an interview with Fox Business, he cautioned that benefits would take a while to flow through, saying: "When you make an investment, it doesn't mean the building rises up the next day, or the factory rises up the next day, or the services are available the next day. "It takes time to make these things happen."

In the meantime, that could mean piling on debt if the Trump administration is not willing to make major spending cuts – something it might be loath to do as it seeks to keep working class rust belt voters onside. The new president has been keen to cull on the periphery, proposing cuts in areas like climate change research funding and the National Endowment for the Arts. But to move beyond chump change savings, core programmes like Social Security and Medicaid will have to be trimmed – ordinarily a mainstream Republican policy but something Mr Trump has promised rust belt voters he will not do. At the same time, the president has promised a 10% hike in military spending and $US1 trillion for new infrastructure.

Trench warfare lies ahead. And it will take place in a Congress where the majority party is increasingly divided (read a field guide to the three major Republican factions in Congress here), and rebel (or true-believing) conservatives are so far immune to the President's attempts to Twitter-bully them into line with a populist, nationalist agenda.