Americans May Get Permanent Tax Cut in `Phase Two,' Kudlow Says

(Bloomberg) -- Tax cuts for individuals should be made permanent under ‘phase two’ of an overhaul, according to Larry Kudlow, the incoming White House economic adviser.

“Individuals deserve a permanent break,” Kudlow said on CNBC Wednesday following President Donald Trump’s comments that a second phase of tax changes would be coming. Kudlow said he didn’t expect a phase two to cut the corporate rate further.

The president has previously referenced a so-called phase two of tax cuts -- sometimes in a joking manner. Earlier this week, he said he was “serious” about asking House Ways and Means Chairman Kevin Brady to get it done.

Under the GOP overhaul passed in December, tax changes for individuals are set to expire at the end of 2025, while the corporate rate cut to 21 percent from 35 percent is permanent. Republicans had to comply with Senate budget rules that dictated the tax bill couldn’t add more than $1.5 trillion to the deficit over the next decade.

Making the tax changes permanent would add $500 billion to the budget deficit, while tripling the amount of economic growth, according to a paper earlier this month from two Harvard economists.

Kudlow said he thought higher economic growth should be factored in when assessing the cost of the tax package. The nonpartisan Joint Committee on Taxation estimated in December that the tax cuts would add about $1 trillion to the deficit after economic growth was taken into account.

Kudlow also said that a phase two should include a lower capital gains rate -- and a rate that’s indexed for inflation. The top rate for long-term capital gains was left untouched at 20 percent.

To contact the reporter on this story: Toluse Olorunnipa in Washington at tolorunnipa@bloomberg.net.

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Alexis Leondis

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