By Richard Rubin

Donald Trump's victory emboldens Republicans to complete one of the party's core missions: slashing tax rates on individuals and businesses.

Despite the rifts between Mr. Trump and establishment Republicans on trade and immigration, they largely agree on tax policy. And they're prepared to use full control of the House, Senate and White House to enact sweeping tax cuts early in 2017. While the campaign consumed most of the public's attention, the House Ways and Means Committee staff has been making steady progress in turning the party's conceptual blueprint into legislative text.

"It's going to be a top priority of the House, which will force the issue, regardless of where it is on everyone else's radar," said Sage Eastman, a formerHouse GOP aide. "It will galvanize the town and could be the most significant and major piece of legislation to move early on in the administration."

Republicans in Washington expect swift action on the most significant tax-code changes since 1986 in what they see as an accelerant to U.S. economic growth. They would lighten tax burdens on high-income individuals and multinational corporations and repeal the 100-year-old estate tax.

" Paul Ryan is the kind of [House] speaker who stays up at night thinking about tax reform," said Rohit Kumar, a principal at PwC LLP and a former aide to Senate Republican Leader Mitch McConnell (R., Ky.). "And who knows how long these majorities are going to last?"

There may be little Democrats can do, because Republicans could employ a procedure that lets them pass the tax bill with simple majorities in the House and Senate.

There are obstacles. Republicans will be operating with slim majorities, so they'll have to satisfy every wing and nearly every member of the party, and that's a complex task with little room for error. A bill as large and complicated as a tax-code overhaul can give party leaders opportunities to woo lawmakers with targeted provisions that benefit their states and districts. But those can also backfire by losing votes elsewhere.

To avoid needing Democratic votes, they can use the budget procedures known as reconciliation, which can lead to quirky outcomes like the George W. Bush tax cuts being slated to expire less than a decade after enacted. The other option would be a compromise attracting enough Democratic votes in the Senate to reach the 60-vote threshold to cut off debate. That might require scaling back tax cuts or incorporating ideas of Democrats in Republican-leaning states who are on the ballot in 2018.

Republicans will also have to resolve the differences between Mr. Trump's tax plan andthe House blueprint and incorporate senators' input. They may smooth some kinks in their plans, including Mr. Trump's incomplete business-taxation proposal, the fact that his plan raises taxes for some middle-income families and the House's untested international tax idea.

Mr. Trump called for reducing the top tax rate on individuals from 39.6% to 33% and for cutting the corporate tax rate from 35% to 15%. Businesses that now pay taxes on their owners' returns would get the 15% rate and would likely pay a second layer on taking money out of the business.

He would also eliminate personal exemptions and the head-of-household filing status used by single parents, and his proposed breaks for child care costs wouldn't be enough to prevent a net tax increase for millions of families. The campaign said it would ensure those people's taxes wouldn't rise.

The House plan, by contrast, sets the corporate tax rate at 20% and the rate forother businesses at 25%. Either plan needs rules to prevent individuals from making their wages and other ordinary income look like lower-taxed business income, a problem that Mr. Trump's campaign acknowledged and said Congress would solve.

The House plan would also create a border-adjusted corporate tax that applies depending on the location of sales, not profits. That's complicated and novel and it may face objections from retailers and financial-services companies as well as a potential World Trade Organization challenge.

Both plans would also significantly increase budget deficits and give the largest tax cuts to high-income households. Mr. Trump's plan, for example, would reduce federal revenue by $6.2 trillion over a decade, according to the Tax Policy Center, a project of the Brookings Institution and Urban Institute. The top 1% of households would get a 13.5% boost in after-tax income, compared with a 4.1% increase for the entire population.

Republicans say their plans would spur dramatic economic growth because of the tax-rate cuts and the ability to write off capital expenses immediately instead of depreciating them over time.

One big unknown is the role Mr. Trump, a legislative novice and self-proclaimed deal maker, would play. Would he mediate between the House and Senate? How hard would he insist on his own ideas? Or would he let Congress do the nitty-gritty work while he builds the public case and takes credit?

If sidelined in the negotiations, Democrats will be trying to focus on the distributional and deficit impacts of the GOP plans to rally opposition.

"My sense of his tax plan is that he's willing to sign whatever supply-siders put in front of him," said Harry Stein, director of fiscal policy at the Center for American Progress Action Fund, a group aligned with Democrats. "Public opinion has the potential to be an important check.Whether the Trump administration and Speaker Ryan give into public opinion where their ideas are unpopular or not remains to be seen."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

November 09, 2016 05:44 ET (10:44 GMT)

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