By Richard Rubin
High-income households won't receive an "absolute tax cut" under a Trump tax plan, the president-elect's new pick for Treasury secretary said Wednesday, a promise at odds with tax proposals from Donald Trump and House Republicans.
"Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class, " Steven Mnuchin said on CNBC. "There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it."
Mr. Mnuchin's comments mirror occasional remarks from Mr. Trump, but don't match the tax plan he campaigned on, and it points to the political and arithmetic challenges that lawmakers will face as they try to turn those promises into legislation.
Mr. Trump's tax plan would lower top rates dramatically, a policy that provides benefits to high-income households that are so large that they can't be covered with limits on tax breaks, such as the $100,000-a-person limit on itemized deductions already in Mr. Trump's plan.
"I don't think there is a way to make it work with the current marginal rates that they're working with," said Kyle Pomerleau, director of federal projects at the conservative-leaning Tax Foundation.
Under Mr. Trump's plan, the corporate-tax rate would drop to 15% from 35%. The estate tax and alternative minimum tax would be repealed. Capital-gains rates would drop. The top rate on other business income would fall to 15% from 39.6%, and the top rate on ordinary income would fall to 33% from 39.6%.
The Tax Foundation said Mr. Trump's plan would boost after-tax incomes for the top 1% of households by at least 10%, even before accounting for economic growth. The Tax Policy Center, a think tank run by a former Bill Clinton administration official, estimates that the top 1% of households would pay an average of $214,690 less in taxes in 2017 under Mr. Trump's plan than they would otherwise.
It wasn't immediately clear on Wednesday whether the president-elect and his team were actually changing their tax plan and the transition team didn't respond to a request for comment.
"Trump's plan was independently scored as giving more tax cuts to the top 1% than the bottom 99% combined," said Gene Sperling, a former economic-policy aide to President Barack Obama. "So, we'll watch what they do."
In response to a question about studies showing that Mr. Trump's plan would raise taxes on millions of single parents, Mr. Mnuchin said the details as worked out by Congress would be "very clear" in ensuring a middle-class tax cut.
Mr. Mnuchin's comments on the distribution of the tax burden also show a potential difference with Republicans in the House, who are developing their own tax plan to lower rates and limit tax breaks.
House Speaker Paul Ryan (R., Wis.) and Ways and Means Chairman Kevin Brady (R., Texas), have brushed aside questions about how their plan would deliver most of its benefits to the top 1%. Instead, they say they're focusing on encouraging economic growth.
That is a change from Republicans' positioning just a few years ago. In 2012, presidential candidate Mitt Romney said he would make sure taxes wouldn't go up for high-income households, though he had trouble making the math work. In 2014, then-Rep. Dave Camp (R., Mich.) produced a plan that didn't change the distribution of the tax burden.
A challenge for Republicans is navigating the tension between economic theories that emphasize lower tax ratesand the fact that the income tax burden is concentrated at the top of the income distribution. Cutting marginal tax rates necessarily helps the top 1%, but Mr. Trump's campaign plan gives them a bigger share of the tax cuts than their share of income or tax payments.
The top 1% of households receives 17.2% of pretax income and pays 28.7% of all federal taxes, according to Tax Policy Center estimates for 2017. The income tax alone is even more concentrated at the top and that group tends to own more corporate stock and other assets, so any marginal rate cuts confer significant benefits on that group.
Write to Richard Rubin at email@example.com
(END) Dow Jones Newswires
November 30, 2016 15:28 ET (20:28 GMT)
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