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 on Wednesday, a promise that is at odds with tax proposals from Donald Trump and House Republicans.
Steven Mnuchin said that "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." The big tax cut, he told CNBC, will go the middle class.
The comments echo occasional remarks from Mr. Trump, but not the tax plan he campaigned on, and point to the political and arithmetic challenges that lawmakers will face as they try to turn those promises into legislation.
Aside from moving ahead on a large tax rewrite next year, Mr. Mnuchin also said he would roll back parts of the landmark 2010 Dodd-Frank financial overhaul enacted by the Obama administration and congressional Democrats in the wake of the financial crisis. Mr. Mnuchin called that "the No. 1 one priority on the regulatory side."
Mr. Trump's tax plan would lower top rates dramatically, providing such large benefits to high-income households that analysts say 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. The largest deductions typically are for mortgage interest, state and local taxes and charitable contributions.
"I don't think there is a way tomake 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 from 35% to 15%. The estate tax and alternative minimum tax would be repealed. Capital-gains rates would drop. The top rate on business income reported on individual tax returns would fall from 39.6% to 15%, and the top rate on ordinary income would fall from 39.6% to 33%.
The Tax Foundation says Mr. Trump's plan would boost after-tax incomes for the top 1% of households by at least 10%, even before accounting for any potential economic growth. The Tax Policy Center, a think tank run by a former 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.
Stephen Moore, who helped develop Mr. Trump's tax plan, said it was designed so that the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%. The cap wasn't written to offset the tax cuts on business income, estates and capital gains, which independent analyses all say flow disproportionately to top earners.
It wasn't immediately clear on Wednesday whether Mr. Trump and his team were actually changing their tax plan. 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 Mr. Trump's plan would raise taxes on millions of single parents, Mr. Mnuchin said the plan would be "very clear" in ensuring a middle-class tax cut when it emerges from Congress.
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 a study showing that their plan would deliver most of its benefits to the top 1%. Instead, they say they are 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 rates and 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 all U.S. pretax income and pays 28.7% of all federal taxes, according to Tax Policy Center estimates for 2017. That group would be the beneficiary of about half of Mr. Trump's tax cuts.
Mr. Mnuchin's comments on Dodd-Frank are consistent with those made by Mr. Trump and other advisers. But they are significant since Mr. Mnuchin himself has said little publicly about policy matters, and his Wednesday remarks offer a fresh window into his thinking and priorities.
Mr. Mnuchin, a former Goldman Sachs Group Inc. executive, said the Volcker rule provision in Dodd-Frank?named after former Federal Reserve Chairman Paul Volcker?is too complicated and signaled the Trump administration may try to roll it back. The rule is aimed at trying to stop banks from betting with deposit-insured funds. Goldman and other Wall Street firms have complained that the rule is too complex.
"The No. 1 problem with the Volcker rule is it's way too complicated, and people don't know how to interpret it," Mr. Mnuchin said. "So we're going to look at what do with it, as we are with all of Dodd-Frank."
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(END) Dow Jones Newswires
December 01, 2016 02:15 ET (07:15 GMT)
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