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 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 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repealed.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."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
December 01, 2016 02:15 ET (07:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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