By Richard Rubin and Kate Davidson
Steven Mnuchin is facing the biggest test of his short political
career.
The Treasury secretary has been working for months to bridge
divides between an impulsive president and a fractious Congress to
deliver on the Republican Party's promise of a simpler tax code
with lower rates.
He has a powerful tailwind. Both Donald Trump and Republican
lawmakers have promised a tax overhaul, which now remains one of
their biggest domestic policy priorities since their efforts to
repeal or overhaul the Affordable Care Act have so far fallen
flat.
Stacked against Mr. Mnuchin, as negotiations near the
make-or-break stage, are unresolved intraparty disagreements over
how much lost tax revenue is acceptable and how tax cuts should be
apportioned among companies, high-income earners and the middle
class. Lobbyists stand ready to resist almost any proposed
changes.
Mr. Mnuchin is tackling this terrain with less political
experience than any other recent Treasury secretary. He didn't
follow the trajectory of Henry Paulson or Robert Rubin, who
acquired Washington contacts while leading Goldman Sachs Group Inc.
And while Mr. Mnuchin has a close relationship with the president,
it doesn't appear to be like that of James Baker with Ronald
Reagan, which allowed Mr. Baker to manage the last major revamp of
the tax code.
By contrast, Mr. Mnuchin this month found himself overruled by
the president on a policy issue, the debt ceiling.
"This tax policy is the first pitch over the plate that he's got
to hit, " said Tom Barrack, who worked with Mr. Mnuchin to raise
money for the Trump campaign last year.
A sweeping tax-code rewrite hasn't happened since 1986, because
tax overhauls are complex and touch almost every aspect of the
economy. For this year's attempt, Congress must first agree on a
fiscal 2018 budget, the vehicle through which tax changes could be
passed on a party-line vote without Democratic support. Both houses
are moving forward on the budget, most recently with a deal in a
Senate panel that would permit tax cuts of up to $1.5 trillion over
a decade.
The next step is the release of a Republican blueprint expected
this week, which will spell out in more detail where the party,
including Mr. Mnuchin, want to take tax policy. The plan is
expected to call for lower tax rates on businesses and individuals,
with the corporate tax rate in the low 20% range, setting a
framework that Congress will fill in over the next few months.
Mr. Mnuchin is playing two roles in the tax negotiations --
number cruncher and Trump liaison, both of which put him in a
position to directly shape the legislation coming from Capitol Hill
by helping lawmakers understand the White House's preferences.
That is a role he also played during the campaign, recalled
Larry Kudlow, an economist and TV commentator who advised Mr. Trump
during his run.
"He's a numbers guy, which we liked very much," Mr. Kudlow said
of Mr. Mnuchin. "He rolled his sleeves up and got involved." Mr.
Kudlow cited the Treasury Secretary's work on business tax breaks
relating to interest expenses and other write-offs.
Lawmakers working most closely with Mr. Mnuchin on tax policy,
such as House Ways and Means Chairman Kevin Brady (R., Texas) and
Senate Majority Leader Mitch McConnell (R., Ky.), praise his hard
work on the subject and say he is a valuable partner.
"As [Mr. Mnuchin] regularly reminds us, this is a pass-fail
exercise," Mr. Brady said in an interview. "There is an urgency in
finding common ground."
Other corners of the Congress don't view him as favorably. The
pressure he applied to House Republicans during a debate over the
debt limit left a sour taste in some mouths. And some Democrats,
particularly in the House, say they appreciate his outreach but
aren't sure if he can represent Mr. Trump's positions in a
negotiation.
"I don't know that yet, given the volatile nature of what the
president does with technology," says Rep. Richard Neal of
Massachusetts, the top Democrat on the House Ways and Means
Committee.
Mr. Mnuchin once foresaw a tax overhaul as early as the spring,
then by August. Now the aim is to get it done by year-end. With
only about 40 working days left on the congressional calendar, that
timetable also is looking hard to meet. He has also found himself
in the spotlight for reasons other than tax and financial policy,
including his use of government planes and a public plug for "The
Lego Batman Movie" he helped finance.
Rep. Jim Himes (D., Conn.), who like Mr. Mnuchin is a former
Goldman Sachs banker, says people who come to government from
business sometimes think hierarchically or assume negotiations can
lead to a middle ground.
But "in Washington, there are people who will stop you just to
show that they can," Mr. Himes said. "It's a much, much more
complicated negotiation."
Mr. Mnuchin's route to this job started almost by accident.
His career has taken him from Goldman, where he rose to chief
information officer, to running a hedge-fund firm and then a
mortgage lender, IndyMac Bank, purchased from the government after
the lender's failure in 2008. Through the hedge fund he got into
movie financing.
He and Mr. Trump became friends about 15 years ago, seeing each
other socially and occasionally talking business opportunities. Mr.
Mnuchin once considered investing in the firm that owned Mr.
Trump's "The Apprentice" show, but a deal didn't pan out, the
Treasury secretary said in an interview last month.
He had no formal campaign role until he stopped by Mr. Trump's
New York primary victory party at Trump Tower on April 19, 2016, on
his way to dinner. Mr. Trump spotted him while stepping off the
elevator and invited him onto the stage.
"The next thing I know I'm standing right behind him, and I'm on
national TV, on four different monitors, my phone is like going
crazy buzzing," recalled Mr. Mnuchin, who is 54 years old. Mr.
Trump phoned the next morning to offer him the job of campaign
finance chairman.
Hedge-fund manager Eddie Lampert, who was Mr. Mnuchin's roommate
at Yale, said the financier "was in a position where he was open to
basically dedicating himself to something. I'm not sure this would
have been on any of his lists, but when it happened he was very
decisive."
The road to a tax overhaul hasn't been a smooth one. One Friday
in April, Mr. Trump unexpectedly told the Associated Press the
Treasury would have a tax plan by the following Wednesday. Mr.
Mnuchin had been saying publicly a plan wouldn't be released until
more progress was made in talks with congressional Republicans.
West Wing officials cautioned that Mr. Trump's deadline was more
of a suggestion, but an hour later he advertised it again. "We'll
be having a big announcement on Wednesday," he said at a Treasury
ceremony to sign executive orders, looking over his shoulder at Mr.
Mnuchin standing behind him. "So go to it."
"I will, Mr. President," Mr. Mnuchin responded with a grin.
The following week, the White House released a one-page outline
that called for lowering tax rates for all Americans, ending the
federal estate tax and cutting the corporate tax rate to 15% from
35%. The plan drew criticism as less specific than Mr. Trump's
campaign promises.
In a May dinner that included former Treasury and Federal
Reserve leaders, Mr. Rubin and Lawrence Summers, both former
Democratic Treasury secretaries, cautioned Mr. Mnuchin about making
public statements that could undermine his credibility in markets,
according to a person familiar with the matter.
Through the spring and summer, Mr. Mnuchin hashed out tax plans
with Mr. McConnell, House Speaker Paul Ryan (R., Wis.), Senate
Finance Committee Chairman Orrin Hatch (R., Utah) and House Ways
and Means Chairman Mr. Brady. Those five plus White House
economic-policy director Gary Cohn released a statement of tax
principles in late July, though one hardly more specific than the
April summary.
The main decision it included was dropping a House "border
adjustment" proposal to tax imports and exempt exports, which might
have generated $1 trillion to make up for lost revenue from rate
reductions. The administration has publicly identified only one
major tax break they would eliminate, the deduction for state and
local income taxes. Officials stuck to their optimism that a tax
overhaul would be done by year-end.
Eight months into his tenure, Mr. Mnuchin lacks a full roster of
officials at the Treasury, though he has filled several senior tax
jobs recently. The administration has decided for now not to fill
the deputy secretary job, leaving others to report to Mr. Mnuchin
directly.
On Mr. Mnuchin's side is his relationship with the president, to
whom he has shown unfailing loyalty. Mr. Mnuchin said he and the
president speak almost every day. Several administration officials
and allies described Mr. Mnuchin as the "presidential
whisperer."
In August, when the president was criticized for blaming "both
sides" for the violence at a Charlottesville, Va., demonstration,
Mr. Mnuchin issued a written statement defending Mr. Trump, which
was approved in advance by the president, according to a White
House official. It was a contrast with Mr. Cohn, who told the
Financial Times the Trump administration must do better in
"unequivocally condemning" such groups.
In a written statement, Mr. Trump said Mr. Mnuchin "works every
day to put an end to the rigged economy and put money back in the
pockets of hardworking Americans."
The closeness between the two men, however, doesn't mean they
are always on the same page. At a key moment in an Oval Office
negotiation this month, Mr. Trump cut Mr. Mnuchin off midsentence,
ending his argument for a long-term extension of the debt ceiling.
The president instead took a short-term deal offered by Democratic
leaders.
Two days later, Mr. Mnuchin urged House Republicans to go along
with Mr. Trump's decision, at one point asking them to "vote for
the debt ceiling increase for me," according to several House
members. The pitch was met with disbelief by some.
"I didn't buy it," said Rep. Dave Brat (R., Va.) "I just found
it intellectually insulting."
Mr. Mnuchin, in the August interview, said, "I wouldn't be here
if I were uncomfortable being able to voice my opinions on things,
but again, to him they're my opinions. He as president has to make
very difficult decisions."
Mr. Trump, by siding with Democrats on the debt ceiling and
recently working with them to find common ground on immigration,
has opened the possibility of a path that brings the opposition
party along on taxes.
Most Democrats say any tax overhaul should not increase budget
deficits or cut taxes for high-income households. The latter point
would square with recent comments from Mr. Trump but not with the
plan he and Mr. Mnuchin wrote during the campaign.
--Nick Timiraos and Michael C. Bender contributed to this
article.
(END) Dow Jones Newswires
September 25, 2017 10:57 ET (14:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.