President-elect Donald Trump’s nominee to lead the Treasury Department on Wednesday called reforming the nation’s tax code his top priority, promising significant tax breaks for the middle class but no overall tax cut for high-income households.
Steven Mnuchin, a former Goldman Sachs banker and Hollywood financier, confirmed in an interview Wednesday on CNBC’s Squawk Box that Trump had asked him to serve in the administration. Billionaire industrialist Wilbur Ross also confirmed that he is the nominee for Commerce Secretary. In the joint interview, they professed confidence in the new administration’s ability to boost economic growth as high as 4 percent a year.
Crucial to that projection would be passage of Trump’s proposed overhaul of the tax code, including streamlining individual tax rates into three brackets and reducing the corporate tax rate to 15 percent. Independent research groups have estimated the plan could cost as much as $6 trillion over the next decade. However, that analysis does not include the potential economic benefits the tax cuts could generate.
Mnuchin said Wednesday that he believed the tax cuts would generate more jobs, helping to offset the cost. Some of Trump’s economic advisers said during the campaign that his plan would not add to the federal deficit. However, the Tax Foundation estimated that even with so-called “dynamic scoring,” Trump’s tax package could cost about $3 trillion over a decade.
In addition, Mnuchin emphasized that a reduced tax rate for the highest earners would be offset by the elimination or curtailing of many deductions that favor the wealthy. He suggested that the cap on the popular deduction for mortgage interest could be lowered but did not provide details. The current cap is $1 million on first and second mortgages.
Mnuchin also pushed back against analysis by the nonpartisan Tax Policy Center that found the bulk of the benefits under Trump’s plan would go to wealthy households, while some single-parent households would end up paying higher taxes. He highlighted plans for a child-care tax credit and rebates for lower-income families.
“There will be no absolute tax cut for the upper class,” he said. "There will be a big tax cut for the middle class.”
The comments highlight two potential sources of tension for the Trump administration as it pushes its tax plan – one with congressional Republicans, the other with the federal budget deficit. They also fly in the face of every independent analysis of the Trump plan, including one Trump has frequently cited favorably.
Mnuchin reiterated Trump’s commitment to cutting taxes for the middle class, a key difference between the president-elect’s campaign plan and the tax blueprint put forth by GOP leaders on Capitol Hill. The congressional plan, like Trump’s, would cut taxes for the wealthy and for corporations, but it would not do nearly as much as Trump would to cut taxes for lower- and middle-income Americans. Reconciling the two will be a major sticking point in any tax-reform negotiations next year.
Mnuchin also said two things about Trump’s tax plan that independent analyses do not support. One is the idea that the wealthy will receive no net tax benefits from the plan. The other is that the plan will not add to the deficit, because of increased economic growth.
Even the friendliest analysis toward Trump, work by the independent Tax Foundation that the Trump campaign frequently cited to bolster his proposals, finds Trump’s plan would add at least $2.6 trillion to the federal debt over a decade, and as much as $3.9 trillion, after accounting for increased economic growth.
The Tax Foundation also finds Trump’s plan would boost incomes for the top 1 percent of U.S. earners by between 10 and 16 percent, an amount that dwarfs the benefits lower- and middle-income earners would see from the plan. That’s true even though the group factored in Trump’s promise to limit deductions for high earners, which Mnuchin reiterated on Wednesday.
Mnuchin and Ross also appeared to step back from some of Trump’s most confrontational rhetoric on the campaign trail. Trump has repeatedly threatened to levy double-digit tariffs on goods coming from China and Mexico and pull out of existing free-trade deals. But Ross said Wednesday those measures may only be a last resort.
"Everybody talks about tariffs as the first things. Tariffs are the last thing. Tariffs are a part of the negotiation,” he said. "The real trick is going to be increase American exports.”
Trump scored an early victory Tuesday night when air-conditioning manufacturer Carrier announced it was reversing plans to move a factory from Indiana to Mexico after speaking with the president-elect. The decision is expected to save about 1,000 U.S. jobs.
“I’s a present from the president,” Ross said. "Here we have a trade victory before we even come into office."