In an interview with CNBC on Wednesday, Steve Mnuchin, Donald Trump’s nominee for Secretary of Treasury, announced that there will be no “absolute” tax breaks for the American upper class.
This marks a big change from what had been shopped around up until recently as the incoming administration’s tax plan.
More specifically, Mnuchin said, “Any reductions we have in upper-income taxes will be offset by less deductions, so there will be no absolute tax cut for the upper class. 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."
Donald Trump’s latest plan, as reviewed by the Tax Policy Center (TPC) in an October 2016 paper, “would cut taxes at every income level, but high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”
Broken down, writes the TPC, “the highest-income taxpayers (0.1 percent of the population, or those with incomes over $3.7 million in 2016dollars) would experience an average tax cut of nearly$1.1million, over 14percent of after-tax income. Households in the middle fifth of the income distribution would receive an average tax cut of $1,010, or 1.8percent of after-tax income, while the poorest fifth of households would see their taxes go down an average of $110, or 0.8percent of their after-tax income.”
As part of this effort and following Mnuchin’s latest statement, The Wall Street Journal reports, “Itemized deductions are on the chopping block as President-elect Donald Trump looks for ways to offset the revenue loss from his proposed tax-rate cuts.”
And herein lies the challenge according to a series of financial experts.
Bill Gales, a senior fellow at the Brookings Institution, told WSJ, “There’s just no way that restricting the deductions that Trump has talked about comes anywhere close to eliminating the tax cut for the wealthy in his plan…It’s just arithmetic.”
Furthermore, Howard Gleckman, a contributor for Forbes, remains skeptical in terms of whether or not limiting certain deductions would be enough to make up for the tax cuts awarded.
Gleckman writes, “If Mnuchin is in fact suggesting the tax plan would not add to the debt, that suggests massive changes to what Trump has so far proposed.”
The aforementioned Tax Policy Center’s paper supports these positions, stating that Trump’s proposed deductions in mortgage interest, charitable contributions and state and local taxes are not enough.
Combined with the tax cuts, these deductions would still “reduce federal revenue by $6.2 trillion over the first decade of implementation and by an additional $8.9trillion in the second decade,” says the report.
Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, wrote in a blog post that Mnuchin’s comments are “completely at odds with the tax plan that Trump announced during the campaign, which would provide a massive tax cut for upper-income taxpayers.”
Marr adds, “The plan that Trump announced would limit itemized deductions for high-income taxpayers (to $100,000 for individuals, $200,000 for joint filers). The value of the tax cuts that would disproportionately benefit the richest people, however, far outweighs the deduction limit.”
Others have seen Mnuchin’s remarks as a blessing to the middle and lower classes.
According to Edward J. McCaffer, a Law Professor at the University of Southern California, Mnuchin’s statement bodes well for the voters who brought Trump to power.
“This is a promising sign that a Trump presidency will not, after all, turn on a bait and switch, in which an angry populist movement votes an outsider into the presidency only to be greeted with the same-old, same-old trickle-down tax policies that Republican insiders have touted for decades,” McCaffer writes in an opinion piece for CNN.com.
McCaffer adds, “For today, we can…hope that a Trump presidency will actually listen to and help the working class with their heavy economic burdens, by giving them tax relief, now, and directly, instead of telling them to shut up and be patient as they wait for the benefits of massive tax cuts for the rich to trickle down to them.”
However, fact is, as cleverly expressed by Forbes’ Gleckman, “Trump’s remarkable malleability on tax policy makes it hard to keep up,” and it might be best at the end of the day to wait for the latest and hopefully final version of the President Elect’s tax plan.
Main image: a katz