WASHINGTON ― It’s just too tricky to reform the tax code without delivering a windfall to the wealthy, Treasury Secretary Steve Mnuchin said in an interview published Wednesday.
“When you’re cutting taxes across the board, it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class,” Mnuchin told Politico’s Ben White. “The math, given how much you are collecting, is just hard to do.”
Mnuchin is right in one sense: Because of the way the tax code adds layers of higher marginal tax rates as income rises, wealthy people automatically benefit if the lower rates are reduced, since they pay both the lower and higher rates.
But Mnuchin is wrong that it would be difficult to devise a tax plan that doesn’t make up for lost revenue with higher marginal rates for the wealthy. Precisely for this reason, Republicans in Congress and the Trump administration ― including Mnuchin himself ― said they’d consider a higher top marginal rate when they unveiled their tax framework last month.
“An additional top rate may apply to the highest-income taxpayers to ensure that the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers,” the tax framework document says.
Has the White House abandoned the possibility of an additional top rate? A spokesperson didn’t immediately respond to a request for comment.
Republicans have also struggled to deliver on their stated goal of a tax cut for the middle class, since their framework calls for simplifying the tax code by eliminating a plethora of deductions and exemptions that benefit lower- and middle-income households. “We’re working on fixing that right now,” Mnuchin told Politico.
Mnuchin said the White House had not reconsidered one part of the tax-reform outline that exclusively benefits the very rich: repealing the estate tax, which only applies to the less than 1 percent of estates worth more than $5.4 million.
Though their tax blueprint is short on details, a preliminary analysis by the Tax Policy Center found the richest 1 percent of households would reap 80 percent of the benefits of the proposed changes.