With Republicans in both chambers of Congress pushing their own tax bills, Treasury Secretary Steven Mnuchin said a primary goal of tax reform, and particularly cutting corporate taxes, is to help American workers.
“This is as much about bringing jobs back to America as anything else,” Mnuchin told Yahoo Finance in an interview in New York on Thursday.
Despite this assertion, both the the nonpartisan Tax Policy Center and Joint Committee on Taxation (the official scorekeepers) found the House tax reform bill largely favors higher-income taxpayers.
‘A huge incentive to invest money here at home’
In his interview with Yahoo Finance, Mnuchin said lowering the corporate tax rate from 35% to 20% would benefit workers by boosting hiring, wages and investment.
Still, Mnuchin says he is convinced that corporate tax cuts and repatriation would spur investment.
“This tax system will bring back trillions of dollars that will be invested here combined with expensing for five years gives a huge incentive,” he said. “The lower corporate rate combined with expensing gives a huge incentive to invest money here at home.”
Treasury Secretary Steven Mnuchin sits down with Yahoo Finance’s Nicole Sinclair to talk about the administration’s tax reform push
With debt to GDP over 75%, concerns are mounting about the US deficit, particularly with entitlement programs like Social Security at stake. But Mnuchin insists growth will offset any concerns about tax cuts increasing the deficit.
“As you’ve heard us say, we think there will be significant growth. We think there’ll be $2 trillion of growth,” Mnuchin said. “But even if you think there’s only 40 basis points improvement in GDP, you get to break even. So we do think these tax cuts will pay for themselves.”
The Republicans have insisted they want to make the tax code simpler and more efficient, with one example being doubling the standard deduction. But some say they are still picking winners and losers. For example, the current House proposal takes away the deductibility of student loan interest and major medical expenses without fully eliminating carried interest loopholes.
Mnuchin insisted it’s about the middle class.
“It is about simplicity and significant tax cuts,” he told Yahoo Finance. “A typical … person would have about a $1,000 tax cut.”
As for the proposed estate tax repeal, Mnuchin said Republicans think it’s an unfair tax because it’s a double tax and also focuses mostly on small businesses.
“This is as much a philosophical issue as it is an economic issue. And again the estate tax is under consideration,” Mnuchin said. Still, Mnuchin conceded at the Institution for International Finance Conference last month that cutting the estate tax disproportionately helps rich people.
The Tax Policy Center estimates that only about 80 farms and closely-held businesses are expected to pay the estate tax this year. Furthermore, they estimate only about 5,000 families are expected to pay the estate tax, and the first $5.49 million for individuals and $11 million for couples are not taxed.
Meanwhile, the logic of “double tax” is specious as right now assets are now passed on in a stepped-up basis. For example, if someone dies with a $100 million stock portfolio that had a $10 million cost basis, the cost basis gets stepped up to $100 million (time of death) for heirs, meaning the capital gains aren’t taxed.
This is significant, as repealing the estate tax would further increase the deficit. (The estate tax amounts to $200 billion revenue over 10 years, according to the Tax Policy Center.)
Market implications
While the proposals work their way through Congress, Mnuchin said the market does have expectations for passage.
“There’s no question the market likes the Trump economic policies,” he told Yahoo Finance. “There’s no question in my mind there are expectations of tax reform built into the market…My guess is there’s still upside….People will still continue to invest. And that’s going to be good for American companies.”
Nicole Sinclair is markets correspondent at Yahoo Finance
