The newly christened “Mnuchin rule” — the assurance given by Treasury nominee Steven Mnuchin that “there would be no absolute tax cut for the upper class” — seems as if it was made to be broken.
Mnuchin made the statement on CNBC in November, after President Donald Trump chose him for the Cabinet. At a Senate confirmation hearing last month, Sen. Ron Wyden, D-Ore., rebranded the comment as a “rule,” transforming a throwaway line into a formal pledge by the new administration.
Mnuchin says that any rate reductions at the top would be offset by the closing of fat loopholes. Yet his guarantee appears impossible to fulfill either under the tax overhaul that the House Republicans are pushing or similar, sketchier proposals that Trump has offered.
Redesigning the tax code with an eye fixed on lower rates has been a Republican mission for decades, and one that Trump adopted. That prospect combined with a promised regulatory retreat, has pumped up the stock market and fueled optimism among business leaders.
At the same time, the president has raised expectations among his working-class supporters that “the rich will pay their fair share,” and that “special-interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers” will be eliminated. Mnuchin promised “a big tax cut for the middle class.”
Yet analyses of the president’s and the House Republicans’ plans consistently conclude that the wealthy will receive the largest tax cuts.
Start with the House blueprint, which at the moment is the closest thing to a working draft that exists. The nonpartisan Tax Policy Center, a joint project of the Urban Institute and Brookings Institution, found “high-income taxpayers would receive the biggest cuts, both in dollar terms and as a percentage of income.”
How big? “Three-quarters of the tax cuts would benefit the top 1 percent of taxpayers,” if the plan were put into effect this year, it said. The highest-income households — the top 0.1 percent — would get “an average tax cut of about $1.3 million, 16.9 percent of after-tax income.” Those in the middle fifth of incomes would get a tax cut of almost $260, or 0.5 percent, while the poorest would get about $50.
That split would worsen down the road, the Tax Policy Center says: “In 2025 the top 1 percent of households would receive nearly 100 percent of the total tax reduction.”
The conservative-leaning Tax Foundation’s analysis found a smaller gap, but a gap nonetheless. The foundation concluded that 4 out of 5 taxpayers would see only a 0.2 to 0.5 percent cut in after-tax income, while those in the top 1 percent would save at least 10 times as much, or 5.3 percent. That’s nearly $40,000 extra for those at the top, compared with $67 for those smack dab in the middle of the income scale.
Mnuchin did not respond to a request for comment.
Republicans argue their plan makes everyone a winner — that lower taxes will unleash an enormous swell of economic growth, raising wages, incomes and tax revenue all around. The historical record does not offer much support for that claim. Yet even assuming the rosiest of forecasts, the top 1 percent, according to the Tax Foundation, would still receive close to a $100,000 tax cut — 32 times as much as a middle-income family.
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