The White House budget proposal set for release May 23 will not include additional details about the Trump administration’s tax reform plan, Treasury Secretary Steven Mnuchin said May 18.
Asked if there would be more details on tax reform included in the coming budget, Mnuchin responded, “Not necessarily on Tuesday. We’ve still got more work to do.” When pressed to clarify, he indicated that the budget’s timing had not changed, but added, “There won't be more detail on tax reform in the budget on Tuesday.”
Mnuchin’s comments came after his appearance at a Senate Banking, Housing, and Urban Affairs Committee hearing, where he said that the one-page tax reform outline the White House released last month includes only some elements of the administration’s larger tax reform plan and that the White House expects to release a more detailed plan soon. Among the proposals included in the administration’s outline are reducing the number of individual income tax brackets from seven to three, nearly doubling the standard deduction, and lowering the business tax rate — for corporations and passthroughs — to 15 percent.
The secretary discussed how the Trump administration would preempt gaming of the proposed lower tax rate for passthroughs, saying that it would put “procedures in place” to ensure that high-income individuals cannot “use passthroughs to arbitrage the system.”
“The concept is that there will be a box that you have to check that says, ‘I’m eligible for the business tax,’ which is 15 percent, and there will be qualifications around that,” Mnuchin said.
Mnuchin said that roughly 100 Treasury staffers are working on tax reform, and noted that he and National Economic Council Director Gary Cohn met May 17 with Senate Finance Committee members of both parties. “We are having outreach to lots of different people,” Mnuchin said, “and we expect in the near term to have something with a lot more details in it” regarding tax reform.
Mnuchin indicated May 1 that the White House wanted to have a “joint agreement” on tax reform with House and Senate Republicans before announcing a comprehensive tax reform plan.
Regarding the process for tax reform, Mnuchin said it would be up to the Senate to decide whether it should advance via budget reconciliation or via regular order, but he added that he hoped the administration could garner bipartisan support for the effort.
Mnuchin’s appearance before the committee came as the House Ways and Means Committee held its first hearing of the 115th Congress on tax reform. At the hearing, committee Republicans and Democrats expressed divergent views on the goals of tax reform, with Republicans promoting corporate tax reform to encourage investment and Democrats emphasizing their commitment to tax relief for middle-income families.
Mnuchin resisted some Democratic senators’ suggestions that Trump’s tax proposals would benefit wealthy individuals more than middle-income taxpayers. “Our objective is that 95 percent of Americans won’t need to use itemized deductions and will be able to fill out simplified tax returns,” he said, arguing that the administration wants to eliminate almost all the deductions that benefit wealthy individuals. The tax reform outline would retain only the itemized deductions for home mortgage interest and charitable contributions.
Mnuchin also faced questions about whether the Trump administration’s tax reform proposal would be revenue neutral, as Senate Majority Leader Mitch McConnell, R-Ky., urged May 16. Senate taxwriter Mark R. Warner, D-Va., told Mnuchin that tax reform should be “at least deficit neutral.”
“We would never propose a plan that we thought would cost $5 trillion,” Mnuchin said after Sen. Jon Tester, D-Mont., pointed to nonpartisan revenue estimates of the outline. “There were only specific parts of the plan that were released, so I don’t know how it could be responsibly scored,” Mnuchin said, reiterating that the administration believes that any tax plan it proposes “should be paid for with economic growth.”
“Now, I am concerned as to whether some of the models will attribute enough growth in dynamic scoring,” Mnuchin added, “but when we present the details, we will present how we think it should be paid for.”
Mnuchin said he believes the White House tax reform plan will receive three scores: a static score and a dynamic score from the Joint Committee on Taxation, and a separate score from the administration itself, developed by Treasury, that will show how it expects the proposal to increase growth and drive revenue.
Sen. Brian Schatz, D-Hawaii, questioned the credibility of such an in-house revenue estimate and indicated the administration was being too vague about how it would offset the cost of the tax cuts it had proposed.
“There’s nothing that will be done deep in secret when the tax bill is generated,” Mnuchin responded. “You will have all the specifics and you will have the distribution [effects explained], and there will be complete transparency in the process.”
Without new tax reform details to fill in the gaps, some tax observers speculated that the president’s budget would likely be another slimmed-down affair, following the “skinny” budget the White House released in March.
Ed Lorenzen of the Committee for a Responsible Federal Budget said the budget may end up including revenue projections that set targets for tax reform, along with overall principles and a commitment to work with Congress to broaden the base and close special interest tax breaks without offering much in the way of specifics. That would be “a diplomatic way for the budget to promise a lot of tax cuts and promise they will not add to the deficit but leave details about the tough choices necessary to meet those promises to be figured out later,” Lorenzen said.
Such an approach wouldn’t be entirely without precedent, Lorenzen said, noting that President Obama’s first budget proposed the general principles of deficit-neutral healthcare reform and left many details to be worked out later. However, that budget included at least some specific proposals for revenue offsets as a starting point, he added.
Practically, Lorenzen said, it’s unlikely that the budget will be accompanied by a Treasury green book, which typically spells out the president’s proposed tax changes in detail. That absence “will create a few problems,” according to Lorenzen. The green book is particularly valuable when lawmakers are drafting legislation and trying to find revenue raisers, and with the White House’s one-page tax plan proposing to make the elimination of deductions and tax breaks the source of revenue offsets, he said, that effort “will be much harder without a green book providing details on policy changes.”
One issue to watch for in the coming budget is whether revenue from the additional growth anticipated by the White House will be used to reduce the overall deficit or to offset the administration’s tax cuts. “They can’t do both,” Lorenzen said, adding that instead, they “may have one position in their budget to show balance and a different position when Congress considers tax reform to get the policies they want included.”
Chuck Marr of the Center on Budget and Policy Priorities told Tax Analysts that even without more detail in the budget proposal, “we know enough to know that the tax plan is fiscally reckless” and fails to address the issue of stagnant wages for the working class. “I think it would be great to have more detail, I’m just not sure more detail is going to make the plan any better,” he added.
However, Americans for Tax Reform President Grover Norquist said that by not including further details, the White House was “quite wisely letting the House, the Senate, and the president work together.” Republican lawmakers and the Trump administration are aligned on many of the major tax policy issues, such as dramatically lowering corporate and individual rates, switching to a territorial tax system, and increasing the standard deduction, and a budget that includes too many new details might interfere with the ongoing negotiations between the White House and Congress, he said.
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