Steven Mnuchin: ‘We are very optimistic that we are going to get it done’ © Bloomberg
The US Treasury secretary has insisted Donald Trump’s feuds with Republican senators will not derail tax reform as negotiations within Congress intensify following a key budget vote.
Steven Mnuchin praised Bob Corker, the Tennessee Republican who has publicly questioned Mr Trump’s competence for the job, saying the senator understood the economic compulsion for tax reforms even if he differed from the administration on the deficit.
Speaking in Jerusalem, Mr Mnuchin told the Financial Times that the administration was “very optimistic” that it would get the tax overhaul done. Mr Corker, whom Mr Trump has slammed as an obstruction to tax reform, had been “enormously helpful” on advancing the budget, said Mr Mnuchin.
But the discussion left apparent the significant issues that remain up in the air within a Republican party that is deeply divided over how to pay for tax reform. It comes amid clashing messages from the Trump administration that have frustrated key lawmakers.
The House passed a budget resolution on Thursday that will allow Congress to move towards a tax-relief package that Republican leaders see as critical to their prospects in the coming election. Now they are over that hurdle, the party is faced with an array of divisive and complex choices as it attempts to make the overhaul add up.
Mr Mnuchin stuck to his longstanding position that there would be no compromise on Republicans’ desired reduction in the corporate tax rate to 20 per cent. There was “no room” for a corporate rate that is any higher, he said.
However, other parts of the plans remain in flux.
For example, the president has insisted on Twitter that there would be no changes to the tax treatment of retirement saving plans called 401(k)s. Some lawmakers are looking to alter rules affecting the plans, for example lowering the tax-free threshold, which would save money and free up resources to pay for tax cuts elsewhere.
While backing the president’s position, however, Mnuchin also said he would listen to any suggestions the House of Representatives made.
Mr Mnuchin said the administration was not looking for a “wholesale change” on the 401(k) plans. He added: “In all my discussions I never heard that 401(k)s were on the table and being changed, but if the House has some improvements they want to suggest, obviously we will listen to it.”
The Treasury secretary also said he was holding daily calls on another critical element of the proposals — ending individuals’ ability to deduct state and local taxes from their federal tax bills.
The deduction is one of the most expensive in the US code, costing $1.3tn over a 10-year period, so scrapping it would be attractive way of raising revenue to fund other tax cuts.
But some Republicans from states with high local taxes have been resisting the change for fear of alienating voters who could lose out. Mr Mnuchin said that getting the government “out of the business of subsidising the states” was a good idea in theory.
The Trump administration did not want to force middle-income taxpayers in certain states to pay higher taxes, however, Mr Mnuchin said.
He said: “We are doing things to make sure that we really do have an across-the-board middle-income tax cut and that we don’t find ourselves in certain states that middle-income taxpayers have their taxes going up.”
Part of the discussion was imposing a higher tax rate on the rich — an option Republicans left open for themselves in September.
“There are active discussions going on in the House which I have been participating in and keeping track of on a daily basis,” added Mr Mnuchin.
Mr Mnuchin has been on a visit to the Middle East as he talks to partners in the region about terrorist finance. He was quizzed on US corporate tax by Israeli prime minister Benjamin Netanyahu during meetings in Israel on Thursday, and said in response he was hopeful he would hold the line on the 20 per cent rate.
“This is a major part of his [the president’s] economic platform; we are very optimistic that we are going to get it done,” he later told the FT.
Mr Mnuchin added that the administration would continue to show “in numbers and examples” why it did not believe the tax cuts would add to the deficit. Some lawmakers, including Mr Corker, have been insisting the tax cuts must not increase the budget shortfall.
The deficit assumptions being run by the Treasury secretary are based on optimistic projections that the tax overhaul will boost growth and therefore receipts. Chuck Schumer, the Democratic Senate minority leader, this week accused Mr Mnuchin of “lying” by claiming that the tax package would reduce the deficit.
The Treasury secretary said he was “shocked” by Mr Schumer’s comments and said the administration had been “very straightforward in our math”.
“This is factual, based upon growth assumptions. The president and I are very, very comfortable with these assumptions,” he said.