Treasury Secretary Steven Mnuchin told the Wall Street Journal and CNBC on Thursday that the White House is “very committed” to enacting significant tax reform by August, before Congress leaves Washington for its summer recess.
That’s more optimistic than what many Washington observers and Wall Street strategists have been expecting lately but good news for a stock market that has rallied to record highs based on expectations for tax reform as well as deregulation and infrastructure spending.
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Richard Bernstein, CEO and chief investment officer of Richard Bernstein Advisors LLC, commenting on Mnuchin’s statements, said later on CNBC that if tax reform is not approved by August, market risks will rise.
Mnuchin explained that the No. 1 economic issue for the Trump White House is growth and tax reform is the prime way to achieve faster growth.
He said tax reform could increase growth to a 3% annual rate toward the end of 2018, which is sharply above forecasts by the Federal Reserve, the Congressional Budget Office and many Wall Street economists.
Mnuchin also said that the Trump tax reform plan would focus on middle-income tax cuts, simplification and business competitiveness and that tax cuts for upper income taxpayers would be offset by a reduction in deductions and other things, which he has said before.
The Tax Foundation’s analysis of Trump’s last tax plan before the election, which would not be the final plan that passes Congress, found that it would reduce taxes for all taxpayers but the wealthiest Americans would see a much larger percentage increase in after-tax income than other taxpayers.
Even based on a “dynamic scoring basis,” which Mnuchin has championed, the Tax Foundation found that the top 1% of taxpayers would see an increase in after-tax income between 12.2% and 19.9% while all taxpayers would see an increase between 6.7% and 7.9%.
In order for a tax reform package to be finalized by August, the White House and Congress — especially the House — will have to reconcile their differences, and a major sticking point so far is a House proposal for a border adjustment tax for corporations. That would increase taxes on companies that import products, such as retailers, while cutting them for exporters.
When asked on CNBC for his opinion on a broader adjustment tax, Mnuchin would only say, “We’re reaching to all businesses and listening to what they have to say.”
He also didn’t answer a question about whether the tax reform plan would be revenue neutral, which is a concern for deficit hawks on Capitol Hill, but he noted that growth assumptions will be higher due to dynamic scoring, which attempts to account for behavioral effects of policies, for example, increased consumer spending and thus economic growth due to tax cuts.
Mnuchin told The Wall Street Journal that the White House is working with Senate and House Republicans to address their differences and admitted that the August deadline “is an ambitious timeline that could slip to later in the year.”
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