After the populist surge that put Donald Trump in the White House, Steve Mnuchin tried to rebrand himself as a man of the people. He promised that as treasury secretary that he would unburden the working class and that the rich shouldn’t expect any sort of preferential treatment. Many observers were very skeptical of these promises—and for good reason. Appearing on Meet the Press this week, Mnuchin had been tasked with defending the Republicans’ new tax framework. But he couldn’t really explain it.
Mnuchin repeated like a mantra that the “objective” of the tax plan was a “middle-income tax cut” and not a tax cut for the wealthy. Given that he had few real details to offer, Mnuchin could avoid both making promises and giving straight answers, while doubling down on his own dubious projections of how the plan would play out for Americans. But despite his best efforts, he was unable to avoid being caught out on one thorny issue: What about the estate tax?
The estate tax, or the “death tax” as Mnuchin and other Republicans like to call it, affects the wealthiest 0.2 percent of Americans. Eliminating the estate tax would mean a windfall of more than $20 million for people who are already have very big bucks. The federal government, however, would lose out on $269 billion in tax revenue revenue over the next ten years, according to the Center on Budget Policy and Priorities.
Repealing a tax on the mega-rich doesn’t fit well with the messaging of a populist middle-income tax cut, so Mnuchin equivocated.“We believe that people should pay taxes once and not twice,” he said. “So, I separate the income tax system from the estate tax system.”
But last November, Mnuchin had made a pledge, an unusual one, coming from a former Wall Street executive: “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class,” he said in a CNBC interview. “There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.”
Yes, you read that correctly: “There will be no absolute tax cut for the upper class.”
The statement established a clear standard, known as the “Mnuchin Test.” It’s a standard that the Trump administration has already failed to uphold. The original promise has changed. Now there will be no income tax cut for the wealthy, a deliberately narrow interpretation of how the wealthy might benefit from the Republicans’ tax plan.
“There is no substantive justification for excluding the estate tax from a distribution analysis,” says Greg Leiserson, the director of tax policy at the Washington Center for Equitable Growth. “Any assessment of whether a potential tax package provides a tax cut for the wealthy certainly should include individual income taxes ... corporate income taxes, and estate taxes.”
By narrowing what constitutes tax cuts for the wealthy only to income tax-related relief, Mnuchin provides the Trump administration with the ability to offer generous handouts to the upper reaches of the upper classes through lower corporate taxes, abolishing the estate tax, and preferential rates for pass-through income, while still maintaining that their tax plan is about jobs and putting money back into the pockets of middle-class Americans.
It’s akin to a CEO awarding himself millions in new bonuses and then trying to calm disgruntled workers by assuring them that he won’t get a salary raise next year. This is the same sort of doublespeak that has come to define trickle-down economics for the last three decades.
Coincidentally, the Trump administration’s defense for eliminating the estate tax is the same as the one for slashing corporate tax rates: namely, that the working class will benefit. In the Meet The Press interview, Mnuchin said that the purpose of getting rid of the estate tax was so that “people that have farms and people that have family businesses” can continue to pass on their wealth.
Yet only about 50 small business and farms nationwide will pay any estate tax in 2017, according to the nonpartisan Urban-Brookings Tax Policy Center. Currently, an individual can bequeath up to $5.49 million completely tax-free. Married couples may leave their heirs double that—almost $11 million—without those heirs facing any federal taxes. So the real beneficiaries of killing off the estate tax are the children of fabulously wealthy parents, not the kids whose parents run a convenience store.
President Trump and Secretary Mnuchin are using falsehoods and murky promises of adjustments down the road to sell the congressional Republican tax plan. It’s the same strategy that they used during health-care debate. But Trump can either have a plan that does right by his working-class supporters, or he can have tax cuts that trickle down to his wealthy friends. But he can’t have both.