Pol­i­tics Mnuchin Im­pos­si­ble?

Steven Mnuchin wants to change the tax sys­tem, but the trea­sury sec­re­tary’s plan may self-de­struct be­fore the end of the year

Newsweek International - - NEWSWEEK - BY MATTHEW COOPER

crit­i­cism. For years, he was known as “the fore­clo­sure king” on Wall Street, where he amassed an es­ti­mated $300 mil­lion—much of it by prof­it­ing from the Great Re­ces­sion (after the fact). But in Au­gust, just days after the deadly rally in Char­lottesville, Vir­ginia, Mnuchin—the U.S. trea­sury sec­re­tary—faced un­prece­dented pres­sure from an un­likely source: his alma mater, Yale Univer­sity. Pres­i­dent Don­ald Trump had equated the racist, tiki torch–wield­ing ex­trem­ists at the rally with those who showed up to protest against them. And a group of 300 Yale alumni asked the trea­sury sec­re­tary, who is Jewish, to re­sign. “You are bet­ter than this,” they wrote. Mnuchin’s re­sponse? He de­fended Trump in glow­ing terms, vow­ing to stay on and “re­form taxes.”

The fight to change the tax code is the big­gest is­sue fac­ing Con­gress, and it will likely de­fine the 54-year-old’s ca­reer in Washington. Mnuchin is the ad­min­is­tra­tion’s point man on what has be­come a must-win is­sue for the pres­i­dent. Trump came into of­fice with a Repub­li­can-con­trolled House and Se­nate, but he’s failed to per­suade Con­gress to pass any­thing save for an em­bar­rass­ingly small num­ber of con­fir­ma­tions and stop­gap spend­ing mea­sures. So now it falls to Mnuchin, who has been work­ing the Sun­day news cir­cuit, not only ad­vo­cat­ing for the tax plan but—be­cause loy­alty is so im­por­tant to Trump—de­fend­ing the pres­i­dent’s com­ments about NFL play­ers tak­ing a knee dur­ing the national an­them. “It’s al­most like he’s the ven­tril­o­quist and the dummy at the same time,” chided The Daily Show’s Trevor Noah.

Mnuchin has been op­ti­mistic about pass­ing the em­bry­onic plan to elim­i­nate de­duc­tions and lower tax rates in hopes of stim­u­lat­ing eco­nomic growth. But chang­ing the tax code is one of the hard­est things to do in Washington—and this ad­min­is­tra­tion has failed at less ar­du­ous tasks— such as re­peal­ing Oba­macare. Chang­ing the tax sys­tem in­volves huge trade-offs, and you’re bound to piss off one pow­er­ful group or an­other—from the real es­tate lobby to re­tirees.

Con­sider Tom Reed, a pop­u­lar Repub­li­can con­gress­man from up­state New York. He sits on the pow­er­ful House Ways and Means Com­mit­tee, which writes tax laws. When he spoke to Newsweek in early Oc­to­ber, he had met with the trea­sury sec­re­tary—and he was im­pressed with his deal­mak­ing chops. But like many law­mak­ers, the con­gress­man is ea­ger to pro­tect the de­duc­tions that are im­por­tant for his con­stituents— like the ones for state and lo­cal

taxes that are slated for elim­i­na­tion in the pro­posal. So if Mnuchin can’t find a way to off­set enough of them, Reed and oth­ers may balk.

There is, how­ever, prece­dent for Mnuchin to suc­ceed. In 1986, James Baker, the sec­re­tary of the trea­sury un­der Ron­ald Rea­gan, guided a mas­sive tax re­vi­sion through Con­gress. It not only passed with a wide ma­jor­ity but slashed rates and elim­i­nated de­duc­tions. Baker pro­vided tons of de­tails to Con­gress about what he wanted in the plan. He was even present as the Ways and Means Com­mit­tee marked up the bill.

Mnuchin al­most cer­tainly won’t be in­volved at that level. And the trea­sury sec­re­tary is start­ing from a weaker po­si­tion than Baker. In 1984, Rea­gan won the most lop­sided elec­tion in Amer­i­can his­tory. One of his prom­ises was to change the tax code, and it still took Baker and his pre­de­ces­sor, Don­ald Re­gan, two years to get the bill they wanted. Trump, won by a nar­row mar­gin and re­mains un­pop­u­lar. He didn’t run on rewrit­ing tax laws, and Mnuchin has been given only a few months to pass some­thing vi­able.

An­other dis­ad­van­tage Mnuchin has: His tax pro­posal is a harder sell than Baker’s. The 1986 plan cut rates for in­di­vid­u­als but largely raised them for busi­nesses. Mnuchin’s—at least ac­cord­ing to the out­line the Trump team and GOP lead­ers re­leased in Septem­ber—is brim­ming with cor­po­rate tax cuts. Sup­port­ers note that the world econ­omy is far more com­pet­i­tive than it was dur­ing the Rea­gan era, and with the U.S. cor­po­rate rate at 35 per­cent, many companies have re­lo­cated abroad or squir­reled away money in for­eign of­fices. Low­er­ing cor­po­rate rates could help over­all eco­nomic growth, but it’s sure to be less pop­u­lar. In a re­cent poll, only 39 per­cent of re­spon­dents said they wanted such a cut. And while Mnuchin’s plan does slash in­di­vid­ual rates, the big­gest breaks go to the very wealthy, while ac­tu­ally rais­ing taxes on the poor­est Amer­i­cans, from 10 to 12 per­cent. Even Trump was re­port­edly an­gry about that, though he later seemed pla­cated when he learned the pro­posal would dou­ble the stan­dard de­duc­tion, in part to off­set the higher rate.

Mnuchin has image prob­lems that aren’t help­ing his tax ef­fort. Over the sum­mer, his wife had to apol­o­gize for lash­ing out at an Ore­gon mom who had crit­i­cized her on In­sta­gram for brag­ging about de­signer clothes as she stepped off a tax­payer­funded jet. Later, it emerged that a top Mnuchin aide may have vi­o­lated gov­ern­ment ethics rules by ac­cept­ing a pri­vate plane ride from a bil­lion­aire in­vestor. And in the wake of Health and Hu­man Ser­vices Sec­re­tary Tom Price’s res­ig­na­tion over his pri­vate char­ter travel, Mnuchin re­port­edly racked up $800,000 in trips on mil­i­tary air­craft. He had also in­quired about us­ing a gov­ern­ment jet for his hon­ey­moon (he ul­ti­mately paid his own way). None of this looks good for a man who bought sub­prime mort­gage lender Indy­mac for $1.6 bil­lion in 2009 with a group of bil­lion­aire in­vestors, then sold it more than dou­ble after prof­it­ing from fore­clo­sures and loan mod­i­fi­ca­tions.

Pri­vate jet travel isn’t the trea­sury sec­re­tary’s only op­tics prob­lem ei­ther. Mnuchin made boat­loads of money in hedge funds, and one ques­tion about his plan is whether it will re­peal the loop­hole that al­lows these funds to pay a low 15 per­cent rate on their mas­sive earn­ings. Dur­ing the cam­paign, Trump said he was for scrap­ping it—“the hedge fund guys are get­ting away with mur­der”—but end­ing the loop­hole wasn’t men­tioned in Mnuchin’s out­line.

Democrats will re­joice if the Trump team’s idea of “re­form” means zil­lion­aires get taxed at lower rates than their sec­re­taries. And Mnuchin’s Trea­sury Depart­ment has made the op­tics worse. In Septem­ber, it took a study down from its web­site show­ing that much of the cor­po­rate tax cut would wind up ben­e­fit­ing the wealthy.

Be­set by crit­i­cism, the bill’s chances don’t look good. It can make it through the House, where Repub­li­cans have a wide ma­jor­ity. But it’s going to be harder in the Se­nate. Rand Paul, the Ken­tucky Repub­li­can se­na­tor, has at­tacked Mnuchin’s out­line for not cut­ting taxes enough. GOP Se­na­tor Bob Corker of Ten­nessee is wor­ried it would raise the deficit. And mod­er­ate Democrats, like Se­na­tor Joe Manchin of West Vir­ginia, say the pro­posal is tilted too heav­ily in fa­vor of the wealthy.

Mnuchin may wind up set­tling for a smaller, more mod­est plan— one that sim­ply cuts taxes and elim­i­nates de­duc­tions. It might not be the “re­form” that Trump and his trea­sury sec­re­tary promised. But at this point, get­ting any­thing through Con­gress would be a win for the White House.

“It’s al­most like [Mnuchin’s] the ven­tril­o­quist and the dummy at the same time.”

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