Trump Campaign and House GOP Tax Plans Violate Mnuchin Rule
April 25, 2017
Two major Republican tax proposals — the tax plan that President Trump proposed during his campaign and the House GOP’s “Better Way” tax plan spearheaded by Speaker Paul Ryan — fail the tax policy standard set by Treasury Secretary Steven Mnuchin that “there will be no absolute tax cut for the upper class” and violate Trump’s promise to “benefit American workers and American families” on every decision related to taxes.
In an interview shortly after his nomination, Mnuchin stated:
Any reductions we have in upper-income taxes will be offset by less deductions, so there will be no absolute tax cut for the upper class. 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.
Secretary Mnuchin has reiterated this rule in various forums since then. The “Mnuchin rule” means that tax plans should emphasize helping the middle class and that any tax cuts for high-income households must be offset by cuts in their tax benefits elsewhere in the tax code. Both the Trump and Ryan plans violate this rule, as they would direct a disproportionate share of their tax cuts to the highest-income households (see Figure 1), while giving low- and- moderate income families at best a small tax cut, on average.
According to Tax Policy Center (TPC) estimates:
- The Trump tax plan would deliver almost half of its total tax cuts to millionaires in 2025, while the share of the total tax cuts for the 136 million households with incomes below $100,000 would be only about one-fifth as big. Millionaires’ after-tax incomes would rise by 14 percent, while people making between $40,000 and $50,000 would see their after-tax income increase by only 1 percent.
- The House GOP tax plan would deliver virtually all — 96 percent — of its total tax cuts to millionaires in 2025, raising their after-tax incomes by more than 11 percent. By contrast, the bottom 80 percent of Americans wouldn’t see their after-tax incomes rise or fall by more than one-half of 1 percent.
Trump Campaign Tax Plan Violates Mnuchin Rule
Developed and then revised during the campaign, the Trump tax plan would provide a massive tax cut for the wealthiest. It would cut the top income tax rate, the top corporate tax rate, and the capital gains and dividends rate. It would also create a special, lower top rate for income from business partnerships and other “pass-through” entities and eliminate the estate tax on large inheritances.
For people at the top of the income scale, these tax cuts would overwhelm the tax increases from the plan’s limits on itemized deductions and other tax-expenditure reforms. In contrast, low- and middle-income families would see little benefit. (See Figure 2.)
TPC estimates show:
- People with incomes above $1 million would get a tax cut averaging $387,000 in 2025, raising their after-tax incomes by 14 percent.
- The gains for the highest-income households would dwarf those of less-affluent households. Those making between $40,000 and $50,000 would see their after-tax incomes rise by just 1 percent or $500, on average.
- Millionaires would receive almost half of the total tax cuts in 2025 — while the total tax cuts for people with incomes below $100,000 would be only about one-fifth as big as the tax cuts for millionaires. Over the first decade, millionaires would receive tax cuts totaling roughly $2.8 trillion.
House GOP Tax Plan Violates Mnuchin Rule
The House Republican leadership’s “Better Way” tax plan would lower the top individual rate, capital gains and dividends rate, and corporate rate, carve out a special, low rate for partnerships and other “pass-through” entities, and eliminate the estate tax, enabling the wealthy to pass down massive inheritances tax-free. While the charitable and mortgage interest deductions would remain, the state and local tax deduction and various other itemized deductions would disappear.
The plan is heavily lopsided: its major tax-cut provisions are targeted narrowly at the very top of the income and wealth scales, and it provides very modest tax cuts, at best, to low- and moderate-income people. (See Figure 3.)
TPC estimates show:
- People with incomes above $1 million would receive tax cuts averaging $302,000 in 2025, raising their after-tax incomes by 11 percent.
- People making between $40,000 and $50,000 would receive just $120, on average, and taxes for people with incomes somewhat above that level would rise modestly, on average.
- As a group, millionaires would receive 96 percent of the total tax cuts in 2025. Over the first decade, millionaires would receive roughly $2.6 trillion in total tax cuts.
 See Chuck Marr and Chye-Ching Huang, “ACA Repeal, Trump Tax Plan, and Ryan’s ‘Better Way’ Plan All Fail Mnuchin Test,” CBPP, January 18, 2017, http://bit.ly/2jsAT8w; Isaac Shapiro, Chye-Ching Huang, and Richard Kogan, “House GOP Framework Would Give Millionaires $2.6 Trillion in Tax Cuts, While Cutting Programs for Low- and Moderate- Income People by $3.7 Trillion,” CBPP, September 29, 2016, http://bit.ly/2deCtbe; Robert Greenstein, Chye-Ching Huang, and Isaac Shapiro, “Revised Trump Plan Heavily Tilted Toward Wealthiest, Tax Policy Center Analysis Shows,” CBPP, October 11, 2016, http://bit.ly/2fJUq69.