November 2, 2017 / 8:01 PM / a year ago

Breakingviews - Botched Republican pitch bodes ill for tax cuts

WASHINGTON (Reuters Breakingviews) - Republicans’ botched pitch for tax cuts could cost them dearly. Their revised plan, unveiled on Thursday, only partly deals with earlier criticism that it benefits the rich. And the chief lieutenants responsible for selling it to the public for the White House - Gary Cohn and Steven Mnuchin - have fumbled their way through their own script.

Then U.S. President-elect Donald Trump delivered brief remarks to reporters at the Mar-a-lago Club in Palm Beach, Florida, U.S. December 28, 2016. REUTERS/Jonathan Ernst

GOP leaders in the House of Representatives have, at least, ditched the idea of scrapping the top rate of tax for the highest earners of nearly 40 percent. But they’re cutting to 25 percent the rate for so-called pass-through entities like limited-liability companies and partnerships. Many wealthy people, including President Donald Trump and some in his cabinet, have made liberal use of these.

And they’re doubling the exemption and then repealing the estate tax over the next six years. Trump in September claimed this so-called death tax would “protect millions of small businesses and the American farmer.” Yet it only affects about 0.2 percent of the population – ultra-wealthy families, in other words. Its repeal would save Trump’s family and the offspring of rich cabinet members billions of dollars, argue Democrats.

Comments made by Trump administration officials aren’t helping. Cohn, Trump’s top economic adviser, claimed in September that the typical American family earns $100,000 a year. He’s vastly overstating it: the median annual U.S. household income in 2016 was about $59,000. The Pew Research Center tallies an annual middle-class income as low as $40,000, depending on where you live. Cohn, former president of Goldman Sachs, listed at least $250 million in assets in his financial disclosure.

Mnuchin, another Goldman alumnus, has also garbled his tax message. After saying for months that the wealthy would not get a tax cut, he recently changed his tune. He told Politico it’s difficult to avoid giving a break to the rich because “the top 20 percent pay 95 percent of the taxes.” It’s actually more like the top 50 percent of earners. His own wealth presents a conflict of interest, too: he reported about $500 million in assets in financial disclosures.

Such abysmal marketing is already falling flat with voters: only 25 percent of Americans like the plan and just 14 percent believe they will get a tax cut, according to an NBC News-Wall Street Journal poll. If that translates into problems pushing the cuts through Congress, it’ll put the Trump administration’s goals of sustained 3 percent economic growth and rising wages in jeopardy. That’d be a dismal failure going into an election year.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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