Treasury Secretary Steven Mnuchin urged Congress on Friday to raise the federal debt ceiling while opening the doors for negotiating proposed changes to the tax code. At an event in Washington hosted by the news site Axios, Munchin commented on the promise of a tax bill being passed in both the House and Senate, noting that a tax plan would be far easier to push through congress than the effort to repeal and replace the Affordable Care Act. In a statement, Munchin stated, “Healthcare and tax reform are two very different things,” Mnuchin said. “Health care is a very, very complicated issue. In a way, [tax changes are] a lot simpler. It really is.”
However, while Mnuchin expressed renewed confidence in passing a tax plan through congress, he did retract his commitment to ensuring that the tax code would not reduce the tax burden for wealthier Americans. On Friday, Mnuchin addressed the matter of ensuring that the rich aren’t taxed less was his goal, but not guaranteed the possibility that such a matter could successfully be achieved. In a statement, Mnuchin said,“We’re working towards that as a goal, don’t hold me to it at the penny, but that is the direction we’re heading, absolutely.”
Nonetheless, Mnuchin has repeatedly asserted that his main goal for the tax overhaul is to provide a large tax cut for middle-income Americans as well as businesses, in the hope that reduced taxes might spur economic growth and lead to an influx of jobs for American workers. In doing so, Mnuchin intends for there to be greater consumption on part of the middle-class who might spend some of the extra money retained from reduced taxes. Furthermore, Trump has proposed lowering the corporate tax rate from 35% to 15%, which should significantly increase profit margins and allow companies the necessary capital to grow their business. However, while lowering taxes have been a staple of Trump’s tax plan, he has recently planned to raise taxes on hedge fund managers and others who benefit from existing tax laws that enable them to pay a lower rate than the average American. As such, Trump’s tax plan appears a mix of conservative and liberal agendas, thereby reducing taxes whilst omitting loopholes present within its existing state. As Mnuchin later added, “We’ve been working the last two months on tax reform, this is something we are designing from scratch and running through a lot of scenarios.”
In addition to tax reform, Mnuchin offered a wide range of views regarding trade and debt issues; as Trump would soon begin renegotiating the North American Free Trade Agreement (NAFTA) whilst ensuring the agreements are withheld in an equitable fashion. ON a promising note, however, Mnuchin did not go into debt about the alleged penalties to countries seeking an unfair advantage against the United States. In doing so, Mnuchin serves to steer clear of possible controversy and market instability on account of him mentioning the possibility of sanctions or import tariffs. Instead, Mnuchin offered a neutral response, stating that “as long as we can renegotiate deals that are good for us, we won’t be protectionist.”
Though these statements by Mnuchin are not definitive nor do they stand as reasonably foreseeable acts on part of the Trump administration, Wall Street should see a slight bump in trading due to the possibility of lowered corporate tax rates and a simplification of the tax code. This, in turn, should serve to rally infrastructure stocks and industries that suffer from massive tax liabilities such as those involved in drilling and mining of natural resources. However, given the recent backlash on part of the failed health proposal, markets should remain slightly down as Minuchin’s word alone is not sufficient enough to warrant massive gains in the stock market.
Having said that, I would be on the lookout for proposed tax plans to surface in wake of the disastrous health care bill, as a measure of Trump rekindling his administration in pursuit of another hot-button issue for his constituents. However, give the divisive state of congress, with Democrats openly expressing condemnation for Trump and his administrative agenda, the likelihood of mass tax reform may prove quite the challenge as Democrats seek to stand their ground and hold out against the GOP controlled congress.
- Lowering taxes across the board as proposed by the Trump administration should translate to greater economic growth as companies are able to free up capital to further investing activities.
- Mnuchin alludes to the possibility of renegotiating our current trade deficit as a means of leveling the playing field internationally.