Leonhardt: Team Trump's new pledge on tax cuts

David Leonhardt

CNBC isn't a place people usually go to speak truth to wealth. It's the unofficial television network of Wall Street and the channel that helped launch the Tea Party movement, thanks to a reporter's 2009 on-air rant.

Last week, though, Steven Mnuchin said something unexpected on CNBC, in his first interview after becoming Donald Trump's choice for Treasury secretary. A friendly host invited Mnuchin to respond to the liberal charge that Trump's tax cut was a sop to the rich. Mnuchin, a financier and former Goldman Sachs partner, refused - and made news instead.

"It's not the case at all," he said. "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. 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."

This is now a clear standard by which any Trump tax cut should be judged.

The plan that Mnuchin described would set Trump apart from the Republican establishment that he thumped in the primaries. It would be consistent with Trump's working-class base.

Of course, a single comment from Trump's orbit - even from the captain of the economic team - deserves skepticism. During the campaign, Trump proposed a huge tax cut for the wealthy, not offset by loophole closing.

What will Trump actually do? Who knows. Regardless, though, Mnuchin's position is telling. At most, it suggests that Trump's advisers are trying to figure out how to govern. At least, it indicates some of them realize that a tax cut for the rich is problematic, both economically and politically.

Let's start with the economics. Advocates for high-end tax cuts used to sell them as an economic elixir, pointing to the Reagan years. But the 1980s story - tax cut, followed by boom - has turned out to be the exception. If anything, GDP growth has been stronger after recent tax increases on the wealthy.

These days, the rationale for a tax cut on rich families is even weaker than in the past. Their taxes remain lower than before Reagan, and they have received giant pretax raises. Among the famed top 1 percent, inflation-adjusted average income has nearly doubled to $1.4 million in the last 25 years, according to Emmanuel Saez. The middle class and poor have done much worse, with median household income rising a mere 7 percent, to $56,500.

This concentration of income means that top earners are ever more important to the country's fiscal condition. Cutting their taxes will worsen the long-term deficit and leave less money for programs that really do lift economic growth, like infrastructure, scientific research and education.

For all these reasons, I would prefer taxes to increase at the top (while falling for middle- and low-income families). But I recognize that the election results make that idea implausible for now. And if you favor a smaller government than I do, you can make a real argument for an approach like Mnuchin's: lower rates and fewer deductions.

What if Mnuchin's comments are meaningless or a con - and Trump hopes to sign a deficit-busting, inequality-increasing tax plan? In that case, Democrats and fiscally conservative Republicans should fight hard against the plan and refuse any compromise.

They can make a clear case: Most Americans oppose a tax cut for the rich, polls indicate. History shows that the economic rationale is nonsense, which means it would not help the working-class voters who elected Trump.

It's a simple, yes-or-no standard. Call it the Mnuchian standard. Any plan that cuts taxes for the rich falls short and deserves to fail.

The New York Times