By Lawrence H. Summers
President Trump’s tax proposals were rolled out yesterday by Treasury Secretary Mnuchin and NEC Director Cohn. For reasons of long run budget health, fairness and economic impact, I think they are extraordinarily ill-advised. I am certain that the substantive concerns I have will be extensively addressed in the debates to come.
As I read about the proposals and thought back over the tax discussions of the last year, I found myself feeling sympathetic to Mnuchin. Some of the most difficult moments for any Cabinet officer comes when the president fails to respect his department’s desire to do serious policy work, when political circumstance forces the repudiation of his major past statements, and when he has to out of loyalty support absurd propositions. All three of these things happened to Secretary Mnuchin this week.
By all accounts the Treasury was on a path working with other agencies to come forth by June with a set of tax reform proposals. Treasury officials were shocked when the president, speaking in the Treasury building, announced last Friday that the administration would unveil its tax plan today. There was no time for specification of a proposal, let alone consultation on its merits, estimates of its revenue impact, or evaluations of its economic impact. Instead the treasury secretary was asked to lend his prestige and that of his department to a one page document that would have been judged skimpy on detail if it were a campaign proposal. I can only imagine how demoralized the Treasury tax staff — a group that rightly prides itself on its professionalism and analytic seriousness — must be.
Mnuchin has stated on multiple occasions that the administration’s tax proposals would not favor the rich. Whatever its other virtues, distributional neutrality is not a feature of the plan announced yesterday. Indeed, between massive corporate rate cutting, big tax cuts for the highest income individual taxpayers, elimination of the estate tax and other incentives, it is a certainty that the vast majority of the benefits of the plan will go to a very small fraction of tax payers.
The treasury secretary’s credibility is an important national asset that could be needed at any moment. I am very sorry to see it squandered on behalf of a set of tax reform proposals that are at best a bargaining position.