Trump Officials Offer Differing Views on Tax Plan -- Update

By Kate Davidson and Richard Rubin Features Dow Jones Newswires

The Trump administration assumes that its tax plan will pay for itself without factoring in potential economic growth that could stem from the plan, the White House budget director told senators, apparently marking a sudden and significant shift in the administration's priorities.

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But Treasury Secretary Steven Mnuchin appeared to contradict that statement at a separate Senate hearing, saying the tax plan's accounting, when it is released, will count partially on economic growth spurred by tax cuts.

The officials' statements underscored just how unsettled the administration's tax policy plans are and showed the tensions between their claims of a balanced budget and their desire to enact tax cuts to boost the economy.

Testifying before the Senate Budget Committee, White House budget director Mick Mulvaney also insisted the administration isn't double-counting the revenue that it is claiming from faster economic growth in its budget proposal. The budget, which reaches balance after 10 years, assumes about $2 trillion in revenue caused by economic growth, but that is outside the estimates of the tax plan.

"You do recognize that if you count the growth here in the budget, and then you count it again in your tax proposal, that is a double counting, " Sen. Sheldon Whitehouse (D., R.I.) asked.

Mr. Mulvaney agreed and said the administration doesn't count the growth in its tax plan.

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A plan that is revenue-neutral as scored on a static basis, without economic growth, has never been part of Mr. Trump's plan, either as a candidate or as president. Adopting that position would mark an enormous shift in policy.

The administration has proposed deep tax-rate cuts in its one-page tax-plan outline, but hasn't suggested nearly enough ideas inside the tax system, such as limits on deductions, to offset the cost of those tax cuts.

"The one pager puts forward numbers that do not come close to adding up, " said Sen. Ron Wyden (D., Ore.) "The math behind this plan would make Bernie Madoff blush."

The administration has said, repeatedly before Thursday, that growth caused by tax rate cuts would pay for some of the fiscal cost.

"I assure you when we present a tax plan we will not be double counting the growth," Treasury Secretary Steven Mnuchin told the Senate Finance Committee on Thursday.

Mr. Mnuchin wasn't asked directly during Thursday's hearing about whether the tax plan would be revenue-neutral without assuming economic growth.

Mr. Mnuchin emphasized that the administration is still working on its tax plan and that he would offer more details and estimates later.

The statements from Messrs. Mulvaney and Mnuchin mean that the administration either is now proposing a revenue-neutral plan in a major departure from its previous policies or that the budget wouldn't balance after 10 years as claimed.

Write to Kate Davidson at kate.davidson@wsj.com and Richard Rubin at richard.rubin@wsj.com

WASHINGTON -- Senior Trump administration officials split with each other publicly Thursday on a core feature of the president's tax plan.

White House budget director Mick Mulvaney told a Senate committee that the administration's tax plan doesn't bank on any revenue stemming from faster economic growth. Four floors below that hearing, Treasury Secretary Steven Mnuchin gave a contradictory answer to a different Senate panel, insisting that the administration's tax plan will partly pay for itself with economic growth.

The open contradiction between two top economic advisers to President Donald Trump showed just how unsettled their tax agenda is, even as Republicans say they'll be able to complete a historic revamp of the U.S. tax system by the end of 2017.

And the apparent disagreement isn't academic; it is central to the administration's fiscal policy. The Trump administration's simultaneous promises of a balanced budget, economy-boosting tax cuts and accurate accounting are proving difficult to reconcile with each other.

"It just defies understanding," said Sen. Claire McCaskill (D., Mo.)

Thursday's statements from Messrs. Mulvaney and Mnuchin mean that the administration is proposing either a revenue-neutral tax plan in a major departure from its previous approach or that the president's proposed budget wouldn't balance after 10 years as claimed.

Here's the discrepancy:

According to Mr. Mulvaney, the Trump administration's budget assumes that its tax plan will pay for itself without factoring in greater revenues from the faster growth it would generate. That means the tax overhaul would include enough policy changes to offset the loss of revenue that would come from lowering tax rates -- resulting in no net increase or decrease in revenue, making it "revenue neutral." That would be a sudden and significant shift from the "huge tax cuts" that Mr. Trump has promised, and the administration hasn't identified enough tax increases to make it work.

In Mr. Mulvaney's telling, any revenue the plan generates via faster economic growth would be over and above the tax policy changes used to finance lower tax rates. That growth revenue would be part of the $2.1 trillion the administration says helps balance the budget after 10 years. Republicans on Capitol Hill have praised the president all week for proposing a balanced budget.

Mr. Mulvaney insisted, in an appearance at the Senate Budget Committee, that the administration wasn't double counting any benefits from economic growth.

"You do recognize that if you count the growth here in the budget, and then you count it again in your tax proposal, that is a double counting, " Sen. Sheldon Whitehouse (D., R.I.) asked.

Mr. Mulvaney agreed and said the administration doesn't count increased revenue from economic growth as part of its tax plan. That fended off the "double counting" accusations that Democrats and budget analysts leveled at the Trump plan this week, but it opened up an apparent inconsistency.

At a separate hearing occurring at the same time, Mr. Mnuchin said the administration will release a tax plan that will count partly on revenue from economic growth spurred by tax cuts and partly on revenue from limiting deductions and other tax breaks.

That is consistent with the tax plan Mr. Trump proposed during the campaign and the statements that Mr. Mnuchin and others have made this year. They have long said that the administration wanted a net tax cut and that growth caused by the tax cut and by other Trump policies would cover the cost of the tax plan.

But doing it that way is the opposite of what Mr. Mulvaney said and would use up some of the money that makes the budget balance.

Mr. Mnuchin told the Senate Finance Committee that it was too soon to know the details of any tax plan.

"It would be paid for with economic growth and base broadening," he said. "When we come out with all the details, there will be full transparency."

In the one-page tax-plan outline released in April, the administration proposed deep cuts in tax rates, including reductions in the top rates on businesses and individuals. Mr. Trump also said he would repeal the estate tax and the alternative minimum tax.

"The one pager puts forward numbers that do not come close to adding up, " said Sen. Ron Wyden (D., Ore.) "The math behind this plan would make Bernie Madoff blush," he said, referring to the former financier who confessed to orchestrating the biggest Ponzi scheme in history.

Write to Kate Davidson at kate.davidson@wsj.com and Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

May 25, 2017 18:37 ET (22:37 GMT)