Steven Mnuchin is facing the biggest test of his short political career.
Continue Reading Below
The Treasury secretary has been working for months to bridge divides between an impulsive president and a fractious Congress to deliver on the Republican Party's promise of a simpler tax code with lower rates.
He has a powerful tailwind. Both Donald Trump and Republican lawmakers have promised a tax overhaul, which now remains one of their biggest domestic policy priorities since their efforts to repeal or overhaul the Affordable Care Act have so far fallen flat.
Stacked against Mr. Mnuchin, as negotiations near the make-or-break stage, are unresolved intraparty disagreements over how much lost tax revenue is acceptable and how tax cuts should be apportioned among companies, high-income earners and the middle class. Lobbyists stand ready to resist almost any proposed changes.
Mr. Mnuchin is tackling this terrain with less political experience than any other recent Treasury secretary. He didn't follow the trajectory of Henry Paulson or Robert Rubin, who acquired Washington contacts while leading Goldman Sachs Group Inc. And while Mr. Mnuchin has a close relationship with the president, it doesn't appear to be like that of James Baker with Ronald Reagan, which allowed Mr. Baker to manage the last major revamp of the tax code.
"This tax policy is the first pitch over the plate that he's got to hit, " said Tom Barrack, who worked with Mr. Mnuchin to raise money for the Trump campaign last year.
Continue Reading Below
A sweeping tax-code rewrite hasn't happened since 1986, because tax overhauls are complex and touch almost every aspect of the economy. For this year's attempt, Congress must first agree on a fiscal 2018 budget, the vehicle through which tax changes could be passed on a party-line vote without Democratic support. Both houses are moving forward on the budget, most recently with a deal in a Senate panel that would permit tax cuts of up to $1.5 trillion over a decade.
The next step is the release of a Republican blueprint expected this week, which will spell out in more detail where the party, including Mr. Mnuchin, want to take tax policy. The plan is expected to call for lower tax rates on businesses and individuals, with the corporate tax rate in the low 20% range, setting a framework that Congress will fill in over the next few months.
Mr. Mnuchin is playing two roles in the tax negotiations -- number cruncher and Trump liaison, both of which put him in a position to directly shape the legislation coming from Capitol Hill by helping lawmakers understand the White House's preferences.
That is a role he also played during the campaign, recalled Larry Kudlow, an economist and TV commentator who advised Mr. Trump during his run.
"He's a numbers guy, which we liked very much," Mr. Kudlow said of Mr. Mnuchin. "He rolled his sleeves up and got involved." Mr. Kudlow cited the Treasury Secretary's work on business tax breaks relating to interest expenses and other write-offs.
Lawmakers working most closely with Mr. Mnuchin on tax policy, such as House Ways and Means Chairman Kevin Brady (R., Texas) and Senate Majority Leader Mitch McConnell (R., Ky.), praise his hard work on the subject and say he is a valuable partner.
"As [Mr. Mnuchin] regularly reminds us, this is a pass-fail exercise," Mr. Brady said in an interview. "There is an urgency in finding common ground."
Other corners of the Congress don't view him as favorably. The pressure he applied to House Republicans during a debate over the debt limit left a sour taste in some mouths. And some Democrats, particularly in the House, say they appreciate his outreach but aren't sure if he can represent Mr. Trump's positions in a negotiation.
"I don't know that yet, given the volatile nature of what the president does with technology," says Rep. Richard Neal of Massachusetts, the top Democrat on the House Ways and Means Committee.
Mr. Mnuchin once foresaw a tax overhaul as early as the spring, then by August. Now the aim is to get it done by year-end. With only about 40 working days left on the congressional calendar, that timetable also is looking hard to meet. He has also found himself in the spotlight for reasons other than tax and financial policy, including his use of government planes and a public plug for "The Lego Batman Movie" he helped finance.
Rep. Jim Himes (D., Conn.), who like Mr. Mnuchin is a former Goldman Sachs banker, says people who come to government from business sometimes think hierarchically or assume negotiations can lead to a middle ground.
But "in Washington, there are people who will stop you just to show that they can," Mr. Himes said. "It's a much, much more complicated negotiation."
Mr. Mnuchin's route to this job started almost by accident.
His career has taken him from Goldman, where he rose to chief information officer, to running a hedge-fund firm and then a mortgage lender, IndyMac Bank, purchased from the government after the lender's failure in 2008. Through the hedge fund he got into movie financing.
He and Mr. Trump became friends about 15 years ago, seeing each other socially and occasionally talking business opportunities. Mr. Mnuchin once considered investing in the firm that owned Mr. Trump's "The Apprentice" show, but a deal didn't pan out, the Treasury secretary said in an interview last month.
He had no formal campaign role until he stopped by Mr. Trump's New York primary victory party at Trump Tower on April 19, 2016, on his way to dinner. Mr. Trump spotted him while stepping off the elevator and invited him onto the stage.
"The next thing I know I'm standing right behind him, and I'm on national TV, on four different monitors, my phone is like going crazy buzzing," recalled Mr. Mnuchin, who is 54 years old. Mr. Trump phoned the next morning to offer him the job of campaign finance chairman.
Hedge-fund manager Eddie Lampert, who was Mr. Mnuchin's roommate at Yale, said the financier "was in a position where he was open to basically dedicating himself to something. I'm not sure this would have been on any of his lists, but when it happened he was very decisive."
The road to a tax overhaul hasn't been a smooth one. One Friday in April, Mr. Trump unexpectedly told the Associated Press the Treasury would have a tax plan by the following Wednesday. Mr. Mnuchin had been saying publicly a plan wouldn't be released until more progress was made in talks with congressional Republicans.
West Wing officials cautioned that Mr. Trump's deadline was more of a suggestion, but an hour later he advertised it again. "We'll be having a big announcement on Wednesday," he said at a Treasury ceremony to sign executive orders, looking over his shoulder at Mr. Mnuchin standing behind him. "So go to it."
"I will, Mr. President," Mr. Mnuchin responded with a grin.
The following week, the White House released a one-page outline that called for lowering tax rates for all Americans, ending the federal estate tax and cutting the corporate tax rate to 15% from 35%. The plan drew criticism as less specific than Mr. Trump's campaign promises.
In a May dinner that included former Treasury and Federal Reserve leaders, Mr. Rubin and Lawrence Summers, both former Democratic Treasury secretaries, cautioned Mr. Mnuchin about making public statements that could undermine his credibility in markets, according to a person familiar with the matter.
Through the spring and summer, Mr. Mnuchin hashed out tax plans with Mr. McConnell, House Speaker Paul Ryan (R., Wis.), Senate Finance Committee Chairman Orrin Hatch (R., Utah) and House Ways and Means Chairman Mr. Brady. Those five plus White House economic-policy director Gary Cohn released a statement of tax principles in late July, though one hardly more specific than the April summary.
The main decision it included was dropping a House "border adjustment" proposal to tax imports and exempt exports, which might have generated $1 trillion to make up for lost revenue from rate reductions. The administration has publicly identified only one major tax break they would eliminate, the deduction for state and local income taxes. Officials stuck to their optimism that a tax overhaul would be done by year-end.
Eight months into his tenure, Mr. Mnuchin lacks a full roster of officials at the Treasury, though he has filled several senior tax jobs recently. The administration has decided for now not to fill the deputy secretary job, leaving others to report to Mr. Mnuchin directly.
On Mr. Mnuchin's side is his relationship with the president, to whom he has shown unfailing loyalty. Mr. Mnuchin said he and the president speak almost every day. Several administration officials and allies described Mr. Mnuchin as the "presidential whisperer."
In August, when the president was criticized for blaming "both sides" for the violence at a Charlottesville, Va., demonstration, Mr. Mnuchin issued a written statement defending Mr. Trump, which was approved in advance by the president, according to a White House official. It was a contrast with Mr. Cohn, who told the Financial Times the Trump administration must do better in "unequivocally condemning" such groups.
In a written statement, Mr. Trump said Mr. Mnuchin "works every day to put an end to the rigged economy and put money back in the pockets of hardworking Americans."
The closeness between the two men, however, doesn't mean they are always on the same page. At a key moment in an Oval Office negotiation this month, Mr. Trump cut Mr. Mnuchin off midsentence, ending his argument for a long-term extension of the debt ceiling. The president instead took a short-term deal offered by Democratic leaders.
Two days later, Mr. Mnuchin urged House Republicans to go along with Mr. Trump's decision, at one point asking them to "vote for the debt ceiling increase for me," according to several House members. The pitch was met with disbelief by some.
"I didn't buy it," said Rep. Dave Brat (R., Va.) "I just found it intellectually insulting."
Mr. Mnuchin, in the August interview, said, "I wouldn't be here if I were uncomfortable being able to voice my opinions on things, but again, to him they're my opinions. He as president has to make very difficult decisions."
Mr. Trump, by siding with Democrats on the debt ceiling and recently working with them to find common ground on immigration, has opened the possibility of a path that brings the opposition party along on taxes.
Most Democrats say any tax overhaul should not increase budget deficits or cut taxes for high-income households. The latter point would square with recent comments from Mr. Trump but not with the plan he and Mr. Mnuchin wrote during the campaign.
--Nick Timiraos and Michael C. Bender contributed to this article.
(END) Dow Jones Newswires
September 25, 2017 10:57 ET (14:57 GMT)