Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Steve Bannon Reportedly Pushing Trump To Raise Taxes On The Wealthy

The tensions between the Trump administration’s populist win and its more traditionally Republican establishment types have been well-documented in recent months. And now, more than two months after Treasury Secretary Steven Mnuchin and National Economic Council chief Gary Cohn unveiled an outline of the administration’s tax-reform ambitions, another battle between the two wings appears to be brewing.

Trump’s chief strategist Steve Bannon is said to be pushing to raise the top tax rate on individuals, with Axios saying the former Breitbart CEO would like the top rate to have “a 4 in front of it” - currently, the highest income-tax bracket in the US is 39.6% for individuals earning more than $414,000 a year.

Some officials – code for Mnuchin, Cohn and the other members of the more traditionally corporatist (or rather Goldmanist) wing of the Trump administration – believe Bannon’s ideas are crazy. But Bannon believes raising taxes on the wealthy could help the administration boost its populist bona fides, an angle which Trump appears to be actively pursuing once again having recently failed with his more traditional fiscal reform push. But as tax reform is shaping up to be a must-win for the Trump administration, it would hardly be a surprise to see Bannon’s plan shelved in favor of across-the-board cuts that would help rally the Republican Party’s conservatives to support whatever reform package Trump ultimately presents.

Cohn and Mnuchin reportedly view tax reform as a top priority for the administration. However, as Axios notes, time to pass comprehensive reform is quickly running out.

  • Lobbyists who have met with Gary Cohn and Treasury Secretary Steven Mnuchin say they've been struck by how impatient the two appear:
  • Cohn has told associates that if tax reform doesn't get done this year, it's probably never going to happen.
  • Sources who know Cohn speculate that he'll leave the White House the instant he concludes tax reform is dead.
  • While Cohn and Mnuchin differ stylistically — Cohn is brash and physically imposing while Mnuchin is mild-mannered — sources who've been meeting with them say they share the same philosophy: Go big or go home.

Ironically, Cohn and Mnuchin are warming to an idea that Bannon supported in the aftermath of the election, when he claimed that he's "not a conservative" and said he would support spending packages that blow out the deficit, arguing that the US should rebuild its infrastructure now while interest rates are low. Mnuchin, for his part, has refused to promise that tax reform wouldn’t lead to wider deficits when he and Cohn unveiled the outline for the administration’s reform plan back in April.

Cohn and Mnuchin aren't bluffing when they say they want to slash the corporate tax rate to 15% from the current 35%. Neither man has any interest in timid tax cuts, and they wager that special interests will relinquish their loopholes if they become convinced their tax rate really will be in the teens.

 

  • They're becoming far less wedded to revenue neutrality — the idea, favored by House and Senate Republican leadership, that tax cuts mustn't add to the deficit.
  • They're increasingly tantalized by an idea some conservatives (like Grover Norquist and Sen. Pat Toomey) are pushing: Allow major tax cuts to last longer than 10 years without having to balance the budget.
  • Conservatives like Toomey favor a more expansive 20- or 25-year period. But top White House officials are more cautious, and are said to be weighing a 15-year period.

The last time the US passed comprehensive tax reform, the legislative battle took two years. Thus, a new theme is emerging that applies not just to tax reform, but to Trump’s agenda more broadly: Do it now, or let it go.

Context: The last time Congress passed major tax reform, in 1986, it was a two-year rollercoaster. This time, the White House officials driving the process have concluded there's no chance of getting Democrats to support what Trump wants to do. So, they believe it must be done before the 2018 midterm elections or not at all.

 

That's going to be a heck of a challenge. They need to first pass a budget, which is embroiled in fights over defense spending and welfare reform. And they need to finish with health care. Some top Republicans have come to believe, contrary to conventional wisdom, that tax reform stands a better chance if health care fails — so desperate will Trump and Republican leaders be for a victory.

The x-factor here, of course, is Trump. How does he feel about raising taxes on the wealthy? And, more importantly, is Bannon succeeding in moving the Trump administration in a more populist direction, following Trump's decision to largely abandon his protectionist rhetoric? A few more tweets from the president should provide the answer.