‘Mnuchin Rule’ Against Wealthy Tax Cuts Comes Back to Bite Him

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"Nobody's blaming anybody," Mnuchin told reporters after Thursday's Senate hearing. "It's a very collaborative process."

Tax policy experts have said the White House tax plan's current provisions would undoubtedly mean lower taxes for top earners, while the impact on middle incomes is less clear. The plan would directly reduce taxes for upper earners by cutting the top income-tax rate to 35% from 39.6%; eliminating the alternative minimum tax, which raises the tax bills of certain taxpayers on the higher side of the income scale; and scrapping a 3.8% net investment income tax under the Affordable Care Act that applies to individuals with incomes of more than $200,000. The House passed a health care bill to change Affordable Care Act spending and revenue provisions earlier this month that calls for repealing the 3.8% tax.

Trump also proposes to repeal the estate tax, which would save an estimated $200 billion over a decade for individuals with estates worth more than $5.45 million.

The one-page White House blueprint proposes, without specifics, to "eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers." It calls for protecting the popular and costly deductions for mortgage interest and charitable giving.

Pass-Through Entities

Trump's tax outline reduces the seven existing individual tax rates to just three, but doesn't specify the income thresholds attached to the proposed rates of 10%, 25% and 35%.

The administration's call to double the standard deduction, which is typically used by low-and middle-income earners who don't itemize their deductions, would help many lower-and moderate-income people. The White House plan also advocates a child-care and dependent tax break to help the middle class, but doesn't provide any specifics.

Under the plan, so-called pass-through businesses — including partnerships and limited liability companies — would pay the same 15% tax rate that Trump has proposed for corporations, which would financially benefit not only mom-and-pop shops but also big partnerships like law firms and business empires like his own.

Sen. Ron Wyden, the ranking Democrat on the Finance Committee, said the pass-through provision would be a "mile-wide loophole" for wealthy individuals to report their income as business revenue and pay the lower corporate rate. Mnuchin said, without giving details, that he "will absolutely make sure" the necessary safeguards would be codified in the tax overhaul to prevent abuse while still allowing small businesses to benefit.

Nonetheless, Wyden, who coined the phrase "the Mnuchin Rule" during the Treasury secretary's confirmation hearings, said he's concerned that the rule no longer applies.

"When I heard it originally, I said 'this sure sounds like a step in the right direction — no absolute tax cut for the wealthy"' Wyden said during a Bloomberg TV interview Thursday. "It didn't take very long for him to start walking it back."

— Read House Delays Medicare Tax Repeal on Wealthy in AHCA Bill on ThinkAdvisor.