WASHINGTON (REUTERS) - President-elect Donald Trump’s pick to lead the US Treasury, Steven Mnuchin, said on Wednesday (Nov 30) that the administration would make tax reform and trade pact overhauls top priorities as they seek a sustained pace of 3 per cent to 4 per cent economic growth.
Mnuchin also signalled a desire to remove US mortgage-finance companies Fannie Mae and Freddie Mac from government ownership, a move that could have wide-ranging ramifications for how Americans pay for their homes.
The one-time Goldman Sachs banker, together with Wilbur Ross, Trump’s nominee for commerce secretary, outlined Trump’s economic agenda, including what Mnuchin called the largest tax overhaul since the Ronald Reagan administration, in an interview on CNBC.
Trump announced the economic team nominations, along with that of Chicago Cubs co-owner Todd Ricketts as Ross’ deputy, in a statement on Wednesday.
Mnuchin and Ross reinforced the sweeping proposals Trump put forth in September to simplify the tax code and slash the corporate tax rate to 15 per cent, cutting the top rate for all businesses from the present 35 per cent. “We think by cutting corporate taxes we’ll create huge economic growth and we’ll have huge personal income,” Mnuchin said in the interview.
Tax experts have questioned Trump’s assertion that the proposals would not add to the nation’s debt and deficit. Mnuchin and Ross said lower tax rates would be offset by reductions in the number of income tax deductions.
“Taxes are way too complicated and people spend way too much time worrying about ways to get them lower,” Mnuchin said.
He also said the administration would cap mortgage interest deductibility but would allow for some deductions.
In a separate interview on Fox Business Network, Mnuchin said a major tax reform that includes a large middle income tax cut would be achieved within 90 days of the Trump presidency.
He also said he expected to reach 3 per cent to 4 per cent economic growth in the next couple of years. “I think it’s very achievable,” Mnuchin told FBN.
Mnuchin also told FBN mortgage giants Fannie Mae and Freddie Mac must get out of government ownership. Common shares of both, which trade on the lightly-regulated Pink Sheets market, shot up by around 30 per cent to their highest levels in more than two years.
The two companies have operated under Treasury Department conservatorship since the 2008 financial crisis, when plunging home prices crippled their finances and threatened to bring down the US financial system. Repeated efforts since then to reform the US housing finance system have foundered in Congress.
Trump, throughout his presidential campaign, pledged to redraw trade deals to win back American jobs. He has threatened Mexico and China with punitive tariffs that some economists have warned could spark a trade war that could potentially roll back decades of liberalisation.
Mnuchin and Ross said trade reform would be a top agenda item in the new administration. Both men criticised regional trade pacts, saying they favour bilateral agreements with trade partners. “There’s trade, there’s sensible trade and there’s dumb trade. We’ve been doing a lot of dumb trade,” Ross said.
Trump has vowed to kill the Trans-Pacific Partnership, an ambitious Asia-Pacific trade pact linking the United States and 11 countries.
Mnuchin said the Treasury and Commerce Departments have trade enforcement capabilities. With regard to China’s foreign exchange policy, he said on CNBC, “If we determine we need to label them as a currency manipulator, that’s something the Treasury would do.”
Ross told FBN the United States will impose tariffs if necessary. “There’ll be especially tariffs for punitive purposes for people who dump,” he said.
The plans put forth by Mnuchin and Ross mirrored Trump’s stated agenda, said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.
“The colour is in how they plan to do it, and here the news is good,” he said.
“For Mnuchin, tax reform rather than tax cuts, offsetting cuts to deductions matching rate reductions, means that the deficit impact will be smaller than was feared.
“Similarly, for Ross the note that we will be working on improving trade agreements but with tariffs as a last resort helps reduce fears of disruption,” he said.
“Overall, should be positive for markets by emphasising the business positive policies will be pursued in a minimally disruptive way.”
Thomas Simons, money market economist with the Jefferies in New York, characterised the plans as containing “a lot of things that sound good” but offered few details about how they will be executed.
Mnuchin and Ross also criticised the financial reform legislation known as Dodd-Frank, passed after the 2007-8 financial crisis, as too complicated and cuts back lending.
Asked on CNBC about Federal Reserve chairman Janet Yellen’s performance, both men said they believed she had done a good job. That assessment conflicts with Trump’s earlier criticism of Yellen during the campaign.
Ross said he believes it is likely the Fed will raise interest rates at its meeting in December.