Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.” Read more opinion LISTEN TO ARTICLE 7:19 SHARE THIS ARTICLE Share Tweet Post Email

Photographer: Alex Wong/Getty Images Photographer: Alex Wong/Getty Images

The tax legislation that has passed the House and is working its way through the Senate "will pay for itself," Treasury Secretary Steve Mnuchin has said repeatedly over the past few months.

The Deficit Issues to Look at in Tax Reform

No serious analysis of the House and Senate bills has reached this conclusion, even when optimistic forecasts of the economic growth that might result from the tax cuts are factored in. The dynamic scores by the Tax Foundation, a big proponent of the corporate tax cuts that are the centerpiece of the plans, estimate a $1.08 trillion revenue loss over 10 years from the House bill and a $516 billion revenue loss from the Senate bill. The Penn Wharton Budget Model puts the revenue loss of the House bill at between $1.4 trillion and $1.7 trillion over 10 years, while the Urban-Brookings Tax Policy Center pegs the revenue loss from the House bill at $1.49 trillion (neither has published a macroeconomic analysis of the Senate bill yet).

So where does Mnuchin get his estimates? Supposedly from a team of Treasury Department wonks who have been poring over the legislation. Except that Treasury -- usually a big player in tax legislation but mostly a spectator this year -- has released no such analysis. From the Wall Street Journal:

“You claim you have an analysis you can’t show. That’s not helpful. … That damages your credibility,” said Douglas Holtz-Eakin, a conservative economist and former director of the Congressional Budget Office who is generally supportive of the GOP tax plans. “Show your work if it’s supposedly beneficial to your argument.”

Damaging his own credibility, though, seems to be a Mnuchin specialty. "I can tell you that virtually everybody in the middle class will get a tax cut, and will get a significant tax cut," he told a dubious Bill Hemmer on Fox News Channel last week. According to the Tax Policy Center's distributional analysis of the House bill, though, about 9.8 percent of taxpayers in the middle income quintile (those making between $48,600 and $86,100 a year) and 11.4 percent of those in the fourth quintile ($86,100 to $149,400) would see a tax increase in 2018 under the House bill. By 2027 that would be 30 percent and 27.3 percent, respectively. Under the Senate bill it would be 10.8 and 16 percent in 2019, and 65.6 percent and 58.9 percent in 2027. So it's simply not true that "virtually everybody in the middle class will get a tax cut," unless you have a really weird definition of "virtually."

Mnuchin has also said repeatedly that the tax legislation will not deliver tax cuts to the wealthy. But every analysis shows that it will deliver significant benefits to those making $1 million or more a year, with Congress's Joint Committee on Taxation estimating that this group will get the biggest percentage tax cuts of all from the House legislation from 2025 onward (the Senate bill is more favorable to those in the $200,000 to $1 million income range, although by 2027 even it would give its biggest remaining breaks to the $1 million-plussers).

Finally, in the interview with Hemmer that I've already cited, Mnuchin declared that getting rid of federal income tax deductions for state and local taxes was a good idea because, "for most Americans, the vast majority of Americans that don't have high-tax states, it's not fair that they're subsidizing a few states." Now, there is an argument to be made that the SALT deduction, as it is known, amounts to an inefficient tax subsidy. But it is inaccurate to say that taxpayers in low-tax states are subsidizing taxpayers in high-tax states, because the high-tax states also tend to be high-income states whose residents pay far more into the federal Treasury than their states get back in federal benefits.

OK, that last one may be a quibble of interest mainly to those of us who live in high-tax states. But I think it is fair to say that Mnuchin has a penchant for making half-baked statements that don't hold up to scrutiny. This isn't a partisan judgment: Republican lawmakers don't find him convincing, either. From an account in the Hill of a September meeting between Mnuchin and Republican House members over the temporary increase in the debt ceiling:

“His performance was incredibly poor, and his last words, and I quote, were ‘vote for the debt ceiling for me,’” said Rep. Mark Walker (R-N.C.), chairman of the conservative Republican Study Committee (RSC), a group that opposed the bill. “It was a very arrogant lecture that turned off more of the conference,” added another RSC member. “I’m less sold than when I walked into the meeting.”

Of course, the guy who appointed Mnuchin says lots of factually challenged and arrogant things, too. But President Donald Trump is at least an elected official, whose approach continues to appeal to a core group of the voters who put him in office. Mnuchin is Treasury secretary, an unelected position usually held to higher standards of expertise and decorum, and has no political base.

I'll admit that when I was first introduced to Mnuchin by Max Abelson and Zachary Mider's August 2016 Bloomberg News profile, I was somewhat impressed with the nerve displayed by the Hollywood financier, Democratic donor and former Goldman Sachs partner in signing on as the Trump campaign's finance chairman. As Abelson and Mider wrote:

One theory bouncing between Manhattan and Beverly Hills holds that an investor with so much Wall Street blood in his veins spotted the trade of a lifetime. In exchange for a few months of unpaid work, Mnuchin gets a shot at joining President Trump’s cabinet. Goldman partners have wealth, and movie producers befriend stars, but the secretary of the Treasury gets his signature stamped on cash.

Sure enough, Mnuchin's signature is now on cash. We all know this because of the ridiculous (and viral) photo of Mnuchin and his new wife, actress Louise Linton -- already moderately infamous for her solar-eclipse escapades in August, among other things -- taken at the unveiling of the new bills last week.

Treasury head, wife mocked for photo of them holding sheet of new $1 bills: https://t.co/zSfjMT8aVl — AP Politics (@AP_Politics) November 16, 2017

As the National Review's Kevin Williamson put it:

Dressed in some ridiculous Kylo Ren get-up, she struck a pouty model pose while holding a sheet of uncut dollars in one black-leather-gloved hand. (Because normal people wear leather gloves indoors.) But the adoration in her eyes was something to behold, and who could fail to be moved, at least a little, by the sight of Louise Linton photographed with the love of her life? Steven Mnuchin was also in the picture. Portrait of a marriage, right there.

When Chris Wallace, on "Fox News Sunday," remarked that the photo made Linton and Mnuchin look like two villains from a James Bond movie, Mnuchin responded:

I guess I should take that as a compliment that I look like a villain in a great, successful James Bond movie.

Wallace was being nice. They didn't look like villains in a Bond movie. They looked like villains in an Austin Powers movie. In a job that has usually lent its holders an air of authority and credibility, Mnuchin has succeeded in rapidly becoming an object of mockery and disdain. He got himself appointed Treasury secretary by following a path that has traditionally landed people appointments as ambassadors to countries with good shopping. Maybe he would have been better at that.

Does Mnuchin's apparent ineptness matter? It's starting to look like some form of tax legislation will probably pass, regardless of what he says or does. Other issues may arise, though, where having a Treasury secretary lacking in authority and credibility could turn out to matter a lot.

Then again, Mnuchin will still have his signature on a bunch of dollars. Maybe that's really all that this was about.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.