WASHINGTON (dpa-AFX) - President Donald Trump has frequently touted the strength seen on Wall Street since his election, but Treasury Secretary Steven Mnuchin has warned the stock markets could see a significant pullback if Republican lawmakers fail in their efforts to pass tax reform.
Mnuchin suggested in an interview with Politico that the rally by stocks has partly been due to optimism about the massive tax cuts promised by Trump.
'There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done,' Mnuchin said in the first episode of the 'POLITICO Money' podcast. 'To the extent we get the tax deal done, the stock market will go up higher.
He added, 'But there's no question in my mind that if we don't get it done you're going to see a reversal of a significant amount of these gains.'
Politico noted some Wall Street analysts have predicted that a big correction on Wall Street in response to a failed effort to pass tax reform could help push the legislative process back on track.
Nonetheless, Mnuchin expressed confidence that tax reform would pass, offering an 'absolute guarantee' that Trump would sign a major tax bill by the end of the year.
The Treasury Secretary also acknowledged that the GOP's tax reform plan would slash taxes on the wealthy, arguing that doing so was unavoidable because the rich already pay so much in tax.
'The top 20 percent of the people pay 95 percent of the taxes. The top 10 percent of the people pay 81 percent of the taxes,' Mnuchin told Politico.
'So when you're cutting taxes across the board, it's very hard not to give tax cuts to the wealthy with tax cuts to the middle class,' he added. 'The math, given how much you are collecting, is just hard to do.'
Mnuchin also said the administration is working with Congress to address concerns about eliminating the state and local tax deduction, which could lead to higher taxes for some middle to upper-middle-class Americans in high-tax states.
'We're working on fixing that right now. We're conscious of that issue,' Mnuchin said. 'Look, I'm sympathetic to that issue. I've lived in two of the highest-taxed states, New York and California.'
Mnuchin argued the federal government should not be in the business of subsidizing the states, dismissing the fact that high-tax states send more money to the federal government than they get back.
'That's because they have more rich people,' he said. 'The fact that you have more tax money going back and forth has to do with demographics as much as anything else.'
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