Treasury Secretary Warns of Stock Market Drop If Tax Plan Fails to Pass, Job Losses Could Follow

Document with title Trump Tax Plan.
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As the controversial White House tax plan nears a Congressional vote, Treasury Secretary Steven Mnuchin warns that the stock market may see a significant drop should the plan fail to pass. The economic fallout of a stock market downturn could impact jobs across the U.S.

“To the extent we get the tax deal done, the stock market will go up higher,” Mnuchin said in an interview on the Politico Money podcast released Wednesday. “But there is no question in my mind if we don’t get it done you are going to see a reversal of a significant amount of these gains.”

So far, the Donald Trump presidency has benefited the stock market with all-time highs being reached across the major indices. But the tax plan that the Trump administration is pushing is being faced with pushback from the Democrats and potentially several Republicans as more lawmakers have a chance to shape the final tax plan.

One of the main concerns of many members of Congress is that the tax plan, while it claims to host major tax cuts for every tax bracket, is looking like it will likely benefit the wealthiest Americans while not providing much for those on the lower end.

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Another issue with the tax plan is that it may not reduce taxes evenly for all Americans. For instance, one version of the plan wanted to reduce the federal income tax deductions that states with high taxes receive. In places like New Jersey and California, with their high state tax rates, reducing their federal deductions may end up increasing taxes for a number of people in the middle class.

Mnuchin claimed that the tax plan has helped spur on some of the stock market growth the country has witnessed recently. In the past, treasury secretaries have often remained silent when it comes to predictions in order to avoid swaying the market.

Mnuchin also went on to say that passing the tax cut plan will foster more growth. “I think it’s priced in, in anticipation, so I don’t think it’s priced in 100 percent certainty. So I think the market will go up,” he said.

For some Americans, the situation may represent a lose-lose. With nonpartisan groups scoring the tax plan less positively, the fallout of a pass or fail could impact large swaths of the U.S. with increased taxes and job losses, respectively.

The Tax Policy Center, for instance, recently combed through the nine-page framework that was released in late September and found that the tax plan would mainly benefit the top one percent and corporations, while as much as a quarter of the U.S. middle class may actually see a tax hike over the next decade.

The center also claimed that the tax plan would leave a $2.4-trillion hole in the federal budget due to the loss of revenue. That chasm would only widen to $3.2 trillion over the following decade.

Trump is meeting with Democrats in an attempt to rally bipartisan support for the bill, but if Mnuchin is right at the bill’s failure impacts the stock market, then the U.S. is stuck between a rock and a hard place, with either the “one percent” and stock market gaining at the expense of the middle class, or the tax plan failing and jobs being at risk due to the fallout.

 

Sources

GOP tax plan favors the richest, analysis shows,” CNBC, September 29, 2017.

Mnuchin Sees Stock Market Wiping Out Gains If Tax Plan Fails,” Bloomberg, October 18, 2017.

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