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Mnuchin Backs Off Trump’s Promise of 10% Middle-Class Tax Cut

The Trump administration is setting aside a middle-class tax cut and planning to focus its tax efforts next year on fixing mistakes in the 2017 overhaul, according to Treasury Secretary Steven Mnuchin.

Mnuchin said he’s hoping to work with Congress on “some minor technical corrections” to the law, such as a drafting error that denies retailers and restaurants a tax break when they make renovations. He downplayed the prospect of the middle-class tax cut that Trump campaigned on in the days leading up to the midterm elections.

“I’m not going to comment on whether it is a real thing or not a real thing,” Mnuchin said in a roundtable interview Tuesday at Bloomberg’s Washington office. “I’m saying for the moment we have other things we’re focused on.”

Trump, to the surprise of his allies in Congress, announced in late October that he was working on an additional 10% tax cut for the middle class. Days later, Mnuchin said he has been working with House Republicans on another tax plan that would be released “shortly.”

The push was seen as doomed after Republicans lost their majority in the House. Outgoing House Ways and Means Chairman Kevin Brady had committed to working on the tax cut, but only if Republicans kept their majority in the chamber. Neither Trump nor Mnuchin gave any details about how the plan would work or how it would be financed.

Following the November elections, Trump said he would be open to some adjustments to pay for a middle-class tax cut and indicated raising the corporate tax rate could be an option. A centerpiece of Trump’s tax law was cutting the corporate rate to 21% from 35%—but any adjustment to the rate is likely to be a nonstarter in the Republican-controlled Senate.

Democrats have criticized the tax law for cutting rates for corporations and the wealthy too much, while not directing enough relief to middle-class families. Soon-to-be House Ways and Means Committee Chairman Richard Neal has said he sees Trump’s middle-class tax cut pledge as a political ploy to win votes, but has also said he prioritizes tax relief for middle-income earners.

Democrats plan to hold hearings in the new year that focus on middle-class tax cuts, and how the law could be tweaked, including an incremental increase in the corporate tax rate.

The tax law passed the House and Senate without a single Democratic vote. Since then Democrats have been reluctant to work with Republicans on additional legislation to fix mistakes included in the law.

The House Rules Committee on Wednesday is scheduled to consider year-end tax legislation, which includes several fixes for mistakes in the tax law—including the renovation error. Industry giants such as Target Corp., Best Buy Co., and KFC-owner Yum! Brands Inc. have lobbied for a solution.