The Finance 202: McCain could give the same thumbs-down to a tax overhaul as he did to health care

The Finance 202: McCain could give the same thumbs-down to a tax overhaul as he did to health care


THE TICKER

It’s a specter that should stalk the nightmares of Republican leaders: a Senate chamber, packed on Christmas Eve, as lawmakers gather to decide the fate of a tax package that will shape the GOP’s political fortunes. The bill remains one vote shy, and then Sen. John McCain walks in, pauses before the desk, and delivers his second thumbs-down dagger of the year. 

For that reason, the Arizona Republican, who is fighting a public battle with brain cancer, will be among his party’s most closely watched as the year winds down and the tax debate gears up. Yet over his decades in public life, McCain has traced a zigzagging line on the subject, leaving little clear indication of how he’ll approach a potentially decisive vote. A look at the senator’s record on taxes shows that three things seem most important to him: public debate, some help for the middle class, and not exploding the deficit.  

The senator’s vote matters because with a 52-seat majority, Republicans can’t afford more than two defections (Vice President Pence could push the package over the line in the event if a tie).

So far, McCain’s potential objections sound familiar. The senator helped tank the GOP’s Obamacare rewrite by arguing in part that it hadn’t followed regular order — that is, there were no actual hearings on the measure before it was pushed to the floor. 

“I’ve stated time and time again that one of the major failures of Obamacare was that it was rammed through Congress by Democrats on a strict party-line basis without a single Republican vote,” he said after his vote against the “skinny repeal” bill this summer. If Republicans can agree on a budget, it will set the tax package on the same path. And the spending blueprint would also strip some Republican commitments to transparency, including a pledge to post an official accounting of a tax measure’s budget impact more than a day before a vote. 

But unlike the Obamacare rollback attempts, tax bills will be heading through committees — a development that McCain calls “encouraging. The senator has said he is “confident that by moving through the normal legislative process we can produce a bill that reforms our tax system, boosts our economy, and improves the lives of the people we serve.”

On tax policy itself, McCain has proved a moving target. He opposed the 2001 Bush tax cuts — one of only two Republicans to do so — citing what he called the bill’s lopsided benefits for the wealthy. “I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief,” he said. Two years later, he was one of only three Republicans to vote against the next round of Bush cuts, again citing its skew toward the rich but also the deficit impact of another round of breaks as the country faced mounting war bills. 
 

McCain reversed himself in 2006, voting to extend the cuts. He argued at the time that ending the breaks would amount to a tax hike. “American businesses and investors need a stable and predictable tax policy to continue contributing to the growth of our economy,” he said. Anti-tax activist Grover Norquist gave him a backhanded compliment for that, calling it “a big flip-flop, but I’m happy he’s flopped.” 

Running for president in 2008, the senator evinced some supply-side thinking, declaring in an ABC News interview that cuts to capital gains taxes would yield more revenue, an effect he said that history demonstrated “going back to Jack Kennedy.” (The Congressional Budget Office has found those cuts provide a sugar-high revenue boost that wears off after a year or two.)

More recently, McCain sounded more like his trustbusting political hero, Teddy Roosevelt, when he confronted Apple’s tax-dodging strategies. In a 2013 hearing, he joined with then-Sen. Carl Levin (D-Mich.) in criticizing chief executive Tim Cook. “U.S. corporations cannot continue to avoid paying their appropriate share in taxes,” McCain told the tech honcho. “Our military can’t afford it. Our economy cannot endure it. And the American people will not tolerate it.”

Now, Doug Holtz-Eakin — McCain’s top economic adviser in his 2008 campaign, currently president of the American Action Forum — said the senator will want to know first what a tax bill will mean for the middle class. It’s not clear whether that means the package needs to maintain the current code’s progressivity, and Holtz-Eakin noted he doesn’t speak for McCain. “Nobody gets everything they want,” he said. “He’ll look at the package as a whole and ask if its beneficial for the middle class.”

The deficit impact will matter, too. “He’s cognizant of the fiscal outlook, which is not good, and he’s never been fond of big spending, big government, or big red ink,” Holtz-Eakin tells me.

Finally, he says McCain will zero in on corporate tax avoidance, as he did in the 2013 hearing. “Does this reform take care of that problem? I imagine that conversation will happen.”
 

MARKET MOVERS

— As the House is set to pass today a $36.5 billion disaster relief bill for Puerto Rico and other places affected by recent hurricanes, President Trump sent a volley of tweets this morning suggesting the island was to blame for its situation and that FEMA will leave at some point.

Mnuchin pushes Powell for Fed. “Treasury Secretary Steven Mnuchin is strongly pushing for the White House to name Jerome Powell as the next chair of the Federal Reserve, the most powerful economic job in the U.S. government, according to three people close to the selection process,” Politico’s Nancy Cook, Ben White and Victoria Guida report. “Mnuchin has privately recommended Powell to President Donald Trump, according to one adviser close to the administration. The people familiar with the process indicated that Mnuchin, who knows Powell well, feels comfortable with him and feels that he is a safe pick over whom Mnuchin can exert some measure of influence.”

The idea that Mnuchin’s ability to influence Powell would be considered a credential for him is a little disconcerting. More: “Several people close to the process confirmed that the White House list has been whittled down to four candidates: Powell, a current Federal Reserve governor; Yellen, who was confirmed to the position under President Barack Obama in 2014 and is eligible to be reappointed; Gary Cohn, director of the National Economic Council and a former top banker at Goldman Sachs; and Kevin Warsh, a former Fed governor and fellow at the Hoover Institution who spent years as an investment banker at Morgan Stanley.”

Rate hikes ahead. The Wall Street Journal’s David Harrison: “Most Federal Reserve officials believed at their September meeting that they would likely raise short-term interest rates again this year, but some cautioned the decision would hinge on whether inflation picks up. Minutes of the Sept. 19-20 meeting, released Wednesday, indicate that lingering questions over inflation were driving a split among officials. The key question was whether the recent soft patch was due to temporary factors or longer-lasting developments. One group of officials at the meeting believed it was the former. Others worried it was the latter and indicated that could lead them to reconsider the Fed’s projected path of rate increases this year and beyond.”

Central bankers’ crisis of confidence. Financial Times’s Chris Giles: “As they gather in Washington for the annual meetings of the International Monetary Fund, there is a crisis of confidence in central banking. Their economic models are failing and there are doubts whether they understand the effects of interest rates and other monetary policies on the economy. In short, the new masters of the universe might not understand what makes a modern economy tick and their well-intentioned actions could prove harmful. While there have long been critics of the power of central bankers on the left and the right, such profound doubts have never been so present within their narrow world. In the words of billionaire investor Warren Buffett, they risk being the next ones to be found swimming naked when the tide goes out.”

Goldman sees wages rising. From a new research note: “Our revised GS wage tracker shows somewhat more evidence for an ongoing pickup in wage growth than the previous version. The preliminary Q3 estimate is 2.8% year-on-year, above the 2.4% estimate for the prior version and only slightly below the 3-3¼% pace that we think is sustainable in the longer term, assuming a 2% inflation trend and 1-1¼% whole-economy productivity growth.”

Dow up, debt down? Trump apparently thinks that the stock market’s gains have erased federal debt:

From The Post’s Philip Bump: 

Exclusive offer: A “Democracy Dies in Darkness” T-shirt for anyone who can make a compelling case for that argument. I’ll reprint it here. 

Trudeau fights for NAFTA. The Post’s Steven Mufson: “Canadian Prime Minister Justin Trudeau visited the White House on Wednesday seeking a new ‘fairer trade’ deal among the United States, Canada and Mexico amid growing alarm from business leaders that President Trump is leaning toward jettisoning the North American Free Trade Agreement in favor of bilateral accords…

The two leaders met as the fourth round of NAFTA negotiations began just outside Washington, with trade experts, businesses, labor and lawmakers from all three countries warning of a possible breakdown in the talks. While Trudeau reaffirmed that he continued to believe in ­NAFTA, Trump said that he was willing to strike bilateral trade deals with Canada or Mexico if the negotiations failed.”

K Street fear is spiking. Politico’s John Lauinger reports that business and agricultural groups are mounting a lobbying push “targeting more than 250 House members,”

TAX FLY-AROUND: 

Trump hits the road. The president took his case for a tax overhaul to Harrisburg, Pa., on Wednesday night, pitching a still-vague plan as a boon to working and middle class families. Here are some highlights: 

The Post’s Damian Paletta and John Wagner report that Trump made “grand-but-disputed claims about the additional dollars workers would see if tax rates were cut for corporations. ‘You’re going to make more money, you’re going to do better than ever before, and we truly admire you,’ Trump told the truckers assembled before him. ‘You are our heroes.'”

Kochs blame realtors. “A group backed by billionaire industrialists Charles and David Koch unveiled a television and digital campaign Wednesday that claims “corporate welfare” threatens Republican efforts to dramatically alter the U.S. tax code,” Bloomberg’s John McCormack reports. “The Freedom Partners Chamber of Commerce is targeting the politically powerful National Association of Realtors for opposing a proposal by the White House and Republican lawmakers to double the standard deduction, as well as several entities that represent renewable and energy efficiency interests advocating other tax incentives. The groups are ‘jeopardizing tax reform,’ the Koch-backed group said in a statement.The effort is part of what the political network has described as a multimillion-dollar campaign to build public support for a streamlined federal tax system.”

Failure is not an option. With the party badly off-kilter, Republicans are feeling an increasing urgency to secure a win on what should be their signature issue. The New York Times’s Carl Hulse: “After Republicans were unable to fulfill their longstanding promise to repeal the Affordable Care Act, the tax cut proposal is the only remaining game in town for the struggling majority and its allies on K Street. The inability to enact a tax cut — an idea that nearly all Republicans support in theory while differing on the details — would represent a monumental failure. 

The party would have virtually no argument for re-election in 2018 and Senate and House incumbents would be wide open to challenge from both the right and the left. Big donors who are already sitting on their wallets would have no motivation to open them up. Mr. Trump’s ongoing Twitter feuds have complicated the task, but the Republican Party really has no choice — it must find a way to get a tax cut to the president’s desk.”

POCKET CHANGE

IMF: Big banks will struggle with profitability. The Wall Street Journal’s Josh Zumbrun: The International Monetary Fund said some of the world’s largest financial institutions—including Deutsche Bank, Citigroup Inc., Barclays PLC and a few Japanese institutions—could struggle in coming years to remain sufficiently profitable. ‘About a third of banks by assets may struggle to achieve sustainable profitability, underscoring ongoing challenges and medium-term vulnerabilities,’ the IMF said, referring to the world’s most important financial institutions. The IMF’s critique of the banks came in its biannual Global Financial Stability Report, released Wednesday as finance ministers and central bankers from 189 countries gather in Washington for the annual meetings of the IMF and the World Bank.”

TRUMP TRACKER

Trump vs. the First Amendment. The president on Wednesday menaced a private enterprise exercising its free speech rights. The New York Times’s Peter Baker and Cecilia Kang: “President Trump threatened on Wednesday to use the federal government’s power to license television airwaves to target NBC in response to a report by the network’s news division that he contemplated a dramatic increase in the nation’s nuclear arsenal.”

The backlash from Trump was swift and Nixonian in its open threat toward the media.

Trump followed up later in the Oval Office, telling reporters, “It’s frankly disgusting the way the press is able to write whatever they want to write. And people should look into it.” The Post’s David Nakamura: “Trump said he was not calling for limits to be imposed on the media, but he said that ‘the press should speak more honestly.’… But Wednesday night, Trump reiterated his call for possibly challenging networks’ licenses over their news coverage. ‘Network news has become so partisan, distorted and fake that licenses must be challenged and, if appropriate, revoked. Not fair to public!’ he said in a message on Twitter. Trump’s diatribe marked the latest attack against the news media by a president who, according to people close to him, has felt increasingly frustrated over his stalled legislative agenda and political troubles.

Why NBC isn’t sweating it: “Legal experts called the president’s threat against NBC empty, noting that the FCC does not grant licenses to networks. Furthermore, they said, it is rare for individual stations’ licenses to be stripped over political concerns or for other reasons. ‘Not how it works,’ Jessica Rosenworcel, a member of the FCC, wrote on Twitter in response to Trump, linking to an FCC report on how stations are regulated.”

RUSSIA WATCH:

— Sheryl Sandberg meets with with intel committee. Bloomberg’s Billy House and Sarah Frier: “Sandberg made the trip to give an update on Facebook’s investigation and explain how the social network was working to protect its users from future election interference, including investments in staff and security, according to a person familiar with the matter. The Facebook executive told lawmakers that if Congress wishes to release the ads, they should first be scrubbed of personally identifying information, and she told them what private information to obscure, said the person, who asked not to be identified because the meetings were private.

‘These were really productive meetings. We discussed the 3,000 ads we provided to the US investigators to help them better understand Russian efforts to undermine our democracy,’ Sandberg said in a Facebook post afterward. ‘We reiterated that Congress is best placed to decide if and when the ads should be made available to the American people.'”

And Intel will release those ads. The Post’s Karoun Demirjian: “The House Intelligence Committee plans to release a trove of Russian-backed Facebook ads from the 2016 election season after officials from Facebook and two other tech giants testify publicly in November. The leaders of the committee’s Russia probe, Rep. K. Michael Conaway (R-Tex.) and ranking Democrat Adam B. Schiff (Calif.), told reporters Wednesday that they would move ‘as quick as we can’ to release the advertisements to the public — something Schiff in particular has long urged.”

MONEY ON THE HILL

President Donald Trump promised to do “a big number” on the Dodd-Frank Act. But a slate of bills House Republicans will take up Wednesday shows how difficult it is to get anything big through Congress these days.

Bloomberg

OPINIONS

— Viva the Nats! Viva the swamp! Facing the possibility of another wildly disappointing first-round playoff defeat last night, the Nats pulled out a victory over the Cubs. That means they’re bringing the National League Division Series back to Washington for a tiebreaking fifth game tonight. 

What’s that got to do with Trump’s promise to drain the swamp? Maybe not much. But I’ve been thinking recently about this David Leonhardt piece from the New York Times five years ago: 

A sports team obviously cannot create a civic renaissance. But when a city and a team happen to go on a good run at the same time, it can be particularly sweet, and it’s happened more often than you might think.

The Dallas Cowboys won two Super Bowls in the 1970s just as an oil boom was remaking Texas. The San Francisco 49ers displaced the Cowboys in the 1980s when the personal-computer revolution was enriching no small number of Bay Area residents. The Yankees’ re-emergence in the late 1990s will always be a chapter in New York’s larger comeback story.

Now Washington may be getting its turn.

That was 2012, when the Nats were on their way to winning their first division title since relocating here from Montreal. The team has won three more in the five years since, at a time when the city itself continues to boom. 

Tonight, while the Nats fight down on Half Street for their first league championship berth, a showpiece development in the city’s rebirth will be celebrating its official opening, 1.5 miles west. The Wharf, the $2.5 billion complex on the city’s southwest waterfront, is expected to draw 20,000 people daily for concerts, retail, and restaurants. It’s the same project whose construction moved Rep. Rod Blum (R-Iowa) last year to wish a recession on Washington: 

Washington is not in a recession. On the contrary, wealth creation is zooming. If you believe, as Republicans do, in growing the economic pie, that’s a good thing. It’s broadened the tax base, allowing the city to slash tax rates while still plowing money into schools, infrastructure and other public needs, to the benefit of its residents, who are American citizens. More of that, please. And if the Nats have anything to do with it, and even if they don’t, let’s go Nats

CHART TOPPER

From Bloomberg: “This is How Trump’s Market Rally Stacks Up Against Other Presidents.” 

DAYBOOK

Today

  • The Heritage Foundation holds an event on tax reform.

  • The House Financial Services Committee holds a hearing on the future of housing.

  • The SEC has a meeting of the investor advisory committee.

  • The Carnegie Endowment for International Peace holds an event on “Twenty Year after the Asian Financial Crisis.” 

  • The Peterson Institute for International Economics holds an event on “Rethinking Macroeconomic Policy.” 

Coming Up

  • The FDIC hosts its 7th annual consumer research symposium on Friday.

  • The Brookings Institution is hosting an event on regional development banks on Friday

BULL SESSION

President Trump says his rich friends want a tax cut for the middle class:

President Trump says he’s ‘given up a lot’ to be president but has ‘a better life now:’

Trump to tap Kirstjen Nielsen to lead Homeland Security Department:

Stephen Colbert says we’ve reached a new level of “angry Trump:”

Russian leader Vladimir Putin got a puppy for his birthday: 



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