The Finance 202: Playbook to kill tax overhaul already written before bill’s debut

The Finance 202: Playbook to kill tax overhaul already written before bill’s debut


THE TICKER

Want to keep smart and easy tabs on the tax reform debate in Washington? We have you covered here.

Today’s note will self-destruct in roughly two hours. And then again — and likely again.

That’s when House Republican leaders are expected — finally — to release the first draft of a tax code overhaul they’ve spent months developing behind closed doors. The debut time has been set for 11:15 a.m. this morning.

The last few days suggest the project remains in what could charitably be described as rough shape. Scrambling to find sources of revenue to pay for a sprawling, $5 trillion wish list of tax cuts, GOP tax writers on Wednesday also appeared to be scaling back their ambitions — both on the individual and corporate side of the code.

Here’s what we can say at this point: The successful pushback against efforts to kill the state and income tax deduction — as well as lobbying to kill pre-contribution taxing of 401(k) retirement contributions — has established a playbook for every industry group or business that combs through the forthcoming text and decides they’d be better off under the status quo. Simply cobble together a couple dozen of the most like-minded Republicans and convince them to threaten to bolt if leaders don’t drop the offending provision. 

After such efforts, today’s bill could abandon a central aim of the entire effort — to permanently chop the corporate rate from 35 percent to 25 percent — in favor of a temporary cut. Or not.

Per my colleagues Mike DeBonis and Damian Paletta:

House Ways and Means Committee Chairman Kevin Brady (R-Tex.) “said he had to make changes to keep his upcoming bill in line with rules Republicans need to abide by if they hope to pass the measure through the Senate without Democratic support. He added he hopes to make changes during negotiations with the Senate at some point to make the cuts long-term, but at this time he is unable to propose a permanent cut.”

“It’s going to take several steps through the process to achieve” permanence on the corporate rate, Brady said, citing what he termed “those awfully funny” Senate rules. “That will enter into the discussion.”

But Axios’s Jonathan Swan reported late Thursday that the corporate rate cut will in fact be permanent, and when I asked Brady about it shortly before 11 p.m., he said, “12 hours,” indicating the time until Republicans unveil the details. By Thursday morning, the Wall Street Journal and Bloomberg were also reporting that the rate cut in fact will be permanent.

And the New York Times reports the move to a temporary cut itself is intended to be temporary — a “place holder” until Republicans can rustle up the revenue to offset the estimated $1.6 trillion cost of embedding the cut in the code for good. 

Nevertheless, backing off such a central pillar of the original plan would mark a defeat — and could spook investors who are counting on a wholesale reduction in the corporate rate to help turbocharge economic growth. 

Republicans on the Ways and Means panel, for their part, broadcast cheeriness about the imminent launch of the package as they filed out of a Wednesday night meeting that stretched for over three hours as they reviewed the fine print. 

“We’re doing great — on schedule for the morning and excited,” Brady said. “We’ll continue to listen. We’re going to make improvements at every step. We’re going very bold, so we expect people and families and businesses to respond and tell us what they think.”

Want your own copy of the bill text (to fight or rally behind, as the case may be)? Text TAXES to 50589 and it’s all yours:

But the chaos spilled over into proposed changes to the individual side of the tax code, as well. Republican leaders were still struggling Wednesday to forge a compromise with their rank-and-file from high-tax states like New Jersey and New York — a cohort threatening to oppose the package because it proposes to eliminate the federal deduction for state and local taxes (otherwise known as the SALT deduction).

More from Damian and Mike: “Several members said Wednesday that Republicans were looking at capping the property tax deduction at around $10,000, though discussions remained fluid. Still, several members said the changes weren’t sufficient. If enough Republicans refuse to accept the adjustment, they could oppose the bill and potentially kill it on the House floor.”

And the AP reports that Republicans are likewise backing off plans to wring out some new funding for their proposal by limiting tax-free contributions to retirement plans, including 401(k)s, after the idea met resistance both from President Trump and some of their own in the chamber. 

Furthermore, following what can only be termed as  unhelpful pre-rollout tweets from President Trump, Republicans are considering including the elimination of the individual mandate to buy health care — though the language isn’t expected to be in today’s draft.

Damian and Mike, again: “Three Republican members of the Ways and Means Committee and a GOP leadership aide, speaking on the condition of anonymity to describe internal deliberations, said that there has been serious discussion about including the individual mandate repeal in the tax bill. But they said that the committee is divided on the issue and that it is unlikely to be included in the initial draft.”

Republican leaders have held their plans close in part to forestall that bloodletting. Even still, the process wasn’t airtight, and the National Association of Home Builders and the National Association of Realtors both are already putting their considerable muscle behind opposition campaigns.

Untold others will begin laying plans to join them in the hours ahead. Buckle up. 

And President Trump, as always, is a wildcard that could upend the negotiations at any moment.

 

MARKET MOVERS

NEW YORK TERROR ATTACK: 

Charges filedNYT: “Federal prosecutors on Wednesday filed charges accusing the driver in the Manhattan truck attack of carrying out a long-planned plot, spurred by Islamic State propaganda videos, to kill people celebrating Halloween. The charges, filed just over 24 hours after the deadliest terror attack on New York City since Sept. 11, 2001, placed the case in the civilian courts even as President Trump denounced the American criminal justice system as ‘a joke’ and ‘a laughingstock.’ The charges describe the driver, Sayfullo Saipov, 29, as a voracious consumer and meticulous student of ISIS propaganda, and detail how he said he was spurred to attack by an ISIS video questioning the killing of Muslims in Iraq.”

Trump dispatched with the presumption of innocence late Wednesday to declare that Saipov should get the death penalty: 

That followed a day in which Trump used the attack to renew a push for his hard-line policies. David Nakamura and Ed O’Keefe: “The president said he would move to eliminate a popular “diversity lottery” for foreigners seeking U.S. visas and direct the State Department to ramp up “extreme vetting” of immigrants. He also suggested he would consider sending the suspect, Sayfullo Saipov, a legal permanent resident of the United States, to the U.S. military prison in Guantanamo Bay, Cuba.”

Terror by truck. The method is now a go-to for ISIS, used seven times in Western cities over the last year. The Post: “The results of the Halloween attack underscore the reasons for its popularity, terrorism experts say: The tactic requires no special skill or instruction, or formal membership in a terrorist group. And it is nearly impossible to prevent or stop.” … Neighbors say they saw Saipov practice driving a truck around his suburban New Jersey neighborhood in recent weeks. 

FED WATCH: 

Powell gets the rose. The announcement is coming today. WSJ offers some historical perspective: “Mr. Powell’s nomination would mark the first time in nearly four decades that a new president hasn’t asked the serving Fed leader to stay on for another term, even though that person was nominated by a president of a different party. The last time a first-term president didn’t do that was in 1978, when President Jimmy Carter chose G. William Miller to succeed Arthur Burns… Reached by phone Wednesday, both Mr. Powell and Ms. Yellen declined to comment. A Fed spokeswoman also declined to comment.” 

Investors cheer continuity. Bloomberg’s Sarah Ponczek and Elena Popina: “Investors enjoying the fruits of a decade-long bull market in equities expect to find an ally in Jerome Powell… Barring the reappointment of Yellen, Powell was viewed as one of the best options for bulls, an extension of the dovish policies that helped the S&P 500 rise 45 percent during her tenure… Equities have been on an upswing since Bloomberg News reported Trump was leaning toward Powell on Friday, with the biggest exchange-traded fund rising three of four days. S&P 500 Index futures were little changed late Wednesday after the Wall Street Journal earlier reported that Trump intends to nominate the 64-year-old Fed governor on Thursday. The dollar and Treasuries showed little reaction.”

Fed leaves rates alone. In the shadow of Thursday’s big announcement, the central bank on Wednesday left interest rates unchanged. WSJ’s David Harrison: “Officials have penciled in one more move for 2017 if the economy stays on track. The Fed has one more meeting scheduled before the end of the year, on Dec. 12-13. The central bank has raised its benchmark federal-funds rate four times since late 2015, in quarter-percentage-point steps, to a current range between 1% and 1.25%.”

The former Goldman Sachs president, now Trump’s top economic adviser, was a front-runner for the Fed job until August, when he publicly broke with the president over his handling of fatal neo-Nazi violence in Charlottesville, Virginia.

Politico

Goldman Sachs economists on Wednesday upgraded their forecast on U.S. nonfarm payrolls for October to a 340,000 increase from a 325,000 gain, based on the latest data on company hiring from ADP and factory activity from the Institute for Supply Management.

Reuters

MONEY ON THE HILL

TAX FLY-AROUND:

Today’s schedule for the tax bill’s unveiling. Courtesy of Speaker Paul Ryan’s (R-Wis.) press office: 

  • 9:00 am: GOP Conference meeting to walk members through text.
  • 10:30 am: Ways and Means’ off-camera reporter briefing, embargoed until 11:15 a.m.
  • 11:15 am: GOP Leadership/Ways and Means press conference.
  • 12:00 pm: Speaker Ryan interview with CNN’s Phil Mattingly airs.
  • 1:30 pm: Speaker Ryan/Ways and Means members meet with President Trump at the White House.
  • 2:30 pm: Speaker Ryan interview with Fox News’ The Daily Briefing with Dana Perino airs.

More GOP infighting ahead. Bloomberg’s Anna Edgerton: “A leading House Republican conservative warned that the unveiling of the tax bill Thursday would unleash dissent ‘like you’ve never seen.’ But that doesn’t mean Republicans will fail, said Representative Mark Meadows, chairman of the House Freedom Caucus. ‘It may be a little messy, it may not be as fun as we would all have liked to have seen it be over the past few weeks,’ Meadows told reporters Wednesday after meeting with Senate Majority Leader Mitch McConnell. ‘But we’re going to get it done, and failure is not an option.'”

Trump throws a curveball. Damian: “Trump on Wednesday said congressional Republicans should make a major change to their upcoming tax cut bill by including changes to the Affordable Care Act, an idea that has divided the GOP for months. The idea had already been rejected one day earlier by… Brady, who had said it risked bogging down the process. But Trump, in two Twitter posts Wednesday, pushed the idea, which has gained currency with some Senate Republicans. The biggest proponent of the idea is Sen. Tom Cotton (R-Ark.).”

Mnuchin resists corporate fade-in. Bloomberg’s Saleha Mohsin  and Jennifer Jacobs: “Treasury Secretary Steven Mnuchin is resisting a gradual phase in of the proposed 20 percent corporate rate out of concern the move wouldn’t boost economic growth as much as he’s anticipated, according to a Trump administration official and another person familiar with Mnuchin’s thinking. Mnuchin is worried that a slow reduction of the corporate rate from its current 35 percent would also make the U.S. less competitive, as other countries cut their rates faster and foreigners delay their investments in the U.S., said the official, who asked not to be named because the discussions are private.”

He’s got history on his side, a new analysis suggests. “Ladling out corporate tax cuts bit by bit is a bad idea. Look at history,” Bloomberg’s Sarah Ponczek writes. “So goes an argument being pushed by analysts at Strategas Research Partners, who say Presidents Ronald Reagan and George W. Bush came to regret their gradualist approaches in 1981 and 2001. ‘Phasing in the corporate tax rate cut for five years is a terrible idea,’ the analysts, led by Daniel Clifton, head of policy research at Strategas, wrote in a note Tuesday. ‘Taxpayers will delay their economic activity in anticipation of the lower tax rate in future years.'”

Colleges, charities on Senate menu. Politico’s Brian Faler: “Universities, charities, life insurance companies and others could all lose cherished tax breaks under a Senate plan to rewrite the tax code. Senate Republicans are considering a number of sure-to-be controversial changes, including imposing a new 2 percent excise tax on the endowment earnings of private universities, according to a summary POLITICO obtained.

They may reduce the tax breaks people receive for fringe benefits at work, such as a deductions for entertainment- and transportation-related expenses. Another proposal, apparently aimed at Silicon Valley firms, would limit write-offs businesses can take for providing meals to employees. Uber drivers, people who rent their homes through Airbnb and others participating in the ‘gig economy’ could see tougher income reporting requirements that make it harder for them to avoid paying taxes. Insurance companies could lose a host of tax breaks worth more than $31 billion.”

WH blasé about delay. Politico’s Nancy Cook reports that the administration was okay with the fact that House Republicans missed their initial target of a Wednesday rollout, “provided it doesn’t extend into the weekend, according to three senior administration officials—and Trump even told Ryan he’d be fine if it takes until Friday, said two people briefed on their conversation.” 

But Trump wouldn’t be accepting responsibility if another of his priorities goes down. Here he was Wednesday making clear he will blame Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn if the tax overhaul fails:

Cut, cut, cut. ABC News: “Ryan’s office initially asked the White House for input because of the president’s knack for branding, according to a senior Hill aide. Trump has been insistent that the bill be called the ‘Cut Cut Cut Act’ according to the administration officials. Ryan and Brady have pushed back on the name of the bill. However, Trump has held firm.”

— A new $100 million force. Politico’s Alex Isenstadt: “Trump’s super PAC is drawing up plans to spend $100 million on an all-out push to sell tax reform and elect pro-Trump Republicans in 2018. The group, dubbed America First Action, is expected to host a fundraiser in the coming months that will be attended by Vice President Mike Pence and is in talks with the administration to get Trump to headline an event. It has tapped oil and gas mogul Harold Hamm, a Trump ally whose net worth exceeds $11 billion, to boost its fundraising campaign. And it is recruiting major Republican Party donors across the country.

Last week, America First officials met with top Trump advisers at the White House to brief them on a multimillion dollar campaign to promote tax reform and discuss how the legislative battle is likely to play out. But the stepped-up activity, which strategists revealed in interviews for the first time, is an abrupt change for the super PAC. The group has been dormant for much of the year, much to the frustration of the White House. America First has suffered from infighting, leadership shake-ups, and questions over its strategy and approach since its founding after the 2016 election.”

Garrett’s rough day. WSJ’s Andrew Ackerman: “Trump’s choice to head the Export-Import Bank didn’t appear to sway waffling Republican senators on a key panel into supporting him, putting his confirmation at risk. Lawmakers from both parties criticized Scott Garrett during a Senate Banking Committee hearing on Wednesday, saying his past votes to shut down the bank while serving in the House made him unsuitable to run the agency.

Mr. Garrett reversed his prior opposition to the agency in testimony before the committee, pledging to keep the bank ‘fully functioning.’ But lawmakers indicated they weren’t satisfied by his remarks. No Democrats on the committee are expected to back Mr. Garrett, meaning attracting enough Republican support is crucial to getting his nomination through the panel and advancing it to the full Senate. Industry groups that benefit from the Ex-Im Bank, which provides financing for U.S. exports, are pressuring lawmakers to oppose Mr. Garrett.

‘What would have made you change your mind about whether or not the Export-Import Bank should exist?’ asked Sen. Mike Rounds (R., S.D.) who said he had met with Mr. Garrett twice and hadn’t received a satisfactory answer. ‘This is critical, that you be able to share what has changed your mind.’… Mr. Scott bantered with Mr. Garrett during the hearing but later told reporters he was still undecided.”

TRUMP TRACKER

RUSSIA WATCH: 

Trump isn’t angry. He says so himself. The NYT’s Maggie Haberman and Peter Baker: “Trump projected an air of calm on Wednesday after charges against his former campaign chief and a foreign policy aide roiled Washington, insisting to The New York Times that he was not ‘angry at anybody’ and that investigations into his campaign’s links to Russia had not come near him personally. ‘I’m not under investigation, as you know,’ Mr. Trump said in a brief telephone call late Wednesday afternoon. Pointing to the indictment of his former campaign chief, Paul Manafort, the president said, ‘And even if you look at that, there’s not even a mention of Trump in there.’ ‘It has nothing to do with us,’ Mr. Trump said.  He also pushed back against a report published Monday night by The Washington Post, which the president said described him as ‘angry at everybody.’ ‘I’m actually not angry at anybody,’ Mr. Trump told The Times.”

He might be a little bit angry. Vanity Fair’s Gabriel Sherman: “Trump… has reacted to the deteriorating situation by lashing out on Twitter and venting in private to friends. He’s frustrated that the investigation seems to have no end in sight. ‘Trump wants to be critical of Mueller,’ one person who’s been briefed on Trump’s thinking says. ‘He thinks it’s unfair criticism. Clinton hasn’t gotten anything like this. And what about Tony Podesta? Trump is like, When is that going to end?’ 

According to two sources, Trump has complained to advisers about his legal team for letting the Mueller probe progress this far. Speaking to Steve Bannon on Tuesday, Trump blamed Jared Kushner for his role in decisions, specifically the firings of Mike Flynn and James Comey, that led to Mueller’s appointment, according to a source briefed on the call.

When Roger Stone recently told Trump that Kushner was giving him bad political advice, Trump agreed, according to someone familiar with the conversation. ‘Jared is the worst political adviser in the White House in modern history,’ Nunberg said. ‘I’m only saying publicly what everyone says behind the scenes at Fox News, in conservative media, and the Senate and Congress.'”

Tech giants face more Hill heat. The Post: “Senators from both parties took tech company officials to task in a hearing Wednesday for failing to better identify, defuse and investigate Russia’s campaign to manipulate American voters over social media during the 2016 presidential campaign. In the second of three Capitol Hill hearings this week on Russian’s online information operation, members of the Senate intelligence committee challenged Facebook, Google and Twitter in strikingly direct terms that, at times, seemed to carry the implicit threat of legislation that could rein in the nation’s wildly profitable technology industry.

‘I don’t think you get it,’ said Sen. Dianne Feinstein (D-Calif.), whose home state includes all three companies. ‘What we’re talking about is a cataclysmic change. What we’re talking about is the beginning of cyber-warfare. What we’re talking about is a major foreign power with sophistication and ability to involve themselves in a presidential election and sow conflict and discontent all over this country. We are not going to go away gentlemen. And this is a very big deal.'”

Watch the summary of tech companies’ Senate Intelligence testimony, in three minutes:

One message senators delivered repeatedly to the lawyers sent to represent the companies: Next time, bring your CEOs

The day wasn’t all bad for Facebook, at least. The company posted a 79 percent surge in profit to $4.7 billion, beating Wall Street expectations. 

THE REGULATORS

The Securities and Exchange Commission took a first step on Wednesday to head off the recent trend of celebrities endorsing new virtual currencies, warning that they could be breaking laws.

NYT

CHART TOPPER

Here’s an example of what Russian Facebook ads you might have seen if you were a Hillary Clinton supporter. The Post’s Dan Keating, Kevin Schaul and Leslie Shapiro take a look at a few other examples of how people were targeted on Facebook based on interests, political leanings, location, age and other traits.

DAYBOOK

POST PROGRAMMING ALERT: The Post and Live Nation will bring the “Can He Do That?” podcast to a live audience at the Warner Theatre on Tuesday, Nov. 7. In this live taping, political reporters Bob Woodward, David Fahrenthold and Karen Tumulty will join host Allison Michaels to review the past year in President Trump’s White House and the biggest moments that made people wonder “Can He Do That?” Tickets can be purchased now at Live Nation. Attendees will also receive a free 30-day digital subscription to The Washington Post. 

Today

Coming Up

  • The Heritage Foundation holds an event on reforming the Financial Industry Regulatory Authority on Friday.

  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on “Legislative Proposals to Improve Small Businesses’ and Communities’ Access to Capital” on Friday.

  • The Washington Examiner holds an event on the tax bill with House Speaker Paul D. Ryan (R-Wis.) on Nov. 8.

THE FUNNIES

From the New Yorker:

BULL SESSION

Here are the ads that Russian-linked groups posted on social media:

Donald Trump Jr.’s Halloween socialism lesson, according to the Internet:

Hillary Clinton chats with Trevor Noah on The Daily Show:

Samantha Bee says chief of staff John Kelly is not the adult in the White House:



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