The Finance 202: Math is getting harder for Republicans pushing tax overhaul

THE TICKER


House Speaker Paul Ryan (R-Wisc.) speaks during a Tuesday news conference on the Tax Cuts And Jobs Act. (Andrew Harrer/Bloomberg)

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House Republican tax writers look like an unstoppable force as they race to wrap work on their version of a tax overhaul. But they’re hurtling toward an immovable object: math. 

The problem lies squarely in front of the House Ways and Means Committee, now halfway through its markup of the GOP’s bill. 

Facing pushback from an array of multinational corporations, committee Republicans on Monday scaled back a provision in the bill meant to bar companies with globe-spanning operations from shipping U.S. profits abroad. That excise tax, which caught industry flat-footed when it appeared in the GOP plan unveiled last week, would have raised $154.5 billion over a decade — a substantial sum for lawmakers in need of new funding sources. But the Monday tweak drained more than 95 percent of that revenue, and the broader bill is now in the red by $74 billion. 

The Wall Street Journal’s Richard Rubin notes that House Republicans have options to fix this: “Staying inside the revenue target isn’t necessarily a fatal problem in the House, and Republicans have time to address the issue. A shortfall would present a challenge in the Senate, where it could keep Republicans from passing the bill without Democratic votes.”

But the trade-offs are ugly, as the Senate GOP is demonstrating. Republicans in the upper chamber look primed to take a starkly different approach with the tax plan they will be rolling out on Thursday, as my colleagues Damian Paletta, Mike DeBonis and Ed O’Keefe report:

Senate leaders were exploring postponing the centerpiece of the effort — an $845 billion corporate tax cut — until 2019, according to four people familiar with a draft of the legislation. The move would make it easier to comply with Senate rules that aim to limit any legislation’s impact on the debt.

At the same time, Republican senators were planning to eliminate the state and local tax deduction, going further than the House, which retained part of the popular tax break, said the people familiar with the matter, speaking on the condition of anonymity because they were not authorized to discuss sensitive deliberations. Senators also were debating how to ensure that fewer of the plans’ benefits flow to the wealthy and more flow to the middle class.

Watch Senate Majority Leader Mitch McConnell (R-Ky.) say he wants the package to be revenue neutral: 

The Senate Republicans’ stingier tack reflects the reality of the chamber’s budget rules. They forbid a tax bill from adding more than $1.5 trillion to the deficit over a decade — or else it will be subject to a challenge from Democrats and a 60-vote test that the majority has labored to avoid. (Not to mention that a potentially pivotal bloc of Senate Republicans have signaled the bill’s deficit impact will inform their vote. And Fitch Ratings said in a Tuesday report the House plan won’t pay for itself through growth — and in fact will add “significantly” to the nation’s long-term debt.)

But phasing in a corporate rate cut threatens to dampen enthusiasm among business interests that in some cases are already privately ambivalent about the GOP overhaul. And including a full repeal of the state and local tax deduction would all but ensure a revolt by blue-state House Republicans, whom leaders have spent weeks trying to placate with a delicate and evolving compromise on the matter. Twelve of them voted against their party’s budget last month in protest of the move to trash their treasured break and indicated a sufficient margin to sink the bill would join them if the final version includes it. 

Threading competing demands for a finite pile of money has always presented the central challenge for Republicans eager to rewire the tax code. But their self-imposed deadline for completing the work — the party still aims to finish by the end of the year — leaves them perilously little room for error. 

The Democratic sweep in the off-year elections Tuesday arguably dials up the urgency for the GOP to deliver a major legislative win after nearly a year of coming up short. Yet the knotty work of solving the math problem at the heart of the exercise remains. 

The latest on the mass shooting in Texas: The gunman who opened fire at a church in Sutherland Springs, Tex. had in 2012 escaped from a mental health facility after he was caught sneaking guns onto an Air Force base and “attempting to carry out death threats” against his superiors.

Our colleagues Eli Rosenberg, Mark Berman and Wesley Lowery report that “Devin P. Kelley’s young life was riddled with warning signs, mounting during and after his time in the Air Force, including a conviction for beating his then-wife and stepson, charges of animal cruelty, mental health concerns, investigations for domestic assault, threats against his family members and a motorcycle crash that left him with lingering physical pain.” Five years before the mass shooting at the church, officers were dispatched to a bus terminal after Kelley had escaped from the behavioral facility and were told he was “a danger to himself and others” and was “also facing military criminal charges.” It is not clear why Kelley was at the mental health facility. That same year, he was court-martialed and convicted of abusing his wife and stepson.

And as authorities try to reconstruct what happens inside the church, more details emerged about the methodical massacre: “One woman who was wounded during the carnage said Kelley fired at churchgoers who tried to leave and pumped bullets into those cowering or wounded on the church’s floor. David Brown, whose mother, Farida, was shot in her legs, said she described Kelley firing four shots into the torso of a woman on her left.”

On Tuesday, Rep. Ted Lieu (D-Calif.), a persistent Trump critic, walked out of a moment of silence in the House chamber for the victims of the massacre. “My colleagues are doing a moment of silence in the House … I respect their right to do that and I myself have participated in many of them, but I can’t do this again,” he said in a video on his Facebook page.”In just my short career in Congress, three of the worst mass shootings in U.S. history have occurred. I will not be silent. What we need is we need action. We need to pass gun safety legislation now.”

President Trump waves after announcing Federal Reserve board member Jerome Powell as his nominee for the next chair of the Federal Reserve in the Rose Garden at the White House. (Jabin Botsford/The Washington Post)

No Powell hearing before Thanksgiving. Bloomberg’s Krista Gmelich: “Having Jerome Powell testify in front of the Senate Banking Committee before the Nov. 23 holiday ‘might be a little quick,’ said Mike Crapo, the panel’s chairman. Powell needs time to complete paperwork and meet with other legislators on the committee, the Senator said. Powell might not have to wait too long. Crapo said he hopes ‘to move quickly, meaning in a matter of weeks.’ A few Republicans on the banking committee have expressed concerns about Powell’s previous Fed nominations. Crapo himself voted against Powell when he was reappointed to the central bank’s board in 2014.”

But Powell got one key vote of confidence Tuesday as he began making the rounds in the Senate: 

N.Y. Fed’s balancing act. WSJ’s Nick Timiraos: “Help Wanted: A senior executive with a keen knowledge of markets and economics, but who isn’t too close to Wall Street because he or she will be responsible for regulating some of the world’s biggest banks.” This is the balancing act facing a newly formed search committee for the next president of the Federal Reserve Bank of New York following the announcement Monday that the current leader, William Dudley, will step down in mid-2018, several months before his term expires in January 2019.

The New York Fed president is a voting member of the Federal Reserve committee that sets interest rates and other monetary policies aimed at keeping the economy on track. The chief also runs the Fed bank that works with the markets to implement these policies and that supervises some of the nation’s biggest financial institutions. The new president would take over an institution more intensely scrutinized since the financial crisis, and criticized by some lawmakers and others as a lax supervisor before the turmoil and too slow to get tough afterward.”

The Trump Bump turns 1. How does the market rally that accompanied Trump’s win stack up to that of other president’s, now that it’s aged a year? CNBC’s John W. Schoen: “At the first anniversary of Trump’s Nov. 8 election, the subsequent stock market’s gain ranks No. 3 in first-term, post-election markets since Dwight Eisenhower won the 1952 election. Over these decades, though, stock market rallies in the early days of a new administration aren’t necessarily a great predictor of investor returns over the full term of the incoming president. The stock market’s jubilant response to Trump’s election, for example, was initially compared to the reaction to Ronald Reagan’s 1980 defeat of Jimmy Carter.

Both Trump and Reagan campaigned on a platform that promised tax cuts and sweeping deregulation, a prospect that investors assume will help companies boost profits. But Reagan’s post-election rally fizzled within weeks, thanks to an aggressive series of interest rates hikes in late 1980 aimed at snuffing out double-digit inflation … The biggest one-year market rally for a change in administration followed the 1960 election of President John F. Kennedy, which accompanied a strong rebound in economic growth. But the market tanked in the months preceding the 1962 Cuban Missile Crisis.”

Here was Trump celebrating a new market high:

Another way of looking at it, from Bloomberg’s Joe Weisenthal: 

Tax code books and tax bill binders are stacked on the dais, while House Ways and Means Committee Chairman Kevin Brady (R-Tex.) presides over panel’s markup of the Tax Cuts and Jobs Act. (Melina Mara/The Washington Post)

TAX FLY-AROUND:

Trump’s accountant weighs in. Or so the president said, connecting via phone from his Asia trip with Senate Democrats gathered at the White House to talk taxes. “My accountant called me and said, ‘You’re going to get killed in this bill,” Trump said, per NBC’s Leigh Ann Caldwell

More background on the exchange, from Mike and Ed: “Trump pitched the plan as a benefit to the middle class that comes at the expense of the rich — an assessment at odds with independent tax experts who have analyzed the bill and concluded the bulk of its benefits go to corporations and the wealthy. Trump told the senators that he has spoken to his own accountant about the tax plan and that he would be a ‘big loser’ if the deal is approved as written, according to multiple people in the room who heard the president on the phone. ‘The deal is so bad for rich people, I had to throw in the estate tax just to give them something,’ Trump said, according to the people, who spoke on the condition of anonymity to share details of the meeting.”

Big business wins, small business loses. The Washington Post’s Steven Mufson: “House GOP leaders have hailed their new tax proposals as helping the small-business owner, but small-business associations say they help big enterprises, not small ones, and vowed Tuesday to sink the bill in its current form. The National Football League, Fiat Chrysler, the Koch brothers’ Georgia-Pacific subsidiary, The Washington Post’s owner and more than 500 Trump entities would qualify for a substantial tax break under the proposal. But the neighborhood dry cleaner or dentist would be out of luck.

That allows businesses to pass through untaxed profits to individuals who include them in their own tax returns, paying rates that vary from as low as 10 percent to as high as 39.6 percent. The House plan would lower the maximum pass-through rate to 25 percent, but a host of small and medium businesses — including service providers such as doctors, lawyers, dentists, architects and accountants — would be blocked from obtaining any benefit.”

Club for Growth slams. The conservative group criticizes the House Republican plan for what it calls waging class warfare — on the rich. Washington Examiner’s Joseph Lawler: “An important fiscal conservative group on Tuesday criticized the House Republican tax bill and said one of its provisions in particular is an example of ‘class warfare.’ ‘While the corporate tax cut will lead to some increase in our nation’s GDP, the rest of the provisions on individual taxpayers fails the pro-growth test,’ Club for Growth President David McIntosh said of the bill in a statement. In particular, McIntosh criticized the bill for retaining the top 39.6 percent individual tax rate for individuals making $1 million, calling it “class warfare the likes of which would make Democrats green with envy.”

Mixed results for middle class. WSJ’s Rubin: “More than 60% of taxpayers, including much of the middle class, would see lower taxes in 2019 under the House Republican tax plan while 8% would pay more, according to a new analysis released Tuesday. But by 2027, many of those effects would peter out and nearly one in five households would pay more in taxes than if Congress had done nothing. By that point, fewer than half of households would have tax cuts exceeding $100, the study found.

The analysis was done by the nonpartisan Joint Committee on Taxation, the official estimator of tax legislation in Congress.In 2019, among households making between $50,000 and $75,000, 65% would get tax cuts exceeding $500. In that same group, 6% would see taxes rise by at least $500 … Democrats are using the same numbers to point out that some lower-income people would see their taxes rise and the money would in effect fund tax cuts for high-income households.”

Buyouts targeted. Bloomberg’s Devin Banerjee: “House Republicans’ chief tax writer has investment managers in his crosshairs… Brady… moved this week to include a provision in his party’s tax bill that would raise the bar on which profits are taxed preferentially. If Brady gets his way, deal profits shared with investment managers would be treated as long-term capital gains — and hence taxed at a lower rate than ordinary income or short-term gains — only if they’re earned on investments held for at least three years, rather than one year now.

Exceeding a one-year hold period is the norm in private equity: More than 96 percent of U.S. deals since 2000 have done it, according to PitchBook Data Inc., a Seattle-based researcher. Profits on deals that last one to three years, however, would lose their preferential tax status if the bill’s current version becomes law. Since 2000, that would have affected 24.3 percent of private equity deals in the U.S., PitchBook said.”

Cruz pushes mandate repeal. Bloomberg’s Laura Litvan: Sen. Ted Cruz (R-Tex.) “is pushing to keep alive the idea of including a repeal of Obamacare’s individual mandate in the tax overhaul plan, even as House Republicans struggle with how to address an issue that threatens to complicate the tax debate. At a news conference Tuesday, Cruz said it’s vital to use the tax legislation to end the mandate that all Americans have health insurance or pay a penalty. If nothing else, he said, doing so will in effect be a tax cut for the 6.5 million Americans who now pay a penalty because they don’t have health insurance coverage. ‘I think it’s critical to make this end,’ he said of the mandate.”

Ways and Means Chair Kevin Brady (R-Tex.) said he’s still considering the move, telling Hugh Hewitt, “I’ve asked for an updated score so I know exactly what that provision would raise,” he said. “We’re listening to our members here in the House about how they’d react to that. And so I’ve been asked to consider it.” 

Republican says the quiet part out loud. Bloomberg: “A House Republican is stating the political necessity for Republicans to deliver tax overhaul legislation this year. New York Rep. Chris Collins said Tuesday, ‘My donors are basically saying ‘get it done or don’t ever call me again.'”

Reaction was swift and brutal: 

AP’s Erica Werner:

The Post’s Dave Weigel:

Fact Check: Does the estate-tax hurt farmers and small businesses?:

ELECTION FALLOUT:

New Jersey Governor-elect Phil Murphy makes his victory address. (Tom Gralish/The Philadelphia Inquirer via AP)

Goldman alum elected N.J. governor, again. Democrat Phil Murphy, a former Goldman Sachs executive and Obama administration ambassador to Germany, trounced Republican Lt. Gov. Kim Guadagno by 13 points in the New Jersey governor’s race. Murphy succeeds Chris Christie, who leaves office with bottom-dwelling approval ratings, and will become the first Democrat in the office since Jon Corzine, a former Goldman CEO. 

On the trail, Murphy worked to distance himself from the industry he once served. CNBC: “Murphy, 60, has had to defend his more than 20 years at Goldman while pushing a progressive platform. He has focused partly on boosting the working class and holding Wall Street firms in check… Murphy’s allies see a candidate who knows how to fix capitalism’s flaws due to his work at the top reaches of the U.S. economy. ‘I think he sees himself differently from some of the people who succeeded on Wall Street. I just think he sees the world differently than a lot of people on Wall Street do,’ said Howard Dean, the former Vermont governor who chaired the Democratic National Committee when Murphy led its finance arm…

After joining the Wall Street titan in the early 1980’s, Murphy spent more than 20 years there. During his career, he led the firm’s Frankfurt, Germany, office and served as president of its Asia division. At Goldman, Murphy was reportedly renowned for his deal-making ability, which helped him advance through the company. His work in Asia, though, has sparked controversy. An investigation by the Star-Ledger newspaper in New Jersey showed that his division profited from an investment in a shoe manufacturer that had dismal working conditions. Murphy’s campaign denied he had a role in Goldman making the initial investment.”

Retirement watch. Two House Republicans on Tuesday added their names to the lame-duck caucus of those retiring next year: Reps. Frank LoBiondo (N.J.), in his 12th term, and Ted Poe (Tex.), a seven-term incumbent. Expect potentially many more to join them in the days ahead as those Republicans facing what look like increasingly tough reelection slogs digest the results from Virginia and beyond and decide it just isn’t worth it. 

Some snap observations to the results: 

From Dave Wasserman, House editor for the nonpartisan Cook Political Report:

From Bloomberg’s Jennifer Epstein: 

The Post’s Paul Kane: 

Weigel: 

And the Post’s Mike DeBonis, on the infinitesimal half life of Trump’s loyalty to fellow Republicans down on their luck: 

Commerce Secretary Wilbur Ross. (Jabin Botsford/The Washington Post)

Ross appears to have misled reporters to get on Forbes list. Some stunning stuff from the magazine that maintains the world ranking of billionaires. Forbes’s Dan Alexander: “Fresh off a tour through Thailand, Laos and China, United States Secretary of Commerce Wilbur Ross Jr. picked up the phone on a Sunday afternoon in October to discuss something deeply personal: how much money he has. A year earlier, Forbes had listed his net worth at $2.9 billion on The Forbes 400, a number Ross claimed was far too low: He maintained he was closer to $3.7 billion. Now, after examining the financial-disclosure forms he filed after his nomination to President Donald Trump’s Cabinet, which showed less than $700 million in assets, Forbes was intent on removing him entirely… 

So began the mystery of Wilbur Ross’ missing $2 billion. And after one month of digging, Forbes is confident it has found the answer: That money never existed. It seems clear that Ross lied to us, the latest in an apparent sequence of fibs, exaggerations, omissions, fabrications and whoppers that have been going on with Forbes since 2004. In addition to just padding his ego, Ross’ machinations helped bolster his standing in a way that translated into business opportunities. And based on our interviews with ten former employees at Ross’ private equity firm, WL Ross Co., who all confirmed parts of the same story line, his penchant for misleading extended to colleagues and investors, resulting in millions of dollars in fines, tens of millions refunded to backers and numerous lawsuits. “

RUSSIA WATCH: 

Attorney General Jeff Sessions. (Photo by Bill O’Leary/The Washington Post)

Sessions to face Papadapoulos questions. Politico’s Kyle Cheney and Elana Schor: “Attorney General Jeff Sessions will appear before the House Judiciary Committee next week, and Democrats said Tuesday they’re prepared to pepper him with questions about a campaign adviser who attempted to broker a meeting between then-candidate Donald Trump and Russian President Vladimir Putin. Sessions — a top policy adviser to the Trump campaign last year — has flummoxed lawmakers with his accounts of his own contacts with Russian officials during the campaign. Now he faces new scrutiny about how much he knew about the adviser, George Papadopoulos, who has since pleaded guilty for lying to investigators about his own attempts to parlay contacts with the Russian government into an advantage for the Trump campaign.”

Trump camp knew about Carter Page trip to Moscow. Axios’s Alayna Treene: “Page also admitted to meeting with high-level Russian officials, and said he relayed that information to his campaign supervisors… It’s long been known that Page, who has become a key figure in the Russia investigation, traveled to Moscow in 2016. But prior to his testimony he maintained that it was in a private capacity, and unrelated to his role with the Trump campaign. However, the transcript reveals that top members of the Trump camp knew more than they have let on.”

It’s not just Rand Paul’s street: Americans are a lot less neighborly than they used to be,” writes The Post’s Christopher Ingraham:

Today

  • The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Administration Priorities for the International Financial Institutions.” 
  • The Professional Risk Managers’ International Association holds an event on redefining financial services regulation.
  • The House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Treasury’s Role in Safeguarding the American Financial System.” 
  • The Washington Examiner holds an event on the tax reform bill with House Speaker Paul D. Ryan (R-Wis.)

Coming Up

  • The Peterson Institute for International Economics holds an event on the policy implications of sustained low productivity growth on Thursday.
  • The House Financial Services Subcommittee on Housing and Insurance holds a hearing on “The Role of Ginnie Mae in the Housing Finance System” on Thursday

From The Post’s Tom Toles: “The Republicans went off to change the tax code and all you got was this lousy thank you:”

Republicans are trying humor to promote their tax plan:

Democrats call GOP tax plan a ‘scam,’ citing cut to student loan program:

After the shooting in Texas, House Speaker Paul Ryan said “enforcing the laws we got on the books” on guns is the solution:

Here’s what happened in Virginia’s 2017 election:

Trevor Noah says former Trump adviser Carter Page has a tell:


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