THE TICKER

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The flap over Louise Linton’s “let them eat cake” moment on Instagram could make it even harder for her husband, and the administration in which he serves, to overhaul the tax code this fall. That may sound far-fetched. Bear with me a moment. 

First, to review: 

Linton set off a firestorm Monday when she posted a shot of herself stepping off a government plane in Kentucky ahead of her husband, Treasury Secretary Steven Mnuchin. The photo showed her draped in luxury brands, which she proceeded to name in a caption and tag in the image. Since Linton’s account was public, a stranger — an Oregon mother of three named Jennifer Miller – was able to comment on the post, writing, “Glad we could pay for your little getaway.” Linton turned what was already likely a PR headache into a full-blown migraine by snapping back: 

“Aww!!! Did you think this was a personal trip?! Adorable! Do you think the US govt paid for our honeymoon or personal travel?! Lololol. Have you given more to the economy than me and my husband? Either as an individual earner in taxes OR in self sacrifice to your country? I’m pretty sure we paid more taxes toward our day ‘trip’ than you did. Pretty sure the amount we sacrifice per year is a lot more than you’d be willing to sacrifice if the choice was yours. You’re adorably out of touch. Thanks for the passive aggressive nasty comment… Go chill out and watch the new game of thrones. It’s fab!”

Screen grabs of the post — both the image and Linton’s insult-laced rant — quickly went viral. By Tuesday afternoon, the episode was getting attention from talking heads on cable, and Linton issued a terse apology through a publicist: “I apologize for my post on social media yesterday as well as my response. It was inappropriate and highly insensitive.”

(See an image of Linton's original posts here, and read The Post’s Damian Paletta recap here.)

Criticism continued to roll in:

Here was National Journal's Ron Brownstein:

From The Post's Karen Tumulty: 

The New York Times' Alan Binder with a quote from a story by Katie Rogers: 

From GOP strategist Ana Navarro: 

It is of course possible the incident will blow away, the news equivalent of a midafternoon August thunderstorm. It could also become something more. Already, controversy over Linton’s display overwhelmed the trip’s purpose, which was for Mnuchin to join Senate Majority Leader Mitch McConnell (R-Ky.) in talking up a tax code rewrite. 

At their appearance in Louisville, Mnuchin made some news by suggesting that President Trump could preserve for some alternative investment managers the carried interest loophole he railed against on the campaign trail. Hedge fund managers will still get pinched, Mnuchin said. But venture capitalists, private equity investors and others could get a pass: “What we are focused on is there are many other types of funds that do create jobs and we want to make sure we don’t discourage investment,” he said.

The origin story of the proposal to close that loophole demonstrates how the Linton episode could reshape the current tax debate. Back on June 13, 2007, a front-page Wall Street Journal story examined the rise of private-equity kingpin Steve Schwarzman, CEO of the Blackstone Group, and chronicled the over-the-top opulence of his lifestyle:  

Once, while sunning by the pool at his 11,000-square-foot home in Palm Beach, Fla., he complained to Jean-Pierre Zeugin, his executive chef and estate manager, that an employee wasn't wearing the proper black shoes with his uniform, according to Mr. Zeugin, who says he has great admiration for his boss. Mr. Schwarzman explains that he found the squeak of the rubber soles distracting. He expects lunches consisting of cold soup, a cold entree such as lobster salad or fresh grilled tuna on salad, followed by dessert, Mr. Zeugin says. He eats the three-course meal within 15 minutes, the chef says. Mr. Zeugin says he often spends $3,000 for a weekend of food for Mr. Schwarzman and his wife, including stone crabs that cost $400, or $40 per claw.
 

The piece ignited a firestorm of its own — reaching well beyond Wall Street. Here’s James B. Stewart in a 2008 New Yorker article on how Schwarzman became his industry’s “designated villain”: 

The day after the Journal story appeared, Senators Max Baucus and Chuck Grassley proposed legislation that would subject private-equity partnerships like Blackstone, whose earnings had been taxed at the lower rate of “passive income,” to ordinary corporate income taxes. In the House, Charles Rangel proposed that carried interest be taxed at the ordinary income rate rather than at the lower capital-gains rate. The measure would effectively increase Blackstone’s tax rate from fifteen per cent to thirty-five per cent, seriously eroding its profitability, and, according to the Joint Committee on Taxation, would generate an extra twenty-six billion dollars over the next ten years.

The proposal became known as the Blackstone Bill. It still hasn’t passed — a testament both to the efficacy of the industry’s lobbying campaign against it and the broader dysfunction that’s presided over tax policy for the last decade. But the fact that it’s also become a token for inequities in the code benefiting a stratospherically wealthy class of financiers like Mnuchin himself points to the power of an anecdote to cut through the wonkiness of the tax debate

Candidate Trump signaled that closing the loophole was critical to restoring fairness to the system: “The rich will pay their fair share” he said in a speech in Detroit last August, adding he would “eliminate the carried interest deduction and other special interest loopholes that have been so good for Wall Street investors, and for people like me, but unfair to American workers.”

The Journal piece launched ten years of debate over the tax treatment of carried interest. It was illustrated by no more than some vividly related details and a stipple portrait of Schwarzman.

In that context, it’s not hard to imagine the Linton episode’s power to galvanize.

Here, in two Instagram posts, is a senior administration official's spouse stepping off a taxpayer-funded plane, swathed head to toe in pricey couture, bragging about it, and snarking to somebody who pointed out the distastefulness of the scene by making fun of her for not being rich. And her husband, co-architect of a tax policy the administration promises will benefit lower and middle-income workers, represents what Democrats believe is an Achilles heel for Trump with his own base. 
 

“I can tell you from research I’ve seen one of the few things even the most ardent Trump supporters don’t like is when they learn that Wall Street bankers are actually running his economic policy,” Democratic strategist Paul Begala said Tuesday on CNN in a discussion of the flap. “It’s one of the few things that decouples those Trump supporters from him. It’s the notion that Wall Street, which he attacked on the campaign, is in charge… This could teach them that. They could focus on this because it’s such a pop culture story.”

Congressional Democrats don’t appear to have any imminent plans to tag the Trump administration’s forthcoming tax strategy as, say, the "Louise Linton Let Them Eat Cake Plan." But the episode was the subject of plenty of chatter on Tuesday. And one senior Hill aide told me it crossed a key early threshold: A nonpolitical relative asked him about it unbidden

Details of the tax strategy the administration is supposedly forging with a small group of congressional Republican negotiators remain murky. But an analysis of the outline the administration released in April found that proposal would be “highly regressive.” The Tax Policy Center found 40 percent of the plan’s benefits would accrue to the top 1 percent, while those in the top 0.1 percent would see their after-tax income spike by an average of $1.4 million. 

The White House is selling its overhaul as a benefit to middle-class families that will also encourage companies to keep jobs here. And it plans to press the point by deploying Cabinet secretaries to argue for various pieces of its plan. Agriculture Secretary Sonny Perdue, for example, will help make the case for repeal of the estate tax. 

“Secretary Perdue believes that reform of the tax code is long overdue, particularly as it impacts the agriculture sector of the economy, and he wholeheartedly supports President Trump’s efforts,” a department spokesman emails me. “The estate tax is an egregious example of punitive taxation.  It places a levy on the inevitable and natural occurrence of death and imperils family farms, which may have to be broken up or sold off to satisfy the tax collector.” 

But that claim is undercut by a piece of research from the Agriculture Department’s economic research arm. A March study found that last year, only 0.42 percent of farms faced any estate tax liability. And estates of small farms paid an average effective rate of only 11 percent. 

The tax debate is heating up at a treacherous moment for Republicans. Trump turned in a bizarre performance at a Tuesday night rally in Phoenix during which he threatened among other things to shut down the government he leads if lawmakers don’t fund his border wall. And he also blamed reporters for the criticism he’s received from both inside and outside his party over his disastrous response to the Charlottesville tragedy. 

The fallout from the racism-fueled violence in Virginia and the president’s equivocation in the wake of it continues to reverberate. Mnuchin was compelled to issue a formal response after 300 of his Yale classmates called for him to resign in protest. And the stock market was rattled last week by rumors that Mnuchin’s tax reforming co-captain, White House economic adviser Gary Cohn, was primed to quit. 
 

Meanwhile, Trump’s relationship with McConnell has reached a breaking point, according to a new New York Times bombshell. Alex Burns and Jonathan Martin report that ties between the pair have “disintegrated to the point that they have not spoken to each other in weeks, and Mr. McConnell has privately expressed uncertainty that Mr. Trump will be able to salvage his administration after a series of summer crises.”

Amid the chaos, the long-deferred Republican dream of rewriting the tax code, and the sense of shared mission it engenders, may be the last hope keeping the party’s ruling class from flying apart. But the Charlottesville mess also sped up the firing of Stephen K. Bannon, Trump’s chief strategist and the minder of his populist mandate. Bannon had been pushing for Trump to back a soak-the-rich tax plan that would jack up the top rate on upper-income earners to pay for deep cuts for everybody else. The approach was never going anywhere, facing objections from both inside the administration and leading congressional Republican tax-writers. 

But as long as Bannon was inside the West Wing, his attempts to sabotage Mnuchin, Cohn and the rest of the so-called globalist ilk he reviles could be held in some relative check. Now back at the helm of Breitbart, he’s free to savage those figures and attempt to rally a core piece of Trump’s constituency against their agenda. On Tuesday afternoon, a headline appeared on the site: “Mnuchin’s Wife Fights in Instagram Comments over High Fashion, Govt. Perks.”
 

MARKET MOVERS

— Deregulation could provide a $27 billion windfall to the six biggest U.S. banks, a new Bloomberg analysis finds. Yalman Onaran reports: "JPMorgan Chase & Co. and Morgan Stanley would benefit most from changes to post-crisis banking rules proposed by Donald Trump’s administration, with pretax profit jumping 22 percent, according to estimates by Bloomberg based on discussions with analysts and the banks’ own disclosures. Goldman Sachs Group Inc. would have the smallest percentage increase, about 16 percent...Of the changes proposed in June by Treasury Secretary Steven Mnuchin, the one that would probably have biggest impact on profit is allowing banks to buy U.S. government bonds entirely with borrowed money. Three others could also boost income: counting municipal bonds as liquid, or easy-to-sell, assets; requiring less debt that won’t have to be paid back if a bank fails; and making it easier to comply with post-crisis rules."

Meanwhile, U.S. banks are already doing fine. They just saw their second-quarter profits leap 10.7 percent over the same period a year ago, together raking in $48.3 billion. FDIC Chair Martin Gruenberg, whose term expires in November, said the results show the sector is healthy. But he also warned against newly risky behavior as banks chase higher profits, Reuters reports. 

The Senate is preparing to take up legislation next month that would block an agency rule that makes it easier for consumers to sue their banks.
Renae Merle
Stocks closed higher on Tuesday on renewed hopes of U.S. tax reform.
CNBC
All of the Federal Reserve's 12 regional banks wanted to hold steady the rate commercial banks are charged for emergency loans ahead of the U.S central bank's last policy meeting, minutes from a discussion of the discount rate showed on Tuesday.
Reuters
MONEY ON THE HILL

Congressional Republicans are eyeing a controversial budget maneuver that would allow them to cut an additional $450 billion in taxes without paying for it. Bloomberg's Sahil Kapur:  "Under the proposal, the GOP would not account for things like expiring tax breaks when gauging the budgetary impact of tax legislation -- giving tax writers more room for cuts. Senate budget and tax panels are discussing the move to a 'current policy' baseline -- instead of the standard “current law” baseline -- said the people who asked not to be identified because the discussions are private. The chief House tax writer, Kevin Brady, also signaled openness to the approach last month, saying it would lead to deeper tax cuts. The switch would risk a backlash from Democrats and deficit hawks."

— House Ways and Means Chairman Kevin Brady (R-Tex.) is downplaying the prospect of using any revenue from a tax overhaul to fund new infrastructure projectsDavid Sherfinski of the Washington Times: Mr. Brady described the idea of using some $2.5 trillion companies now have parked overseas as a vehicle for a big infrastructure investment as a “satellite” hovering around tax reform. 'I’ll tell you up front: I use the revenue from those to lower tax rates on every business in America,' Mr. Brady said at an event hosted by UPS in Louisville, Kentucky. 'And so if that’s used for something else, [we’re] going to have to find a way to try to achieve that.'"

Large companies, looking for every angle to prod Congress into making the corporate-tax changes they have been seeking for years, are turning to some in-house muscle: employees and customers.
WSJ
TRUMP TRACKER

Trump careened from threats to sweeping condemnations and back again in his Phoenix rally on Tuesday night. Observers seized particularly on his pledge to shut down the government if lawmakers don't meet his request for border wall funding. "Build that wall. Now the obstructionist Democrats would like us not to do it, but believe me we have to close down our government, we're building that wall," Trump said. 

The New York Times's Yamiche Alcindor: 

CNN's Manu Raju:

HuffPost's Matt Fuller:

NPR's Scott Detrow:

New York magazine's Jonathan Chait:

The exodus from White House advisory panels continues, with several members of the National Infrastructure Advisory Council resigning Monday, a day before the group was set to convene for its quarterly meeting. The Hill's Melanie Zanona: "The panel is tasked with advising the president and the Homeland Security Department on the security of critical U.S. infrastructure and information systems. The council, which was created by former President George W. Bush, can have up to 30 members, who are appointed by the president from the private sector, academia and state and local government. 'We can confirm that a number of members of the NIAC who had been appointed under the previous administration have submitted their resignation,' a White House official said in a statement to The Hill."

White House adviser and First Son-in-Law Jared Kushner slipped out of the country Sunday on a work trip to Israel and the Persian Gulf. Politico's Annie Karni: "Accompanying Kushner on Monday in the Gulf states were deputy national security adviser Dina Powell, and Middle East envoy Jason Greenblatt, a White House official said... The purpose of Kushner’s trip, according to a White House official, was to “focus on the path to substantive Israeli-Palestinian peace talks, combating extremism, the situation in Gaza, including how to ease the humanitarian crisis there,” as well as to explore economic steps that could be taken leading up to any potential peace deal. It is Kushner’s third trip to the region."

The Treasury Department said 10 firms and 6 individuals had done business that helped Pyongyang develop its ballistic missile and nuclear weapons program.
Carol Morello and Peter Whoriskey
A public rift between the president and some chief executives has overshadowed a natural alliance: the White House and big companies all want tax reform.
NYT
THE FUNNIES

A cartoon by @EllisJRosen. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on

DAYBOOK

Today

  • House Speaker Paul D. Ryan visits Intel Corporation in Hillsboro, Ore.
  • House Ways and Means Chairman Rep. Kevin Brady (R-Tex.) hosts a town hall with AT&T employees at the headquarters in Dallas.
  • Brady talks tax reform with local Dallas-area businesses.

Coming Up

  • Ryan will also visit Boeing Company in Everett, Wash. on Thursday.
  • Whole Foods shareholders will meet at the company’s Austin, Tex. Headquarters on Wednesday to vote on the proposed acquisition by Amazon.
  • The annual Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo begins on Thursday.
  • The Heritage Foundation holds an event on protecting public employees’ first amendment rights on Thursday.
  • Federal Reserve chairwoman Janet L. Yellen speaks at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyo. On Friday
BULL SESSION

This was Louise Linton's reaction to criticism on her Instagram: 

Secretary of State Rex Tillerson's impossible job: Balancing North Korea, China and Trump:

 

President Trump just can't resist a photo opportunity with American-made vehicles:

Powerball jackpot swells to $700 million:

 

Watch how Bei Bei, the Smithsonian National Zoo's giant panda, celebrated his second birthday: