THE TICKER

One of Wall Street’s most treasured tax breaks is taking center stage in the Republican skirmish over a tax overhaul. 

House Republican leaders are pushing to end the deduction for interest payments on debt, a break worth as much as $1.5 trillion to tax-writers desperate for revenue. They want to use that money to pay for a new write-off allowing companies to immediately deduct the cost of capital investments — a move they think will inject some quick zing into the economy. But zeroing out the code’s subsidy for debt financing would pinch banks and investment vehicles such as private equity firms that rely on it. 

Senate Republicans oppose the move, calling the immediate expensing change pushed by their House counterparts too expensive, with estimates ranging from $800 billion to $2 trillion over 10 years.  Tension over the issue  erupted at a meeting between White House officials and Republican tax negotiators last week, according to my colleagues Sean Sullivan, Mike DeBonis and Damian Paletta. They report that a decision could be coming soon: "Trump advisers and top congressional leaders, hoping to assuage conservatives hungry for details, are working urgently to assemble a framework that they hope to release next week, according to White House aides and lawmakers."

The debate is one of many over unresolved basics confronting Republicans about the contours of a tax plan.

Several of those disputes fall into the same category: Balancing a desire to drive overall rates as low as possible against protecting cherished preferences in the code, or adding new ones in the name of growth. From the Post story: "Negotiators agree with the goal of slashing the corporate income tax rate and also cutting individual income taxes. But they have yet to agree about which tax breaks should be cut to pay for it all. In private talks, Trump advisers are pressing to eliminate or reduce several popular tax deductions, including the interest companies pay on debt, state and local income taxes paid by families and individuals, and the hugely popular mortgage interest deduction."

The dispute over interest deductibility -- and immediate expensing -- arguably looms largest, though, because of the enormous revenue it could net the government. The break for interest on debt is economy-bending. It sets up a system that critics say makes it attractive for companies to load up on as much debt as possible, which in turn makes the entire system more vulnerable, increasing the risk of bankruptcy in a downturn. Defenders point in part to the fact the deduction gives small businesses without ready access to capital the ability to invest. 

Banks and other financial interests have come to rely on the interest deduction. The private equity industry, for example, ranks preserving it as its top legislative priority. “This is a very serious threat to our business model,” James Maloney, spokesman for the industry’s trade group, the American Investment Council, tells me. 

Financial services interests have locked arms with other businesses that rely on debt financing — including farmers, who depend on credit for seeds, equipment, and other expenses — to expand their reach on Capitol Hill.

Mac O’Brien, spokesman for the BUILD Coalition, which organized to protect the interest deduction, said opposition in the Senate from a handful of farm-state Republicans should be sufficient to kill the proposal. That has negotiators examining carve-outs for certain taxpayers, including farms and small businesses. Of course, the greater the exemptions, the less revenue the tax change yields.

It also gives defenders a potent argument. Says O’Brien: “If this is Republican tax reform, and we’re having to carve out certain industries from a harmful policy, and simplification and growth were the goal, then what are we doing?

MARKET MOVERS

Dollar steady as threats recede. "The U.S. dollar on Tuesday clung to the previous day’s gains, supported by a bounce in Treasury yields and ahead of U.S. inflation data that could influence the timing of the next Federal Reserve interest rate increase," Reuters' Saqib Iqbal Ahmed reports. "The greenback also found support as investors further unwound bearish bets against it."

BUT: North Korea says it will speed up its nuclear program in response to new U.N. sanctions. Bloomberg's Kanga Kong: "In its first official response to the new resolution, North Korea’s foreign ministry released a statement on state-run media saying the sanctions justified its nuclear push and strengthened its will to 'follow this road at a faster pace without the slightest diversion until this fight to the finish is over.'"

Hedge-fund billionaire sees market correction looming. Omega Advisors founder Leon Cooperman, a noted bull, says an array of shocks could set it off: "North Korea, a disappointing earnings report, anything,” Bloomberg's Hema Parmar reports

TAX FLY-AROUND: 

Budget impasse. House Budget Committee Chairman Diane Black (R-Tenn.) is pressing leadership to bring her spending blueprint to the floor, essentially daring holdouts in the House Freedom Caucus to oppose it. "“Sometimes when you get this close, perhaps you just need to put it on the floor,” Black tells Politico's Sarah Ferris. More from the story: "She would not say how many votes short she is, but acknowledged she’s still encountering resistance from conservatives demanding more details on tax reform. Members of the House Freedom Caucus have refused to back Black’s budget until GOP leaders reveal a comprehensive tax plan. Asked on Tuesday afternoon whether the Freedom Caucus would support the GOP’s budget on the floor, Rep. Mark Meadows, the chairman of the group, quickly replied, 'No,' and said he’s still waiting for tax details.

'I don't think anything’s changed at this point, other than they’re whipping a lot harder than they were before,' Meadows (R-N.C.) told Politico."

Until this gets resolved, it will remain a bigger deal than any of the fights over the substance of a tax overhaul itself. No budget, no reconciliation rules. That will send the GOP back to the drawing board to try to forge bipartisan agreement on a plan that can gather 60 votes in the Senate. 

Trump continued his (limited) outreach to Senate Democrats on Tuesday. The president hosted a bipartisan dinner at the White House, including three conservative members of the minority from states he carried — Joe Manchin III of West Virginia, Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana. Each released statements afterwards indicating a willingness to work with Trump on the matter, under certain conditions. 

  • Manchin: “I was glad to join the President tonight to discuss how we can work together in a bipartisan manner on tax reform... but we must do this without adding to our staggering debt."
  • Heitkamp: "Tonight we had a good discussion and I reinforced that any tax reform bill must support working families and family farmers so they aren't burdened with debt and it must stand up for retirees who want to live their remaining years with dignity while also simplifying the tax code and lowering compliance burdens."
  • Donnelly: "I am hopeful we can work together to encourage domestic investments that benefit American workers."

(Trump continues the bipartisan outreach today by meeting with a group of House moderates from both parties.)

Oregon Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, wondered why he wasn't invited to Tuesday's tax dinner: 

Count yourselves out, accounting firms. Treasury Secretary Steven Mnuchin said some service companies won't see their rate cut along with other small businesses in a tax overhaul.  The Wall Street Journal's Kate Davidson and Richard Rubin: "Republicans want to cut the 35% corporate tax rate. They also want to lower rates on so-called pass-through businesses, which pay business taxes through the individual tax returns of their owners at individual tax rates, which currently reach as high as 39.6%. Many pass-through businesses are small. They also include some of the largest law, accounting and investment firms, which Mr. Mnuchin suggested might not get the new lower rate on pass-through business income that Republicans are planning...

At the National Federation of Independent Business, the influential trade group for small businesses and pass-throughs, 'everybody’s eyes kind of popped out' when they heard Mr. Mnuchin’s comments, said Brad Close, senior vice president for advocacy."

Mnuchin admits 15 percent is a stretch. The Treasury secretary on Tuesday took a step toward acknowledging what's plainly obvious to anybody watching the tax debate: President Trump's desired corporate rate of 15 percent isn't happening. "I don't know if we will be able to achieve that, given the budget issues,” Mnuchin said at the Delivering Alpha conference in New York, my colleague Renae Merle writes. “But we're going to get this down to a very competitive level, and the exact number is less important. And what's more important is making sure we have a competitive field.” Mnuchin wouldn't name an acceptable rate. 

(Marc Short, White House legislative affairs director, struck a similar note at a separate event Tuesday.)

TRUMP TRACKER

Hassett confirmed as CEA chair. It took long enough. But the Senate finally voted to confirm economist Kevin Hassett to lead the Council of Economic Advisers. The Wall Street Journal's Josh Zumbrun: "The chairmanship was once a cabinet-level position, but hasn’t been under Mr. Trump. The job has been empty for nearly eight months, so the White House has established its rhythms without someone in the job. Mr. Hassett, however, could still become an influential adviser. As an academic, he devoted much of his career to studying the effects of taxes and business investment, and will join an administration in the midst of a push to rewrite the tax code."

The administration official stressed that the meeting will not focus solely on climate change.
Politico
Hicks had taken on the role of communications director on an interim basis since last month.
Politico
POCKET CHANGE

— Apple rolled out its newest generation of iPhones — including the $1,000 iPhone X (pronounced "ten") to the typical fanfare on Tuesday. 

TechCrunch is already calling the high-end model Apple's best phone ever: "It’s not the iPhone for everyone. Tim Cook happily acknowledged as much onstage when he debuted the 8 and 8 Plus, which, to many onlookers were the 7 and 7s in everything but name. The iPhone X finds Apple accelerating toward technologies it’s clearly been dancing around for a number of years. The display is OLED — something the company calls “Super Retina.” This is Apple’s first play at edge-to-edge, completely ditching the home button in the process."

Wall Street Journal's Joanna Stern:

Apple CEO Tim Cook is betting the company's future on the device, says CNN Tech's Seth Fiegerman. He has a rundown of the phone's features, including "Face ID," its facial recognition device to unlock the phone; wireless charging, and "Animoji."

Share price impact: History shows Apple stock has fallen as often as its climbed in the months following a new iPhone release, Bloomberg's Richard Richtmyer notes

Jamie Dimon: Bitcoin is a fraud. The JPMorgan chief didn't pull any punches describing the digital currency. "It's just not a real thing, eventually it will be closed," he said at the Delivering Alpha conference. He also said, "It's worse than tulip bulbs. It won't end well. Someone is going to get killed." He also said he'd "fire in a second" any trader at his bank who was trading bitcoin, for two reasons: "It's against our rules and they are stupid." CNBC's Fred Imbert reports

EQUIFAX FALLOUT:

Sen. Heitkamp: "Somebody needs to go to jail." Reuters' Pete Schroeder writes, "Thirty-six U.S. senators on Tuesday called on federal authorities to investigate the sale of nearly $2 million in shares of credit bureau Equifax Inc by company executives after a massive data breach, and one compared their actions to insider trading. The lawmakers signed a letter asking the U.S. Department of Justice, the Securities and Exchange Commission and the Federal Trade Commission to look into about $1.8 million in stock sales by three executives between July 29 - the day Equifax said it learned that its systems were hacked in mid-May - and when they made it public last week." Heitkamp those sales look to be insider trading. 

No kidding: Equifax CEO Richard Smith says the company will "make changes" after the security breach that exposed the data of up to 143 million people. "Consumers and media have raised legitimate concerns about the services we offered and the operations of our call center and website," Smith wrote in a USA Today op-ed. "We accept the criticism and are working to address a range of issues."

After a storm of public outrage, the company is dropping the fee it was charging consumers to freeze their credit files.

— The Post's Craig Timberg poses three questions the company needs to answer: 

  1. What measures did Equifax take to protect personal information?
  2. What measures should Equifax have taken to protect personal information?
  3. What’s the gap between the answers to Questions 1 and 2?

"The credit-rating agency has been so stinting about information on its hack — even after keeping the episode secret from the public for six unexplained weeks after detecting the intrusion — that there’s no way to evaluate 1, 2 or especially 3 yet."

The battering Wells Fargo & Co. has taken over the past year from multiple scandals in its consumer operations might not be finished, Chief Executive Officer Tim Sloan said.
Bloomberg
Goldman Sachs Group Inc on Tuesday unveiled a growth plan that could add as much as $5 billion in revenue annually, as the bank seeks to reassure investors after two poor trading quarters in a row.
Reuters
Executives from JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N) and Goldman Sachs Group Inc (GS.N) warned on Tuesday that trading conditions during the third quarter were likely to be poor for their banks.
Reuters
THE REGULATORS

— Warren goes on offense for CFPB rule. Sen. Elizabeth Warren (D-Mass.) is calling out the banking industry for lobbying against the Consumer Financial Protection Bureau's rule banning mandatory arbitration, saying 16 bank CEOs she corresponded with declined to defend the industry's position. Reuters' Lisa Lambert: "The letters to liberal Warren showed Capital One , Bank of America, Ally Financial, T.D. Bank and HSBC North America rarely use mandatory arbitration clauses, where customer must give up the right to sue and agree to take possible future disputes to closed-door mediation as a condition of opening accounts. American Express, Citi, JPMorgan Chase & Co, PNC and SunTrust give new customers the opportunity to opt out of the clauses within a limited timeframe, the letters show."

Dodd-Frank fix advance. A bill to tweak Dodd-Frank is advancing in Congress. The tweak, however, is simply technical.  Morning Consult's Ryan Rainey: "The legislation would allow the incumbent insurance industry expert on the Financial Stability Oversight Council to remain a member of that regulatory body for as many as 18 months after the expiration of the term if a successor hasn’t yet been appointed. Under current law, the insurance expert’s six-year term can’t be extended in the absence of confirmation of a replacement."

(At a breakfast roundtable with reporters on Tuesday, Consumer Bankers Association president Richard Hunt said if a package of more substantial changes to the law doesn't pass by the first quarter of next year, "it won't happen.")

DAYBOOK

Today

  • Sen. Ted Cruz (R-Tex.) will give an address on tax reform at an event by the Tax Foundation on Wednesday.  
  • The House Financial Services Subcommittee on Monetary Policy and Trade will hold a hearing on “a legislative proposal to impede North Korea’s access to finance.”

Coming Up

  • The Senate Finance Committee holds a hearing on individual tax reform on Thursday.
  • The American Enterprise Institute holds an event on trade deficits and the Trump administration on Friday.
THE FUNNIES

From The Post's Tom Toles: "Donald Trump does so care, and you won't have to wait six months to see" 

BULL SESSION

Fact Check: Are foreign leaders telling President Trump “they’re unhappy about 7 or 8 points of growth - GDP”?

Senate Minority Leader Charles E. Schumer (D-N.Y.) says he won’t ‘go easy’ on Trump’s border wall: 

Several Republicans in Congress are on their way out:

Celebrity telethon raises almost $15 million for hurricane victims:

Watch Jimmy Kimmel call Hillary Clinton's new book "Losie the Pooh":