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Republicans have been riding high since the rollout of a tax framework was judged by themselves as a success. But in reality it's all uphill from here: finding money to pay for the most sweeping rewrite of the tax code in a generation.
And the GOP is already facing pressure from on and off Capitol Hill to back off the few deductions it has identified as likely funding sources. The blueprint was light on details, particularly when it comes to how Republicans propose picking up the tab, which an early estimate says tips the scales at $5.8 trillion.
One potential gusher of new funding — scrapping the deduction for what businesses spend on interest — is generating the early makings of a lobbying war. The break is treasured by industries that rely on debt financing, a group that includes big banks and private equity firms, but also electric utilities, real estate developers, farms and small businesses.
Repealing it could yield as much as $1.5 trillion, so it also has become a juicy target for tax-writers. But with great money comes great political resistance. Armies of lobbyists from those that stand to get pinched are assembling, knives sharpened, to demand carve-outs. And there are some early signals that some Republican lawmakers are willing to help.
Rep. Jim Renacci, a wealthy auto dealer and House Ways and Means Committee member, tells me the deduction on interest for debt is a “normal and necessary operating expense” that businesses need so they can continue to borrow at reasonable rates to invest and grow.
The Ohio Republican says the final tax plan will carve out small businesses from a repeal of the interest deduction. The question is how small businesses are defined. “I was just talking to some car dealers in there. They rely on interest to inventory their cars. I’m sure if you’re a dealer of farm equipment, you rely on interest to inventory your farm vehicle,” he said Wednesday after stepping off the House floor. “I’m happy to see we’re making an exception. Now I need to see whether the exception is something that works or not.”
House Ways and Means Committee Chairman Kevin Brady (R-Tex.) has invoked the possibility of a carve-out for corporate debt, too. And one for farmers and ranchers. And land purchases. And regulated utilities (The Edison Electric Institute, representing electric companies, "will continue to educate policymakers on the unique nature of our industry as this process moves forward," spokesman Jeff Ostermayer says).
Banks of all sizes are still looking to limit any squeeze on the deduction, which effectively subsidizes their ability to provide capital to businesses. “We’re going to have to focus on it and make sure that we protect the interest deduction as much as we can, particularly for the small-business community,” says John Hand, a top lobbyist for the Independent Community Bankers of America. In a statement of its tax principles, the American Bankers Association adds, "Limiting the ability of borrowers to deduct their interest expense could adversely impact economic growth."
It’s not clear how much revenue the provision can yield once tax-writers are done carving it up.
Ditto for the other major pay-for that Republicans named in the blueprint: repealing the individual deduction for state and local taxes. As the Wall Street Journal’s Richard Rubin and Siobhan Hughes report:
Faced with the potential for defections by House Republicans from high-tax states such as New York and New Jersey, Republicans are exploring ways to satisfy those lawmakers without backing off the lower tax rates they promised.
“The members with concerns from high-tax states have to be accommodated. This has to be dealt with,” said Rep. Peter Roskam (R., Ill.), a senior member of the House Ways and Means Committee whose district outside Chicago ranks 37th out of 435 in use of the deduction. “So, you can imagine a soft landing on this that creative people are putting much time and energy into.”
The fight over the state and local deduction, with more than $1 trillion at stake over a decade, is an early signal of the bruising battle ahead for Republicans trying to pass a tax bill that hasn’t garnered Democratic support and that faces narrow GOP margins in the House and Senate. It is the most obvious case of a bloc of pivotal lawmakers holding a specific concern, but it won’t be the only one.
More, on the insta-opposition arising from K Street, via The New York Times' Alan Rapaport and Thomas Kaplan:
Opposition from the real estate industry was swift and vocal, with trade groups strongly criticizing elements of the plan that they say will make home-buying less attractive and weaken the housing market. While the plan specifically calls for preserving the mortgage interest deduction, real estate agents are warning that a proposal to double the standard deduction will make taxpayers less likely to itemize their tax returns and claim the mortgage deduction.
Republicans started with the dessert course by focusing their framework on the lowered rates they aim to achieve. They’ll spend the rest of the year trying to choke down their vegetables.
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— Oof. Gary Cohn can't guarantee taxes won't go up for some in the middle class. Via ABC News: "There's an exception to every rule," Cohn told ABC News chief anchor George Stephanopoulos in an interview on "Good Morning America. "I can't guarantee anything," said Cohn, the director of the White House Economic Council. "You can always find a unique family somewhere." He said Trump's plan is "purely aimed at middle-class families." But Cohn acknowledged that "it depends which state you live in."
Experts say it's tough to tell. The Post's Carolyn Y. Johnson: "Critics said that glaring omissions from the plan released Wednesday make it hard to tell whether middle-class families would fare better or worse, but they predicted that once the blanks were filled in, the effects were likely to be a modest cut with some winners and losers. People who itemize deductions on their tax returns and live in high-tax states, for example, may lose a valuable deduction in their state and local taxes."
Trump, meanwhile, could save more than $1 billion, according to The New York Times' Jesse Drucker and Jadja Popovich.
— Cohn also said a tax cut will pay for itself. CNBC's Jeff Cox: "Cohn said the cuts won't increase the budget deficit. 'We think we can drive a lot of business back to America, we can drive jobs back to America, we can make ourselves very competitive,' Cohn told CNBC in a live interview. 'We think we can pay for the entire tax cut through growth over the cycle.' Cohn predicted that economic growth would be 'substantially over 3 percent' due to tax reform and deregulation."
Former Reagan adviser turned Never Trumper Bruce Bartlett disagrees: "I helped create the GOP tax myth. Trump is wrong: Tax cuts don’t equal growth," he writes for the hometown paper.
— Still more Cohn: "No room to negotiate" 20 percent corporate rate. He called it a "bright-line test" for the White House, via CNBC.
— Mnuchin calls Trump's prediction of 6 percent growth "optimistic." That's one word for it. The Atlantic's Gillian B. White: "Instead, he said he expected growth closer to the lower end of projections, at between 2.9 percent and 3.2 percent annually over 10 years, later emphasizing that he was “very comfortable that we can get to higher than 3 percent.” Most economists think predictions that fall in the range Mnuchin originally cited are reasonable, but even 4 percent growth is considered quite high."
— Treasury removes paper that disagreed with Mnuchin's tax analysis. Richard Rubin reports: "The Treasury Department has taken down a 2012 economic analysis that contradicts Secretary Steven Mnuchin’s argument that workers would benefit the most from a corporate income tax cut. The 2012 paper from the Office of Tax Analysis found that workers pay 18% of the corporate tax while owners of capital pay 82%. That is a breakdown in line with many economists’ views and close to estimates from the nonpartisan Joint Committee on Taxation and Congressional Budget Office. The JCT, which will evaluate tax bills in Congress, estimates that capital bears 75% of the long-run corporate-tax burden, with labor paying the rest.
But Mr. Mnuchin has been arguing the opposite, citing other papers that attribute more of the burden to labor. The point is central to Mr. Mnuchin’s argument that workers would benefit from the corporate tax cut the administration is proposing, and switching that assumption would significantly alter the estimates of who would benefit from the Republican tax policy framework released on Wednesday."
— Elon Musk's Mars vision: A One-Size-Fits-All Rocket. A Very Big One. The New York Times' Adam Baidawi and Kenneth Chang: "Elon Musk is revising his ambitions for sending people to Mars, and he says he now has a clearer picture of how his company, SpaceX, can make money along the way. The key is a new rocket — smaller than the one he described at a conference in Mexico last year but still bigger than anything ever launched — and a new spaceship.
— Kellogg CEO steps down. The Wall Street Journal's Annie Gasparro and Joann S. Lublin: "Kellogg Co. chose an outsider as its new chief executive, becoming the fifth major food and beverage company to name a new leader in a tumultuous year for the industry. Steven Cahillane, the 52-year-old CEO of health-and-wellness company Nature’s Bounty Co. and a former Coca-Cola Co. executive, will succeed Kellogg CEO John Bryant next week."
— Because it's Friday: Read what a bunch of third graders have to say about the state of the world. Britt Peterson, for The Post: "It can be tough to know exactly how the next generation is processing this difficult, tense era in our country’s history. Toward the end of last school year, we decided to go directly to the source and have Washington third-graders narrate some of the biggest questions of this political moment in their own voices."
— Kushner didn't disclose private email to Senate intel panel. CNN's Jake Tapper: "In his closed interview with the staff of the Senate intelligence committee, White House senior adviser and presidential son-in-law Jared Kushner did not share the existence of his personal email account, which he has used for official business, CNN has learned.
CNN has also learned that the chair and vice chair of the committee were so unhappy that they learned about the existence of his personal email account via news reports that they wrote him a letter via his attorney Thursday instructing him to double-check that he has turned over every relevant document to the committee including those from his 'personal email account' described to the news media, as well as all other email accounts, messaging apps, or similar communications channels you may have used, or that may contain information relevant to our inquiry."
— The White House has launched an internal probe to look into the use of private email accounts, Politico reports.
— Senate intel invites tech chiefs for open hearing. The Post's Karoun Demirjian reports that the panel has asked Facebook, Twitter and Google to testify "as part of the panel’s probe of Russian interference in the 2016 presidential election, according to a senate aide. The hearing, which is set to take place on Nov. 1, is expected to be the second time the tech companies’ executives will speak with the committee. Committee investigators have already conducted a closed-door interview with Facebook and are planning another with Twitter executives on Thursday; the committee is planning to speak with representatives of Google before the open hearing as well."
One potential topic: "Twitter said Thursday that it had shut down 201 accounts that were tied to the same Russian operatives who posted thousands of political ads on Facebook, but the effort frustrated lawmakers who said the problem is far broader than the company appeared to know. The company said it also found three accounts from the news site RT — which Twitter linked to the Kremlin — that spent $274,100 in ads on its platform in 2016." Karoun, Elizabeth Dwoskin, and Adam Entous report.
— Jon Huntsman confirmed as ambassador to Russia. Karoun reports that the former Utah governor will fill "a critical diplomatic vacancy at a time of heightened tensions between Washington and Moscow."
— Congress passes tax relief for hurricane relief, FAA extension. USA Today's Herb Jackson: "The House and Senate approved reduced taxes for victims of Hurricanes Harvey, Irma and Maria on Thursday over the objections of some Democrats who said Superstorm Sandy victims did not get the same treatment. The tax provisions were combined with a bill both parties wanted to pass to extend through March the authorization for the Federal Aviation Administration, which is due to expire Saturday night."
— Senate Dems push $500 billion in infrastructure. The Post's Ashley Halsey: "Senate Democrats, emboldened by the GOP’s failure to unilaterally pass a health-care bill, are launching an effort to win bipartisan support for the investment of $500 billion in taxpayer dollars in infrastructure improvements. With health-care changes at a standstill and tax reform — another objective on which Republicans campaigned last year — a complex project that is expected to take months, Democrats hope infrastructure spending will emerge as a desirable legislative win for Congress and the White House.
The Democratic push came in a week when President Trump appeared to acknowledge that his campaign promise to raise $1 trillion for infrastructure largely through private-sector investment was not feasible."
And Democrats want to spend $40 billion to bring high-speed Internet to rural America. The Post's Brian Fung: "The proposal, unveiled Thursday, would have Internet providers compete for the right to build out the networks. Also local governments and cooperatives would be eligible for funding, according to a party white paper on the matter."
— AIG getting sprung? Bloomberg's Jesse Hamilton: "U.S. regulators are planning to release American International Group Inc. from the special government oversight ordered for the insurer after its central role in the 2008 financial crisis, according to people familiar with the discussions.
The Financial Stability Oversight Council called an unusual last-minute meeting Friday to re-evaluate 'the designation of a nonbank financial company,' it said late Thursday. While AIG isn’t named in the statement, two people familiar with the discussions said the council has been working toward releasing AIG from its label as a systemically important financial institution. One of the people said Federal Reserve Chair Janet Yellen is expected to tip the balance of votes to allow the company’s exit."
CapAlpha's Ian Katz weighs in on what's likely going on: "FSOC Chairman [Mnuchin] needs at least one Obama-appointed regulator -- and possibly two -- to agree to rescind the AIG designation. We noted last week that Fed Chair Janet Yellen, in her press conference, seemed to be open to the possibility. One question is whether that would be enough for the two-thirds needed to de-designate. And that question is a sub-part of another question: How is two-thirds counted if SEC Chair Jay Clayton recuses himself from the vote because of his former law firm’s work with AIG?"
— Banks get extension on living wills. Reuters's Patrick Rucker: "Eight of the largest U.S. banks and 82 foreign banks will have an extra year to submit their so-called living wills outlining how they would be unwound in the event of bankruptcy, the Federal Reserve said on Thursday. The extension granted by the Fed and the Federal Deposit Insurance Corporation forms part of a broader effort by financial regulators to ease onerous post-crisis regulations under Republican President Donald Trump’s pro-growth agenda."
- Treasury Secretary Steven Mnuchin will appear on NBC's "Meet the Press" on Sunday.
- The American Enterprise Institute holds an event on how "decade of extreme monetary policy changed the banking system" on Oct.
— BULLETIN: Daily 202 author James Hohmann interviews OMB Director Mick Mulvaney on Wednesday, Oct. 4 from 10:30-11:30 a.m. at The Washington Post’s headquarters. They’ll talk tax reform, cutting federal regulations – and more. Click here to RSVP | Click here to watch the live stream
Fact Check: Will the wealthy get a tax cut under President Trump's plan?:
Fact Check: President Trump's tax speech in Indianapolis:
Watch Rep. Steve Scalise’s (R-La.) emotional return to the House floor:
Understudies, Ep. 1: Obama's other speechwriter:
Stephen Colbert says President Trump's tax plan sets us back $2 trillion: