THE TICKER

There will be no cruise control on the road to a tax overhaul. That much should be clear by now, but it was in fresh evidence Wednesday, as House Republican leaders scrambled to shore up support for a budget they hope to pass today. 

The spending blueprint sets a critical precondition for the tax package by allowing congressional Republicans to approve a bill without Democratic support. Yet a rebellion by GOP lawmakers from blue states over a proposal to scrap the federal write-off for state and local taxes threatened to derail the budget at the last moment. 

At least four House Republicans on Wednesday said they would vote against the budget because it included language added in the Senate that refers to “reducing federal deductions, such as the state and local tax deduction which disproportionately favors high-income individuals.” 

GOP leaders were set to meet with the Republicans from those states — think New York, New Jersey, California and Illinois — on Wednesday night in House Speaker Paul Ryan’s (R-Wis.) office to hash out a compromise. Leaders ended up canceling the meeting — a sign of their building confidence that the blue-state detractors won’t sink the whole project before it launches. 

House Ways and Means Committee Chairman Kevin Brady (R-Tex.) told me Wednesday evening that he intends to forge an agreement with them on the SALT deduction “before the committee takes action, sooner if we can.” The plan by tax-writers, assuming a budget passes, has been to introduce bill text next week and mark it up the week after that. “We’re going to take our time to get it right with those members,” Brady added, “because we want to see people keep more of their earnings regardless of where they live, including in high-tax states. That’s really important.”

Brady said he doesn’t think the outcry from blue-state Republicans imperils the budget “because this budget vote is about allowing pro-growth tax reform to occur. It isn't the tax bill. So we are at the table aggressively working, and I’m confident we’ll find a solution.”

From my story with Mike DeBonis:

There were signs Wednesday that the SALT deduction proponents might be splintering in their effort to force action before the budget vote. Some of those who had threatened earlier in the week to vote against the budget absent a deal stepped back from those threats, and at least two New York Republicans, Reed and Rep. Chris Collins, said they would vote for the budget …

“I believe there are Republicans who want to vote no who will vote yes if their vote is needed because we all know we have to get to tax reform, and there’s only one way to get there,” Collins said. “So with the urgency of that, I think we do get there.”

By midmorning today, if all goes according to plan, they will be there. And then — and I realize I’ve been saying this for a while now — Republicans will finally have to confront the intensely painful trade-offs they’ve largely forestalled all year as they’ve circled a tax overhaul. Or as Ryan (R-Wis.) put it Wednesday: “We’ve been going through Class 3 rapids, which is a pleasant ride. It’s nice, everybody pretty much stays in the boat, and it’s pretty good. But we’re about to go through Class 5 rapids, which is the biggest rapids you can go through. And we’ve got to make sure that everybody stays in the boat and we get the boat down the river.” 

Watch him here: 

One early obstacle: whether to cap workers’ tax-free contributions to their 401(k) plans and other retirement accounts. To switch metaphors, Trump, who has steadily shoved the tax spinach off his plate, tried to dismiss the proposal via tweet this week. But Brady and Senate Finance Committee Chairman Orrin Hatch (R-Utah) dusted it off Wednesday.  

From Mike and Damian Paletta

The comments by Brady and Hatch show the immense pressure that congressional leaders are under to find new revenue to offset some of the sweeping tax cuts Trump has promised. The Tax Policy Center, a nonpartisan Washington think tank, has analyzed that Americans saved $67.2 billion in taxes by contributing to defined-contribution plans like 401(k) accounts in 2015. Some Republicans believe they need to eliminate at least $400 billion a year in tax deductions and incentives to ensure that their tax plan can pass the Senate according to certain rules.

If Brady is going to offer some Republicans major concessions on the state and local tax debate, he could be forced to seek new revenue elsewhere, and the retirement accounts appear to be one target.

This comes down to arithmetic — simple addition and subtraction — but it certainly won't get easier. 

MARKET MOVERS

FED WATCH: 

— The mark against Yellen. Trump sounded high on keeping Janet Yellen in place atop the Fed in a Wednesday interview with Fox Business Network’s Lou Dobbs. But he also pointed to a strike against her: He’d like to appoint his own top central banker to leave his mark on the institution. “I tell you what, she was in my office three days ago,” the president told Dobbs. “She was very impressive. I liked her a lot. I mean, it’s somebody that I am thinking about. I would certainly think about it… You like to make your own mark, which is maybe one of the things she’s got a little bit against her. But I think she’s terrific. We had a great talk. And we’re obviously doing very well together, you look at the markets.”

On his search and timing: “So I really have it down to two and maybe three people. And I think over the next very short period of time I’ll be announcing it. It won’t be a big shock.”

Cohn out. Trump has reportedly made it official that he won't tap his top economic adviser for the Fed job. Bloomberg's Kevin Cirilli, Jennifer Jacobs, and Margaret Talev: "Trump has privately told people at least twice in the last week that he would not appoint Cohn as Fed chair, according to two people who met with him. They asked not to be identified discussing private conversations with the president. Trump has told advisers that Cohn is doing a great job in his current role and that he wants to keep him at the White House through congressional consideration of his proposed tax overhaul, according to a person familiar with the conversations... Cohn is likely to leave the White House soon after Congress disposes with the tax plan, two people said. Cohn declined to comment."

Warsh vs. Quarles. Bloomberg's Robert Schmidt: "The race to be the next Federal Reserve chairman is rekindling an old feud between Kevin Warsh, one of the Trump administration’s finalists, and the newest Republican appointee to the Fed board, according to several people familiar with the matter. Fed Governor Randal Quarles, who was sworn in this month as vice chairman of bank supervision, has told friends that he doesn’t think Warsh is qualified to lead the world’s most powerful central bank, according to two former associates familiar with his comments. Quarles, they added, is also concerned that Warsh would inject himself into regulatory policies that are meant to be the domain of the vice chairman."

Much of the market's movement follows 10-year yields rising on strong economic reports and rumors of John Taylor as the possible Fed chair.
CNBC
Franklin Resources, one of Puerto Rico’s largest creditors, sold hundreds of millions of dollars of the island’s bonds in recent days, part of an exodus of investors hurt by accelerating losses in the wake of recent hurricanes.
WSJ
MONEY ON THE HILL

Empire strikes back. The Post’s Dave Weigel, Michael Scherer and Bob Costa  lead the paper: “Allies of Senate Majority Leader Mitch McConnell declared open warfare on Wednesday against Stephen K. Bannon, the former White House chief strategist and leader of an insurrection aimed at defeating mainstream Republican candidates in next year’s midterm elections.

More than a year ahead of the 2018 congressional contests, a ­super PAC aligned with McConnell (R-Ky.) revealed plans to attack Bannon personally as it works to protect GOP incumbents facing uphill primary fights. The effort reflects the growing concern of Republican lawmakers over the rise of anti-establishment forces and comes amid escalating frustration over President Trump’s conduct, which has prompted a handful of lawmakers to publicly criticize the president.

…The McConnell-allied Senate Leadership Fund (SLF) will highlight Bannon’s hard-line populism and attempt to link him to white nationalism to discredit him and the candidates he will support. It will also boost candidates with traditional GOP profiles and excoriate those tied to Bannon, with plans to spend millions and launch a heavy social media presence in some states."

TAX FLY-AROUND: 

$1 Million bracket gains steam. Axios' Jonathan Swan: "[Brady] has been telling allies that he doesn't like the idea of creating a fourth bracket but he's probably going to have to do it because Republicans are losing so much money from other concessions. In a closed-door meeting with conservative leaders on Wednesday, Brady left himself some wiggle room. He did not specify that the top rate would likely stay at 39.6% for income over $1 million a year... The direction Brady gave them was there was likely to be a fourth bracket, though there could be a 1 or 2 percentage point cut to 37 or 38%. One source familiar with the meeting described the move as 'symbolic'."

It's not entirely clear what the symbolic value would be creating a new top marginal rate for million-dollar earners if it still amounts to a cut. On the contrary, it would seem to highlight a politically unhelpful point about the plan's benefits for the rich. 

Trump waffles on 401(k)s. Reuters's Susan Cornwell: "Trump told reporters he wants to protect the popular tax-deferred savings program, but said it was possible it could be part of congressional negotiations over tax cuts. 'Maybe we’ll use it as negotiating, but trust me ... there are certain kinds of deals you don’t want to negotiate with,' Trump said on the White House South Lawn as he prepared to depart on a trip to Dallas."

Mnuchin struggles. Politico's Nancy Cook: "Treasury Secretary Steven Mnuchin is the de facto frontman for the administration’s proposed overhaul of the U.S. tax system because of his extreme loyalty to President Donald Trump and the scores of tax policy experts and economists at his command. But Mnuchin, a former investment banker and movie financier with no prior experience in Washington, hasn’t been able to overcome Republicans’ suspicion about his Wall Street background and limited conservative credentials. That may complicate White House efforts to influence debate as the details of a tax bill are written... 'We will defer to the administration on who they want to put out there on tax reform, but we see the president as the top salesman,' said a second House aide. 'Trump supporters will watch Trump selling this, and they will be swayed by Trump, not Steven Mnuchin.'"

Expat relief. FT's Demetri Sevastopulo and Barney Jopson: "Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US. [Brady] said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world. 'It is under consideration. They have made the case,' Mr Brady said."

Ivanka on the Hill. The First Daughter was in the Capitol on Wednesday to promote an expanded Child Tax Credit. From Sen. Shelley Moore Capito (R-W.Va):

Line of the day, via NYT's Jim Tankersley and Thomas Kaplan: "The prospect of a once-in-a-generation bill to cut taxes on businesses and individuals increasingly appears to be the best hope for a party anxious to find common ground and advance an effort that it has long championed as the pinnacle of Republican orthodoxy. It is a bit like having a baby to save a failing marriage. But, like a crying newborn, the drafting of the bill is already costing party leaders sleep."

TRUMP TRACKER

RUSSIA WATCH: 

Judiciary split. Politico's Elana Schor and Kyle Cheney: "The Senate Judiciary Committee's GOP chairman and top Democrat are splitting off in different directions when it comes to investigating Russian meddling in the 2016 election, risking a collapse of their once bipartisan probe. While Sen. Chuck Grassley (R-Iowa) digs deeper into a uranium sale approved by Hillary Clinton's State Department that the House GOP is also investigating, Sen. Dianne Feinstein (D-Calif.) is working on legislation that would make it illegal for Americans to accept help from foreign nationals to influence an election — citing a meeting that Donald Trump Jr. held at Trump Tower in June 2016 with Kremlin allies as an example."

Dossie-what? "Hillary Clinton and top officials of her presidential campaign were largely silent Wednesday in response to the revelation that the campaign and the Democratic National Committee had paid for research that resulted in a dossier alleging Russian interference on behalf of Donald Trump in the 2016 election," The Post's Tom Hamburger and Roz Helderman write. "Neither Clinton nor her campaign manager, Robby Mook, responded to requests for comment Wednesday. Campaign chair John Podesta declined to comment beyond referring reporters to a statement issued the previous day by the campaign’s law firm saying officials had not been aware of the arrangement. Brian Fallon, the former campaign spokesman, said he didn’t know about the research at the time but called it 'money well spent' if it provided information useful to the special counsel now investigating Russia’s involvement."

Cohen sold four NYC buildings to mystery buyers. McClatchy's Peter Stone and Greg Gordon: "Donald Trump’s long time business lawyer Michael Cohen may be best known for his aggressive campaign television defenses of the real estate mogul, his role in an abortive effort to build a Trump Tower in Moscow and allegations that he attended a meeting last summer with Russians in Europe. But while serving as a top executive at the Trump Organization for a decade, Cohen himself was a sometime New York real estate wheeler dealer whose companies appear to have netted as much as $20 million in profit by flipping properties to mysterious buyers.

The facts surrounding one of Cohen’s ventures in particular raised red flags for several experts interviewed by McClatchy.In 2014, a mysterious buyer using a limited liability company that hid the purchaser’s identity paid $10 million in cash for a small apartment building on New York’s lower east side that Cohen had purchased just three years before for $2 million. The handsome appreciation came despite the fact that the assessed value of the property, at 172 Rivington St., hardly budged in these years, hovering around the price Cohen paid for it."

Ex-Im nom in extremis. Former Rep. Scott Garrett’s (R-N.J.) nomination to head the Ex-Im Bank is still hanging by a thread. And ahead of a make-or-break appearance before the Senate Banking Committee next week, the business lobby is stepping up its opposition. From a Wednesday letter that National Association of Manufacturers president Jay Timmons sent Banking Chair Mike Crapo (R-Idaho) and ranking member Sherrod Brown (D-Ohio): “Mr. Garrett is untrustworthy and unqualified to be the leader who strengthens and defends the Ex-Im Bank. His confirmation would be catastrophic to U.S. exporters, manufacturing workers and families.”

Timmons also wrote directly to Garrett on Tuesday, indicating the manufacturers' lobby thinks his nomination is beyond salvation. From that letter: "It is too late to change your record or secure our trust with empty words about reform. As such, we urge you to withdraw your nomination for the position of president and chair of the Ex-Im Bank. Believe me, this request is not made lightly. We certainly respect your right to seek employment. But, quite frankly, we are more concerned about the manufacturing workers in our country who work hard every single day and whose jobs are dependent on a fully functioning Ex-Im Bank."

The president's son-in-law and daughter are only set to join the first half of the Asia tour, while trade adviser and China expert Peter Navarro is expected to stay in Washington.
Politico
POCKET CHANGE
The majority of Americans — 62 percent — identify as middle class, but there's a lot of debate about what, exactly, that means.
Heather Long
OPINIONS
The fact that the these overseas profits are already invested in the U.S. is a primary reason why the last repatriation holiday in 2004 failed to increased investment or employment at participating firms.
Adam Looney via Brookings
Attacking tax shelters, and four other ways Congress could pursue effective tax shelters.
Lawrence H. Summers
THE REGULATORS

Deregulation on the march. It’s been a good week for the Trump administration’s campaign to roll back what they call the regulatory overreach of the Obama era. Consider: 

  • The Senate killed a Consumer Financial Protection Bureau rule limiting mandatory arbitration; 
  • The FCC is gearing up to take significant steps easing media ownership rules next month. WSJ: “The plan by FCC Chairman Ajit Pai, a Republican, would eliminate or reduce several regulatory barriers—including some from the 1970s—that limit ownership of multiple media outlets in the same market.”
  • The White House is reviewing a Labor Department proposal to kill another Obama-era rule — one that bans employers from pooling workers’ tips. The Hill: “The change would allow restaurants, for example, to share the tips waiters receive with untipped workers, such as cooks. The National Restaurant Association has long been pushing for the change.”

WSJ's Greg Ip argues innovation — the likes of which Ajit Pai and FDA Commissioner Scott Gottlieb are unleashing by cutting red tape from their respective agencies — could power more economic growth than tax cuts: "It’s too early to gauge their success, but the efforts merit more attention at a time when the growth debate is focused on steep, deficit-financed tax cuts... [Gottlieb] wants the FDA to help drug developers narrow the information they must submit for preclinical trials, reducing the capital needed at the riskiest stage of development... 

At the FCC, Mr. Pai has targeted the 'digital divide,' the gap in broadband access between some communities, especially in rural areas, and others. The share of U.S. households with a fixed broadband connection has stalled at roughly a third in recent years. Mr. Pai thinks the solution is “setting rules that maximize private investment in high-speed networks... Mr. Gottlieb’s and Mr. Pai’s theory is that if you lower the hurdles to innovation in specific sectors, you’ll get more of it. It offers a potentially more tangible payoff than fiddling with the tax code."

 

The fresh round of sanctions was unveiled by Steven Mnuchin, the Treasury secretary, as he embarks on a four-country trip to the Middle East.
NYT
CHART TOPPER

From the Wall Street Journal's Dennis K. Berman: 

DAYBOOK

Today

  • Cato Institute holds an event on renegotiating NAFTA.
     
  • Cato Institute holds an event featuring Grover Norquist titled, “Home Stretch for Major Tax Reform?”
     
  • The Senate Banking, Housing, & Urban Affairs Committee holds a nomination hearing for Brian D. Montgomery to be HUD’s assistant secretary for Housing – Federal Housing Commissioner, Robert Hunter Kurtz to be HUD’s assistant secretary for Public and Indian Housing, and Suzanne Israel Tufts to be HUD’s assistant secretary for Administration.
     
  • The Information Technology and Innovation Foundation holds a panel discussion about the policy debate around competition policy in innovation industries.

Coming Up

  • Heritage Foundation holds an event on “The Role of Investor-State Dispute Settlement Provisions in NAFTA” on Friday.

 

THE FUNNIES

From The Post's Tom Toles: "Breaking news from the GOP: This just out." 

BULL SESSION

President Trump on the 401(k) tax break: 'Maybe we'll use it as negotiating:'

House Speaker Paul Ryan (R-Wis.) says the GOP needs to ensure 'everybody stays in the boat' on tax reform:

Ivanka Trump: ‘Tax relief to middle-income Americans’ is a ‘priority:’

On the Late Show with Stephen Colbert, Gretchen Carlson says she sees a cultural shift on sexual harassment: 

Megyn Kelly explains why she spoke out about Bill O'Reilly's harassment on Late Night with Seth Meyers: