THE TICKER

House Republicans planted a ticking time bomb in their tax overhaul. 

The plan, they say, is built to benefit the middle class. Indeed, that’s purportedly the entire point of the exercise. “It's very clear and obvious that the whole purpose of this is a middle-class tax cut,” House Speaker Paul Ryan (R-Wis.) told CNN’s Phil Mattingly in a Thursday interview. 

But because some of the credits the plan extends to middle-income earners expire, some of those taxpayers will see their burden increase after five years. My colleague Heather Long lays it out

The [Joint Committee on Taxation] found that the GOP bill would add nearly $1.5 trillion to the debt over the next decade and that, on average, families earning between $20,000 and $40,000 a year and between $200,000 to $500,000 would pay more in individual income taxes in 2023 and beyond.

JCT does not explain why these families see an increase, but it is likely that it's in part because some tax credits aimed at helping the middle class expire in 2023, including the Family Flexibility Credit.

House GOP leaders say taxpayers shouldn’t worry: Future Congresses no doubt will vote to preserve the breaks. “It will never go away,” says House Ways and Means Committee Chairman Kevin Brady (R-Tex.), per the Wall Street Journal's Richard Rubin

But Republicans made a decision to write that uncertainty into the plan to make their 10-year budget math wash. It reflects a choice to prioritize permanent corporate cuts over providing the same guarantee to individuals.

And recent polling shows most Americans aren’t inclined to accept GOP assurances that this will work out in their favor. As The Washington Post’s polling whizzes Scott Clement and Emily Guskin reported Friday, based on the results of the latest Post/ABC News survey:

A third of Americans support [President] Trump’s tax plan, while 50 percent oppose it, a 17-point negative margin driven by overwhelming opposition from Democrats and skepticism among political independents and people with lower incomes. The poll was conducted Sunday through Wednesday, completed before House Republican leaders released their bill Thursday.

Six in 10 say Trump’s proposals on cutting taxes favor the rich, a perception that has dogged Republican efforts in pursuing tax restructuring for months. That opinion is not fatal, as a similar share said the same about George W. Bush’s tax proposals in 2003, though his 70 percent job approval ratings provided more political capital than Trump’s standing, which is at or below 40 percent in recent polling.

Skepticism runs even stronger among those who stand to take a hit down the road, the poll found, with 58 percent of those earning under $50,000 opposing the tax plan. Voters in that economic bracket made up about a third of the electorate in 2016, and Clinton beat Trump among them 52 percent to 41 percent.

It stands to reason that people who voted against Trump also don’t trust him to rewrite the tax code. But the plan remains underwater with those in middle- and upper-income households, as well. 

It doesn’t help matters that the GOP plan has earned a handful of detractors with potent grass-roots networks and plentiful resources to plow into making the case that the overhaul disadvantages working Americans.

The National Association of Realtors and the National Association of Home Builders already are making that case because the plan limits the mortgage interest deduction while doubling the standard deductions, potentially rendering worthless some of the surviving write-offs. And the National Federation of Independent Business — whose endorsement carries unrivaled weight for many Republicans — opposes the package for failing to do enough for smaller businesses. 

House Republican leaders have demonstrated their willingness to adjust fundamentals in the package. The day before rolling it out last week, as they scrambled to limit the deficit impact, they intended to sunset the corporate rate cut. At the proverbial last minute, tax writers decided to make that cut permanent, after all. 

And they have time to tweak the package. The Ways and Means panel meets at noon today to begin marking it up, a process that probably will last all week.

But Democrats and their allies will be unsparing in attacking the bill as a thinly veiled giveaway to huge corporations and the wealthy. For now, they have the official scorekeeping to justify the claim. 

MARKET MOVERS

FED WATCH:

Dudley to retire. WSJ's Michael S. Derby and Nick Timiraos: "The president of the Federal Reserve Bank of New York is set to announce he will retire next year, about six months earlier than scheduled, adding to an unusual wave of turnover among the central bank’s top monetary and regulatory decision makers and ushering in new uncertainty about its policy course. William Dudley’s announcement could come as soon as Monday, according to two people familiar with the matter. The search for his successor will start immediately with the aim of finding a successor in mid-2018. The decision has been long-planned and is unrelated to President Donald Trump’s announcement Thursday that he would nominate central-bank governor Jerome Powell to succeed Janet Yellen when her term as chairwoman expires in February, according to a person familiar with the situation."

CapAlpha's Ian Katz, in a note to clients: "The N.Y. Fed job is obviously crucial, as it’s the regional bank that oversees Wall Street and several of the country’s largest banks. The N.Y. Fed president is also vice chairman of the interest-rate setting FOMC, with a permanent seat on the committee, unlike other regional bank presidents who have rotating terms on the FOMC. Dudley has been an ally of Yellen’s, supporting low interest rates and the Fed’s post-crisis regulatory policies. More than anyone else at the Fed, he has spoken out about the need to change Wall Street’s ethical culture. Names of potential successors are already being reported. They include Robert Kaplan and Neel Kashkari, presidents of the Dallas and Minneapolis Feds respectively; in-house markets desk head Simon Potter; and former N.Y. Fed official Brian Sack."

Powell's challenge. WSJ's David Harrison: "The hardest job in central banking is to take the punch bowl away from the party just when people are starting to have fun. Jerome Powell, the Federal Reserve’s prospective chairman, could soon have to assume the role of sober killjoy as he is confronted with an economy and markets that are heating up.That could put Mr. Powell in a tricky position. On one hand, an economy at risk of overheating should prompt the Fed to steadily raise interest rates to cool it down.

On the other, the man who nominated Mr. Powell, President Donald Trump, sees soaring stock markets as a validation of his stewardship of the economy and has promised to rev up growth, making it possible the White House could try to pressure the central bank to keep rates low. Add in the possibility of significant tax cuts and Mr. Powell’s task grows harder still. Fed officials might raise rates faster than currently envisioned if tax changes give the economy just a temporary, stimulative jolt while sending inflation higher and adding to government deficits."

Unwinding begins. CNBC's Steve Liesman: "The Fed's campaign to reduce its $4.4 trillion balance sheet is now taking effect and showing up in the data. Thursday's Federal Reserve report on its portfolio holdings shows a near $6 billion decline in its holdings of Treasury securities. It's the biggest outright weekly decline since 2012. It's just the leading edge of more to come as the Fed gradually ramps up its effort to "normalize" its balance sheet. The Fed hasn't explicitly said what level it's aiming for, only that it will ramp up its sales of Treasurys and mortgage-backed securities to a point where it eventually is reducing them at a clip of $50 billion a month. The decline in mortgage-backed securities, which is already taking place, should begin showing up in the data next month."

To the naked eye, it was just another up week for stocks. The S&P 500 Index rose 7 points, the eighth time in a row it’s been up. Beneath the surface a barrage of headlines on everything from earnings to the Federal Reserve and taxes were drawing brighter lines between winners and losers.
Bloomberg
Profits are healthy at large U.S. companies, but earnings growth was pinched in the third quarter by higher materials and labor costs, as well as the impact of three major hurricanes on insurers.
WSJ
MONEY ON THE HILL

TAX FLY-AROUND:

Senate's turn. Politico's Aaron Lorenzo: "The second big act of tax reform is expected to come this week, when Senate Republicans unveil a plan of their own that’s likely to significantly differ in some places from the House legislation. One of the big tests will be how far Senate tax writers can go on the corporate tax rate. It would permanently plunge to 20 percent from 35 percent in the House plan, but the Senate is hemmed in by budget constraints that the House isn’t. The Senate may also try to patch up some of the fraternal squabbles that erupted when House GOP leaders unveiled their bill last week, including a revolt by the housing industry and a powerful small business association."

Lankford raises debt concerns. Bloomberg: "Republican Senator James Lankford of Oklahoma said he can’t support the party’s tax-overhaul bill if it increases the U.S. debt too much, showing the challenges of passing the sweeping measure that many forecasters say will blow out the budget deficit. Lankford said any assumptions about the economic growth that tax cuts in the bill would generate have to be reasonable, and that “I am a ‘no”’ if the measure balloons the debt. 'It’s one thing to be able to cut taxes,' Lankford said on NBC’s 'Meet the Press' on Sunday. 'It’s another thing to be able to say, ‘How are we going to deal with our debt and deficit?'"

A Senate roadblock looms. Also from Bloomberg: "The draft House tax plan is going nowhere in the Senate as written. The legislation to enact $1.41 trillion worth of tax cuts would run afoul of a Senate budget rule without substantive changes that would either raise more government revenue or scale back some of the benefits directed toward businesses and individuals, according to experts on Senate procedures. 'This bill would not become law as is,' said Marc Goldwein, policy director at the Committee for a Responsible Federal Budget."

More on the deficit impact, from Bloomberg's Sahil Kapur and Erik Wasson: "The House tax plan does not pay for itself through growth, and more income benefits flow to the top 1 percent than to other groups in its first year, according to the right-of-center Tax Foundation. The bill would lower federal revenue by $1.98 trillion over 10 years -- before accounting for any economic growth it would produce, the group’s analysis says. But accounting for growth would trim that 10-year revenue loss to $989 billion, the study found. Over the long run, the bill’s changes would lead to a 3.9 percent higher gross domestic product, would create 975,000 full-time equivalent jobs and would lead to wages that are 3.1 percent higher, according to the analysis."

Obamacare tweaks live on. The Post's Ed O'Keefe, Damian Paletta and Mike DeBonis: "House Republican tax writers on Sunday prepared to make further changes to the sweeping legislation they released last week, including tweaks that could allow upper-middle-class homeowners to deduct more mortgage interest and make more business owners eligible for a lower tax rate. It is also still possible that a repeal of the Affordable Care Act’s central insurance mandate could be added to the bill, with House Speaker Paul D. Ryan (R-Wis.) signaling in a television interview Sunday that party leaders are still mulling over that decision.

GOP members of the House Ways and Means Committee met behind closed doors Sunday to debate changes ahead of a scheduled “markup” of the tax bill Monday. Lawmakers will debate and vote on changes to the measure during the session, which is expected to last several days. Two people familiar with the changes — one a senior Trump administration official, the other a lobbyist briefed on the status of the legislation — said the panel is considering increasing the GOP bill’s proposed $500,000 limit on the mortgage interest deduction. That limit could increase to $750,000 or so, the lobbyist said — still short of the current $1 million limit — but enough to ease concerns from lawmakers in states with high costs of living who fear a lower limit could hit middle-class households."

Multinationals targeted. Reuters's Amanda Becker and Tom Bergin: "The Republican tax bill unveiled last week in the U.S. Congress could disrupt the global supply chains of large, multinational companies by slapping a 20-percent tax on cross-border transactions they routinely make between related business units. European multinationals, some of which currently pay little U.S. tax on U.S. profits thanks to tax treaties and diversion of U.S. earnings to their home countries or other low-tax jurisdictions, could be especially hard hit if the proposed tax becomes law, according to some tax experts. Others said the proposal could run afoul of international tax treaties, the World Trade Organization and other global standards that forbid the double taxation of profits if the new tax did not account for income taxes paid in other countries."

Stock options in flux. Bloomberg's Anders Melin: "Stock options, a staple of executive compensation, could cease to exist under the Republican tax plan, which proposes to classify them as deferred pay, or money that’s already earned but received at a later date. The GOP plan could 'cause options to be extinct,' said Ian Levin, a partner at law firm Schulte Roth & Zabel. That could be a sea change, since chief executive officers of S&P 500 companies got one-fifth of their pay in the form of options last year, on average."

Endowments in the crosshairs. NYT's Anemona Hartocollis: "The House Republican tax plan released on Thursday includes a 1.4 percent tax on the investment income of private colleges and universities with at least 500 students and assets of $100,000 or more per full-time student. It would not apply to public colleges. The endowments are currently untaxed, as they are considered part of the nonprofit mission of the colleges. The new tax, if it passed, would bring in an estimated $3 billion from 2018 to 2027, one of many new revenue sources Congress is considering to pay for broad tax cuts. Universities criticized the proposed tax Friday as a blunt instrument that would curb their autonomy and reduce support for poor and moderate-income students."

Trump's industry wins. NYT's Alan Rappeport: "Developers were fearful that the special tax treatment of 'carried interest' — fees that are taxed as capital gains, not income — would be amended, or that they would no longer be able to deduct interest expenses from their taxable profits. They were also concerned that certain exchanges of commercial property, which currently enjoy a tax deferral, would face immediate taxation. But the bill included no such changes to the industry, and developers are thankful... Companies can now deduct their interest expenses on commercial loans, but under the House bill, certain industries would face a cap on the amount of interest that could be deducted each year. But that cap would not apply to commercial real estate."

Seth Hanlon, a former Obama administration economic advisor, sees a lot more for Trump to like in the tax plan. He tweeted it out in a thread on Sunday. Find it here: 

3,200 wouldn't pay estate tax next year. That would be a 64 percent reduction from the 5,000 wealthy people expected to pay under current law, according to the JCT. Heather Long: "Under current law, Americans can pass along homes, land, stocks or other assets worth up to $5.49 million without paying any estate or gift tax. Estates worth more than that are subject to a 40 percent tax. The House GOP bill would double the threshold to $11.2 million in 2018 and then do away with the tax entirely in 2024. For 2018, that means an estimated 3,200 people would not have to pay. In total, the reduction and ultimate elimination of the estate tax would cost taxpayers $172 billion over a decade. The figures were contained in a JCT  analysis that was obtained by The Washington Post."

Goodies for social conservatives. NYT's Jeremy Peters and Deborah Solomon: "Tucked away in the Republican tax plan are several provisions that have little to do with overhauling the tax code and more to do with ensuring conservative lawmakers vote for the legislation. The 400-plus-page bill released Thursday includes changes that would codify the rights of 'unborn children,' allow tax-exempt religious organizations to engage in political activities and impose hurdles for immigrants seeking to claim refundable tax credits."

Now, an unusual coalition of insurers, environmentalists and fiscal conservatives is seeking major changes in the federal plan as a deadline approaches.
NYT
TRUMP TRACKER

Trump claims credit for stocks. Again with this. Bloomberg's Chris Nagi  and Justina Lee: "Step aside analysts. [Trump] knows why stocks are at an all-time high. Speaking to reporters on Air Force One over the weekend, after the S&P 500 closed Friday at fresh record, Trump said: 'The reason our stock market is so successful is because of me. I’ve always been great with money, I’ve always been great with jobs, that’s what I do.'

It’s not the first time the president has claimed credit for a rally that has seen U.S. stocks jump more than 20 percent in the past year, though it may be the most blatant. Tax reform and fiscal stimulus hopes helped propel American equities in the wake of Trump’s election win, but certainty that the Republicans will be able to push through their legislative agenda has since dwindled."

And Monday, per Politico, he pressed Japanese automakers to “try building your cars in the United States instead of shipping them over.” One issue with that, as my colleague Damian Paletta points out, is they already do: 

RUSSIA WATCH:

Flynn next? NBC News scoops: "Federal investigators have gathered enough evidence to bring charges in their investigation of President Donald Trump's former national security adviser and his son as part of the probe into Russia's intervention in the 2016 election, according to multiple sources familiar with the investigation. Michael T. Flynn, who was fired after just 24 days on the job, was one of the first Trump associates to come under scrutiny in the federal probe now led by Special Counsel Robert Mueller into possible collusion between Moscow and the Trump campaign.

Mueller is applying renewed pressure on Flynn following his indictment of Trump campaign chairman Paul Manafort, three sources familiar with the investigation told NBC News. The investigators are speaking to multiple witnesses in coming days to gain more information surrounding Flynn's lobbying work, including whether he laundered money or lied to federal agents about his overseas contacts, according to three sources familiar with the investigation."

Kremlin cash in Silicon Valley. NYT's Jesse Drucker: "In the fall of 2010, the Russian billionaire investor Yuri Milner took the stage for a Q. and A. at a technology conference in San Francisco. Mr. Milner, whose holdings have included major stakes in Facebook and Twitter, is known for expounding on everything from the future of social media to the frontiers of space travel. But when someone asked a question that had swirled around his Silicon Valley ascent — Who were his investors? — he did not answer, turning repeatedly to the moderator with a look of incomprehension. Now, leaked documents examined by The New York Times offer a partial answer: Behind Mr. Milner’s investments in Facebook and Twitter were hundreds of millions of dollars from the Kremlin.

Obscured by a maze of offshore shell companies, the Twitter investment was backed by VTB, a Russian state-controlled bank often used for politically strategic deals. And a big investor in Mr. Milner’s Facebook deal received financing from Gazprom Investholding, another government-controlled financial institution, according to the documents."

The Russia Nine. At least nine people in Trump's orbit had contact with Russians during the campaign and transition — a fact that appears to have the interest of Robert Mueller. The Post's Roz Helderman, Tom Hamburger and Carol D. Leonnig: "After questions emerged about whether campaign foreign policy adviser Carter Page had ties to Russia, President Trump called him a ‘very low-level member’ of a committee and said that ‘I don’t think I’ve ever spoken to him.’ When it was revealed that his son met with a Russian lawyer at Trump Tower, the president told reporters that ‘zero happened from the meeting’ and that ‘the press made a very big deal over something that really a lot of people would do.’

And, last week, with the revelation that adviser George Papadopoulos had pleaded guilty to lying to federal agents about his efforts to arrange meetings between Moscow and the Trump campaign, the president derided him as a ‘low-level volunteer.’ While Trump has sought to dismiss these Russia ties as insignificant, or characterized the people involved in them as peripheral figures, it has now become clear that special counsel Robert S. Mueller III views at least some of them as important pieces of his sprawling investigation of Russian meddling in last year’s presidential campaign."

Here's a four-minute video explainer of the contacts:

Bodyguard faces questions. The House Intelligence Committee want to quiz Trump's longtime security chief Keith Schiller about Trump's now-infamous 2013 trip to Moscow, The Post's Carol Leonnig and Greg Miller report: "The excursion is at the center of some of the most salacious allegations in a now-famous dossier, which contains unverified charges that Trump has vehemently disputed."

Manafort worth $28 million.Or that's what he claims, according to a Sunday filing from prosecutors... He's offering to post $12.5 million worth of assets as bail — including his Trump Tower condo in New York... A federal judge on Friday proposed May 7 as a trial date for Manafort and Rick Gates, his associate and fellow former Trump campaign aide. 

Ross in business with Putin family, per Paradise Papers. NYT: "After becoming commerce secretary, Wilbur L. Ross Jr. retained investments in a shipping firm he once controlled that has significant business ties to a Russian oligarch subject to American sanctions and President Vladimir V. Putin’s son-in-law, according to newly disclosed documents. The shipper, Navigator Holdings, earns millions of dollars a year transporting gas for one of its top clients, a giant Russian energy company called Sibur, whose owners include the oligarch and Mr. Putin’s family member. Despite selling off numerous other holdings to join the Trump administration and spearhead its “America first” trade policy, Mr. Ross kept an investment in Navigator, which increased its business dealings with Sibur even as the West sought to punish Russia’s energy sector over Mr. Putin’s incursions into Ukraine.

Partnerships used by Mr. Ross, whose private equity firm has long been the biggest shareholder in Navigator, have a 31 percent stake in the company. Though his personal share of that stake was reduced as he took office in February, he retained an investment in the partnerships valued between $2 million and $10 million, and stood to earn a higher share of profits as a general partner, according to his government ethics disclosure and securities filings."

President Donald Trump told a gathering of business leaders in Tokyo that Japan has an unfair advantage on trade and that he intends to fix that imbalance by making it easier to do business in the U.S.
Bloomberg
THE REGULATORS
John A. Koskinen, who took over an agency in turmoil and was threatened with impeachment by conservative lawmakers, called his survival to the end of his term “its own reward.”
NYT
Republican lawmakers vented to President Trump about CFPB head Richard Cordray at a recent bill signing, according to multiple sources.
CNBC
POCKET CHANGE
The two companies said they're better off working alone.
Brian Fung
Bankers are well paid to find the right price when a company has an initial public offering. But on Thursday there may have been miscalculations.
NYT
Shares of Apple popped after its latest quarterly earnings report. The company is now approaching a trillion dollar valuation -- and several of its big tech peers are not too far behind.
CNN Money
DAYBOOK

POST PROGRAMMING ALERT: The Post and Live Nation will bring the “Can He Do That?” podcast to a live audience at the Warner Theatre on Tuesday. In this live taping, political reporters Bob Woodward, David Fahrenthold and Karen Tumulty will join host Allison Michaels to review the past year in President Trump’s White House and the biggest moments that made people wonder “Can He Do That?” Tickets can be purchased now at Live Nation. Attendees will also receive a free 30-day digital subscription to The Washington Post.

 

Today

  • The House Ways and Means Committee holds a markup of the Tax Cuts and Jobs Act.
  • The National Press Club hosts the Fintech World Workshop Series on The Rise of Blockchain DIgital Money.
  • The AICPA National Tax Conference begins.
  • The Heritage Foundation holds an event on how eliminating the state and local tax deduction.

Coming Up

  • Federal Reserve Chair Janet Yellen and former Chair Ben Bernanke honored with the Paul H. Douglas Award for Ethics in Government on Tuesday.
  • The Urban Institute-Brookings Institution’s Tax Policy Center holds an discussion featuring Sen. Ron Wyden (D-Ore.) on Tuesday.
  • The Small Business Subcommittee on Agriculture, Energy and Trade will hold a hearing on investing in small businesses on Tuesday.
  • The House Financial Services Subcommittee on Housing and Insurance holds a hearing on sustainable housing finance on Tuesday.
  • The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Examining Federal Reserve Reform Proposals.” on Tuesday.
  • The Senate Banking, Housing and Urban Affairs Committee holds an executive session on Tuesday to consider the Banking Restrictions Involving North Korea Act of 2017.
  • The Washington Examiner holds an event on the tax reform bill with House Speaker Paul D. Ryan (R-Wis.) on Wednesday.
  • The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Administration Priorities for the International Financial Institutions” on Wednesday.
  • The Professional Risk Managers’ International Association holds an event on redefining financial services regulation on Wednesday.
  • The House Financial Services Subcommittee on Terrorism and Illicit Finance holds a hearing on “Treasury’s Role in Safeguarding the American Financial System” on Wednesday.
  • 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.
CHART TOPPER

From The Post's Dan Balz and Scott Clement: "Trump's performance lags behind even tepid public expectations:"

THE FUNNIES

From the New Yorker:

A cartoon by Kaamran Hafeez. #TNYcartoons

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

BULL SESSION

Contacts between Russians and Trump associates occurred multiple times:

Apple stock hits record with iPhone X debut:

Watch as SNL takes on the Mueller indictments:

SNL gives Sarah Huckabee Sanders the Sean Spicer treatment, writes The Post's Aaron Blake: