Trickle-down economics is back.

That's what Gary Cohn -- one of the chief salesman of the Trump administration's sweeping efforts to overhaul the tax code -- told CNBC's John Harwood in an exceptionally revealing interview yesterday that could end up costing Republicans politically in the long term.

The House bill -- which got out of the Ways and Means Committee yesterday -- has already been criticized for giving away too much to the wealthy and businesses in lieu of lasting relief to the middle-class. But Cohn invoked the term "trickle down" to describe the benefits of the plan in terms of growing the economy.

Here's the full exchange on the point (the video is here):

Harwood: If you look at the center of gravity of the economics profession, what they will say is that the deficit will go up more than you guys say, growth will increase less than you guys say, and that workers will get less than you guys are projecting.

Cohn: We vehemently don't agree. When you take a corporate tax rate at 35 percent and move it to 20 percent, and you see what's happened over the last two decades to businesses migrating out of the United States, migrating profits out of the United States, migrating domicile out of the United States, and hiring workers out of the United States, it's hard for me to not imagine that they're not going to bring businesses back to the United States.

We create wage inflation, which means the workers get paid more; the workers have more disposable income, the workers spend more. And we see the whole trickle-down through the economy, and that's good for the economy.

As Harwood pointed out, the House bill offers four times as much in business cuts and to end the estate tax as it does for individuals — an assessment Cohn accepted. Cohn’s retort, in essence, was that it’s difficult to give middle-income taxpayers more than the House bill already does, despite its repeal of a number of popular deductions they enjoy.

Here's another politically problematic exchange with national economic adviser:

Harwood: You're not saying, as you did a few weeks ago, that the wealthy do not get a tax cut under your plan?

Cohn: No. I'm saying there's unique situations to everyone out there. Everyone has their own story. It's not our intention to give the wealthy a tax cut.

Harwood: But they're getting one.

Cohn: I don't believe that we've set out to create a tax cut for the wealthy. If someone's getting a tax cut, I'm not upset that they're getting a tax cut. I'm really not upset.

Cohn went on to say that “the most excited group out there are big CEOs, about our tax plan.”

Those soundbites are 30-second ad worthy — for Democrats. 

And they may have an impression on voters, who polls show are tuning into the process skeptical that it will equitably deliver benefits for the middle class. The latest, a Reuters/Ipsos survey released Thursday, found 32 percent of respondents believe the bill will mostly help the wealthy, more than twice the 14 percent who think all Americans will benefit. Only 8 percent said they think the middle class will benefit the most. 

They’re not wrong.

For example, a quick breakdown of who gets what in the Senate bill — compiled late Thursday by the Wall Street Journal’s Richard Rubin — shows businesses and the super-wealthy collect $971 billion of the roughly $1.5 trillion in tax cuts that the measure doles out, while individuals of all stripes get $525 billion. That doesn’t account for the fact that the wealthy would appear to further benefit from the rewrite of the individual brackets, since the proposal lowers the top marginal rate while raising the income threshold that qualifies for it. 

Yet Republicans are plugging away, urged on by Tuesday's drubbing at the ballot box. Republicans are now more eager than ever to push something through they can claim as a major legislative accomplishment.

On the same day the Ways and Means panel passed its bill, the Senate Finance Committee Chair Orrin G. Hatch (R-Utah) introduced his own measure, which differs from the House plan in key respects. (Find the Joint Committee on Taxation's summary here). The proposal: 

  • Cuts the corporate rate to 20 percent, but not until 2019, a year later than the House version. The delay saves more than $100 billion, but it also puts off an economic boost Republicans hope the package will deliver. Stocks tumbled on the news. 
  • Eliminates the deduction for state and local taxes. House Republicans in high-tax jurisdictions — especially California, New York and New Jersey — convinced their leadership to back off a full repeal in their chamber’s bill.
  • Doubles the current exemption from the estate tax to about $11 million per person, at a cost of $94 billion. But unlike the House bill, which scraps the tax altogether in 2024, the Senate bill keeps it. 
  • Provides 100 percent bonus depreciation for five years, at a cost of $61 billion. 
  • Imposes a one-time tax on the pile of overseas corporate profits, charging 5 percent for illiquid assets and 10 percent for cash — lower than the House version’s 7 percent and 14 percent rates, respectively.
  • Preserves seven brackets on the individual side of the code, where the House bill collapsed them to four. The new top marginal bracket inches lower, from 39.6 percent to 38.5 percent. It would kick in for an individual’s income over $500,000 and over $1 million for married couples. 
  • Offers businesses paying taxes through the individual side of the code a 17.4 percent deduction on their income. Certain service businesses aren't eligible.

House Speaker Paul Ryan (R-Wis.) downplayed the significance of the differences between the House and Senate bills. “"Of course, they’re going to have different policies inside this framework," he said in a Thursday interview on Fox News. “That's how legislation works. We write a bill, they write a bill. We pass a bill, they pass a bill, we go to a conference committee, iron out differences. That's how laws are written all the time. This will be no different."

Correction: Yesterday’s Ticker reported that, according to a Tax Policy Center study, the House bill would increase the burden on “those earning between $48,600 and $86,100 — or 9 percent of taxpayers.” In fact, it would raise taxes on 9 percent of taxpayers within that earning bracket. I regret the error. 



Infighting ahead. Politico's Bernie Becker, Brian Faler, and Aaron Lorenzo: "Yawning divisions have emerged between the House, Senate and White House over tax reform, raising doubts about whether Republicans will be able to achieve their most important political and policy priority before the end of the year. The Senate and House are split on some key issues, including the top tax rate and the timing of the corporate tax cut, and also at odds with President Donald Trump in many areas. Hard bargaining, battles between GOP factions and an onslaught of lobbying are the gauntlets Republicans will have to run to get legislation to Trump's desk by the end of the year — and into their mailers and ads for the 2018 elections."

Some early reactions to the Senate bill: 

President of the Committee for a Responsible Federal Budget:

The Washington Examiner's Joseph Lawler: 

Tax Foundation's Scott Greenberg on the Senate's pass-through provision:

The Hill's Naomi Jagoda:

WH: Ok with delay. Bloomberg's Jennifer Epstein: "White House Budget Director Mick Mulvaney said the Trump administration wouldn’t oppose delaying a cut in corporate tax rates until 2019. The Senate version of the Republican tax overhaul will delay the corporate rate cut to 20 percent until Jan. 1, 2019, according to Senator Bill Cassidy, a Louisiana Republican. The move would defy President Donald Trump’s call for a cut from its current 35 percent rate to take effect immediately. 'There’s good arguments in favor of both' an immediate cut and a delay until 2019, Mulvaney told Bloomberg Television on Thursday. 'This is where we’re sort of stepping back and saying look, what do you need on Capitol Hill to pass a bill?'"

The Senate will vote after Thanksgiving, per Senate Majority Whip John Cornyn (R-Tex.).

Multi-million-dollar promo. WSJ's Julie Bykowicz: "Republican-aligned groups are spending tens of millions of dollars on advertising to build support for the GOP tax overhaul, aiming to sell middle-class voters on the plan and rebut Democrats’ charge that it primarily benefits wealthy Americans. The spending comes as conservatives are looking to avoid a replay of their effort to repeal and replace the Affordable Care Act, when they were outspent by Democratic groups and failed to convince enough Americans of the merits of GOP legislation, which ultimately failed in the Senate."

Biz keeps SALT deduction. The Post's Mike DeBonis: "A top House Republican confirmed Thursday that, in at least one key respect, businesses will have an advantage over individuals in the GOP's rewrite of the tax code... Brady... said in a letter that businesses would continue to be able to deduct the full amount of their sales and property taxes paid from their income, while individuals would partially lose their ability to do so."

Middle-class confusion. NYT"s Ben Casselman and Tara Siegel Bernard: "Republicans promised a middle-class tax cut. So far, they have created mostly middle-class confusion. Both the evolving House bill and the emerging Senate plan would slash taxes for businesses and many wealthy individuals. What they would mean for the middle class, however, is less clear. The plans feature a spider web of intersecting and offsetting changes to the tax code that many taxpayers — and even many tax accountants — are struggling to untangle. This much is clear: Either version of the bill would be bad news for residents of high-tax, high-cost states, most of which tend to elect Democrats."

Ryan backs off claim. Bloomberg's Anna Edgerton  and Erik Wasson: "Ryan backed off his promise that everyone would get a tax cut in the GOP’s overhaul plan, as nonpartisan analyses showed that some people would pay more. 'At every income level, there is a tax cut for the average family,' Ryan said in a statement Thursday, citing a study by the Joint Committee on Taxation. This is different from his response in a radio interview Wednesday. 'So actually, even though there’s a lot of false information out there, everybody gets a tax cut,' Ryan told Brian Kilmeade of Fox News. 'The Joint Committee on Taxation that runs the numbers for us, that runs the numbers for Congress, says everybody gets a tax cut, everyone gets the tax cut.'"

81 million would pay $0 in federal income taxes. The Post's Heather Long: "If the House GOP tax plan becomes law, nearly 81 million Americans  — 47.5 percent of all tax filers — would pay nothing in federal income taxes next year, according to a calculation by research firm Evercore ISI. That's an increase of more than 6 million additional tax filers owing nothing in income taxes to the federal government. As Republicans face heavy criticism that their tax plan favors the rich, some in the GOP have pushed back, arguing that the bill is a boost to working class families since more people will pay $0 in federal taxes. 'You are increasing the number of Americans who pay zero percent in taxes,' said Kellyanne Conway, counselor to President Trump, at a news conference Tuesday. 'This bill would help moms and dads.'"

The loophole that won't die. NYT's James B. Stewart: "There is no more glaring example of the House Republicans’ indifference to the inequities embedded in the tax code than the treatment of so-called carried interest. For decades, the carried interest provision has enabled wealthy private equity managers, hedge fund managers and real estate investors to pay the lower capital gains rate (20 percent, not counting the Obama health care surcharge of 3.8 percent) on their income rather than the rate on ordinary income (a maximum of 39.6 percent)... Yet in the House plan unveiled last week, and in the Senate plan released Thursday, the carried interest loophole emerged unscathed. The proposed legislation 'is a home run for private equity investors,' said Victor Fleischer, a law professor at the University of San Diego who has spent years arguing (persuasively, in my view) that the loophole should be closed. 'If you were designing something that perfectly avoids hitting private equity, venture capital and real estate, this would be it.'"

Bannon backs the House approach. Bloomberg: "The House proposal would require managers of private-equity and hedge funds to hold investments for at least three years to qualify for the lower capital gains rate on compensation through carried interest. Bannon, President Donald Trump’s former strategist and an architect of his populist campaign, said the change would encourage fund managers to focus on longer-term investments."

In prosperous suburbs across the nation, the GOP plan could have serious repercussions if popular deductions are cut or disappear.
Todd C. Frankel


Powell no pushover. Bloomberg's Christopher Condon and Craig Torres: "Years before he was tapped to lead the Federal Reserve, Jerome Powell brought to the world’s most powerful central bank a lesson he learned in the business world: manage or be managed. On everything from the payments system to monetary policy, he noticed the Fed’s brainy staff of economists would hash out their differences among themselves and then present governors with a unified policy recommendation, expecting them mostly to follow their advice.

That didn’t sit well with a lawyer who cut his teeth in private-equity investing. In that line of work, proposed deals must survive a gauntlet of scrutiny in front of top decision makers, with some firm members assigned specifically to argue against a would-be investment. So Powell the Fed governor pushed back. He insisted on some occasions that staff members debate policy ideas in front of him, according to one former Fed official who served with Powell. He also pored over mountains of academic studies and asked questions. In his five-plus years at the Fed, he’s managed to gain the staff’s respect even as he challenged their ready-made recommendations.

That will come in handy when Powell takes the reins in February and the Fed, with its army of more than 300 Ph.D. economists, gets its first chair without an economics doctorate since Paul Volcker served from 1979 to 1987. Already there are worries from outside the bank that he’ll be captured by the Fed staff. "

Monetary policy steady. WSJ's David Harrison: "Economists surveyed by The Wall Street Journal this month expect that a Federal Reserve led by Jerome Powell would mean little change in monetary policy and a less aggressive approach to financial regulation. Most survey respondents expect the Fed to raise short-term interest rates next month and lift them three times next year and twice in 2019, in quarter-percentage-point moves. That would match the projections penciled in by Fed officials in September. They will update those forecasts at their next scheduled meeting, Dec. 12-13."

Bankers and investors had concerns about nonnegotiable conditions made by Snap ahead of its IPO, plus broader worries about the app-maker’s growth prospects, but didn’t want to risk losing a piece of the potentially blockbuster deal. ​
On "purchasing power," China has already topped the U.S. economy, Lloyd Blankfein says.

A new poll found 22 percent of Americans offering positive one-word descriptions of Trump’s tax plan, write The Post's Emily Guskin and Scott Clement:

Trump appointees and their heirs would get several — permanent — tax goodies, even more than regular rich people
Allan Sloan


Bait and tackle. WSJ's James V. Grimaldi, Shane Harris and  Aruna Viswanatha: "Special Counsel Robert Mueller is investigating an alleged plan involving former White House National Security Adviser Mike Flynn to forcibly remove a Muslim cleric living in the U.S. and deliver him to Turkey in return for millions of dollars, according to people familiar with the investigation. Under the alleged proposal, Mr. Flynn and his son, Michael Flynn Jr., were to be paid as much as $15 million for delivering Fethullah Gulen to the Turkish government, according to people with knowledge of discussions Mr. Flynn had with Turkish representatives. President Recep Tayyip Erdogan, who has pressed the U.S. to extradite him, views the cleric as a political enemy.

Federal Bureau of Investigation agents have asked at least four individuals about a meeting in mid-December at the ‘21’ Club in New York City, where Mr. Flynn and representatives of the Turkish government discussed removing Mr. Gulen, according to people with knowledge of the FBI’s inquiries. The discussions allegedly involved the possibility of transporting Mr. Gulen on a private jet to the Turkish prison island of Imrali, according to one of the people who has spoken to the FBI."

Lawfare blog's Benjamin Wittes puts it in context: 

The Bodyguard. The Post's Carol Leonnig: "President Trump’s longtime director of security told House investigators this week that a foreigner offered to send five women to Trump’s hotel room during his visit to Moscow in November 2013. Keith Schiller told the House Intelligence Committee on Tuesday that he rejected the offer from the man, who appeared to be Russian or Ukranian, according to two people familiar with the discussion. He quickly dismissed what appeared to be a suggestion of procuring prostitutes for Trump, they said. 'No, man, we’re not interested in that,' Schiller told the man, the people said.

The offer came at the end of a late-morning planning meeting that Schiller attended when he accompanied Trump to Moscow for the annual Miss Universe pageant, which was produced by a company that Trump owned. The 2013 trip was at the epicenter of one of the most salacious claims in a now-famous research dossier financed by Democrats during the 2016 presidential campaign. The document alleged that Trump consorted with prostitutes during his time in Moscow — a claim the president has vehemently denied."

Mueller, meet Miller. CNN's Pamela Brown, Gloria Borger and Evan Perez: "White House senior policy adviser Stephen Miller has been interviewed as part of special counsel Robert Mueller's Russia probe, according to sources familiar with the investigation. The interview brings the special counsel investigation into President Donald Trump's inner circle in the White House. Miller is the highest-level aide still working at the White House known to have talked to investigators. Miller's role in the firing of FBI Director James Comey was among the topics discussed during the interview as part of the probe into possible obstruction of justice, according to one of the sources."

Dorsey wants an invite, again. ReCode's Tony Romm: "Twitter CEO Jack Dorsey said Thursday he’s “absolutely” willing to come talk to the U.S. Congress as lawmakers continue to probe Russia’s efforts to spread disinformation on social media during the 2016 U.S. presidential election. Thing is, lawmakers previously and repeatedly called on Dorsey and other tech executives to make the trip to Capitol Hill — and they’ve apparently declined. That includes a trio of Russia-focused hearings held in October. Lawmakers on one of the three congressional committees actually invited Dorsey to testify, according to two congressional sources familiar with the investigation, but he declined to appear. Instead, it was Twitter’s acting general counsel, Sean Edgett, who answered questions from Congress, alongside the top lawyers from Facebook and Google."

For all the tough talk, President has had limited success in closing the trade gap
David J. Lynch
Trump says his feelings toward Chinese President Xi Jinping are “incredibly warm."
David Nakamura and Ashley Parker

Antitrust shift. The Post's Brian Fung and Hamza Shaban: "Two days after Donald Trump said that he would block the merger of AT&T and Time Warner because 'deals like this destroy democracy,' a supporter — antitrust expert and law professor Makan Delrahim — expressed a far different view. 'I don’t see this as a major antitrust problem,' he told Canadian television news in October 2016. “I think these folks would have an easier route toward approval' compared with other deals.

Delrahim, who spent six months as one of Trump’s top White House lawyers and managed Neil M. Gorsuch’s Supreme Court nomination, is now head of antitrust enforcement at the Justice Department, and he has adopted a far more confrontational stance in weighing whether to approve AT&T’s $85.4 billion merger with Time Warner... The newly adversarial stance stirred a debate over whether Delrahim was carrying water for Trump, who has repeatedly lambasted CNN, or simply acting to stem a merger that could hurt consumers based on new information he learned since taking the job."

AT&T's ready to litigate. More from Brian: "AT&T is ready to go to court against the Justice Department to defend the telecom giant's $85 billion megadeal for Time Warner, according to its top executive. 'Since the day this deal was announced, we have been preparing for litigation,' AT&T chief executive Randall Stephenson said at a conference Thursday hosted by the New York Times. 'If we're going to go to litigation, our preference would be 'sooner is better,' and we're prepared to litigate now.' Stephenson's remarks are likely to put pressure on antitrust officials who have been weighing a lawsuit intended to block the acquisition."

SEC Chairman Jay Clayton said so-called initial coin offerings in many cases looked like securities, raising the prospect the agency will take a more aggressive stance to this red-hot fundraising method.
Equifax estimates that breach-related costs have hit $87.5 million.
Hayley Tsukayama

Coming Up

  • The American Enterprise Institute holds an event on using the tax system to help working families afford child care on Nov. 15. 

The Post's Tom Toles asks: "Just exactly how crazy-desperate for a win are the Republicans, anyway?:"


Listen to House Minority Leader Nancy Pelosi's (D-Calif.) scathing remarks on GOP tax plan:

No, 'everyone' won't get a tax cut under the House GOP plan, says House Speaker Paul D. Ryan (R-Wis.):

GOP senators are calling on Roy Moore to withdraw from a Senate race in Alabama if allegations of sexual misconduct are true:

Late-night comedians address the allegations against Louis C.K.: 

Stephen Colbert on the allegations of sexual misconduct against Roy Moore: