Beltway number crunchers haven’t been kind to GOP tax proposals. Republicans can wave off some of those analyses as partisan products. But Wall Street economists are echoing some of the criticisms that the tax cuts the party is pushing are ill-timed and too expensive.
The dearth of independent amens for the Republican tax plan, either from Washington or beyond, spells potential trouble ahead for the party if it can wrench the proposal across the congressional finish line and then sell it to a so-far skeptical public.
Last week the Joint Committee on Taxation, Congress's nonpartisan analysts, found the Senate bill will end up raising taxes on those earning less than $75,000 on average after a decade. On Monday, the Tax Policy Center, a joint effort by the Urban Institute and the Brookings Institution, similarly found the cuts in the measure skewed toward the richest, with half of taxpayers paying more by 2027.
NYT's Jim Tankersley:
Vox's Dylan Scott:
"The largest cuts as a share of income go to those in the 95th to 99th percentiles of the income distribution.”https://t.co/XHfuYl5cd4— Dylan Scott (@dylanlscott) November 20, 2017
Arguably more problematic for the bill’s prospects, the group also projected it would generate $169 billion in revenue through new growth over the next decade, well short of the $1.4 trillion the bill adds to the deficit. (Ditto for recent studies from the Penn-Wharton Budget Model and the Committee for a Responsible Federal Budget.)
Top administration officials continue to claim the bill will more than pay for itself by unleashing a flood of economic activity that expands the tax base. The tax group’s findings suggest it barely begins to do that — a conclusion which, if affirmed by the Joint Committee on Taxation, could jeopardize the support of a critical few self-declared Senate Republican deficit hawks.
From the head of policy for the Committee for a Responsible Federal Budget:
Treasury Secretary Steven Mnuchin laid out the Trump team’s case on “Fox News Sunday,” saying, “This isn't about the deficit, because we think this is all about creating growth and we'll create economic growth to pay down the deficit.”
But Mnuchin’s former colleagues on Wall Street don’t agree. They argue an economy already humming along doesn’t need a massive injection of new stimulus from Washington. And not only do they see the plan failing to pay for itself through added growth, financiers also pointed to a near-term downside resulting from all the new deficit spending the cuts will require, as federal borrowing could crowd out private investment in the economy.
“I can’t see this is the moment when you want the most fiscal stimulus in the market, when we’re kind of mostly at full employment, when GDP last registered at 3 percent,” Goldman Sachs chief executive Lloyd Blankfein said in a Bloomberg News interview this month. The United States can afford some deficit spending now, he added, “but not so much of it that we make inflation inevitable down the road.”
In a research note Friday, Bank of America economists said the tax proposals would supply a “fiscal sugar high.” The House and Senate bills would add about 0.3 to 0.4 percent to economic growth next year and in 2019, the economists said. But the federal government’s additional borrowing could lead the Fed to raise interest rates.
“Tax cuts are not necessary to keep the US economy on track and would result in exacerbating the federal debt outlook,” the report reads. “The impact of deficit financing on longer-run growth will be determined by how much government borrowing will ‘crowd out’ private investment. There are varying opinions on this topic but mainstream economic thinking would expect the ‘crowd out’ effect to be material and lower trend growth.”
Morgan Stanley economists sound a similar note. “We think most investors would view a larger-than-expected stimulus (or even the passage of any tax cut) to be a bullish catalyst. But we think this would be short-lived. After a large-scale tax cut, we struggle to see another catalyst to make investors even more optimistic. And such a surprise opens the door to tighter monetary policy,” bank economists wrote in a recent research note. “While a failure of tax reform would likely cause a short-term market pullback, this scenario is actually the best one for extending the cycle, reducing the risk of overheating conditions, and allowing policy tightening to remain gradual.”
So failure would spook investors but benefit the economy longer term — a bracing assessment for a project whose purpose is driving growth.
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— New German elections possible. NYT's Melissa Eddy and Katrin Behnhold: "Chancellor Angela Merkel of Germany faced the greatest crisis of her career on Monday after negotiations to form a new government collapsed, shaking a country that is Europe’s political and economic anchor. The breakdown abruptly raised the prospect of new elections in Germany. It came less than two months after the last elections seemed to assure that Ms. Merkel, an icon of Western democracy and values, would remain Germany’s leader for a fourth term.
The chancellor said she remained hopeful about forming a majority government. But if forced to choose, Ms. Merkel said, she would prefer to go through new elections rather than try to lead a minority government. 'I don’t want to say never, but I am very skeptical, and believe that new elections would be the better way forward,' the chancellor told the public broadcaster ARD."
From the FT's Gideon Rachman: "The current political crisis in Germany has global implications. If, as now seems distinctly possible, the end of the Merkel era is within sight, Europe will be in a new and dangerous situation. The EU-optimists in Brussels and Paris will hope that a new German leader might inject some dynamism into the European project, ditching the cautious, incremental approach that Ms Merkel has displayed over the euro. But, in fact, the opposite is more likely to happen. The current tenor of German politics suggests that a new chancellor in Berlin is far less likely than Ms Merkel to take bold risks for Europe...
No currently conceivable replacement for Ms Merkel is likely to embrace the populist agenda of Mr. Trump, or the Euroscepticism of the Brexiters. But it is clear that a large part of the German chancellor’s current difficulties stem from the rise of the far-right and the far-left in Germany, who collectively achieved more than 20 per cent of the vote in September’s election. If the chancellor now loses office — or staggers on, in a hobbled state — her fate will be perceived across the world as a big setback for the liberal and internationalist ideas that she has championed."
— Yellen stepping down. WSJ's David Harrison: "Federal Reserve Chairwoman Janet Yellen said Monday she would resign as a member of the Fed’s board of governors once her successor as chairman has been sworn in. Although Ms. Yellen’s four-year term as chairwoman ends Feb. 3, 2018, her term on the Fed board doesn’t expire until 2024. In the past, it has been customary for Fed chairmen to step down from the board once their time as Fed chief is up... During her time at the helm, Ms. Yellen helped the U.S. economy recover its strength following the 2008 recession. Since taking over, she has watched the unemployment rate drop from 6.7% in February 2014 to 4.1% today. The economic expansion has continued uninterrupted and now ranks as the third-longest expansion in U.S. history."
(Read Yellen's resignation letter here.) Or here, from Reuters's Pete Schroeder:
That last graf could be read as a shot across the bow at the notion that anyone in the administration is going to start influencing the Fed. pic.twitter.com/0DODHKNyOH— Pete Schroeder (@peteschroeder) November 20, 2017
Bloomberg has this rundown of the economy Yellen is leaving Jerome Powell, in nine charts: "America’s economic expansion has run for roughly 100 months and is already the third-longest on record, yet the average growth rate is more subdued than the previous three periods. As for the Fed’s mandate -- maximizing employment and keeping prices stable -- the report card is mixed."
Some near-term perspective, via Dan Primack of Axios:
Once Yellen steps down, two-thirds of Fed board will have once worked at The Carlyle Group.— Dan Primack (@danprimack) November 20, 2017
And the WSJ's Nick Timiraos:
Next February, the Fed board could look like this:— Nick Timiraos (@NickTimiraos) November 20, 2017
Chair - Powell [Trump nominee]
Vice Chair - Vacant
Vice Chair Randal Quarles [Trump nominee]
Governor - Vacant
Governor - Vacant
Governor - Vacant
Governor Lael Brainard [Obama nominee]
— Ron Johnson, getting warmer. Bloomberg's Sahil Kapur: "Senator Ron Johnson -- the first GOP senator to voice opposition to the current tax plan -- said he’s encouraged that Republican leaders have been discussing his concerns that pass-through businesses would be treated unfairly. 'I’m encouraged by the information and the cooperation I’m getting right now' from the tax-writing Senate Finance Committee, Wisconsin’s Johnson said Monday during an interview with Milwaukee-based WISN radio. He added that he was responsible for bringing the issue of pass-throughs getting less of a benefit than corporations to the forefront of the debate. The Senate plan would slash the corporate tax rate to 20 percent from 35 percent. But the rate for partnerships, sole proprietorships and other pass-through firms would be set by a formula -- with rates higher than 30 percent for some...
The Wisconsin lawmaker also reiterated his frustrations with the speed of the proceedings. During the interview, he slammed what he called an “awful rushed process, a desperation to pass anything,” saying it’s 'not the best way to pass something that’s going to affect so many peoples’ lives.' 'I would prefer that this bill would’ve been introduced months ago'” Johnson said. 'I’m not happy with the rush-rush process on this.' Still he added: 'But I understand the political reality because we’ve waited so long.'"
— Kellyanne Conway: Vote Roy Moore for tax cuts. CNN's David Wright: "Kellyanne Conway suggested that the White House remains open to Roy Moore's embattled senate candidacy on Monday when she told Fox & friends that 'we want the votes in the Senate to get this tax bill through' -- less than a week after Conway said that 'no Senate seat is worth more than a child' in the wake of a series of sexual allegations against Moore. Conway was interviewed by Fox News on Monday morning, and was discussing tax reform when she began hammering Doug Jones, the Democrat in the Alabama Senate race. 'Doug Jones in Alabama, folks, don't be fooled. He will be a vote against tax cuts. He is weak on crime. Weak on borders. He is strong on raising your taxes. He is terrible for property owners.'"
— Hedge fund managers win again. Bloomberg's Rachel Evans and Carolina Wilson: "Chalk up a win for asset managers in the Congressional battle over reshaping the U.S. tax regime. For everyone else, however, the celebration will have to wait. Thanks to a last minute revision to the Senate’s tax proposal on Thursday, overseers of professionally managed portfolios appear to have received an exemption from a proposed rule that could increase taxes paid by the sellers of securities. But don’t pop the Champagne just yet. While 'regulated investment companies,' such as mutual funds and exchange-traded funds, catch a break, the provision is still slated to apply to investors in these funds, as well as owners of individual securities."
Larry Kudlow isn't happy about the provision:
Very bad tax policy. Back door cap gains hike? Individuals lose, but mutual funds lobby wins? https://t.co/9BtyRzw2H1— Larry Kudlow (@larry_kudlow) November 20, 2017
And neither is Fox Business's Trish Regan, who seems to be souring on the whole bill:
— Issa: Californians don't deserve this tax bill. Rep. Darrel Issa (R-Calif.), writing in the Orange County Register: "Federal tax reform moved forward this past week in Washington. Good news for most of the country. Not so much for us here in California. Done right, it would have spurred economic growth, allowed Californians to keep more of their hard-earned paychecks, enabled Americans to better save for the future, and helped dig hard-working families out of the mountain of tax increases piled on them in recent years. Unfortunately, I fear that the plan as approved could actually make the incredible burden our state’s taxpayers feel even worse. I voted no because my constituents don’t deserve a tax increase."
— Report: McMaster mocked Trump's intelligence. BuzzFeed's Joseph Bernstein: "National Security Adviser H.R. McMaster mocked President Trump’s intelligence at a private dinner with a powerful tech CEO, according to five sources with knowledge of the conversation. Over a July dinner with Oracle CEO Safra Catz — who has been mentioned as a candidate for several potential administration jobs — McMaster bluntly trashed his boss, said the sources, four of whom told BuzzFeed News they heard about the exchange directly from Catz. The top national security official dismissed the president variously as an 'idiot' and a 'dope' with the intelligence of a 'kindergartner,' the sources said.
A sixth source who was not familiar with the details of the dinner told BuzzFeed News that McMaster had made similarly derogatory comments about Trump’s intelligence to him in private, including that the president lacked the necessary brainpower to understand the matters before the National Security Council. Both Oracle and the Trump administration heatedly denied the comments that Catz later recounted. 'Actual participants in the dinner deny that General McMaster made any of the comments attributed to him by anonymous sources. Those false comments represent the diametric opposite of General McMaster's actual views,' said Michael Anton, a spokesman for the National Security Council.
Oracle's top DC operative, who attended the dinner with Catz, also denied that McMaster made the comments his boss later recounted to others. The meeting, Oracle senior VP for government affairs Ken Glueck said, was about China, and 'none of the statements attributed to General McMaster were said.' Glueck added that Catz 'concurs entirely' with his account of the dinner."
— New fund will cover Jr.'s legal bill. Bloomberg's Shannon Pettypiece: "The Trump campaign has stopped paying legal bills for Donald Trump Jr. and is setting up a legal defense fund to cover the costs for him and other campaign staffers related to investigations into Russian election meddling, said a person familiar with the matter. A fund for campaign staffers should be running in a few weeks, the person said, adding that the exact structure, how it would be administered and who would be eligible are still being finalized. It also hasn’t been determined yet whether President Donald Trump or the Trump Organization could contribute to the fund.
The Trump campaign’s legal bills have already topped more than $2 million this year, including payments related to the Russia investigations, as well as $287,924 for Trump Jr. Separately, in September, the Republican National Committee paid $166,527 to Alan Futerfas, who represents Trump Jr., according to the party’s latest filing with the Federal Election Commission."
— Feds sue to stop AT&T, TimeWarner deal. WSJ's Brent Kendall and Drew FitzGerald: "The Justice Department sued to block AT&T Inc. from taking over Time Warner Inc. on Monday, a sweeping challenge to a deal it says would give one company too much control in a rapidly evolving media landscape. AT&T Chief Executive Randall Stephenson said the suit 'defies logic' and that the company would fight the case, the first major antitrust action under the Trump administration.
Few cases in recent memory have challenged “vertical” combinations that link companies in different parts of an industry. The government’s lawsuit claims this megadeal would hurt consumers and competition because AT&T could wield its power to charge cable-TV rivals higher prices for HBO, Turner sports and other popular Time Warner programming. It also alleges that AT&T, which two years ago bought DirecTV, could use the deal to squeeze out new streaming services like Sling TV that could threaten its traditional pay-TV profits...
Speaking at a hastily arranged press conference at Time Warner’s headquarters, Mr. Stephenson said: 'I’ve done a lot of deals in my career but I’ve never done one where we have disagreed with the Department of Justice so much on even the most basic of facts.' AT&T’s deal for Time Warner was valued at $85 billion when it was announced in October 2016, just weeks before the presidential election, as one of the largest media deals ever."
Stephenson addressed what he called the "elephant in the room," via CNN's Brian Stelter: "Stephenson also addressed the speculation that the Trump administration's opposition to the deal stems from President Trump's feelings about what he believes is CNN's unfair coverage of him. 'There's been a lot of reporting and speculation whether this is all about CNN, and frankly I don't know. But nobody should be surprised that the question keeps coming up because we've been witnessing such an abrupt change in the application of antitrust law here,' Stephenson said. Stephenson did say that AT&T and Time Warner will continue to try to negotiate with the Justice Department and to offer concessions that could allow the deal to close. But, he said, 'Any agreement that results in us forfeiting control of CNN... is a non-starter.'"
- The House and Senate are out this week for the Thanksgiving holiday.
- NYU hosts a conversation with Federal Reserve chairwoman Janet L. Yellen.
From The Post's Tom Toles: "Trump noticed the middle class wasn't getting any fatter, so it was time to act:"
Meet House Speaker Paul Ryan’s ‘Cindy,’ a single mom who he says gets $700 from the tax bill:
A second woman accused Sen. Al Franken (D-Minn.) of inappropriate touching:
On the Late Show with Stephen Colbert, Sen. Elizabeth Warren (D-Mass.) addresses sexual harassment on Capitol Hill:
Seth Meyers takes a closer look at Trump vs. LaVar Ball:
Watch the official trailer for The Post, starring Meryl Streep and Tom Hanks: