The Washington PostDemocracy Dies in Darkness

The Finance 202: Trump and GOP blowing through yellow lights on way to massive tax overhaul

with Paulina Firozi


Senate Majority Leader Mitch McConnell (R-Ky.) said the tax bill is close to the finish line, and claimed the economy has grown "in anticipation" of the bill. (Video: Reuters)

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Senate Republicans are blowing through several yellow lights on their way to approving their enormous tax package.

The bill cleared another critical checkpoint Wednesday, when all 52 Republican senators voted to begin debating it. The move puts the GOP on track to approve the measure by the end of the week, even as a handful of Republicans maneuver to make major changes. 

The state of flux means GOP leaders have yet to lock in the support they need. But the clip at which the proposal is moving reflects a decision to embrace speed as a means of eschewing closer scrutiny from stakeholders, nonpartisan scorekeepers and wavering members of their own party. 

Among the warning signs, economic and political, that Republicans are flying past: 

1. The economy doesn’t need “rocket fuel.” 

Touting the promise of the package in a speech in Missouri on Wednesday, Trump said tax cuts would turbocharge the economy. But it’s already expanding at a healthy rate. Indeed, as the president pointed out, the Commerce Department just reported that growth reached 3.3 percent in the third quarter, its most robust performance in three years. The economy is at or near full employment and has reached its potential capacity. And monetary policymakers warn that additional stimulus would be overkill. “I’m not in favor of tax stimulus at the current time because the economy doesn’t really need it,” New York Fed President William Dudley said Monday.

Others warn that faster growth would touch off higher inflation, prompting the Fed to hike interest rates at a faster pace. That in turn would cool off the expansion the cuts aim to boost. From the New York Times's Jim Tankersley and Binyamin Appelbaum: "Some economists see evidence that the pace of price increases is already strengthening. Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said inflation was already rising fast in metropolitan areas with low unemployment. Mr. Shepherdson has revised his forecasts upward for next year, in part because of accelerating business investment. That, in addition to a tax cut, would be 'like a double boost for an economy that doesn’t need a single boost,' he said."

Economists for Wall Street banks have been sounding similar notes, warning that the tax package will supply a fiscal sugar high. "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,” Morgan Stanley 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.”

Meanwhile, to the extent Republicans are relying on the corporate rate cut at the heart of the proposal to drive new hiring and wage increases, corporate executives have made clear again and again they won’t be passing the gains along to workers. 

Republicans are forging ahead with their promise to overhaul the tax code, even with very little public support for their proposal. (Video: Jenny Starrs/The Washington Post, Photo: Jabin Botsford/The Washington Post)

2. The national debt is high enough. 

Republicans spent the Obama years attacking Democrats for what they called reckless spending. But the debt broke a record this year by topping $20 trillion, and the Senate GOP’s tax plan would add another $1.4 trillion, give or take, depending on the budget model. A handful of Senate Republicans are ringing the alarm about the measure’s deficit impact. And the issue presents one of the last potential stumbling blocks for the bill, as Sen. Bob Corker (R-Tenn.) and others press for a mechanism to force budget balancing if the tax plan fails to yield the growth benefits Republicans expect. 

Other nonpartisan voices argue this is precisely the wrong time to be ringing up new charges on the federal credit card. Testifying before a House panel on Wednesday, Fed Chair Janet Yellen sidestepped a question about the Senate bill’s potential clawback provision. But she offered a stark warning about the nation’s fiscal health. “I would simply say that I am very worried about the sustainability of the U.S. debt trajectory,” she said. “Our current debt-to-GDP ratio of about 75 percent is not frightening but it's also not low … It's the type of thing that should keep people awake at night.”

In an op-ed for The Washington Post on Wednesday, Alan Simpson and Erksine Bowles, the bipartisan pair who co-chaired a national commission aimed at striking a budget deal seven years ago, wrote the current tax plan “ignores nearly all the hard choices we proposed — incorporating only the ‘goodies.’ … With debt already twice as high as its historical average, financing tax cuts with even more borrowing is reckless.”

3. Voters pan the plan as a giveaway to the rich. 

While a handful of Republican senators sweat the deficit impact of the bill, others are seeking changes to how its carves up its benefits. Namely, Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) are offering an amendment to expand child tax credits for poor families, funded by ratcheting back the bill’s corporate tax cut from 20 to 22 percent. 

But the bill directs most of its benefits to corporations and high-income individuals. A new analysis from the Joint Committee on Taxation, Congress’s nonpartisan tax analysts, shows how the plan skews for households in different pay ranges. From The Post’s Heather Long: “Wealthier Americans, earning between $500,000 to $1 million, appear to get the biggest benefits: 91 percent of them get a tax cut of at least $100 in 2019. In contrast, 46 percent of the working poor, who make between $20,000 and $30,000 a year, would get a tax cut of at least $100.” 

The disparity persists, as the Wall Street Journal Richard Rubin notes: “By 2027, when corporate tax cuts are the largest remaining policy, the tax cuts would be concentrated at the top of the income scale, with about 60% of households making over $1 million getting a tax cut, though 38% of them would pay more.”

Voter sentiment reflects an understanding of the bill’s thrust. FiveThirtyEight’s Harry Enten writes the plan is “historically unpopular,” noting, “the current Republican plan’s polling numbers look more similar to those of past tax hikes.” In fact, the tax increases signed by then-presidents George H.W. Bush and Bill Clinton, in 1990 and 1993, respectively, polled better than this plan’s November average, which shows it’s underwater with voters by 14 points. Recent polling shows what support the plan does have is eroding. 

From The Post's deputy national editor, Lori Montgomery: 

4. We don’t know what we don’t know about the bill. 

The Wall Street Journal’s Greg Ip points to what he calls unintended consequences in the package: 

“The U.S. tax system is a complex, jury-rigged contraption. At the best of times, tampering with any part invariably triggers collateral consequences. Those risks are magnified now by Republicans’ determination to pass the plan with minimal hearings on party lines by Christmas…

The bills, as they stand, contain countless incentives for gamesmanship: differing tax rates for different types of foreign property and profits, arbitrary expiration and implementation dates to hold the 10-year deficit impact below $1.5 trillion, and changes to the Affordable Care Act ​to free up government dollars that could roil private insurance markets. ‘There are more ticking time bombs in this bill than a Road Runner cartoon,’ says Martin Sullivan, chief economist for the nonprofit group Tax Analysts.”

That the GOP is performing such major surgery on the code with so little time for analysis guarantees the bill will open up new opportunities for distortions and abuse. And because Republicans are pursuing the project on a partisan basis, they can count on Democrats blocking any attempt to address those problems through a package of technical corrections. Republicans did just that to Democrats after they enacted the Affordable Care Act on party-line votes.

So the haste that the party is using to speed the tax overhaul into law will be inscribed throughout it in ways that will only reveal themselves later — too late for Republicans to do anything about it. 


Goodfriend gets nod. Politico's Zachary Warmbrodt: "Trump on Wednesday nominated economist Marvin Goodfriend to serve as a Federal Reserve governor, in his latest move to reshape the central bank. Goodfriend, a professor at Carnegie Mellon University, has been critical of the Fed's response to the 2008 financial crisis and has said its monetary policy moves should be more open to scrutiny by Congress. One leading lawmaker who has sought to rein in the Fed, House Financial Services Chairman Jeb Hensarling (R-Texas), praised Goodfriend as an 'impeccable conservative.'"

On zero interest, via Bloomberg: "Goodfriend has also warned that the Fed should be prepared for another scenario in which interest rates in the U.S. are pushed back to zero. 'The circumstances that have depressed long-term real interest rates are not likely to dissipate any time soon,' he said. 'If the globe gets into recession in the near future, the zero interest problem might make a comeback, and I think central banks should be prepared and not presumptious.'"

Amid bitcoin surge, Dudley says offering digital currency on Fed's radar (WSJ)

Selloff Pauses 2017’s Tech-Stock Surge (WSJ)



Will "trigger" trigger political chaos? The Post's Erica Werner, Damian Paletta and Mike DeBonis: "Numerous issues were being negotiated throughout the day Wednesday, the most problematic being demands from ... Corker... and others for a 'trigger' to kick in and raise taxes if economic growth estimates don’t pan out... 

Details of Corker’s trigger idea remained in flux Wednesday. Negotiators were looking at a package that would raise taxes by as much as $350 billion if the economy doesn’t grow by more than 0.4 percent yearly above a baseline established by the Congressional Budget Office, according to several people briefed on the discussions. The people spoke on the condition of anonymity because they weren’t authorized to reveal private negotiations.

Lawmakers were still discussing where the new taxes would come from. One idea being considered would include raising the bill’s proposed corporate tax rate of 20 percent up to 21 percent, reinstituting the corporate alternative minimum tax, and reinstituting the alternative minimum tax paid by individuals and families... But the idea faces sharp opposition within the GOP. Several Republicans said they were strongly opposed to a trigger, worried that the possibility of future tax increases could dampen corporate enthusiasm."

No Treasury analysis. NYT’s Alan Rappeport: “In pitching the $1.5 trillion tax overhaul, Steven Mnuchin, the Treasury secretary, has said repeatedly that the plan will pay for itself through a surge of economic growth and that over 100 people in Treasury are ‘working around the clock on running scenarios for us.’

Mr. Mnuchin has promised that Treasury will release its analysis in full. Yet, just one day before the full Senate prepares to vote on a sweeping tax rewrite, the administration has yet to produce the type of economic analysis that it is citing as a reason to pass the tax cut.

Those inside Treasury’s Office of Tax Policy, which Mr. Mnuchin has credited with running the models, say they have been largely shut out of the process and are not working on the type of detailed analysis that he has mentioned. An economist at the Office of Tax Analysis, who spoke on the condition of anonymity so as not to jeopardize his job, said Treasury had not released a ‘dynamic’ analysis showing that the tax plan would be paid for with economic growth because one did not exist.”

Overhaul could affect many corners of American life, especially state budgets. NYT's Peter Goodman and Patricia Cohen: "As the bill has been rushed through Congress with scant debate, its far broader ramifications have come into focus, revealing a catchall legislative creation that could reshape major areas of American life, from education to health care... The result is a behemoth piece of legislation that could widen American economic inequality while diminishing the power of local communities to marshal relief for vulnerable people — especially in high-tax states like California and New York, which, not coincidentally, tend to vote Democratic."

And the NYT has this graphic and explainer about the automatic spending cuts the bill could force beginning next year. 

Whip update. Sen. Lisa Murkowski (R-Alaska) says she will vote for the bill… Sen. James Lankford (R-Okla.) says he will vote for it, too... Sen. Susan Collins (R-Maine) is getting there. She had raised objections in part to the bill’s repeal of the Affordable Care Act’s individual mandate but says she has a commitment from McConnell to bring up a pair of bills aimed at making insurance more affordable... Sen. Steve Daines (R-Mont.) — who with Sen. Ron Johnson (R-Wis.) declared himself in opposition in recent days over the bill's treatment of so-called pass-through businesses — hailed progress on the issue Wednesday, pointing to an agreement to bump the deduction for those businesses from 17.4 percent to 20 percent of their taxable income. 

A finance blogger spots an apparent contradiction:

President Trump on Nov. 29 delivered a speech in St. Charles, Mo., about the GOP tax plan. He also spoke about Kim Jong Un, Hillary Clinton and Christmas. (Video: Bastien Inzaurralde/The Washington Post)

Trump: Tax bill is for workers.  The Post's John Wagner: "Trump on Wednesday pitched the Republican tax plan as a boon to his working-class supporters, even as independent analyses have indicated that the wealthy and corporations would be the biggest beneficiaries. 'Our focus is on helping the folks who work in the mail rooms and the machine shops of America, the plumbers, the carpenters, the cops, the teachers, the truck drivers …. the people that like me best,' Trump said in remarks to an enthusiastic, invitation-only crowd of about 1,000 at a convention center in a state that he carried comfortably in last year’s election. 'Really, the people that like me best are those people, the workers,' Trump said. 'They’re the people I understand the best. … They came out to vote for me. They came out to vote for us.'”

He insists it's not for him. "This is going to cost me a fortune, this thing, believe me,” Trump said, per the NYT. “This is not good for me. Me, it’s not so — I have some very wealthy friends. Not so happy with me, but that’s OK. You know, I keep hearing Schumer: ‘This is for the wealthy.’ Well, if it is, my friends don’t know about it."

And he promised pain for bankers: “You see what some of these people are making? A little ridiculous. I’m driving up their stock. They’re making a fortune, then they go to their board and they tell everybody what a great job they’re doing, but what am I going to do? And many of them, honestly, I don’t like. Some of these bankers, I don’t like them, and they’re making a fortune, and it’s one of those things.”

From Glenn Kessler, The Post's fact checker: 

This two-minute video explains why either version of the tax bill wouldn't cost Trump money, as he claims: 

In short, no. The president would benefit mightily from either version of the GOP tax bill. (Video: Meg Kelly/The Washington Post)

NYT editorial board urges action. Politico: "The New York Times editorial board openly urged voters to contact their congressional representatives to express opposition to the Senate GOP tax reform bill on Wednesday, a rare move by one of the most prominent editorial boards in the country. 'This morning, The New York Times Editorial Board is tweeting here to urge the Senate to reject a tax bill that hurts the middle class & the nation's fiscal health,' the board wrote on The New York Times opinion section's official Twitter account."

Trump appeared to react via Twitter this morning:

A tax hike on some top lobbyists. Roll Call's Kate Ackley: "Many of K Street’s highest-paid association lobbyists are pushing for the first major tax overhaul in 30 years, but a discrete provision in the sweeping measure may have an adverse consequence for their bottom lines. Lawmakers have crafted a new 20 percent excise tax on seven-figure compensation packages at all tax-exempt organizations, including trade associations, foundations, universities and hospital systems. The new tax is in both the House-passed bill and the Senate draft, making it likely to remain if the overhaul becomes law. The proposed tax, applied to compensation packages in excess of $1 million, would ripple through K Street’s biggest associations, which would need to pony up more money to keep top talent. Despite that, few lobbyists are mounting a campaign to remove the proposal."


Bitcoin has been a staggering investment. Is a crash coming? (Thomas Heath)

McKinsey: One-third of US workers could be jobless by 2030 due to automation (CNBC)



Flynn deal talk heats up. CNN's Kara Scannell, Elise Labott and Michelle Kosinski: "Special Counsel Robert Mueller's team has postponed an anticipated grand jury testimony linked to his investigation into Michael Flynn amid growing indications of possible plea deal discussions. Additional witnesses were expected to be questioned soon including a public relations consultant hired by Flynn's lobbying firm who was given an early December date deadline to appear before the grand jury, according to a person at the company. Ahead of the delay, the impression was that the testimony needed to happen soon, the source said. 'Time seems to be of the essence,' said the source at Sphere Consulting, the PR firm where the consultant worked. The grand jury testimony was postponed, the person said, with no reason given. There could be many reasons for a delay, including scheduling issues."

Jared meets Mueller's team. NYT's Matt Apuzzo: "Jared Kushner met this month with investigators working for... Mueller... and answered questions about a meeting with a Russian ambassador during the presidential transition, according to a person briefed on the investigation. The questions focused on a meeting in December between Mr. Kushner, the ambassador and Michael T. Flynn, who at the time was the president’s incoming national security adviser, the person said on Wednesday. Prosecutors also asked Mr. Kushner about other interactions between Mr. Flynn and the Russian government, the person briefed on the investigation said. Mr. Flynn was fired in February after misleading Vice President Mike Pence about his conversations during the transition with Sergey I. Kislyak, who was then the Russian ambassador to the United States."

Top Democrat ratchets up government shutdown fight over ‘dreamers’ (Ed O'Keefe and Sean Sullivan)

A controversial ‘oversight board’ could take over Puerto Rico’s hurricane rebuilding effort (Mariely Lopez-Santana)


Wells Fargo Is Dubbed a Repeat Offender and Faces New Wrath From Its Regulator (WSJ)

SEC Nominees Face Delay as Democratic Senator Puts Up Roadblock (WSJ)


From The Post's Philip Bump: "Deeply unpopular Congress aims to pass deeply unpopular bill for deeply unpopular president to sign:"



  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on “Implementation and Cybersecurity Protocols of the Consolidated Audit Trail.”
  • The House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on the effectiveness of U.S. Sanctions Programs.

Coming Up

  • The House Appropriations Subcommittee on Transportation, Housing and Urban Development and Related Agencies holds a hearing on HUD and community block grants for disaster recovery on Friday.

Watch Trump’s full speech on taxes in St. Charles, Mo.:

President Trump on Nov. 29 delivered a speech in St. Charles, Mo., about the GOP tax plan. (Video: The Washington Post)

Fed Chair Janet Yellen warned she's "very worried" about the U.S. debt trajectory:

Fed Chair Janet Yellen warned of rising risks from the deficit just as lawmakers weigh a Republican tax cut plan that could exacerbate it. (Video: Reuters)

Late-night comedians weighed in on the latest allegations against NBC's Matt Lauer: 

NBC's Matt Lauer was fired over charges of sexual harassment on Nov. 29. The late-night comedians weighed in. (Video: The Washington Post)

In the wake of his firing from NBC, people are remembering cringe-worthy Matt Lauer moments from the "Today" show and beyond:

In the wake of his firing from NBC, people are remembering cringe-worthy Matt Lauer moments from the "Today" show and beyond. (Video: Nicki DeMarco/The Washington Post)