THE TICKER

Momentum behind the Senate Republican tax push looked unstoppable Thursday. Until it wasn’t. 

A pair of blows related to the price tag of the package derailed the party’s march. First, an analysis by the Joint Committee on Taxation showed that even accounting for economic growth the GOP insists will cover the cost of slashed tax rates, the bill adds $1 trillion to the deficit over a decade. And then the parliamentarian ruled out a “trigger” mechanism sought by Sen. Bob Corker (R-Tenn.) to recover revenue if the cuts don’t perform as advertised. 

The developments left Republican leaders without the bare majority support they need to approve the bill — and without a clear path to gathering one on the eve of the day they’d circled for their first major legislative victory of the Trump era. But with a desperately needed win within grasp, the setback will likely prove temporary

For now, Corker is getting backup in his demands for stricter fiscal discipline from Sen. Jeff Flake (R-Ariz.). Both have clashed repeatedly with President Trump, and both are stepping down next year, placing them beyond the reach of typical strong-arming by party brass. And then there’s Sen. Ron Johnson (R-Wis.), who has his own reasons to feel liberated from lockstep loyalty. He’s criticized the bill’s treatment of so-called pass-through businesses, arguing they get stiffed relative to corporations. 

Objections from those three were sufficient to stop the debate cold. From my colleagues Erica Werner, Damian Paletta, and Mike DeBonis on the drama on the Senate floor yesterday:

“Thursday evening, senators were eyeing a wide range of options to move legislation forward. They are discussing adding higher taxes on upper-income Americans and modestly rolling back the bill’s large corporate tax cut. But they did not have an obvious solution, given the need to add hundreds of billions of revenue back into the bill.

‘Honestly, a lot of things are being discussed,’ said Sen. John Cornyn (Tex.), the Senate’s second-ranking Republican.

Lawmakers plan to resume efforts to pass the bill Friday morning, but the debate within the party could easily turn testy. Some within the caucus fumed at the holdouts, particularly Corker, who was surrounded by colleagues for a protracted period Thursday afternoon as they discussed next steps.”

The Senate is reconvening at 10 a.m. this morning, with votes scheduled to start at 11 a.m. and seven hours of debate on the bill remaining. One option under discussion for trimming its cost would preserve the corporate rate cut at the heart of the measure but allow it to rise back up from 20 percent in increments — a so-called “stair-step” approach. 

In a Thursday night note to clients, Evercore ISI’s Terry Haines predicted investors wouldn’t like the idea but shouldn’t take it too seriously, writing it “has no chance of becoming law in the final tax legislation. Neither the White House nor House Republicans would accept it, and most Senate Republicans do not want it either… If something like the stair step is adopted in the Senate it will be purely to expedite Senate approval of the tax bill and get it into House-Senate conference.”

And CapAlpha’s Charles Gabriel floats the idea that senators could gin up extra revenue simply by hiking the rate on foreign profits stashed abroad. Like Haines, he’s bullish on the bill’s chances. After all, Gabriel notes, it was Corker who struck the September deal with Sen. Pat Toomey (R-Pa.) to approve a budget that allowed for a $1.5 trillion tax cut.

Now, Gabriel writes, the project is “not only ‘doable’ but too big to fail.” Indeed the ways and means may be muddled, but the Republican will to complete the work persists. That, despite an abundance of signals a recklessly fast process has yielded a deeply flawed product, remains a powerful indicator the party will carry it through. 

MARKET MOVERS

Quarles warns on Bitcoin. Bloomberg's Jesse Hamilton: "Randal Quarles, the Federal Reserve official who oversees Wall Street, says central banks are a long way off from embracing cryptocurrencies as a means of paying for things. And with the price of bitcoin gyrating massively -- it hit $11,000 this week before falling closer to $9,000 -- he added that it could be dangerous for the financial system. That’s especially true as the digital-currency movement grows larger, Quarles said. 'Without the backing of a central bank asset and institutional support, it is not clear how a private digital currency at the center of a large-scale payment system would behave, or whether the payment system would be able to function, in times of stress,' Quarles, the Fed’s newly minted vice chairman for supervision, said in remarks prepared for a Thursday conference at the U.S. Treasury Department. He also urged that other central banks take a cautious approach to cryptocurrencies."

W.H. monitoring. Business Insider's Frank Chaparro: "Press secretary Sarah Huckabee Sanders said the White House is monitoring cryptocurrencies like bitcoin. 'I know this is something that is being monitored by our team here,' Sanders said during a press conference on Thursday, answering a reporter's question about whether the government would regulate cryptocurrencies.  Sanders said she didn't have anything specific to share on the matter. Still, it was brought up by an advisor to President Trump recently. 'Tom Bossert, with the Homeland Security team, an advisor to the president, has brought this up in a meeting earlier this week,' she said.'I know this is something he is keeping an eye on.'"

The Federal Reserve said it ended an enforcement action against a Georgia bank that until recently counted Fed Vice Chairman for Supervision Randal Quarles as an investor.
WSJ
Get There
As one analyst put it, 'We are in a booming economy. You have a number of world markets hitting new, all-time highs.'
Thomas Heath
MONEY ON THE HILL

TAX FLY-AROUND:

Sen. Steve Daines (R-Mont.), who has joined Johnson in pressing for more generous treatment of pass-throughs, touted on Friday morning a significant adjustment to the Senate tax package. It's not clear what this will cost:

Here's Daines in a statement released this morning:

“After weeks of fighting for Main Street businesses including Montana’s farmers and ranchers, I’ve decided to support the Senate tax cut bill which provides significant tax relief for Main Street businesses," he said.

Collins thinks she has a deal with GOP leadership. AP's Marcy Gordon and Stephen Ohlemacher: "Sen. Susan Collins, R-Maine, proposed an amendment to let homeowners deduct up to $10,000 in local property taxes on their federal returns. It is similar to a provision in the House-passed bill. Without the deduction, Collins said, it would be 'very problematic for me' to vote for the bill. Collins would make up the estimated $146 billion in lost revenue by keeping the personal income tax rate for the wealthiest earners at 39.6 percent and making a smaller cut in the corporate tax rate. Trump and other Republicans insist that the corporate tax rate must be reduced from 35 percent to 20 percent."

Collins is also worried about including a repeal of Obamacare's individual mandate in the tax plan -- but seems confident she has a pact with GOP leader Mitch McConnell (R-Ky.) to consider other legislation that she thinks will blunt the impact.

Deficit hangover. The Post's Heather Long: "Corker is not the only person worried about America's $20 trillion debt rising even higher (about $15 trillion is actually held by the public). Wall Street bank Goldman Sachs put out a warning Thursday morning that the U.S. debt is on track to hit unsustainable levels in coming years. Goldman's note followed on the heels of testimony from Federal Reserve Chair Janet L. Yellen, who cautioned that the country's growing debt is 'the type of thing that should keep people awake at night.'... Goldman noted Thursday that America's debt is already at the highest level since 1950 as a fraction of the economy (the so-called debt-to-GDP ratio). The tax bill would make that higher. 'The tax reform bill and spending increases that are making their way through Congress should increase the deficit further, raising it from 3.2% of GDP in 2016 to 5.1% in 2021,' Goldman wrote."

(See the Joint Committee on Taxation's macroeconomic analysis of the Senate bill here.)

Spending cuts on deck. Politico's Adam Cancryn and Sarah Ferris: "The $1.5 trillion tax package could trigger eye-popping cuts to a slew of federal programs, including Medicare. Unless Congress acts swiftly to stop it, as much as $150 billion per year would be cut from initiatives ranging from farm subsidies to student loans to support services for crime victims. Medicare alone could see cuts of $25 billion a year. And the specter of those cuts has thrust Congress into a high-stakes game of political chicken.

With so much attention focused on the tax bill itself, neither lawmakers nor many of the advocacy groups had paid as much attention to the depth and breadth of the cuts that will ensue unless the House and Senate come up with a bipartisan deal to stop them. Some groups had run Medicare ads, but they were largely overshadowed by the tax debate itself."

A flashback, courtesy of the NYT's Jim Tankersley, to when House Ways and Means Committee Chairman Kevin Brady (R-Tex.) pledged a deficit-neutral bill:

McCain aboard. WSJ: Sen. John McCain said he would support a $1.4 trillion tax cut that Republicans are advancing in the Senate, pushing the plan closer to passage though intense jockeying is still playing out among lawmakers as a critical vote on the Senate floor nears in the hours ahead... 'After careful thought and consideration, I have decided to support the Senate tax reform bill,” Mr. McCain said in a statement. “I believe this legislation, though far from perfect, would enhance American competitiveness, boost the economy, and provide long-overdue tax relief for middle class families.'"

His support indicates a shifting standard, says The Atlantic's Ron Brownstein:

Trump tweeted this morning that Democrats oppose the bill because it is "too good." Of course, it's Republicans now standing in the way of the measure's passage: 

The WSJ's Rich Rubin does some quick fact-checking:

Treasury IG launches probe. Bloomberg's Saleha Mohsin: "The Treasury Department’s inspector general is examining whether political considerations interfered with Secretary Steven Mnuchin’s promised analysis of the Republican tax proposal. 'It’s a top priority,' Rich Delmar, counsel to inspector general Eric Thorson, said Thursday in an email. Delmar said he could not provide a timeframe for when the inquiry would be complete because it would depend on how quickly the department’s official watchdog receives the information and 'how complex issues are.'

In a letter early Thursday, Senator Elizabeth Warren asked Thorson’s office to review whether Treasury resources were used to research the tax plan, and why no analysis has been released to the public or Congress. Mnuchin has repeatedly pledged that the Republican proposal would pay for itself through economic growth, and that his department would provide detailed analysis to support those statements. But, with the Senate preparing to vote on the tax overhaul this week, Mnuchin has yet to deliver the analysis."

See Warren's letter here: 

Lobbyists scramble. WSJ's Ted Mann, Brody Mullins and  Richard Rubin: "When the House of Representatives passed its long-awaited tax overhaul this month, General Electric Co. had a potentially big problem: One part of the bill could cost the conglomerate more than $1 billion in new taxes if it becomes law. The measure would restrict the ability of GE and other firms to deduct the losses of some overseas units under a new one-time tax on profits earned overseas. A GE spokeswoman said that 'would have resulted in taxing more than 100% of GE’s historic foreign earnings.'

GE lobbyists scrambled and won an alternative in the Senate’s version of the tax bill preserving the company’s ability to use those losses when calculating its tax liability, according to congressional aides and GE officials. GE is just one of scores of companies that have been working feverishly to influence the final form of the tax bill—and in some cases to undo what they say are unintended consequences of a fast-moving effort to reshape the nation’s tax laws.

In some cases lobbyists are trying to reverse provisions that House tax-writers used to raise revenue needed to offset other tax cuts. Others were simply mistakes that arose during the rush by Republicans to approve a roughly 500-page, sweeping tax-reduction legislation that impacts nearly every business and individual in the U.S. Casinos, cement manufacturers, mortgage bankers, Dell Technologies Inc. and other debt-reliant firms are pushing for lighter restrictions on their ability to deduct interest payments on their debt than are in the Senate version of the bill."

Dudley: No stimulus needed. WSJ's Nick Timiraos: "A top Federal Reserve official said that he sees a “reasonable case” to raise short-term interest rates next month and that any new fiscal stimulus approved by lawmakers in Washington could shape the central bank’s expectations for additional rate increases next year. New York Fed President William Dudley said in an interview Thursday that any effort to make the tax code less complex “makes sense.” But with the economy expanding solidly and the unemployment rate at a low level of 4.1%, Fed policy makers will be watching closely to see whether any tax changes might cause the economy to overheat. 'It would be a reasonable question to ask, is this the best time to apply fiscal stimulus, when the economy’s already close to full employment?' he said. 'It’s probably not the best time.'"

Trump benefits personally. In case this wasn't clear yet: Yes, the president benefits from the tax plan. NYT's James B. Stewart: "In fact, the proposals seem almost tailor-made to enrich the president and people like him. 'Commercial real estate came out essentially unscathed,' said Douglas Holtz-Eakin, president of the American Action Forum, a conservative advocacy group. Real estate developers 'didn’t lose anything they care about,' and they got even more breaks, like a shorter depreciation schedule in the Senate tax bill, Mr. Holtz-Eakin pointed out.

Mr. Trump still has not released his tax returns, so it’s impossible to know to what extent he would personally benefit from the legislation. But there’s little doubt that he would. 'Lower pass-through rates and the repeal of the alternative minimum tax — those two alone are so hugely beneficial to Trump that I have trouble imagining any way that he wouldn’t come out ahead,' said Steve Wamhoff, senior fellow for federal tax policy at the nonpartisan Institute on Taxation and Economic Policy. (The pass-through reference involves income that typically comes from partnerships and limited liability companies.) Not only that, but rental income, royalty payments and licensing fees — some of the president’s major sources of income — get especially favorable treatment under new rates for pass-through income."

How many people in your income group would get a tax cut? Find out here, via this NYT interactive. 

PR Gov: Bill would crush us. Puerto Rican Gov. Ricardo Rosselló, via CNBC: "Bills moving through the House and Senate would slap new taxes on goods and services that flow between American businesses with operations in Puerto Rico and their parent companies in the U.S. This 20 percent excise tax was meant to prevent companies from avoiding taxation by shifting profits to other countries, not slow the flow of capital to and from a U.S. territory.

This levy has the potential to destroy those businesses the storms didn't. By applying this 20 percent tax to products made in Puerto Rico, companies with a strong presence on the island would be forced to shutter those operations and decamp for the mainland or, worse, a lower-tax country. This would put tens of thousands of U.S. citizens in Puerto Rico out of work and demolish our tax base right as we are trying to rebound from historic storms."

The government could run out of room to pay its bills by late March or early April unless Congress raises the federal borrowing limit, the Congressional Budget Office said in a new report.
WSJ
PowerPost
The plan would move negotiations over a broader agreement until just days before Christmas.
Sean Sullivan and Ed O'Keefe
OPINIONS
Wonkblog
You continue to miscite your sources while failing to consider the actual Tax Cut and Jobs Act rather than hypothetical theoretical proposals.
Lawrence H. Summers and Jason Furman
PostEverything
Republicans are again sprinting toward an economic cliff.
Robert S. McElvaine
TRUMP TRACKER

RUSSIA WATCH: 

Trump pressured senators. A bombshell report from the NYT's Jonathan Martin, Maggie Haberman and Alex Burns: "President Trump over the summer repeatedly urged senior Senate Republicans, including the chairman of the Senate Intelligence Committee, to end the panel’s investigation into Russia’s interference in the 2016 election, according to a half dozen lawmakers and aides. Mr. Trump’s requests were a highly unusual intervention from a president into a legislative inquiry involving his family and close aides.Senator Richard Burr of North Carolina, the intelligence committee chairman, said in an interview this week that Mr. Trump told him that he was eager to see an investigation that has overshadowed much of the first year of his presidency come to an end.

'It was something along the lines of, ‘I hope you can conclude this as quickly as possible,’ Mr. Burr said. He said he replied to Mr. Trump that 'when we have exhausted everybody we need to talk to, we will finish.' In addition, according to lawmakers and aides, Mr. Trump told Senator Mitch McConnell of Kentucky, the Republican leader, and Senator Roy Blunt, Republican of Missouri and a member of the intelligence committee, to end the investigation swiftly...

Mr. Trump’s requests of lawmakers to end the Senate investigation came during a period in the summer when the president was particularly consumed with Russia and openly raging at his own attorney general, Jeff Sessions, for recusing himself from any inquiries into Russian meddling in the election. Mr. Trump often vented to his own aides and even declared his innocence to virtual strangers he came across on his New Jersey golf course. In this same period, the president complained frequently to Mr. McConnell about not doing enough to bring the investigation to an end, a Republican official close to the leader said."

Manafort strikes bail deal. For $11 million. Politico's Josh Gerstein and Darren Samuelsohn: "Former Trump campaign chairman Paul Manafort has reached an $11 million bail agreement with prosecutors that could clear the way for him to be released from the house arrest he's been under for the past four weeks. In court filings released Thursday afternoon, Manafort's defense attorneys revealed 'an agreed-upon bail package' with lawyers from special counsel Robert Mueller's office, which obtained an indictment last month charging Manafort and business partner Rick Gates with money laundering and failing to register as foreign agents."

Exodus primed. WSJ's Michael Bender: "The White House is facing the prospect of another round of senior departures in the coming weeks as President Donald Trump approaches his one-year anniversary in office, according to several administration officials. Secretary of State Rex Tillerson, the former Exxon chief executive who has struggled to mesh with Mr. Trump during their first year in office, is the most likely to leave, according to White House officials. Senior officials say there is a lengthy list of White House aides and cabinet members potentially on their way out, with the first anniversary of the administration in mid-January serving as a natural off-ramp. 'There will be significant turnover at the one-year mark,' one senior administration official said...

Among the names viewed by administration officials as possible departures are National Economic Council director Gary Cohn, Deputy Chief of Staff Rick Dearborn and Legislative Affairs Director Marc Short... Mr. Cohn, the top economic adviser in the White House, fell out of favor with Mr. Trump after he criticized the president’s response to the racially charged violence in Charlottesville, Va., in August... The criticism cost Mr. Cohn a chance at being nominated Federal Reserve chairman. He is now leading the White House effort to pass major tax legislation, and several inside the White House said they wouldn’t be surprised if he left if the Republican-controlled Congress approved that bill."

The ambassador denies assertions that Canada has not seriously engaged in trade deal talks.
Politico
POCKET CHANGE
Five women tell Bloomberg the venture capitalist used his position of power to pursue romantic relationships and unwanted sexual encounters.
Bloomberg
Tree sellers warn that market forces tied to the recession are driving up the price of trees and, in some places, making them scarce.
NYT
THE REGULATORS

Jelena McWilliams to head FDIC. WSJ's Ryan Tracy and Nick Timiraos: "Ms. McWilliams has worked as a lawyer at the Federal Reserve and on the Republican staff of the Senate Banking Committee. She is currently chief legal officer of Cincinnati-based Fifth Third Bancorp. The nomination moves Mr. Trump closer to rounding out a team that can carry out his promise to revisit financial regulations adopted under President Barack Obama... Ms. McWilliams’s personal views on financial regulation aren’t well known. She has spent less time in the public spotlight than Mr. Trump’s other financial regulatory nominees."

CHART TOPPER

From HowMuch, via Barry Ritholz's blog, a look at the top U.S. companies of their respective times, by comparing their inflation-adjusted valuations:

DAYBOOK

Today

  • 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.
THE FUNNIES

From The Post's Tom Toles:

BULL SESSION

The White House has a plan to replace Secretary of State Rex Tillerson with CIA Director Mike Pompeo, after months of rockiness between Tillerson and President Trump:

President Trump worries Americans don't say "Merry Christmas:" 

Will President Trump be a drag on Republicans running in 2018?

Watch Jimmy Kimmel talk about his Twitter war with Roy Moore: