How’s that tax cut playing? Depends who you ask. The workers pocketing four-figure bonuses from the parade of corporations sharing their largesse might answer one way. Those stressing about new uncertainty over their tax bill — think of those who lined up after Christmas to prepay their 2018 property taxes — probably have a different attitude.
No surprise, then, that the Trump administration is leaning on businesses to make more of the latter feel like the former by withholding less of their taxes from paychecks as soon as next month. But in doing so, officials risk exacerbating the confusion over the small print of a tax code that Republicans rewrote at breakneck speed last year. My colleague Damian Paletta reports:
“The rush could expose millions of workers to the risk of underpaying taxes to the government now, which means they might owe more than they are expecting when they file taxes in April 2019. Business and taxpayers looking for clarity will be appealing to an Internal Revenue Service that, according to an internal watchdog report Wednesday, is underfunded and ill-prepared to answer basic questions. The national taxpayer advocate, an independent official within the IRS, told Congress that the agency would need at least $495 million in 2018 and 2019 to meet the new obligations created by the GOP tax law…
The IRS is urging employers to immediately change their tax withholding arrangements, even though doing so will require them to use outdated forms as they figure out how much to set aside for tax payments. The forms, known as W-4s, were tailored to measure tax payments under the old tax code, which was largely rewritten in the new tax law.
In the next few days, the IRS plans to issue guidelines to companies and payroll processors on how to use the old forms to calculate tax payments under the law. But there’s no simple switch-over calculation, and the uncertainty could mean workers severely underpaying or overpaying their taxes by thousands of dollars in 2018 — something that will likely remain unknown until they file their tax returns next year.”
Average taxpayers aren’t the only ones confused about when the new regime takes effect. Late last month, White House senior adviser Ivanka Trump appeared on Fox News to tout the measure, announcing she was looking forward to traveling in April, “when people realize the effect that this has.” See her here:
.@IvankaTrump: "I'm really looking forward to doing a lot of traveling in April when people realize the effect that this has... The vast majority will be [doing their taxes] on a single postcard." pic.twitter.com/D2bB7WgPIL— Fox News (@FoxNews) December 21, 2017
When a political scientist corrected her on Twitter, noting that this April taxpayers will be preparing their 2017 taxes under the old system, Trump attempted some rhetorical jujitsu:
Correct! All across America people will be thinking about how cumbersome the old tax code is & energized about upcoming simplification! https://t.co/HZZhmvK5Xc— Ivanka Trump (@IvankaTrump) December 21, 2017
Congressional Republicans are concerned enough about a bumpy rollout that they plan to boost funding to the IRS, the federal agency they most love to hate.
“We want to make sure that we get the new law implemented well, and I think they are clamoring for assistance,” Sen. John Thune (R-S.D.), the No. 3 Senate Republican, said, per The Washington Post's Erica Werner and Jeff Stein. “So, I suspect that if the requests are reasonable, there would be some sympathy for ensuring that this new law gets implemented in the correct way.”
Of course, the IRS can only do so much. The unintended consequences of a hastily assembled bill are already beginning to pile up.
One provision gives giant agricultural cooperatives a competitive advantage over family-owned farms; another could create a loophole offering an unfair edge to foreign liquor makers over their domestic competition; high-tax states are already work-shopping ways to end-run the law’s elimination of the state and local deduction.
This morning, Bloomberg's Lynnley Browning reports on a loophole that could be worth $4 billion to Apple alone. "Companies that stockpiled trillions of dollars offshore free of U.S. income tax may get one last break before paying up -- provided their fiscal years don’t follow the calendar year," she writes. "A timing quirk in the tax overhaul that... Trump signed last month may be good news for companies such as Apple Inc., Microsoft Corp. and Cisco Systems Inc., all of which began their fiscal years before Jan. 1." Companies that started their fiscal years on Jan. 1 — including Alphabet Inc., Amgen Inc. and General Electric Co. -- appear to be cut out of the benefit.
“You have this big piece of complicated legislation done on an accelerated timeline. It’s natural that there will be these unintended consequences,” says Marc Gerson, former majority tax counsel for the House Ways and Means Committee who now works as the DC chair of law firm Miller & Chevalier. An issue, he said, is that guidance from regulators can’t correct language clearly enshrined in law, and “the path to enactment of technical corrections is uncertain,” given Democrats aren’t likely to help move such a package in the Senate.
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— DACA talks continue. The Post's Maria Sacchetti, Patricia Sullivan and Ed O'Keefe: "The Trump administration vowed Wednesday to fight a federal injunction that temporarily blocked its plans to rescind work permits for young undocumented immigrants, insisting that Congress must find a solution for those known as 'dreamers.' On Capitol Hill, lawmakers said a bipartisan proposal could come as early as Thursday or Friday, but such legislation would probably face fierce resistance from progressives opposed to ceding any ground on immigration rights and conservatives who feel the same on security issues."
— CEOs to Congress: Fix DACA now. The Post's Ed O'Keefe: "More than 100 corporate leaders called on Congress on Wednesday to act immediately to provide legal relief for hundreds of thousands of young immigrants. Letters co-signed by athletes, business leaders, entertainers and other notable people are common on Capitol Hill, but the latest message comes a day after President Trump hosted Democratic and Republican lawmakers at the White House and pressed them to enact legislation providing legal protections for nearly 700,000 immigrants under the Deferred Action for Childhood Arrivals program, or DACA, an Obama-era executive action beginning to expire... Pressure from top business leaders could pay dividends in the closing days of the high-stakes negotiations that party leaders believe could lead to an agreement soon.
The letter is co-signed by Mark Zuckerberg, founder and chief executive of Facebook; Tim Cook, CEO of Apple; Jeffrey P. Bezos, founder and CEO of Amazon.com and owner of The Washington Post; Mary Barra, chairman and CEO of General Motors; Randall Stephenson, chairman and CEO of AT&T; and media mogul Barry Diller. The leaders of other big-name brands, including the Gap, Target, Starbucks, Johnson & Johnson, Warby Parker, Uber and Lyft also signed the letter."
— GOP nixes gas tax. The Post's Damian Paletta and Erica Werner: "Trump privately suggested massively increasing the gas tax to help fund a national infrastructure overhaul, but Republican leaders in Congress moved quickly to shut down the idea. During a White House meeting with House Transportation Committee Chairman Bill Shuster (R-Pa.) several weeks ago, Trump mused about a gas tax increase to 50 cents per gallon, almost triple the current level, according to a person briefed on the exchange who requested anonymity to discuss White House deliberations. The White House declined to comment on the exchange, and Shuster declined to discuss the conversations with the White House, calling them 'completely private.' Trump, Cabinet members and GOP leaders also discussed the gas tax increase during joint meetings this weekend in Camp David. Sen. John Cornyn (R-Tex.), who attended the meetings, would not reveal who raised the subject of raising the gas tax, but he said there was no ambiguity about how Congress planned to proceed."
— What tax cuts mean for bank earnings. WSJ's Michael Rapoport: "It is going to be a noisy quarter for bank earnings. Because of the tax-overhaul law, big banks are going to record a host of special charges that cut into fourth-quarter profit. How big is the bill? Five of the biggest U.S. banks are likely to report a total of about $31 billion in tax-related hits for the fourth quarter, according to the banks’ recent disclosures and public comments. Don’t expect investors to be overly alarmed, though. The banks should benefit from the new tax law in the longer term. In fact, with the U.S. corporate tax rate falling to 21% from 35%, many banks could make back any losses within a few years, or even sooner.
The new law is 'good for us,' Bank of America Corp. Chief Executive Brian Moynihan said at a conference last month. Still, investors will have to be on their toes when the banks’ fourth-quarter earnings announcements begin Friday with JPMorgan Chase JPM 1.10% & Co. and Wells Fargo & Co. Tax-law changes could make banks’ core earnings—which exclude charges and other one-time or nonoperating items—less clear. Plus, they will probably make earnings announcements and conference calls more complicated as banks strive to explain the law’s impact."
— Passing the torch. Warren Buffett is readying Berkshire Hathaway for life after he steps aside. "In naming two senior executives -- Ajit Jain and Greg Abel -- to the company’s board and giving them each responsibility for large swaths of Berkshire’s businesses, he positioned one of the two men to probably be his replacement," Bloomberg's Noah Buhayar and Katherine Chiglinsky report. "Abel, 55, will be vice chairman of the non-insurance business, while Jain, 66, will be vice chairman of the insurance operations, the company said in a statement early Wednesday. In the interview, Buffett signaled that the executives will be responsible for overseeing subsidiaries in their area, setting compensation for the leaders of those businesses and helping weigh smaller acquisitions."
Meanwhile, JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO Lloyd Blankfein have both been in their posts for about 12 years, three times the average tenure of an S&P 500 chief, as CNBC's Wilfred Frost notes. Who's in line to replace them? For Dimon: "The pressure on Dimon internally is also lower. His underlings are more relaxed about the immediate years ahead. At 59, Gordon Smith, CEO of J.P. Morgan's consumer and community bank, is the oldest of Dimon's direct reports. He would also be the most likely candidate to take over if Dimon were to leave tomorrow. But those close to Smith say he does not have a big ego and is not itching to become CEO. Sources say he was consulted for the American Express CEO job late last year but turned it down quickly."
For Blankfein: "If Blankfein were to leave soon then the only contenders are the current presidents and co-COOs David Solomon, 55, and Harvey Schwartz, 53. Schwartz has broader exposure, while Solomon is seen as better with clients having spent almost all of his time in the investment bank. Both have offices very close to each other, but understandably now compete more than they used to. Neither has a deep background in trading (unlike both Cohn and Blankfein), which means the next deputy would likely come from that background. (Schwartz did spend plenty of time in the securities division, but in role more tilted towards sales than trading)."
— More NAFTA talks next month. Bloomberg's Josh Wingrove and Eric Martin: "The U.S., Canada and Mexico plan a seventh round of negotiations for a new Nafta deal for February in Mexico City even as they focus on preparations for talks in Montreal in two weeks, according to two people familiar with the plans. Negotiations to update the accord have been organized into rounds, or week-long sessions where groups meet to hammer out the details of about 30 chapters under discussion. The talks began in Washington in August and have rotated between the three nations every few weeks since. The Jan. 23-28 round taking place in Quebec will be the first held outside a capital city, and the talks will then return to Mexico the next month, according to the people, who asked not to be named discussing plans that haven’t been announced publicly."
— Canada nervous on NAFTA. Reuters's David Ljunggren: "Canada is increasingly convinced that President Donald Trump will soon announce the United States intends to pull out of NAFTA, two government sources said on Wednesday, sending the Canadian and Mexican currencies lower and hurting stocks. The comments cast further doubt on prospects for talks to modernize the trilateral... NAFTA, which Trump has repeatedly threatened to abandon unless major changes are made. Officials are due to hold a sixth and penultimate round of negotiations in Montreal from Jan. 23-28 as time runs out to bridge major differences. It is not certain the United States would quit NAFTA even if Trump gave the required six months’ notice, since he is not obliged to act once the deadline runs out. Notice of withdrawal could also raise opposition in Congress."
Canadian paper tariffs. CNN Money's Patrick Gillespie: "In a decision opposed by some Republicans, the Commerce Department late Tuesday applied tariffs as high as 10% to Canadian paper. This follows American tariffs of up to 18% on Canadian lumber, imposed last year. Commerce Secretary Wilbur Ross says Canadian paper companies get subsidies from their national government and it's unfair to American competitors. In 2016, imports of Canadian paper totaled $1.3 billion... Canadian Foreign Affairs Minister Chrystia Freeland called the U.S. action 'unfair and unwarranted,' and said the paper tariffs will cost American jobs. U.S. congressional leaders had voiced strong opposition to any duties against Canadian paper, which they argue helps support 600,000 American jobs in newspaper publishing and commercial printing."
— Davos resistnace. AFP: "A group of Swiss campaigners launched a petition Wednesday aimed at keeping US President Donald Trump away from the World Economic Forum meeting in Davos later this month. The petition headlined 'Trump not welcome -- stay out of Davos' was launched on the campax.org website at 9:00 am... and had gathered some 2,500 signatures by mid-afternoon."
— Carrier fires 215. Indy Star's John Tuohy: "Carrier has announced 215 workers will lose their jobs at its Indianapolis heating and air conditioning plant this week, the last of about 600 previously announced layoffs. To register their displeasure, many of the workers will gather Wednesday night at 7 p.m. at a west-side bar to call on... Trump to stop manufacturing jobs from leaving the United States... Carrier announced plans in 2016 to move all of its Indianapolis operations to Monterrey, Mexico, and close the west-side factory. The pending layoffs became a flashpoint during the presidential election when Carrier's parent company United Technologies announced it would cut 2,100 jobs in Indiana. Trump slammed the decision on the campaign trail and threatened to 'tax the hell' out of Carrier's products."
— Trump won't commit to Mueller interview. The Post's Josh Dawsey: "Trump on Wednesday declined to say whether he would grant an interview to special counsel Robert S. Mueller III and his team, deflecting questions on the topic by saying there had been “no collusion” between his campaign and Russia during the 2016 presidential election. 'We’ll see what happens,' Trump said when asked directly about meeting with the special counsel. Trump then questioned why he would be interviewed, arguing again there had been “no collusion” between his campaign and Russia."
Trump sounded frustrated — or nervous — in a pair of Wednesday morning tweets related to the probe:
The fact that Sneaky Dianne Feinstein, who has on numerous occasions stated that collusion between Trump/Russia has not been found, would release testimony in such an underhanded and possibly illegal way, totally without authorization, is a disgrace. Must have tough Primary!— Donald J. Trump (@realDonaldTrump) January 10, 2018
The single greatest Witch Hunt in American history continues. There was no collusion, everybody including the Dems knows there was no collusion, & yet on and on it goes. Russia & the world is laughing at the stupidity they are witnessing. Republicans should finally take control!— Donald J. Trump (@realDonaldTrump) January 10, 2018
— Mueller adds cyber prosecutor. The Post's Matt Zapotosky: "Mueller... has added a veteran cyber prosecutor to his team, filling what has long been a gap in expertise and potentially signaling a recent focus on computer crimes. Ryan K. Dickey was assigned to Mueller’s team in early November from the Justice Department’s computer crime and intellectual-property section, said a spokesman for the special counsel’s office. He joined 16 other lawyers who are highly respected by their peers but who have come under fire from Republicans wary of some of their political contributions to Democrats. Dickey’s addition is particularly notable because he is the first publicly known member of the team specializing solely in cyber issues. The others’ expertise is mainly in a variety of white-collar crimes, including fraud, money laundering and public corruption, though Mueller also has appellate specialists and one of the government’s foremost experts in criminal law."
— Dems go solo on Russia probe. The Post's Karoun Demirjian: "Democrats are striking out on their own this week over all but one of the congressional investigations into Russian meddling, independently releasing reports and transcripts, and attacking Republicans they accuse of intentionally undermining active probes in deference to President Trump. Senior Democratic officials in the Senate, frustrated by what they consider a Republican campaign to discredit the law enforcement and intelligence agencies investigating the president, cleared their members to release the interview transcript of one of the Russia investigation’s most sensitive witnesses and, separately, to publish a report detailing the disinformation and intimidation tactics the Kremlin deploys against democracies globally. In the House, Minority Leader Nancy Pelosi (D-Calif.) endorsed a letter sent Tuesday to Speaker Paul D. Ryan (R-Wis.), accusing him of orchestrating a campaign to bury a congressional probe into Trump’s alleged ties to the Russian government and defame the agencies investigating those matters."
— Change on lending to the poor. WSJ's Rachel Louise Ensign and Ryan Tracy: "The Trump administration plans to unveil a major revision to decades-old banking rules that mandate lending to poor borrowers. Changes to the regulations of the Community Reinvestment Act—a law first enacted in 1977—could potentially transform the way banks make billions of dollars in loans, investments and donations to poorer customers. In all, they could make it easier for banks to meet certain lending requirements and lower penalties for compliance problems.
Community groups that support the law fear that any rollback could mean poorer people over time would have less access to loans and banking services. In recent years, for example, some lenders have focused on serving more affluent customers. The CRA, though, generally has prevented banks from focusing only on the wealthy. Some of the government’s changes have already gone into effect. In early 2018, the Treasury Department is planning to unveil broader recommendations to revamp the government’s enforcement of the CRA, according to a Treasury spokeswoman."
— Judge rules for Trump on CFPB. The Post's Renae Merle: "A federal judge on Wednesday sided with the Trump administration for a second time in a fight for control of the Consumer Financial Protection Bureau, denying a request by a high-ranking agency employee that she be put in charge instead of the White House’s pick. U.S. District Judge Timothy J. Kelly on Wednesday turned down Leandra English’s request for a temporary restraining order that would prevent White House budget director Mick Mulvaney from serving as the CFPB’s acting director. 'English has not demonstrated a likelihood of success on the merits or shown that she will suffer irreparable injury absent injunctive relief,' Kelly said in the 46-page ruling."
— Stock market advisory disbands. Reuters: "The U.S. Securities and Exchange Commission has shut down a committee of equity market experts that advised the regulator on stock market reforms, according to two people with direct knowledge of the matter. The SEC formed the 17-member Equity Market Structure Advisory Committee in 2015 to help it dig into issues such as excessive market volatility and potential conflicts in exchange pricing, and make recommendations on ways to improve the rules around them. Committee members, made up of industry leaders and academics, were notified by email of the SEC’s decision on Wednesday, according to the people with direct knowledge, who declined to be named because the decision had not been officially announced. The reason given by the regulator for the move was that the charter of the committee had expired, one of the people said."
— Dems pitch massive fines for credit bureaus. American Banker's Ian McKendry: "Sens. Elizabeth Warren, D-Mass., and Mark Warner, D-Va., are set Wednesday to introduce a bill that would create mandatory penalties for data breaches at credit reporting agencies... The Data Breach Prevention and Compensation Act would set mandatory fines at $100 for each consumer who has a piece of personally identifiable information compromised and another $50 for each additional piece of personal identifiable data. The penalties would be capped at 50% of the credit reporting agencies’ gross revenue from the prior year — except in cases of extreme negligence, in which case the fine would go up to 75% of the companies' prior year gross annual revenue."
Here's a great interactive from Axios's Steve LeVine and Chris Canipe on Chinese investment in the United States:
- The Peterson Institute for International Economics and the China Finance 40 Forum host the Third Annual China Economic Forum on “The New Era of Chinese Economy and China’s Financial Opening-up.”
- The Brookings Institution holds an event on “The Wall: the real costs of a barrier between the U.S. and Mexico.”
- The Brookings Institute holds a discussion on "The Lost Einsteins," on the importance of exposure to innovation, especially for women, minorities and children from low-income families.
- The Securities and Exchange Commission Fixed Income Market Structure Advisory Committee holds a public meeting.
- The Economic Policy Institute holds a discussion on "Understanding the decline in manufacturing jobs” on Friday.
- The American Enterprise Institute holds an event on “New thinking about poverty and economic mobility” on Jan. 18.
From The Post's Tom Toles:
Here's President Trump's economic report card:
Here's what you need to know about earmarks:
Trump vows to reexamine libel laws:
Watch Jimmy Kimmel on "Trump's 2,000 lies:"