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Republicans want to chalk up everything going right in the economy to their rewrite of the tax code. So far, the data aren't cooperating. 

The latest dent landed Monday in what Republicans hoped would provide them armor in a hostile midterm environment. In a survey of business leaders for the Institute for Supply Management’s semiannual forecast, a third reported they will boost capital spending over the next year — just the sort of investment that GOP tax-writers are eager to tout. But of that group of executives, only one in seven with factories identified the tax overhaul as the catalyst. Instead, 69 percent of those in manufacturing and 58 percent in services cited the “general business outlook.” 

A Republican might argue the distinction lacks a difference — that the general business outlook owes its improvement to the transformational effect of the tax law. Yet the results broadly track with an April survey by the National Association for Business Economics that found two-thirds of firms aren’t changing their hiring or investment plans based on tax overhaul. And while it’s true business investment has reached record levels, Bloomberg Opinion's Noah Smith points out as a percentage of the economy, that spending remains below both its pre- and post-recession peaks. That underperformance defies the case that the tax law is driving a heyday for big, new corporate investments. See the chart here:

And that’s at least in part because of the gusher of money that corporations are directing to investors through stock buybacks and dividends. Just last week, Apple provided an eye-popping demonstration of the trend when it announced it is dedicating $100 billion toward buybacks. The $22.8 billion the tech giant spent on buybacks in the first quarter alone would have added more than half a percentage point to business investment. (Or, just for a sense of how much money that really is, the company could have used it to buy any of the 275 companies in the S&P 500 index.) Altogether, Goldman Sachs has projected that S&P 500 companies will send $1.2 trillion back to shareholders this year through buybacks and dividends, a 23 percent leap for buybacks. 

“Republicans sold the 2017 tax law as 'rocket fuel' for American investment and growth, saying that corporations — flush with cash from lower tax rates — would channel money back into the economy by building factories and offices and investing in equipment, which would help companies grow and provide winnings for workers,” The New York Times’s Matt Phillips and Jim Tankersley wrote earlier this month. “Economists say that may happen ... But, so far, hard evidence of such an acceleration has yet to appear in economic data, which show more of a steady investment roll than a rapid escalation ... Corporate spending on buying back stock is increasing at a far faster clip.”

Bloomberg’s Lu Wang offered a sunnier take late last month. She cited a UBS report that found capital spending had surged 39 percent among companies that had reported their earnings — the fastest rate in seven years — while “returns to shareholders are growing at a much slower pace, with net buybacks rising 16 percent. Dividends saw an 11 percent boost.” But when I blurbed that piece in this space, an eagle-eyed reader wrote to me pointing out without real numbers, comparing percentage increases between two different categories of spending could present a misleading view. “A 39% increase doesn't mean that a majority of the tax windfall is going towards capital expenditures, because it doesn't say 39% of what,” the reader wrote. Fair point. 

Asked on Monday about the effects the law appears to be having so far, House Ways and Means Committee Chairman Kevin Brady (R-Tex.) said it is still too early to judge. And he dismissed the measure's lackluster polling as an inaccurate reflection of public sentiment: 

"Having to wait is frustrating for people who want an instant (and often partisan) answer to the question of whether Trump’s tax reform was good or bad," Bloomberg Opinion's Smith writes. "But it’s the only rational way to evaluate the policy’s true effects." Republicans who need to marshal what good news they can find in an otherwise ugly year aren't waiting for the full picture to make their case. So far, most voters aren't biting

The Post’s Alan Sipress and Karen DeYoung explain how President Trump’s decision might affect an already tense Middle East. (Sarah Parnass, Joyce Lee/The Washington Post)

Investors brace for Iran deal decision. Bloomberg's Felice Maranz: "Trump says he will announce his decision on Iran Tuesday at 2 p.m. Geopolitical jitters -- along with the start of the summer driving season and positive jobs data -- had helped push oil above $70 a barrel for the first time since November 2014. Stocks pared gains and oil futures dipped as investors weighed the forthcoming announcement."

From Compass Point's Isaac Boltansky: "The market has slowly gravitated toward an expectation that the Iran deal is facing an existential risk, so the announcement itself is unlikely to surprise investors. Instead, the second and third derivatives of unwinding something as complicated as this deal will have untold repercussions”

Oil is wobbling in anticipation of the announcement. 

Powell: Don't overstate Fed's influence on global conditions. WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell said the central bank would communicate its interest-rate policy strategy 'as clearly and transparently as possible' to avoid market turmoil that could ripple through foreign economies. Mr. Powell, in remarks prepared for delivery Tuesday in Zurich, Switzerland, pushed back, however, on complaints that the Fed’s efforts to spur U.S. economic growth over the past decade were primarily responsible for a surge of capital into emerging markets, and that Fed moves to remove stimulus would spark upheaval in emerging markets. 'While global factors play an important role in influencing domestic financial conditions, the role of U.S. monetary policy is often exaggerated,' he planned to say at a conference sponsored by the International Monetary Fund and Swiss National Bank."

Richmond Fed's Barkin backs more rate hikes.  MarketWatch: "Richmond Federal Reserve President Thomas Barkin, in his first public speech, said Monday that he thinks the central bank should continue to raise interest rates. Barkin said the level of the fed-funds rate target is still boosting the economy, which he described as stepping on the gas. It is 'hard to argue' this is the correct policy stance with unemployment low and inflation is at the 2% annual target, he said in a speech at George Mason University."

Atlanta Fed's Bostic is ok with inflation overshoot. Bloomberg: "Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank can accommodate an overshoot of its inflation target and he isn’t worried by the impact of oil prices rising past $70 a barrel. The Fed’s preferred measure of inflation hit 2 percent in March and that is 'a good thing for us,' Bostic told reporters Monday."


China trade talks come to Washington. Reuters: "China’s top economic official will visit Washington next week to resume trade talks with the Trump administration, the White House said on Monday, after discussions in Beijing last week failed to produce agreement on a long list of U.S. trade demands... 'China’s top economic adviser, the vice premier (Liu He), will be coming here next week to continue the discussions with the president’s economic team,' she said."

As China softens tone. Bloomberg: "China tried to strike a positive tone after... Trump’s trade negotiators left Beijing Friday with no public sign of an agreement, reiterating that the U.S. shouldn’t make unreasonable demands. State media over the weekend offered a somewhat positive assessment of the U.S. trade talks, urging more negotiations while saying the Americans should be 'rational and pragmatic.' And in a move that would meet some U.S. demands, the Commerce Ministry is studying measures to further lower import tariffs on some food, pharmaceuticals and medical instruments, Economic Information Daily reported Monday."

Yet the two sides are set for a brawl in Geneva: Bloomberg: "The U.S. and China are set to clash in Geneva on Tuesday as envoys from the world’s two largest economies address the World Trade Organization amid threats of a trade war. Chinese Ambassador Zhang Xiangchen will criticize Washington’s proposed tariffs on $150 billion of Chinese goods as well as levies on steel and aluminum that went into effect in March, according to an agenda of the meeting. Zhang’s U.S. counterpart, Dennis Shea, is expected to defend the measures and find fault with Beijing’s retaliation."

President Trump said he'll take up the matter today with Chinese President Xi Jinping: 

NAFTA talks grind on. Reuters's Anthony Esposito and David Lawder: "Senior Canadian, U.S. and Mexican officials trying to rescue slow-moving talks to update the NAFTA trade pact met on Monday in a new bid to resolve key issues before regional elections complicate the process. With time fast running out to strike some kind of deal... the three member nations are still far apart on major points. Discussions in Washington will center on one particularly contentious area — the U.S. demand for tougher rules of origin governing what percentage of a car needs to be built in the NAFTA region to avoid tariffs. Other challenges include the future of the pact’s dispute-resolution mechanism and a U.S. proposal for a sunset clause that could automatically kill the deal after five years."

Carson sued. The Post's Tracy Jan: "Fair-housing advocates planned to file a lawsuit early Tuesday against the U.S. Department of Housing and Urban Development and HUD Secretary Ben Carson for suspending an Obama-era rule requiring communities to examine and address barriers to racial integration. The 2015 rule required more than 1,200 communities receiving billions of federal housing dollars to draft plans to desegregate their communities — or risk losing federal funds."


Trump calls for CHIP cuts. The Post's Damian Paletta and Erica Werner: "Trump is sending a plan to Congress that calls for stripping more than $15 billion in previously approved spending, with the hope that it will temper conservative angst over ballooning budget deficits. Almost half of the proposed cuts would come from two accounts within the Children’s Health Insurance Program... that White House officials said expired last year or are not expected to be drawn upon. An additional $800 million in cuts would come from money created by the Affordable Care Act in 2010 to test innovative payment and service delivery models. Those are just a handful of the more than 30 programs the White House is proposing to Congress for 'rescission,' a process of culling back money that was previously authorized."

Dems raise objections to Sprint-T-Mobile deal. Reuters: "Senators Amy Klobuchar, Elizabeth Warren and other Democratic lawmakers expressed 'serious concerns' on Monday about T-Mobile US, Inc’s plan to buy rival Sprint Corp, focusing on the planned deal’s effect on lower-cost wireless plans, Klobuchar’s office said in a press statement. In a letter sent to the Justice Department’s antitrust chief, Makan Delrahim, and Federal Communications Commission Chairman Ajit Pai, the senators said that they worried that the deal between the No. 3 and No. 4 wireless service providers would lead to higher prices for consumers."


Wall Street warms to Bitcoin. NYT's Nathaniel Popper: " Some of the biggest names on Wall Street are warming up to Bitcoin, a virtual currency that for nearly adecade has been consigned to the unregulated fringes of the financial world. The parent company of the New York Stock Exchange has been working on an online trading platform that would allow large investors to buy and hold Bitcoin, according to emails and documents viewed by The New York Times and four people briefed on the effort who asked to remain anonymous because the plans were still confidential.

"The news of the virtual exchange, which has not been reported before, came after Goldman Sachs went public with its intention to open a Bitcoin trading unit — most likely the first of its kind at a Wall Street bank. The moves by Goldman and Intercontinental Exchange, or ICE, the parent company of the New York Stock Exchange, mark a dramatic shift toward the mainstream for a digital token that has been known primarily for its underworld associations and status as a high-risk, speculative investment."

Activist targets Citigroup. WSJ's David Benoit and co.: "Activist investor ValueAct Capital Partners LP has built a roughly $1.2 billion stake in Citigroup Inc. a bet that the giant bank’s strength as a service provider to corporations will enable it to thrive in the post-crisis era and make up ground its shares have lost in recent years. ValueAct, which has built the position over the past four to five months, continues to boost it 'opportunistically,' according to a letter to its own investors... The stake amounts to about 0.7% of Citigroup, which has a market value of $175 billion... The letter doesn’t call for any significant strategic changes, though it suggests the bank could boost its plan to return cash to shareholders via buybacks and dividends to about $50 billion from $40 billion."

Wells Fargo tries image rehab. American Banker's Kristin Broughton: "For the second time in the past year, Wells Fargo has launched an advertising campaign aimed at improving its tarnished image. The embattled company on Monday announced the launch of a new marketing campaign, called 'Re-established,' designed to improve its trustworthiness in the eyes of customers. The campaign features a one-minute commercial as well as advertisements in print, digital and broadcast media. The commercial, in particular, highlights Wells’ historical roots, including its founding in 1852 and its role in financing the California gold rush."


Mulvaney's second gig has overtaken his first. NYT's Glenn Thrush and Alan Rappeport: "A firebrand fiscal hawk as a congressman from South Carolina, Mr. Mulvaney has seized on his second job as the interim chief of the Consumer Financial Protection Bureau as an opportunity to dismantle an Obama-era watchdog agency vilified by Republicans since its inception as an example of government overreach... Since taking over in November, he has halted all new investigations, frozen hiring, stopped data collection and proposed cutting off public access to a database of consumer complaints. He dropped most cases against payday lenders — a primary focus of the consumer bureau — and also proposed scrapping a new rule that would have heightened scrutiny of an industry accused of trapping vulnerable customers in a cycle of debt. And he has tried hard to persuade Congress to take away funding authority for the bureau from the Federal Reserve — so that Congress can cut it."

SEC could deadlock with Piwowar departure. WSJ's Dave Michaels: "A Republican member of the Securities and Exchange Commission who was a frequent critic of post-crisis regulations and helped quash some rules embraced by Democrats plans to leave the agency in July. Michael Piwowar said he intends to step down from the SEC on July 7, after serving nearly five years on the five-person commission. Mr. Piwowar’s departure would leave the agency with four commissioners, meaning some votes could be deadlocked if the SEC’s two Democrats oppose measures favored by Chairman Jay Clayton, a Trump administration appointee. That could slow Mr. Clayton’s progress on his priorities, which include stricter rules for brokers advising retail investors and lightening the regulatory burdens on public companies."

CFTC weighs staff cuts. Bloomberg's Ben Bain: "The U.S. Commodity Futures Trading Commission is reducing services for staff members and may offer buyouts for some workers as the agency prepares for belt-tightening after its budget was cut by lawmakers. Units across the 700-person agency 'will have to make sacrifices' because of spending constraints, CFTC Chairman J. Christopher Giancarlo said last week in a memo to staff. He was responding to a $1 million dollar budget cut that comes as the agency, already the main U.S. derivatives regulator, tries to assert itself as a cryptocurrency watchdog."



  • The Federal Reserve Bank of Atlanta’s 23rd Annual Financial Markets Conference continues.
  • The SIFMA’s Operations Conference and Exhibition continues.
  • The House Science, Space and Technology Subcommittee on Oversight and on Research and Technology holds a hearing on blockchain technology.
  • The Center for Strategic and International Studies holds an event on financial inclusion in the digital age.
  • The Brookings Institution holds an event on the future of the middle class.
  • The Insured Retirement Institute’s Action18 conference begins.

Coming Up

  • The American Enterprise Institute holds an event on community banking on Wednesday.
  • The Atlantic Council holds an event on US-China trade tension’s implications for Latin America on Wednesday.
  • The Securities and Exchange Commission’s fifth annual conference on financial market regulation begins Thursday.
  • The Peter G. Peterson Foundation’s Fiscal Summit is on Thursday.

From the New Yorker: 

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A cartoon by @kimwarp. #TNYcartoons

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From the Fact Checker: Will Iran be free to create nuclear weapons after seven years?:

President Trump is vastly over simplifying what Iran can do seven years after the nuclear deal was implemented. (Meg Kelly/The Washington Post)

New York state Attorney General Eric Schneiderman resigned after four women accused him of physical abuse:

Stephen Colbert on President Trump's comments about his lawyer, Rudy Giuliani: