One year and two weeks ago, Steven Mnuchin went on CNBC with a bold claim about the incoming administration’s tax plan. Although the middle class would see significant relief, he said, “there will be no absolute tax cut for the upper class.”
With the bill on the threshold of passing, the treasury secretary made the rounds again Sunday to drive the message home. On CNN’s “State of the Union,” Mnuchin argued tthe wealthy won’t be gaining at all under the plan. “The president was right. There are people who are rich people that are having their taxes going up,” he said. Responding on CBS’s “Face the Nation” to critiques from Republican lawmakers that the plan doesn’t fulfill the Trump team’s populist pledges, Mnuchin said, “I think that is just not correct… This is about the middle class. This is about working families.”
Except that it’s not. In between Mnuchin’s pledge last year and his latest claims, the administration worked with congressional Republicans to forge a package that delivers the bulk of its benefits to corporations and the wealthy.
Beyond permanently slashing the corporate rate to 21 percent, the bill lowers the top marginal rate for the highest-income earners from 39.6 percent to 37 percent, and bumps up the threshold for that top bracket from $470,700 for married couples to $600,000; it doubles the estate tax exemption to $22 million for couples; mostly preserves the carried-interest break for investment fund managers; and it creates a new 20 percent deduction for most businesses that file their taxes on the individual side of the code.
To Mnuchin’s point, the measure also eliminates all but $10,000 of the write-off for state and local taxes — a change that will hit top earners in high-tax states such as California, Connecticut and New York. But to assert that the bill broadly offers nothing for the wealthy is simply false. (Breakdowns by both government and independent analysts have consistently found the plan’s biggest breaks go to the top of the income scale.)
And it’s an odd argument from a figure who repeatedly acknowledged as much this year. Democrats made hay of Mnuchin’s original CNBC statement, branding it the “Mnuchin rule,” and attempted to elevate it as the standard by which the GOP tax plan should be judged. But Mnuchin disavowed that standard, telling Sen. Ron Wyden (D-Ore.) during testimony before the Senate Budget Committee in June, “You made it a rule, I didn’t make it a rule… I have walked it back from the CNBC interview.”
And in October, Mnuchin said that it is difficult to avoid a windfall for the wealthy, considering the share of taxes they pay. “The top 20 percent of the people pay 95 percent of the taxes. The top 10 percent of the people pay 81 percent of the taxes,” the secretary told Politico. “So when you’re cutting taxes across the board, it’s very hard not to give tax cuts to the wealthy with tax cuts to the middle class. The math, given how much you are collecting, is just hard to do.”
It remains to be seen whether Mnuchin’s latest take represents the leading edge of the administration’s sales pitch for a measure that will form the spine of its appeal heading into the 2018 midterms.
The bill remains deeply unpopular, with overwhelming majorities pointing to what they view as its tilt in favor of business interests and the wealthy. President Trump and his deputies have demonstrated time and again they won’t be constrained by fact-checkers and independent analyses.
Whether voters are inclined to accept their version is another question. As The Post’s Dan Balz wrote over the weekend, “The tax bill is something Republicans and the president have been pointing to as their redemption since they failed to repeal Obamacare. If it does pass, as expected, they’ll have to fight to prove themselves correct.”
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— Dow 25,000. CNN Money’s Matt Egan and Danielle Wiener-Bronner: “It could happen any day now, especially if Congress passes the massive package of tax cuts that has seriously fired up Wall Street. Whenever the Dow tops 25,000, it’ll be an incredible feat. Not just because it’s another milestone in a year of milestones (Dow 20,000; 21,000; 22,000; 23,000; and only three weeks ago 24,000), but because it shows just how far the stock market has come from the crisis. Consider that the Dow crashed to just 6,443 in March 2009 during the Great Recession. The world’s most famous market barometer has nearly quadrupled from that crisis low, with most of the gains occurring prior to President Trump’s election… But could the post-election surge then finally mellow out? BofA is warning that early 2018 will likely bring a ‘Big Top in risk assets’ (read: stocks and junk bonds), especially if inflation finally rears its ugly head. ‘Excess bullishness won’t take long,’ BofA concluded.”
— Bitcoin futures launch on CME. CNBC’s Evelyn Cheng: “CME, the world’s largest futures exchange, launched its own bitcoin futures contract Sunday under the ticker ‘BTC.’ The futures fell 3.8 percent to $18,760 about four hours after opening at $20,650 and rising slightly. The move lower was a stark contrast from the 19 percent surge in CBOE bitcoin futures during their first day of trading a week ago. The Cboe bitcoin futures, traded under the ticker “XBT,” rose 3 percent to $18,660 Sunday evening, ET.
Because of the initial gains in the Cboe bitcoin futures, ‘I think today people were anticipating a similar type of event,’ said Joe Van Hecke, founder and managing parter at Chicago-based trading firm Grace Hall. ‘The aggressiveness of the bids did take me by surprise.’ Van Hecke, who said he was one of the first to trade both the Cboe and CME bitcoin futures, noted that it appears more institutional-level investors are trading the CME contract.”
— Fannie and Freddie are here to stay. WSJ’s Andrew Ackerman and Nick Timiraos: “Lawmakers in both parties and the Trump administration are negotiating overhauls of the two companies—critical to home mortgages but in government conservatorship since the financial crisis—that could keep them at the center of the U.S. mortgage market for years to come, abandoning long-stalled proposals to wind them down, people familiar with the matter said.
Bipartisan Senate legislation set to be introduced in early 2018 marks the clearest sign of this reversal and shows how the companies, entering their 10th year under federal control, have proven too risky to attempt replacing. The housing market has seen strong demand in recent years, driven in part by steady access for many Americans to 4% or lower 30-year fixed-rate mortgages, thanks in part to a government backstop of the companies.
Advancing legislation to refashion the nation’s $10 trillion mortgage market is a heavy political lift and may yet sputter during the coming midterm-election year, as a prior Senate effort did four years ago. One big difference this time around: a more incremental approach largely reliant on the existing housing-finance framework.”
MONEY ON THE HILL
— Corker asks about loophole. The Hill’s Brett Samuels: “Sen. Bob Corker (R-Tenn.) sent a letter on Sunday to Sen. Orrin Hatch (R-Utah) asking how a provision that would potentially benefit real estate moguls, including Corker, made it into the final version of the Republican tax-reform bill. ‘Because this issue has raised concerns, I would ask that you provide an explanation of the evolution of this provision and how it made it into the final conference report,’ Corker wrote.
The International Business Times reported Saturday that a provision added during the reconciliation process allows owners of income-producing real estate to take advantage of a 20-percent deduction for ‘pass-through’ entities. The Senate version of the tax bill included rules that allowed the deduction to be claimed only by businesses that pay their employees significant wages.
The provision would potentially benefit Corker and President Trump, among other real estate moguls. Corker said Sunday he did not have a role in writing the legislation, and asked Hatch, the chairman of the Senate Finance Committee, to explain how the provision made it into the final bill. He suggested it was in the House’s version of the tax bill, and remained in the final version after a conference committee sought to reconcile the House and Senate tax bills.” (More on Corker’s position from The Tennessean)
— McCain will miss the big tax vote. The Post’s Dan Lamothe: “Sen. John McCain left the nation’s capital Sunday to spend Christmas in Arizona with his family as he battles brain cancer, giving his Republican Party one less vote as it is expected this week to attempt to push through a contentious tax plan along party lines… Trump told reporters Sunday that McCain and his wife, Cindy McCain, have ‘headed back [to Arizona], but I understand he’ll come if we ever needed his help, which hopefully we won’t.’ He added: ‘But the word is John will come back if we need his vote. It’s too bad. He’s going through a very tough time, there’s no question about it. But he will come back if we need his vote.’ Trump said he spoke to Cindy McCain by phone Sunday. ‘I wished her well. I wish John well,’ he said.
McCain was hospitalized Wednesday while receiving chemotherapy treatment at Walter Reed National Military Medical Center in Bethesda and at the nearby National Institutes of Health. He received a diagnosis this year of glioblastoma, an aggressive, malignant brain tumor that can cause headaches, seizures, blurred vision and other symptoms. In a brief statement, the senator’s office provided an assessment from Mark Gilbert, chief of neuro-oncology at the National Institutes of Health’s National Cancer Institute. ‘Senator McCain has responded well to treatment he received at Walter Reed Medical Center for a viral infection and continues to improve,’ Gilbert said, according to the Associated Press. ‘An evaluation of his underlying cancer shows he is responding positively to ongoing treatment.'”
McCain’s absence isn’t expected to affect the approval of the tax plan however, as Corker and Sen. Marco Rubio (R-Fla.) are on board.
— Five-day sprint. The Post’s Jeff Stein, Mike DeBonis and Patrick Reis: “Republicans return to Congress on Monday facing a packed agenda with little time to enact it, as party leaders aim to quickly pass their massive tax plan and then cut a budget deal with Democrats before the end of Friday to avert a government shutdown. Republicans’ tight timing on taxes is self-imposed. GOP lawmakers have for months been racing to meet President Trump’s demand that they send him tax legislation before Christmas — a timeline that gained new urgency when Alabama Democrat Doug Jones won the Senate seat currently occupied by Sen. Luther Strange (R).
GOP leaders hope to hold tax votes early in the week before moving to the budget bill. They need Democrats’ help to pass the budget measure through the Senate, and thus far they have made little progress bringing them aboard amid disagreements over spending levels, protection from deportation for certain undocumented immigrants and a federal health insurance program for low-income children. The outcome of the tax votes, however, appears certain after Republican Sens. Marco Rubio (Fla.) and Bob Corker (Tenn.) on Friday pledged their support. The two gave the GOP the Senate votes to pass the bill, even as Sen. John McCain (R-Ariz.), who is battling an aggressive form of brain cancer, returned to Arizona on Sunday. He is not expected to vote on the final bill.”
— Breaking it down. CNBC has this breakdown of the tax bill’s $5 trillion worth of winners and losers, including an interactive graphic… See the NYT’s winners and losers here… What’s in it for you, via the NYT, and the WSJ.
— Years of challenges ahead. WSJ’s Richard Rubin: “Republicans are on the cusp this week of passing a historic overhaul of the U.S. tax system but might also be ushering in a new period of instability in the tax code, because the plan is advancing without bipartisan support and with expiration dates that guarantee it will be revisited for years. A $1.5 trillion reduction in the overall tax burden over a decade accompanies the most sweeping rewrite of U.S. business and income taxes since the Reagan era, achieving goals long sought by many conservative economists and politicians. But to get the bill through a closely divided Congress, Republicans made many of its pieces time-limited.
Individual tax cuts and a new 20% deduction for millions of businesses are scheduled to vanish after 2025. A corporate-tax-rate cut and international tax rules are permanent to encourage long-run planning, but other business provisions arrive, then disappear. One-time revenue sources like a $339 billion tax on stockpiled foreign profits pay for long-running tax cuts, making the bill more costly in the future. Key features—including the $2,000 child tax credit and a $10,000 cap on the state and local deduction—aren’t indexed to inflation, eroding their real value over time. Congress will need to make substantive and technical corrections as problems arise, said Martin Sullivan, chief economist at Tax Analysts, a nonprofit publisher of tax notes.”
— Sanders: Dems will repeal. Politico’s Martin Matishak: “Sen. Bernie Sanders said Sunday that corporate taxes would likely roll back up if Democrats retake control of the Senate in the 2018 midterm elections. Congress is poised this week to pass a sweeping tax overhaul that would drop the corporate tax rate from 35 percent to 21 percent. But Sanders, an independent from Vermont who caucuses with the Democrats, said that would change under a Democratic majority. ‘Absolutely, yes. In my view, absolutely,’ he said on CBS’ “Face the Nation.” ‘We’re going to take a very hard look at this entire tax bill and make it a tax bill that works for the middle class and working families, not for top 1 percent and large multinational corporations,’ he said.”
— Exodus: Movement of blue-state people. WSJ’s Ben Leubsdorf: “A key provision in the Republican tax plan could dim the appeal of living in high-tax states like New York in favor of low-tax states like Florida. But research on the subject suggests high-tax regions won’t see a sudden or mass exodus. That’s because taxes are only one of the many factors that play into where individuals choose to live…
It’s one of the largest individual tax breaks in current law. Nearly 30% of tax returns took advantage of the deduction in 2015, according to the Tax Policy Center, benefiting many affluent households that itemize rather than take a standard deduction. Limiting it going forward could prompt some of those families to consider relocating to lower-tax areas… A study published this summer in the American Economic Review found tax increases at the state level led to top scientists relocating to lower-tax states. University of California, Berkeley economist Enrico Moretti, who co-authored the study, said the same pattern should be true for other highly paid and educated workers, though he said it can take years for the relocation response to fully kick in after a tax increase…
Relying on that study and other research, economists at Goldman Sachs & Co. last month estimated that eventually, the number of high earners in New York City could fall by 2% to 4% due to the limited deduction, though that was based on an earlier form of the bill.”
— Upending homeownership credits. NYT’s Conor Dougherty: “For decades, the tax code has been filled with rewards for homeownership. Tax breaks encourage people to get into first homes and to trade up as they get older, building a national mind-set that you’re never quite middle class until you’ve qualified for a mortgage. It amounts to a vast social engineering project that assumes society is better off with owners instead of renters. But the tax bill making its way toward final passage is upending that premise.
The bill will increase many homeowners’ monthly housing costs by scaling back deductions that allow them to reduce mortgage interest and property taxes. And by roughly doubling the standard deduction, it reduces the incentive to buy homes by making far fewer homeowners eligible for preferential tax treatment. Today, a little under half of American homes are worth enough to justify itemizing mortgage interest and property taxes. Under the tax legislation, that figure would fall to close to 14 percent, according to an analysis of the plan by the online real estate marketplace Zillow. The Republican plan, in short, is tinkering with subsidies so entrenched in the social fabric that they have become entitlements in all but name.”
— Postcard blues. NYT’s Jim Tankersley: “The Republican tax bill does not pass the postcard test. It leaves nearly every large tax break in place. It creates as many new preferences for special interests as it gets rid of. It will keep corporate accountants busy for years to come. And no taxpayer will ever see the postcard-size tax return that President Trump laid a kiss on in November as Republican leaders launched their tax overhaul effort. This was not the grand simplification of the code that Republicans promised when they set out to eliminate tax breaks and cut the number of tax brackets as they lowered rates.
As their bill tore through Congress, their ambitions fell to the powerful forces of lobbying and the status quo. Killed tax breaks returned to life. New ones sprung up beside them. A plan for three individual tax brackets became five, and finally eight.
Trade groups, such as the one for real estate agents, were able to preserve many benefits targeted for elimination. The groups whose breaks were actually killed formed an eclectic, if less powerful, bunch: bicycle commuters, gamblers, workers whose companies give them free food. What emerged on Friday, in the final product agreed to by Republican members of a House-Senate conference committee, was a bill that layers new tax complexities upon businesses large and small, and which delivers a larger share of benefits to corporations and the rich than to the middle class.”
— The outsourcing incentive. The Post’s David J. Lynch: “The legislation fails to eliminate long-standing incentives for companies to move overseas and, in some cases, may even increase them…In the future, corporations would be required to pay about a 10 percent minimum tax on overseas income above a certain level. The provision is billed as a way to discourage the movement of jobs and profit overseas. But the fine print of the new global minimum tax would make the problem worse, several tax specialists said…
There are three reasons, according to nonpartisan tax experts. First, a corporation would pay that global minimum tax only on profit above a “routine” rate of return on the tangible assets — such as factories — it has overseas. So the more equipment a corporation has in other countries, the more tax-free income it can earn. The legislation thus offers corporations ‘a perverse incentive’ to shift assembly lines abroad, said Steve Rosenthal of the Tax Policy Center.
Second, the bill sets the “routine” return at 10 percent — far more generous than would typically be the case. Such allowances are normally fixed a couple of percentage points above risk-free Treasury yields, which are currently around 2.4 percent. As a result, a U.S. corporation that builds a $100 million plant in another country and makes a foreign profit of $20 million would pay roughly $1 million in tax versus $4 million on the same profit if earned in the United States, said Rosenthal, who has been a tax lawyer for 25 years and drafted tax legislation as a staffer for the Joint Committee on Taxation.
Finally, the minimum levy would be calculated on a global average rather than for individual countries where a corporation operates. So a U.S. multinational could lower its tax bill by shifting profit from U.S. locations to tax havens such as the Cayman Islands.”
— GOP wonk dreams come true. Politico’s Bernie Becker: “For the large contingent of Washington supply-siders and tax-cutters, the sweeping tax overhaul that President Donald Trump is poised to sign into law this week has been a generation in coming — and the culmination of half a life’s work that started during Ronald Reagan’s 1980s. Grover Norquist, arguably the best-known anti-tax activist in the country, started Americans for Tax Reform at then-President Reagan’s request to help marshal support for the 1986 tax overhaul. He’s been working ever since to rally support for more tax cuts.
House Speaker Paul Ryan (R-Wis.) for years said his dream job was to be House Ways and Means chairman, a position that would have allowed him to quarterback the sort of tax revamp that his mentor, the late Jack Kemp, helped get through Congress in 1986. When he became Speaker, Ryan said he was reluctantly passing the title of Ways and Means chairman, and the opportunity to focus attention on tax reform, to Rep. Kevin Brady (R-Texas). Now, the 2017 tax revamp will bring the American tax system more into lockstep with those conservatives’ thinking than perhaps ever before — making the idea that what works for corporate America will work for the country at large a central plank of U.S. policy for decades to come, maybe even a generation or more. ‘This tax cut and reform will drive further reforms and reductions for the next 50 years,’ Norquist said Friday.”
— Curbing the break for sexual misconduct settlements. NYT’s Christina Caron: “The sexual misconduct allegations against the former Fox News host Bill O’Reilly and the Hollywood producer Harvey Weinstein — and the confidential settlements arising from those accusations — have prompted a provision in the final tax bill that aims to stem the use of nondisclosure agreements. Senator Robert Menendez, a Democrat from New Jersey, proposed the amendment last month. It says any settlement, payout or lawyer’s fees related to sexual harassment or sexual abuse could not be deducted as a business expense if such payments were subject to a nondisclosure agreement.
‘I think most Americans would be outraged to know that they are subsidizing sexual predators in the tax code,’ he said in an emailed statement. But the proposed changes may not deter some companies and businesses from seeking confidentiality. ‘This is a nudge, not a hammer,’ Daniel Hemel, an assistant professor at the University of Chicago Law School and an expert in tax policy, said in a phone interview on Saturday.”
— Conflicting shutdown strategies. Politico’s Rachael Bade, Seung Min Kim and Jennifer Haberkorn: “Republican leaders in both houses of Congress face a sticky situation this week as they try to avert a government shutdown: Each side has promised its members things that will not fly in the other chamber. Senate Majority Leader Mitch McConnell (R-Ky.) told moderate Sen. Susan Collins (R-Maine) he’d support passage of legislation by the end of the year to prop up Obamacare insurance markets — so long as she votes for tax reform. That addition, however, puts Speaker Paul Ryan (R-Wis.) in a pickle: His members are loath to be seen as bailing out a health care law they hate.
Ryan, meanwhile, green-lighted a short-term spending strategy that funds the Pentagon but does nothing for Democratic priorities — and suggested House members could leave town to try to “jam the Senate” into accepting their bill. But McConnell needs eight Democrats to pass anything, so the House plan is sure to fail in his chamber. ‘Right now, they’re just headed straight off a cliff,’ one person familiar with the negotiations said of the House. ‘[The] Senate’s not likely to jump with them.'”
Instead of addressing the obvious inconsistencies, GOP leaders have tried to put off the issue and focus on tax reform for now. They’re eager to delay internal spending fights until the tax package — which Republicans view as critical to maintaining their congressional majorities in the 2018 midterm elections — reaches the Oval Office for President Donald Trump’s signature sometime this week.”
— Trump says he won’t fire Mueller. The Post’s Phil Rucker, Josh Dawsey and Sari Horwitz: “Trump on Sunday sought to douse speculation that he may fire special counsel Robert S. Mueller III amid an intensifying campaign by Trump allies to attack the wide-ranging Russia investigation as improper and politically motivated. Returning to the White House from Camp David, Trump was asked Sunday whether he intended to fire Mueller. “No, I’m not,” he told journalists, insisting that there was “no collusion whatsoever” between his campaign and Russia.
The president’s comments came a day after a lawyer representing Trump’s transition team accused Mueller of wrongfully obtaining thousands of emails sent and received by Trump officials before the start of his administration — a legal and public relations maneuver seen as possibly laying the groundwork to oust the special counsel. Trump criticized Mueller for gaining access to those emails, telling reporters the situation was ‘not looking good.’ ‘It’s quite sad to see that,’ Trump said. ‘My people were very upset about it.’
Mueller’s spokesman denied wrongdoing, and some legal experts questioned the claim that the emails were improperly obtained. The outcry over Mueller’s investigation into Russia’s 2016 election interference grew louder over the weekend among Trump loyalists and conservative media figures. Although Trump has publicly and privately criticized the Department of Justice and the FBI and voiced displeasure with his appointees there, the president’s advisers insisted he is not aiming his ire at Mueller.”
— Cornyn: Firing would be a mistake. Bloomberg’s Ben Brody: “John Cornyn, the Senate’s No. 2 Republican, came to the defense of Mueller, saying it “would be a mistake” for Trump to fire the special counsel, even as many GOP lawmakers ramp up criticism of his probe.Cornyn’s comments on ABC’s “This Week” on Sunday came as a handful of congressional Republicans have called for Mueller’s firing. Representative Jackie Speier, a California Democrat, said in a radio interview on Friday that the ‘rumor’ sweeping the Capitol was that Trump plans to fire Mueller on Dec. 22…
Cornyn said that he has confidence in Mueller, the former FBI director who was named in May to lead a probe into Russian meddling in the 2016 presidential election. Still, he joined many of his Republicans colleagues in casting doubt on the integrity of the investigation, repeating that Mueller should “eliminate” team members who had supported Democrats or were critical of Trump. ‘I would just think he would be concerned about the appearance of conflicts of interest that would undermine the integrity of the investigation,’ Cornyn said.”
— Mnuchin: No reason to think Mueller will be fired. CNN’s Maegan Vazquez: “Mnuchin says he doesn’t have any reason to believe… Trump will fire… Mueller. ‘I was at dinner last night with the President and Vice President. I haven’t heard anything about this, any firing,’ Mnuchin told CNN’s “State of the Union” Sunday morning.
‘I don’t have any reason to believe the President is going to do that,’ Mnuchin later said, adding, ‘but that’s obviously up to him.'”
— Quarles to sit out Wells Fargo regs. WSJ’s Harriet Torry and Emily Glazer: “The Federal Reserve’s point man on financial regulation said he would recuse himself from participating in matters related specifically to Wells Fargo & Co., ‘to avoid even the potential appearance of a conflict of interest.’ Randal Quarles, the Fed’s vice chairman for supervision, said in a letter released Friday he was taking the step due to his extended family’s financial ties to a bank the central bank supervises.
Mr. Quarles is married to Hope Eccles, a relative of Marriner S. Eccles, who ran the Federal Reserve from 1934 until 1948. The Eccles family received a stake in Wells Fargo & Co. through the sale of a Utah bank in 2000. The Fed said in a statement that Mr. Quarles’s decision to recuse himself is voluntary and not legally required. He has opted not to vote on, or participate by decision or recommendation in, matters specifically involving Wells Fargo ‘in light of his extended family’s prior sale of their interest in a bank to Wells Fargo,’ the central bank said. A Wells Fargo spokeswoman declined to comment.”
From The Post’s Andrew Van Dam: “The essential tradeoff in the Republican tax bill, in one chart:”
- The Senate Committee on Banking, Housing and Urban Affairs holds an executive session on nominations for the Export-Import Bank on Tuesday.
- Council on Foreign Relations holds an event on “Using Financial Power to Combat Human Rights Abuses and Corruption” on Tuesday.
From The New Yorker:
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