The Finance 202: The next fight over the GOP tax package is just around the corner

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THE TICKER

House Republicans will vote a second time to pass their tax plan today, completing a blitzkrieg rewrite of the tax code faster than even many in their ranks thought possible just months ago. 

The last-minute gambit by Senate Democrats that forced the revote amounts to less than a speed bump in the scheme of things (the minority challenged three pieces of the bill under the Byrd Rule, which governs whether legislation can be considered under special budget rules, including the measure’s official title.)

My colleague Heather Long breaks down the Democratic objections: 

But the Democratic objections points to a potentially serious problem facing Republicans down the road. 

Considering the complexity of the code and the breakneck speed with which Republicans rewired it, loopholes, drafting mistakes and unintended consequences in need of fixing are bound to pop up in the months ahead.

As Jonathan Bernstein of Bloomberg News points out, the months following enactment of the 1986 tax bill revealed “hundreds of mostly minor drafting errors … with more being found each week.” But the GOP will need the help of at least nine Senate Democrats to address them, since Republicans there won’t have the benefit of the fast-track rules they used to pass the tax package with a bare majority. And as Democrats revealed Tuesday, they’re in no mood to help Republicans out of any messes they made. 

“Given how intransigent they were on [a technical corrections package] for the Affordable Care Act, I’m skeptical Dems would bail them out of their mistakes,” a Democratic leadership aide said in an email. 

That is, Democrats only recently found themselves on the other side of this problem.

Republicans refused to work with them on a package of technical corrections to Obamacare — a once-routine bit of legislative business after the passage of a major bill. Instead, a dispute borne of some sloppy drafting and the subsequent confusion over a four-word phrase in the law touched off a fight that went all the way to the Supreme Court. It involved who could qualify for federal subsidies to help people afford insurance under the law, and as The Washington Post’s Paul Kane wrote in March 2015, a ruling against the administration could have undermined the financial viability of the entire program (the Court found 6 to 3 in favor of the law’s defenders). 

The tax bill appears littered with potential potholes, suggesting Republicans will have plenty of patching to do next year. House Ways and Means Committee Chairman Kevin Brady (R-Tex.) has acknowledged as much in recent days, telling reporters on Friday, “I can’t imagine any major undertaking like this that doesn’t require technical corrections in the future.” 

From Martin Sullivan, chief economist at Tax Analysts: 

Democrats are signaling they’ll prove tough sells. “To start talking about technical corrections before the bill passes is a lot of chutzpah,” Sen. Sherrod Brown (D-Ohio), a member of the Senate Finance Committee, tells me. “I want to improve the bill … But I’m tired of them using their privilege to make their social class richer. And that’s what they’re doing. No, I’m not going to be part of that.” And he noted Republicans will need 60 votes to move such a package. 

His Finance Committee colleague, Sen. Mark Warner (D-Va.), a leading moderate, likewise sounded resistant to technical tweaks to a measure he believes needs fundamental changes. “The failure of my friends to solicit input or do that in a way that would be responsible makes it hard to think about how you fix something that I think will take us a decade to unwind,” he said. 

Democrats will look to use the debate over a package of fixes to push for priorities the GOP stiff-armed  — assuredly not what Republicans have in mind. “We believe that once this becomes law, it’s our responsibility to try to make this bill work, and some of that is going to be to try to change some of the underlying policy,” Sen. Ben Cardin (D-Md.) said. 

As Republicans look for Democrats to help mop up whatever spills from the tax law, they will likely start with Sen. Joe Manchin (D-W.Va.), a figure they once hoped to win over on the bill itself. “Anything I can do to make things better, I’m going to do it,” Manchin told me after voting against the bill early this morning. “I always look at the concerns we have, the adjustments that need to be made, and if it makes sense to me and I can go home and explain it, I’ll vote for it. But I don’t know what it is yet.”

MARKET MOVERS

Analysts can’t keep up with share prices. Bloomberg’s Lu Wang: “To see how powerful the rally in equities has been, look at where stocks stand relative to analyst expectations. At Monday’s close, 30 percent of the companies in the S&P 500 traded above their average analyst price target, data compiled by Strategas Research Partners show. In other words, stocks already reached levels where they’re expected to be 12 months from now. 

While the data may be ammunition for bears, history shows investors would be advised to keep buying. Rather than a sign of a frothy market, the gap shows analysts are too conservative with their estimates, according to Chris Verrone, head of technical analysis at Strategas. “Believe it or not, this has historically been a bullish signal, consistent with above-average forward returns and positive hit rates,” Verrone wrote in a note. “The sell-side analysts are behind the curve and likely have to raise numbers.”

MONEY ON THE HILL

TAX FLY-AROUND: 

On the verge. The Post’s Jeff Stein and Damian Paletta: “Republicans are on the verge of passing the most significant overhaul of the tax code since 1986, after the Senate passed the GOP plan early Wednesday morning and House leaders scheduled a vote to quickly send it to President Trump… The bill passed the Senate 51 to 48 just before 1 a.m. Wednesday, with no Democrats backing the bill while all Republicans present voted for it. Sen. John McCain (R-Ariz.) did not attend the vote as he undergoes treatment for brain cancer. He said earlier this month he supported the bill. The plan’s passage had not been in doubt since Friday, when holdout Republican Sens. Marco Rubio (Fla.) and Bob Corker (Tenn.) pledged to support it.” The plan is going back to the House today for a revote, but that isn’t expected to delay passage for very long.

Click here to see how every House member voted, via the NYT. And these are the 12 House Republicans who voted against the bill, via Bloomberg.

News you can use, via the WSJ’s Laura Saunders, who has some advice about what to do between now and the end of the year to cut your tax bill. For starters: “For millions of Americans, the most important tax-planning tip between now and the end of the year is to check your charitable contributions. They are on Schedule A, Line 19 of your tax return. Do these donations, plus your mortgage interest, allowable medical expenses, and $10,000 of state and local taxes, normally add up to more than $12,000 if you are single and $24,000 if you are married filing jointly? Unless the total tops these amounts—or you have other large, uncommon deductions—the tax overhaul is likely to wipe out your donation write-offs next year and beyond.”

The WSJ has this breakdown of how the plan affects different sectors, from cruise lines to pharmaceuticals. 

Here are protesters interrupting the (first) House vote:

It’s gotten more unpopular. In case you hadn’t heard, a new WSJ/ NBC poll confirms it. WSJ’s Janet Hook: “The Republican tax-cut bill has grown more unpopular in the two months it has taken to usher it through Congress, and few people believe it will provide relief for middle-class families, a new Wall Street Journal/NBC News poll has found. The poll also found that the GOP has lost its advantage on issues it has recently dominated. Americans now express more confidence in Democrats than Republicans to handle taxes, the economy and President Donald Trump’s signature goal of changing how Washington works.

In the new survey, many Americans gave Mr. Trump credit for the nation’s strong economy, with 40% saying he has made the economy better and 21% saying he has made it worse. But those feelings brought little benefit to the president’s party. Nearly half of adults in the new survey held negative views of the GOP, higher than the 38% of a year ago and a larger share than the 27% who viewed the party favorably. By contrast, views of the Democratic Party have turned slightly more positive over the past year.”

Corporations cheer: FedEx raises forecast, via WSJ: “FedEx Corp., saying it is on track for a record holiday season, raised its earnings forecast for the year Tuesday and said the outlook could improve even more if Congress’s tax overhaul is signed into law.” …after Pfizer announced a new $10 billion buyback and raised its quarterly dividend, via NYT: “Pfizer’s announcement comes ahead of the Trump administration’s long-awaited bill to lower taxes. The bill, which looks set to be passed into a law, will overhaul the country’s tax system for the first time in more than 30 years…In rolling out a share buyback program, the drugmaker joins several other businesses including Boeing Co, Anthem Inc and Bank of America Corp.”

Selling it. Morning Consult’s Ryan Rainey: “For several months, state Republican Party affiliates have been pushing the GOP tax bill through a quiet “ground game” initiative targeting voters in states that are emerging as potential 2018 battlegrounds — even before the final contours and details of the package were set by GOP negotiators on Capitol Hill. In total, according to Republican National Committee data provided exclusively to Morning Consult, GOP volunteers and operatives have knocked on over 364,000 doors and made over 145,000 phone calls in 18 states from the first week of September through Dec. 14. Some Republicans view the campaign — which has been prominent in major battlegrounds like Pennsylvania, Ohio, Wisconsin and Nevada — as a dry run for next year’s midterm elections, in which the GOP will defend majorities in both the House and the Senate. RNC Chairwoman Ronna McDaniel said the effort ‘will serve as a blueprint as we work to expand our majorities in 2018 and beyond.’ “

Politico’s Dan Diamond:

The next debate will be uglier. The Post’s Heather Long: “The legislation also makes the country’s debt problem even worse, in all likelihood forcing policymakers in coming years to make difficult decisions about spending cuts, tax increases or both. The debate could touch on some of the most value-laden questions facing the nation — what type of financial security to provide the elderly, what safety net services should be offered to the poor, and how much the government should try to shrink economic inequality.

The challenging landscape is partly the result of choices Republicans made with their tax bill and partly the result of deeper economic forces in the economy. The GOP decided to cut taxes without offsetting spending cuts, driving up the deficit. But the country is also going through a profound demographic shift in which millions of baby boomers are retiring from the labor force and joining the rolls of Medicare and Social Security.”

GOP economic pledges tested. WSJ’s Nick Timiraos and Kate Davidson: “The U.S. economy is about to become the proving ground for GOP tax-cutting theories… Trump and congressional Republicans are betting their tax overhaul will jolt the economy after a long but slow expansion …

Still, the case for sustained faster growth is murky when looked at through the lens of history, and no sure thing now. The 1960s and 1980s saw solid economic growth after Democrats and Republicans lowered individual and corporate rates. But U.S. growth languished in the 2000s after two rounds of tax cuts, and a tax increase on high-income households in 1993 didn’t hamper a burgeoning economic boom.

This time, the Trump administration says growth of 3% or more is possible after more than a decade near 2%. The economy has already delivered faster growth in the second and third quarters. But there are significant headwinds, including an aging workforce marked by retiring baby boomers and puzzling sluggishness in worker productivity. Independent economists say the tax cuts won’t pay for themselves, driving deficits higher by $1 trillion over a decade even after accounting for stronger growth.”

How McConnell did it. Bloomberg’s Sahil Kapur: “A pivotal moment in the Republican party’s drive for tax overhaul legislation came in September, when two GOP senators agreed that tax cuts could add $1.5 trillion to deficits over 10 years, Senate Majority Leader Mitch McConnell said Tuesday. But that compromise meant McConnell had to abandon his earlier position that tax cuts shouldn’t add to the nation’s “alarming” level of debt. ‘Without that there would’ve been no tax bill,’ the Kentucky Republican said in an interview, referring to a bargain struck between [Corker] and Pat Toomey of Pennsylvania over the size of the tax cut package…

Ironically, even though the Senate wasn’t able to repeal Obamacare, once the repeal of the individual mandate penalty — a cornerstone of the ACA — was included in the tax legislation, it helped to bolster support, McConnell said … McConnell also attributed success … to the fact that GOP senators were more energized about it than they ever were about health care. ‘I’ve often described the health care meetings as somewhat akin to getting a root canal,’ he quipped.”

And from the NYT’s Jim Tankersley and Alan Rappeport: “What there never was, in the minds of Republican leaders, was doubt the bill would pass — not even in the scattered moments over the past several weeks when individual senators held it up to demand changes. ‘At the end of the day,’ Mr. McConnell said in an interview, ‘I didn’t have a single person say, “If you don’t do this, I’m going to vote no.”‘… 

Republicans walled themselves off from criticism, convincing one another that unfavorable economic analyses of their bill were wrong, and that its poor poll numbers would improve once the cuts worked their way into Americans’ paychecks. The schedule minimized time back home for members, allowing them to largely avoid the contentious town hall meetings that helped sink their efforts to repeal and replace the [ACA]. They caught a break when Democrats reached a deal with Mr. Trump to keep the government open in early fall, freeing up valuable legislative time to push the tax bill forward.”

What Trump gets. (Short version: We don’t know.) Politico’s Matthew Nussbaum: “Trump has a history of winning bets that the traditional political rules do not apply to him, and his precedent-breaking decision not to release his tax returns is again proving no exception. As major tax cut legislation barrels toward the Oval Office, the White House on Tuesday again declined to release Trump’s tax returns and defended — without providing any evidence — his assertion that the bill will ‘cost me a fortune.’

Now he is set to sign a major tax overhaul that could enrich him significantly, without giving the public the means to tell for sure. Independent analyses have found that the bill … will provide massive benefits to the ultra-rich, including Trump and his family. Still, the White House maintains [Trump’s personal taxes would go up, though press secretary Sarah Huckabee Sanders acknowledged Tuesday that ‘on the business side’ Trump could benefit …

What Rubio got. The Post’s Jeff Stein: “Sen. Marco Rubio (R-Fla.) threw the Republican tax bill into chaos last week when he threatened to vote against it if it didn’t include a more robust tax credit for working families. But by mid-Thursday, GOP leaders had increased the credit by enough to secure Rubio’s vote for the bill. The last-minute change will put, on average, about an extra $300 per child in the hands of families earning between $25,000 and $40,000 a year. But it does virtually nothing for those earning even less ..

Rubio was only partly successful in revamping the Republican proposal to give some low-income Americans more money from the credit.  Under the Senate bill, a family earning $25,000 per year with two children would have received only $2,300 from the tax credit, according to the Center on Budget and Policy Priorities. Under the compromise reached between Rubio and GOP leadership, that same family will receive $2,900 for their children. That’s an additional $600.

But the poorest working families did not benefit at all from that agreement. In the bill the Senate passed, some of the lowest-income workers — those making roughly $15,000 per year — would get a total of $1,875 in tax credits for two children. That’s the same amount this family would receive after the negotiated deal that won Rubio’s vote.”

Rubio spars with PR gov over bill. Politico: “Rubio said he is ‘disappointed’ in Puerto Rico Gov. Ricardo Rosselló for calling him out over the new Republican tax bill, suggesting the commonwealth’s leader is blame-shifting because of criticism of his job performance. The disagreement between the two leaders centers on provisions of the new bill that could put companies in Puerto Rico at a competitive disadvantage because they would be treated as if they are offshore firms, subject to higher taxes than mainland-based corporations.”

Collins: Coverage was sexist. Politico’s Adam Cancryn: “Sen. Susan Collins on Tuesday blasted coverage of her support for the GOP tax bill as ‘extremely discouraging’ and ‘unbelievably sexist.’ The Maine Republican … accused reporters of ignoring her influence over the final legislation and unfairly criticizing her efforts to pass a pair of Obamacare stabilization bills.

‘I believe that the coverage has been unbelievably sexist, and I cannot believe that the press would have treated another senator with 20 years of experience as they have treated me,’ she told reporters in the Capitol. ‘They’ve ignored everything that I’ve gotten and written story after story about how I’m duped. How am I duped when all your amendments get accepted?’ … 

She pointed out that she’s already secured a series of changes to the tax bill itself, including the preservation of the deduction for large medical expenses, a capped state and local tax deduction, and hospitals’ access to tax-exempt private activity bonds.”

From HuffPost’s Matt Fuller:

Rs change gov’t funding strategy. Politico’s John Bresnahan and Rachael Bade: “Facing opposition within their own ranks — and a potential government shutdown — House Republicans are once again changing their strategy on a funding bill. Gone is the plan for a bill funding the Pentagon for the rest of the fiscal year and other government agencies until mid-January. Now House Republicans will extend funding only until Jan. 19 for the whole government, hoping the new strategy will produce enough support to stave off a funding lapse come midnight Friday.

A massive $81 billion disaster aid bill will be broken out and have a separate vote. There is surprisingly strong opposition to that package, which was unveiled by the House Appropriations Committee only on Monday. It is still unclear whether GOP leaders will include funding for the Children’s Health Insurance Program as part of the new funding bill. And while some defense programs are expected to get a boost under the plan, those details are still under wraps. A proposal to reauthorize so-called Section 702 spying powers under the Foreign Intelligence Surveillance Act will go as a standalone bill as well.

A Senate plan to add bipartisan Obamacare stabilization funds to the funding bill — known as a continuing resolution — looks dead on arrival in the House. That is likely to spur a tense legislative back-and-forth in the final hours before funding is set to expire this week.”

Dems back off. The Post’s Ed O’Keefe: “Democrats are backing away from a pledge to force a vote this month over the fate of thousands of undocumented immigrants brought to this country as children, angering activists but likely averting the threat of a government shutdown at a critical moment in spending negotiations with Republicans and President Trump. With a deadline of midnight Friday to pass spending legislation, dozens of Democrats had vowed to withhold support if Republicans refused allow a vote on a measure known as the Dream Act that would allow roughly 1.2 million immigrants to stay legally in the United States. But a group of vulnerable Democratic senators facing reelection in conservative states next year aren’t willing to go that far — meaning the party is unlikely to muster the votes to block the spending bill.”

POCKET CHANGE

TRUMP TRACKER

Trump loves the stock rally. He used it call it a bubble. The Post’s Michael Scherer and Jenna Johnson: “During the first presidential debate in September 2016, then-candidate Donald Trump argued that the booming performance of the stock market under the Obama administration should not be trusted. ‘Believe me: We’re in a bubble right now. And the only thing that looks good is the stock market — but if you raise interest rates even a little bit, that’s going to come crashing down,’ Trump said. ‘We are in a big, fat, ugly bubble. And we better be awfully careful.’

More than a year later, President Trump has turned similar record stock market bench marks into his favorite measure of his personal success in office. The Dow Jones industrial average is near the top of his personal list of accomplishments — and has been since the early days of his presidency, although the citations have become more frequent in recent months.”

Here he was on Tuesday: 

Garrett blocked. Politico’s Zachary Warmbrodt and Andrew Restuccia: “The decision by a bipartisan group of senators to block President Donald Trump’s pick to lead the Export-Import Bank marked a stinging defeat for Vice President Mike Pence, who worked for months to boost the nomination despite doubts from some administration officials. Pence continued to push senators to support former New Jersey Republican Rep. Scott Garrett’s nomination to lead the bank until the final hours before the Senate Banking Committee met for a vote Tuesday morning, according to lawmakers and others briefed on the issue.

But Pence’s entreaties on behalf of his old conservative congressional ally weren’t enough to mollify lawmakers after major manufacturers and trade groups raised concerns about Garrett’s ability to oversee an agency he once tried to shut down. Every Democrat and two Republicans — Sens. Mike Rounds of South Dakota and Tim Scott of South Carolina — voted against Garrett’s nomination in a rare rebuke of a nominee by members of the president’s own party.”

THE REGULATORS

Banks ok on living wills. WSJ’s Ryan Tracy: “The eight largest and most complex U.S. banks avoided a major rebuke on their latest “living will” bailout-prevention plans, a milestone that further reduces the already-remote possibility that any of the firms would be broken up by the government. U.S. regulators said the eight firms, including Bank of America Corp., Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co., didn’t have “deficiencies” in plans documenting how they could go bankrupt without needing a taxpayer bailout.

That was a reversal from April 2016, when the Federal Reserve and Federal Deposit Insurance Corp. shocked the firms by determining five of eight had deficiencies. The regulators’ 2016 decision had raised the possibility of bank breakups. If the regulators find deficiencies in the firms’ plans, the 2010 Dodd-Frank law empowers them to impose significant sanctions and, eventually, force divestitures.”

House approves SIFI relief. WSJ’s Andrew Ackerman: “Regulators would have more discretion to decide which banks to target for stricter oversight under bipartisan legislation that House lawmakers approved Tuesday, the latest front in a broad push to ease postcrisis regulations. The bill by Rep. Blaine Luetkemeyer (R., Mo.) would scrap the current threshold for heightened supervision—institutions with $50 billion or more in assets—and instead rely on a formula the Federal Reserve already uses to determine the amount of extra capital the biggest banks need to hold. The vote was 288-130. Pending Senate legislation takes a different approach for altering the postcrisis rulebook. The Senate bill, which is expected to come to the floor of that chamber in early 2018 and also has bipartisan support, would simply raise the regulatory threshold in question to $250 billion from $50 billion.”

U.S. securities regulators on Tuesday temporarily suspended trading in the shares of Crypto Company, a small firm that saw its stock rise more than 2,700 percent this month after signing a deal to buy a cryptocurrency data platform.

Reuters

OPINIONS

DAYBOOK

Coming Up

THE FUNNIES

From The Post’s Tom Toles:

BULL SESSION

House Minority Leader Nancy Pelosi (D-Calif.) spoke out against the GOP tax plan as Republicans made moves to pass the bill:

Nydia Velázquez (D-N.Y.) said the GOP tax bill “betrays” Congress’s promise to Puerto Rico:

House Democrat on tax bill: “How the Grinch stole middle-class tax cuts:”

President Trump has been added to Disney World’s Hall of Presidents:

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