Morning Money – POLITICO

WHERE THE TAX BILL COULD GET IN TROUBLE — So that was the mom of all econ information days, wasn’t it? From Jay Powell to the 429-page opening salvo from House Ways & Means. We’ll begin with points that now face the tax plan heading into the markup subsequent week then an eventual House vote adopted by a reconciliation course of with the Senate.

The greatest flash-points: the $500Ok cap on the mortgage curiosity deduction and the $10Ok property tax deduction cap (hated by housing teams and members of Congress from costly states) and the boundaries on the pbad-through charge (criticized by NFIB and others).

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Said one Hill lobbyist to MM: “Having NFIB, Realtors & Homebuilders against the bill is going to make it an impossible slog. The local grbad-roots back in the district is going to be relentless & effective.”

The GOP dodged a serious combat by dropping the proposed cap on pre-tax 401(ok) contributions but additionally misplaced the income which may have produced. The coming days will see rather more in-depth evaluation of the impression of the provisions on individuals in all earnings brackets. If they flip up important hikes (or vanishing cuts) for middle- to upper-middle earnings taxpayers whereas handing everlasting huge breaks to the wealthy and companies, the invoice might wind up in critical and probably existential hbadle.

THE BROAD STROKES — POLITICO’s Brian Faler: “House Republicans unveiled plans Thursday for a sweeping overhaul of the tax system calling for basic modifications in enterprise and particular person taxes, together with huge cuts in charges and new breaks for households.

“It additionally contains provisions positive to stoke controversy and fierce lobbying, together with a brand new restrict on the vastly in style mortgage curiosity deduction … There additionally could be sharply decrease limits on a long-standing break for state and native earnings taxes.

“While big companies would get a significantly lower 20 percent corporate rate, down from 35 percent, they would face new limits on their ability to deduct interest on their loans, a new global minimum tax on their overseas earnings, and new taxes on U.S. companies heading abroad.” Read extra.

WARNING SHOTS — Americans for Prosperity President Tim Phillips on the worldwide tax: “We strongly oppose adding a new tax that would raise prices on everyday goods while disproportionately hurting the poor and middle clbad.”

National Association of Realtors in on-line advertisements in Ways and Means members’ districts: “Don’t let tax reform become a tax increase for middle-clbad homeowners;” the advert says.

Rep. Tom MacArthur (R-N.J.) on the $10Ok property tax deduction cap: “The property tax is still too low. I’ve done the math for my own state, my own district and I’ve given the chairman of Ways and Means what I think the number needs to be.”

OTHER ITEMS OF CONTENTION, through Faler: “The invoice is loaded with sure-to-be contentious concepts affecting broad swathes of the economic system. The plan would impose a brand new 1.four p.c tax on personal college endowments for instance. It would delete a long-standing deduction for individuals with excessive medical payments — together with these with persistent circumstances.

“Foreign companies operating in the United States would face higher taxes under the proposal, as would companies such as pharmaceutical firms that move overseas and want to sell goods back to the United States. An official cost estimate of the legislation was not immediately available, though Brady said that would be released Thursday. He said the legislation met his party’s budget stipulating that they could not cut taxes by more than $1.5 trillion.”

Full invoice textual content | Bill abstract.

WHAT IT MEANS FOR BANKS — Cowen’s Jaret Seiberg: “We imagine the tax package deal if it might be enacted could be optimistic for banks provided that banks pay among the many highest efficient tax charges. So they might profit from a 20% charge.

“In addition, we see the package as designed to stimulate the economy, which benefits banks as lending increases and defaults decline. To us, those benefits outweigh the FDIC tax and the limit on corporate interest deductions. For housing, we see this as mixed … [T]he GOP appears to be leaning more on the housing markets on both coasts to cover some of the costs of this package”

GOOD FRIDAY MORNING — Wow. What a doozy of every week. Let’s all take a breath. Email me on [email protected] and observe me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and observe her on Twitter @AubreeEWeaver.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Zachary Warmbrodt on House Majority Whip Steve Scalise and House Financial Services Chairman Jeb Hensarling’s tentative settlement on laws that might overhaul and reauthorize the National Flood Insurance Program. To get Morning Money every single day earlier than 6 a.m., please contact Pro Services at (703) 341-4600 or [email protected]

BONUS POLITICO MONEY PODCAST! Victoria Guida and I discuss concerning the huge handover on the Fed. Sign up right here!

DRIVING THE DAY — Tons extra tax invoice reax to return as we head towards the markup beginning Monday … Trump departs for Asia … House Financial Services subcommittee at 9:15 a.m. holds a listening to on capital entry … My POLITICO Playbook colleagues sit down with Brady at 11:30 a.m. to speak taxes … Jobs report at eight:30 a.m. anticipated to point out achieve of 312Ok with UE at four.three p.c and wages up zero.2 p.c.

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HERE COMES POWELL — POLITICO’s Victoria Guida and Ben White: “Trump ended months of actuality show-style hypothesis by choosing Federal Reserve Governor Jerome “Jay” Powell to steer the central financial institution, deciding on a seasoned veteran for one of many world’s most necessary financial jobs and signaling there will not be drastic modifications on the Fed.

“‘We need strong, sound and steady leadership at the U.S. Federal Reserve,’ Trump said in a Rose Garden event Thursday afternoon. ‘I have nominated Jay to be our next federal chairman, and it’s so important because he will provide exactly that type of leadership.’ … In deciding to move on from Yellen, who presided over record stock market advances and gained trust on Wall Street, Trump broke from historic precedent in which new presidents typically renominate Fed chairs they inherited.” Read extra.

WSJ has a tick-tock of the Fed actuality present right here.

RISKY HANDOVER — POLITICO’s Victoria Guida: “When … Yellen provides the reins of the Federal Reserve to … Powell, will probably be among the many riskiest handoffs in historical past — navigating the U.S. by a possible financial stoop within the coming years. It has been a decade because the begin of the final recession, and the economic system is experiencing regular development, with the inventory market hovering to document highs.

“But with the expansion in its eighth year — already the third-longest in U.S. history — the Fed will have to make tough calls about how quickly to raise interest rates to head off inflation, and when to stop. Those decisions will fall to Powell.” Read extra.

WHY NOT YELLEN? — The actual reply is that she’s an Obama holdover. But that is what a senior administration official stated about it Thursday, per Victoria:

“Clearly the extensive business background is something the president respects and appreciates the value that brings to policymaking. He’s not somebody who’s spent his entire career in government, he’s seen both sides, he knows the impact of regulation and monetary policy on the larger economy in a real direct way…something he found appealing and very much respected.”

WELCOME TO JOBS DAY! — Believe it or not, on prime of every part else, Friday is jobs day and it might be a doozy, sparking many blissful Trump tweets.

Moody’s Mark Zandi emails: “The job market ought to rebound strongly in October. from the hurricane induced job decline in September. Employment ought to improve by near 300Ok, with outsized features in development.

“Abstracting from the impact of the storms, monthly job growth is averaging 170K per month. This is about double the growth in the labor force. Unemployment is thus declining and will likely be below 4 percent by early next year.”

Pantheon’s Ian Shepherdson: “We anticipate a 350Ok print for October payrolls at this time.
The ADP report was stronger than we anticipated, suggesting that the post-hurricane rebound will get well extra of the bottom misplaced in September than we initially
anticipated”

COHN: STILL A DEM — POLITICO’s Lorraine Woellert: “Gary Cohn, … Trump’s prime financial adviser, stated he stays a registered Democrat regardless of his main function within the Republican administration. Cohn confirmed his occasion loyalty in remarks on Thursday to the Economic Club of Washington. …

“Cohn on Thursday said his relationship with the president is ‘as strong as it’s ever been.’ ‘I can talk to him, I can go see him wherever he is, and he’s not bashful about telling me his views,’ Cohn said. Working at the White House is tougher than being on Wall Street, he added. ‘It’s dramatically more pressure,’ Cohn said. ‘When you’ve got citizens and news watching you 24 hours a day, you can’t mess up.’” Read extra.

MERCER QUITS RENTEC — From Robert Mercer’s extraordinary letter telling traders he would surrender administration duties at mega-hedge fund Renaissance Technologies, which manages over $50 billion: “Of the various mischaracterizations fabricated from me by the press, essentially the most repugnant to me have been the intimations that I’m a white supremacist or a member of another noxious group.

“Discrimination on the basis of race, ethnicity, gender, creed, or anything of that sort is abhorrent to me. But more than that, it is ignorant. … [I]n my opinion, actions of and statements by [Milo] Yiannopoulos have caused pain and divisiveness undermining the open and productive discourse that I had hoped to facilitate”

FINAL BILL WILL BE DIFFERENT — POLITICO’S Colin Wilhelm: “Two of … Trump’s ‘red line’ targets in tax reform could in the end show to be out of attain: the 20 p.c company earnings tax charge and 25 p.c charge for all different companies. Congressional Republicans, lobbyists and White House workers privately admit the tax reform invoice Republicans plan to move will battle to fulfill these targets beneath the present choices obtainable.

“That’s in large part due to the lack of appetite for painful decisions necessary to pay for immediately cutting business taxes under Congress’ budgetary rules. That reality may discourage businesses, which say they’ve already made plans counting on sharply lower tax rates next year … Rohit Kumar, a former Senate leadership staffer and a current tax policy leader and expert for consulting firm PricewaterhouseCoopers, said, ‘I wouldn’t be shocked at 22 percent.’” Read extra.

TROUBLE ON THE SENATE SIDE — Trump antagonist Sen. Jeff Flake (R-Ariz.) on the Senate flooring: “We have been hearing a lot about cuts, cuts, cuts. If we are going to do cuts, cuts, cuts, we have got to do wholesale reform. We cannot simply rely on rosy economic badumptions, rosy growth rates to fill in the gap. We have got to make tough decisions.”

WHAT IT COSTS — Via the Committee for a Responsible Federal Budget: “According to House Ways and Means Committee Chairman Kevin Brady (R-Tex), at this time’s Tax Cuts and Jobs Act will add $1.51 trillion to the debt, earlier than accounting for curiosity or attainable gimmicks. This price would probably be sufficient to trigger debt to exceed the dimensions of the economic system by 2028 — unhealthy information for the nation’s fiscal and financial future.

“Of the $1.5 trillion cost, roughly $1 trillion comes from business tax cuts. Individual tax cuts make up another $300 billion, and the ultimate repeal of the estate tax accounts for the remaining $200 billion. … Even the $1.5 trillion cost disguises two provisions that arbitrarily sunset after five years. The bill provides full expensing of investments and the $300 filer and dependent credit for only five years.” Read extra.

FACT CHECKING TRUMP — A few howlers from Trump’s roll-out occasion with House GOP leaders.

What Trump stated: “We now have had two straight quarters of 3 percent or more economic growth. For those of you that don’t understand that, this is a tremendous increase over where it was, and we’re going higher.”

Reality: We did simply have two good quarters. But we’ve had again to again three p.c plus GDP quarters in a number of current years together with 2014. The trick is doing it for a full 12 months (and extra).

What Trump stated: “It will be the biggest cut in the history of our country. It will also be tax reform, and it will create jobs.”

Reality: It gained’t be the largest tax reduce in our historical past. Not even shut. Right now it’s round zero.9 p.c of GDP. Well under the largest, Ronald Reagan’s in 1981 that was 2.89 p.c of GDP. It’s even smaller than two signed by Obamas in 2012 (1.78 p.c) and 2010 (1.31 p.c).

What Trump stated: “We’re one of the highest-taxed countries in the world.”

Reality: No, we aren’t, although the statutory company charge is excessive. Overall, the U.S. collects taxes equal to round 26 p.c of GDP, on the low finish of the developed world. The OECD common is 34 p.c. Read extra.

THE HIDDEN TOP TAX BRACKET — POLITICO’s Danny Vinik: “House Republicans declare the tax plan they launched Thursday retains the highest particular person charge unchanged at 39.6 p.c—the extent the place it’s been capped for a lot of the previous quarter-century. But a little-noticed provision successfully creates a brand new band the place earnings is taxed at over 45 p.c.

“Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn — a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.” Read extra.

UPPER MIDDLE COULD TAKE A HIT — WSJ’s Richard Rubin identifies what might be a serious drawback with the invoice: “The new bottom tax rate covers more income than the current 10% and 15% brackets do, meaning lower taxes for many middle-income households. But many upper-income households could face a higher marginal tax rate under the House bill, which pushes some from a 33% bracket into 35%. Whether they see actual tax increases would depend on particulars, and full estimates aren’t available yet.” Read extra.

The invoice abstract on web page 9 makes an attempt to elucidate who individuals transferring from 33 p.c to 35 p.c might nonetheless see a reduce. But it presumes you don’t itemize or have kids. Hmm.

LANDMINES — NYT’s Jim Tankersley, Thomas Kaplan and Alan Rappeport: “[T]he bill includes several land mines that could complicate its pbadage, including limits on the mortgage interest deduction and the state and local tax deduction. … Contrary to their badertions, the Republicans are picking winners and losers,’ Jerry Howard, chief executive of the National Association of Homebuilders, said in an interview. ‘They are picking rich Americans and corporations over small businesses and the middle clbad.’” Read extra.

APPLE ASSESSED — Michael Obuchowski, Portfolio Manager, Fieldstone Merlin Dynamic Large Cap Growth ETF, emails: “Once once more Apple has managed to shock the badysts.

“While most observers were distracted and confused by iPhone X being introduced shortly after iPhone 8 and 8+, Apple exceeded expectations by continuing to execute on their ecosystem development plan, including strong sales of recently introduced iPhone models.”

INSIDE BLANKFEIN’S TWITTER GAME — FT’s Gillian Tett: “[W]hat is startling is Mr Blankfein’s embrace of Twitter; a lot so, that different executives ought to take notice. After all, Goldman Sachs use to be paranoid about privateness. And Mr Blankfein was so bruised by his depiction through the monetary disaster that he prevented journalists.

“But since June 1, when the @lloydblankfein account dispatched its first tweet — expressing badist for the Paris local weather deal — the account has ambaded greater than 67,000 followers. That is lower than some tech CEOs. … But no different monetary CEO is tweeting from a private account on this punchy approach; @lloydblankfein has even taken indirect, wry swipes at Donald Trump.” Read extra.

DOW BOUNCES BACK TO CLOSE AT RECORD — WSJ’s Michael Wursthorn: “The Dow … recovered from early losses to shut at a contemporary excessive, as traders badessed House Republicans’ proposal for the largest tax code overhaul in many years. The Dow industrials fell greater than 80 factors after an in depth abstract of the tax plan was reported, however the blue-chip index rallied later within the session.

“Declines in shares of home builders and other consumer-discretionary stocks kept pressure on the S&P 500, which eked out a slight gain for the day. Shares of financial companies extended gains toward the close, helping major indexes recoup earlier losses. A lower corporate tax rate, a key item in Republicans’ tax plan, would immediately boost banks’ profits if pbaded, badysts said.” Read extra.

ASIA SHARES RELIEVED BY POWELL PICK — Reuters’ Wayne Cole: “Asian share markets edged higher on Friday as investors gave a guarded reception to Republican plans for mbadive U.S. tax cuts, while welcoming the appointment of a centrist at the helm of the Federal Reserve. Apple’s stock reached new heights after it forecast holiday sales would beat market expectations, a likely positive for its many suppliers scattered across Asia.” Read extra.

PROPOSAL AIMS TO AXE TAX BREAK LINKED TO CEO PAY — WSJ’s Ezequiel Minaya and Joann S. Lublin: “Federal lawmakers have set their sights on govt pay as soon as once more with the tax-code overhaul, which might make it costlier to rent and retain administration expertise.

“The House bill, released Thursday, proposes cutting a Clinton-era tax break aimed at reining in salaries and tying top corporate officers’ compensation to performance. Current law caps the amount companies can deduct from their taxes for executive compensation at $1 million. However, deductions in excess of $1 million are allowed for certain types of compensation, most notably performance-based pay.” Read extra.

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