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The Journal Gazette

Wednesday, October 11, 2017 11:50 am

Finance 202: Senate budget passage isn't a done deal

Tory Newmyer | Washington Post

 

The Trump-Corker feud continued to reverberate Tuesday, with those focused on the bottom line wondering what impact the latest bout of Republican infighting will have on the party's next big policy project. An early answer will come next week, when the Senate takes up a budget to fast-track a tax overhaul.

Do Senate Republicans have the votes for the spending blueprint? Not yet.

They probably will. But Republican leaders aren't taking it for granted. As with anything else they tackle these days, a handful of defections spells doom. And they begin the counting by figuring they probably will lose Sen. Rand Paul, R-Ky., the lone Republican to oppose a budget this year aimed at repealing Obamacare and an outspoken critic of the GOP tax framework.

Leaders can afford to lose only one more. They're worrying over a now-familiar cohort of Republican mavericks, a list that includes Sens. John McCain, R-Ariz., Susan Collins, R-Maine, and Lisa Murkowski, R-Alaska, none of whom have declared a position. Part of McCain's concern centers on boosting military spending beyond the limits imposed by the 2011 sequester. The Senate budget includes a provision to accommodate him by allowing for more defense spending if lawmakers reach a deal later to lift the budget caps.

Collins and Murkowski have their own concerns. Both have said they want to protect entitlement health programs – which Senate Democrats charge that the spending blueprint would gut by about $1.5 trillion. And Collins, for one, remains preoccupied with a pending announcement about her future: She is set to announce Friday whether she plans to run for governor next year, setting up the possibility that she could soon join Sen. Bob Corker, R-Tenn., in the short-timers caucus.

All to varying degrees have expressed concerns about a return to regular order. Recall McCain's dramatic July floor speech lamenting the Senate's drift from bipartisan legislating, two days before he cast a decisive vote against his party's Obamacare repeal drive.

The budget resolution that senators will consider next week seeks to guarantee a partisan process for a tax rewrite by unlocking special instructions that will allow Republicans to avoid the need for Democratic votes in the upper chamber. Also, the measure ditches a rule that Republicans adopted two years ago banning the Senate from voting on a bill until its official budget impact has been posted for 28 hours.

"Let's be honest, the only reason for passing this budget resolution is to avoid the filibuster in the Senate over a potential tax bill. All the rest of the numbers in there mean nothing," says Bill Hoagland, senior vice president of the Bipartisan Policy Center and a former top Senate budget aide. "This for all practical purposes destroys whatever vestiges of the congressional budget process remained after the last few years."

It very well may not matter. Those who assume the Senate Republican votes will materialize when the time comes next week point to the urgent need for any kind of Republican win. "I do get a sense there's a level of desperation among the members," one top tax lobbyist tells me.

Members of the hard-line House Freedom Caucus, for example, dropped their demands for deeper spending cuts in their chamber's budget in the interest of moving the tax debate forward. It narrowly passed this month. Assuming Senate Republicans find the votes for their blueprint next week, the erstwhile fiscal hawks in the House probably will have to back even further off their avowed principles.

Tax watchers expect, again in the name of speed, that House Republicans will have to swallow a Senate budget that drops $200 billion in mandatory spending cuts they adopted and instead authorizes $1.5 trillion in tax cuts.

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 Trudeau: We're not your NAFTA problem. Reuters' David Ljunggren: "When Canadian Prime Minister Justin Trudeau meets [Trump] on Wednesday, he will try to persuade the U.S. leader to focus on Mexico as a source of potential problems at talks to update NAFTA. Although Trudeau officials were confident Trump would mostly target Mexico as the three nations started to renegotiate the North American Free Trade Agreement, Washington has slapped duties on Canadian Bombardier airliners and lumber exports in recent months and talked tough on dairy and wine.

Foreign Minister Chrystia Freeland said Trudeau would "explain really clearly to the President ... that Canada is not America's problem." Freeland, who says Canada buys more from the United States than China, Britain and Japan combined, told CTV television on Sunday that Trudeau's message to Trump at their White House meeting would be 'We are your biggest client.'"

 White House seeks $4.9 billion for Puerto Rico. Politico's Sarah Ferris: "The Trump administration on Tuesday sought an additional $4.9 billion in emergency hurricane aid to stave off what Puerto Rico's governor recently warned could become a fiscal catastrophe. The Office of Management and Budget sent a formal request to House leadership Tuesday afternoon, revising its most recent recovery package request to nearly $35 billion. The extra $4.9 billion would 'address the immediate liquidity issue that Puerto Rico is having,' OMB spokesman John Czwartacki told POLITICO. It would allow the island government to make its payroll and fund pensions amid its worst natural disaster in decades."

TAX FLY-AROUND:

 Corker spat won't hurt tax rewrite, President Donald Trump says. Politico's Louise Nelson: "Asked Tuesday during a brief interaction with reporters whether his spat with Corker might damage the prospects for tax reform, one of his top legislative priorities, Trump said, 'I don't think so.' 'We're well on our way. The people of this country want tax cuts. They want lower taxes,' Trump said. 'People want to see massive tax cuts. I'm giving the largest tax cuts in the history of this country. In addition to that, there'll be reform. . .And we'll be adjusting a little bit over the next few weeks to make it even stronger.'"

Then again, it all might depend on whether Corker takes offense to the latest insult from the president. At 5-foot-7, the senator was apparently considered too short to be secretary of state:

 Trump keeps repeating this tax myth. The president insists the United States is the highest taxed nation in the world. It isn't. Politico's Matthew Nussbaum: "He said it Tuesday during a meeting with former Secretary of State Henry Kissinger. He said it at a White House event last Friday. He's tweeted it, repeated it in television interviews and declared it at countless rallies. It is his go-to talking point, his favorite line as he tries to lead the Republican Party to a once-in-a-generation overhaul of the federal tax code. It is also false - something fact checkers have been pointing out since 2015, when Trump first began declaring it on the campaign trail. On Tuesday, White House press secretary Sarah Huckabee Sanders sought for the second time in less than a week to defend the comment by saying, in effect, that Trump did not mean what he said."

Trump has been tweeting this morning about one of his favorite topics  the stock market rally  arguing tax cuts would turbocharge it:

The third one encapsulates a kink in the president's logic: Setting aside that the market rally only benefits some Americans, if stocks are zooming, what's the need for tax cuts?

 IMF cuts U.S. forecast. The International Monetary Fund doesn't think tax cuts are happening. The Post's Heather Long: "The U.S. economy will still expand, the IMF predicts, just not as quickly as some had hoped. The IMF forecasts 2.2 percent growth in 2017 and 2.3 percent in 2018, a decline from April when the IMF projected 2.3 percent growth this year and 2.5 percent in 2018. 'The downward revision relative to April forecasts reflects a major correction in U.S. fiscal policy assumptions,' the IMF wrote in its latest World Economic Outlook report. Because of 'significant policy uncertainty,' the IMF economists felt they should not count on Congress and the president passing lower taxes."

 Also the IMF: Don't raise deficits. Bloomberg's Randy Woods and Andrew Mayeda: IMF "is giving the Trump administration some unsolicited  and possibly unwelcome  advice on the Republican tax plan: don't make your fiscal situation even worse. 'Given where the U.S. is, in terms of its overall debt level and the off-the-balance-sheet obligations going out into the future as the population ages, we feel that whatever the tax reform plan looks like, it should not increase the deficit," IMF chief economist Maurice Obstfeld told reporters Tuesday after publishing the fund's latest global economic forecasts. Over the medium term, "tax reform should be revenue enhancing,' he added."

 Smaller companies would spend tax cuts on tech. And not on jobs, according to a Reuters survey. David Randall reports: "Small companies pay the highest taxes and they would be the main beneficiaries of such a Trump windfall. Reuters contacted the 100 largest companies by market value in the benchmark Russell 2000 index of U.S. small and mid-cap stocks as well as another 50 in the Russell 2000 with no analyst coverage. None of the 17 companies that responded to Reuters queries mentioned boosting their headcount. The administration has said the tax cuts would largely pay for themselves by spurring more investment and creating jobs. But companies say they look to spend on technology that will allow them to improve productivity or make acquisitions rather than hire more workers."

 The Kansas pass-through experiment failed. Now Republicans are trying to take it national. The New York Times' Jim Tankersley: "With the state hemorrhaging government revenue, Kansas lawmakers rolled back the tax law this year, but congressional Republicans and President Trump are trying to take the experiment with pass-through preferences national, beyond Wichita and Topeka to cities with residents who measure incomes in seven, eight or nine figures. The Republican tax rewrite unveiled this month aims to jump-start economic growth in part by establishing a 25 percent tax rate on small businesses and other firms that operate as pass-through entities, a cut from the top rate of 39.6 percent that such business owners pay now.

But the abandoned experiment in Kansas points to how a carve-out intended to help raise growth and create jobs instead created an incentive for residents, particularly high earners, to avoid paying state income taxes by changing how they got paid."