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The Finance 202: The BAT killers are back – The Washington Post – Washington Post

THE TICKER

The BAT killers are back. And this time, they’re gunning for House Speaker Paul Ryan’s other favorite tax proposal. 

The Koch network, with a multibillion-dollar fortune behind it and a grass-roots army at its disposal, proved instrumental this year in burying the border adjustment tax. That idea — to raise about $1 trillion from a levy on imports — formed part of the core of Ryan’s (R-Wis.) vision for a remade tax code, laid out in the House GOP’s “Better Way” agenda last summer. 

With House Republicans racing to forge agreement on a tax framework by the end of the month, Koch is again stepping into the fray against what is arguably Ryan’s most significant surviving priority: a pitch to allow businesses to rapidly write off the full cost of big capital expenditures. 

Ryan, House Ways and Means Committee Chairman Kevin Brady (R-Tex.) and some economists say the proposal would turbocharge economic growth. But corporate interests, Koch included, mostly agree it’s too costly, draining as much as $2 trillion from federal coffers over a decade — a sum they’d rather apply to lowering the corporate rate. The debate is a difficult stumbling block for the Republican tax negotiators from the administration, House and Senate trying to reach consensus on a plan.

Brady, appearing Thursday at a Politico event, framed the internal Republican skirmish on the issue as a false choice. “Rates vs. expensing is probably one of the economically most foolish debates we’re having,” he said. Both, he said, will promote growth.

But Republicans opposed to the expensing idea — and the companies backing them up — view the matter as an either-or choice. That’s because the budget rules the party wants to use for a tax package stipulate that a permanent rewrite of the corporate code can’t add to the deficit. So beyond whatever funds a new break recovers by unleashing economic activity, the money spent on it diverts from the broader goal of driving the 35 percent corporate rate down as far as possible.

Philip Ellender, Koch Industries’s president of government affairs, framed it bluntly: “Full and immediate expensing is a largely untested, prohibitively expensive, $2 trillion distortion that doesn’t change commercial behavior and stands in the way of the rate reduction that would more reliably spur growth.”

A broad swath of corporate interests agree. As Bloomberg’s Lynnley Browning writes:

A lobbying group for companies including AT&T Inc., Verizon Communications Inc. and Intel Corp. — all of which were among the biggest spenders on equipment and facilities over the past 12 months — says a major cut to the current 35 percent corporate tax rate is the better way to drive economic growth.

“Making America great starts with the rate — ideally in the low 20s,” said James Pinkerton, co-chair of the RATE Coalition, which has dozens of corporate members. “Every other tax decision is subordinate to what the rate is.”

Ditto for the National Retail Federation: Lobbyist David French says, “Expensing is a very costly provision, and some of the trade-offs to get expensing are not as palatable as the lowest possible rate.”

French’s group joined forces with the Retail Industry Leaders Association this year to sap support for the BAT, alongside the powerhouse Koch machine. On Thursday, FP1 Strategies — a firm that managed the anti-BAT campaign for both retail groups — released a “case study” of how it pulled it off, mobilizing “a groundswell of opposition… influencing key constituencies, including consumer groups, large and small business leaders, and conservative influencers” across the country:

This approach and its success was exemplified in Representative Erik Paulsen reversing his prior support for the BAT during a Congressional hearing and after receiving intense pressure. Paulsen later stated that he could not ‘support the border adjustability provisions’ and urged fellow Ways and Means Committee members ‘to listen, to be educated and to address [criticism of the BAT]’ moving forward with tax reform.

Paulsen objects to the firm’s characterization. “Since it was first proposed, I have been consistent in my position with respect to the border adjustment tax,” he said in a statement. “I have always maintained that there are fair and legitimate concerns with the proposal that must be addressed if it is to be included in tax reform.  Any reports to the contrary are false, and any organization – FP1 Strategies or otherwise – that is attempting to take credit for a supposed change in my position is lying.”

By the end of July, when the “Big Six” tax negotiators summarized their agreements on a tax plan, a joint statement formally declared they were abandoning the border tax. With the revenue it would have generated off the table, the group also implicitly acknowledged the need to downgrade the House GOP’s ambition for “full and immediate expensing.” They called instead for “unprecedented” expensing.

“The border adjustment tax wasn’t a viable option because it divided the coalition supporting tax reform,” says James Davis, executive vice president of the Koch-backed Freedom Partners. “And ultimately full and immediate expensing, when juxtaposed against rate reduction, does the same thing, so it’s a similar situation in that respect.”

Another source close to the process framed it differently, suggesting the Koch attacks on the twin pillars of Ryan’s blueprint demonstrate the peril of letting an outside group amass so much power.

TAX FLY-AROUND

Agreeing to disagree. The House and Senate tax-writing panels are gearing up to diverge on some basics of an overhaul, “including the treatment of business interest expenses and their write-offs for investments,” The Wall Street Journal’s Richard Rubin writesMore: “The principles, bullet points and outlines that have dominated the tax debate all year are just the beginning of a process shaped by individual members’ preferences, business lobbying, nonpartisan revenue estimating and hundreds of pages of details… Major structural decisions—including revenue targets, international tax rules, exact tax rates and which tax breaks would be eliminated—haven’t been made yet, said a person familiar with the conversations.”

Details coming? Bloomberg: “U.S. companies can expect to learn more about the tax rate they’d pay and the deductions they’d be allowed to claim on interest payments later this month as part of a new framework for overhauling the U.S. tax code, Treasury Secretary Steven Mnuchin said Thursday.”

Hatch: No rubber stamp. “The Finance Committee will not be bound by any previous tax reform proposal or framework when we start putting our bill together.” Sen. Orrin G. Hatch (R-Utah), who chairs the panel, said Thursday, adding his committee won’t be ““anyone’s rubber stamp,” Reuters’ David Morgan reports

No House budget vote til October. That’s per a spokesperson House Majority Leader Kevin McCarthy (R-Calif.). The Hill’s Niv Elis reports: “House Budget Chairman Diane Black (R-Tenn.) had hoped to bring the bill to the floor for passage this week, but a whip count found that conservatives in the House Freedom Caucus were still holding out. The Freedom Caucus members have demanded greater detail on the upcoming tax reform, and without their votes, the budget is unlikely to pass.”

Investors more bullish on a deal. Reuters’ David Randall: “[Small cap stocks] are reflecting renewed optimism for progress on taxes after months of going no where as persistent bickering in Washington weighed on reform hopes. Small caps are seen as more sensitive to corporate tax cut expectations because, on balance, they bear a heftier relative tax burden than big companies. Since hitting a low for the year on Aug. 21, small-cap stocks have surged 5 percent, nearly double the 3 percent gain of large-cap stocks.”

Goldman’s more bearish. “It is still clearly possible that tax reform could be enacted over the next near,” firm analysts wrote in a Thursday note. “However, the signs are not particularly positive at the moment; while a net tax cut could probably pass with only Republican support, the odds of a substantial net tax cut are declining. Revenue-neutral tax reform is possible, but would probably have much less of a near-term effect on growth or corporate earnings. In light of these developments, we recently downgraded our view of the probability of an economically meaningful tax package to 40%.”

— Equifax’s credit score on the Hill keeps plummeting. “The top Democrat in the U.S. Senate on Thursday called on Equifax officials to testify before the chamber and for the company’s leadership to resign if they do not enact sweeping changes following a massive data breach disclosed last week,” Reuters writes. “U.S. Senate Democratic Leader Chuck Schumer said the credit rating company must take five steps within the next week, including proactively notifying consumers whose sensitive personal information was hacked, provide free credit monitoring services and allowing credit freezes for 10 years.”

Meanwhile, Sen. Ron Wyden (D-Ore.) introduced  the Free Credit Freeze Act, which, per The Hill’s Sylvan Lane, “would prevent credit reporting agencies such as Equifax from charging customers to freeze their credit accounts, a tool meant to prevent identity theft and fraud.” And today, Democratic Sens. Elizabeth Warren (Mass.) and Brian Schatz (Hawaii) are dropping their own version that does the same thing.

Financial Services Forum reboots. The hyper-elite Wall Street trade association hired former Treasury Department official Kevin Fromer as it aims to reestablish itself in Washington. Bloomberg’s Robert Schmidt: “As head of the Treasury’s legislative affairs office under George W. Bush, Fromer helped push a $700 billion bank bailout through Congress during the 2008 financial crisis. The forum limits its membership to about 15 chief executive officers from the largest banks, mutual funds and insurers. It is affectionately known in the industry as the CEO Washington lunch club because it regularly holds intimate, off-the-record meetings with top government officials.”

Trump scrambles Hill relations. The president’s bipartisan moment (awakening? we’ll see) continues to baffle his erstwhile allies and opponents alike on the Hill as he chases a deal to trade permanent status for “dreamers” for enhanced border security measures. The Post’s Elise Viebeck, Ed O’Keefe and Mike DeBonis write the deal attracted “cautious support” from both sides of the aisle, “even as it prompted a swift backlash from scattered conservatives and an attempt by irritated Republican leaders to reassert their authority. House Speaker Paul D. Ryan (R-Wis.) dismissed the potential deal negotiated late Wednesday over dinner at the White House between Trump and Capitol Hill’s top two Democrats as little more than a preliminary discussion — and insisted that any agreement must have buy-in from GOP leaders.”

Trump likes Yellen. “I do respect Chairman Yellen a lot. I like her and I respect her, but I haven’t made that decision yet,” Trump told reporters flying back from touring Irma damage in Florida. “I think the country is doing well.” He talked up job growth and investment from Foxconn and other companies: “There’s a big reason for that and the reason happens to be Trump.”

The president also restated his belief that there were “some pretty bad dudes on the other side also,” of the white supremacist violence in Charlottesville last month. Trump’s initial response to that tragedy prompted a denouncement from National Economic Council director Gary Cohn that may have cost him the Fed chairmanship. Here’s Reuters’ Pete Schroeder on Trump’s Air Force One comments: 

The HoneyMnooners, Day 2. Treasury Secretary Steven Mnuchin is sticking by the argument that he thought he needed a government plane for his European honeymoon because of his national security portfolio. In his first public comments since the Wednesday revelation of his withdrawn request, Mnuchin said he is “very sensitive to the use of government funds. I’ve never asked the government to pay for my personal travel.” The Post’s Alex Horton and Damian Paletta write that the Treasury inspector general is reviewing the incident. 

It was the second travel-related flap in as many months for Mnuchin and his new wife, Louise Linton. They faced questions after an August trip to Kentucky during the eclipse. Interviewed Thursday at a Politico event, Mnuchin said the event had nothing to do with his trip, which was to visit Fort Knox: “People in Kentucky took this stuff very seriously. Being a New Yorker, I don’t have any interest in watching the eclipse,” he said. 

Are Mnuchin’s stumbles helping rehabilitate Gary Cohn inside the White House? CNN: “While the two men are the President’s leading emissaries to Capitol Hill on taxes, several Republican members of Congress and aides involved in the tax reform effort tell CNN that Cohn is viewed as the stronger advocate — an attribute that hasn’t been lost on top White House aides, including chief of staff John Kelly.”

RUSSIA WATCH:

Manafort spokesman goes before the grand jury. Politico’s Josh Dawsey: “Paul Manafort’s spokesman is expected to testify in front of a Washington federal grand jury Friday morning, according to people familiar with the matter. The spokesman, Jason Maloni, has worked for Trump’s former campaign chairman since early 2017 and has wide visibility into Manafort’s dealings. It’s unclear exactly what prosecutors want to know from Maloni.”

Roger Stone to the Hill. The longtime Trump associate and campaign adviser will answer questions before the House Intelligence Committee on Sept. 26 as part of its probe into Russian election meddling. AP’s Julie Pace: “Stone says the session is currently closed, though he asked previously for his appearance to be public. He says he’s asking for the ‘immediate release’ of transcripts from his appearance so there will be ‘no confusion or misinformation’ about his appearance.”

“Rural America, we’ve been told, is falling behind: on everything from Internet access to health care to business to youth,” writes The Post’s Christopher Ingraham. “But recent Census Bureau data suggests that some of these concerns, at least, may be overstated — particularly when it comes to paychecks.”

Today

  • The American Enterprise Institute holds an event on trade deficits and the Trump administration.

From The New Yorker:

A cartoon by @farleykatz. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on Sep 14, 2017 at 11:16am PDT

Trump on tax plan: ‘It’s about the middle class and about jobs’:

Senate Minority Leader Charles Schumer (D-N.Y.) was caught on a hot mic saying Trump “likes us”:

President Trump on the White House: “This is a house like no other”: 

ESPN host Jemele Hill’s tweet raises questions about journalistic ‘objectivity’:

Seth Meyers takes a closer look at President Trump and Democrats’ discussion of a DACA deal:

The Finance 202: The BAT killers are back – The Washington Post – Washington Post}

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