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The Finance 202: What happened to the party of fiscal conservatives? – Washington Post

THE TICKER

Supply-siders are winning their struggle with deficit hawks over the fiscal soul of the GOP. 

And it’s not even much of a struggle, as it turns out. In recent days, it has more closely resembled a pantomime, the policymaking equivalent of what the Harlem Globetrotters used to do to the Washington Generals. In this case, the Tax-Cutters are steamrolling the Budget Balancers — and making it look easy. 

In the Senate, Bob Corker (R-Tenn.) was primed to force a reckoning over deficit spending in the Budget Committee. Republicans on the panel need to agree on a spending blueprint to lock in special instructions allowing them to pass a tax package without Democratic support. And with a one-vote edge in the committee, the GOP can’t afford to lose Corker. The Tennessean signaled that he’d drive a hard bargain over adding to the now $20 trillion federal debt, which he called “the greatest threat to our country” in an op-ed earlier this month

But Corker on Tuesday struck a deal with Sen. Pat Toomey (R-Pa.), the committee’s leading supply-sider, that skews in favor of slashing taxes, deficits be damned. The agreement is expected to give the go-ahead to $1.5 trillion in tax cuts over 10 years. Corker says that will give Republicans running room to craft a tax package, and he reserves the right to oppose the final product if it unleashes too much red ink. Yet he’s already given away his moment of maximum leverage. 

Over in the House, the self-appointed fiscal scolds in the Freedom Caucus have talked tough on deficits all year. That included threats to blow up their chamber’s budget if it failed to carry some $400 billion in mandatory savings. But the proposed House GOP spending plan trims only half that sum.

And the hard right has since witnessed the collapse of an Obamacare repeal bill that would have slashed the deficit by $119 billion — and a debt ceiling hike that rode along with an unpaid-for, $15 billion down payment on hurricane relief. Ringing up those charges has darkened a deficit picture that Republicans vowed to address: Federal spending this year is set to exceed collections by the widest gap since 2009, and the national debt topped $20 trillion this month for the first time in its history. 

Yet leaders of the Freedom Caucus are no longer conditioning their support for a budget on fiscal discipline. Instead, they are demanding details of the tax proposal the budget would fast-track. “The House Freedom Caucus will gladly start the process if we are confident the tax plan will actually cut taxes for families, simplify the code and create jobs,” House Freedom Caucus co-founders Mark Meadows (R-N.C.) and Jim Jordan (R-Ohio) wrote in a Wall Street Journal op-ed this week. “We will gladly pass the budget when basic questions are answered.”

Controlling spending, “for whatever reason, is not at the front of the discussion,” says Adam Michel, a tax policy analyst at the Heritage Foundation. Michel says the Freedom Caucus has decided to make a choice between “the tax reform debate and the big spending reform debate,” instead of linking one to the other. 

Congressional Republican leaders are on board, having walked away from commitments they made earlier this year to ensure a tax overhaul pays for itself. Both Senate Majority Leader Mitch McConnell (R-Ky.) and House Speaker Paul Ryan (R-Wis.) now give themselves more wiggle room to accept spending as the price of a tax overhaul.

The GOP’s abandonment of the green-eyeshade approach hasn’t gone unnoticed by independent budget minders. “With the U.S. in such a dangerous fiscal situation, policymakers shouldn’t even consider voluntarily adding another $1.5 trillion to our national debt,” Michael Peterson, president of the Peter G. Peterson Foundation, said Tuesday. “Reaching $20 trillion in debt should be a wake-up call to solve our fiscal challenges, not an invitation to add to the problem.”

But others noted that the GOP always seems to lose its religion on spending as soon as it has the majority.

Here was the New York Times’ Binyamin Appelbaum: 
 

And Republican lawmakers are signaling a willingness to end-run the budget referees if their calls don’t favor the tax plan. As Bloomberg News’s Sahil Kapur and Erik Wasson report

Corker said he wants a credible score of the final tax bill to show the tax cuts would pay for themselves and not a “crazy” estimate, although he said he supports “dynamic” scoring, which uses economic models that assume economic growth would result from the tax cuts and mitigate the deficit impact. He also said that the score would not have to come from Congress’s Joint Committee on Taxation, which would be a major departure from Senate tradition.

Some in the GOP — including former Freedom Caucuser and now Office of Management and Budget head Mick Mulvaney — has done its best to discredit the Congressional Budget Office, the official scorekeeper for the legislative branch. McConnell and company won’t wait for a score of the new health-care overhaul measure for voting.
 

FED CENTRAL:

Fed keeps its word. Surprising nobody, as it intended, the central bank indicated Wednesday that it remains on track for one more interest rate hike at the end of the year and will begin unwinding its $4.5 trillion balance sheet. The Wall Street Journal’s Nick Timiraos: “The Fed left rates unchanged and penciled in one more rate rise in 2017, signaling continued optimism about the economy even though persistently low inflation has prompted some officials to voice greater skepticism about a move this year.” 

“The basic message here is U.S. economic performance has been good,” Fed Chair Janet L. Yellen said at a news conference after a two-day policy meeting that ended Wednesday. “The American people should feel the steps we have taken to normalize monetary policy … are well justified given the very substantial progress we’ve seen in the economy.'”

Stocks rise. Reuters’ Sinead Carew: “The S&P 500 and the Dow ended slightly higher on Wednesday, adding to their string of closing records, after the Federal Reserve signaled it expects another interest rate hike by year-end and disclosed timing for reducing its balance sheet… 

Financial stocks jumped after the statement as U.S. Treasury yields rose on the prospect of higher rates while utilities took a fall on concerns that the defensive sector would look less attractive as rates climb. While some investors said the Fed’s tone was more hawkish than expected others were happy Fed Chair Janet L. Yellen reiterated her stance that balance sheet reduction would be data dependent.” And the dollar rose

The muted market reaction affirmed that investors didn’t see any surprises. The New York Times’s Neil Irwin: 

Unwinding casts the Fed into new territory. The Post’s Heather Long: “It’s not as simple as shedding all its assets at once. If the Fed moves too quickly, it risks unsettling stock and bond markets and driving investors away from investments with more potential to stimulate economic growth. But if the bank moves too slowly, it could end up still sitting on a bloated balance sheet when the economy hits its next downturn — leaving it without some of the tools it needs to push the economy. toward recovery. … There was no guidebook for the Fed’s balance sheet to grow so large, and there’s no guidebook now for how to shrink it back down.”

Banks should benefit. Rising long-term interest rates should push up the yield curve, boosting bank profitability. The Wall Street Journal’s Aaron Back: “This effect will be limited by the fact that foreign central banks are still actively buying bonds and other securities, holding down long-term rates around the world.”

The Fed’s new dot plot. Via Bloomberg, here

RUSSIA WATCH: 

Manafort offered Russian billionaire private campaign briefing. “Less than two weeks before Donald Trump accepted the Republican presidential nomination, his campaign chairman offered to provide briefings on the race to a Russian billionaire closely aligned with the Kremlin, according to people familiar with the discussions,” The Post’s Tom Hamburger, Rosalind S. Helderman, Carol D. Leonnig and Adam Entous scoop. “Paul Manafort made the offer in an email to an overseas intermediary, asking that a message be sent to Oleg Deripaska, an aluminum magnate with whom Manafort had done business in the past, these people said. ‘If he needs private briefings we can accommodate,’ Manafort wrote in the July 7, 2016, email.”

— Mueller is casting a wide net.  Carol and Roz have the story: “The special counsel investigating Russian election meddling has requested extensive records and email correspondence from the White House, covering areas including the president’s private discussions about firing his FBI director and his response to news that the then-national security adviser was under investigation, according to two people briefed on the requests. White House lawyers are now working to turn over internal documents that span 13 categories that investigators for the special counsel have identified as critical to their probe, the people said.”

Hackers entered Equifax systems in March. That’s two months earlier than the company had said. “FireEye’s Mandiant group, which has been hired by Equifax to investigate the breach, said the first evidence of hackers’ ‘interaction’ with the company occurred on March 10, according to the Mandiant report, which was reviewed by The Wall Street Journal,” AnnaMaria Andriotis and Robert McMillan write. “Equifax had previously disclosed that data belonging to approximately 143 million Americans was potentially accessed in May. It isn’t known when Equifax learned from Mandiant that the hacking activity began in March, not May.”

— The company probably won’t face any punishment. New York Times’s Peter Henning: “Equifax operates in a sphere with minimal government regulation, and its conduct is unlikely to trigger a criminal prosecution of the company or any of its executives. The worst anyone connected with Equifax may end up facing is a tongue-lashing from Congress — many hearings are already scheduled — except for the outside chance that the aggrieved public gets its own day in court. But that could be years from now.”

Nevertheless: “The House Financial Services Committee is seeking information about trading in Equifax options nearly three weeks before the credit reporting company disclosed a massive data breach,” per CNBC

Internet companies, on the other hand, suddenly find themselves in the Washington barrel. “After years of largely avoiding regulation, businesses like Facebook, Google and Amazon are a focus of lawmakers, some of whom are criticizing the expanding power of big tech companies and their role in the 2016 election,” the New York Times’ Cecilia Kang writes. “The attacks cover a smattering of issues as diverse as antitrust, privacy and public disclosure. They also come from both sides, from people like Stephen K. Bannon, President Trump’s former chief strategist, as well as Senator Elizabeth Warren, a liberal Democrat from Massachusetts.”

GE shuts down corporate jet fleet. “General Electric executives will have to find new ways to fly around the globe. The conglomerate is grounding its corporate fleet of jets and preparing to sell them, as new GE chief John Flannery continues to look to slash costs at the industrial giant,” The Wall Street Journal writes

Just wondering: What’s it say about where we are when General Electric executives can’t get on private planes and Trump administration officials can’t seem to get off them

OPIC backs Matt Damon. The Overseas Private Investment Corporation is committing $20 million to WaterEquity, a social impact investment fund the actor co-founded to support projects serving the water and sanitation needs of poor populations. 

A plurality of Americans oppose cutting taxes. That’s according to a new NBC/ Wall Street Journal poll, which found 42 percent of respondents believe Congress should not cut taxes, while 24 percent want cuts for individuals and 28 percent want them cut for both individuals and businesses. Another way of reading those results: 52 percent of Americans support cutting taxes in some form. But only 20 percent of respondents say businesses pay more than their fair share of taxes. 

Goldman predicts $1 trillion tax cut. The firm has upgraded prospects for a tax package to more likely than not after the announcement of a Senate budget deal. CNBC’s Patti Domm: “The Goldman economists assume the tax cuts would be phased in and could boost growth by 0.1 or 0.2 percentage points of GDP in 2018-2019.”

SEC hacked. “The top U.S. markets regulator disclosed on Wednesday that hackers penetrated its electronic system for storing public-company filings and may have traded illegally on the information,” The Wall Street Journal’s Dave Michaels writes. “The Securities and Exchange Commission’s chairman, Jay Clayton, revealed the breach in an unusual and lengthy statement issued Wednesday evening. The SEC said it was investigating the source of the hack, which it said exploited a software vulnerability in a part of the Edgar system.”

The agency said it detected the hack in 2016 but didn’t learn about the possibility of illicit trading until last month. 

From Clayton’s 4,000-plus word statement, innocuously titled, “Statement on Cybersecurity”: “A software vulnerability in the test filing component of our EDGAR system, which was patched promptly after discovery, was exploited and resulted in access to nonpublic information. We believe the intrusion did not result in unauthorized access to personally identifiable information, jeopardize the operations of the Commission, or result in systemic risk. Our investigation of this matter is ongoing, however, and we are coordinating with appropriate authorities.”

Yellen: Wells Fargo conduct “unacceptable.” The Post’s Renae Merle: “Federal Reserve Chair Janet L. Yellen on Wednesday delivered a bruising assessment of Wells Fargo, calling ‘unacceptable’ the megabank’s admissions that its employees had potentially set up as many as 3.2 million fake accounts that customers did not want so they could meet aggressive sales goals. ‘Let me say that I consider the behavior of Wells Fargo toward its customers to have been egregious and unacceptable,’ Yellen said during a news conference Wednesday.The Federal Reserve has been reviewing the incident for several months, and Yellen declined to comment on the status of the investigation.”

Coming Up

  • The Federalist Society holds an event on funding the government on Friday.

  • The American Enterprise Institute holds an event on how “decade of extreme monetary policy changed the banking system” on Oct. 10.

From The Post’s Tom Toles: “Robert Mueller gets an advance version of the Trump defense.”

President Trump says “Africa has tremendous business potential”: 

Watch former President Obama’s speech at the Gates Foundation, in three minutes: 

Late-night laughs: President Trump’s speech at the U.N.:

Watch Stephen Colbert’s take on Obama’s assessment of the Cassidy-Graham health-care plan: 

The Finance 202: What happened to the party of fiscal conservatives? – Washington Post}

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