Washington Insider - Tuesday

Unruly GOP Tax Factions in Senate

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Trump Trade Policy Speech Means Old Trade Era Ending: Lighthizer

President Donald Trump's aggressive speech on trade during remarks Friday begins a new era in which the United States will not hesitate to use its huge "economic leverage" to force other countries to change their behavior, U.S. Trade Representative (USTR) Robert Lighthizer said.

“The president spoke loud and clear: The era of trade compromised by massive state intervention, subsidies, closed markets and mercantilism is ending," Lighthizer said in a statement from Da Nang, Vietnam, where he and Trump are attending the annual APEC leaders’ summit. "Free, fair and reciprocal trade that leads to market outcomes and greater prosperity is on the horizon," Lighthizer added.

Many World Trade Organization (WTO) members have much higher tariffs and other barriers than the U.S., a reason why President Trump said he wanted to change, even while offering the APEC region "a renewed partnership with America to work together to strengthen the bonds of friendship and commerce,” but “rooted in the principles of fairness and reciprocity," Trump said.

Canada Only Holdout on Final TPP-11 Deal, But Agreement Reached On 'Core Elements'

Japanese Prime Minister Shinzo Abe said Canada was the only country holding out over whether to move forward with a revised version of the Trans-Pacific Partnership (TPP) from which the U.S. withdrew. According to Reuters, Abe said a broad agreement has been reached at a ministerial meeting, but the Canadian side said they are not yet at the stage where its leader can confirm the agreement reached among ministers.

All the other leaders are already in the stage where they can confirm the ministerial-level agreement, Abe added. Some say a deal could be announced as soon as early next year. Negotiators say they have left the door open for the U.S. to re-enter the pact at a later date if they want to.

Washington Insider: Unruly GOP Tax Factions in Senate

The main media focus this week is on tax reform. A key question is what will happen in the Senate as it faces what Bloomberg calls a “legacy-defining test of whether the leadership can keep its unruly caucus in line to deliver massive tax cuts” this year—or not.

The majority needs support from 50 of its 52 members who have a variety of competing demands. Some want to limit new deficits, while others want to deepest tax cut possible; some prioritize family tax breaks while others want to give businesses a boost; some have parochial concerns while others tend to be notoriously difficult to win on major pieces of legislation.

Senate Majority Whip John Cornyn, R-Texas, says he wants a floor vote the week of Nov. 27—only two weeks away. It focuses on what it calls “factions” that must be navigated.

Bloomberg focuses first on the deficit skeptics facing the tax plan now being considered by the Senate Finance Committee. It increases the federal deficit by about $1.5 trillion over the next decade, before accounting for any economic growth that it might spur. That complicates the plan’s prospects among some Republicans including Bob Corker, R-Tenn., Jeff Flake, R-Ariz., and James Lankford, R-Okla., who have warned against “fiscal recklessness” in the bill.

Corker says he doesn’t want a “penny” in new deficits or he’ll vote against it. Lankford says it should be revenue-neutral in the first decade and beyond. Both say they’re willing to assume “reasonable” economic growth that would cushion the deficit impact.

Bloomberg says the Senate plan will change, but for now at least one analysis says it would increase the deficit. The conservative-leaning policy group, the Tax Foundation, projected that plan would boost the deficit $516 billion over a decade, even after assuming economic growth.

The second faction Bloomberg identifies are businessmen—like David Perdue, R-Ga., who is the former CEO of both Reebok and Dollar General. Mike Rounds, R-S.D., is a former partner for an insurance and real estate firm. For both, the business side of the tax plan is paramount.

So far, the proposal to cut the corporate tax rate to 20% from 35% has gotten the most attention among business provisions. The House bill would deliver that cut next year, but the Senate plan would delay it until 2019. That won’t sit well with Perdue, who has said that “delays on tax would damage our economy.”

Rounds said last month that he wants an “equitable” 25% tax rate for partnerships, limited liability companies and other so-called pass-through businesses. But the Senate plan would go a different route, providing a 17.4% deduction for such businesses’ non-wage income. That break would not be available to many types of service businesses -- except for those whose taxable income falls below $150,000 for joint filers or $75,000 for all others.

Then, there is the administration emphasis on cuts. Bloomberg thinks they might find common cause with Pat Toomey, R-Pa., Ted Cruz, R-Texas, and Rand Paul, R-Ky., who have emphasized that they want the steepest and longest-lasting tax cuts possible.

Deficits are of less concern to them; they believe Congress should focus on boosting the economy and deal with deficits by cutting spending and believe that the legislation would lead to “greater economic growth, a larger economy, and therefore, more revenue to the federal government.”

Bloomberg than turns to so-called “Family Guys” like Mike Lee, R-Utah, and Marco Rubio, R-Fla., who insist their main tax priority is to double the Child Tax Credit from $1,000 to $2,000. The Senate plan would raise it to $1,650. Both senators say that’s not enough.

Simply raising it to $1,650 costs $582 billion over 10 years, according to Congress’s Joint Committee on Taxation. Going higher would worsen the red ink, unless tax writers find other offsetting revenue. Bloomberg says it is not clear whether Lee and Rubio would scuttle a tax bill if they don’t get their way. “The Senate is not going to pass a bill that isn’t clearly pro-family,” the pair said in their statement.

Bloomberg says it also sees a group it calls “moderates,” including Susan Collins, R-Maine, and Lisa Murkowski, R-Alaska, who have shown they’re not afraid to cast pivotal votes as they did on Obamacare repeal bill.

Finally, Bloomberg sees a few “wildcards” like Senator John McCain, R-Ariz., who has a mixed record on taxes, having voted against Republican tax-cut efforts in 2001 and 2003 citing deficit concerns. McCain has demanded a bipartisan process through regular order on a tax overhaul.

A different kind of maverick is giving Republican leaders heartburn lately, and he’s not even a senator -- at least not yet. Roy Moore, the GOP nominee for a Dec. 12 special election Alabama faces allegations of sexual improprieties. Recent polls show Moore slipping in the race against Democrat Doug Jones. A loss would cut the GOP’s margin for error in half -- to just one senator.

So, we will see. Clearly, the Republican majority hates taxes, as do many others. But, they also hate deficits and the proposal now appears likely to increase budget shortfalls. Certainly, Bloomberg is right, that the fight will be controversial and intense and should be watched closely as it proceeds, Washington Insider believes.

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