Washington Insider -- Thursday

Worry About Tax Policy Implications

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

Trump Tweet Tamps Down Hopes of US Rejoining TPP

Just days after telling senior officials to examine rejoining the Trans-Pacific Partnership (TPP) agreement, President Donald Trump has again fired off a tweet that sends mixed signals on this topic. “While Japan and South Korea would like us to go back into TPP, I don’t like the deal for the United States,” Trump wrote. “Too many contingencies and no way to get out if it doesn’t work. Bilateral deals are far more efficient, profitable and better for OUR workers. Look how bad WTO is to US.”

On his third day as president, Trump pulled the U.S. out of the Trans-Pacific Partnership, fulfilling a promise to scuttle a pact he once said was “pushed by special interests who want to rape our country.” Before rejoining the TPP, Trump would want assurances that the U.S. would fare better than under the deal agreed to by former President Barack Obama, White House officials said. But getting those concessions would be tough as each country has a veto over new members.

Groups Welcome Japan Decision on ETBE

A new biofuel policy adopted by Japan will allow for imports of Ethyl Tertiary Butyl Ether (ETBE) from U.S. corn-based ethanol, a development welcomed by U.S. renewable fuel and grain groups. The Japanese policy calls for an increase in the carbon intensity reduction requirements of ethanol used as a feedstock to make ETBE to meet a 55% reduction, up from 50%, and recognizes corn-based, US-produced ethanol’s ability to meet that goal, even with the higher greenhouse gas (GHG) reduction standard.

Japan will now allow U.S. ethanol to meet up to 44% of a total estimated demand of 217 million gallons of ethanol used to make ETBE, or potentially 95.5 million gallons. Japan imports nearly all of the ETBE from ethanol that it uses, according to an announcement from Growth Energy, the Renewable Fuels Association and U.S. Grains Council. “For the first time, the U.S. ethanol industry will have the opportunity to compete for a portion of Japan’s fuel blending market,” said Growth Energy Chief Executive Officer Emily Skor.

Washington Insider: Worry About Tax Policy Implications

Well, it seems that there is considerable angst now about the implications of federal policies of many kinds, especially taxes and trade—a debate that might have been expected earlier. However, The Hill says that new projections on the size of the federal deficit and the price tag of the recent tax-cut law are making “some Republican senators” nervous about considering another tax package before the election.

The GOP used Tax Day on Tuesday to proclaim the success of last year’s $1.5 trillion tax cut, but The Hill sees “some unease” about doubling down on the issue in the future. Some in the party want to go on offense and try to make permanent the individual tax cuts that were part of last year’s legislation. The bill’s authors included sunset provisions to keep the measure’s total projected cost below $1.5 trillion.

“I’d say, ‘Hell no. Hell no — double hell no,’ ” retiring Sen. Bob Corker, R-Tenn., a leading budget hawk, told The Hill when asked about making the individual tax breaks permanent.

Sen. Jeff Flake, R-Ariz., who wavered before backing the 2017 tax package, said he’s undecided about voting for another round of cuts. “I’m going to have to look at it,” said Flake, who is not seeking reelection.

Extending the individual tax cuts would add between $573 billion and $736 billion to the national debt, according to a Penn Wharton Budget Model analysis released last week.

A Senate Republican aide said a bill to make the tax cuts permanent may not come to the floor because it divides the Senate GOP conference and doesn’t have a chance of passing, as it would need 60 votes to overcome an expected Democratic filibuster.

Senate Republicans were able to pass last year’s tax package with a simple majority under a special budget process known as reconciliation. But the chamber must first pass a budget resolution to set up that fast track and there’s no sign that the Senate Budget Committee will mark up and pass a budget resolution before the election.

In March, Republican leaders floated the possibility of voting on a second round of tax cuts in 2018 to force vulnerable Democrats facing reelection in pro-Trump states to vote on making tax cuts for individuals permanent.

In speeches this year, the president has promised another round of tax cuts and has repeatedly said that not one Democrat in Congress backed last year’s bill. But the political calculus has changed amid the growing concerns of GOP lawmakers over growing criticism, The Hill says.

The Congressional Budget Office warned last week that the federal debt will hit $33 trillion in 2028, or about 96 percent of the gross domestic product. The CBO also estimated that last year’s tax bill will wind up costing $1.9 trillion over 11 years.

One additional Republican strategy regarding tax implications has been to criticize the CBO. For example, Larry Kudlow, Trump’s top economist, ripped the CBO on Tuesday. “Never believe the CBO ... They’re always wrong, especially with regard to tax cuts, which they never score properly,” he said.

Still, GOP legislators are concerned about voters’ anger over the rising deficit, The Hill says. Many Republican senators and House members say they got negative feedback during the two-week Easter recess about the $1.3 trillion omnibus spending package Congress passed in March. And, while the tax law is seen as picking up support, a new Gallup poll released this week found that 52% disapprove of the law compared to 39% who approve of it. A majority of those surveyed (56%) said they are unsure if the law has caused their federal taxes to increase or decrease.

The GOP political strategy to grow its narrow majority has been to bash red-state incumbents such as Sens. Claire McCaskill, D-Mo., Joe Manchin, D- W.V., and Joe Donnelly, D-Ind., for voting against the Trump tax cut. Scheduling a vote on making the individual tax breaks permanent, however, would give these Democrats a chance to vote “yes” and proclaim themselves tax cutters.

Speaker Paul Ryan, R-Wis., told reporters Tuesday that the House will vote this year to make the individual tax cuts permanent.

Senate Majority Leader Mitch McConnell, R-Ky., did not commit to bringing a second round of tax cuts to the floor this year when asked about it at a press conference Tuesday. He indicated that it would depend on whether enough Democrats would agree to support it. He added that if Democrats who opposed last year’s tax package now want to make the individual breaks permanent, “that’s something we ought to take a look at.” But he cautioned, “I’m a little skeptical about their desire here.”

So, we will see. Everything seems to be politicized now and becoming more so. As a result, the farm bill debate, already significantly controversial, almost certainly will become more so, especially if concerns over deficits grow, as they seem likely to do, Washington Insider believes.

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