The Finance 202: Trump's latest middle-class tax cut pitch could backfire - The Washington Post

THE TICKER

President Trump arrives for a campaign rally for Sen. Ted Cruz (R-Texas) in Houston. (AP Photo/Evan Vucci)

Setting aside that President Trump's pledge to slash middle-class taxes by 10 percent in the coming weeks will be next to impossible to pull off, it's not clear the gambit even amounts to a good political strategy. 

Congressional Republicans running for reelection haven’t wanted to talk much on the campaign trail about the tax cut package that was supposed to be their crowning achievement. Trump’s pitch for new cuts points to the reason why: It seems most likely to remind voters of what they didn’t like in the first package he signed at the end of last year. 

“We’re doing it now for middle-income people,” Trump told reporters Monday. “This is not for businesses. It’s for the middle.” And Trump kept up the drumbeat for the idea Monday night when he took the stage in Houston at a rally for Sen. Ted Cruz (R-Tex.). The president said he has been working on the proposal with House Ways and Means Committee Chairman Kevin Brady (R-Tex.) for “three months.” Earlier in the day, spokespeople for Brady and House Speaker Paul Ryan (R-Wis.) referred questions about the proposal back to the White House. 

But the promises the president is making as a closing argument this campaign season sound a lot like the ones he first offered two years ago and then failed to fulfill. In the spring of 2016, he pledged to hand a tax cut to “everybody … especially the middle class.” The rich, he said, are “probably going to end up paying more.” 

In fact, the plan Republicans produced heavily concentrated its benefits among the richest Americans. Polls reflect that skew: The law remains broadly unpopular. In a recent Gallup poll, 51 percent of respondents said the law hasn’t helped their family’s financial situation; 38 percent said it has helped a little .The law did provide some cuts for every income level. But GOP pollster David Winston says most people didn't notice: His polling shows only about a third of Americans understand that the law cut tax rates across the board.

Many Republicans have decided the issue is beyond salvaging. The Republican National Committee concluded in an internal memo last month that the party had “lost the messaging battle,” pointing to a private survey showing respondents by a 2-to-1 margin said the law benefits large corporations and the wealthy over middle-class families. A recent Wall Street Journal review of advertising data found 30 percent of Republican ads mention taxes, compared to 13 percent of Democratic ads. But less than 12 percent of GOP TV ads mention the tax legislation explicitly.  

As Republicans largely avoid the issue, Trump appears to be refining his plan for a return to it on the fly. His Monday assertions about a new cut marked a shift from Saturday, when the president first broached the idea to reporters after a rally in Elko, Nev. Then, Trump said Republicans would enact the cut before the election — an impossibility, since, among other things, Congress won’t be in session in the meantime. On Monday, Trump said Republicans would be introducing the measure imminently — “We're putting in a resolution some time in the next week and a half to two weeks,” he said — with a vote to follow “after the election.”

It’s probably best not to take Trump’s words at face value. It comes as the president, in full campaign mode, has been piling up base-stoking but unsubstantiated claims, including that anti-immigrant riots are breaking out across California; that Democrats want to give cars to undocumented immigrants; and that “unknown Middle Easterners” have joined a caravan of Central American refugees seeking asylum in Mexico and the United States. 

Observers on Twitter laid out the challenges the plan would face.

Bloomberg's Steven Dennis reminds that Republicans would first need to adopt a budget resolution before they could pass a deficit-hiking tax package: 

How to pass a 10% middle class tax cut in 3 steps:
* Adopt a budget resolution allowing massive deficit hike (218/50 VP/Votearama)
* Clear tax cut bill (218/50 VP/Voterama)
* Sign bill into law.

— Steven Dennis (@StevenTDennis) October 22, 2018

And the bill would likely induce sticker shock, as Scott Greenberg, formerly of the Tax Foundation, points out: 

If we define the middle class as households making between $40,000 and $200,000, a proposal to cut middle class taxes by 10% would reduce federal revenue by something like $2.1 trillion over ten years. https://t.co/Ypz0v2nXh1

— Scott Greenberg (@ScottElliotG) October 22, 2018

Color CNN's Phil Mattingly skeptical: 

-There is no new legislative tax cut circulating on the Hill, 10% or otherwise.
-Sr GOPers in both chambers have no idea what POTUS is talking about.
-No time/will to pass anything in lame duck either.
-Don't even get me started on it being referred to as a "resolution"

-30-

— Phil Mattingly (@Phil_Mattingly) October 22, 2018

So is AEI's Jim Pethokoukis: 

What will come first, the major middle-class tax cut or the major infrastructure plan? And yes, you are allowed to choose “neither” https://t.co/1pz9Mbpx9Z

— James Pethokoukis (@JimPethokoukis) October 22, 2018
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MARKET MOVERS

A trader working on the floor of the New York Stock Exchange is reflected on a monitor on Oct. 10. (Brendan McDermid/Reuters)

— Political tensions weigh on stocks. WSJ's David Hodari: "Global stocks swung lower Tuesday, amid resurgent fears about the health of China’s economy and a slew of geopolitical concerns. The Stoxx Europe 600 was down 1.4% in early trading... Technology stocks led the way lower in Europe, with the Stoxx Europe 600’s tech sector plunging 3.9%... Renewed pessimism about global tech stocks came after the U.S. sector ended a run of three consecutive sessions of selling Monday. Investors have turned their backs on riskier sectors such as technology in recent weeks as they have found themselves at the confluence of rising U.S. bond yields, U.S.-China trade tensions and worries about global economic growth."

— Third-quarter growth could hand Trump a trophy. Bloomberg's Sho Chandra: "The U.S. economy is poised for its best back-to-back quarters of growth since 2014, handing President Donald Trump a $20 trillion talking point just in time for the midterm congressional elections. The report due Friday, the last data before the Nov. 6 vote, will show gross domestic product expanded at a 3.4 percent annualized pace in the July-September period after a 4.2 percent gain in the prior quarter, according to the median estimate of economists surveyed by Bloomberg. Consumer spending and business investment probably drove growth, and inventory accumulation also contributed."

— Goldman Sachs: Investors are misjudging midterm aftermath. CNBC's Jeff Cox: “The upcoming midterm elections, which are expected to result in split government on Capitol Hill, already are impacting investment choices and will continue to do so as events unfold, according to a Goldman Sachs analysis. Current expectations are that the Democrats will win back the House and the Republicans will retain a narrow hold on the Senate. . . . ‘If the consensus expectation of a divided government turns out to be correct, the most likely political consequences would be an increase in investigations and uncertainty surrounding fiscal deadlines,’ David Kostin, Goldman's chief U.S. equity strategist, said in a note to clients . . . Where investors might have it wrong, Kostin said, is hopes for aggressive infrastructure spending and a smooth resolution of the escalating trade dispute with China.”

Slumping home sales and rising interest rates are brightening the outlook for apartment and home-rental stocks.

The Wall Street Journal

Puerto Rico bond prices jumped Monday after the federal oversight board that runs the U.S. territory’s finances raised expectations for economic growth.

The Wall Street Journal

TRUMP TRACKER

TRADE FLY-AROUND:

A Ford logo on the grill of a 2018 Ford Explorer on display at the Pittsburgh Auto Show on Feb. 15. (Gene J. Puskar/AP)

— Ford: Tariffs are wreaking havoc on steel prices. Bloomberg News's Keith Naughton and Joe Deaux: “Ford Motor Co. said [Trump’s] tariffs have made steel more expensive in the U.S. than any other market, escalating the company’s criticism of the president’s trade war. ‘U.S. steel costs are more than anywhere else in the world,’ Joe Hinrichs, Ford’s president of global operations, said Monday at an event marking the start of Ranger pickup production at a factory west of Detroit. He added that Ford is talking to the administration about the tariffs: ‘We tell them that we need to have competitive costs in our market in order to compete around the world.’”

German Chancellor Angela Merkel in Berlin on Oct. 15. (Markus Schreiber/AP)

— Merkel makes concession to Trump. WSJ's Bojan Pancevski: “Chancellor Angela Merkel has offered government support to efforts to open up Germany to U.S. gas, a key concession to [Trump] as he tries to loosen Russia’s grip on Europe’s largest energy market. Over breakfast this month, the chancellor told a small group of lawmakers her government had decided to co-finance the construction of a [$576 million] liquefied natural gas shipping terminal in northern Germany . . . giving a crucial nudge to a project that had failed to get off the ground for years in a country that gets most of its gas cheaply from Russia. Mr. Trump has intensively lobbied Europe to buy significant amounts of LNG as part of his campaign to rewrite the terms of trade relations.”

— Europe, Canada want WTO overhaul. The Associated Press's Jamey Keaten: “Trump wants to rip up the rulebook for global trade. China is by many accounts abusing it. As a battle rages between the world’s top economic power and the fast-growing Asian giant striving to take its place, Canada and the European Union are quietly working to update the laws of international commerce, which have not been changed since the internet boom. The question is how to fix the World Trade Organization . . .

"As it stands, the WTO is on track to become powerless by next year if the Trump administration continues to withhold support over its complaints that China breaks the rules. . . . Canada hosts ministers from the EU and about 12 other countries in Ottawa on Wednesday and Thursday to discuss reform of the WTO. Canada said it wants a meeting of ‘like-minded people’ — and didn’t invite the United States.”

— Add pet food to trade war casualties. The New York Times's Ailin Tang and Keith Bradsher: “Olivia Ren never expected a trade war between the United States and China to affect Dada. Dada is Ms. Ren’s beloved golden retriever, and she pays heavily in Shanghai for an imported American brand of pet food called Canidae so that he can eat the best . . . Now Canidae and other American brands have become collateral damage in a trade war that encompasses hundreds of billions of dollars in goods that flow between the two countries. Pet-food industry experts say revenge-minded Chinese officials have been delaying shipments at customs since May to get back at the United States. New tariffs in July have also made imported pet food more expensive . . . Pet food may seem an unlikely target in a trade war, but it shows how creative Chinese officials must become if they want to hit back at [Trump].”

MELTDOWN WATCH:

— Mnuchin meets with Saudi Crown Prince. The Post's Damian Paletta: “U.S. Treasury Secretary Steven Mnuchin met with Saudi Arabia’s Crown Prince Mohammed bin Salman on Monday, according to the Saudi government, illustrating how the White House is retaining close ties with the embattled Middle Eastern leader despite a growing international outcry. Saudi Arabia’s foreign ministry posted a photo of the meeting on Twitter. In a caption, the Saudi government wrote that bin Salman in the meeting ‘stresses the importance of the Saudi-US strategic partnership, where it holds an important role in the future in line with the Kingdom’s #Vision2030.’ Mnuchin last week announced he was withdrawing from a conference in Saudi Arabia this week, amid the international backlash following the killing of Washington Post contributing columnist Jamal Khashoggi.”

#CrownPrince meets with the U.S. Secretary of the Treasury and stresses the importance of Saudi-US strategic partnership, where it holds an important role in the future in line with the Kingdom’s #Vision2030 pic.twitter.com/5LyloSOMTK

— Foreign Ministry 🇸🇦 (@KSAmofaEN) October 22, 2018

A high-profile economic forum in Saudi Arabia began on Tuesday in Riyadh, the kingdom's first major event on the world stage since the killing of Khashoggi at the Saudi Consulate in Istanbul earlier this month.

AP

The visit by Gina Haspel comes ahead of a planned speech Tuesday on the killing by Turkish president Recep Tayyip Erdogan.

John Hudson, Shane Harris and Josh Dawsey

POCKET CHANGE

Chinese police officers patrol on motorized platforms on Tiananmen Square in Beijing on March 12, 2017. (Ng Han Guan/AP)

— Banks wary of China travel. Reuters's Sumeet Chatterjee and Clare Jim: “Global banks including Citigroup and Standard Chartered have asked their private banking staff to postpone or reconsider travel to China after authorities there prevented a UBS banker from leaving the country . . . BNP Paribas and JPMorgan have also asked their private banking employees to reconsider their China travel plans after the authorities’ action against the UBS banker . . . 

"China is the biggest growth driver of the wealth industry in Asia with its large and growing pool of millionaires and billionaires spawned by the country’s booming technology sector, making it a key battleground for global private banks. But its financial sector is under sharp scrutiny as Beijing attempts to lower high debt levels in the economy and curb an outflow of capital from the country to shore up the yuan, meaning there is very little room for error by industry players.”

— Netflix to sell junk bonds. Bloomberg News's Misyrlena Egkolfopoulou and Claire Boston: “Netflix Inc. is once again turning to the junk-bond market to fund new programming as the streaming-video giant seeks to maintain its torrid subscriber growth. The $2 billion bond offering, which will be issued in dollars and euros, comes just a week after the company reported a bigger jump in subscribers than Wall Street analysts expected. While the bonds would push the cash-burning company’s debt load above $10 billion for the first time, the company has seen its equity value skyrocket as it adds subscribers internationally.”

— Icahn sells American Railcar Industries. Bloomberg News's Thomas Black: “Billionaire investor Carl Icahn agreed to sell American Railcar Industries Inc. for $1.34 billion, quintupling his investment as a freight boom spurs a rebound in demand for rail equipment. Icahn Enterprises agreed to sell the maker of tank and hopper cars at $70 a share, 51 percent above its closing price on Oct. 19, to a subsidiary of hedge fund ITE Management LP. The deal is valued at $1.75 billion including debt... Rail carloads are climbing as the robust U.S. economy drives freight demand and a shortage of truck drivers pushes some cargo to trains.”

— Cryptocurrency executive calls for regulation. Reuters's Tom Wilson: “Major economies should launch coordinated regulation of cryptocurrencies, the head of Goldman Sachs-backed startup Circle said on Monday, underscoring growing industry support for international rules on digital money. ‘Ultimately there needs to be normalization at the G20 level of critical crypto-related regulatory matters,’ Jeremy Allaire, CEO of Boston-based Circle, told Reuters in an interview in London. . . . National regulators have mostly taken differing approaches to rules for cryptocurrencies. Some, such as Japan, have adopted frameworks for licensing exchanges, while others, like China, have shut them down. The industry is largely unregulated across Europe.”

Musk says he will soon open a test tunnel to the public to demonstrate the viability of an ambitious underground high-speed transportation system.

Hamza Shaban

MONEY ON THE HILL

— Brat borrowed from Bernanke in academic paper. The Post's Laura Vozzella: "Rep. Dave Brat (R-Va) often touts his status as the “only PhD economist in Congress” to suggest he has special insight into the nation’s economy. But his academic background is under scrutiny amid revelations that a paper he wrote as a Randolph-Macon College professor borrowed heavily — and exactly — from one co-authored by former Fed chief Ben S. Bernanke.

"Brat’s paper was a critique of Bernanke’s, so he quoted from the original piece. But instead of summarizing Bernanke’s writing in his own words, or using quotation marks to quote him directly, Brat simply seemed to cut and paste. Brat’s 2005 paper is seven ­pages, not counting the refer­ences and tables in the back. Nearly every sentence in the first three pages is directly from a paper that Bernanke and his co-author, Refet Gurkaynak, wrote in 2001...  Brat’s campaign spokeswoman Katey Price called the criticism a 'political hit.'"

— Booker bill would give every child a savings account. The Hill's Sylvan Lane: “Sen. Cory Booker (D-N.J.) is introducing a bill to give every U.S. child an interest-bearing savings account at birth in an attempt to reverse rising economic inequality. The bill from Booker, who is seen as a likely 2020 presidential candidate, would create interest-bearing accounts funded by the federal government for each child born in the U.S, according to a summary released Monday. The accounts would be administered by the Treasury Department and start with a $1,000 principal balance granted by the federal government. The government would then deposit up to $2,000 a year into each child’s account depending on total family income until the recipient turns 18.”

DAYBOOK

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THE FUNNIES

— A New Yorker cartoon by Michael Maslin:

BULL SESSION

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