Tax cuts not likely to pay for themselves

TAX CUTS NOT LIKELY TO PAY FOR THEMSELVES — One of the favored talking points of proponents of the tax cut efforts in the House and Senate is that they will pay for themselves over ten years and perhaps even pay down the debt, as Treasury Secretary Steven Mnuchin has repeatedly promised.

This is almost certainly not going to happen according to Kent Smetters, faculty director of the respected Penn Wharton Budget Model. MM spoke to Smetters about PWBM’s latest figures showing that even with dynamic scoring, the tax cuts in the House bill would increase the debt by around $2 trillion over ten years and close to $7 trillion by 2040.


The growth impacts could produce an economy that is 0.9 percent larger by 2027 but by 2040 the economy may be no larger than it would be under current law given the impact of increased debt crowding out private investment.

Smetters: “The biggest take-away is that they are definitely not going to pay for themselves. … Even when you apply dynamic effects to it even the most optimistic scenario it costs $1.5 trillion and things get worse the further you go out in time …

And why is their model so different from what Republicans are hoping for? “Once we get away from unrealistic assumptions … you get a much more modest estimate. You could get big results [for growth] but that usually comes with stuff that’s revenue neutral and that doesn’t include things that expire.”

As for Mnuchin’s claims: “I don’t know of a model that is realistic that produces that.”

Speaking of Mnuchin, POLITICO’s Colin Wilhelm reports that at a WSJ conference, the Treasury Secretary again claimed the tax bill won’t add to the deficit and said Treasury published a report saying it won’t. But no one has seen the report.

Colin followed up with the White House and Treasury for a link or PDF of the study. No response as of Monday night.

Trump complicates tax matters in a tweet that was oddly tagged as coming from Pennsylvania while Trump remains in Asia (presumably it was dictated to an aide):

“I am proud of the Rep. House & Senate for working so hard on cutting taxes (& reform.) We’re getting close! Now, how about ending the unfair & highly unpopular Indiv Mandate in OCare & reducing taxes even further? Cut top rate to 35% w/all of the rest going to middle income cuts?”

MM SIDEBAR — House and Senate Republicans very purposefully stayed away from dealing with Obamacare in their bills. They are also trying very hard not to increase benefits to the wealthiest, which cutting the top rate to 35 percent would do. Why the president, who plans to visit Capitol Hill on Thursday to push the tax cut effort, would attempt to mess around with carefully crafted GOP consensus on these bills is anyone’s guess.

CRAPO DROPS DODD-FRANK REFORM SUMMARY — Senate Banking Chair Mike Crapo release a summary of changes to Dodd-Frank that has support from nine Republicans and eight Democrats. Senate Banking Ranking Member Sherrod Brown (D-Ohio), who was once working with Crapo on the effort, dissented and issued a statement blasting the effort.

As expected, the bill would raise the standard for higher levels of supervision to $250 billion in assets from $50 billion as well other changes to mortgage and liquidity rules. More from POLITICO’s Zachary Warmbrodt on the summary: “The deal was driven by … Crapo (R-Idaho) and a handful of red-state Democrats who have long argued that the rules were stifling lending for their rural constituents. The same Democrats are facing tough reelection campaigns next year. …

“The release of the deal immediately drove a wedge between moderate Democrats and others in the party who have resisted making significant changes to the post-financial crisis regulatory regime. .. But with nine Republicans, eight Democrats and one independent senator signing on, the package had a significant head start on the way to advancing through the Senate, where bipartisan agreement is essential to passing most laws” Read more.

Cowen’s Jaret Seiberg: “We believe the Senate Banking regulatory relief package is broadly helpful to regional banks and trust banks, though banks with more than $250 billion of assets would retain their systemically important status.

“It also imposes some rules on credit bureaus, provides some QM relief for portfolio mortgages and tweaks liquidity rules to help regional banks. … Not helped are US Bank, PNC and Capital One as they already are above $250 billion threshold that will be set for when a bank is automatically deemed to be systemically important”

Compass Point’s Isaac Boltansky: “The proposal should be viewed as broadly positive for community banks, regional banks, and custody banks. We continue to believe that odds favor passage of a regulatory relief package, but our sense is that the package will take months to fully form and therefore expect passage in mid-2018”

“Given the package’s bipartisan support, it represents the most significant legislative step toward a regulatory realignment in the financial services sector since the Dodd-Frank Act was enacted”

FIRST LOOK: COMPARING CITIES — Urban Institute has a new study out Tuesday morning showing similarities between different cities’ financial and economic health. Some of the findings: “San Antonio and Tulsa are both economically strong cities with threats to their financial stability; Des Moines and Columbus are economically stable cities with lower housing costs; Chicago and Buffalo both have tenuous stability and uneven opportunities” Full results here.

SENATE TAX TWEAK HITS 401(k) PLANS — CNBC’s Darla Mercado: “Workers over age 50 would no longer be able to make catch-up contributions on a pretax basis to their retirement plans under a new amendment to the GOP's Senate version of the tax bill. Orrin G. Hatch, chairman of the Senate Finance Committee, filed the amendment to the bill on Monday. …

“This amendment would permit workers over age 50 to contribute up to an additional $9,000 each year to their retirement plans, but it would require that these contributions be made to Roth accounts. Those are accounts where taxes are paid upfront.” Read more.

Treasury Secretary Mnuchin still claims tax cuts will pay for themselves. | AP Photo

GOOD TUESDAY MORNING — Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

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DRIVING THE DAY — Senate Finance tax cut markup continues with Chairman Orrin Hatch expected to release a modified chairman’s mark with consensus amendments. Livestream for the markup is here … House Financial Services has a mark-up hearing at 10:00 a.m. on multiple bills … NFIB survey at 11:00 a.m. expected to rise to 104.0 from 103.0 … Producer Prices at 8:30 a.m. expected to rise 0.1 percent headline and 0.2 percent core

MNUCHIN ON CRYPTO CURRENCIES from the WSJ conference, via Colin Wilhelm: “I have no idea why Bitcoin trades where it is. I’m not saying it should trade higher or lower, I’ve never been good at predicting the markets.”

But he downplayed the impact of digital currencies, whose technology was included in the Federal Reserve’s recent Faster Payments Initiative findings. “I don’t buy the argument that you need cryptocurrencies to lower transaction costs. I think the electronic transaction costs are going to be lowered,” with existing technology, said Mnuchin, who added that, “I do think there are a lot people who are using [Bitcoin] for illicit activities.”

SCOOP: BOWMAN FOR FED? — POLITICO’s Victoria Guida: “The White House is considering nominating Kansas State Bank Commissioner Michelle Bowman for the Federal Reserve seat reserved for someone with community banking experience, according to a person familiar with the matter.

“Bowman, a fifth-generation banker, has served as Kansas’s top bank regulator since Jan. 31. Before that, she worked as vice president of Farmers & Drovers Bank starting in 2010. She has also led a government and public affairs consultancy in London. Bowman has experience working in Washington, D.C., in both Congress and the executive branch” Read more.

DODD-FRANK ROLLBACK REACT — Marcus Stanley, policy director at Americans for Financial Reform: “With bank profits at record highs and ongoing scandals at Wells Fargo and Equifax, Congress ought to be passing robust new consumer protections, not doing favors for the bank lobby.

“The reforms to bank supervision Congress passed after the financial crisis are designed for a moment like today, since they require even reluctant regulators to maintain adequate oversight of multi-hundred billion dollar banks. This proposal strips away that mandate and opens the door for Trump-appointed regulators to severely weaken the rules.”

NOT SO SIMPLE? — Cumberland Advisors’ David Kotok on the Senate bill: “First, the tax code will not be made simpler by this bill, and the implementing of a postcard tax form is a political gesture that means nothing. In the details of the scorecard one can detect the work of the many lobbyists who are trying to influence the item they are focused on for the special interest group they represent.”

KC STAR DOESN’T LIKE IT — Via the Kansas City Star edit page: “The GOP concept is poorly conceived, poorly timed and is once again way too generous to the rich, a strategy that Republicans have now turned into a regular and increasingly annoying habit”” Read more.

A TRAIL OF LOOPHOLES —NYT’s Patricia Cohen: “’Slow down’ is the last thing that supporters of the Republicans’ proposed tax overhaul want to hear. ‘My donors are basically saying get it done or don’t ever call me again,’ Chris Collins, a representative from New York, said last week.

“But the rush to ‘get it done’ — particularly on the business side, where the most sweeping changes are planned — is alarming tax specialists who warn that new and unforeseen complexity, loopholes and glitches could come back to haunt tax collectors and taxpayers.” Read more.

ASIA STOCKS SHAKY — Reuters’ Wayne Cole: “Asian stocks wobbled on Tuesday as investors awaited developments in U.S. tax reform efforts, while contemplating if a marked flattening in the U.S. yield curve might ultimately be a harbinger of an economic slowdown there. …

“In Asia, the highlight will be Chinese data on industrial output, retail sales and urban investment, while the United States releases its own retail sales figures later in the day. Also on the menu are no fewer than 13 central bank speakers, including the heads of the U.S., European, British and Japanese central banks.” Read more.

TRUMP ERA BRINGS LOWEST VOLATILITY SINCE ‘60S — FT’s John Authers and Joanna S. Kao: “The year after Donald Trump’s surprise victory in the U.S. presidential election have been the quietest months for the U.S. stock market in more than half a century.

“Since election day, the daily change in the S&P 500, the most widely followed index of U.S. stocks, has been only 0.31 percent as the blue-chip index has set new record highs. This is the lowest daily change in more than 50 years.” Read more.

But is it really that strange? — Bloomberg’s Sarah Ponczek: “Volatility is low. But does that mean it’s abnormal? … But what if today’s seemingly abnormally low levels of volatility aren’t so abnormal, and that it’s the volatility of the past that was oddly high?”

Read more.

BITCOIN CLAWS BACK OVER $1,000 — Reuters’ Jemima Kelly: “Bitcoin surged on Monday, recovering more than $1,000 after losing almost a third of its value in less than four days as traders bought back into the volatile cryptocurrency. Bitcoin tumbled in the second half of last week, falling as low as $5,555 on the Luxembourg-based Bitstamp exchange on Sunday, a slide of almost 30 percent from a record high just shy of $7,900 on Wednesday.” Read more.

IPOs ROAR BACK WORLDWIDE — WSJ’s Steven Russolillo and Corrie Driebusch: “A flood of Chinese companies is driving the biggest world-wide surge of initial public offerings in a decade. More than 1,450 companies globally have gone public so far in 2017, putting this year on track to become the busiest for new listings since 2007, according to Dealogic data through Friday.

“Roughly two-thirds of the IPOs were in the Asia-Pacific region, which has roared past the U.S. to become the dominant region for new stock listings” Read more.

GOLDMAN MARKS WEINSTEIN CO STAKE DOWN TO ZERO — Reuters’ Jessica DiNapoli: “Goldman Sachs’ move comes as the Weinstein Company looks for fresh financing after more than 50 women claimed that Weinstein sexually harassed or assaulted them over the past three decades. Weinstein has denied having non-consensual sex with anyone. Reuters has been unable to independently confirm any of the allegations.

“Last month, Goldman Sachs said it was trying to find a buyer for its stake in the Weinstein Company. A Goldman Sachs spokesman had said at the time that the bank valued the stake at less than $1 million.” Read more.

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