NOW OR NEVER: This week’s election has Republican strategists rethinking 2018. It’s hard to run on Trumpism without Trump, but when Trump has well below a 50% approval rating - candidates are wary of a full embrace. While Democrats are elated and will use this moment through midterms - they are forgetting one major thing - tax reform. Tax reform does not get more difficult because of this election - it becomes imperative. It’s becoming abundantly clear that Republicans cannot go into 2018 with 0 points on the board. You can only shout Neil Gorsuch from the rooftops so many times. House Republicans only control 239 seats - and the party controlling the White House historically fares terribly in the midterms, but when the president's approval is below 50% they lose an average of 36 seats. There are 23 open Republican districts that voted for Hillary Clinton in 2016 and eight of them also voted for Obama in 2012 and with more establishment retirements - there is room for Democrats to jump in and upset the Bannonites creeping into the primaries. Without tax reform - it is hard to see the Republicans maintaining control with so many toss-up districts open.
HOUSE DAY THREE: The CBO released their score for the House’s tax plan and it doesn’t look good for deficit hawks. It is said to increase the deficit by $1.7 T and grow our debt to 97.1% of GDP by 2027, but it likely doesn’t matter much to the House. Senate is the chamber with the strict budget rules and fiscal hawks - a problem that could be fixed with dynamic scoring something the House does not use. House Republicans are feeling the pressure to deliver after Tuesday night’s results - and Ways and Means (W+M) Chair Kevin Brady has a big amendment coming today before they wrap up. He alludes it will simply fix their budgeting math - but Democrats think it will entail major changes to personal income taxes. Speaker Paul Ryan and Brady are open to delaying the corporate rate by one year, repealing the Obamacare mandate, and closing some special interest loopholes to pay for the major cuts, but if they add any of these provisions to the bill, expect it to be for a major Republican goal - more cuts or sacred deductions.
SENATE IN WAITING: The Senate was expected to release their tax draft Thursday, but are waiting for W+M to finish their markup, which is expected after lunchtime today. The Senate bill, though drafted with the same guiding principles as the House, “will also have quite a number of significant differences,” Sen. Pat Toomey (R-PA). They will have to address at least $74 billion more in offsets than the House and they must prevent a $155 billion deficit addition in 2028 which violates the Byrd rule. It certainly won’t be easy as every single deduction or credit is there for some reason (some special interest). Finance Committee members plan to meet with the full conference at 11:30 AM Thursday (yet to be rescheduled) to discuss the bill and the modifications and provisions are sure to leak soon after.
WHAT'S DIFFERENT IN THE SENATE:
- They are weighing increasing the corporate rate cut from the House’s 20% to between 20-25%, phasing it in over five-years, or delaying the cut by one-year
- They are expected to increase the income brackets back up to five or seven - looking to reduce each individual’s taxes, but collect more revenue
- They are considering doubling the threshold, a temporary repeal or a phase-in of the estate tax.
- They are expected to repeal all of the SALT deductions
- They will approach pass-through rates differently, looking at a lower rate and structuring the guardrails to qualify income v. wages based on a set of requirements - not just a 70/30 split
- Senators Mike Lee (R-UT) and Marco Rubio (R-FL) are pushing to expand the child tax credit further
- They are also interested in raising the House’s cap for the mortgage interest deduction on homes up to 500K for married couples up to 750K or 1MM in the Senate version
NO TRADE DEALS YET: President Trump is meeting with five different Asian countries, but isn’t expected to come back with one trade deal or even progress for that matter. According to Trump - he, South Korea, and China will fix the threat in North Korea. He has secured arms sales with Japan and South Korea and even made business deals in China. However, he is no closer to the one-on-one trade deals he promised to negotiate after pulling out of TPP. Many of these Asian trade ministers spent years working on TPP and are now discouraged from trusting President Trump on a trade deal from scratch. The president is still going after China’s trade practices telling their leaders he doesn’t blame them for taking advantage of the system to benefit their own people.
EVENT REPLAY | TAX REFORM BLACK BOOK: IS IT REAL THIS TIME?: Macro Policy Analyst JT Taylor and Health Policy Analyst Emily Evans held an in-depth presentation on tax reform. They provided a comprehensive overview of House Republicans' tax reform package including significant provisions, political obstacles, the timeline to passage, and the probability of success. If you missed it, get the replay details here.
CALL INVITE: UPDATE FROM THE FORMER US/UN COMMANDER IN KOREA: Our Senior Defense Analyst Emo Gardner wants you to join us on Thursday, 16 November at 10 AM ET to hear the four-star former commander of US/UN forces in Korea provide an up to date assessment. Get the details here.
SAUDI SATURDAY: GEOPOLITICAL RISK SPIKE AND TRUMP’S CLEVER PUSH FOR ARAMCO IPO: Our Senior Energy Analyst Joe McMonigle writes that power consolidation is a sign that the King may soon abdicate to the Crown Prince early next year. But we see no change in Saudi oil policy. Read the full piece here.
NECESSARY BUT NOT SUFFICIENT: CONGRESS AUTHORIZES 10% PENTAGON BOOST BUT HAS NO BUDGET: Our Senior Defense Analyst Emo Gardner writes that the Senate/House agreement to authorize $700B for Pentagon in FY18 makes all boats float, but exceeds BCA cap by up to ~$85B. Read the full piece here.
TRUMP REQUESTS $5.9B MORE EMERGENCY SPENDING. BA, LMT, RTN, NOC TO GAIN: Our Senior Defense Analyst Emo Gardner writes that POTUS has requested $4.7B in emergency spending for missile defense and ship repair and $1.2B for new AFG strategy. Read the full piece here.
