Tax Gimmicks
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DOW + 255 = 23,836
SPX + 25 = 2627
NAS + 33 = 6912
RUT + 23 = 1536
10 Y + .01 = 2.34%
OIL – .36 = 57.75
GOLD – .60 = 1294.40
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Record highs for the Dow, the S&P, Nasdaq, and Russell.
The big push to record highs came in the final 2 hours of trade as the Senate Budget Committee passed the tax-cut bill. The Tax Cuts and Jobs Act now moves to the full Senate for debate and a possible vote as early as Thursday.
The 12-11 party-line vote came after Republican leaders addressed objections raised by GOP committee members who threatened to block it. Just one GOP senator on the panel would have had the power to block the bill given the majority’s one-vote margin in committee.
GOP committee member Bob Corker of Tennessee said he reached an agreement with Senate tax writers on a broad outline for a revenue trigger provision that he and other GOP senators are seeking. He has sought a “backstop” that would create automatic tax increases if the tax bill doesn’t spur strong economic growth as Republicans have promised.
Senator Ron Johnson, a Wisconsin Republican, pushed to change the way pass-through businesses would be treated by increasing a proposed 17.4 percent deduction for pass-through business income to at least 20 percent. Johnson would pay for the heftier tax break by eliminating the corporate deduction for state and local taxes. Senator Lisa Murkowski of Alaska was swayed by a provision that opens the Arctic National Wildlife Refuge to oil drilling.
Here’s the problem with the compromises required to push the bill out of committee. By making the plan more generous to the wealthy by doing more for pass-throughs, this would also add to the deficit – which would then trigger the tax increases.
The tax hike trigger is supposed to appease Republican deficit hawks – notably, Senators Corker and Flake. But looking beyond the quick patch, they still must sell the plan to the public, which thinks the whole idea is a big giveaway for corporations. To win over middle-class voters, they offer a short-term tax cut – and because they know that the tax cuts will bust the deficit, the individual tax cuts will expire in 2025 and taxes on the middle class will go up.
The whole point of back-loading the losses on to the middle class later is to prevent the permanent corporate tax cuts from ballooning the long-term deficit. As of now, how this tax hike trigger would work, and whose taxes would go up, are unspecified. Three guesses….
For all of this to go through, consider the most likely way it would happen: The deficit hawks would have to accept a plan that on paper does balloon the deficit in the short term, based on triggers that allow them to claim tax hikes will kick in if growth doesn’t offset that. (Either these triggers remain unspecified, or Republicans will be declaring that some specific groups may be hit with tax hikes later.)
Meanwhile, to make conservatives happy, the plan would have to include still more benefits for the rich under the guise of mainly helping small businesses.
It looks like a few senators managed to add a few gimmicks to justify letting those who have argued that they don’t believe in increasing the deficit to vote for a bill which does exactly that. More broadly, the lesson is that it’s hard to take an inherently flawed concept like a large regressive tax cut enacted at a time of low unemployment, rising interest rates, and high debt, and then tack on extra provisions that make it workable.
The best solution is for Congress to manage the budget in a responsible way, enacting stimulus if the economy is in recession but aiming for deficit-neutral tax reform. But GOP senators are also facing intense pressure to “get to yes” on the bill rather than leaving town without a signature 2017 legislative accomplishment, so the old trigger idea is making a comeback despite significant conceptual flaws. Sometimes discretion is the better part of valor.
Republican leaders conceded that they have yet to round up the votes needed for passage in the Senate, where they hold a narrow 52-48 majority. Best estimates are that there are 8 Republican senators that could kill the tax plan; two of them are from Arizona. As the tax fight played out, a new battle opened on another front as Democrats canceled a White House meeting with Trump to discuss spending, immigration and other issues after Trump said on Twitter that he did not think a deal was likely. Lawmakers must renew government funding before it expires on Dec. 8 or risk a shutdown.
Earlier in the day came word North Korea fired an intercontinental ballistic missile for the first time in four months. The missile flew east for about 53 minutes before landing off the north of Honshu, Japan’s largest island, nearly 600 miles from the launch site. The missile was fired high into the air, reaching a maximum altitude of around 2,800 miles, in an arc like the North’s two previous intercontinental ballistic missiles, or ICBMs, which were launched in July.
The distance traveled appeared to be significantly greater than that of the two previous ICBMs. It is estimated the missile has a range of about 8,000 miles, able to reach Washington or any other part of the continental United States – although they would probably have to develop their missiles even more before they could reliably deliver nuclear armed weapons such distance. Washington is applying what it calls “maximum pressure and sanctions” to stop North Korea from reaching the stage where it would be able to deliver a nuclear warhead on its ICBMs.
Jerome Powell, Trump’s pick to be chairman of the Federal Reserve, told senators at his confirmation hearing today that he believes some bank regulations can be rolled back — something the administration and Wall Street favor. But he stressed that he will protect the central bank’s political independence, calling it vital for the Fed’s role.
Powell also strongly hinted in his appearance before the Senate Banking Committee that the Fed would hike rates again in December. Powell said he believed that the Dodd-Frank Act, passed in the wake of the 2008 financial crisis, the law had imposed unnecessary burdens on small banks. But the law had succeeded in making the financial system stronger, including ensuring that no major institution now is too big to fail. Which is a little strange because loose regulation didn’t prevent the meltdown in 2008 and the big banks are even bigger now.
The National Retail Federation reports more than 174 million U.S. shoppers made purchases over Thanksgiving weekend and Cyber Monday, beating the industry group’s expectations and signaling a strong start to the holiday quarter. The NRF, which had estimated about 164 million shoppers, attributed the even stronger turnout to better technology and discounting, low unemployment, rising consumer confidence and good weather across the country.
Shoppers on average spent $335.47 over the five-day period, with older millennials spending the most at $419.52 each. Online shopping rose sharply this year, with Cyber Monday becoming the largest online sales day in history at $6.6 billion. Sales on Thanksgiving and Black Friday also topped prior years and e-commerce leader Amazon.com said it broke sales records this weekend.
Not just Amazon, many traditional brick and mortar retailers also bulked up their online operations. The NRF said retailers’ investments in technology had paid off, noting that internet-only shoppers totaled more than 58 million during the 5-day period, over 64 million shopped both online and in stores, and about 51 million spent only in brick-and-mortar stores.
Bitcoin hit an all-time high above $10,000 in some smaller exchanges and digital currency indexes, but remained just below that milestone in major trading platforms such as Luxembourg-based BitStamp and U.S.-based GDAX. Still, bitcoin has gained more than 900 percent so far this year.
The Arby’s Restaurant Group is buying Buffalo Wild Wings, paying $157 in cash for each of the 15.51 million outstanding shares. The total value of the agreement swells to around $2.9 billion after Wild Wings’ debt is included.
Arby’s is controlled by the private equity firm the Roark Capital Group, which says it will be taking Buffalo Wild Wings private and continue to operate it as an independent brand. Shareholders of the chicken wing and sports bar chain will need to approve the deal before it’s finalized. Buffalo Wild Wings has more than 1,250 locations in 10 countries; Arby’s has more than 3,300 restaurants in seven countries.
