THE HOUSE | Meanwhile, Back in Congress, These Bills Passed

L to R: Democrat Maxine Waters Ranking
Member, Financial Services Committee,
and Chairman Jeb Hensarling (GOP).

The following is from Dana Chasin, posted by permission. He calls it "Update 286: If at First You Do Succeed..."

On Monday, a package of financial regulatory measures (deregulatory in aggregate effect), cleared the House overwhelmingly.

These bills have joined other bills passed by the House among bills on the Senate’s post-recess floor time queue. JOBS 3.0 raises non-Dodd-Frank issues. It also also raises S. 2155 on a smaller scale, with something for everyone to loathe or love.

(Next Tuesday, July 24, Americans For Financial Reform sponsors:  “Regulating Wall Street - Ten Years Later.” Senators Sherrod Brown and Elizabeth Warren are among the participants.  To RSVP, click here.)

JOBS Act 3.0

This week, House Financial Services Chair Jeb Hensarling and Ranking Member Maxine Waters announced a bipartisan agreement on the terms of a broad regulatory rollback package.  (Hensarling interview is here: https://www.bloomberg.com/news/videos/2018-05-23/rep-hensarling-says-more-deregulation-by-midterms-is-very-realistic-video.)

The legislation, entitled S.488, the JOBS and Investor Confidence Act of 2018 (or Jobs Act 3.0), is the most comprehensive package of changes to federal securities laws to pass the House with broad and bipartisan support since Congress approved the JOBS Act of 2012.  [NB: in 2015, Congress enacted a much smaller set of tweaks to securities laws as part of broader transportation reauthorization legislation, which some have dubbed “JOBS Act 2.0”.]

S.488 is comprised of 32 previously introduced bills, the vast majority of which have cleared the House or the Financial Services Committee.

This third iteration of the JOBS Act has many of the hallmarks of the JOBS Act of 2012.  It combines a number of disparate and seemingly innocuous pieces of legislation that relax or moderate various existing regulatory requirements relating to U.S. capital markets, in particular, the issuance and sale of securities.

The House passed the package on a 406-4 vote on Tuesday with bipartisan support, including from Ranking Member Maxine Waters and Chairman Jeb Hensarling. It looks like the Senate will consider the bill during the summer.

Public-Private Market Paradox

The JOBS Act 3.0 package contains provisions that simultaneously seek to encourage growth in the public market, while cutting back on regulations in the private market.

The bills include:

H.R.79: The HALOS Act permits issuers of private securities that are exempt from SEC registration requirements pursuant to SEC Rule 506(b) to also be exempt from certain restrictions on the use of general solicitation in the advertising and sale of such securities, further weakening investor protections in a segment of the market that is growing rapidly but plagued by fraud.

Private securities markets are appropriate for certain types of issuers and investors, but they are inherently problematic, given that they are characterized by significant risk -- lack of liquidity, oversight and transparency.  The private nature of these markets also makes it difficult for investors other than large institutional investors or venture funds to obtain information about the security, or otherwise value the security.

H.R.5877: The Main Street Growth Act lays the statutory foundation for the establishment of one or more “venture exchanges.” The Act sets forth a process under which any national securities exchange registered with the SEC can “elect” to become a venture exchange, which is subject to different standards and rules than those that govern all other national securities exchanges in the United States.

The venture exchange provisions in S.488 build upon provisions enacted in Section 501 of S.2155 that dramatically changed the way securities can be recognized as “covered” and exempted from state review by virtue of being listed on a national securities exchange. Taken together, the two provisions will ensure that certain national exchanges in the U.S. will likely operate with significantly lower listing standards than those that currently apply to national exchanges.

H.R.6177: The Developing and Empowering our Aspiring Leaders (DEAL) Act requires the SEC to allow venture capital funds to invest in secondary market shares of venture capital companies instead of primary offerings, complementing the "venture exchange" piece of the larger bill by basically creating an ecosystem for trading shares in private venture companies.

This Act, together with the HALOS and Main Street Growth Acts, further blurs the distinction between public and private securities markets, expanding the “quasi-public” securities market that was the major legacy of the JOBS Act of 2012, and making it more likely that retail investors will soon be solicited and sold securities that are in many respects more speculative and risky than is currently permitted under the securities laws.

H.R.1645: The Fostering Innovation Act ostensibly aims to encourage IPO formation by doubling the time that low-revenue emerging growth companies (EGCs) are exempt from key financial reporting controls. However, the Act is predicted to affect less than 2 percent of publicly traded companies and is therefore unlikely to have a discernible effect on increasing the amount of IPOs. Crucially, the bill gives special treatment to EGCs, opening the door for other issuers to demand the same and potentially precipitating a “special treatment” race to the bottom. The long-term effect of lowering the bar for a few is that the bar gets lowered for all.

A Work in Progress

H.R.1585: The Fair Investment Opportunities for Professional Experts Act sets in statute the definition of an “accredited investor” and codifies the current thresholds for annual income and net worth. The bill would create new qualitative pathways for individuals to become accredited and attempts to address the $1 million asset threshold that was originally set by rule in 1982 by indexing it to inflation every five years. However, even with the inflation adjustments, the bill would see retirees with no experience or sophistication in investment matters qualifying as “accredited investors” by virtue of their retirement savings, or wealth realized from an event such as an inheritance or the sale of a primary residence. This bill could be amended to rectify these important issues in the Senate, but in its current form, it is an example of the unbalanced nature of some of the bills in the JOBS 3.0 package.

Where most bills in the package relate to capital markets access, two pertain to the systemic risk pillars of stress testing and resolution planning.

H.R.4566: The Alleviating Stress Test Burdens to Help Investors Act exempts nonbank financial institutions from DFA company-run stress-testing requirements.

H.R.4292: The Financial Institution Living Will Improvement Act requires banks to submit resolution plans every two years instead of annually. These measures mimic what regulators may already decide with newfound discretion under S.2155.

Improvements to JOBS Act 3.0

JOBS Act 3.0 is modest compared to its predecessors, but underwent significant changes during its crafting. Therefore, in some cases, the bills that have been incorporated in the package are different than the previous iterations. The package has been welcomed by some institutions, such as the Council of Institutional Investors, for its provisions that address insider trading and multiclass share structure disclosure.

Unfortunately, the speed with which the package is and has been moving has made it difficult for those on and off the Hill to properly evaluate its benefits and risks. With so many moving parts, JOBS Act 3.0 needs time to be fleshed out and examined more thoroughly before concrete suggestions can be made. This is likely post-August recess.

Political Developments/State-of-Play

S.488 now moves to the Senate. With the legislative schedule packed with nominations, appropriations bills, and the Farm bill,  Senate Majority Leader McConnell announced that “Senators will continue their ongoing bipartisan discussions as we work towards a vote in the coming months.”

Other Senators have indicated the negotiations and busy schedule could push the floor debate for at least three to four weeks.  Look for the package to reach the Senate floor after the summer recess, perhaps attached to a funding or appropriations bill, or as standalone legislation.

TAX BILL PUZZLE | Thatcher Policies in Reverse

Thatcher's policies added homeowners and reduced the number of renters
of public housing. (Chart by The Guardian.)

Of all the puzzles posed by the tax bill now before the Congress, the impact on homeownership is the hardest to fathom. 

The bill reverses one of the major thrusts of Margaret Thatcher's administration in Britain, to use greater homeownership through right-to-buy programs to expand the ranks of the Conservative Party. 

Thatcher became leader of the Conservative Party in Britain in 1975 and became Prime Minister in 1979. She therefore led a conservative-laissez faire revolution in the 1970s that in 1980 returned the White House to the GOP by electing Ronald Reagan President.

Thatcher presided over large-scale selling off of Council Housing to the people who lived in the the rented homes. Her goal was to make them into homeowners who would care about their property... and vote Conservative in future elections.

The tax bill before the Congress removes incentives for homeownership and tilts the playing field toward renters. An astonishing reversal of a Thatcher program that has been widely viewed as brilliant.

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TAX BILL | Latest on House-Senate Conference

The following is from Dana Chasin in Washington, reposted by permission. (I am in Washington this week as well.) This is his Update 235 on Washington legislation.

This afternoon at the White House, President Trump made one last pitch for the Tax Cuts and Jobs Act.  

Up on the Hill, conferees met to continue trying resolve differences between the House and Senate bills.  

Even as the process is well underway, the conferees know that Americans have picked up on the fact that their promised tax cuts are turning out to be rebates that dwindle over ten years through a series of sunsets. 

When will the initial tax cuts sunset?  Who then gets the tax hikes that follow?  How much does the middle class get in relief, averaged annually over the life of the law?  How many middle class taxpayers are looking a tax hike?

Rebate and Switch

This afternoon, Republican tax negotiators from the House and Senate met to hash out differences in the GOP effort at sweeping reformation of the nation’s tax code.  Unsurprisingly, the meeting was conducted behind closed doors. Republicans point to an ambitious timetable for keeping negotiations out of the public eye, but just as important is the tax bill’s overwhelming unpopularity.

Republicans made grand promises in their sales pitch to the middle class. Americans were told the average middle class family of four earning $59,000 per year would see a tax cut of $1,182 – more than $11,000 over ten years. Even today, President Trump repeated the claim that corporate rate reductions will generate $4,000 in new annual income per household. Simply put, the public is not buying it. As negotiations have worn on and details of the bill have emerged, public support for the bill has plummeted.

The bill would send trillions of dollars to the country’s largest corporations and wealthiest income earners. As of now, the nation’s top income earners would see their individual tax rate fall from 39.6 percent to 37 percent. Corporate taxes are slashed more severely, falling from 35 to 21 percent. Those in the middle and working classes would see their taxes increase. 

As a result, the Republican tax plan is now less popular than the tax hikes passed under Presidents Clinton and H.W. Bush. That the GOP has managed to make tax cuts less popular than tax hikes is signal.  The majority of Americans sees this Republican chicanery as a massive reverse transfer payment financed on the back of the middle class and generations to follow. 

What the Middle Class Actually Gets: Sunsets

Republicans included a number of short-term provisions in order to improve their bill’s distributional optics, but most of these concessions are written in disappearing ink.  While GOP lawmakers were sure to make corporate handouts permanent, many of the individual rate cuts and tax credits disappear by 2025. 

The increased medical expense deduction disappears after 2018. The expanded Child Tax Credit, which Sens. Rubio and Lee loudly pushed for, expires after 2024.  One of President Trump’s favorite provisions, the doubling of the standard deduction, also expires after 2024.

Bottom line: the average family will receive nowhere close to $11,820 in tax relief over the decade ($1,182 times ten).  What starts out as a $1,182 cut in year one transforms into a tax hike as deductions expire and individual rates reset.  By 2027, the wealthiest one percent of Americans will receive an average tax cut in excess of $27,000. That year, the bottom 60 percent of wage earners will face an average tax hike of $160.

In the end, an estimated 87 million families -- almost 40 percent of taxpayers -- will see their tax liability increase.  Per the Institute on Taxation and Economic Policy, 19 states would pay more overall in taxes. In 14 states, over 1 million taxpayers will face a tax hike.  

Indirect Hikes and Paygo Pain

To make matters worse, millions of Americans will see rising costs indirectly due to provisions in the tax bill unrelated to tax rates:

• The individual mandate penalty repeal alone is expected to increase premiums by 10 percent. This provision would also increase healthcare costs for the 13 million Americans who will lose health coverage as a result of mandate repeal.
• A new Chained-CPI measurement of inflation that would push filers into higher brackets more quickly.

And still worse; the deficit increase of $1.4 trillion has already initiated talks in GOP circles of automatic cuts to critical social programs -- including $25 billion in Medicare cuts in 2018 alone.  At first Republican leaders promised their cut bill would not trigger Paygo cuts, but they have recently changed their tune.  Sen. Rubio, Ways and Means Chairman Kevin Brady, and Speaker Paul Ryan have all linked tax cuts with welfare reform in recent weeks. 

Where provisions that help the middle class (the child tax credit, the doubled standard deduction, the rate cuts) are made temporary, provisions that hurt the middle class are made permanent.

Source: Tax Policy Center

Permanence for Corporations

The sunsetting of individual rate cuts and other middle class credits and deductions pave the way for permanent business tax cuts. The long-term winners are corporations were the long-term losers are the bottom 60 percent.  Wealthy Republican donors will appreciate the long-term 21 percent corporate rate, while middle and low-income Americans will see a little to no difference in disposable income and maybe substantial cuts to the government programs they count on.  

Next Steps 

Look for the Conference Committee to conclude its work blending the House and Senate versions of the bill by Friday.  The bill will then move to the Senate first for passage most likely on Monday in order to ensure compliance with Byrd Rule budgetary restrictions. The House is scheduled to take up the legislation the day after it passes the Senate. The GOP’s ultimate goal is to have the final bill on President Trump’s desk as early as December 20.

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TAX BILL | Details, details

New York City, December 2, 2017 — The Tax Bill has passed the Senate. 

Now the House Republican leadership will seek to take up this bill as passed, to avoid a long conference over the differences between the Senate and House bills.

But will GOP Members of Congress accept all the changes that the Senate made to get to 50 votes? Will the House pass it by the looming December 8 debt-ceiling deadline?

Here are some of the issues facing the House, as outlined in an early-morning email from Dana Chasin, who has been following the proceedings in Washington, used here by permission:

• The Senate grants owners of pass-throughs a deduction rather than a maximum rate, zeroes out the individual mandate penalty, and retains a panoply of deductions eliminated in the House bill.
• The bill is unpopular. This is possibly the least-popular tax package that the Senate has ever passed. A Quinnipiac poll reports only 25 percent of voters approve of it. Representatives will all be facing their constituents in 2018, and many are concerned about how the tax bill will be perceived by voters.
• The December 8 expiration of the debt ceiling and the Alabama special Senate election create deadlines. If the bill is not passed by the House by the 8th, hostility to the bill's impact on the debt and on the GOP's electoral future could overwhelm it.

Some Republican Senators threatened to break ranks over these issues:

• Fiscal (Debt) Impact. Senators Corker and Flake threatened to revolt over the tax plan's debt impact. The standoff came after the Senate parliamentarian shot down Corker’s proposal to insert a “trigger” that would automatically increase taxes in the event the bill did not produce enough growth to cover its deficit impact. Earlier in the day, the Joint Committee on Taxation (JCT) reported that H.R. 1 would add $1 trillion to the debt, even after accounting of dynamic growth effects. The standoff sent leadership scrambling to find ways to raise revenue, but not enough for Corker, who voted against the bill (the sole Republican defection).
• Small Business Treatment. Republican leadership earlier in the week was confronted by  Senators Johnson and Daines, who threatened to withhold their support unless more generous concessions were given to pass-through businesses. Both Senators have indicated their support after the bill was changed to increase the deduction for passthroughs from 17.4 percent to 23 percent. A 23 percent deduction translates into a maximum rate of 29.6 percent, based on the 38.5 percent top rate in the Senate bill. Republicans plan on paying for their generosity by increasing the size of the one-time excise tax on the repatriation of foreign corporate earnings.
• Property Tax Deductibility. Senator Collins, one of the last Republican holdouts, signaled support after announcing that leadership had accepted her amendment to allow individuals to deduct up to $10,000 in state and local property taxes, the same treatment as the tax bill that the House passed last month. Winning Collins’ swing vote came at a steep price. Eliminating state and local deductions is a key revenue raiser for the Byrd Rule-constrained Senate bill. Early indications are that Republicans have opted for keeping a modified version of the Alternative Minimum Tax (AMT) to pay for Collins’ amendments.
• ACA Individual Mandate Repeal. Senator Paul raised eyebrows last month when he announced that the Senate bill would zero out the Affordable Care Act’s individual mandate. The provision was needed to buy Paul’s vote and raise perhaps $300 billion in revenue. It was a risky compromise.  Senators Collins, Murkowski, and Moran have all expressed concern about the bill’s treatment of Obamacare. Collins indicated her support of the bill after getting promises on health insurance premiums, Murkowski signed on after an addition of ANWR oil drilling, and Moran never seriously dissented. McConnell's bargaining appears to have paid off. 

While Senators sparred over pass-through deductions and budget holes, few addressed the tax burden that will weigh heavily on the middle class following passage of this bill. The Joint Committee on Taxation’s “dynamic analysis” estimates only a 0.8 percent increase in GDP and just $408 billion generated from economic growth over the next ten years, while other reports provide even lower estimates.

Reps. Ryan and Brady promised to save the average family of four earning $59,000 a year an estimated $1,182. But this works only for the first year of the plan. After that, the cuts decline and the Family Flexibility Credit is phased out and chained CPI (which indexes spending and taxes, slowing adjustment for inflation) reduces future benefits from what they would have been. These families face tax increases in 2024, paying approximately $450 more by 2027. Furthermore, these hikes are expected to affect families earning less than $30,000 in 2019 and less than $40,000 in 2021.

Senator McCaskill noted amendments from lobbyists bundled together as the Manager’s Amendment and geared to expanding pass-through and corporate deductions to various stakeholders. The chances of legislation that favors the middle class receiving such consideration appear bleak.

That this unpopular tax bill could pass the Senate so quickly is astonishing. However, Americans won’t be filing under the new tax system, if it passes, until April 2019 and most Americans won’t suffer a tax increase until after the 2020 election.

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TAX REFORM | Business Taxes

Sen. Orrin G. Hatch (R-Utah),
Chairman, Senate Finance Committee

The following is Update 205 from Dana Chasin, reposted by permission:

Sept. 19, 2017 – This morning, Senate Finance held its second hearing this week exploring tax policy. This time, the focus was on corporate taxes. 

The Committee heard testimony on topics such as pass-through rates, C-corp rates, territoriality, and options to raise revenue.

Chairman Hatch again asserted that a tax bill will be written by the Committee in a bipartisan way, insisting that the Secret Six will not force partisan changes since it doesn't legislate. 

Ranking Member Wyden took aim at the all-GOP Secret Six, whose tax-reform deliberations are the subject of intense lobbying and speculation, attacking purported GOP plans on pass-through taxation, and expressing outrage about the latest attempt to jam through health care repeal. 

What are the dividing issues here? Are these divides so great that Republicans will have to rely on reconciliation to move on a $1.5 trillion tax cut? Or does Hatch think bipartisan accord is possible? Best, Dana

1. Areas of Discord

Frequently, bipartisan differences on corporate tax proposals were aired, particularly regarding:

•  Pass-Throughs: Republicans defended pass-throughs as a way to support small businesses and spur economic growth by increasing investment.  Sens. McCaskill and Wyden were quick to refute these claims, arguing that the benefits of a pass-through rate cut would accrue mostly to the top one percent of earners, as pass-through income accrues to wealthy owners of larger businesses. 

•  Deficit Financing: Democrats emphasized the likelihood that tax cuts would be deficit financed. Precious few ideas have surfaced from Republicans about how to compensate for this revenue loss. Sen. Carper expressed concerns about deficit-financed tax cuts, particularly those disproportionately benefiting the affluent.

•  Dynamic Scoring:  Conservatives continue to cite this fiscal impact metric to mollify those concerned about adding trillions to the debt, saying that tax cuts will spur growth and in turn increase revenue. Not many serious economists think the government would get more than a dime out of the best designed tax cut dollar. Carper and others today called this trickle-down theory, recalling how similar corporate tax cuts of the past have increased deficits without generating growth to make up for them.

Sens. Brown and Stabenow excoriated trickle-down economic policies.   Stabenow suggested ending the tax subsidies that the five largest oil companies have enjoyed for over a century. She said eliminating the business interest deduction would harm workers, particularly in small businesses. Sen. Cantwell focused on the most vulnerable, highlighting the precarious situation of the Low Income Housing Tax Credit Program, a program with major implications for investment spending patterns of developers.

2. Areas of Potential Accord

The possibility of bipartisan accord is low, but a few isolated points emerged around which members may find bipartisan agreement, if and only if rate reductions are modest:

•  International Competition – Sens. Carper and Warner conceded that it may make sense to lower the corporate rate a few percentage points to increase competitiveness with other nations 

•  Pass-Throughs – Sen. Cardin noted that S-corps in his state plead for moderate reductions on pass through rates. 

•  The Interest Deduction – Two witnesses who did not agree on much else, Scott Hodge and  Donald Marron, concurred on the prudence of eliminating the business-interest deduction as a revenue source to bring in $1.2 trillion in revenue over the budget window. 

3. Reconciliation Process

If the GOP tax plan is so fiscally reckless and inequitable that no Democrats sign on, it will have a better shot if Republicans pass a budget resolution with reconciliation instructions providing for tax changes. No tax changes can add to the deficit outside of a 10-year budget window under reconciliation. A budget resolution that complies means the GOP would need only a 50 + 1 majority to pass the legislation; a filibuster requiring 60 votes to overcome, would not available to Democrats. 

There are a few obstacles to shepherding legislation by way of reconciliation.  Per the Byrd Rule, Senators can raise a points of order against an extraneous provision in a budget bill. A provision could be considered extraneous if it:

•  changes provisions for social security,

•  doesn't change the overall spending or revenue,

•  only incidentally changes spending or revenue,

•  is outside the jurisdiction of committee(s) reporting it.

4. Time Is of the Essence

Republicans must work with alacrity to create a product that overcomes the above obstacles to reconciliation. The window for using budget reconciliation will soon close. The Senate parliamentarian, who oversees the chamber’s arcane procedural rules, decided last week that the current budget reconciliation privileges would expire at the end of September, the last day of this fiscal year. 

The GOP badly wants to get a tax bill done this year, so as not to boot it to 2018, an election year. But it will be nearly impossible for Republicans to get this done by the end of the fiscal year.  

Just tonight, Sen. Corker, a senior Republican on Senate Budget, told reporters that the budget resolution that could unlock the process for reconciliation could be marked up in the coming week or two, depending on whether the Senate is focused on health care.

TAX REFORM | GOP Working on House Bill for Friday

The following, with a few paragraphs lightly edited, is from an email sent to me by Dana Chasin, and is posted here by permission. Some commentators think a tax reform bill will be taken up in the fall and passed in 2018.

Whether to maintain or eliminate the business interest deduction is a point of dispute among the Secret Six Republican tax planners. The 2016 House Blueprint for Tax Reform proposed eliminating the deduction. Steve Mnuchin said he preferred that the deduction be maintained, pitting the Secretary against at least two of the Secret Six members – Paul Ryan and Kevin Brady.  

Eliminating the interest deduction for business could generate $1.2 trillion in gross (not net) revenue over ten years. The White House is opposing the provision, as are major national business groups.

Business Interest Deduction

Eliminating the deduction would unhinge a founding doctrine of American tax policy.   Since the enactment of the federal income tax in 1913, businesses have been able to deduct all interest expenses on borrowed capital. To compensate for the revenue loss, the federal government taxes lenders on interest receipts. 

The problem is that interest is often received in tax-preferred forms, such as retirement plans, often effectively escaping taxation. So eliminating the deduction is not calculated to accomplish any fiscally oriented policy objectives for the GOP.  

$Trillions at Stake

Ending the business interest deduction could generate around $1.2 trillion over ten years according to the conservative Tax Foundation.  Note that this is not a net figure -- the amount would not come close to offsetting the $2 trillion that would be lost from reducing individual income tax brackets to 12, 25, and 33 percent. 

The Democratic “Better Way”

Democrats could be persuaded to see a future for eliminating the deduction, provided it simplifies the tax code burden in a progressive fashion.  Given the current environment and the Republicans’ need, in some circles, to find revenue, it’s unlikely that the Republicans will see fit to suggest anything the Dems would consider equitable reform.  But since deficits don’t seem to matter, we’ll probably see this fall to the cutting room floor after some debate. 

The Ryan-Brady wing of the Secret Six has advocated for the elimination of the deduction since releasing the “Better Way” agenda.  They intend to make up for the hit to business by allowing for 100 percent expensing of business investment in the first year.  Allowing immediate expensing and denying interest deductions is a large step toward turning the corporate income tax into something more akin to a consumption tax. This would replace a system in which businesses depreciate assets over useful lives prescribed by law. Despite this, their plan is out of step with American businesses.

Business Opposition

The Businesses United for Interest and Loan Deductibility (BUILD) Coalition has informed both the Senate Finance and House Ways and Means that it opposes eliminating the deduction. The coalition, mostly farmers and small businesses, emphasizes the important role borrowing plays in fueling their operations. The deductibility of interest lowers the cost of such borrowing.

The coalition also takes issue with the second plank of the Ryan-Brady plan: 100 percent expensing of first-year business investment. The coalition argues full and immediate expensing is redundant, as small businesses are already able to expense annual expenditures. Overall, the coalition insists the policy would raise the cost of capital and reduce investment over the long run.

Additionally, interest deductibility is a key component of the business model of real estate developers, who would be expected to oppose such a change in the law.

Where the Six Stand

Steve Mnuchin’s business background ought to incline him to preserve the deduction.  During a Ways and Means Hearing earlier this year, Mnuchin testified: “On the business tax, my preference is to maintain interest deductibility, which is important for small- and medium-sized businesses."  He went on to say that eliminating this deduction, like others, remains on the table despite the controversy.  

With Steve Mnuchin, Paul Ryan, and Kevin Brady’s views on record, what is known regarding the remaining Secret Six members' approach to the deduction?

•  NEC Chair Gary Cohn: Cohn holds the same view as Mnuchin.  On May 9, they both met with Republican senators and expressed their desire to maintain interest deductibility. Their unity means Trump likely supports keeping the deduction. 

•  Sen. Orrin Hatch, Chair of Senate Finance:  Sen. Hatch’s stance on the issue is unclear.  He has stated in the past that the Congress may not reconsider the deductibility of interest expenses, but said he was open to re-evaluating the question. Early this month he said: "Some people think that would be a tremendous move in the right direction, on both sides . . . I can see it one way, and I can see it the other way, too. These are tough issues. There's nothing easy about tax reform."

•  Sen. Mitch McConnell, Majority Leader: McConnell’s stance on the issue is unclear. He hasn’t come out for or against the deduction. The most he’s said when referencing it is: “There are going to be critics of any way you try to provide revenues to buy down rates.” 

Friday and Beyond

House GOP tax writers are weighing middle ground options between the total elimination of the business interest deduction and its preservation.  An interest deduction may be kept for farmers and small businesses.  

House Ways and Means Tax Policy Subcommittee Chair Peter Roskam says he is "actively working" on how to define which small businesses and farmers would be allowed to keep their interest deductions while taking advantage of the expensing provisions in the tax reform bill that Ways and Means is working on. 

There is also the possibility of a “haircut” for interest deductions, say with 20 percent of net interest not allowed as a deduction.

It is not known if opposing or undecided members of the Secret Six will sign on to these approaches. If you’re anxious to know just where the Secret Six stands on this deduction and all the other important elements of tax policy, stay tuned – you will find out more on Friday (July 28) regarding the big recess reveal. ⧫

Dana Chasin is a fiscal and financial policy advisor who has worked in legislative and advocacy capacities in Washington and for investment banking and financial not-for-profit organizations in New York. Mr. Chasin was Legislative and Policy Liaison to Congress and the Obama administration at Americans for Financial Reform (AFR), a national coalition supporting comprehensive financial regulatory reform and as a member of the AFR Too Big to Fail Task Force. Previous to joining AFR, Mr. Chasin was Senior Advisor at OMB Watch, a non-profit, non-partisan think tank in Washington, researching and advising on federal fiscal policy. He previously served as Legislative Assistant for U.S. Senator Mark Dayton, covering judiciary, tax, budget, and banking issues. He spent six years as Vice President in the global Project Finance team at Société Générale, the international investment bank. Mr. Chasin has published op-ed articles in the Wall Street Journal, Newsweek, and the Christian Science Monitor. 

CITYECONOMIST | June 2, 2015–170K Pageviews; Most Popular

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NYC MAYOR | Can Catsimatidis Get GOP Nod?

John Catsimatidis campaigning for the GOP nomination for Mayor
of New York City. Unexpected developments in the Democratic primary
are making people take a second look at GOP candidates. Photo: Cats site.

I was invited to breakfast meeting last week to hear from a candidate for the GOP nomination for mayor of NYC, John Catsimatidis.

There was no charge for the event. He doesn't need to raise funds. He ranks 132nd on the Forbes 400 and 458th on a global list of billionaires, with a net worth of $2 billion.

That may make him look like a piker by Bloomberg standards, but Cats doesn't need to take six-to-one matching funds from the City of New York. All NYC taxpayers should be grateful for that.

The thrust of Cats's pitch to the group of 75 people who came to hear him was that he was a self-made man who worked his way in a few years from being a grocery store clerk on 137th Street in Harlem, to running ten stores with a yearly volume of $25 million, generating income to him of $1 million. This has become the Gristedes grocery chain.

He has also made investments of approximately $1 billion in real estate, and owns interests in aviation and a Hellenic newspaper among other businesses. He has been a major player in getting the Greek Orthodox churches to work together. Anyone who knows about political fundraising in the United States respects the commitment of Greek-Americans to their candidates.

Cats describes himself as a GOP liberal–pro-business but interested in helping others, young and old. Sounds like Bloomberg. He is pro-safety and would reappoint Ray Kelly as Police Commissioner. He likes trade schools where graduates can go straight into jobs–electrical, carpentry, nursing, other health care services. He would bring in a Deputy Mayor who would recruit high-tech companies to come to New York City.

How would Cats differentiate himself from the other main GOP contender, Joe Lhota? He has the backing of former Mayor Giuliani and is more widely known as a government executive than John Catsimatidis.

Cats's response:

• Joe Lhota has a bad temper.
• He called Mayor Bloomberg "an idiot".
• He called the Port Authority police "mall cops".
• Lhota can't raise enough money to win. Cats would put his own money into the race. (Both Lhota and de Blasio will abide by spending limits to qualify for matching funds.)

L to R: Nick Sakellariadis, Harry Wilson and John Catsimatidis.

A mid-August Quinnipiac poll of likely GOP voters showed Lhota - former deputy to Mayor Giuliani and former MTA chairman - with 43 percent of likely primary voters, versus 37 percent for John Catsimatidis. The margin of error for this poll is 9.4 percentage points, which means that Lhota and Catsimatidis are in a statistical dead heat. Compared with the month before, Lhota lost 6 percentage points while John Catsimatidis increased his support by 2 percentage points. George McDonald is in third place with 9 percent.

My prediction is that Cats's potential as a candidate will be directly dependent on whether or not he does what he says he will do, i.e., hire people who are "better than me". He needs to rein in his impulses.

As an example, Cats promises to dig up all the concrete barriers (or, from a pedestrian point of view, islands). Citing the situation on 7th Avenue, he sees the battle as one between motorists and bicyclists. Sure, the Citibikes would have to be evicted from a lot of the areas where they are now protected by concrete islands. But pedestrians, especially seniors and children (for whom Cats has special concern), and parents of young children, and dog-walkers, have also become enamored of the greater ease of crossing the wide avenues with an island as a refuge on the way. The avenues are scary places to cross, especially for older people and people with disabilities. Those islands are lifesavers. Wholesale destruction of the islands would be a huge setback for NYC.

John Catsamitidis at this event and at others I have attended came across as hugely likeable. However, he needs someone to buy him a bigger-sized jacket and shirts with vertical stripes to disguise his Santa Claus figure. He should assemble a team of people with experience in different aspects of New York City government. He should announce who they are. Then he should listen hard to them before he announces with a wave of his hand what he is going to do. He had me eating out of his hand and then, like the 13th cuckoo of the cuckoo clock, he loses my confidence with a grand statement that appears to reflect his personal self-interest as CEO of a large grocery chain.

His chances of becoming mayor when Christine Quinn was the front-runner were remote. But NYC's business establishment is not going to be enthusiastic about a Bill de Blasio mayoralty and they will be looking for a Republican to support. When Cats first started campaigning, he did not convey seriousness about his candidacy - too ready with the wisecrack. He has taken a few steps towards being taken seriously, picking up a few allies. In the volatile atmosphere of the 2013 elections he just might be able to win the GOP nomination. In this crazy year, voters for the first time have to choose a successor to a 12-year mayor who looks better to many than the people who want to replace him. As the negatives of each of the candidates are ferreted out, Cats's prospects of winning in September and November have risen.

To find out more about candidates you hadn't paid any attention before, go to the Campaign Finance Board, which has an on-line Primary Election Voter Guide now available here or here.

GREEN EDGE | Bloomberg Fairly Endorses Obama's Record

Mayor Michael Bloomberg is right and David Brooks was wrong. Bloomberg has endorsed Obama for re-election today, for his efforts to do something about climate change.

Brooks was dismissive of Obama's green jobs program in a NY Times piece. Brooks argues that people are gloomy about green tech and Obama is to blame. He also mysteriously blames Al Gore, because he was so successful in promoting green issues.

What's wrong with green jobs is the GOP opposition to it in Congress.

1. The green jobs program was not such a failure–most of the investments are working as well as anyone expected from a new government program.

2. The program was predicated on there being a price for carbon, which Brooks supports. The failure to pass any bill on this topic during Obama's first term is the result of GOP congressional intransigence.

The green jobs program has had more of an impact than Brooks allows. He describes the green jobs program solely as a green-tech program, and this leads him to focus exclusively on renewable energy. Yes,  renewable energy is mostly a highly technical area where it is hard to put to work very many people quickly. The workers who assemble and install wind turbines, for example, are likely to be skilled steelworkers. It takes time to recruit and train skilled workers. Therefore progress will be slow.

But the green jobs program had an energy-efficiency component. This was a good idea:

• In its analysis of the benefits of various alternatives to pursue environmental solutions, increasing the efficiency of U.S. energy use was at the top of McKinsey & Co.'s list. 
• State governments are pursuing this concept through promotion of energy audits, house by house and neighborhood by neighborhood. 
• Residential and commercial developers are seeking for their new buildings various green certifications, such as LEED and EnergyStar. 
• Economists have shown that the owner and renter payoff from energy efficiency is real and substantial. 
• Companies like Johnson Controls have thrived by retrofitting older buildings with green remedies.
• Van Jones may have been hounded out of the White House, but his idea of training ex-offenders as a labor pool to work on environmental projects is happening. 
• Superfund-site remediation is a significant employer of ex-offender trainees and I have personally seen this program at work in New Jersey.

Obama came into Washington with a lot of ideas. He put health care at the top of his list and he got his program through the Congress. The problem he faced next is that the opposition in Congress did not want to let him get anything else through.

President Packs in Pachyderm

Second Round Goes to President. Photo of
Packed-In GOP Pachyderm by JT Marlin.

I have watched all three debates so far, and I am glad we are having them. Sunlight is a great disinfectant.

On the first debate, I didn't think President Obama did so badly, but apparently in the face of a stream of assertions that the President could not link to the facts he knows, he failed to fight back enough for most observers, even Democrats.

Then in the next debate Vice President Biden went on the attack against Rep. Paul Ryan and is considered to have won that debate handily. The fact-checkers gave Biden the edge.

The third debate a few hours ago was clearly a win for the President. Governor Romney attempted to be the aggressor again and this time the President was ready. The fact-checkers gave most of the disputes to the President. Romney lost female votes on policy issues and on the basis of his body language, which looked strong in the first debate but this time looked querulous.

I'm helping to organize a fundraiser in New York City for Democratic Congressman Tim Bishop on Sunday afternoon, October 21, 3-5 pm. Email me at john@cityeconomist.com if you want an invitation!