Trapped by Trump, GOP Hurtles Toward Shutdown

Plus - Marco Rubio tears down the tax cut By Yuval Rosenberg and Michael Rainey Boxed In by Trump, GOP Hurtles Toward a Shutdown House Republicans considered moving forward with a bill this week that would have given President Trump the $5 billion he has demanded for border wall construction as part of a government funding deal, but it looks like they’re leaving town Thursday without a vote – or a strategy to get to one – in place. The House is not scheduled to return until next Wednesday, just two days before a potential partial government shutdown, although Majority Leader Kevin McCarthy (R-CA) said there may be a last-minute session for a funding vote early next week, The Hill [reported](. Even if House Republicans could round up enough votes to pass a funding bill that provides $5 billion for the wall – and it’s still very much an open question about whether they could pull that off – it’s highly unlikely it would get through the Senate, where it would need help from Democrats. Senate Democratic Leader Chuck Schumer (NY) reiterated on Thursday that the wall funding Trump wants has little chance to get through his chamber. “I want to be crystal clear. There will be no additional appropriations to pay for the border wall. It’s done,” Schumer said. That leaves Republicans facing a “a nightmare scenario” in which Trump’s vow to shut down the government is fulfilled in the absence of a spending deal, The Washington Post [said](. “It looks like we could be headed down the road to nowhere,” Sen. Richard C. Shelby (R-AL) [said]( Thursday. “That’s what it looks like at the moment because we’ve got nine days to go.” Will Mexico Pay for the Wall? President Trump returned to a favorite claim about who would pay for the border wall in a [tweet]( Thursday: Sen. Chuck Schumer replied with a [tweet]( of his own: "Mr. President: If you say Mexico is going to pay for the wall (which I don't believe), then I guess we don't have to!" Trump’s other leading opponent in the struggle over wall funding, House Minority Leader Rep. Nancy Pelosi (D-CA), also dismissed the claim. “I think the Oval Office is an evidence free zone,” Pelsoi [said]( adding that Trump’s statement “doesn’t make any sense.” The Washington Post’s John Wagner and Damian Paletta [wrote]( that Trump’s claim about Mexico paying for the wall “has stumped many budget experts.” There is no mechanism through which trade-related revenues could be diverted to pay for the wall, and there’s no sense in which the trade deal saves Americans money. “At the end of the day, the American taxpayer is still paying for it,” William Hoagland, a former Republican staff director of the Senate Budget Committee, told Wagner and Paletta. “Because where are the revenues coming from? They are not coming from Mexican taxpayers.” For a closer look at why Mexico won’t be paying for the border wall, see [this piece by Philip Bump]( in the Post. Moody’s Warns of Declining US Fiscal Strength Trump’s tax cuts combined with a slowing economy will diminish the United States’ “fiscal strength” over the next 10 years, Moody’s Investor Service said Wednesday. The gradual decline could pressure the U.S. credit rating at some point, the bond-rating agency added, although the “exceptional economic strength and the unique roles of the dollar and Treasury bond market in the global financial system” should serve as a cushion amid the decline. "Our projections continue to point to a slow but persistent deterioration in the US' fiscal strength over the next 10 years, as the federal debt burden grows and debt affordability declines," Moody's Vice President and Senior Credit Officer William Foster said in a statement. "This adverse fiscal dynamic will be driven by widening federal budget deficits due to significant expenditure growth, led by interest payments and age-related entitlement spending, and below-average revenue intake." Yahoo Finance’s Rick Newman [said]( the warning from Moody’s “challenges a core promise of President Trump and his fellow Republicans, who insisted the $1.5 trillion tax cut they passed last year would pay for itself and even generate more tax revenue, not less, because economic growth would suddenly boom.” Chart of the Day Budget deficits normally rise during recessions and fall when the economy is growing, but that’s not the case today. Deficits are rising sharply despite robust economic growth, increasing from $666 billion in 2017 to an estimated $970 billion in 2019, with $1 trillion annual deficits expected for years after that. As the deficit hawks at the Committee for a Responsible Federal Budget point out in a [blog post]( Thursday, “the deficit has never been this high when the economy was this strong … And never in modern U.S. history have deficits been so high outside of a war or recession (or their aftermath).” The chart below shows just how unusual the current deficit path is when measured as a percentage of GDP. Spread the word! Tell your friends they can [sign up here]( to get their own copy of this newsletter. Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. Marco Rubio’s Surprise Critique of the Tax Bill Sen. Marco Rubio (R-FL) tackled the decline of the American dream in an essay published by The Atlantic Thursday, and in doing so offered some sharp criticism of the 2017 Republican tax overhaul – a bill he voted for, as many critics quickly [pointed out](. Rubio said that while the old corporate tax structure was obsolete and needed to be redone, its replacement does little for the average citizen. The problem, Rubio said, is that the tax overhaul was working with faulty assumptions: An outdated conception of the economy: “When conservatives think of business tax cuts, we too often think that corporations are all like General Motors in the 1950s—functioning, productive companies making American goods with American labor. That’s just not how it works anymore. Many large corporations today act more like financial assets, allocating capital as if their stock price and dividend payout were the firm’s products instead of the goods or services that drove their success to begin with.” Corporate tax cuts don’t guarantee investment: “Trusting in a corporate tax cut alone to generate innovation and boost productivity is the thinking of the past. A corporate tax-rate cut makes all corporate assets more valuable, causing a bigger return to investment no matter how it is used. In our globalized and financialized economy, though, it’s as likely to induce stock buybacks as it is to spur the construction of new American factories.” Share buybacks come at the expense of investment: “When a corporation uses its profits to buy back stock, it is actively deciding that returning capital to shareholders is a better activity for business than investing in the company’s product or workforce. The tax preference for buybacks tilts the scale in this direction, creating a bias against productive investment. We shouldn’t be surprised that an economy that encourages indefinite financialization over confidently making big bets on building the future has yielded a work life that is fractured, unstable, and low paying.” So what does Rubio want? Among other things, the senator wants to rewrite the tax code so that it rewards productive investment more than financial maneuvers such as share buybacks. Specifically, Rubio argues that the U.S. should “expand and make permanent the full-expensing provisions from last year’s tax-law and end the tax code’s favoritism for companies that spend their tax cuts on stock buybacks.” [Read Rubio’s full analysis, which also touches upon the education system and labor organizations, here](. News - [House GOP Tax Package Still in Limbo as Clock Winds Down]( – Roll Call - [US Deficit Soared to $205 Billion in November]( – The Hill - [Apple to Add $1 Billion Texas Campus and Thousands of Jobs Across U.S.]( – New York Times - [The Benefits of This ‘Strong Economy’ Have Not Reached All Americans]( – Washington Post - [Senate Votes to End US Support for Saudi War, Bucking Trump]( – The Hill - [China's Rich Rush to Shelter $1 Trillion From New Taxes]( – Bloomberg - [FCC Decision Deals Blow to California Text-Tax Plan]( – Mercury News - [Pimco Sees ‘Flashing Orange’ U.S. Recession Signal as Cycle Ages]( – Bloomberg - [Probe of U.S.-Funded News Network That Called George Soros a ‘Jew of Flexible Morals’ Finds Additional Offensive Content]( – Washington Post - [The Federal Reserve Says Millennials Are Broke. Pew Says Millennials Are Loaded. Which Is It?]( – Slate Views and Analysis - [Trump Won’t Win a Shutdown Over the Border Wall]( – William Saletan, Slate - [Trump Owns a Government Shutdown. So What?]( – Alex Shephard, New Republic - [We Have the Funds We Need to Secure the Border]( – Eileen J. O’Connor, The Hill - [How to Tell If Tax Reform Is Working]( – Karl W. Smith, Bloomberg - [The Impossibility of Bipartisan Health-Care Compromise]( – Ryan Cooper, The Week - [Pay Attention to the Financial Markets. The Fed Is]( – Robert J. Samuelson, Washington Post - [America Needs Smart Foreign Aid Budget for Successful Programs]( – Michael Casella, The Hill - [Full Employment Proves to Be the Best Weapon Against Inequality]( – Conor Sen, Bloomberg Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. 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