Why Some Conservatives Love the Shutdown

Plus, Trump fails to crack Democratic unity By Yuval Rosenberg and Michael Rainey Trump Fails to Crack Democratic Unity on Shutdown Even lunch is an issue. As the partial government shutdown stretches toward its 26th day, the White House tried to bypass Democratic leadership by inviting rank-and-file House Democrats to lunch with President Trump and nine Republicans lawmakers. The invitation was part of a long-shot effort to [open some cracks]( in Democratic unity “and negotiate directly with centrist lawmakers and some newly elected freshmen, including those in districts where Trump is popular,” the [Associated Press]( says. House Speaker Nancy Pelosi reportedly gave her blessing for those more junior lawmakers to accept the White House invitation — and see for themselves what it’s like to deal with Trump — but they all declined amid concerns that the event would just be a photo opportunity for the president. “The question that I think everyone can reasonably ask is, is he inviting people to 1600 Pennsylvania Avenue to really try to resolve this problem or to create a photo op so he can project a false sense of bipartisanship?” Rep. Hakeem Jeffries (D-NY), who chairs the House Democratic Caucus, said, according to [The Washington Post](. Negotiations remain at a standstill, and each side continues to try to ramp up pressure and gain leverage. The White House [reportedly]( has no meetings planned this week with Pelosi or Schumer. More Posturing and Poll Numbers On Tuesday morning, the president [tweeted]( about a new caravan heading toward the U.S. from Honduras and [claimed]( that “Polls are now showing that people are beginning to understand the Humanitarian Crisis and Crime at the Border. Numbers are going up fast, over 50%.” He was apparently referring to a new [Quinnipiac University poll]( in which 54 percent of voters said that there is a security crisis along the border with Mexico, and 68 percent said there is a humanitarian crisis. But that same poll found that Americans “remain solidly opposed to a wall on the Mexican border,” 55 percent to 43 percent, with a majority of voters saying that the wall is not a good use of taxpayer dollars, won’t make the U.S. safer, is not necessary to protect the border and is contrary to American values. Overall, the poll found that, by a 63-30 margin, voters support the Democratic proposal to reopen the government while negotiating over border security and wall funding. Nearly two-thirds of voters oppose shutting down the government to get money for a wall — but two-thirds of Republicans support it. “Trump just highlighted a poll that undermines his argument, secure in the knowledge that his followers will only hear the cherry-picked finding,” [said]( Greg Sargent, a liberal opinion writer for The Washington Post. The Quinnipiac poll also found that Trump’s attempt at using the presidential bully pulpit with last week’s televised address to the nation flopped, with only 2 percent of voters saying the speech changed their mind about building the wall. Other key shutdown developments: - Trump Administration Will Bring Back Thousands of IRS Workers for Tax Season: The Trump administration has [ordered]( thousands of furloughed federal employees to resume working, without pay, in order to minimize disruptive effects of the shutdown. As part of that plan, the Internal Revenue Service announced Tuesday that it will bring back nearly 60 percent of its workforce — more than 46,000 employees, including more than 34,000 workers in the agency section that processes tax returns and refunds, according to the [Washington Examiner](. The agency will still not perform audits during the shutdown. When the shutdown began last month, fewer than 10,000 workers, or about 12 percent of the IRS workforce, were kept on the job, according to [The Washington Post](. - Mitch McConnell Blocks Vote to Reopen Government: For the second time in two weeks, Senate Republicans [blocked]( a package of bills passed by the House to reopen the government. "The solution to this is a negotiation between the one person in the country who can sign something into law, the president of the United States, and our Democratic colleagues," Senate Majority Leader Mitch McConnell said Tuesday, according to The Hill. His Democratic counterpart, Sen. Chuck Schumer, urged McConnell to enter the negotiations. “There's only one person who can help America break through this gridlock: Leader McConnell. For the past month Leader McConnell has been content to hide behind the president, essentially giving him a veto over what comes to the floor of the Senate,” Schumer said. - House Dems Won’t Leave D.C. Next Week: House Democrats [cancelled]( their planned recess for next week and will have lawmakers stay in Washington unless the shutdown is resolved. Shutdown Could Be Twice as Costly as White House Estimated The Trump administration has raised its estimate of the economic cost of the shutdown, CNBC’s Steve Liesman [reported]( Tuesday. White House economists had initially weighed the effect of 800,000 federal employees not being paid, estimating that the missed paychecks would reduce GDP growth by 0.1 percent every two weeks. But taking into account the thousands of federal contractors who also aren’t getting paid, as well some government spending functions that have been halted, and the effect is now seen as a 0.1 percent reduction in GDP growth every week — twice the original estimate. If the shutdown lasts until the end of January, a White House official told Liesman that GDP growth could drop by 0.5 percentage points for the quarter — a significant hit for an already slowing economy. A bigger drag: In a note to clients Tuesday, Greg Valliere of Horizon Investments said the impact of the shutdown is growing: “What looked like a minimal impact on the economy in late December now looks like something a little more serious. We spent time last night with a leading economist who thinks a protracted shutdown could slice one-quarter of one percent off of first quarter GDP. Combined with bitter winter weather, this could reduce growth to something a little less than 2% this quarter, a far cry from the giddy 4% pace of last spring.” Growth could even be negative: If the shutdown continues through March, GDP could actually shrink, [says]( Ian Shepherdson of Pantheon Macroeconomics. “Even a one-month shutdown would seriously hit growth, to say nothing of the misery caused,” Shepherdson said. And if continues through the first three months of the year, “we would look for an outright decline in first quarter GDP.” A glimpse at the private sector: Delta Air Lines CEO Ed Bastian [told]( CNBC that the shutdown will cost the company an estimated $25 million this month, due to lost revenues related to a reduction in travel among government employees and contractors. But we may not know the full cost for a while: In an ironic twist, it could be some time before we know just how badly the shutdown has hurt the economy, since there’s a good chance that at least one quarterly GDP report will be delayed due to the lack of staff at the Bureau of Economic Analysis. The BEA is part of the Commerce Department, where the majority of employees have been furloughed. Why Some Conservatives Love the Shutdown [The Washington Post]( reports that the prolonged shutdown is giving some small-government conservatives who have the president’s ear just what they’ve long wanted: a smaller government and a chance to publicly highlight what’s “essential” and what isn’t. “Conservatives have for decades questioned the size and effectiveness of the federal bureaucracy. The shutdown has in some ways underscored their view that government can function with fewer employees,” the Post’s Lisa Rein, Robert Costa and Danielle Paquestte write. They quote anti-tax activist Grover Norquist: “There’s a moment when people say, ‘Did you notice what percentage of this agency was viewed as nonessential?’” An anonymous op-ed published on Monday at [The Daily Caller]( a conservative website, by someone identified as “a senior Trump administration official” called for a long shutdown and criticized federal workers as doing “nothing of external value” for the most part. “The lapse in appropriations is more than a battle over a wall,” the author wrote. “It is an opportunity to strip wasteful government agencies for good.” He or she also said that, while essential employees working on national security should be paid, furloughed workers “should find other work, never return and not be paid.” President Trump shared the Daily Caller piece on Twitter late Monday, retweeting a [tweet]( by his son, Donald Trump Jr. The Ongoing Fight Over Ocasio-Cortez’s 70% Top Tax Bracket The lively debate over the proposal by Rep. Alexandria Ocasio-Cortez (D-NY) to raise the top marginal tax rate to 70 percent continues, as it no doubt will for many months to come, with former Wisconsin governor Scott Walker jumping into the fray Tuesday. In what seemed to be a jab at Ocasio-Cortez, Walker [tweeted]( a parable of sorts about the injustice of confiscatory tax rates: “Explaining tax rates before Reagan to 5th graders: ‘Imagine if you did chores for your grandma and she gave you $10. When you got home, your parents took $7 from you.’ The students said: ‘That’s not fair!’ Even 5th graders get it.” The problem, as many critics were quick to point out, is that Walker ignored the difference between marginal and effective tax rates, making it seem as though a tax rate intended for only a small number of high earners would apply to low-income workers as well. The Economist’s Jon Fasman [replied]( “It's not fair. It's also not accurate. Is the ex-governor of Wisconsin confused, or is he spending his post-political career lying to 10-year-olds?” Ocasio-Cortez also replied to Walker in a [tweet]( of her own: “Explaining marginal taxes to a far-right former Governor: Imagine if you did chores for abuela & she gave you $10. When you got home, you got to keep it, because it’s only $10.” She added that while the tax wouldn’t apply to the $10 earned by a fifth grader, it would apply to the local billionaire. A question of revenue: Confusion over marginal tax rates aside, Kyle Pomerleau and Huaqun Li of the conservative Tax Foundation took a look Monday at how much revenue a 70 percent top tax rate would actually raise for the government. In [their view]( the answer is not much. Pomerleau and Li analyzed two different proposals, one in which a 70 percent bracket rate is simply applied to incomes over $10 million within the existing tax structure, and a second in which the higher rate is applied to both ordinary and qualified income — in other words, to a big chunk of capital income. And they looked at both static and dynamic models, with the latter incorporating behavioral responses to the imposition of new taxes. The analysts found that adding a new bracket but making no other changes would generate $291 billion over 10 years, while adding the new top rate and applying it to capital income would generate far less, just $51 billion over 10 years. The difference is explained by how the Tax Foundation models wealthy taxpayers’ reaction to higher taxes on capital income: facing a higher tax, they’ll cut back on realizing gains, reducing tax revenues. The higher marginal tax rate fares worse in the dynamic model. Pomerleau and Li assume that wealthy taxpayers will reduce their work hours in the face of higher tax rates, and as a result the 70 percent marginal rate applied to ordinary income would produce just $189 billion over 10 years. If capital income is included, the tax would actually lose money, with revenues falling by $63 billion over a decade. A popular idea nevertheless: Although the Tax Foundation analysis is quite pessimistic, other estimates have found that the tax could raise substantial sums, though not necessarily enough to cover the cost of large-scale programs like universal health care or a jobs guarantee. For example, The Washington Post’s Jeff Stein, working with several tax experts, [found]( that Ocasio-Cortez’s tax proposal could raise as much as $700 billion over 10 years. But despite the wildly divergent revenue estimates, one thing is clear: A higher marginal tax on the wealthy is popular. According to a [new poll]( from The Hill-HarrisX, 59 percent of Americans support the idea of raising the top marginal tax rate to 70 percent on incomes over $10 million. The results held for different demographic groups, with a majority of both men and women supporting it, as well as voters in the South and in rural regions. Most Democrats and independents backed the idea, and although a majority of Republican did not, it was close, with 45 percent supporting and 55 percent opposed. News - [In a Month You’ll Wish the Shutdown Were Only as Bad as Today]( – Bloomberg - [Nearly 4 in 10 Have Firsthand Experience with U.S. Shutdown: Poll]( – Reuters - [Judge Will Not Force Government to Pay Federal Employees Working During Shutdown]( – Washington Post - [Why Democrats Are Unlikely to Cave on Trump’s Border Wall]( – CNBC - [The Shutdown Is Disrupting Travel at America's Biggest Airports. And It's Probably Going to Get Worse]( – Time - [New Poll: Nearly Three-Quarters of Federal Workers Oppose Shutdown, Majority Oppose Wall]( – Government Executive - [Billions in Food Stamp Payments to Come Early Because of Shutdown]( – Politico - [FDA to Restart More Food Safety Inspections Affected by Shutdown]( – Politico - [Shutdown's Hidden Impact: Frozen Inspections, Fraud Cases]( – Politico - [Federal Economic Data Gets Furloughed by the Shutdown]( – Bloomberg - [Real Estate Investors See Riches in a Tax Break Meant to Help the Poor]( – Bloomberg Views and Analysis - [Actually, the Numbers Show That We Need More Immigration, Not Less]( – Shikha Dalmia, New York Times - [Trump’s Shutdown Strategy Continues to Show All the Signs of Failure]( – Philip Bump, Washington Post - [Turns Out Republicans Don’t Care about the Dignity of a Paycheck After All]( – Catherine Rampell, Washington Post - [The ‘Trump Shutdown’ Is Also a Failure of Congress – Particularly Mitch McConnell]( – Lawrence Lessig, The Hill - [Mitch McConnell Isn’t the Problem]( – Jonathan Bernstein, Bloomberg - [Why McConnell Is on the Sidelines of a Historically Long Government Shutdown]( – Molly E. Reynolds, Brookings Institution - [Trump Shutdown Solution: Brag About Setting Record and Reopen the Darn Government]( – Stan Collender, USA Today - [Donald Trump and His Team of Morons]( – Paul Krugman, New York Times - [The Trouble With the ‘Green New Deal’]( – Michael Grunwald, Politico - [Stop Complaining About Trump’s Emergency Powers, Congress]( – Daniel R. DePetris, Politico - [Why Ocasio-Cortez Can Be Even Bolder with Her Tax Policy Vision]( – Morris Pearl, The Hill - [Tax Reform Isn't the Foreign Cash Magnet That Was Promised — Yet]( – Bill Henson, The Hill - [How the New Tax Law Created a ‘Perfect Storm’ for Roth IRA Conversions in 2019]( – Bill Bischoff, MarketWatch Copyright © 2019 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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