Lobbyists Take Notice of the Tax-Reform Plan

We here make a bold prediction: Some day, President Donald Trump will say: "Nobody knew tax reform could be so complicated." Actually, everybody knows it. That's why there hasn't been any tax reform since 1986. It took exactly one day for the reason to become clear: In tax reform, there are winners and losers and the losers protest loudly. The lobbyists and trade groups (a.k.a. "the swamp") took 24 hours to digest Trump's plans and the losers are already hard at work lobbying Congress to skip the parts they don't like. This is why this is so complicated.

For example, opposition from the real estate industry was swift and noisy. It doesn't like doubling the standard deduction, since more people will take it and forgo using the mortgage deduction. That deduction is a key factor in many people's decision to buy a home. In addition, if local property taxes can't be deducted, that will be another hit to the real estate industry. And that industry is located in all 50 states, so every member of the House and Senate will hear about it. Senate Finance Committee Chairman Orrin Hatch (R-UT) said yesterday that the deduction for state and local taxes will not die easily.

Another provision that will generate opposition in every state is the one to limit the deductibility of corporate interest. All companies that lend money to businesses, from banks on down, are going to strongly oppose this provision since it will make companies less likely to borrow money. If companies borrow less money, they will expand less and thus create fewer jobs. All 535 members of Congress are going to hear this tale of woe in great detail.

Also a concern is that middle-class families with more than two children will be losers because the deduction for dependent children will be eliminated in Trump's plan. There are quite a few of them and when they discover this, some of them might just inform their representative and senators how they feel about it. In short, the battle is just beginning. (V)

The Tax Plan Creates a Giant Loophole for Wealthy Professionals

Another big problem for Trump's tax plan is that it creates a giant loophole for wealthy professionals such as lawyers, doctors, architects, and more. Serious calculations about the revenue loss are going to have to take this into account, which will make it harder to have the bill be revenue neutral. The loophole is that the top individual rate will be 35% but pass-through businesses will be taxed at only 25%. If the proposed bill becomes law, just about every professional is going to talk to a tax adviser, who will tell the client to set up a limited liability company and become a consultant for it rather than be an employee. This can be then structured so the 25% rate applies instead of the 35% rate. When business income is taxed at an appreciably lower rate than personal income, a lot of people are willing to go to the trouble to incorporate themselves and turn what is essentially earned income into business income.

There are ways to address this, but all of them have problems. One way is to limit the amount of income taxed at the 25% rate, but that is a blunt instrument and doesn't distinguish between pass-through corporations that really are functioning corporations and those that are just tax scams. Another approach is to try to distinguish between corporations that are making money from capital vs. labor. It would lead to a maze of regulations with no guarantee some clever tax lawyers couldn't find a way through the maze.

Yet another option is to do what some other countries do and make the corporate tax anti-progressive. For example, the first $1 million of corporate income could be taxed at the top marginal rate for individuals, and then drop to 25% after that. For a doctor or lawyer making under $1 million, it would be pointless to incorporate, but for very large corporations, this change wouldn't be worth even mentioning to Congress. This wouldn't be hard to do, but no doubt many on the left would scream if the big boys got a lower rate than mom & pop grocery stores. There is really no easy way out and no matter how hard Congress tries, some clever tax lawyers are going to find a way to exploit the loophole. (V)

The Kushner Plot Thickens, Yet Again

More and more, Jared Kushner is bringing to mind Richard Nixon. Both had/have many secrets. And both had/have something of a problem with knowing when the time has come to give up one's secrets, so as to minimize one's exposure to political and criminal repercussions.

The latest Kushner revelation is that the private e-mail account he was using to conduct some government business was not disclosed to the Senate intelligence committee when he sat for an interview, despite his specifically being asked about the existence of such e-mail accounts. The members of the committee are not pleased about this, and chairman Richard Burr (R-NC) and ranking member Mark Warner (D-VA) sent Kushner a sternly-worded letter advising him to turn over any messages from that account.

This revelation is a double whammy for Donald Trump's son-in-law. First, if any of the messages in that account have anything at all to do with Russia, even tangentially, he might have been guilty of a crime when he "forgot" to tell Congress about the account. Assuming that a Russia-related message exists, he could try to delete it, but given how bad he is at keeping secrets, that would be very risky. There's someone else (his email provider) who has a copy of every single e-mail he sent or received, and if a Russia-related e-mail were to come to light after Kushner deleted his copy, he would definitely be guilty of a crime. Second, some of the potential charges that Kushner may face—conspiracy to defraud, for example—are somewhat difficult to prove directly, and so convictions are often based on a pattern of behavior. This "forgotten" e-mail, plus the secret phone line to Russia, plus the meeting with Russian lawyer Natalia Veselnitskaya, etc. are beginning to paint the kind of picture that juries and judges tend to find compelling.

Meanwhile, in other Kushner-related news, it came out this week that Kushner is registered to vote as a woman in New York. No, this does not reveal a new and profound truth about his marriage with Ivanka. Indeed, it's not even his fault; it was a coding error by the New York State Board of Elections. The only reason it is worthy of mention is that irregularities like this form the bulk of the case for widespread voter fraud being made by Kris Kobach and the rest of Donald Trump's electoral integrity commission. But "to err is human," as they say, and as this story reminds us, inconsistencies in a person's registration information are not de facto proof that something nefarious has taken place. (Z)

Price Will Reimburse the Government for 13% of His Chartered Jets

HHS Secretary Tom Price has chartered $400,000 worth of private jets to fly around the United States on the government's dime. When Politico broke the story, Price at first defended his flying habits, saying there weren't commercial flights available. Then, when people found commercial flights that matched his schedule, he agreed to stop taking the charters and told The Hill that he would write the government a check for $51,887.31. That covers about 13% of the costs he ran up. The taxpayers will still have to foot the other 87% of the bill.

While private jets are probably somewhat more comfortable than first class on commercial airlines (and the food is a LOT better), they aren't really any faster. Also, if Price really needed to fly private, he might have considered just paying for his own travel, especially since some of it was personal business rather than government business. It isn't that he can't afford it. At the time of his confirmation as secretary, he filled in a form saying that his net worth was more than $8.2 million, of which at least $100,000 was in cash.

Undoubtedly, Price is hoping that by writing a check, he will smooth things over and that he can keep his job. But there are some problems. First of all, this is now a hot story, and every day new details seem to come out. Politico, which appears to be angling for a Pulitzer, reported late on Thursday that it wasn't just domestic flights where Price preferred not to fly with the hoi polloi. He also took military airplanes on several trips to Asia and Europe. While this is sometimes done for cabinet secretaries when absolutely necessary, it's rare. If the president ever decides he wants to start a nuclear war, the protocol is for him to tell the secretary of defense, who then tells the joint chiefs: Bombs away! So the secretary of defense needs secure communications 24/7 and commercial flights don't have this. HHS secretaries don't start wars. Price has already used military jets multiple times in six months, but his predecessor—Kathleen Sebelius—never did it in five years. When these trips are added to his domestic tally, the total price tag goes up to a cool $1 million. Price had better get out his checkbook, pronto.

Meanwhile, there is much anger being directed in Price's direction. Fiscal conservatives on the Hill are angry at the incongruity between the Secretary's policy positions and his behavior. They think, probably correctly, that his "do as I say, not as I do" approach makes all fiscal conservatives look like hypocrites. At the same time, Donald Trump is very sensitive to two things: (1) people who make him look bad, and (2) wasting money (even when it's not his). Price has run afoul of the President on both counts. So, the good doctor remains on thin ice, ice that could break if The Donald's temper flares up, or if Politico comes up with more dirt. (V & Z)

Competing Factors Will Determine the Outcome of the 2018 Senate Elections

Larry Sabato's Crystal Ball has a good article on next year's Senate elections from a historical standpoint. There are two major factors he considers, and they point in opposite directions. First, the president's party usually gets hit in the midterms, on the average losing four seats in the Senate. Second, the Democrats, who are defending 25 of the 33 seats up in 2018, have the worst map of any party for nearly 50 years. The former factor points toward Democratic gains; the latter one points toward Democratic losses.

Still, the situation is not dire for the Democrats, despite their having 25 seats at stake, ten in states Donald Trump won. In 100 years of direct election of senators, only 27 incumbents of the opposition have been unseated, and eight of these were in Franklin Delano Roosevelt's 1934 landslide, which is kind of a special case. Since WWII, only 15 members of the nonpresidential party have been defeated for reelection in a midterm election. Here are the data:

Another factor at play here is the president's popularity. When the president is popular, his party does better. When the opposition party lost Senate seats in the midterms, it was generally because the president had high approval ratings, such as in 1962, 1998, and 2002, when the president's approval rating was over 60%. Barring a very big surprise, Donald Trump's approval rating is not going to be 60% next year. In years when the opposition party had a great wave going for it, historically it hasn't lost any Senate seats. In the post-war years, these waves came in 1946, 1958, 1966, 1974, and 1994. Of course, every election is different and past performance is no guarantee of future performance, but even with ten vulnerable seats up, the Democrats are likely to hold most of them, possibly even all of them if there is a Democratic wave in 2018. (V)

McConnell Meets Kryptonite

Senate Majority Leader Mitch McConnel's reputation for being the political equivalent of Superman took a gigantic hit this week. It is as if he were hit from two sides with large blocks of Kryptonite. First, he failed to pass the Obamacare repeal the Republicans have been talking about for 7 years. To a large extent, it was because he failed to consider the wishes of two of the women in his caucus, Lisa Murkowski (AK) and Susan Collins (ME), with respect to Planned Parenthood. He could have done that. Second, he poured $10 million into the Alabama senatorial runoff on behalf of Sen. Luther Strange (R-AL), and Strange lost anyway.

What's left? McConnell was quite good at saying "no" when Barack Obama was president. But saying "no" isn't hard. In fact, most two-year-olds are quite good at it. And not a single piece of legislation is called the "McConnell Act," despite the fact that McConnell has been in the Senate for 32 years. Plenty of laws are named (in part) for a senator. Think: Glass-Steagall, the Hatch Act, Dodd-Frank, etc., but none are named for McConnell because, in reality, he is not very good at legislating.

The one thing he did that had a big effect is hold a Supreme Court seat open for a year after Antonin Scalia died. But that was more dumb luck than brillance and it could have worked out badly for McConnell. After all, almost everyone (including McConnell) expected Hillary Clinton to win. What if she nominated a far younger and far more liberal justice than Merrick Garland and he had to swallow that? He would have looked like a fool for passing on an old moderate and then getting stuck with a young liberal. If McConnell manages to get a tax-cut through the Senate, some of his mystique may be restored. But if he can't do that, the myth of McConnell as a brilliant tactician will be in tatters on the Senate floor. (V)

Trump vs. NFL Not Going Away

Donald Trump is now convinced he's struck gold with this NFL national anthem business. He can whip his base into a frenzy with a single tweet, and—unlike Mexican walls and tax cuts and other such things—he can fight this war all by himself. So, he has gone back to this well at least once every single day for the last week. Thursday's salvo came during an interview on Fox News, when the President was asked about his remarks in Alabama last Friday, and said that, "I have so many friends that are owners and they're in a box...I think they're afraid of their players, if you want to know the truth, and I think it's disgraceful."

As we and others have pointed out many times, the "NFL owners vs. NFL players" construct has distinct racial overtones, since the vast majority of the former are white, and the majority of the latter are black. Ergo, all of Trump's declarations on this matter function as de facto dog whistles to his white supporters. However, Thursday's remarks are not so much in dog whistle territory as they are in dog air raid siren territory. They tie into latent fears of black-perpetrated violence that date back centuries, recalling the paranoia over—among other things—potential slave revolts, black soldiers during the Civil War, potential race riots in the early 20th century, the Civil Rights movement, Black Power, and Black Lives Matter. Trump was roundly excoriated on Thursday, "That's not 'racist dog-whistling,'" said one commentator. "It's a 'racist public rant.'" "Trump saying NFL owners are afraid of players isn't dog whistle. It's a big ass bullhorn," tweeted another.

Meanwhile, another week of NFL football has begun, with a matchup between the Packers and Bears on Thursday night. During that game, held at Green Bay's Lambeau Field, the players on each team, joined by a number of fans in the stands, linked arms as a sign of unity and of protest against the President's remarks. Already, a number of teams have indicated an intention to continue demonstrating in various ways when action resumes on Sunday. So, the players aren't backing down here.

In the end, Trump wants the players to stand for the national anthem, even if they have to be forced to do so. If he can somehow make that happen, that will be a "win" for him that his base will be hearing about for years. He doesn't care if his wins come in the form of legislation, or in the context of the culture wars, it's all the same to him. Meanwhile, the players want an apology, something that The Donald is not known for issuing, particularly when his ego is as deeply invested as it is here. Trying to negotiate a middle ground is NFL commissioner Roger Goodell, who is nervous that the conflict will be bad for business, long-term. Indeed, right wing media are already crowing about ticket sales being down, although this is a deliberate misreading of the evidence, and the market for tickets is actually currently steady. Goodell wants to keep it that way, so he's going to work hard to find a middle ground. If one even exists. (Z)

Gorsuch's Behavior Raising Eyebrows

Everybody knows that Supreme Court justices are supposed to be apolitical. And everybody also knows that none of them actually are, at least not any more. However, they are still expected to make some sort of minimal effort at keeping up appearances of being even-handed. Neil Gorsuch does not seem to have gotten the memo in his new employee packet, because his list of speaking engagements reads more like the itinerary of a candidate for political office than that an impartial jurist.

For many decades, conservative-leaning justices have spoken at the events of conservative-leaning political groups, like the Federalist Society. So, Gorsuch's appearance there is not so much of a problem, even if it is coming rather early in his term. But he's also scheduled to chat with the Fund for American Studies, and several other right-wing groups, a rather larger number of such addresses than is generally considered apropos. Further, he recently made a tour of Kentucky with Mitch McConnell, where the two men took turns making speeches praising the other. One might be forgiven for confusing Gorsuch's participation with campaigning for McConnell. "All of this indicates that he's just ethically tone-deaf," said Stanford law professor Deborah Rhode, an authority on legal ethics.

So, could there be any penalty for this behavior, if Gorsuch doesn't slow his roll? Well, the Supreme Court really does need its veneer of impartiality to be effective, and Chief Justice John Roberts knows this very well. So, the Chief is likely to call his most junior associate justice into his office for a little chat. Beyond that, it's certainly possible for a SCOTUS justice to be removed, but it's never actually happened. So, formal sanctions are unlikely. On the other hand, Gorsuch did get his seat under dubious circumstances. If he continues to engage in questionable behavior, and if the Democrats somehow gather enough Senate seats and enough political will to take a shot an impeaching him, they might be able to build a case. It's a real longshot, but stranger things have happened. (Z)

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---The Votemaster and Zenger