Is Trump Softening on the Shutdown?

Plus, the new push for a wealth tax

Dueling Shutdown Plans Shot Down by Senate

The Senate on Thursday failed to pass either of two competing plans to end the government shutdown, now heading for a 35th day.

The Republican plan, endorsed by President Trump, was voted down, 50-47. The Democratic proposal fell eight votes shy of the 60 needed, with six Republicans joining Democrats to vote in favor of the measure to make the final vote tally 52-44. The six Republicans were Lamar Alexander of Tennessee, Susan Collins of Maine, Cory Gardner of Colorado, Johnny Isakson of Georgia, Lisa Murkowski of Alaska and Mitt Romney of Utah.

Can two failed votes lead to success down the line?

“In effect, the defeat of both measures would demonstrate in the most concrete manner yet that what both sides have been pushing for is not possible in the Senate, and that some new compromise must be forged to pass the chamber,” The Washington Post reported before the votes took place.

Vox’s Dylan Scott writes that some Republican lobbyists call it a “show them a body” strategy, demonstrating to voters and dug-in lawmakers that their preferred approach is dead (while still allowing them to say they tried), thereby opening up other options to break the impasse. “Failed votes aren’t exactly productive legislating, but they are still useful for Senate leadership because they give the appearance of work being done and force a reset once a legislative path is blocked,” Scott says.

After the failed votes, Senate leaders Chuck Schumer and Mitch McConnell met. Bloomberg reported that Schumer “emerged with a smile on his face, saying only, ‘We're talking. We're talking.’”

One option reportedly being discussed is a three-week stopgap spending measure to reopen the closed portions of the government. Trump told reporters at the White House that he's open to such a short-term deal, but it must include a "prorated down payment" for his desired border wall. He did not specify a dollar amount.

Bloomberg described the developments with more than a bit of optimism: “In the most significant development to date, President Donald Trump appears to be softening his position on keeping the government closed until he gets his wall on the southern border.”

Trump Officials Keep Making Tone-Deaf Comments About the Shutdown

Two senior Trump administration officials made comments Thursday that opened them up to criticism that they were displaying Marie Antoinette-style callousness to the plight of federal workers struggling to get by without their paychecks.

Commerce Secretary Wilbur Ross, in an interview with CNBC, suggested that unpaid federal workers can take out low-interest loans to get them through this extended period when they’re missing paychecks.

Asked about reports that some federal workers are going to homeless shelters to get food, Ross, who has a net worth estimated to be in the hundreds of millions and who heads a department with more than 40,000 employees directly affected by the shutdown, said:

“I know they are, and I don’t really quite understand why because as I mentioned before, the obligations that they would undertake — say borrowing from a bank or credit union — are in effect federally guaranteed. So the 30 days of pay that people will be out — there’s no real reason why they shouldn’t be able to get a loan against it and we’ve seen a number of ads from the financial institutions doing that.”

Ross also downplayed the economic effects of the shutdown and federal workers not getting paid and said it was “kind of disappointing” that so many air traffic controllers are calling in sick.

Ross’s comments drew immediate criticism from Democrats. “Is this the ‘let them eat cake’ kind of attitude?” House Speaker Nancy Pelosi said. “Or call your father for money?”

Also on Thursday, Larry Kudlow, the director of the National Economic Council, told reporters that federal workers are “volunteering” during the shutdown because of their love for the country and “presumably their allegiance to President Trump.” Asked by a reporter how it’s volunteering if the workers are being forced to work without pay and face losing their jobs if they don’t show up, Kudlow reportedly dismissed the question as a “semantic game.”

Kudlow also expressed confidence that the shutdown would prove to be “just a glitch” and that any deleterious effects would go away in a “nanosecond” once the government reopens. But some other economists are expressing increasing concern that the extended shutdown could have a longer-lasting economic impact.

“This shutdown has gone on longer than any other so you have to worry about what you might call second-order effects,” Brian Rose, senior economist for the Americas at UBS Global Wealth Management, told Bloomberg. “Things we didn't have to worry about in previous shutdowns are starting to crop up, like some federal workers quitting. So, this is going to be a hockey stick pattern, not a straight line. The impact will get worse and worse the longer it continues.”

Why it matters: The comments add to the perception that Trump administration officials, from the president to his key economic advisers on down, simply don’t grasp the financial insecurity many Americans face. That damages Trump’s case for the shutdown, to the extent that the battle is a messaging fight as well, but it also may skew the administration’s strategy. As New York magazine columnist Josh Barro writes, “The failure of perspective that has led top Trump administration officials to make tone-deaf comments about how the government shutdown affects federal workers is the same failure of perspective that has led them to underestimate the political costs they have imposed on themselves by prolonging the shutdown.”

The politics at play: “The fact that Trump admin officials feel the need to downplay the pain people are suffering from the shutdown is a pretty good indicator that they recognize where the blame is likely to end up,” The Washington Post’s Aaron Blake tweeted. “If you think Dems will shoulder it, you say, ‘Yes, it's awful.’"

Other Shutdown Updates

Shutdown Could Wipe Out Stimulus: We told you yesterday that the White House’s top economist said the partial government shutdown could wipe out GDP growth in the first quarter if it lasts through March. On Thursday, the Committee for a Responsible Federal Budget provided another way to think about the blow the shutdown is delivering to the economy: “The current government shutdown has lasted long enough to temporarily erase all the positive stimulus effects of recent major legislation,” CRFB said. That means that the economic benefits from the tax cuts and increased federal spending have essentially been lost over the last month or so. “While this economic hit is short-term, it comes with no upside,” CRFB said, adding that “the economic cost of the shutdown is both real and senseless.”

Trump Agrees to Delay SOTU Speech: After very public game of chicken with House Speaker Nancy Pelosi, President Trump announced late Wednesday that he’ll postpone his State of the Union address until the shutdown is over. Trump added that he would not look to give the speech as originally scheduled on January 29 “because there is no venue that can compete with the history, tradition and importance of the House Chamber.”

Former Trump Chief of Staff John Kelly Joins Call for End to DHS Shutdown: Five former secretaries of homeland security, including former Trump Chief of Staff John Kelly, sent a letter to the president and Congress on Wednesday calling on them to restore funding for the department to ensure it can fulfill its mission. “DHS employees who protect the traveling public, investigate and counter terrorism, and protect critical infrastructure should not have to rely on the charitable generosity of others for assistance in feeding their families and paying their bills while they steadfastly focus on the mission at hand. This is unconscionable," they wrote. They also warned that, as the shutdown stretches on, “the Department also risks talented people leaving their posts to pursue employment in the private sector.”

Aviation Unions Warn of ‘Serious Safety Concerns Due to Shutdown’: In a joint statement issued Wednesday, the presidents of unions representing air-traffic controllers, airline pilots and flight attendants said that they are increasingly concerned about the safety of their members, airlines and the traveling public. “In our risk averse industry, we cannot even calculate the level of risk currently at play, nor predict the point at which the entire system will break. It is unprecedented,” the union leaders wrote. They urged Congress and the White House to end the shutdown immediately. The Federal Aviation Administration responded by saying that air travel remains safe and that it had not seen any appreciable difference in performance over the last several weeks.

Separately, JetBlue Airways CEO Robin Hayes said Thursday that, “We are close to a tipping point as employees are about to miss a second paycheck,” Bloomberg reported. The CEO added: “The longer this goes on, the longer it will take for the nation’s air travel infrastructure to rebound.”

The Left's Next Weapon to Fight Inequality: A Wealth Tax

Democratic presidential hopeful Sen. Elizabeth Warren (MA) plans to propose a new wealth tax on the very rich, The Washington Post reported Thursday. The Post’s Jeff Stein and Christopher Ingraham said the proposal comes as “Democratic leaders vie for increasingly aggressive solutions to the nation’s soaring wealth inequality.”

Earlier this month, Rep. Alexandria Ocasio-Cortez (D-NY) called for a 70 percent marginal tax on incomes over $10 million, inspiring a wave of debate and criticism (including a report this week from CNBC saying that “the super rich at Davos are scared of Alexandria Ocasio-Cortez's proposal to hike taxes on the wealthy.”) But progressive groups say that an income tax, no matter how high, will do little to reduce the soaring wealth inequality experienced in the U.S. over the last few decades.

Differences in wealth are far more pronounced than differences in income, they say, with the top 20 percent of households claiming about 60 percent of the income but nearly 90 percent of the wealth. To reduce that inequality, and to raise money to pay for an ambitious policy agenda that includes universal health care and a federal response to global warming, progressive groups are increasingly turning to a wealth tax. Here’s a quick review of four wealth tax proposals released this week:

• Sen. Elizabeth Warren (D-MA) will reportedly call for an annual 2 percent tax on Americans worth more than $50 million, and a 3 percent tax on those with more than $1 billion. Economist Emmanuel Saez, who has been advising Warren, said that the tax would apply to about 75,000 families in the U.S., or less than 0.1 percent of households, and raise $2.75 trillion over 10 years. According to the Post Warren will also propose increased funding for the IRS; a mandatory audit rate for the wealthy; and a penalty for those who renounce their citizenship.

• The Institute on Taxation and Economic Policy proposes a 1 percent annual tax on the richest 0.1 percent of Americans, which ITEP’s Steve Wamhoff says would include those worth $32.2 million and higher in 2020, or about 175,000 families. Such a tax is projected to raise about $1.3 trillion over 10 years. Wamoff says that while the IRS has experience evaluating great wealth as it imposes the estate tax, the agency will need to become far more efficient as it tackles the valuations of the many assets held by the very rich, including illiquid business assets, real estate and trusts. Accordingly, ITEP proposes to increase funding for the IRS — an increase Wamhoff says would more than pay for itself in the first year.

• The Washington Center for Equitable Growth says that the richest 1 percent of families in the U.S. is worth about $33 trillion, while the top 5 percent is worth about $57 trillion. Greg Leiserson, WCEG’s director of tax policy, doesn’t discuss a specific tax rate, but says that given the existing levels of wealth, the “revenue potential of a net worth tax in the United States is large.”

• Oxfam International released a study earlier this week, “Public Good or Private Wealth,” that calls for a global tax on wealth. The British non-profit says the ultra-rich have grown richer as the economy has boomed and tax rates have fallen, with just 23 billionaires now owning as much wealth as the 3.8 billion people in the bottom 50 percent of the world population. While the analysis is light on specific policy proposals, it does say that, “Getting the richest one percent to pay just 0.5 percent extra tax on their wealth could raise more money than it would cost to educate the 262 million children out of school and provide healthcare that would save the lives of 3.3 million people.”

What people are saying: Many questions remain about a wealth tax, not least its constitutionality, and the politics of it are tricky at best. But the proposals are generating a good deal of discussion and debate. Here’s a sample of comments:

The right-leaning Tax Foundation responded to Warren’s plan by saying: “There are two main reasons a tax like this would be a bad idea:

1. It would be difficult to administer

2. It would be a poorly designed tax on capital.”

Scott Greenberg, a tax expert formerly with the Tax Foundation, tweeted, “The fact that two important progressive organizations in the tax space are hyping wealth taxation makes me think that this is an issue we're going to hear more about, possibly in the Dem primary.”

Economist Stephanie Kelton, who advised Sen. Bernie Sanders (I-VT) during his presidential run in 2016, tweeted: “As the wealth tax proposal gains momentum--I predict it will--it'll be interesting to see how those advocating it frame the case. Which gets emphasized? Revenue or Inequality?” Kelton also wrote, “How much wealth should a wealth tax tax if a wealth tax should tax wealth? I see this getting a lot of play in the weeks and months ahead.”

NYU law professor David Kamin wrote: “Bottom line: Warren proposal is addressed at a real problem of inequality and ineffective taxation at the very top, and goes big as it should. Hope this is the start of a real debate about the contours of fundamental and progressive tax reform.”

Bloomberg’s Noah Smith said: “Why wealth tax is better than super-high-bracket income tax:

1. It is much more broad-based, so will raise more revenue

2. It taxes past accumulated wealth instead of only future wealth

3. It targets the idle rich, whereas the income tax thing targets entrepreneurs.

For more details, see The Washington Post on Warren’s proposal; ITEP’s proposal here; WCEG’s policy analysis here; and Oxfam’s report here.

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