Looks Like We Have a Deal to Avoid a Shutdown

Looks Like We Have a Deal to Avoid a Shutdown

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Plus, Democrats push a tax cut for the rich
Thursday, December 12, 2019

Congressional Negotiators Strike 2020 Spending Deal

Congressional appropriators have reportedly reached a deal “in principle” to fund the federal government for the rest of the fiscal year and avert a potential shutdown at the end of next week.

The agreement on annual spending bills covering nearly $1.4 trillion in discretionary outlays could reportedly follows an earlier meeting between the top House and Senate appropriators, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin. Lawmakers have been working to finalize the long-delayed spending bills for fiscal year 2020 ahead of a December 20 deadline, when the current stopgap federal funding expires.

"We will complete our work for all 12 [fiscal 2020] bills," said Rep. Nita Lowey, chair of the House Appropriations Committee, according to Roll Call’s David Lerman and Jennifer Shutt.

Status quo on Trump’s wall? That outcome had been in serious question as negotiations were slowed for months by differences over issues large and small — most notably, the matter of funding for construction of President Trump’s desired barriers along the border with Mexico. Appropriators reportedly plan to provide $1.375 billion for border barrier construction, the same as in fiscal 2019 and less than the $5 billion the White House had wanted.

Negotiators worked “under a mutual understanding that the border issues would have to be resolved somewhere close to the status quo, in which Congress provides only a fraction of the money Trump has requested for the wall but he retains the power to shift funds from elsewhere in the government,” The Washington Post’s Mike DeBonis reported. A ruling this week by a federal district court judge blocking the use of $3.6 billion in military funds for barrier construction tilts the status quo in Democrats’ favor, DeBonis noted.

A wild week ahead: “The tentative agreement sets the stage for a remarkable sequence of events next week in the House, with a presidential impeachment sandwiched between bipartisan deals on federal spending and North American trade,” The Washington Post’s Mike DeBonis wrote Thursday.

House Majority Leader Steny Hoyer reportedly said he hopes the House will vote on the spending bills on Tuesday, potentially in a series of two or more “minibus” packages grouping spending bills together. The Senate would follow later in the week, with limited time to push the deal through. President Trump will then need to sign the legislation.

House Passes Pelosi’s Sweeping Drug Bill

A bill backed by Speaker Nancy Pelosi that would empower the federal government to negotiate lower drug prices passed the House Thursday in a 230-192 vote, largely along party lines.

As we told you yesterday, the bill is not expected to become law, but it will provide Democrats with a talking point on an issue voters say is important to them in the 2020 election. Democratic candidates are expected to highlight their effort to lower drug prices in the bill, in contrast to President Trump’s backing away from his pledge to allow Medicare to “negotiate like crazy” with drugmakers.

For more, see The Hill, The Washington Post and CBS News.

House Panel Advances Bill to Temporarily Repeal SALT Deduction Cap

House Democrats on the Ways and Means Committee voted Wednesday to advance a temporary repeal of the $10,000 cap on the state and local tax deduction.

The bill, which advanced largely along party lines, lifts the 2019 cap for married couples filing jointly to $20,000 and repeal the cap entirely for 2020 and 2021. An amendment would double the maximum amount of expenses that teachers can deduct starting this year from $250 to $500 and allow first responders to also deduct $500 in certain expenses starting in 2020.

To pay for the costs of those changes, the top individual tax rate would revert from 37% to 39.6%, and the threshold for that top rate would be lowered, from 2020 through the end of 2025, when the GOP tax law’s individual provisions expire.

A symbolic gesture? The cap was a controversial element of the 2017 Republican tax law, with Democrats in high-tax states such as New York, New Jersey and California objecting to a provision they said unfairly targeted their residents. The new legislation stands no chance of becoming law, but it gives Democratic lawmakers a chance to signal that they are working for constituents hit by the cap.

“The SALT cap hit my home state of New Jersey like an anvil from five stories up,” said Rep. Bill Pascrell, a Democrat, noting that the average value of New Jersey SALT deductions before the new law was nearly double the cap. “Imagine that hit, but spread out over millions of households from coast to coast. These are families in New Jersey, Illinois, New York, Minnesota, Kentucky, and Texas — all paying through the nose to fund a big business tax cut. And they not only lost a deduction they relied on, but also the services like education, infrastructure and public safety funded by SALT they depend on.”

But Republicans, fiscal watchdogs and Democratic policy wonks countered that the SALT cap repeal would largely benefit the rich. As The Hill’s Naomi Jagoda notes, three left-leaning think tanks — the Center for American Progress, Center on Budget and Policy Priorities and Institute for Taxation and Economic Policy — all put out papers this week arguing that the Democrat’s bill would overwhelmingly benefit high-income households (see the papers here, here and here).

The bottom line: “Wednesday's vote was a rare instance of Democrats effectively fighting for tax cuts that would accrue to the rich, with Republicans in opposition,” the Washington Examiner’s Nihal Krishan wrote. But while the bill might pass if it gets a vote on the House floor, it has little chance of getting through the Republican-controlled Senate.

Warren Wealth Tax Would Raise Up to $2.7 Trillion Over 10 Years, Less Than She Projects: Report

A new analysis from the Penn Wharton Budget Model finds that Elizabeth Warren’s proposed wealth tax would raise between $2.3 trillion and $2.7 trillion over 10 years, while reducing GDP in 2050 by about 1%. The revenue projection falls more than $1 trillion short of the $3.8 trillion estimate provided by the Warren campaign.

A key assumption: Much of the difference between the Penn Wharton estimate and the one from Warren is the result of divergent assumptions about how effectively the rich would try to avoid a wealth tax. Simply put, the Penn Wharton analysis assumes the rich will succeed in avoiding trillions of dollars in wealth taxes, while the Warren campaign argues that beefed up enforcement at the IRS will sharply limit avoidance.

In its analysis, Penn Wharton showed just how big a difference the avoidance assumption makes: “Without any avoidance (legal or illegal) ... we project that the policy would raise $4.8 trillion between fiscal years 2021-2030. With ‘extreme avoidance’ ... that revenue estimate falls to $1.4 trillion.”

An added wealth tax raises almost nothing: In order to raise revenues for her Medicare-for-All proposal, Warren added an additional 3% wealth tax on billionaires to her fiscal plan, which imposes a 2% tax on household wealth over $50 million and now a 6% tax (up from her original 3%) on household wealth over $1 billion. But according to this chart from Gabriel Zucman, the economist who has helped shape the Warren tax plan, the Penn Wharton model sees very little extra revenue produced by that higher tax, due in large part to avoidance by billionaires.

An outdated model? Critics of the Penn Wharton model say that it leans too heavily on other assumptions about how the economy works, including the idea that higher taxes by definition reduce growth by shrinking the pool of available capital and driving up interest rates — effects that have been notably absent in recent years. “It feels like to me like they’re modeling the world of 1992, 1994,” said Simon Johnson, an economist at MIT who has advised the Warren campaign.

The bottom line: While much of the attention Thursday was on the revenue shortfall projected by the Penn Wharton analysis, the results suggest that Warren’s wealth tax would be a powerful revenue raiser nonetheless. “This is not nickels and dimes, even in our estimate,” said Penn Wharton’s Kent Smetters. “It’s nothing to sneeze at.”


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