Mnuchin: Relief Bill Will Be ‘Difficult’ Before Election

Mnuchin: Relief Bill Will Be ‘Difficult’ Before Election

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Plus, an updated analysis of Biden’s tax plan
Wednesday, October 14, 2020

Mnuchin: Relief Bill Will Be ‘Difficult’ Before Election

In case it wasn’t already clear that a new coronavirus relief bill probably isn’t coming before the election, just take a look at what Treasury Secretary Steven Mnuchin, who has been negotiating the deal with House Speaker Nancy Pelosi (D-CA), said at the Milken Institute Global Conference Wednesday: “I’d say at this point getting something done before the election and executing on that would be difficult, just given where we are.”

Mnuchin on Friday offered Pelosi a $1.8 trillion package and the two spoke Wednesday morning for about an hour, according to Drew Hammill, a spokesperson for the speaker, who called the conversation “productive” but made clear the two sides still have significant differences.

“One major area of disagreement continues to be that the White House lacks an understanding of the need for a national strategic testing plan. The Speaker believes we must reopen our economy & schools safely & soon, & scientists agree we must have a strategic testing plan,” Hammill wrote on Twitter. “Staff will continue to exchange paper and the two principals will speak again tomorrow.”

Mnuchin also said that the two sides are making progress, but he reportedly criticized Pelosi’s insistence on a broad deal, again suggesting that they could quickly deliver more targeted aid, including to the airline industry, which has begun furloughing thousands of workers. “I don’t agree with the speaker’s approach of ‘we have to do all or nothing.’ We’re continuing to negotiate a comprehensive bill but we want to put money into the economy now,” Mnuchin said.

In a tense interview on CNN Tuesday evening, Pelosi pushed back emphatically when host Wolf Blitzer asked repeatedly why she wouldn’t accept Mnuchin’s latest offer, saying that Blitzer and others suggesting she accept the deal don’t know the details of the talks. “They are not negotiating this situation,” she said. “They have no idea of the particulars. They have no idea of what the language is here.”

When Blitzer asked why she would let the perfect be the enemy of the good, Pelosi said the administration’s offer was “not even close to the good.”

The election obstacle:
Mnuchin said that pre-election politics may be lowering the odds of a deal. Asked whether Democrats are holding off on a deal now in hopes that they can more easily pass their own bill if they win the Senate — and because they don’t want to give President Trump a win he can tout to boost his re-election campaign — Mnuchin said: “That definitely is part of the reality. That’s definitely an issue.”

GOP political considerations are also hanging over the talks, as some Republicans distance themselves from a president they see trailing in the polls. A number of Senate Republicans reportedly pushed back strongly against the administration’s latest offer, and Majority Leader Mitch McConnell (R-KY) announced Tuesday that the Senate would vote on a narrower relief bill even as Trump has begun to publicly call for a larger package.

“Trump’s erratic moves on the stimulus in particular have flummoxed Republicans, who were already divided among themselves over how big a package they’d agree to,” Bloomberg’s Steven T. Dennis and Jordan Fabian write. “Many GOP lawmakers are keenly aware that Trump could pull the rug out from under them at any moment. They also are concerned he could be even more unpredictable on stimulus negotiations as the election draws nearer, according to a person familiar with conversations among lawmakers and their aides.”

Some Republicans are also looking ahead to the possibility that Joe Biden wins the presidency, Dennis and Fabian report:

“A GOP strategist who has been consulting with Senate campaigns said Republicans have been carefully laying the groundwork to restrain a Biden administration on federal spending and the budget deficit by talking up concerns about the price tag for another round of virus relief. The thinking, the strategist said, is that it would be very hard politically to agree on spending trillions more now and then in January suddenly embrace fiscal restraint.”

The bottom line: As Politico’s Sarah Ferris reports, “a dose of political realism has begun to settle in, with lawmakers and top aides begrudgingly acknowledging that it will be virtually impossible to clinch a multitrillion-dollar package in the 20 days before the election.”

Biden’s Tax Plan Would Raise Trillions, With Little Effect on Growth: AEI

A newly updated analysis from the conservative American Enterprise Institute finds that Joe Biden’s tax plan would raise roughly $2.8 trillion over 10 years, while reducing economic growth by a modest 0.16%.

Biden has proposed raising taxes on corporations and the wealthy to pay for increased spending on a wide variety of public programs. The tax hikes include raising the corporate tax rate; reversing some elements of the 2017 Republican tax cuts for households earning more than $400,000 per year; and taxing capital gains and dividends as ordinary income for taxpayers who report more than $1 million in income.

Who pays more:
Overall, Biden’s tax plan would make the U.S. tax system more progressive, AEI’s Kyle Pomerleau and Grant Seiter say.

Businesses would see the biggest effects. “Most of the new revenue in Biden’s tax plan would come from increased business taxes ($1.9 trillion),” they write. “The largest source of new business revenue and the largest source of new revenue in the entire plan is the proposal to raise the corporate tax rate from 21 percent to 28 percent ($1 trillion between 2021 and 2030).”

On the individual side, the tax hikes would fall almost entirely on the wealthy. “In 2021, Biden’s tax proposals would increase the tax burden on the top 5 percent of households and reduce the tax burden on the bottom 95 percent of households,” the report says. The top 1% would see their incomes reduced by 14.2%, while taxpayers in the bottom 94% of the distribution would see after-tax incomes climb by between 0.5% and 11.3%, with those in the bottom decile seeing the largest increase.

After 10 years, all households would pay slightly higher taxes, although this outcome is produced by assumptions AEI makes about corporations’ ability to pass tax hikes along to workers and consumers — assumptions that are contested by the Biden campaign and some tax experts.

Higher GDP in the long run: The AEI analysis finds that GDP would be slightly smaller after 10 years relative to the baseline, though that conclusion is due in large part to the assumption built into the model that higher taxes reduce labor supply and capital stock in the economy. Even so, in the second decade, Biden’s plan produces slightly higher GDP relative to the baseline, the analysts said, “because the increased tax revenue decreases the trajectory of US debt, which means more household savings can be used for private capital accumulation and less has to be used to service the debt interest.”

Spending plans not included: In addition to tax hikes, Biden has proposed huge increases in spending on a wide variety of social programs, but those aren’t included in the AEI analysis. However, it’s the combination of the two — a big fiscal boost from increased social spending backed by higher taxes on businesses and the wealthy – that have led many economists, including analysts at Moody’s and Goldman Sachs, to conclude that Biden’s plans would provide more economic growth than the grab-bag of proposals from the Trump campaign. “Largely because of Biden’s substantially more expansive fiscal policies, the economy would return to full employment more quickly coming out of the pandemic than under Trump,” analysts at Moody’s wrote last month.

No support for President Trump’s wild claims: Writing about the AEI report Wednesday, Tory Newmyer of The Washington Post noted that, “President Trump says Joe Biden’s tax plan would bring about a depression and destroy the country. Independent studies have found no support for that claim. And the latest, an updated examination of the Biden proposal from the right-leaning American Enterprise Institute, should drive a stake through it.”

But it’s largely theoretical in any case: Digging into the details of the AEI analysis, The Wall Street Journal’s Richard Rubin pointed out that some elements of Biden’s proposed changes to the tax code will be politically contentious, among both Democrats and Republicans. “[W]ill there be enough votes in Congress for all of those tax increases?” he asked. In the end, an analysis of revenue increases “adjusted for political reality looks much smaller,” he said.

Chart of the Day: The Trump Economy

President Trump promised to boost economic growth through tax cuts and reduced regulation, and in the first three years of his administration, growth did increase modestly — though not from those sources, says The Wall Street Journal’s Jon Hilsenrath. Instead, higher government spending explains virtually all of the increase in GDP growth relative to the Obama years.

“Federal spending grew faster during the Trump years, even before the Covid-19 crisis, than during the Obama years,” Hilsenrath wrote Wednesday. “Excluding the effects of federal spending, GDP grew at the same rate during the Obama phase of the nearly 11-year expansion as during the Trump phase.”

Business investment — a key element of Trump’s promised economic growth — actually fell during the Trump administration, in large part due the president’s trade wars.

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