What the tax win means for Trump, now and in 2020 - NBC News

DEC 20 2017, 2:40 PM ET

What the tax win means for Trump, now and in 2020

by JONATHAN ALLEN

WASHINGTON — By securing his first major legislative victory Wednesday, President Donald Trump demonstrated he's capable of working with his own party in Congress and added another plank to his re-election platform.

The two parties will spend much of the next 11 months — and the two years after that — fighting over whether the $1.5 trillion Republican-written tax cut is the best catalyst for the economy, whether more of the relief should have been distributed to the working and middle classes and whether it should have included its repeal of Obamacare's tax on people who don't buy health insurance.

"It is a fundamental challenge to this presidency: Can we communicate the good news of the president's economic reforms to counter Democratic spin in the other direction. That may determine whether or not the president is re-elected in 2020," said Michael Caputo, who advised Trump's 2016 campaign.

"I believe that we’re losing that war — the message war," he added. "The public is repeating Democratic talking points, true or false. It's up to the Republicans now — right now, because it's almost too late — to move forward with an assertive and effective communications plan."

This much is clear: Trump and Republicans in Congress now have a marquee achievement at the center of a shared economic and electoral agenda.

It's "rocket fuel" for the economy, Trump said Wednesday as he previewed the basic contrast Republicans will draw with Democrats in the midterms and the next presidential election. "Unfortunately, the Democrats don't like to see tax cutting; they like to see tax increases."

The sugar rush of victory has brought Trump and GOP leaders in Congress together in ways that might have seemed unimaginable just a couple of months ago.

Back then, Trump liked to rip Senate Majority Leader Mitch McConnell, R-Ky., for failing to repeal Obamacare. But on Wednesday, he heaped praise on McConnell on Twitter for doing "a fantastic job both strategically & politically" and the president said, "I could not have asked for a better or more talented partner."

"It's a big win for the president because the politics of a tax cut are never bad," said one official from Trump's 2016 campaign.

"Separate from the popularity of a tax cut, it's a big win for him in pulling his congressional coalition together, (which) he wasn't able to do up to this point on anything major," the official added.

That could bode well for Trump's legislative efforts on an infrastructure package and a developing deal that would enhance border security and extend protections for people who were brought into the U.S. illegally when they were children. House Speaker Paul Ryan, R-Wis., wants to rewrite the Medicare and Medicaid programs. And Trump is still negotiating with Congress over how to keep the government funded through next September, extending the Children's Health Insurance Program and a host of other issues that weren't dealt with this year.

"Capitol Hill needed a win and they got it — incredibly tough agenda faces the administration when they return in January but they've proven they can get vital things done," said a person in former White House chief strategist Steve Bannon's camp, adding that the tax cut "dovetails perfectly with his National Security Plan in making American industry more competitive globally."

Trump's supporters say enacting the tax cut is invaluable in part because his 2020 re-election hopes hinge heavily on Republicans' ability to keep control of Congress in the midterms. If they lose either chamber, his agenda will stall. If they lose both the House and Senate, his first term could devolve into an impeachment fight.

Trump: Tax bill passage 'an amazing experience' 3:05

Now, GOP candidates have a tangible achievement to point to as part of a narrative of economic growth under full Republican control of Washington.

But there's reason for Trump allies to worry that Republicans have let Democrats get the jump on framing the law as a giveaway to the wealthiest Americans. An NBC/Wall Street Journal poll found that 24 percent of respondents think it's a good idea, while 41 percent think it's a bad idea.

Jim Dean, chairman of the liberal group Democracy for America, predicted that, rather than helping Trump keep Republican control of Congress, the tax cut bill will give Democrats the weapon they need to take over.

"While it's true that they're giving millionaires, billionaires and big business a Christmas gift as they ram the Trump Tax Scam through Congress today, Donald Trump and congressional Republicans are also handing Democrats the perfect weapon for dismembering the GOP's House and Senate majorities in 2018," Dean said in a statement.

One battleground will be over the perception of a cut in the corporate tax rate to 21 percent from 35 percent. Democrats argue that the windfall will be distributed to shareholders rather than being invested in new jobs, and some heavyweight publicly traded companies have confirmed that's their plan. But Trump will be able to point to other firms that are spending on job creation.

Philip Blumberg, CEO of the privately held Blumberg Partners, said one of his firm's companies, Blumberg Grain, will invest in new facilities in Ames, Iowa, Dothan, Alabama, and the Miami area in large part because of the tax cut. Those plants will create 250 jobs, he said.

A past donor to Democrats who says he didn't vote for Trump, Blumberg credited the president and administration officials with "strong advocacy for our expansion" in overseas markets.

"There is a sea change in advocating for business as opposed to the glazed-over look" he got from Barack Obama and Bush administration officials, he said.

If the tax cut and Trump's aggressive efforts to cut federal regulations combine to spur the economy, Republicans may be able to overcome the headwinds of the president's poor current approval rating and an energized Democratic base.

"There's nothing wrong with the 2018 midterm elections for Republicans that robust growth — 3.5 percent or more robust growth quarter after quarter — can't fix," Caputo, the Trump campaign adviser, said. "2018 is going to have a huge impact on 2020. ... If we don’t (keep both chambers), this could be looked back on as the most significant achievement of his presidency."

U.S. tax curbs on debt deduction to sting buyout barons - Reuters

DECEMBER 21, 2017 / 11:06 PM / UPDATED 9 MINUTES AGO

U.S. tax curbs on debt deduction to sting buyout barons

Joshua Franklin

(Reuters) - As corporate America celebrates one of the biggest-ever cuts to its tax bill, one corner of Wall Street is fretting over the impact the reforms will have on its ability to profitably invest in companies.

U.S. President Donald Trump celebrates with Vice President Mike Pence and Congressional Republicans after the U.S. Congress passed sweeping tax overhaul legislation on the South Lawn of the White House in Washington, U.S., December 20, 2017. REUTERS/Jonathan Ernst

Private equity firms that buy companies only to sell them a few years later at a profit face restrictions on their ability to deduct the interest these companies pay on their debt from their taxes, according to legislation approved on Wednesday by U.S. lawmakers and set to be signed into law by President Donald Trump.

The changes are a blow to the industry’s business model of larding companies with debt to juice returns. They could make it more difficult and less profitable for buyout firms to outbid competitors for companies, industry executives said.

“It’s a deviation from what has been allowed in the last 50 years,” said David Fann, chief executive of TorreyCove Capital Partners LLC, a private equity advisory firm.

“This is a radical change. In fact, the buyout business would have never evolved without the benefits of leverage.”

The rules also show the limits of the industry’s influence in Washington, despite efforts by executives such as Blackstone Group LP (BX.N) Chief Executive Stephen Schwarzman to cultivate Trump and his Republican party.

Companies that were previously unrestricted in the amount of interest they could deduct now face a cap for the next four years of 30 percent of their 12-month earnings before interest, taxes, depreciation and amortization (EBITDA).

After 2021, the cap becomes even more constrictive by switching to 30 percent of 12-month earnings before interest and tax (EBIT).

For a Reuters graphic on the sector-by-sector impact of the interest deductible cap, click tmsnrt.rs/2AZlrZf

HEAVILY INDEBTED COMPANIES TO TAKE A HIT

S&P Global Ratings estimates that nearly 70 percent of companies whose debt amounts to more five times EBITDA would be negatively impacted by the interest deductibility cap. This casts a wide net, given that private equity firms, on average, saddle companies with more debt than that, according to Cambridge Associates.

Around a third of all leveraged buyouts are expected to be worse off under the new tax system, according to Moody’s Investors Service Inc.

Using excessive borrowing as a yardstick, health publisher WebMD, software provider LANDESK and auto accessory seller Truck Hero are among those that could take a hit from the interest expense deductibility cap. All these companies are indebted at well above five times EBITDA, according to Thomson Reuters LPC data.

WebMD owner KKR & Co LP (KKR.N), and Truck Hero owner CCMP declined to comment on the impact of the cap on their companies and whether other aspects of the tax code overhaul could offset it.

A representative for LANDESK owner Clearlake Capital did not immediately respond to a request for comment.

While the tax rates of private equity-owned companies will decrease alongside all other U.S. companies, the changes could hasten the demise of those struggling with their debt piles, Moody’s said last week.

This means that bankruptcies of heavily indebted private equity-owned companies, such as that of U.S. retailer Toys “R” Us in September, could come more quickly and become more difficult to escape.

“Defaults for lower-rated (credit) issuers could increase in a downturn,” Moody’s analysts wrote in a note.

That could discourage private equity firms from overburdening companies with debt, but also erode returns by pushing them to stump up more of their cash as equity to fund acquisitions.

Given publicly traded companies that are not as indebted will have more cash under the new tax system to make rival offers for assets, the changes could make leveraged buyouts harder to complete on attractive terms, investment bankers said.

Blackstone Group LP

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“The valuation challenge that private equity firms are facing in considering new investments may become exacerbated in 2018,” said Gary Posternack, global head of M&A at Barclays Plc (BARC.L).

“Companies with the same P/E ratio but with lower tax rates may see EBITDA multiples go up, making the economics more challenging for private equity firms,” Posternack added.

FLEXIBILITY

To be sure, the new rules offer some flexibility. They allow companies to deduct interest payments above the 30 percent cap to the extent they did not reach that limit in the previous years.

And the benefits from a tax rate cut to 21 percent from 35 percent and full upfront capital expenditure deductibility outweigh the cost of the curbs on interest deductibility for the majority of private equity-owned companies.

Given that private equity fund managers have also largely been spared a much-feared tax hike on their performance fees, known as carried interest, the American Investment Council (AIC), the industry’s lobby group, has put on a brave face.

“On balance, the tax bill represents a net positive for private equity and will enable the industry to continue to make long-term investments that will grow the economy,” AIC President and CEO Mike Sommers said in a statement.

The impact of the new tax system will also vary across sectors.

Those with high leverage and significant leveraged buyout activity, such as technology, healthcare and aerospace and defense, have the highest percentage of companies worse off, according to Moody‘s.

“As cash flow scenarios and interest rates fluctuate, those (interest expense deductibility) caps could start to make leveraged deals harder,” said Larry Grafstein, UBS’s co-head of M&A in the Americas.

Reporting by Joshua Franklin in New York; Additional reporting by Andrew Berlin in New York; Editing by Greg Roumeliotis and Meredith Mazzilli

Four days left before deadline to fund the government, prevent a shutdown - CBS News

December 19, 2017, 6:00 AM

Four days left before deadline to fund the government, prevent a shutdown

Last Updated Dec 19, 2017 2:27 PM EST

Four days remain before the deadline to keep the government funded and avoid a shutdown and lawmakers are at odds over how to move forward. But even with the clock ticking, the GOP is focused first on getting its tax legislation to President Trump's desk.

House Republicans unveiled a measure last week that would provide new funding to defense programs through Sept. 30, 2018 and keep the rest of the government funded at lower, existing levels through Jan. 19, 2018. The bill has been saddled with the clunky name of "CRomnibus" by lawmakers and their staffers because it includes a continuing resolution (CR) for most of the government and an omnibus, with new funding, for defense programs.

Timeline of government funding:

May 4, 2017 -- Congress passes $1.1 trillion spending deal that funds government through Sept. 30, excluding funding for the border wall.

Sept. 8, 2017 -- Trump signs government funding measure, that maintains 2017 levels and funds the government through Dec. 8.

Sept. 30 -- The two-year budget deal signed by Obama in 2015 expires, paving the way for the 2011 spending caps to take effect.

Oct. 1 -- New fiscal year 2018, begins.

Dec. 7 -- Congress passes short-term spending bill through Dec. 22.

Dec. 22 -- Spending bill expires; new bill needed to avert shutdown.

Jan. 19 -- Expiration date for part of House GOP "CRomnibus" proposal.

Not to be outdone, Democratic leader Nancy Pelosi rejected the CRomnibus by rattling off a couple of her own names for the bill.

"Some people are calling it the 'punt'-ibus, just punt this down the road. I call it the 'none'-tibus because it's not going anywhere," said Pelosi at her weekly news conference last week. "It's not going to fly. We can't support that."

Democrats are using the leverage they have to strike a deal that would lift spending limits on both defense programs and non-defense domestic programs, reauthorize the Children's Health Insurance Program (CHIP) and include the proposal from Sens. Lamar Alexander, R-Tennessee, and Sen. Patty Murray, D-Washington to extend Obamacare's cost-sharing reduction (CSR) payments for the next two years and eliminate the question about whether making the payments is legal. The White House announced earlier this year that because there was no congressional appropriation for the payments -- which help keep insurance affordable for Americans buying in the individual marketplace -- it would stop making the payments.

Top congressional leaders are negotiating with the White House over a budget deal that would lift spending caps that came back into effect on Oct. 1. These were limits set by the Budget Control Act (BCA) of 2011, to help keep deficit spending in check. Congress has twice passed similar agreements over the last four years. In 2013, Rep. Paul Ryan, R-Wisconsin, then the chairman of the House Budget Committee, reached a deal with his Senate counterpart, Sen. Murray, to boost spending caps for two years. Once that deal expired, Speaker John Boehner, R-Ohio, reached a deal with Democrats and the White House in 2015 to lift spending caps for two more years. That deal expired Sept. 30 of this year. Republicans and Democrats are currently eyeing a two-year budget deal that would lift spending caps by $200 billion, according to a source familiar with negotiations.

The disagreements between the two parties could lead to some legislative ping pong between the two chambers. As of Monday, House Republicans are still planning to bring their proposal to the floor for a vote and send it to the Senate. Senate Democrats would then block the measure because it requires 60 votes to advance in the upper chamber and there are only 52 Republicans, and no Democrats who will support it. Senate Majority Leader Mitch McConnell, R-Kentucky, will likely have no choice but to give in to Democrats' demands and strip out the defense portion, and send it back to the House with additional provisions.

McConnell vowed last week that Republicans wouldn't allow the government to shut down.

"There isn't any chance that we're going to shut the government down," the Kentucky Republican told reporters at a press conference. "I think the American people need not worry that there's going to be any kind of government shutdown...I sense the Democrats don't want to do it and we don't either."

Senate Minority Leader Chuck Schumer, D-New York, said that the conservative Freedom Caucus in the House had been pushing a "CRomnibus." Schumer said that Senate Democrats will quickly reject such a proposal if it comes to the Senate floor for a vote.

"[Paul Ryan will] be walking right over the cliff to a Republican government shutdown," Schumer said.

Meanwhile, Republicans are primarily concerned with getting their tax bill over the finish line. House Republicans will meet Monday evening to discuss the final agreement and are planning to hold a final passage vote early Tuesday afternoon, and sending it immediately to the Senate, where it's expected to pass with the necessary simple majority.

"The entire focus this week will be the votes on the tax bill," said Bill Hoagland, senior vice president at the Bipartisan Policy Center. "I think what they'll end up doing is a very simple continuing resolution going through the holidays, maybe until as far as January 19."

A Democratic leadership aide told CBS News that Republicans have been reluctant to agree to anything until the tax measure is done. The aide said that negotiations over a deal to lift funding ceilings and to find a legislative solution for so-called "Dreamers" are going well but it's unclear how quickly it can come together.

Separately, a senior House Democratic aide said that bicameral talks on a budget deal to lift spending caps are being slow-walked by Republicans because they are worried about impacting the tax bill vote. The aide said that it would be a waste of time for House Republicans to vote on the CRomnibus because Senate Democrats have already dismissed it.

While the deadline is quickly approaching, odds of a government shutdown remain slim, experts say. Hoagland says Republicans wouldn't want a shutdown to mar their tax bill victory.

"They want the focus to be on the success; not the failure and government shutdown is failure," said Hoagland, who said Republicans would be largely blamed if there is a shutdown. "For the average American out there, they say, 'Wait a minute you guys are in charge of both the House, Senate and White House, you shut down the government?' Another black mark for Rs, which they don't need."

Trump speaks after tax overhaul bill passage - CBS News

December 20, 2017, 2:37 PM

Trump speaks after tax overhaul bill passage

Last Updated Dec 20, 2017 5:13 PM EST

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President Trump spoke Wednesday afternoon after the Republican-controlled Congress passed a sweeping tax overhaul bill. The Senate passed the bill in the early hours of Wednesday and the House voted to pass the legislation Wednesday afternoon.

"We did the largest tax cut in our history," he said.

Earlier Wednesday, Mr. Trump met with members of his Cabinet. In the meeting, the president praised the measure's dramatic cuts to corporate tax rates and cuts for individual taxpayers.

"We have done a job like no administration has done," Mr. Trump said.

President Trump thanked all of the Republican members of Congress gathered for the White House remarks and praised their hard work in passing the tax legislation.

"They are very, very special people," Mr. Trump concluded.

Members of Congress continue to thank Trump

The president invited Sen. Orrin Hatch, R-Utah, to say a few words.

"You're one heck of a leader," Hatch said.

Rep. Kevin Brady, R-Texas, followed Hatch, also praising Mr. Trump.

"Our country will have a new tax code for a new era of American prosperity," Brady said, also calling the current tax code "broken."

Rep. Kevin McCarthy, R-California, commented next.

"This is America's comeback," he said.

Alaskan Senators invited to speak

Sen. Lisa Murkowski, R-Alaska, thanked the president for his assistance in passing the tax bill.

"With passage of this tax bill, with passage-- finally-- to allow us to open the 10-02 area, this is a bright day," she said, referencing the provision of the bill opening the Arctic National Wildlife Refuge (ANWR) to drilling.

"This, Mr. President, is what energy dominance is all about," she said.

Sen. Dan Sullivan, R-Alaska, echoed his colleague's comments on how the bill will help their home state.

"We're finally, finally doing it, thank you sir," he said to Mr. Trump.

Sen. Tim Scott makes remarks

Sen. Tim Scott, R-South Carolina, was invited to speak following Pence's remarks.

He claimed that single mothers will receive a 70 percent tax cut.

"When you think about the folks with kids in the household, this plan double the child tax credit," Scott said.

Vice President Mike Pence speaks

"Merry Christmas, America!" Vice President Mike Pence said calling the tax cuts a gift to Americans.

The vice president then listed some of the Trump administration's accomplishments.

"Today, Mr. President, you fulfilled the promise you made to millions of Americans struggling in this economy," Pence said.

He called the legislation a "middle class miracle."

"President Donald Trump delivered a great victory for the American people," Pence said.

"With God's help, you will make America great again," Pence said to Mr. Trump.

Paul Ryan speaks

"Mr. President thank you for getting us over the finish line, thank you for getting us where we are," Ryan said, also thanking Secretary of the Treasury Steven Mnuchin.

He said that the tax bill's passage through Congress represents the Republican Party keeping its promise to deliver tax cuts to the American people.

Mitch McConnell speaks

"It means jobs. Jobs, jobs, jobs. So it's really going to be a very special period of time," Mr. Trump said before handing the stage over to McConnell.

The Senate Majority Leader then approached the podium.

"America is going to start growing again, thank you Mr. President for all you're doing," McConnell said.

Trump thanks Congress

Mr. Trump thanked McConnell and Ryan for their leadership in passing the legislation through both chambers of Congress.

"We did the largest tax cut in our history. And I hate to say this but we essentially repealed Obamacare," he said, referencing the bill's repeal of the Affordable Care Act's individual mandate.

Mr. Trump pointed to Sen. Lisa Murkowski, R-Alaska, and expressed excitement for the bill's opening of the Arctic National Wildlife Refuge (ANWR) to oil and gas drilling.

Trump begins remarks

"I have a whole list of accomplishments that the group behind me has done," Mr. Trump said.

Mr. Trump praised the bill's doubling of the standard deduction and child tax credit.

"We are going to bring at least $4 trillion dollars back," Mr. Trump said of the bill, referencing legislation's cut to the corporate tax rate from 35 to 21 percent.

President Trump arrives

President Trump arrived to the White House's South Lawn accompanied by Vice President Mike Pence, Senate Majority Leader Mitch McConnell and Speaker of the House Paul Ryan.

GOP members of Congress gathered behind the president's podium. Mr. Trump shook hands with members of his party as they applauded him.