The Finance 202: Big business isn't championing tax cuts. That could hurt Republicans in the midterms

THE TICKER

Republicans are counting on their $1.5 trillion tax cut to stave off a midterm disaster, but the measure’s big-business champions so far aren’t investing in a major, coordinated blitz to sell skeptical voters on its benefits.

That has some GOP strategists nervous that the party’s deep-pocketed allies are missing the moment to help it secure credit for a strengthening economy — their best bulwark against a November referendum on a presidency roiled by controversies.

Just 32 percent of voters say they have more take-home pay because of the tax cuts, according to the latest CNBC All-America Economic Survey, released Tuesday. And of that group, only 38 percent said the extra money is making a meaningful difference in their financial situation. Those results track with other polls that show public support for the measure has plateaued after improving following its passage at the end of last year.

“If Republicans focus more on the middle class benefits such as the doubling of the standard deduction and the increase in the child tax deduction, there is room for growth in the numbers,” GOP consultant Ken Spain said in an email. “The key is trying to break the through all the noise, which includes a president that is often times more than happy to deviate from the Congressional GOP’s message.”

Some outside groups backing the tax cuts are pulling together scattershot efforts to promote it over the two-week recess that just sent lawmakers home for their longest stretch of the year so far:

The Business Roundtable says it is shelling out “nearly seven figures” to run radio and digital ads in more than 30 congressional districts. The spots “emphasize how businesses now have more opportunities to innovate, invest and grow due to a more globally competitive tax system that will lead to more jobs and bigger paychecks for Americans,” a BRT official says.
The American Action Network, the super PAC aligned with House Speaker Paul Ryan (R-Wis.), is spending $1 million to boost the law in 26 battleground districts held by Republicans.
And the Koch-backed Americans for Prosperity is hosting events across several states to thank Republicans who voted for the package, as part of its “American Pay Raise” campaign launched this month.

What isn’t happening, or at least not yet: A centrally-plotted and more fully-funded campaign to prop up the package now that the wave of corporate announcements of bonuses and other benefits from the cuts has ebbed. “To keep something like this alive, you have got to work the messaging. It’s not going to occur naturally,” one top Republican lobbyist says, adding the effort so far has been “erratic.” In a bid to keep the issue in front of voters while attempting to jam Democrats, Congressional Republicans are now eyeing votes on a second round of tax cuts later this year.

The party received a warning shot recently when tax cut-focused messaging flopped in the special election for a House seat in southwestern Pennsylvania. From Politico’s Kevin Robillard, just before Republicans lost that race:

"Republicans backed away from their signature tax-cut law in the final days of a closely watched special House election in the Pittsburgh suburbs — even though it's the very accomplishment on which they had banked their midterm election hopes. Instead, GOP groups that once proudly declared the tax law would be the central fight of the midterms are now airing ads on so-called sanctuary cities and attacking Democrat Conor Lamb’s record as a prosecutor."

Republicans have since rationalized the loss as the byproduct of other factors, including candidate quality, that they say Democrats will have difficulty replicating across the map in November. Indeed, the party is heading into campaign season with historically helpful economic tailwinds. Plotted by unemployment trends and real returns in equity markets, the president’s party has enjoyed better conditions in a midterm year only three times dating back to 1910, as this chart from JPMorgan’s asset management team shows:

“In each of those elections, the president’s party suffered only modest losses in the House of Representatives — 13 seats or fewer,” The Washington Post’s Chuck Lane writes. “If the Republicans match that performance in 2018, they will retain their House majority. Yet as the chart also shows, the GOP does not at present appear on course for such a result. Consulting expert forecasts, Cembalest produces a plausible estimate of 25-40 GOP losses in the House. That is, money won’t buy them love, or at least not enough love to offset many voters’ antipathy to Trump.”

MARKET MOVERS

— Tech meltdown. WSJ's Michael Wursthorn and Gunjan Banerji: "Technology stocks are suffering one of their worst beatings in years, as investors reassess a sector that has been considered the growth engine of the global economy but now faces the prospect of greater regulatory scrutiny. The tech-heavy Nasdaq Composite Index fell 2.9% Tuesday. That selloff carried over to the broader market, where the S&P 500 index slumped 1.7%. The Dow Jones Industrial Average fell 1.4%, giving back some of Monday’s 2.8% rebound. Tech shares were hit the hardest, dragging down the broader market in the final hour of trading. A series of recent developments pointed to more government oversight of the industry."

An actual crash set off the dive.NYT: "The sell-off was ignited when the chip maker Nvidia said it was suspending tests of its self-driving car technology after an autonomous Uber vehicle struck and killed a pedestrian in Tempe, Ariz., last week. Nvidia has made supplying chips to self-driving vehicles a major part of its growth strategy, and Uber had selected Nvidia to outfit its fleet. The news sent Nvidia shares plunging 7.8 percent, the sharpest decline of any company in the S.&P."

It's not as bad as it feels. Bloomberg's Lu Wang and co.: "Remember the last time stocks fell so hard? You probably don’t, and that’s making today’s market seem harsher than it is. It’s a fact of the life of the mind -- things always seem worse in the present. In reality, they’re not. In this bull market alone there’s been five other corrections like this one, and it’s taken around seven months on average for equities to climb out of their hole. Based on that path, the current jitters won’t be fully eradicated until August."

Treasuries Finally Give In to Tech Turmoil

Bond bulls just sent a friend request to Facebook Inc. The turmoil around the social media company -- and technology stocks in general -- has forced 10-year Treasury yields out of a 20-basis-point range that’s held since early February.

Bloomberg

TRUMP TRACKER

— Trump seals South Korea deal. NYT's Michael Shear and Alan Rappeport: "Trump scored his first significant trade deal this week, securing a pact with South Korea that represents the type of one-on-one agreement that Mr. Trump says makes the best sense for American companies and workers. The deal, which is expected to be formally announced on Wednesday, opens the South’s market to American autos by lifting existing limits on manufacturers like Ford Motor and General Motors, extends tariffs for South Korean truck exports and restricts, by nearly a third, the amount of steel that the South can export to the United States.

"Mr. Trump used his threat of stiff steel and aluminum tariffs as a cudgel to extract the concessions he wanted, helping produce an agreement that had stalled amid disagreements this year. But winning the deal may have had more to do with the geopolitical realities confronting the United States and South Korea as America embarks on tricky nuclear discussions with North Korea. The United States cannot afford a protracted trade standoff at a moment when it needs the South as an ally."

Trump's carrot and stick aren't new. The Post's David Lynch: "Threatening negotiating partners with tariffs unless they make concessions, as the United States did with South Korea, is not President Trump’s innovation. It is a tactic that Washington often used before the creation of the World Trade Organization, though one that did little to reduce the bilateral trade deficits that preoccupy the president. It also may prove a riskier strategy when U.S. negotiators take on more-powerful countries, including China, one of Trump’s top rhetorical targets and the largest U.S. trading partner. U.S. negotiators also confront a longer list of issues in talks aimed at renegotiating another trade deal, the North American Free Trade Agreement."

Ross thanks tariffs. CNBC's Patti Domm: "Commerce Secretary Wilbur Ross said the trade agreement with South Korea would never have happened without U.S. tariffs and that portends well for potential agreements with other countries. He said the Trump administration is also making progress with the European community. Ross said there has been dialogue with China and it is ongoing. He said China's response to $50 billion in proposed U.S. tariffs on Chinese goods was 'well modulated.' 'I think what the market is starting to get used to is we are not suicidal. This is not some mission to blow up the world,' said Ross."

— Curbing Chinese tech buyouts. Bloomberg's Andrew Mayeda, Saleha Mohsin and David McLaughlin: "The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive by invoking a law reserved for national emergencies, among other options, according to people familiar with the matter. Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications, according to four people with knowledge of the proposal...

"The investment curbs would be the latest step in President Donald Trump’s plan to punish China for what the U.S. sees as violations of American intellectual-property rights. The president asked Treasury Secretary Steven Mnuchin to consider investment restrictions on Chinese firms after the administration released the results of its probe into China’s IP practices last week. While investors have so far focused on Trump’s plan to impose tariffs on Chinese imports, new restrictions could deepen a slowdown in Chinese investments in the U.S. since Trump took office, hurting the ability of American companies to raise capital and holding down valuations."

Context: The 50-year era of trying to integrate China into the global market economy is over, NYT's Eduardo Porter writes: "Trump’s announcement last week that the United States would impose a battery of tariffs against as much as $60 billion worth of Chinese goods while restricting Chinese investments in American technology companies has set policy onto a different, more belligerent path. China is now, in the president’s words, an 'economic enemy.' Interestingly, not all scholars have opposed the change of tone. Many foreign policy experts agree that China is not playing by the rules. American businesses, which typically endorsed forbearance to protect their market access to China, have grown frustrated at its appropriation of their intellectual property."

WTO's future in the balance. WSJ's Daniel Michaels and Emre Peker: "The WTO’s future is particularly uncertain because the Trump administration’s approach simultaneously circumvents and relies on it. On one hand, the administration last week levied tariffs that many allies and rivals say violate WTO rules, and Washington is negotiating directly with other capitals on trade deals, outside the WTO. Mr. Trump has called the WTO a “disaster” and “very unfair” to the U.S. At the same time, the U.S. is pressing allies to help reform the WTO and to join in WTO complaints against China. Allies hope the latter approach prevails."

— Mulvaney besting Mnuchin on tax rules. Politico's Nancy Cook and Aaron Lorenzo: "The White House is poised to give its budget office greater control over some of the Treasury Department’s regulations, handing budget director Mick Mulvaney a victory in a months-long power struggle with Treasury Secretary Steven Mnuchin, according to three sources familiar with the discussions. The move, which could come in the next few weeks, would end the autonomy the Treasury Department has enjoyed since the 1980s when it comes to issuing tax rules, while giving greater power to one of Trump’s favorite Cabinet members at the expense of another. The highly sensitive debate has consumed the attention of top officials at both agencies. At stake is the final say over IRS regulations — and the implementation of the Republicans’ tax law."

MONEY ON THE HILL

— Omni = $500 billion in new spending. Washington Examiner's Joseph Lawler: "The omnibus spending bill signed by... Trump last week will raise spending by about $500 billion over the next decade when economic growth and interest costs are factored in, according to a new analysis Tuesday. The Penn Wharton Budget Model, a private-sector model of federal spending and taxing, analyzed the spending bill, which provided for $1.3 trillion in appropriations for fiscal 2018, and found that it would add 1.6 percent to the federal debt over the next 10 years. The calculation is a 'dynamic analysis,' meaning that it tries to account for the bill's effect on the economy as well as on direct government spending. In the model, the added federal debt from the bill 'slightly dampens economic growth,' according to the budget experts. The slower economic growth, in turn, means lower tax revenue and higher spending on interest on the debt."

— Zuck will testify. CNN's Dylan Byers: "Facebook sources tell CNNMoney the 33-year-old CEO has come to terms with the fact that he will have to testify before Congress within a matter of weeks, and Facebook is currently planning the strategy for his testimony. The pressure from lawmakers, the media and the public has become too intense to justify anything less. The Facebook sources believe [Mark] Zuckerberg's willingness to testify will also put pressure on Google CEO Sundar Pichai and Twitter CEO Jack Dorsey to do the same. Senate Judiciary Chairman Chuck Grassley has officially invited all three CEOs to a hearing on data privacy on April 10."

How many committees? "Three congressional committees have invited Zuckerberg to testify, including the Senate Judiciary Committee at an April 10 meeting about data privacy. It is unclear how many hearings Zuckerberg will attend, and of which committees," The Post's Elizabeth Dwoskin and Tony Romm write. "A spokeswoman for the House Energy and Commerce committee, another of the panels that has invited Zuckerberg to a hearing, said the chief executive has not confirmed his attendance. 'The committee is continuing to work with Facebook to determine a day and time for Mr. Zuckerberg to testify,' said the spokeswoman, Elena Hernandez."

Facebook stock keeps tanking. CNN Money's Paul La Monica: "Facebook shares fell 5% Tuesday on reports that CEO Mark Zuckerberg agreed to testify in front of Congress about the company's data scandal. The crisis began on March 16... Since then, Facebook's stock has plunged 18%, wiping out nearly $80 billion from the social networking giant's market value in the process. Zuckerberg's net worth has fallen by about $14 billion (he is still worth $61 billion, though)."

(The company, meanwhile, is a on a lobbyist hiring spree, Bloomberg reports, looking to add 11 people to its Washington office.)

POCKET CHANGE

— Deutsche Bank hunts for CEO. Bloomberg's Steven Arons: "Deutsche Bank AG Chairman Paul Achleitner has held talks with potential successors to Chief Executive Officer John Cryan as part of plans to replace the executive should a better candidate emerge, according to people with knowledge of the matter. Discussions have focused on a leader who speaks German and who works well with regulators, the people said, asking not to be identified. Achleitner has sounded out potential replacements as part of normal succession planning, they said. One top shareholder -- asking not to be identified discussing sensitive matters -- said Cryan remains the best choice as CEO of the bank. Cryan has struggled to maintain investor backing after failing to return the lender to 'controlled growth' as part of the bank’s third strategy revamp."

THE REGULATORS

— Williams would bring continuity to NY Fed. WSJ's Ryan Tracy: "The front-runner for president of the Federal Reserve Bank of New York has a regulatory record similar to its current leader, suggesting his appointment would bring continuity in the regulator’s relationship to Wall Street. John Williams, the Federal Reserve Bank of San Francisco president in line for a transfer to New York, and current New York Fed President William Dudley have both supported restrictions on banks imposed after the 2008 bailouts, criticized bank executives for risk-management failures, and sought to put distance between their staffs and the bankers they oversee.

"They also have seen major bank misbehavior occur on their watch. Mr. Williams’s role in overseeing Wells Fargo WFC -2.28% & Co. triggered criticism of his regulatory record because of the California-based bank’s risk-management failures and customer abuses. When the Fed hit Wells Fargo with an unprecedented enforcement action this year, it was both a rebuke of the firm and an acknowledgment that regulators had allowed risk-management deficiencies to fester. As San Francisco Fed President, Mr. Williams oversees teams of bank examiners responsible for firms including Wells Fargo."

CHART TOPPER

The stock market can't decide what to do with tariff threats, writes Bloomberg's Sarah Ponczek:

The yo-yoing stock market can't seem to decide how to trade the ongoing tariff threats https://t.co/lHdfGGQLoD pic.twitter.com/pjZ4s34MEt
— Bloomberg (@business) March 27, 2018

DAYBOOK

Today

The Center for Strategic and International Studies hosts an event on intellectual property.
The Peterson Institute for International Economics holds an event on “Finding the Right Balance in Banking Supervision.”

Coming Up

The FDIC’s Money Smart for Small Business town hall is on Thursday.
The National Economists Club holds an event on Thursday.
The American Enterprise Institute holds an event title “What happened to compassionate conservatism — and can it return?” on Thursday.

THE FUNNIES

From The Post's Tom Toles: