Move Over Tech. Here Come Southeast Asias Builders

Tech is so 2017.

With at least $323 billion in infrastructure spending in the pipeline in Southeast Asia and potentially more expected over the next few years, 2018 could well shape up as the year of builders’ stocks from Indonesia to the Philippines that have been the laggards in a broader market rally this year.

Governments are boosting spending on everything from airports to high-speed rails and ports to increase connectivity and boost economic growth in what promises to be a boon for the region’s construction companies. In one of the more ambitious programs in the region, Philippine President Rodrigo Duterte has earmarked an unprecedented $180 billion for infrastructure to keep driving one of the world’s best-performing economies over coming years. Malaysia and Thailand are also ramping up allocations to public works ahead of general elections in 2018.

“Infrastructure has been under invested whether it’s clear water, clean air, energy, roads, ports, railways, education, health care — so there are tons of opportunities,” said Ashish Goyal, head of emerging markets equities at NN Investment Partners (S) Ltd., which manages $288 billion in assets. The firm owns stakes in Indonesian construction stocks, he said, adding that investors should watch for the pace of execution in the various countries.

UBS Group AG expects “changes in government policy and delivery on infrastructure” to be among the region’s biggest themes for 2018 as growth in global trade fades, analysts including Ian Gisbourne wrote in a report dated Nov. 28.

Construction stocks on the MSCI Asean Index have risen an average of about 7.4 percent this year in dollar terms, about one-third the gain of the overall gauge, which is set for its best performance in seven years. Technology shares have provided the biggest boost to the Southeast Asian index this year as global demand for electronics returned.

Some builders are already rallying in anticipation of the rewards they will reap from the spike in infrastructure outlays. Indonesian cement supplier PT Indocement Tunggal Prakarsa soared as much as 54 percent earlier this year as investors expect it to benefit from a surge in demand as the nation builds toll roads, ports and power plants. Manila-based EEI Corp. has surged 73 percent, leading a rally in Philippine construction stocks, as it begins work on the nation’s $1.6 billion, 44 kilometer (27 mile) mass-railway project.

Companies that provide services for construction projects, such as improving management efficiency or sustainability, may also capitalize on the spending boom on public works, Felix Lam, a portfolio manager at BNP Paribas SA’s asset management arm, said by phone.

Even so, the Southeast Asian market as a whole might continue to underperform, compared to “its larger, more liquid and faster growing North Asia and India counterparts,” Goldman Sachs Group Inc. analysts including Timothy Moe wrote in a November report. And Credit Suisse Group AG has maintained its underweight rating on the region for 2018.

Still, Morgan Stanley sees investor attention back on the Asean region as markets are expected to give returns of as much as 10 percent next year, more than three times what’s seen for emerging markets.

Here is a breakdown of what countries are planning and what investors are saying about Southeast Asia’s infrastructure spending spree:

Philippines

  • The government has allocated about 1 trillion pesos ($20 billion) to infrastructure in the 2018 budget as part of Duterte’s $180 billion infrastructure program over a six-year period to build a network of railroads and highways across the archipelago
  • Tax reform will help fund infrastructure projects; construction and infrastructure-related stocks to outperform in 2018, according to Noel Reyes, who helps manage $1 billion as chief investment officer at Security Bank Corp.
  • Tax reform bill awaiting Congress approval and is among first of five tax packages proposed by Duterte to raise taxes to pay for infrastructure projects
  • Infrastructure program includes 70 projects from railways, airports, roads and bridges, cities, ports to mass transit during Duterte’s six-year term as president
  • Companies involved in construction and infrastructure: Metro Pacific Investments Corp., Megawide Construction Corp., Ayala Corp., EEI Corp.

Indonesia

  • Indonesia’s Finance Minister Sri Mulyani Indrawati has announced more than 240 infrastructure projects
  • Country needs 931 trillion rupiah ($69 billion) from 2015 to 2019 for infrastructure spending; has allocated only 528 trillion rupiah over the period, according to Public Works and Public Housing Ministry
  • Concerns about funding availability and financing risks among Indonesian infrastructure companies have depressed construction stocks this year
  • Shares of PT Waskita Karya, the country’s biggest listed builder, have dropped 27 percent in 2017 even as the Jakarta Composite Index hit a record high in November
  • Biggest construction companies: PT Jasa Marga, PT PP Persero, PT Waskita Beton

Malaysia

  • Malaysia has allocated 210 billion ringgit ($51.6 billion) for projects in the 2018 budget of which 73 percent will go rail and public transport
    • About 55 billion ringgit allocated to East Coast Rail Link, 50 billion-60 billion ringgit given to Kuala Lumpur-Singapore High Speed Rail and 40 billion ringgit to phase 3 of the mass rapid transit system
  • Rail, affordable housing, roads and water infrastructure are major segments that will benefit from government’s spending next year, Sharizan Rosely, an analyst at CIMB wrote in a report dated Oct. 30
  • General election due by August 2018
  • Biggest construction companies: Gamuda Bhd., IJM Corp. Bhd., Sunway Construction Group Bhd., Malaysian Resources Corp. Bhd.

Thailand

  • Government has pledged 1.5 trillion baht ($46 billion) over the next five years to boost growth via infrastructure spending to develop its three eastern provinces as the Eastern Economic Corridor
  • Infrastructure spending to remain key driver for the economy and new development projects such as EEC, said Orsen Karnburisudthi, Bangkok-based senior investment manager at Aberdeen Asset Management Co.
  • EEC envisions to turn the provinces into hubs for technological manufacturing and services with strong connectivity by land, sea and air with help of state and private funding as well as foreign direct investment
  • Elections to be key upside for economic growth and business sentiment, Aberdeen said; Prime Minister Prayuth Chan-Ocha said in October a vote will be held in November 2018
  • Banks to see earnings improve as economic growth boosts loan growth and reduces bad loan provisions, while shopping mall operators and retailers can benefit from consumption recovery, Orsen said
  • Biggest construction players: Italian-Thai Development Pcl, CH. Karnchang Pcl, Unique Engineering & Construction Pcl, Sino-Thai Engineering & Construction Pcl; EEC beneficiaries: Amata Corp. and WHA Corp.

Vietnam

  • Vietnam has allocated 150 trillion dong ($6.6 billion) for infrastructure development in 2016 to 2020 and still needs $480 billion to fund investments by 2020, according to the Ministry of Planning and Investment
  • Key infrastructure projects include a $13 billion, 1,800 kilometer expressway from Ha Noi in the north to Ho Chi Minh city in the south, the nation’s largest ever road project
  • Biggest infrastructure players: Songda Urban, Ho Chi Minh City Infrastructure, Coteccons Construction, Ha Do JSC, Song Da No. 9 JSC

Singapore

  • As the only developed market in Southeast Asia, Singapore is less likely to see government expenditure in infrastructure on the same scale as its neighbors
  • While some key projects for 2018 include a new airport terminal at Changi Airport, mega shipping port and the KL-Singapore high-speed rail, the country’s stock market is more likely to benefit from a recovery in the property sector and overall economy
  • DBS Group Holdings Ltd. sees property prices recovering 3 percent to 5 percent annually over the next two years, buoying small to mid-cap construction-related and real estate stocks such as Chip Eng Seng Corp. and APAC Realty Ltd., analysts including Ling Lee Keng wrote in a note dated Dec. 5
  • Singapore’s economic recovery is also seen broadening out from the manufacturing industry in 2018 to the services sector, which accounts for about two-thirds of gross domestic product

    Read more: https://www.bloomberg.com/news/articles/2017-12-06/move-over-tech-southeast-asian-builders-come-in-focus-in-2018

    Should the Upper Middle Class Take the Biggest Tax Hit?

    Humans learn the concept of fairness at a very young age. After all, it doesn’t take long for a child to start whining about a sibling who gets an extra serving of ice cream. As the Republican-controlled Congress tries to push through tax reform this year, one group of Americans may similarly question why it’s coming up a scoop short.

    The upper middle class gets relatively few benefits and a disproportionate number of tax hikes under the $1.4-trillion Tax Cuts and Jobs Act approved by the U.S. House of Representatives last week. Families earning between $150,000 and $308,000—the 80th to 95th percentile—would still get a tax cut on average. But by 2027, more than a third of those affluent Americans can expect a tax increase, according to the Tax Policy Center.

    If the House bill becomes law, overall benefits for the upper middle class will start out small, and later vanish almost entirely.

    Is this fair? Some argue it’s only right for the upper middle class to carry a heavier burden. This is because the top fifth of the U.S. by income has done pretty well over the past three decades while the wages and wealth of typical workers have stagnated. People in the 81st to 99th percentiles by income have boosted their inflation-adjusted pre-tax cash flow by 65 percent between 1979 and 2013, according to the Congressional Budget Office. That’s more than twice as much as the income rise seen by the middle 60 percent. (The top 1 percent, meanwhile, saw their income rise by 186 percent over the same period, but that’s another story.)

    “Many upper-middle-class families will tell you they do not feel wealthy,” said Brian Riedl, a senior fellow at the Manhattan Institute, a right-leaning think tank. “Their standard of living [is] closer to the middle class than to the top 1 percent.” The income numbers don’t tell the whole story, he explained. The upper middle class is weighed down by high costs: Affluent workers live in expensive areas, pay a lot for real estate and daycare, and are taxed far more than Americans further down the ladder.

    Richard Reeves, a senior fellow at the left-leaning Brookings Institution, isn’t buying that argument. He’s the author of “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It.”

    “There’s a culture of entitlement at the top of U.S. society,” Reeves said. While others focus on rising wealth of the top 1 percent, Reeves argues that the gap is widening between the top 20 percent and everyone else. The upper middle class is guilty of “hoarding” its privileges, using its power to skew the job market, educational institutions, real estate markets, and tax policy for its own benefit, he contends.

    “The American upper middle class know how to take care of themselves,” Reeves said during a presentation at the City University of New York last week. “They know how to organize. They’re numerous enough to be a serious voting bloc, and they run everything.”

    So by his measure, the tax legislation’s disproportionate hit to the upper middle class is indeed fair.

    A family earning $240,000 a year is bringing in four times the U.S. median household income of $59,000, according to the U.S. Census Bureau. All that money, along with the upper middle class’s political power, buys some huge advantages, Reeves said. For example, affluent parents compete for access to the best schools, bidding up home values in the best school districts. Then, they use zoning rules to prevent new construction, keep property values high, and prevent lower-income Americans from moving in. In the process, children of this demographic end up at the most prestigious universities, nab the best internships and jobs, and ultimately join their parents at the top of U.S. society. 

    The very existence of the House tax bill rebuts Reeves’s argument that the upper middle class is in a position to manipulate Washington. (The Senate is considering its own tax legislation, which differs from the House bill in several ways.) Compared with middle class Americans, the upper middle class is less likely to see marginal tax rates fall under the House legislation. The bill also limits or scraps entirely some of the group’s favorite tax breaks, especially deductions for state-and-local taxes, and medical expenses, and tax breaks for education.

    If you’re part of the upper middle class and concede you should be paying more, don’t count on wealthier groups making the same sacrifice—at least under the House bill. 

    While a repeal of the alternative-minimum tax helps some people with incomes below $300,000, it’s more likely to benefit those on the higher wealth rungs. The very rich, including President Donald Trump, who has been pressing for a legislative victory before the end of his first year in office, would benefit from a repeal of the estate tax, lower corporate tax rates and a lower “pass-through” rate on business income. The House bill explicitly tries to limit the pass-through benefit for doctors, lawyers, accountants, and other high-earning professionals—traditional denizens of the upper middle class. 

    This all may seem terribly unfair to members of the upper middle class, but there are some provisions they can take solace in. The bill leaves untouched some sweet tax breaks that predominately benefit people with lower six-figure salaries, such as 529 college savings plans and 401(k)s and other retirement perks. The CBO calculates that two-thirds of the government’s costs for retirement tax breaks go to the top 20 percent.

    But beyond these few exceptions, much of the upper middle class will still take it on the chin.

    And maybe they should. Higher taxes on the upper middle class make sense to some liberal tax experts—but only if the proceeds are used the right way, they said, for things like better health care, more affordable college, and rebuilding infrastructure. Under the House bill, though, any new tax revenue is used to offset tax cuts—much of which will benefit the super wealthy and corporations, especially over time.

    “There would be a lot of people in the country who would be willing to chip in for those goals,” said Carl Davis, research director of the left-leaning Institute on Taxation and Economic Policy. In the House plan, however, the upper middle class is “going to pay more for a bill that’s going to grow the national debt, and provide the lion’s share of the benefits to corporations and their shareholders.”

    Riedl, who has advised Republican candidates, argues the upper middle class should get a more generous tax cut under GOP tax reform. “It’s hard to argue the upper middle class is not currently paying its fair share,” he said. Reeves said the U.S. should ultimately tax the upper middle class more—but “the top 5 percent more still.”

    Looking at Republican tax plans, Reeves said, “it’s like they only read half my book.”

      Read more: http://www.bloomberg.com/news/articles/2017-11-20/should-the-upper-middle-class-take-the-biggest-tax-hit

      Tax Plan Has Lobbyists Swarming, Lawmakers Asking Whats in It?

      Republicans are barreling into a lobbying frenzy next week, when House Ways and Means Chairman Kevin Brady plans to unveil a sweeping tax bill to remake the U.S. economy that’s being crafted with rigorous secrecy.

      The stage was set with the House’s adoption Thursday of a budget resolution designed to speed the course of tax legislation and kick off a three-week sprint toward a House bill. Now, lobbyists representing every corner of the economy are poised to first devour, then attack what may be hundreds of pages of legislation that Brady says he’ll release Nov. 1.

      Special interests from realtors to dairy farmers will be trying to save their industry-specific tax breaks, said Tim Phillips, president of Americans for Prosperity. His group, which is backed by billionaire industrialists Charles and David Koch, supports ending such breaks.

      “It’s pretty fierce,” Phillips said. “We met with Brady on Tuesday and he was saying their offices are swamped with all the special interest groups swarming in asking to be protected.”

      President Donald Trump has promised that middle-class Americans will be the biggest beneficiaries of the tax overhaul. But it remains to be seen which groups will lose their advantages — a necessary step to help pay for cutting tax rates. Even Republican members of Brady’s committee say they don’t know whether any decisions have been made.

      “The problem is that Ways and Means has somewhat been kept out of the loop with details,” Representative Jim Renacci of Ohio, a member of the House tax-writing panel, said in an interview. “There are still a lot of hurdles to get it done.”

      The bill is supposed to be released in just five days.

      “Chairman Brady and Ways and Means members are meeting regularly to discuss specific pro-growth tax reform policies that will deliver more jobs, fairer taxes and bigger paychecks,” said Emily Schillinger, a Ways and Means spokeswoman. “They will meet again on Monday and Tuesday in the lead up to the bill introduction. Committee members have also met extensively and regularly with members throughout the House Republican Conference about how tax reform will directly improve the lives of their constituents.”

      ‘80 Percent Plus’

      Leaving such details under wraps has become “almost a double-edged sword,” said lobbyist Will Hollier, whose clients include Microsoft Corp. and Visa Inc. The secrecy has allowed for some efficiency, but it’s also prevented GOP leaders from winning broad support for the legislation in their own conference so far, he said.

      A key test will be how House leaders deal with the state and local tax deduction, the first flash point in the debate. Trump and congressional leaders have proposed abolishing that break, which benefits high-tax states that tend to vote Democratic. But several Republican House members from such states want to preserve the break in some form.

      “Can you get people to put their party loyalty above home-grown constituents’ concerns?” said Hollier, a former chief of staff and legislative director for Senator Mike Crapo, an Idaho Republican. “How they deal with that will show that people can be broken.”

      Some conservatives wonder if the secrecy does more harm than good. “I think it’s important that members feel like they have ownership of big, majority-defining packages like this,” said Ryan Ellis, a tax lobbyist who formerly worked with anti-tax activist Grover Norquist. “They really didn’t on health care.”

      The tax framework that the White House and GOP leaders released on Sept. 27 calls for tax rate cuts for individuals and corporations, and is estimated to raise the deficit by $2.4 trillion. Republicans need to get that number down to $1.5 trillion under their budget parameters — a difficult balancing act as they’ve promised a more generous Child Tax Credit and bigger tax breaks for middle-income families.

      “I don’t think that people realize that 80 percent plus of this effort is eliminating things in the code,” said Senator Bob Corker of Tennessee, who has called for a tax bill that won’t add to the federal deficit after taking into account reasonable economic growth expectations.

      “I mean, over the next two weeks, especially when the Senate tax-writing committee puts their stuff out, they’re going to realize that this the biggest tax code rewrite since 1986 and it’s going to affect everyone,” he said.

      ‘Totally Undecided’

      One of the ways to make up the revenue gap is by limiting the deductions corporations take on the interest they pay on their loans — a major consideration for industries such as private equity and real estate. A prior House Republican proposal called for completely eliminating the corporate break, which could have raised more than $1 trillion over a decade.

      “They’re totally undecided,” about how to restrict corporate interest deductions, said Marc Gerson, the chair of law firm Miller & Chevalier. Gerson said proposals include setting limits based on a company’s earnings before interest, tax, depreciation and amortization, or Ebitda, a key measure of profitability. Existing debt might be grandfathered in, he said.

      Another piece of the framework is aimed at preventing U.S. companies from shifting their earnings to offshore tax havens — by imposing a minimum foreign tax. The idea — described briefly and obliquely in the framework language — was called “appalling” several weeks ago by Ken Kies, a lobbyist whose clients include Microsoft and General Electric Co. The rate and formula for such a tax haven’t been specified, but the proposal carries multibillion-dollar implications for multinationals.

      On the individual side, the treatment of state and local deductions remains in question. At least 12 Republicans from high-tax states, whose constituents stand to lose if the tax break is repealed, voted no on the House budget Thursday. The most vocal among them have demanded a compromise on the issue.

      Brady said Thursday he hadn’t made a decision on what to do about SALT after meeting with Republicans who are worried that ending the tax break would slam middle-class families in their states — although he said he’s confident he can accommodate their concerns.

      ‘Minority Express Lane’

      “The bottom line is the ball is in their court, and they know it,” said Representative John Katko, a New York Republican who’s a top target of Democrats in the 2018 election. “They didn’t get specific in this” meeting, he said, but gave “a lot of assurances.”

      Democrats, meanwhile, are also waiting to pounce. Brady has so far resisted pressure to embrace Trump’s call for making no changes to the tax-protected status of 401(k) retirement plans. Five Democratic senators — Debbie Stabenow of Michigan; Sherrod Brown of Ohio; Ron Wyden of Oregon; Ben Cardin of Maryland; and Bob Casey of Pennsylvania — on Thursday signed a letter warning Republicans against “reducing the opportunities that millions of Americans have to save for their retirement.”

      The tax battles will take place amid a mad dash to complete a tax overhaul by the end of the year. House and Senate leaders hope to pass bills through their chambers by Thanksgiving, said Speaker Paul Ryan and Senate Majority Whip John Cornyn. The different bills would then have to be reconciled.

      It took about 10 months from when a tax bill was introduced until it was signed by President Ronald Reagan in 1986 — the last time the U.S. tax code was revamped.

      There are, of course, other issues on the congressional agenda. Congress must fund the government to avoid a shutdown by Dec. 8. That could turn ugly as the White House has signaled it’ll demand funding for a border wall, and Democrats say they want a solution to protect young undocumented immigrants. Congress also faces impending business to shore up health-care markets, extend flood insurance and revisit the Iran nuclear deal — all of which could soak up valuable time.

      Nonetheless, there may be some common ground among members of Congress — a shared interest that could surpass the special interests.

      The Republican determination to complete a tax overhaul by the end of the year is driven in part by “the very real and justified fear that the majorities hang in the balance and that failure on tax puts you in the express lane to the minority,” said Rohit Kumar, a former deputy chief of staff to Senate Majority Leader Mitch McConnell who now oversees tax policy for PricewaterhouseCoopers.

        Read more: http://www.bloomberg.com/news/articles/2017-10-27/tax-plan-has-lobbyists-swarming-lawmakers-asking-what-s-in-it

        Banks Pine for Loan Growth as Clients Wait on Trumps Promises

        President Donald Trump’s pledges to overhaul taxes, trade, infrastructure and health care may thrill some corporate leaders, but it’s causing many to delay expansions. That’s bad for banks.

        Lending growth probably decelerated for a fourth straight quarter in the three months ended Sept. 30 across more than a dozen of the biggest U.S. banks, according to Royal Bank of Canada analysts and Bloomberg calculations. Their total loans may have ticked up just 1.8 percent, the smallest increase in more than two years, as commercial and industrial customers held off on buying equipment and building plants.

        Executives are “hesitant to borrow in the face of uncertainty,” said Jason Goldberg, an analyst at Barclays Plc. “Whether it’s potential tax reform, health-care uncertainties, or they’re unclear what infrastructure spending is going to look like, you’ve definitely seen corporates take a pause.”

        Washington’s inaction has been frustrating bankers for months, a sentiment that may surface anew when they start posting quarterly results this week. During the last round in July, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon lashed out, saying, “There would be much stronger growth if there were more intelligent decisions and less gridlock.” In June, Bank of America Corp. Chief Operating Officer Thomas Montag said corporate clients need clarity to make big investment decisions.

        Trump and his top economic adviser, Gary Cohn, have said they expect the financial industry to help fund growth. But instead, a dearth of progress on big legislation has stymied that business.

        Congressional Republicans spent much of September trying to resurrect a failed health-care bill. Then Trump told lawmakers his $1 trillion infrastructure plan may not rely on public-private partnerships, potentially throwing a wrench into a key priority. The president also released a tax plan that many analysts consider unlikely to win support until designers can prove it won’t balloon the federal deficit.

        For banks, the uncertainties are compounding challenges in lending, which also is being constrained by tighter regulation and slower-than-expected interest-rate hikes — factors that have crimped trading revenue too. Low yields have encouraged firms to issue bonds and use the proceeds to repay bank loans, said Alison Williams, an analyst at Bloomberg Intelligence. U.S. Bancorp CEO Andrew Cecere addressed the challenges at an investor conference last month.

        “With the low yield curve, there was a lot of debt issuance, and that debt issuance was used to pay down some bank lending,” he said. In addition, “there was some more uncertainty that entered the market because of some of the slowdown in the perceived timing of tax policy and trade policy and regulation,” slowing companies’ capital expenditures.

        ‘Mental Signal’

        Corporate executives’ outlook for the next six to 12 months deteriorated in July and August, with some respondents citing heightened policy uncertainty, the Federal Reserve Bank of Chicago said last month. The number of workers on U.S. payrolls declined in September for the first time since 2010, reflecting major disruptions from hurricanes Harvey and Irma.

        For now, bank investors are willing to look beyond that. The 24-company KBW Bank Index surged more than 30 percent from the November election to early March on optimism that Trump’s administration will eventually ease bank regulation, reignite inflation and drive up interest rates. The rally resumed in September as attention shifted to taxes.

        “People were underweight financials for a long time,” said Chris Whalen, an independent analyst and consultant. “When Trump got elected that was a mental signal for these guys that we should increase our allocation.”

        Investors continue to see reasons for optimism. Trump’s plan to cut corporate tax rates would be particularly beneficial for banks, whose burdens are often elevated by a lack of deductions. The six largest U.S. banks could see net income rise $6.4 billion under the administration’s proposal. And lenders still produce big profits. JPMorgan generated $26.5 billion in the 12 months through June, a record for any U.S. bank.

        Mortgage, Autos

        Yet expectations for the third quarter are measured. JPMorgan, the nation’s largest bank, may say Oct. 12 that adjusted profit rose 2 percent to $5.89 billion, according to analysts surveyed by Bloomberg. At Citigroup Inc., set to report the same day, profit probably slipped 1 percent to $3.57 billion.

        Wells Fargo & Co. and Bank of America report the following day and Goldman Sachs Group Inc. and Morgan Stanley release earnings next week.

        There are other reasons for concern. While consumers are still borrowing more, there’s mounting evidence they’re becoming less reliable, potentially ending a period in which losses were low. Credit cards face heightened competition, while an overheated auto market has led some lenders like Wells Fargo to pull back.

        And for mortgage lending, a big driver for banks in the run-up to the 2008 financial crisis, new rules have made it more difficult to make money. Survivors have been buying loans from smaller “correspondent” lenders, a strategy that’s started to run out of room.

        “You will see some pain this quarter,” Whalen said. “JPMorgan and Wells Fargo have been bidding aggressively.”

        Trading Declines

        Trading also is expected to be down, in part because the lack of congressional action has left clients with few reasons to buy or sell. Executives from JPMorgan, Citigroup and Bank of America told investors last month to expect declines ranging from 15 percent to 20 percent in the third quarter from the same period a year ago.

        That may leave investors and analysts looking past this quarter’s results to the end of the year, when lawmakers may have more progress to show on tax policy and other priorities.

        “Banks tend to be more optimistic looking out than they are in the current quarter, so we’ll see,” Barclays’s Goldberg said. “Pipelines are good. At the end of the day though, loan growth is a reflection of the economy and economic growth has been a little bit more subdued than desired.”

          Read more: https://www.bloomberg.com/news/articles/2017-10-09/banks-pine-for-loan-growth-as-clients-wait-on-trump-s-promises

          McCain Urges Bipartisan Tax Effort, Echoing Health Demands

          Senator John McCain of Arizona is laying down the same marker on tax legislation as he did on health care, demanding regular order and support from both parties — a stance that has proved pivotal in thwarting Senate Republican efforts to undo Obamacare.

          “We need to do it in a bipartisan fashion,” McCain said Tuesday of planned tax legislation, arguing that the major congressional reforms that have stood the test of time since the 20th century have included buy-in from both parties. “I am committed, as I’ve said before, to a bipartisan approach, such as we’ve been doing in the Armed Services Committee for the last 53 years,” he told reporters in the Capitol.

          McCain cast the decisive vote in July to defeat the GOP’s so-called “skinny repeal” of Obamacare, complaining about the rushed process and lack of bipartisanship. His opposition to the Senate’s latest repeal effort, a bill written by Senators Lindsey Graham and Bill Cassidy, led to its demise this week.

          McCain’s tax demands cut against GOP leaders’ plans to use the same fast-track procedure on taxes as they tried to use on health care. That procedure requires 50 Senate votes and allows for bypassing a potential Democratic filibuster. Because the GOP controls only 52 votes in the Senate, every vote is crucial to their agenda. Senate Majority Leader Mitch McConnell has said he doesn’t expect Democratic support for a tax overhaul, as Democrats disagree with many of the GOP’s proposals to rewrite the tax code.

          “Where we go from here is tax reform,” McConnell told reporters Tuesday. “We plan to move forward on our next priority.”

          Third-ranking Republican Senator John Thune told reporters that any tax bill would need at least 50 votes for passage, which he said likely means that McCain “would have to be satisfied with his process concerns.”

          “There’s certainly comfort in margins. And we don’t have margins for error,” Thune, a South Dakota Republican, said. “Each individual senator is very empowered.”

          ‘Head in a Bag’

          President Donald Trump hosted Republican and Democratic members of the tax-writing House Ways and Means Committee at the White House Tuesday, a day before the expected roll out of the administration and GOP congressional leaders’ tax framework. Trump expressed optimism about his coming tax push, promising to “cut taxes tremendously for the middle class.”

          Before the meeting, Trump said it was “time for both parties to come together” on taxes. But Democrats weren’t impressed, complaining after the meeting that the plan was being written by GOP leaders without their input.

          “Trump asked for Democrats to jump on the caboose after the tax train has already left the station,” said Representative Lloyd Doggett of Texas, the top Democrat on a tax-policy subcommittee. “I saw no Democrat ready to jump on board.”

          Some Republicans believe failure on taxes is not an option.

          “Senator McCain has his reasons for saying that. He’s entitled to them. All I can tell you is that this economy is not going to get better until we do tax reform,” Senator John Kennedy of Louisiana said in an interview.

          Asked what would happen if Congress fails on taxes like they did on health care, Kennedy responded: “I may go home and put a bag over my head. And hide my head in a bag.”

            Read more: http://www.bloomberg.com/news/articles/2017-09-26/mccain-calls-for-bipartisan-tax-effort-just-like-on-health-care

            The GOP Tax Plan Is Already Hitting Speed Bumps

            The White House is showing "softness" on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s "intestinal fortitude" and could imperil a tax overhaul.

            The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts.

            Bob Corker

            Photographer: Zach Gibson/Bloomberg

            Corker, who insists he won’t vote for a tax bill that adds a penny to the deficit, said in an interview that he’s concerned about the early signals from the White House. On Friday — two days after the tax framework was rolled out — National Economic Council Director Gary Cohn said that ending the state and local tax break was negotiable.

            “That’s the easiest one,” said Corker, a Tennessee Republican. “Some of the others are actually more offensive and produce lesser amounts of money.” 

            The budget rules that Senate leaders plan to use to pass the legislation require that any changes that boost the federal deficit would have to expire in time. But the nine-page framework released Wednesday provided few details on revenue raisers. It calls for eliminating deductions, but doesn’t specify them. By showing its willingness to negotiate on one such deduction, the White House appears to be charting a rocky path.

            “As a general matter in tax reform you have to acknowledge that you cannot negotiate with everybody’s single pay-for,” said Doug Holtz-Eakin, who runs the American Action Forum, a conservative group that’s working with GOP leaders on taxes. “If you do that for everything, you don’t get tax reform.”

            ‘New Deficits’

            Ending the state and local deduction, which Trump’s aides proposed in April, faces resistance from Republican lawmakers in high-tax states like New York and New Jersey.

            The same day Cohn commented on the state tax break, tax-writing chiefs Senator Orrin Hatch and Representative Kevin Brady dismissed a study that found ending personal exemptions, another one of the few offsets set forth, could raise taxes for some middle-class families. Their response: The committees haven’t made decisions about which tax breaks to end.

            Asked if the state tax break and personal exemptions were negotiable, Brady reiterated Monday the bill is a work-in-progress. "We’re continuing to work on the final design of the tax reform plan that we’ll have ready after the budget is completed,” he said.

            White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further on Fox News Sunday, by adding that a tax plan that doesn’t add to the deficit won’t spur growth.

            “I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.”

            GOP leaders have been laying the groundwork to get tax legislation through the Senate without Democratic support. They need 50 votes to pass a bill, and hold 52 seats, leaving little margin for error.

            $2 Trillion Cost

            Republican leaders have insisted they want a permanent overhaul, similar to the scope of the changes enacted under President Ronald Reagan in 1986. “I want it to be the right kind of bill,” Hatch said. Asked what his biggest challenge would be in getting a tax bill across the finish line, the Utah Republican quipped, “fellow senators.”

            In line with the White House, a growing number of GOP members, such as Senator Rand Paul of Kentucky and Representative Jim Jordan of Ohio, have said they prefer tax cuts that would stimulate growth, even if they add to the deficit.

            Corker has said he’d consider the budget effect of economic growth that results from tax cuts as long as it’s based on reasonable modeling. Senator Mike Crapo, an Idaho Republican, told reporters Tuesday that he also wants a tax plan to be deficit neutral when it’s evaluated using a reasonable dynamic score. Unlike Corker, Crapo didn’t pledge to vote against a tax bill that would add to the deficit when it’s dynamically scored.

            “This is going to make health care look like a simple thing to do,” Corker said, referring to a tax bill. The GOP has faced a months-long, wrenching fight to repeal the 2010 Affordable Care Act, which ultimately failed on the Senate floor.

            “This bill when it comes out of the House and Senate will increase the deficit,” said Steve Bell, a former Senate Republican staff director. “That’s going to be a stumbling block for some people.”

            Eliminating state and local deductions along with personal exemptions would generate about $2.9 trillion in revenue over a decade, according to an analysis by the Urban-Brookings Tax Policy Center. Even with those offsets, the framework is more than $2 trillion in the red, according to estimates by the TPC and Committee For a Responsible Federal Budget.

            Separate Bills

            Despite the unified framework that enjoyed broadly positive reviews from within the party last week, the House and Senate are still likely to pass separate tax bills, according to Senator Pat Toomey, a Pennsylvania Republican. Then, they’ll have to be merged into one bill in a conference committee that can pass both chambers.

            Congress has a Dec. 8 deadline to keep the government funded, which threatens to distract from the tax debate. With just 35 legislative working days left this year, some congressional Republican aides privately have said the issue could get pushed into 2018, an election year.

            Trying to reconcile two bills could highlight the different agendas in each chamber. One example: House GOP leaders have pushed to allow companies to immediately write off their capital expenditures while eliminating the deductions they take when they pay interest on loans. Hatch has backed a corporate integration plan to revamp the business taxation system that would incentivize companies to pay dividends to investors.

            The tax-writing committees in the two chambers may also disagree over whether to tax top earners at a rate above 35 percent — as they’ve been given the power to do under the framework — or how to follow through on the promise to provide the middle class with a tax cut.

            Senator John Thune of South Dakota said Republicans are committed to maintaining a progressive tax code and the tax-writing panels will have to “ensure the people on the high end, as the president has said, aren’t getting a big tax cut.”

            That won’t be easy. The framework includes tax breaks for some top earners by creating a new rate of 25 percent for pass-through businesses — down from 39.6 percent. It also repeals the Alternative Minimum Tax and estate tax, which hit high earners and the wealthy, respectively. The Tax Policy Center’s analysis last week found that about half the plan’s tax breaks would go to the highest earners. GOP lawmakers said the study was flawed because it presumed details that they haven’t yet decided to include in legislation.

            ‘Army of Lobbyists’

            Paul, a Kentucky libertarian who’s never an easy vote to win over, has been critical of the tax plan. He posted a message on Twitter Monday saying: “This is a GOP tax plan? Possibly 30% of middle class gets a tax hike? I hope the final details are better than this.”

            Thune said there have been discussions about having a “top-end surcharge” of more than 35 percent on the highest incomes to mitigate the high-end tax break. Hatch cast doubt on the prospect, saying he prefers to limit it to three brackets, but hinted that political pressure could motivate the White House to add a fourth one.

            “If they get beaten up enough, they might want to,” Hatch said.

            Across Washington, lobbyists of all stripes have been waiting for months to see tax details and keeping their powder dry until full details are revealed — suggesting that ready-made opposition awaits actual tax legislation.

            The real estate industry opposes doubling the standard deduction, arguing that it would lead to fewer people itemizing deductions and therefore diminish the value of the mortgage interest deduction. Charities also oppose it, saying it lessens the use of the deduction for charitable giving. They’re also concerned about the prospect of ending the estate tax, which they argue drives millions of dollars in charitable contributions.

            Corker warned that raising trillions of dollars to pay for the individual and business tax cuts will require making “very tough decisions” that’ll be made tougher “when the army of lobbyists roll in here” to protect their treasured carve-outs.

              Read more: http://www.bloomberg.com/news/articles/2017-10-03/white-house-accused-of-softness-as-tax-plan-hits-early-bumps