“China Sends Vice Ministers to Washington to Pave Way for U.S. Talks.”  This morning’s Bloomberg report leads with:

A Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He, according to people briefed on the matter.

Vice Commerce Minister Wang Shouwen and Vice Finance Minister Liao Min will arrive in the U.S. on Jan 28, according to two of the people, who asked not to be named as the discussions aren’t public. China’s central bank governor Yi Gang will join the talks, one of the people said. It wasn’t immediately clear which other officials will attend.

The U.S. has billed the Liu talks as “very, very important” while playing down the chances of a breakthrough. Liu will meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin from Jan. 30 to 31, with about five weeks remaining until a deadline for the U.S. to escalate tariffs on $200 billion of Chinese goods.

The two sides do not appear close to agreement on a wide range of disputes, from China’s handling of intellectual property to the imbalance in goods flows between the two nations. China’s commerce, finance and foreign affairs ministries, as well as the central bank, didn’t immediately respond to faxed requests for comment on the trip.

While no signs of a deal are evident yet, I sense both sides want to announce a phased reduction in trade tensions by the March 2 deadline for additional tariffs.

“Kudlow Signals White House Seeks Like-Minded Fed Nominees.”  Last night’s Wall Street Journal article led with:

WASHINGTON—A top White House economic adviser said Thursday President Trump will seek to fill two Federal Reserve Board vacancies with nominees who don’t believe a rapidly expanding economy has to fuel faster inflation.

“The White House wants highly capable, competent people who understand that you can have strong economic growth without higher inflation,” White House National Economic Council head Lawrence Kudlow told reporters.

He said surges in the economy’s productive capacity mean that more people can work at higher wages without causing inflation to pick up.

President Trump’s schedule (EST):

12:00 PM:  Daily intelligence briefing;

12:30 PM:  Lunch with Secretary of State Pompeo;

1:45 PM:  Discusses economic growth with the nation’s mayors; and

2:45 PM:  Roundtable with Hispanic pastors.

Democrats will roll out their border security plan at 9:15 AM today.  Look for over $5.7 b. for enhanced border security without The Wall.

“Senators negotiate in hopes of ending shutdown as dueling plans fail.”  Last night’s Washington Post article led with:

Senators on Thursday embarked on fresh behind-the-scenes negotiations to end the longest-

ever government shutdown, and House Democrats struggled to finalize a new border security plan, after the failure of two competing Senate bills forced renewed efforts to find some other way out.

It was unclear, though, whether any of the activity would yield a solution, as the fundamental dynamics that produced the shutdown remained unchanged: President Trump’s demand for new funding for his U.S.-Mexico border wall, and Democrats’ refusal to give it to him.

A plan newly floated by a bipartisan group of senators to reopen the government for three weeks while negotiating over border security seemed to collapse almost as soon as it emerged, with the White House insisting Trump would accept such a proposal only if it included a “down payment” on his wall — and House Speaker Nancy Pelosi (D-Calif.) calling that a non-starter.

And the plan House Democrats are working to roll out, while expected to match or exceed the $5.7 billion Trump has put forward for his wall, will specifically exclude funding for it, instead directing the money toward technological improvements and other changes along the border — probably making it unacceptable to the president.

Speaking at the White House after the Senate blocked his proposed border solution and a competing Democratic plan, the president said that if Majority Leader Mitch McConnell (R-Ky.) and Minority Leader Charles E. Schumer (D-N.Y.) could come up with a “reasonable agreement,” he would support it.

Asked if he could support a plan that didn’t include wall funding, Trump said: “I have other alternatives if I have to . . . we have to have a wall in this situation.” Trump has suggested declaring a national emergency to circumvent Congress and use the military to build the wall, a possibility that remains on the table if the impasse continues.

Although every move so far to end the shutdown has crashed on takeoff, I sense a growing urgency in Congress to end the shutdown.  I’m guessing next week once Congress finds a way for President Trump to claim victory.

Shutdown ending bills failed to get 60 votes yesterday.  At 2:42 PM yesterday, the Senate failed to invoke cloture on the President’s plan, 50-47, and, at 3:18 PM, the Democrat’s plan fell short as well, 52-44, with 46 Democrats joined by 6 Republicans, Senators Alexander (R-TN), Collins (R-ME), Gardner (R-CO), Isakson (R-GA), Murkowski (R-AK), and Romney (R-UT).

“A (Very Small) PAYGO Sequester is Scheduled To Happen.”  Yesterday’s Committee for a Responsible Federal Budget blog led with:

Small automatic cuts may be coming soon because Congress added to deficits last year. An $800 million (0.1 percent cut) was supposed to go into effect today, but the Office of Management and Budget (OMB) has said that it will delay releasing any sequestration report until after the shutdown ends. It isn’t clear when the sequester will actually go into effect (if at all).

“The Government Shutdown Could Wipe Out Recent Stimulus Effects on This Quarter.”  Yesterday’s Committee for a Responsible Federal Budget blog stated:

Chairman of the Council of Economic Advisers Kevin Hassett recently said the shutdown reduces quarterly annualized economic growth by 0.13 percentage points for every week that it lasts. After more than four weeks, that’s the equivalent of a 0.6 percent reduction in the annualized growth rate (roughly 0.2 percent in Q4 of 2018 and 0.4 percent in Q1 in 2019).

This means that the shutdown has roughly offset a quarter’s worth of estimated economic gains from two major pieces of recent legislation: the 2017 tax law and the 2018 budget deal.

“Elizabeth Warren to propose new ‘wealth tax’ on very rich Americans, economist says.”  Yesterday’s Washington Post article led with:

Sen. Elizabeth Warren (D-Mass.) will propose a new annual “wealth tax” on Americans with more than $50 million in assets, according to an economist advising her on the plan, as Democratic leaders vie for increasingly aggressive solutions to the nation’s soaring wealth inequality.

Emmanuel Saez and Gabriel Zucman, two left-leaning economists at the University of California, Berkeley, have been advising Warren on a proposal to levy a 2 percent wealth tax on Americans with assets above $50 million, as well as a 3 percent wealth tax on those who have more than $1 billion, according to Saez.

The wealth tax would raise $2.75 trillion over a ten-year period from about 75,000 families, or less than 0.1 percent of U.S. households, Saez said.

Warren’s campaign declined to comment on details of the plan.

In my opinion, even if Senator Warren was elected president in 2020 with large Democratic majorities in Congress, this plan still wouldn’t become law.  The history of the capital gains tax is instructive.  Ever since 1921, capital gains have enjoyed preferential tax rates, and efforts to raise were invariably followed by larger cuts as shown in this Wikipedia article.  Many methods have been developed to avoid the capital gains tax, and many would be developed to avoid a wealth tax.

“More Evidence of The Need for Structural Reform in Medicare Part D.”  This morning’s American Action Forum analysis stated:

• A Wall Street Journal report details how private insurers that offer plans through Medicare Part D are leveraging the program’s structure to contain their losses and increase their profits, resulting in $9.1 billion in extra subsidies.
• Medicare Part D’s costs are rising for a number of reasons, primarily as a result of an increase in spending in the “catastrophic” phase of the insurance plans—the area of the program that insurers are using to contain their losses.
• The existing evidence on the program’s rising costs and misaligned incentives, including the Journal’s report, demonstrates the importance of restructuring the program to realign incentives for all stakeholders. One such proposal is detailed here.

CBO: “Projected Costs of U.S. Nuclear Forces, 2019 to 2028.”  Yesterday’s 12-page Congressional Budget Office report stated:

The Congressional Budget Office is required by law to project the 10-year costs of nuclear forces every two years.  This report contains CBO’s projections for the period from 2019 to 2028.

• If carried out, the plans for nuclear forces delineated in the Department of Defense’s (DoD’s) and the Department of Energy’s (DOE’s)  fiscal year 2019 budget requests would cost a total of $494 billion over the 2019–2028 period, for an average of just under $50 billion a year, CBO estimates.

•  The current 10-year total is 23 percent higher than CBO’s 2017 estimate of the 10-year costs of nuclear forces, $400 billion over the 2017–2026 period.

• About $51 billion (or 55 percent) of the $94 billion increase in that total arises because the 10-year period covered by the current estimate begins and ends two years later than the period covered by the 2017 estimate.  Thus, the period now includes two later (and more expensive) years of development in nuclear modernization programs. also, costs in those two later years reflect 10 years of economywide inflation relative to the two years that drop out of the previous 10-year projection; that factor (in the absence of any changes to programs) accounts for about one-fourth of the $51 billion increase.

• About $37 billion (or 39 percent) of the $94 billion increase is projected to occur from 2019 to 2026—the eight years included in both this estimate and the 2017 estimate.  at increase stems mainly from new modernization programs and weapons and more concrete plans for nuclear command-and-control systems.

CBO: “Marginal Federal Tax rates on Labor Income: 1962 to 2028.”  Yesterday’s 42-page Congressional Budget Office report stated:

This report contains CBO’s projections of marginal federal tax rates on labor income from 2018 through 2028 based on current law. So that current trends can be understood in a longer-term context, the projections are accompanied by historical rates that reach back to 1962 (the first year for which information is sufficient for calculating such rates).  The agency has examined marginal tax rates using a two-pronged approach. First, using a simulation approach for a representative sample of workers, CBO estimates the economywide marginal tax rate under both the individual income and payroll tax systems and the distribution of marginal tax rates under the individual income tax system across the population. Second, the  report shows how marginal tax rates under both the individual income and payroll tax systems for several different types of hypothetical families have evolved over time.

At the broadest level, that approach has yielded these conclusions:

• For payroll taxes, the economywide marginal rate on labor income grew rapidly between the early 1960s and the early 1980s and has remained fairly stable thereafter.

• For individual income taxes, that rate has fluctuated greatly over the past five decades.

• Marginal tax rates vary widely among families.  The rates generally increase with earnings but, because of various features of the tax code, can differ significantly for families with similar earnings.