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Letter from Washington

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President Trump’s schedule (EDT):

  1:45 PM:  Meets with NATO Secretary General Jens Stoltenberg; and

  7:00 PM:  Attends the National Republican Congressional Committee Annual Spring Dinner at the National Building Museum in D.C.

“A Digital Tax, One More Time.” Politico reports the EU wants the G-20 finance ministers to declare a global system for taxing technology giants is their “highest priority.” The finance ministers and central bankers will meet in Washington next week.  The EU itself failed last year to reach consensus on the issue though several member states, including France, say they will go their own way to impose a tax. 

“Trump’s plan to bypass Congress on trade with Japan.”  This morning’ Politico op-ed by former Assistant USTR Bruce Hirsh leads with:

The Japanese space agency recently landed a spacecraft on a miniscule asteroid traveling nearly 14,000 miles per hour relative to Earth. Many observers have concluded that it will take a similar feat to land the U.S.-Japan trade agreement negotiations expected to kick off in the next several weeks. Congress and the private sector have been pushing for a traditional, comprehensive agreement covering all trade topics. Skeptics note that such a comprehensive agreement would involve tough issues like currency manipulation that could make for a drawn-out and difficult landing, and any such deal would need congressional approval to take effect.

But what if the Trump administration has in mind a staged approach that would avoid the need for congressional approval in the first stage? There are growing signs that the administration might be considering this approach as a way to address its most pressing political need—assuaging President Donald Trump’s agricultural base, which has been buffeted by retaliation for Trump’s metals and China tariffs and by lost opportunities due to his withdrawal from the Trans Pacific Partnership.

While it may prove tempting for the administration to harvest short-term political gains from a narrow trade deal with Japan centered on agriculture, I believe there could be significant costs to U.S. interests and the global trading system long term. That’s because a narrow, first-stage agreement is likely to rely on relief from the threat of unilateral U.S. tariffs as the principal driver of a deal, which could spur protectionist moves by trading partners and further destabilize a global trading system already tottering under the effects of Trump’s trade policies.

The administration has been signaling since last July that it might take this approach, when it first broached the idea of a two-stage approach to negotiating a trade agreement in the context of talks with the European Union. The U.S. announcement last September of negotiations with Japan likewise referred to seeking an agreement that can produce “early achievements” on goods and other key areas, to be followed by talks on additional matters. Both an initial notification to Congress on the Japan talks and a subsequent notification of objectives for the talks also referred to the possibility of a two-stage approach.

“Internet Lending Takes Bite Out of Traditional Bank Business.”  This morning’s CQ Roll Call article leads with:

The boom in internet lending is taking a toll on traditional commercial banks, especially smaller ones, suggesting that they’re going to have to find ways to adjust to the changes wrought by financial technology.

New academic research says more than a quarter of the “peer-to-peer” dollars loaned over the internet today would’ve traditionally been handled by small commercial banks before the advent of online lenders. That works out to an average decrease of nearly $30 in personal loans per small bank for every $10,000 loaned on the platform.

The figures come from a paper presented at Federal Reserve Bank of New York’s fintech conference in March, which found 27 percent of peer-to-peer lending dollars displaced traditional bank lending.

But there’s plenty of evidence that online lenders also help small banks, or at least have the potential to provide them tools to better compete with their larger rivals.

“Ways and Means to Consider Retirement Savings Incentives.”  This morning’s CQ Roll Call article leads with:

The third time may be the charm for a 122-page collection of retirement benefit tweaks that died in the last two Congresses but has become a top priority for House Ways and Means Chairman Richard E. Neal.

Much of the bill (HR 1994) that the Ways and Means Committee will mark up Tuesday recycles provisions from previous Congresses. One major change would make it easier for small businesses to band together to offer retirement benefits, while offering tax credits to defray the start-up costs.

Taken together, the $16.3 billion collection of tax incentives and law changes favoring products like annuities and Individual Retirement Accounts would produce major changes in retirement savings policy, benefits experts say.

“It’s simplification and access in small, sort of chippy ways,” said Diane Thompson, a Ballard Spahr attorney specializing in benefits and executive compensation. “But the cumulative effect  . . .  could be significant.”

Thompson says she expects small charities — she posited the case of a charity with just two employees — will be among the small employers most likely to take advantage of the new joint retirement plans if the bill becomes law. “Any kind of retirement vehicle for those two people is [cost] prohibitive,” she said.

Allowing the establishment of tax-favored multiple employer or “pooled” provider plans would cost $3.5 billion over a decade, according to a Joint Committee on Taxation estimate.

The bill reflects lot of small tweaks that when put together would improve coverage, access and savings opportunities, said Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council. Her group represents large employers that sponsor retirement plans as well as companies that administer them.

There are other major new features added to the bill, Dudley said. Those include allowing contributions to an Individual Retirement Account to be made after the current maximum of age 70 1/2; a decrease from 1,000 hours to 500 hours of the minimum a long-term employee must work each year before being required to be included in a company’s pension plan; and an overhaul of rules for the pension plans at certain daily newspapers in cities with at least 100,000 people.

The most costly single provision, at $8.9 billion over 10 years, would push back the age at which required minimum distributions from IRAs must be taken, from age 70 1/2 to 72, depriving the Treasury of the taxable distributions during that time. But the bill’s sponsors argue Americans are living longer than when the rules were first established in the 1960s, and need to make their savings last longer.

More in last night’s Wall Street Journal article.

Political Insider

About Pete Davis

Pete Davis

Pete Davis advises Wall Street money managers on Washington, DC policy developments that affect the financial markets. Visit his website here daviscapitalinvestmentideas.yolasite.com.

Articles by Pete Davis

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