Trump Considered Keeping Yellen at Fed, Until Mnuchin Spoke Up - Bloomberg

Trump Considered Keeping Yellen at Fed, Until Mnuchin Spoke Up - Bloomberg
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Republicans Are Already Divided Over Big

Parts of Their Tax Plan
By Anna Edgerton , Erik Wasson, Sahil Kapur, and Laura Davison
November 03, 2017 1:00 AM
A handful of House Republicans already declared opposition
Other quiet whispers of concern question pass-through rules
Inside President Trump's 10 Day Tour of Asia
https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]

After a display of unity for the unveiling of an ambitious plan to slash individual and corporate
taxes, some House Republicans began late Thursday to pick out the parts of the tax legislation
they dont like.
The ink was barely dry on the frst draft when at least four Republicans declared they would vote
against the bill in its current form.While the early opponents represent high-tax states that
would get slammed by the plans elimination of state and local income-tax deductions, several
other areas began to emerge as points of contention as Republicans sifted through the 429-page
bill.
Im trying to get my arms around it, Mark Sanford, a Republican from South Carolina, said
Thursday night. He smiled and didnt respond when asked if he would vote for it.
The House GOP leadership team asked members over a barbecue dinner Thursday to
understand the whole package before passing judgment. They promised a tax calculator that
Republican lawmakers could use to show their constituents exactly how much they would save
under the new system.
It is not about individual provisions. It is about modeling how it all fts together and explaining
how the package works for their districts, Representative Patrick McHenry, the deputy GOP
vote-counter from North Carolina, said on his way into Thursday nights meeting.
Lobbyists Are Storming
President Donald Trump had his own warning for House Republicans Thursday night,tweeting,
The lobbyists are storming Capital Hill, but the Republicans will hold strong and do what is
right for America!
The draft bill presented Thursday is sure to look quite different as it goes through the legislative
process. The bill is likely to be changed by Ways and Means Chairman Kevin Brady even before
the committee begins its consideration of it on Monday.
Its unclear how long it will take the committee to approve the bill; markups can last for hours or
days, as panel members debate and vote on amendments. Then the measure would be sent to
the House foor, where it could undergo additional changes. Republicans have said they hope to
pass the bill in the House before Thanksgiving.

But any changes could open the foodgates to others, and even slight tweaks couldadd to the
legislations defcit-busting math.
Here are fve of the biggest early sticking points.
State and Local Taxes
The provision to scrap most deductions for state and local taxes has been the most fercely
contested so far. Thats especially true of House Republicans from New York and New Jersey,
where such taxes are among the highest. The bill drafters offered a compromise by keeping the
deduction for property taxes, though it would be capped at $10,000.
"There is much to like in the legislation but the proposed cap on deductibility of state and local
taxes makes the bill unacceptable at this time," said Representative Leonard Lance.
"Eliminating or rolling back state and local tax deductibility will hurt New Jerseys hard-
working middle-class families and our state economy."
Other Republicans saying theyll vote against a bill that eliminates SALT deductions include
Representatives Peter King of New York, Lee Zeldin of New York and Frank LoBiondo of New
Jersey. But New York Republican Chris Collins said hes satisfed with the compromise and will
"enthusiastically" support the bill.
Given that Republicans can only lose only 22 votes and still pass the bill, holdouts in those blue-
state delegations may need to be appeased if implacable opposition mounts in other factions of
the party. But the provision is one of the GOPs most signifcant revenue raisers to balance its
proposed cuts, and removing it could make the legislation breach the maximum $1.5 trillion
threshold for raising the nations debt.
Mortgage Interest Deduction
The concerns of Northeastern Republicans are exacerbated by the GOPs proposed cap on the
home mortgage interest deduction. Taxpayers would only be allowed to deduct interest on
mortgages up to $500,000 for any new primary home purchase, down from $1 million. That
fgure isnt indexed to infation.
Nobody knew that was in there. They kept that from us and I dont appreciate that, New
Jersey Representative Thomas MacArthur told reporters, saying that the cap is a setback for the
bill.
The issue for some lawmakers from Southern states, where the cost of living is lower, may be the

proposed elimination of the deduction for vacation homes. Mark Meadows, the head of the
conservative Freedom Caucus, said that the change would affect his North Carolina district
where such second homes are common. He listed that portion of the bill as a concern, but not a
"red line" that would cause him to vote against it.
The bills potential impact on homeowners has already sparked strong outside opposition.
William Brown, president of the National Association of Realtors, said in a statement that the
bill "appears to confrm many of our biggest concerns. He argued that eliminating or nullifying
the tax incentives for home ownership puts home values and middle class homeowners at risk."
Pass-Through Restrictions
Helping small businesses has been a constant theme of the Republican sales pitch for tax cuts.
But there was signifcant concern from rank-and-fle lawmakers that rules meant to limit abuse
of a new 25 percent rate for companies that arent organized as "C" corporations could end up
limiting the boon for small businesses.
The tax bill draft has two formulas available for these closely held frms, which are known as
pass-throughs, as well as restrictions on what kinds of companies would qualify.
The National Federation of Independent Business said Thursday that it couldnt support the
current draft, saying its provisions wouldnt provide enough help to small businesses. The
nonpartisan Tax Foundation said the pass-through rules may not have the intended effect.
"Even with these guardrails, the provision is likely to create opportunities for tax arbitrage, and
it adds complexity to the tax code, the group said in a statement.
Republican Francis Rooney of Florida has previously expressed concern about the issue, along
with Sanford and Meadows, among others.
Interest Deductibility
The legislation would limit the corporate interest deduction at 30 percent of a companys
earnings before interest, tax, depreciation, and amortization. That would work for a lot of
businesses, Texas Representative Kenny Marchant said, but the Ways and Means Committee is
looking at a carve-out for high-inventory, low-margin businesses, such as car and tractor
dealers, he said.
Tom Reed, a New York Republican and member of the Ways and Means panel, acknowledged
that the proposed change has caused concern.

Its a major expense to a lot of companies, and businesses across America, he said. At the end
of the day I think what we landed on is something thats a reasonable target.
Senator John Thune of South Dakota, the No. 3

Republican, has said that corporate interest deductibility is important to many businesses and
thatll be a consideration for the Senate when it crafts its bill. Senate GOP opposition killed an
original proposal by Speaker Paul Ryan to eliminate interest deductions entirely for the purpose
of allowing full and immediate expensing, which raised hackles from debt-reliant companies.
Backdoor BAT
A fght could arise over a proposed 20 percent excise tax on payments, including royalty
payments, that U.S. companies make to their offshore affliates. That provision is aimed at
preventing companies from shifting their U.S. profts to offshore units in countries with lower
tax rates.
Americans for Prosperity, an infuential conservative group backed by billionaire industrialists

Charles and David Koch,is criticizing the proposal, saying it could increase consumer prices.
AFP sought to compare the provision to the much-reviled border adjusted tax, or BAT, which
Ryan pushed before a wave of opposition from retailers and others forced him to drop the
concept last summer. AFP opposed that provision as well, saying it would raise prices.
On Thursday morning, the group was already announcing its opposition to the excise tax -- and
labeling it a backdoor BAT -- before the tax bill was released.
The concern is this becomes a consumer tax on common products, Levi Russell, an AFP
spokesman, said in an email.
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Trump Considered Keeping Yellen at Fed, Until

Mnuchin Spoke Up
By Jennifer Jacobs , Margaret Talev , and Toluse Olorunnipa
November 02, 2017 2:06 PM
Treasury secretarys pick, Jerome Powell, bested Pence choice
President initially talked about Yellen or Cohn for job

Former Fed Governor Randy Kroszner weighs in on Fed chair nominee Jay Powell.
Jerome Powell wasnt a lock to be President Donald Trumps pick to lead the Federal Reserve.
As Trump watched the stock market reach new highs day after day since his election and
claimed personal credit for the strength of the U.S. economy, he kept coming back to the idea of
renominating the woman most responsible, people close to him said: Fed chair Janet Yellen.
Then his Treasury secretary got his ear.
Learn More
Steven Mnuchin wielded outsized infuence as Trump deliberated on the Fed, people familiar
with the matter said, and Mnuchin favored Powell. His argument bested that of Vice President
Mike Pence, who urged Trump to make a more dramatic change of direction at the Fed by
nominating Stanford University economist John Taylor, a favorite of conservatives across
Washington.
Taylor, too, got a serious look from Trump, these people said. But in the end, Trump decided
that Powell had the best judgment and collective experience of the fve people he considered for
the Fed job, and he is the person the president is most comfortable with, according to four
White House offcials who briefed reporters before Trumps announcement on condition of
anonymity.

Jay will bring extensive private-sector experience and real-world perspective to our
government, Trump said Thursday in the White House Rose Garden. As a result, he
understands what it takes for our economy to grow. And just as importantly, he understands
what truly drives American success.
Mnuchin preferred Powell because his selection wouldnt disrupt fnancial markets while still
allowing Trump to put his personal stamp on the Fed, a person familiar with the matter said.
The Treasury secretary regarded the Fed governor as a safe pair of hands who would raise
interest rates at a pace that wouldnt scupper growth, the person said.
This account of Trumps decision to nominate Powell to lead the most important central bank in
the world is based on interviews with about a half-dozen current and former administration
offcials and people close to the president, in addition to information from the White House
briefng. Trumps choice, aptly enough for the former showman, began with a head-fake.
In an interview with the Wall Street Journal published on July 25, Trump said that Janet Yellen
was in the running to keep her job. But he also mentioned someone else he had in mind for Fed
chair: his chief economic adviser, Gary Cohn, who was sitting next to him.
He doesnt know this, but yes he is, Trump said after the Journal asked if Cohn was a
candidate.
Yellen v. Cohn
Fed chair wasnt a priority for Trump or the White House at the time. At one point in the
summer, Trump thought he had until the fall of 2018 to choose a chairman to replace Yellen,
whose term actually expires in February. Cohn, who up until the Journal interview had been
managing the nascent Fed search, felt obliged to recuse himself from the decision after Trump
publicly named him a candidate, people familiar with the matter said.
To the extent Trump engaged in the decision during the summer, the names he foated were
Yellen and Cohn, according to one person familiar with the matter. Cohn did not advocate for
himself in front of other White House staff, the person said. And though his top aides didnt take
him seriously, Trump seemed to be gravitating toward Yellen as his pick, both for market
stability and because new presidents traditionally reappoint the incumbent Fed chairman, the
person said.

Then came Charlottesville. On Aug. 12, a mob of white supremacists and Nazi sympathizers
marched into the Virginia college town to protest the removal of a statue of Robert E. Lee. The
protesters instigated violence against a large gathering of counter-protesters; a woman was
killed. Trump said that both sides were responsible and that there were very fne people
among the protesters, engendering criticism -- including from Cohn.
This administration can and must do better in consistently and unequivocally condemning
these groups and do everything we can to heal the deep divisions that exist in our communities,
Cohn said in an Aug. 25 interview with the Financial Times widely interpreted as a rebuke of his
boss. He said he had felt enormous pressure to resign over the affair.
It wasnt the only reason Trump steered away from nominating Cohn for the Fed job -- the four
White House offcials, in fact, denied that the interview led to Trump dropping Cohn from
consideration. The president was also frustrated with the pace of a tax overhaul, legislation
Cohn was in charge of shepherding that would be Trumps last, best shot this year at a signature
domestic achievement after the failure to repeal Obamacare, people familiar with the matter
said.
One of the offcials said there was concern that Cohn, a Democrat, would have trouble winning
Senate confrmation.
Organized Search
Meanwhile, three key White House aides -- personnel director Johnny DeStefano and two Cohn
deputies, Andrew Olmem and Jeremy Katz -- were organizing a systematic job search. The
names they would eventually present to Trump refected dueling constituencies within the
White House and the Republican Party. Their shortlist included Yellen -- but her only
proponent within the Trump administration appeared to be the president himself.
Many of Trumps top advisers, regardless of who they favored, agreed that Trump should dump
former President Barack Obamas Fed chair, despite her considerable success in the job.
Unemployment was at 4.2 percent in September, a 16-year low, and the economy is in its ninth
year of expansion. Infation and interest rates are low and Yellen is gradually backing off crisis-
era policies and unwinding the Feds $4.5 trillion balance sheet.
Mnuchins favorite, Powell isnt that distinguishable from Yellen on monetary policy. He has
never dissented with her on Fed vote. He is a Republican, however, and, unlike Yellen, didnt
spend many years of his career in the Federal Reserve system. Pence and his chief economist,
Mark Calabria, favored Taylor, beloved by conservatives for his criticism of the Fed.

The ffth name on the Destefano, Olmem and Katz shortlist was Kevin Warsh, a former Fed
governor.
Rates and an Enemy
The knock against Taylor, for a president who had grown to enjoy low interest rates, was his
namesake Taylor Rule: an equation he devised that would dictate higher rates than under
Yellen. Trump, once critical of Yellens policies as a presidential candidate, had a change of heart
after he entered offce and the stock market boomed -- a phenomenon he frequently observed at
his @realdonaldtrump Twitter account.
Trump never talked about rates or the direction they should go with his Fed candidates,
according to the offcials who briefed reporters.
Warsh, meanwhile, had made a key enemy in his previous stint on the Fed board: Randal
Quarles, whom Trump had nominated for both a governors seat and to be vice chairman of
bank supervision. Quarles, who was confrmed to both posts in October, told people that he
might not remain on the board if Warsh were named chairman. Mnuchin was aware of his
concerns.
Interviews Begin
The deliberations gained urgency in late September, soon after Trump resolved looming crises
over the debt limit and the governments budget by striking a controversial deal with
Democratic leaders in Congress. He, Mnuchin and Pence interviewed Warsh and Powell on
Sept. 27 and 28, respectively, according to people familiar with the matter.
Pence and Trump interviewed Taylor on Oct. 11, and Trump was said to be impressed by the
economist. Finally, Trump interviewed Yellen on Oct. 19. Again, he was impressed, he said.
Five days later, he added to the dramaby asking Republican senators in a closed-door meeting
at the Capitol for a show of hands on Yellen, Powell and Taylor. He left out Cohn and Warsh,
suggesting they had faded from consideration.
Taylor appeared to win the presidents straw poll, South Carolina Senator Tim Scott said.
One of the White House offcials said Trump indeed had by then narrowed his shortlist to
Yellen, Powell and Taylor.
Yellen v. Powell

In an Oct. 25 interview, Trump again told Fox Business Network anchor Lou Dobbs -- who
recommended Yellens reappointment -- that she was very impressive.
But he added: you like to make your own mark. Bloomberg News reported that Cohn was out
of the running the same day, and on Oct. 27 reported that Powell was the front-runner.
The four offcials said it is unclear when Trump made up his mind. He was still asking his aides
questions about multiple candidates as of Oct. 27, they said.
Trump offered Powell the job on Tuesday and he accepted, the four offcials said. Trump called
Yellen, the frst woman to lead the Fed, on Thursday morning to tell her she would be replaced,
they said.
With assistance by Saleha Mohsin, and Craig Torres
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Trump Considered Keeping Yellen at Fed, Until Mnuchin Spoke Up - Bloomberg

Republicans Are Already Divided Over Big

A handful of House Republicans already declared opposition

Other quiet whispers of concern question pass-through rules

Inside President Trump's 10 Day Tour of Asia

https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]

Lobbyists Are Storming

https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]

Here are fve of the biggest early sticking points.

State and Local Taxes

Mortgage Interest Deduction

https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]

https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]

Senator John Thune of South Dakota, the No. 3

Americans for Prosperity, an infuential conservative group backed by billionaire industrialists

Before it's here, it's on the Bloomberg Terminal.

Have a confdential news tip?

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https://www.bloomberg.com/news/articles/2017-11-02/trump-considered-keeping-yellen-at-fed-until-mnuchin-spoke-up[11/3/2017 8:15:27 AM]