Newsweek

Donald Trump’s New York real estate friends love his tax bill – it will make them even richer

By Graham Lanktree     December 17, 2017

It is no surprise that many of President Donald Trump’s closest friends in the world of New York real estate are in love with the tax bill that Congress are trying to pass before the Christmas break—it could make them all even richer than they are already.

The bill promises to lower corporate tax by 14 percent, as well as slashing personal taxes for real estate moguls. The tax breaks will add more than $1 trillion to U.S. national debt, according to government and independent analysis, and will be paid for (in part) with $400 billion in cuts to Medicare and other entitlement programs over the next decade.

But New York real estate mogul Steve Witkoff—who counts President Trump as a personal friend—says the bill will grow businesses like his, and that money will trickle down and turn the U.S. economy into a powerhouse, increasing average American’s wages and paying down the debt.

U.S. President Donald Trump smiles as he arrives to speak about tax reform legislation in St. Louis, Missouri, U.S. November 29, 2017.KEVIN LAMARQUE/REUTERS

“I think you’ve got to create all those conditions that get the private sector to want to invest,” Witkoff tells Newsweek. “The president’s game plan is more growth. Let’s add several trillion more dollars of GDP, expand the tax net, lower the amount that you pay, but expand it.

“More tax revenue means we’re going to pay down the deficit.”

Witkoff became friends with Trump in the 1990s when he was building up his billion dollar real estate empire and Trump was buying up properties in Manhattan. Two decades on, Witkoff owns 51 properties—including large buildings in London, Miami, and New York—and has a home in Miami Beach where he lives four months of the year.

He believes his buildings are part of the solution to get the American economy growing at the 4 percent rate Trump has promised. In August, Wikoff activated a new nine-story, 18,000-square-foot billboard in Times Square that can reportedly make as much as $35,000 per minute. It is attached to a luxury hotel due to be completed in 2017.

Read more: Trump’s hotels are losing money as room rates plummet

Witkoff says the bill will be a shot in the arm for contractors: “I think that the more incentives you create for construction to occur—those are amazing jobs, construction jobs are high paying jobs—I think you’ve got to create all those conditions that get the private sector to want to invest.”

But not everyone agrees. New York City’s Chief Financial Officer, Comptroller Scott M. Stringer—who safeguards the financial health of the city’s residents—issued a report that said Trump’s tax plan would harm all but the wealthiest New Yorkers.

“The notion that this tax plan will pay for itself is a fiction. This is faith-based economics—and it’s not rooted in facts or data,” Stringer, told Newsweek.

“If Congressional Republicans were serious about tackling the debt, they wouldn’t blow a trillion dollar hole into the budget with a massive tax cut for the wealthy that we cannot afford,” Stringer continued.

History, he says, makes clear this plan would never pay for itself and won’t help average Americans. As an example, following President Ronald Reagan’s trickle down economic policies in the 1980s, manufacturing workers wages have remained stagnant for more than 30 years. The tax bill has a giant hole in it and is built on bogus assumptions, Stringer says, calling it a  “back-door” to slashing social safety net programs that help working Americans just to make up for the tax shortfalls it creates.

Stringer’s report found that under Trump’s tax bill “the highest income earners in New York (the top 1 percent) would see average tax cuts of over $100,000—far in excess of the average 1 percent cut for families with incomes under $100,000.”

Witkoff is proud to identify himself as a member of the one percent—the wealthiest Americans—who he says share his support for Trump’s tax bill. He is also good friends with billionaire real estate tycoon Howard Lorber, one of Trump’s closest friends, who he says shares a similar view of Trump’s tax bill. A spokesperson for Lorber declined to comment when contacted by Newsweek.

Vector Group CEO Howard Lorber departs after meeting with U.S. President-elect Donald Trump at the Mar-a-lago Club in Palm Beach, Florida, U.S. December 30, 2016.JONATHAN ERNST/REUTERS

Witkoff and Lorber were among a cadre of New York real estate developers who attended a lunch with Trump at Trump Tower on June 8, 2016 during the 2016 election. After the lunch—which came just a day before Donald Trump Jr.’s infamous meeting there with a Russian lawyer now being probed by Robert Mueller—many of the attendees donated heavily to Trump’s campaign.

At the time it looked certain Trump would become the Republican Party’s nominee for the presidential race and he began raising money from his friends to build his campaign. Before the meeting, Trump told Bloomberg he was gathering together “the biggest real estate people in the country.”

Also invited was Trump’s longtime friend, billionaire Richard LeFrak, and the current and former chief executives of Vornado Realty Trust, Steve Roth and Michael Fascitelli. In all there were more than 20 people who represented New York’s movers and shakers. The lunch lasted about two hours.

Witkoff said the general topic of conversation at the meeting was how to get the economy going again, but said: “I don’t remember the details.” He recalled that the threat of terrorism was also discussed but that “the larger discussion point just as much was the economy, and that’s what people were talking about.”

Five days after the gathering, on June 13 Witkoff donated $200,000 to the Trump Victory PAC, a joint fundraising committee between Trump’s campaign, the Republican National Committee (RNC), and 11 state Republican committees, according to Witkoff and Federal Election Commission (FEC) donation filings.

Trump’s campaign immediately got $94,600 and the rest was handed out the various state Republican parties between September and October during the election.

In the past, Witkoff had given large sums to Hillary Clinton, New York Senator Chuck Schumer, and the Democrats, as well as Republicans Mitt Romney, John McCain, and Rudy Giuliani. But in 2016 he gave solely to Trump and Republicans. When asked why he made the donations to Trump, Witkoff said “I contributed because he is my friend.”

Lorber made a nearly identical donation the same day as Witkoff, FEC filings show. Real estate mogul Fascitelli donated $50,000 a day later on June 14. Fascitelli’s colleague Roth donated $235,102 on July 7.

LeFrak, who Trump has said will help spearhead his infrastructure program, donated nearly $200,000 two days after the lunch on June 10 that went to the RNC and state Republican parties.

Vornado Realty Trust founder Steve Roth (2nd R) and LeFrak CEO Richard Lefrak (R) join U.S. President Donald Trump as he delivers remarks on his potential infrastructure proposals during an event at the Rivertowne Marina in Cincinnati, Ohio, U.S. June 7, 2017.JONATHAN ERNST/REUTERS

Sources that spoke with The Washington Post December 7 said that LeFrak is worried parts of the tax plan will have a negative impact on wealthy New Yorkers and had pressed Trump at a fundraiser at the end of November for changes that would allow them to continue deducting their state and local taxes from their income. Trump was vague on his answer, one anonymous attendee said.

This week White House press secretary Sarah Sanders explained that wealthy donors, including the president himself, use campaign contributions to buy access to powerful lawmakers with the hope they will give attention to their pet issues.

Sarah Huckabee Sanders explaining from the White House podium that wealthy donors, including the president himself, use campaign contributions to buy access to powerful lawmakers in the hopes that they will carry water for them on pet issues.

“That’s the reason that often special interests control our government more than the people do. And that’s one of the reasons that this president ran to be president.” she said.

Witkoff says he wouldn’t try to influence Trump on the tax bill. “I can tell you that never once did I, or would I, make a telephone call with regard to my own self interest,” he said. “Any tax legislation, in my view, that gets passed is good for the country—I mean any tax legislation that somewhat reflects the current Congressional plan.”

Yet the plan as it stands gives preferential treatment to wealthy Americans like Witkoff says Comptroller Stringer with its 20 percent reductions on levies for “pass-through” income that benefit people with large real estate portfolios, and by repealing the inheritance tax on large fortunes.

The latest version of the plan will see the tax rate for America’s highest income earners fall from 39.6 to 37 percent. “We don’t need the money,” wrote Michael Bloomberg, a billionaire and former New York mayor, of the bill on Friday, calling it “pure fantasy to think that the tax bill will lead to significantly higher wages and growth, as Republicans have promised.”

Stringer couldn’t agree more. “At a time of massive inequality, this bill fortifies it by pickpocketing everyday Americans,” he says. “It’s no surprise this bill treats real estate investments much better than it treats some other forms of income.”

“Meanwhile, our knowledge economy and many professional services—which are a very big and important sector of the New York City economy—would be punished in this tax bill,” he added. “It’s a plan that includes a carve out for the real estate industry allowing them to deduct interest while other industries won’t benefit from this provision. Simply put, it’s a terrible plan for New York, but it’s great for Donald Trump’s businesses.”

Senate and House Republicans announced Friday that they’ve been able to reach an agreement that consolidates the two versions of the tax bills they passed in late November. They are set to vote on the final bill next week.

Associated Press

GOP betting that its fix for US economy will defy warnings

Paul Wiseman, AP Econ. Writer,  Associated Press December 17, 2017 

WASHINGTON (AP) — The tax overhaul of 2017 amounts to a high-stakes gamble by Republicans in Congress: That slashing taxes for corporations and wealthy individuals will accelerate growth and assure greater prosperity for Americans for years to come.

The risks are considerable.

A wide range of economists and nonpartisan analysts have warned that the bill will likely escalate federal debt, intensify pressure to cut spending on social programs and further widen America’s troubling income inequality.

Congress is expected to vote this week on the bill, the most far-reaching rewrite of the U.S. tax code since 1986. It would shrink corporate taxes, prod companies to return trillions in profits they’ve kept overseas, cut taxes on wealthy estates and drop tax rates — but only temporarily — for individuals.

It puts its faith in the prospect that lower taxes will make corporate America turn more generous and spend more expansively.

“This is a bet on our country’s enterprising spirit, and that is a bet I am willing to make,” Tennessee Republican Sen. Bob Corker said Friday after dropping his previous opposition to higher deficits and throwing his support behind the bill.

In pushing the plan through a divided Congress — no Democrat in either the House or Senate backs it — Republicans have insisted that the economic virtues they envision from the tax-cut package outweigh the risks that many analysts are warning about.

“This is going to be one of the greatest gifts for the middle income people of this country that they’ve ever gotten for Christmas,” President Donald Trump said Saturday as he prepared to leave the White House for the weekend. “Jobs are going to come pouring back into this country.”

The legislation would add at least $1 trillion to federal deficits that were already sure to swell as baby boomers retire and draw on Social Security and Medicare. And the tax-cut’s gains are skewed toward wealthy taxpayers, who historically are less inclined to spend additional money than are households of more modest means. One likely result is that corporations and rich individuals will widen the economic gap between themselves and everyone else.

Even the political calculus for the Republicans looks questionable: A Quinnipiac University poll found that American voters, convinced that the benefits will flow mainly to corporations and the wealthy, oppose the plan 55 percent to 26 percent.

But Republicans have characterized the brew of tax cuts as an economic elixir. The job market appears healthy. But the pace of economic growth, though it’s perked up the past two quarters, has been underwhelming for years. From 2010 to 2016, U.S. growth averaged 2.1 percent a year, a pittance compared with the 3.2 percent average annual growth from 1948 through 2016.

Like its counterparts in Europe and Japan, the U.S. economy has been slowed by a slump in worker productivity, a vital ingredient for a robust economy. U.S. productivity — worker output per hour — trudged ahead at an average annual rate of just 0.6 percent a year from 2011 to 2016, down sharply from a post-World War II average of 2.1 percent.

The more productive that workers are, the more their employers can afford to pay them. And the more that workers are paid, the more they can propel consumer spending, the economy’s primary fuel.

Republicans say their corporate tax cuts offer a solution to the productivity slump. Their plan will cut the corporate tax rate from 35 percent to 21 percent. Multinational corporations would receive a one-time tax break on profits they’ve kept overseas, thereby encouraging them to return the money to the United States. Companies could write off the full cost of new equipment.

The thinking is that these changes would induce companies to invest in equipment, software and plants that would make their workers more productive. As these workers became more efficient, the thinking goes, they would be rewarded with higher pay. An effusive White House predicted in October that the average American household would enjoy a $4,000 raise.

Rising wages could ease another big economic problem: a shortage of workers. The percentage of Americans who are either working or are looking for work has declined as the vast baby boom generation retires. To grow at a healthy pace, an economy steady needs a steady infusion of workers.

“To the extent this heats up the economy, that will help draw people back into the labor force,” says Phillip Swagel, a University of Maryland economist who served in President George W. Bush’s Treasury Department.

But it’s more than just an aging population: Even working-age Americans — ages 25 to 54 — are less likely to work than they used to, in part because so many blue-collar jobs have disappeared.

Douglas Holtz-Eakin, president of the conservative American Action Forum and former director of the Congressional Budget Office, and other supporters of the tax plan don’t deny that the tax plan will elevate deficits. But they insist that it will be worthwhile. They argue that companies will use their windfalls to hire, expand, invest and raise pay — and thereby energize the economy.

“The calculation at one level is pretty simple,” Holtz-Eakin says. “We’re going to have larger deficits, and that is worth it for the growth we’re going to get.”

But most nonpartisan economists have expressed doubts that the plan will give the economy much of a jolt. They recall that wages actually fell after Congress cut the corporate tax rate in 1986.

What’s more, though the corporate tax cuts would be permanent, the tax cuts for individuals would expire after 2025. And a change in how the government accounts for inflation would lift many individuals into higher tax brackets over time. If Americans had to pay higher taxes, they would be less likely to spend and boost the economy.

Beyond everything else, the timing of the Tax Cuts and Jobs Act of 2017 could work against it. Today’s economy doesn’t need much help. The unemployment rate is at a 17-year low of 4.1 percent. Many employers are already complaining that they can’t find enough qualified workers. And in a vote of confidence in the economy, the Federal Reserve has just raised short-term interest rates for the third time this year.

So a stimulus from a big tax cut could overheat the economy and potentially ignite inflation.

“You throw deficit-financed tax cuts on a full-employment economy, and you’re playing with fire,” says Mark Zandi, chief economist at Moody’s Analytics. “It’s going to get pretty toasty out there this time next year.”

Reagan Economist Says Trump’s Tax Cuts Won’t Help Economy.

The Hill

Last minute provision in GOP tax bill would benefit Trump, Corker: IBTimes

By John Bowden    December 16, 2017

© Greg Nash

A last-minute addition to the GOP tax plan creates a new tax deduction that would potentially benefit both President Trump and Tennessee Sen. Bob Corker (R), who is seen as a swing vote on the Republican tax reform plan.

International Business Times reports that a provision added during the reconciliation process allows owners of income-producing real estate to take advantage of a 20 percent deduction for “pass-through” entities. The Senate version of the tax bill included rules that allowed the deduction to be claimed only by businesses that pay their employees significant wages.

The new provision effectively creates a new tax deduction for real estate moguls like Trump and Corker, who announced his support for the bill on Friday after it was added. According to the IBTimes more than a dozen other GOP lawmakers could also benefit from the provision.

Both Trump and Corker have made millions off of “pass-through” income, according to IBTimes. Trump made between $41 million and $68 million from 25 “pass-through” LLC’s he owned in 2016, while Corker earned between $1.2 million and $7 million in rental income from his LLCs last year.

“I know every bill we consider is imperfect and the question becomes is our country better off with or without this piece of legislation. I think we are better off with it. I realize this is a bet on our country’s enterprising spirit, and that is a bet I am willing to make,” Corker said in his statement explaining his support for the bill.

Democratic Sen. Chris Van Hollen (MD) condemned his colleagues after learning about the provision, who he said were putting personal profit over the American people.

“Writing a tax bill that puts the very wealthy and special interests before working families was bad enough – but to slip in a last minute provision that could give even more of a windfall to people like President Trump and some Republicans in Congress is unconscionable,”  the senator told IBT.

“It’s not too late for my colleagues to do the right thing. I urge them to put politics – and personal profit – aside, and stop this scam that will leave millions of middle class Americans paying more and cause the debt to skyrocket,” he added.

Corker’s spokesman denied that the senator knew about the provision before agreeing to vote for it, and added that he did not request any specific provisions before switching his vote to yes. Corker was the only Republican senator to vote against the bill when it passed in a 2:00 a.m. session at the end of November.

“Senator Corker is not a member of the tax-writing committee and made no requests for specific provisions throughout this debate,” a spokesman for Corker told IBTimes.

Bloomberg – Prophets

Recession Lurks in Fed’s Bullish New Jobs Forecasts

Unemployment is low and getting lower. To get it back up to a sustainable level, the Fed could trigger the next downturn.

By Tim Duy         December 15, 2017

 The unemployment rate could rise. Photographer: Luke Sharrett/ Bloomberg

There is a recession in the Federal Reserve’s forecast. You won’t see it in the growth projection, but it’s staring you in the face in the unemployment forecast. And it’s a doozy.

The Fed’s Summary of Economic Projections, or SEP, released at the end of this week’s Federal Open Market Committee meeting, projects an unemployment rate of 3.9 percent at the end of 2018. This is well below the Fed’s current estimate of the longer-run rate of unemployment, equivalent to NAIRU, or the non-accelerating inflation rate of unemployment, which remained at 4.6 percent.

Sustained unemployment rates below NAIRU would, in the Fed’s framework, eventually trigger above-target inflation. To counter these pressures, the Fed anticipates tighter policy to guide the unemployment rate back to 4.6 percent. This is evident in the SEP. Central bankers now project a benchmark federal funds rate of 3.1 percent by the end of 2020, compared with a neutral (or longer-run) rate of 2.8 percent. Monetary policy thus will turn from accommodative to slightly restrictive in the next couple of years.

The somewhat restrictive policy tempers economic activity sufficiently to nudge the unemployment rate back up to 4.6 percent. But therein lies the problem in this forecast. There is no evidence that the Fed can nudge the unemployment rate up 0.7 percentage points (from the projected low of 3.9 percent to 4.6 percent) without more aggressive rate increases that would trigger a recession.

Indeed, this has long been a concern of New York Fed President William Dudley:

A particular risk of late and fast is that the unemployment rate could significantly undershoot the level consistent with price stability. If this occurred, then inflation would likely rise above our objective. At that point, history shows it is very difficult to push the unemployment rate back up just a little bit in order to contain inflation pressures. Looking at the post-war period, whenever the unemployment rate has increased by more than 0.3 to 0.4 percentage points, the economy has always ended up in a full-blown recession with the unemployment rate rising by at least 1.9 percentage points.

Historically, the Fed has not been successful in orchestrating an increase in unemployment of only 0.3 to 0.4 percentage points without triggering a recession. So why should we believe that the central bank can safely push up the unemployment rate by about twice that magnitude as projected in the SEP? That’s a recession all by itself.

Now consider what this forecast implies for the projection of short-term interest rates. The Fed anticipates overshooting its estimate of the neutral rate by the end of 2020. This will trigger a rise in the unemployment rate that has traditionally been recessionary in magnitude. That means it is more likely than not that soon after rates reach the top of this cycle the Fed will be cutting rates. And given the magnitude of rate cuts needed to deal with a recession, combined with the proximity to the lower bound, short rates will soon thereafter drop back to zero.

So, it is obvious why market participants would be cautious of betting against longer-term bonds with these forecasts. Because although short rates will be rising, the projected future rates will be much lower, and, arguably, will get lower with each SEP that projects a larger increase in unemployment necessary to contain inflation. The decrease in the path of expected short rates should weigh on longer-term rates. This is especially the case because persistent low inflation and continued forward guidance on policy rates are likely to continue to weigh on the term premium. This also explains the flattening yield curve and gives reason to expect an inverted yield curve in the not too distant future.

To be sure, the Fed will not say its forecast is recessionary. Officials will point to the growth expectations and say there is no recession. But unless they can explain how they intend to manage the unprecedented task of raising the unemployment rate 0.7 percentage points without toppling the economy, that recession is most definitely in these forecasts. And it won’t disappear until the Fed’s estimate of NAIRU drops dramatically.

Bloomberg Prophets: Professionals offering actionable insights on markets, the economy and monetary policy. Contributors may have a stake in the areas they write about.

To contact the author of this story: Tim Duy at duy@uoregon.edu

To contact the editor responsible for this story:

Daniel Moss at dmoss@bloomberg.net