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National

The next trillion-dollar fight concerns the debt ceiling. Global markets freak out any time members of Congress or White House officials float anything other than a drama-free debt-ceiling hike.

The state of play: As a House conservative, acting White House chief of staff Mick Mulvaney pushed to use the debt ceiling as a lever to cut spending. And as Trump's budget director, he favored the concept of "debt prioritization" — an idea that thrills some in the conservative movement but horrifies the markets, the Treasury secretary and the leadership of both parties.

It seems unlikely, though, that Mulvaney will put much effort into advocating for debt prioritization in his current role as chief of staff. He's told colleagues he thinks the administration will get more leverage out of the threat of spending cuts than it will by using the debt ceiling.

The Trump administration is so internally divided over the debt ceiling that many in Congress wouldn't believe the White House if they threatened to hold it hostage.

Behind the scenes: Before a recent Cabinet meeting, Mulvaney and Treasury Secretary Steven Mnuchin chatted about the debt ceiling, per a senior White House official. According to that official and another source briefed on the chat, Mnuchin said, "Democrats will give us a clean debt ceiling."

Mulvaney "sort of giggled," according the senior official. "Steven, no they won't," he added.

Mnuchin said Democrats wanted a clean hike last time; Mulvaney retorted that Democrats weren't in charge then.

"Now they're going to end up tying one of their priorities to the debt ceiling increase," Mulvaney predicted to Mnuchin, according to the official. "You cannot assume that because they wanted something the last time, it's exactly the same thing they want this time. ... There's not much consistency when it comes to this in politics."

A source familiar with Mnuchin's thinking told me, "The secretary is focused on raising the debt ceiling, but hasn't expressed a strong preference for how it's done. That's up to Congress."

So what's debt prioritization? Before the Tea Party, Congress routinely raised the debt ceiling (the limit on how much the Treasury can borrow) with every annual budget. But after 2010, House conservatives argued that this shouldn't happen without concessions to the right, such as cuts in how much the government spends. To make that happen, they advocated for debt prioritization, the idea that the U.S. government could pay creditors on time (e.g., interest on the national debt) but delay paying other bills. It's a type of brinkmanship.

Last February, Trump signed a bill suspending the debt ceiling until March 1, 2019. As soon as this week, the Treasury Department is expected to start issuing guidance for "extraordinary measures" — a term of art to describe actions the Treasury secretary can take to delay the U.S. government from defaulting on its debts.

Experts who monitor this issue say they think Mnuchin will probably be able to use extraordinary measures to delay a debt crisis until at least late summer, giving Congress about six extra months to deliberate.

Behind the scenes: Mnuchin is expected to make it clear — as he did the last time the Trump administration bumped into the debt ceiling — that he won't mess around with the full faith and credit of the U.S. government. He calmed markets last time by saying he wanted Congress to pass a clean debt ceiling increase and that he thought prioritizing debt payments "doesn't make much sense."

But a senior White House official told me that "elements within the administration," including Mulvaney, will be "encouraging the president to consider the possibility of prioritization of payments."

"We will certainly raise, for the president, the options that we have going into the next round of negotiations. Certainly the debt ceiling will be part of that."

Go deeper: If the U.S. can't pay its bills

Behind the scenes: The debt ceiling looms

White House acting Chief of Staff Mick Mulvaney. Photo: Chip Somodevilla/Getty Images

Politics

Debt ceiling

Donald Trump

2024 will be an election year like no other, as President Biden seeks re-election amid economic uncertainty, two wars and questions about his age. His likely foe, former President Trump, faces felony charges and vows revenge on his political enemies. Meanwhile, Americans generally are dissatisfied with those choices and are divided over immigration, race, education and more.

Politics & Policy

Shortly after becoming President Trump's acting chief of staff, Mick Mulvaney conveyed a blunt message to several Cabinet secretaries. According to a senior White House official with direct knowledge and another source briefed on the private conversations, Mulvaney told the Cabinet officials that their "highest priority" over the next year would be deregulation.

What they're saying: "We knew there was one thing we could do without legislation," the senior official told me. When Mulvaney sits down with the president to discuss the Cabinet secretaries' performance, the official said, "Dereg is going to be top of the list."

Why it matters: Trump relishes using the power of the presidency to do whatever he can without Congress.

Trump made his most dramatic use of executive power on Friday by declaring a national emergency so he could circumvent Congress and spend billions of dollars for his wall.

This is the latest piece of a trend that may define the modern American presidency. Obama used executive power without apology when Congress blocked his agenda in the latter years of his presidency. And George W. Bush enthusiastically pushed the boundaries of presidential power.

Trump has looked for creative ways to use executive power to advance his agenda. His shock-and-awe series of executive orders early in his presidency resulted in protracted court battles, some of which he won.

His agencies are sweeping away regulations, including the most aggressive gutting of environmental regulations since at least President Reagan, and maybe ever. 

Behind the scenes: More than half a dozen current and former White House officials told me that after they passed their big tax bill last Congress, a broad consensus emerged: Trump wouldn't get anything else big through Congress before his re-election bid.

Trump appears to share that view. Since the tax bill's passage, he has focused on issues where Congress has little power, including foreign policy and trade.

While Congress can block his trade deal with Canada and Mexico, the Trump administration has made clear they won't need the Hill’s signoff for the China talks. But there's a trade-off for his legacy: The next president will be able to unilaterally undo any China agreement — just like Trump reversed Obama's Iran deal.

The bottom line: This concentration of power in the executive branch is part of the reason Republicans have invested so much in confirming new judges. In a world of government by executive order, Congress loses its relevance and judges become the surest check on an overreaching executive.

Trump's DOJ weighs cutting of anti-discrimination regulations

Meet the Obama environmental policies Trump isn’t rolling back

Trump's go-it-alone presidency

He's using the power of the presidency to do whatever he can without Congress.

Inside the White House

A senior government official who was involved in the spending negotiations over the past few weeks told me the experience taught them something disturbing. 

"We're going to go to the edge on everything," the official said on Friday, shortly after Trump signed the bill to fund the 25% of the government that had shut down for 35 days on his watch.

Why it matters: The White House has just gotten through a spending fight that pushed Congress — and the federal workforce affected by the shutdown — to the brink. But even uglier skirmishes are imminent, including whether to raise the federal government's debt limit and break Congress' self-imposed budget caps.

What's next? In a phone conversation this morning, I asked a senior White House official if he thought the shutdown had any benefit for the Trump administration.

"I think it's absolutely been effective, because the president is winning the message on border security," the senior official said.

Trump "was able to use that 35-day period to highlight that issue and all the polling data that we've got seems to indicate that while we did get blamed for a shutdown, the numbers moved dramatically in our favor on the issue of border security," the official said. "And that never would've happened if we'd signed the bill back in December."

(FYI: I'm not aware of public polling that shows a dramatic improvement for the president on border security; though the White House has mentioned private polling that shows numbers moving in their direction in key swing districts.)

I also asked the senior official if he would dispute that characterization that this administration will "go to the edge on everything" — especially on impending battles over 2020 spending levels and raising the debt limit.

"If you get the impression that it's going to be intentional, I think that's unfair," the official said. "If you think that's the practical outcome, that's probably accurate.

"If we know one thing about Congress, it waits to the very last minute to do everything anyway."

The one-trick pony: Inside Trump's negotiating style

Governing on the edge

Capital

Axios Capital

Art dealer Mary Boone was sentenced to 30 months in prison this week, despite receiving support from a wide range of art-world boldface names. She evaded more than $3 million in taxes between 2009 and 2011.

By the numbers:  30 months is a harsh sentence, but prosecutions for tax evasion are very rare. 584 people were sentenced to prison for tax evasion in 2017, the most recent year for which statistics are available. 52.4% were white, and 69.4% were men. The median tax loss was $277,576, and the average sentence length was 17 months. If sentences were short and uncommon, they would have negligible deterrent effect.

By the numbers: The frequency and length of tax evasion sentences

The average sentence length was 17 months.

Mary Boone's booth at Art Basel Miami Beach, featuring work by Barbara Kruger. 

Mary Boone's booth at Art Basel Miami Beach, featuring work by Barbara Kruger. Photo: John Parra/Getty Images

Business

Tax evasion

Israeli Prime Minister Benjamin Netanyahu held a secret meeting with Moroccan Foreign Minister Nasser Bourita on the sidelines of the UN General Assembly meeting in New York last September, an Israeli official told me.

Why it matters: Israel hasn't had diplomatic relations with Morocco since start of the second intifada in 2000. The two countries had full diplomatic relations between 1995 and 2000 after the Oslo Accords were signed between Israel and the Palestine Liberation Organization.

An Israeli official told me that Netanyahu stressed in the meeting that Israel wants to normalize relations with Morocco. He also said that he is interested in visiting Morocco publicly — like the visit he made in November to Oman.

Netanyahu and Bourita also discussed efforts to counter Iranian actions in the region, the official told me. Morocco has cut ties with Iran over alleged Iranian attempts to meddle in Moroccan internal affairs.

Netanyahu's office did not deny this account and told me: "We do not comment on contacts with countries Israel has no formal relations with."

Go deeper: Israeli report says Saudis won't back Trump peace plan without concessions

Scoop: Netanyahu held secret meeting with Morocco's foreign minister

The two countries haven't had diplomatic relations since 2000.

Netanyahu speaks at the UN General Assembly. Photo: Xinhua/Qin Lang via Getty Images

World

Israel

Conflicts, policies and powers are intersecting and shaping the world. Breaking news and analysis of national security, foreign policy and global crises.

For two years, Apple's AirPods were a bizarre curiosity. They were clever, but they looked odd and didn't sell very well. Then, they exploded, and according to one source, they have sold more units than even the iPhone at the same age. 

The state of play: This will come as no surprise to anybody who has walked down the street or taken the subway in New York of late. AirPods had limited availability when they were first released, but as they became more common, they also started to look less weird. With broad adoption, Apple has managed to re-architect what is socially acceptable and even desirable.

The rise of AirPods has also followed the iPhone upgrade cycle. When people get a new iPhone without a headphone jack, that's often their impetus to buy headphones they can use across all of their devices.

AirPods are also an elegant solution to a core problem with all smartphones, which is that they're clunky and generally hard to use as a phone.

Our thought bubble, from Axios' Courtenay Brown, who got a pair of AirPods for Christmas: "One day without AirPods taught me that I've forgotten how to talk on the phone and basically do my job without them. Ordinary bluetooth headphones — which squeeze my ears, make them sweat and are just a way less seamless experience — are not an adequate replacement."

Go deeper: The sign that Apple has ripened

AirPods are everywhere

Illustration of the earth wearing airpods

Apple

Technology

Big Tech

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Stock buybacks have suddenly become a hot-button political issue on both sides of the aisle. A subject you might normally expect to occupy a breakout panel discussion in a CFO convention is now set to become central to the 2020 presidential campaign.

Sens. Chuck Schumer (D-N.Y.) and Bernie Sanders (I-Vt.) are sponsoring a bill that would require companies to pay all their workers at least $15 an hour before being able to buy back their stock. Employees would also need to have health benefits and 7 days of paid sick leave.

Sen. Marco Rubio (R-Fla.) says he's going to introduce a bill taxing buybacks as dividends. No one knows how this could possibly work in practice, especially in a world of mutual funds and ETFs. (The original idea surfaced in 1952, a much simpler world, and even then it was hard to work out how to levy income tax on shareholders who receive no cash distribution.)

The big picture: Buybacks are extremely popular in corporate America, which spent some $1 trillion on them last year.

Apple's share count has fallen from 6.6 billion to 4.7 billion since late 2012, an astonishing drop not only in terms of dollars spent but also in the percentage of outstanding shares bought back.

Other companies like Yum Brands, which owns Taco Bell, KFC and Pizza Hut, have seen their number of shares outstanding fall even more, albeit over a longer time horizon.

Most companies see their share count increase over time, as they issue new stock for compensation purposes and for acquisitions.

My thought bubble: Rubio is correct that since buybacks are economically equivalent to dividends, it makes sense that their tax treatment should be identical. What's more, buybacks are governed by federal law, unlike dividends, and are therefore easier to legislate against. But banning them outright would be easier than the contortions that Schumer, Sanders and Rubio are about to get themselves into.

Stock buybacks will be a hot-button 2020 issue

It's an issue you'd expect at a breakout panel discussion in a CFO convention.

Debt

The U.S. tax system does one thing right: It collects taxes in a very smart way.

How it works: Workers have taxes automatically withheld from every paycheck, and the withholdings are generally slightly higher than the expected tax owed. After the worker files their tax return, they receive a refund check for the amount that was overpaid in the previous year. About 75% of taxpayers receive a refund each year.

The system incentivizes workers to file their taxes and acts as a source of interest-free funding for Treasury. It's also a very effective hidden forced-savings mechanism for millions of Americans, who every year discover hundreds or thousands of dollars that they had been putting away every paycheck.

For most workers, the salient number when it comes to annual taxes is not the annual amount payable, but rather the difference between the tax due and the amount withheld. If you owe an unexpectedly large amount, that's a nasty hit; if you receive an unexpectedly large refund, that's a frabjous day.

The big picture: When Trump cut taxes in 2017, the White House also cut the amount that workers saw withheld from their paychecks. The result was an immediate pay hike — that went largely unnoticed.

The whole purpose of income tax withholding was to make taxes less salient — to make workers notice them less. According to a Harris poll for Axios, less than half of American workers know exactly how much their take-home pay will be. When that pay went up at the beginning of 2018, they probably noticed for a week or two — and then forgot.

When Obama cut taxes for 95% of workers in the wake of the financial crisis, most of them didn't notice. It was implemented via the withholding system, by design, to ensure that the extra disposable income was spent immediately to boost the economy, rather than being saved.

This year, refunds are generally lower than they were previously. Increasingly they're zero; sometimes they're negative, and extra tax payments are owed.

The average refund was $1,865 as of Feb. 1 — down 8.4% from $2,035 a year ago.

The bottom line: Most of Trump's tax cut went to corporations rather than individuals, and many families, especially in coastal blue states, saw their total tax bill rise. By reducing withholding, the Trump administration probably thought it was making the tax cut immediate. Instead, that had the effect of making a tax cut feel more like a tax hike.

Smaller tax refunds in 2019 could slash U.S. auto sales

IRS tax refunds slow in wake of government shutdown

People spend their tax refunds at the doctor

Axios

Sunday's top stories

Behind the scenes: The debt ceiling looms

Trump's go-it-alone presidency

Governing on the edge

By the numbers: The frequency and length of tax evasion sentences

Scoop: Netanyahu held secret meeting with Morocco's foreign minister

AirPods are everywhere

Stock buybacks will be a hot-button 2020 issue

Trump's invisible tax cut

Stephen Miller: Trump will "protect" his national emergency declaration

Delinquent car loans hit record highs

Heather Nauert withdraws name from UN ambassador consideration

"We know the game is rigged": NYC mayor slams Amazon HQ2 reversal