The Fiscal Times Newsletter - August 28, 2017

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The Fiscal Times Newsletter - August 28, 2017

By The Fiscal Times Staff
August 29, 2017

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How Hurricane Harvey Could Transform the Budget Battle in Washington

The costs of Hurricane Harvey could climb as high as $100 billion, according to at least one estimate. While it will still take weeks for the full extent of the damage to become clear, the catastrophic flooding — and a recovery effort that is likely to take years — will almost certainly have an impact on some critical upcoming deadlines for lawmakers in D.C.

White House and congressional GOP officials told The Washington Post on Sunday that they expected to begin discussing emergency funding for disaster relief soon. Those discussions could present challenges for other items on President Trump’s agenda, from tax reform to a border wall with Mexico.

President Trump had threatened to shutdown the government if any funding bill failed to include money for the border wall with Mexico. But the need for disaster relief funding — and the political risk of failing to deliver such funding — could force the president and Congress to act more quickly to fund the government and avoid a partial federal shutdown. “That is because a government shutdown could sideline agencies involved in a rescue and relief effort that officials are predicting will last years,” Mike DeBonis and Damian Paletta of The Washington Post report.

The balance of the Federal Emergency Management Agency’s disaster relief fund stood at just $3.8 billion at the end of July — with $1.6 billion of that money set to be spent elsewhere. The funds needed for Harvey recovery alone may well exceed the total disaster relief budget for the current and upcoming fiscal years, The Post noted. Also, Congress must reauthorize the National Flood Insurance Program, which is more than $24 billion in debt, by the end of September and ensure that its legal borrowing limit, now around $30 billion, is sufficient to cover expected claims from Harvey victims.

William Hoagland of the Bipartisan Policy Center, who served as a former GOP staff director for the Senate Budget Committee, said the hurricane could also lead to the debt ceiling being raised faster than it otherwise might have been so as to ensure that the Treasury can provide emergency cash to storm-hit areas.

That’s not to say the disaster relief funding won’t devolve into a congressional fight. Both Hurricane Katrina in 2005 and Superstorm Sandy in 2012 led to budget fights in Congress in which Republicans resisted disaster funding that wasn’t offset by other spending cuts.
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#Harvey in perspective. So much rain has fallen, we've had to update the color charts on our graphics in order to effectively map it.
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Top Budget Expert Thinks We’re Headed for a Government Shutdown

Noted budget expert Stan Collender – who is sometimes referred to as “Mr. Budget” and who tweets under the name, @TheBudgetGuy – says that odds are better than even that the federal government will shut down this fall. Disputes over raising the debt ceiling are also in the cards, though with slightly less probability of a chaotic ending.

Collender says in Forbes that the problem lies with the current internal dynamics of the Republicans in Congress. In any other year, single-party control would mean less chaos in budget matters, not more. But the GOP is unusually divided right now. Collender argues there are seven contentious factions that are making it hard to get things done. In the House, there’s the conservative Freedom Caucus and the more moderate Tuesday Group. The Senate is similarly divided, but there is no real alignment between the Senate and House versions of each group. Then there’s the leadership of each chamber, which have their own interests and responsibilities that sometimes clash with the others. Last but not least, there’s President Trump, who is becoming something of a party unto himself.

These seven factions could make it very difficult to solve the two pressing fiscal problems – raising the debt ceiling to avoid a potential default on U.S. debt and funding the government to avoid a shutdown – that loom before October 1.

On the debt ceiling, the Trump administration has called for a “clean” debt ceiling hike, unencumbered by any other policy changes. But the Freedom Caucus has sent mixed signals on the subject, and there’s a good chance that the hardline conservatives won’t play along with the moderates to raise the ceiling, forcing House Speaker Paul Ryan (R-WI) to turn to Democrats for help – in which case, the Freedom Caucus could push for Ryan’s ouster, as they did with former speaker John Boehner in 2015.

On funding the government, a short-term spending bill, called a continuing resolution, seems like a relatively easy solution, even if it only puts off the budget fight temporarily. But President Trump, the ultimate wild card, has altered the game by threatening to veto any such funding if it fails to include money for a border wall. It’s all too easy to imagine that showdown ending with a shutdown.
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The High Cost of Debt Ceiling Brinksmanship

Every time Congress dithers on raising the debt ceiling, the Treasury Department is forced to take “extraordinary measures” to make sure it has enough cash to pay the country’s bills in full and on time without hitting the ceiling. Kellie Mejdrich at Roll Call reminds us that these measures come with a considerable cost, even without a default on the debt.

The Treasury began employing extraordinary measures last March, when the suspension of the debt limit brokered in a budget deal in November 2016 expired. With the debt ceiling back in force, the Treasury had to look for ways to avoid hitting the limit, currently $19.8 trillion. Treasury has several options — it defines four of them here — which involve not spending all of the money is it legally authorized to spend. For example, the Treasury may avoid making full investments in pension and savings accounts of government employees, delaying payments until a later date.

These measures tend to make the financial markets nervous, especially over time as the threat of default grows, which can move interest rates higher than they otherwise would be. The Bipartisan Policy Center points out that the current debt ceiling impasse sent short-term Treasury bill rates higher in July, raising the costs of issuing debt for the U.S. government.

Looking back at the debt ceiling brinksmanship of 2011-2012, the Government Accountability Office concluded that delaying the increase in the debt limit cost the Treasury at least $1.3 billion:

“Delays in raising the debt limit can create uncertainty in the Treasury market and lead to higher Treasury borrowing costs. GAO estimated that delays in raising the debt limit in 2011 led to an increase in Treasury’s borrowing costs of about $1.3 billion in fiscal year 2011. However, this does not account for the multiyear effects on increased costs for Treasury securities that will remain outstanding after fiscal year 2011. Further, according to Treasury officials, the increased focus on debt limit-related operations as such delays occurred required more time and Treasury resources and diverted Treasury’s staff away from other important cash and debt management responsibilities.”
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Robert Samuelson: Why Trump’s Tax Reform Won’t Work

It’s hard to imagine that tax reform is No. 1 on the Republicans’ to-do list when they still don’t have a 2018 budget. Worse, they still haven’t agreed to raise the debt ceiling, as the federal government continues to draw down what was $350 billion in cash reserves in January to $50.6 billion as of last Thursday, according to The Washington Post.

Maybe that’s why the Post’s economics columnist, Robert J. Samuelson, was inspired to challenge the GOP’s idea that cutting taxes is “tax reform,” which implies an improvement over the old system.

Samuelson is clearly disturbed about Trump’s tax plan, which primarily benefits the rich at the expense of the poor and adds an additional $3.5 trillion in deficits over a decade, according to the Tax Policy Center. It’s not clear how that’s an improvement.

Samuelson says, “If tax cuts were initially financed by more deficit spending, the costs of today’s lower taxes would be transferred to future generations.” That now includes the largest generation in America — the Millennials — as Baby Boomers die off.

The key argument against tax cuts, Samuelson says, is that contrary to Republican claims, they don’t stimulate significantly faster growth. “Tax cuts may cushion a recession and improve the business climate, but they don’t automatically raise long-term growth. A 2014 study by the Congressional Research Service put it this way: ‘A review of statistical evidence suggests that both labor supply and savings and investment are relatively insensitive to tax rates.’”

For Samuelson, the facts point in a different direction: “The truth is that we need higher, not lower, taxes. … We are undertaxed. Government spending, led by the cost of retirees, regularly exceeds our tax intake.”

But will Republicans raise taxes? That’s not a likely outcome given the current budget debate, which would need a dose of honesty that is sorely missing.
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US Companies Push Back on One Idea for Taxing Their Foreign Profits

The corporate lobbying push on tax reform is on in full force. If you watch cable news, you’ve likely seen ads from the Business Roundtable and other groups that are already spending millions of dollars to promote tax reform on television and radio. But not all the efforts are so public.

In a piece in Sunday’s Wall Street Journal, Richard Rubin offers details on one behind-the-scenes campaign by corporations to shape tax reform. Rubin reports that a group of large U.S. companies called the Alliance for Competitive Taxation issued a policy paper earlier this month warning against the “unintended and adverse consequences” of introducing a minimum tax for foreign earnings.

Such a minimum tax is reportedly one option under consideration as part of a shift to a territorial tax system, with a lower corporate rate for domestic profits, intended to incentivize companies to bring back some of the profits they have stashed in foreign countries to avoid paying a high tax rate on those earnings at home.

The minimum rate would be below the new statutory corporate rate and act to reduce the incentive to keep foreign profits in other countries.

But the companies in the alliance, including Eli Lilly, United Technologies and UPS, warned that a minimum tax would put American corporations at a disadvantage to their global competitors.

Kyle Pomerleau of the conservative-leaning Tax Foundation wrote recently that a broad minimum tax on foreign earnings would still give companies incentive to move their headquarters out of the U.S. to avoid the tax.

But Chye-Ching Huang, deputy director of federal tax policy at the left-leaning Center on Budget and Policy Priorities, tweeted Monday that multinational corporations want a “cartoon” version of the territorial tax system — one that would bring “0% US tax on their foreign profits. Giant incentive to shift profits offshore. Weak guardrails to stop it.”
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A Military Coup in the U.S.? A Surprising Number of Americans Might Support One

<p>Significant defense savings can be achieved by simply relocating a fraction of our troops in Europe to the United States. The Cold War ended more than 20 years ago, and we no longer need to station troops in Europe to hold the line against the Soviet
Getty Images
By Millie Dent
September 10, 2015

Imagine you’re watching the evening news, kicking back after a long day in the cubicle. Suddenly a breaking news alert flashes across the screen: “Military Coup Overthrows the Government.” What would be your reaction?

While most Americans say they can’t imagine supporting a takeover of the government by the armed forces, or least aren’t sure about it, a substantial number of people say they can imagine supporting the military in such a scenario.

In a new survey by YouGov, 29 percent of respondents said they can imagine a situation in which they would support the military taking control of the federal government – that translates into over 70 million American adults. Forty-one percent of respondents said could not imagine supporting the military taking over the country.

Related: With $8.5 Trillion Unaccounted for, Why should Congress Increase the Defense Budget?

Republicans (43 percent) were more likely to say they can envision a scenario in which they could support a military coup than Democrats (20 percent). Perhaps that difference is related to having a Democratic president who some critics on the right see as overstepping his power.

Regardless of political ideology, one reason people might support a military coup is because they respect officers in the military far more than they do people in Congress. According to the same YouGov survey, almost three-quarters (70 percent) of respondents believe that military officers want what is best for the country, while only 29 percent think the same of members of Congress.

Lawmakers better shape up or they might be shipped out -- literally. 

Top Reads From The Fiscal Times

Sanders Pulls Ahead in Iowa, but a Tougher Clinton Aims to Even the Score

Democratic presidential candidate and U.S. Senator Bernie Sanders addresses the Democratic National Committee (DNC) Summer Meeting in Minneapolis, Minnesota
© Craig Lassig / Reuters
By Martin Matishak
September 10, 2015

A new poll unveiled Thursday finds populist Bernie Sanders squeezing past Hillary Clinton for the first time as the preferred choice among likely Iowa caucus-goers.

The survey by Quinnipiac University shows the Vermont lawmaker receiving 41 percent, while Clinton garnered 40 percent. The figures put Sanders’ lead well within the poll’s 3.4 percent margin of error, but the numbers serve as another indication of how tight the Democratic primary has become, especially in Iowa where Clinton has long maintained an advantage.

Related: With Trump and Sanders Riding High, How Low Will Bush and Clinton Go?

The poll found another 12 percent of voters would support Vice President Joe Biden, who has yet to decide if he will enter the 2016 race. Former Maryland Governor Martin O’Malley received 3 percent, and the same number were undecided.

While many could view the survey as the latest sign Clinton’s campaign is flailing, the timing of the poll could prove crucial.

The study was conducted between August 27 and September 8. That was the same day the former secretary of State told ABC News that using a personal email account while in office was a mistake and that she is sorry for it.

Related: Hillary’s E-Mail Lapse ... Mistake ... Responsibility ... er, 'Apology'

“I do think I could have and should have done a better job answering questions earlier. I really didn’t perhaps appreciate the need to do that,” Clinton said. “What I had done was allowed, it was above board. But in retrospect, as I look back at it now, even though it was allowed, I should have used two accounts. One for personal, one for work-related emails. That was a mistake. I’m sorry about that. I take responsibility.”

The interview marked the first time she apologized for her unique email arrangement. Questions over Clinton’s use of a private server have dogged her candidacy since she entered the White House race earlier this year.

Republicans have used the controversy surrounding the server to paint Clinton as untrustworthy and unfit to serve in the White House.

Related: Clinton: Trump Is Bad for American Politics

Indeed, Thursday’s poll found that while Clinton is still liked among Democratic voters who believe she would make a good leader, Sanders fares better on the question of trustworthiness.

The Quinnipiac poll also closed before Clinton gave a muscular foreign policy speech at the Brookings Institution on, among other things, the Iran nuclear deal.

“We should anticipate that Iran will test the next president,” she said. “They'll want to see how far they can bend the rules.”

“That won't work if I'm in the White House. I'll hold the line against Iranian noncompliance,” Clinton added.

On the softer side of things, Clinton’s interview on “The Ellen DeGeneres Show” will air Thursday afternoon. The appearance will give her a chance to connect with female voters who are the backbone of her support.

Taken together, the various actions could put Clinton back atop the polls, at least in Iowa, and help her gain back ground she lost to Sanders in New Hampshire as well.

Top Reads From The Fiscal Times:

College Students Say They’re Good with Money. Do You Believe Them?

iStockphoto
By Beth Braverman
September 10, 2015

A new study confirms it: College students think they know everything, at least when it comes to personal finance.

Nearly 60 percent of college students said that they had good or excellent financial literacy skills, according to a study released today by the American Institute of CPAs.

Despite that confidence, less than half of students say they stick to a monthly budget, nearly 40 percent had borrowed money from friends or family and more than 10 percent had missed a bill payment.

Of those surveyed, 99 percent said that personal financial management skills were important, but only a quarter said they seek out information on personal finance and incorporate it into their spending and saving habits.

“For many students, college is their first time making financial decisions,” Ernie Almonte, chairman of the AICPA’s Financial Literacy Commission said in a statement. “With this opportunity comes serious responsibility, and if they aren’t making informed, intelligent decisions it can have a negative impact on the rest of their financial lives.”

College students without a strong foundation in personal finance are more likely to take on risky debt or make poor saving decisions. But most students aren’t getting the education they need before they get to campus.

Just 17 states require high school students take a personal finance course, and only six require testing of personal finance concepts, according to the Council for Economic Education. Three out of four American teens can’t even make sense of a paystub.

But hey, at least they’re confident.

Top Reads from The Fiscal Times:

How Can You Tell There Are Russian Troops in Syria? Just Look for Some Soldier Selfies

By Millie Dent
September 9, 2015

Although Russian President Vladimir Putin has denied that he is sending troops to Syria, selfies taken by Russian soldiers and posted on social media are telling a different story.

Russian investigative journalist Ruslan Leviev reports that an increasing number of experienced Russian troops have been deployed to a naval maintenance facility in Tartus, along Syria’s Mediterranean coast. His source? Status updates and photos posted on Russia’s two biggest social networking sites by members of the 810th marine brigade, an infantry force in the Russian navy. 

Related: As Putin Targets Dissent, U.S. Democracy Group Banned in Russia

One photo Leviev found is of a career soldier named Mazhnikov, who appears to be at the naval facility in Syria. Another soldier, Anatoly Golota, also a member of the 810th brigade, updated his status on the Russian version of Facebook with the words, “Off to Syria :)).”

Russia has not denied that it’s been supplying weapons to the Syrian government and helping train the Syrian military. But Putin knows that combat troops are a different story.

The naval maintenance facility at Tartus is small, and in the past has been manned by just a handful of personnel. Leviev reports that the number of troops stationed at the facility is growing, and the troops are experienced contract soldiers, not draftees.

Videos uploaded to social media sites have raised concerns that Russian troops might be involved in combat inside Syria, according to an article in Foreign Policy. However, beyond the footage, which shows a Russian-made BTR-82A armored vehicle firing its gun in Syria, no other substantial evidence of active combat involving Russian troops has been found.

While the marines may or may not be directly involved in the fighting, the presence of Russian troops in Syria shows how hard Putin is pressing for a victory by the Assad regime. Now if he can just teach his soldiers how to avoid giving themselves away on social media.

Top Reads From The Fiscal Times

Americans Just Went on a $32 Billion Credit Card Shopping Spree

Credit cards are pictured in a wallet in Washington, February 21, 2010. REUTERS/Stelios Varias
© Stelios Varias / Reuters
By Millie Dent
September 9, 2015

Americans may be heading for another credit card crunch. After paying down almost $35 billion in credit card debt in the first quarter of the year, consumer charged up a storm in the second quarter, racking up $32.1 billion in new debt, according to CardHub, a credit card comparison site. CardHub says that’s the second highest quarterly total since it began keeping data on credit card debt in 2009.

While that buying binge could potentially signal improved confidence in the economy and in their own financial prospects, CardHub warns that the debt risks are building. It projects that consumers will close out the year with an annual net increase of more than $60 billion in credit card debt, with the total credit card debt outstanding climbing to more than $900 billion, the highest since the recession.

Related: 5 Cities with the Most Credit Card Debt

CardHub CEO Odysseas Papadimitriou says that jump brings Americans “perilously close to a tipping point at which balances become unsustainable and delinquency rates skyrocket.”

For 7 out of the past 10 quarters, consumers have racked up more debt than they’ve paid off. Papadimitriou cites that as evidence that consumers are going back to the bad habits they had before the economic downturn.

CardHub based its study on data from the Federal Reserve, and if the results are a sign of trouble then another new report from the Federal Reserve Bank of New York suggests that problem is even worse than it looks.  In a report called “Do We Know What We Owe,” the New York Fed found that people widely underestimate their credit card debt, telling the Fed’s survey-takers that it’s about 37 percent lower than what lenders say it is.

So if we are actually getting to a tipping point with credit card debt, it may be even closer than we realize.

Top Reads From The Fiscal Times