The Fiscal Times Newsletter - August 28, 2017

Quick Hits

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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The Amount of Money Lost to Ad-Blocking Is Skyrocketing

Flickr/Daniel Oines
By Millie Dent
August 11, 2015

Are you annoyed by online pop-up ads or those video commercials that automatically start playing when you visit a new Web page? Worried about advertisers collecting your personal information online? You’re not alone. In the perpetual cat and mouse game between marketers and Internet users, the utilization of ad-blocking software by Web surfers is growing rapidly — and it’s costing advertisers billions.

Ad-blocking technology was employed by 45 million active users during the second quarter of 2015, a new report by PageFair and Adobe found. This represents 16 percent of the U.S. online population. In the past year, the number of users blocking ads grew by 48 percent.

In 2014, ad-blocking in the U.S. cost an estimated $5.8 billion in lost advertising revenue. That figure is expected to jump to $10.7 billion in 2015 and $20.3 billion in 2016 as more users adopt the practice. The new version of Apple’s mobile operating system coming this fall is expected to make the problem worse, since it will allow iPhone users to block ads in Safari with a simple app.

In addition to lost revenue, ad-blocking skews the demographics of the online audience. Websites that cater to younger users — a demographic advertisers are eager to target — are the ones most significantly affected by ad-blocking.

Related: The Future of Advertising: Everything, Everywhere, All the Time

A survey in the PageFair/Adobe report found that the main reason individuals block ads is a concern about advertisers mishandling personal data.

Advertisers have a long way to go when it comes to trust. An article in AdAge argues that marketers should be more transparent about the ways they use the information they collect. It recommends giving users more control of their personal data, the ability to decide how much information to share and the choice to opt-out at any time.

Trust isn’t the only issue, though. The appeal of ad-blocking is growing as “malvertising” attacks become more common. Last month, Yahoo’s ad network was targeted for seven days by hackers who sent out corrupt bits of code through Flash-based ads to visitors on Yahoo’s popular sites. Some users were redirected to sites that paid the hackers for traffic, while others had their computers locked for ransom. 

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How a Smart Home Can Save You Time and Money

iStockphoto
By Beth Braverman
August 11, 2015

More than a quarter of Americans have smart home products and they report that the devices save them an average of 30 minutes a day and more than $1,000 per year, according to a new report by Coldwell Banker and CNET.

Adoption of smart home products is even higher among millennials, with more than half embracing the technology. Additionally, parents of young children are twice as likely to have installed smart home products than non-parents.

“Smart home technology is catching on because it is literally changing the way we live in our homes,” Coldwell Banker Chief Marketing Officer Sean Blankenship said in a statement. “Not only is it shifting the financial perception of the home, but it is also transforming our emotional connection to our homes.”

Related: Want a Smarter Home? You Don’t Have to Wait

More than eight in 10 of those surveyed said they’d be more likely to buy a home if it included smart technology like connected lights, thermostats or security systems. Nearly three-quarters said that smart home products provide peace of mind when it comes to home security.

Those numbers are expected to grow as technology gets better and cheaper, and millennials start purchasing and upgrading homes in larger numbers. A 2013 report by the Organization for Economic Co-Operation and development found that a four-person family had about 10 connected devices, but projected that number to grow to about 25 in five years and as many as 50 in 10 years.

Top Reads from the Fiscal Times:

On Campaign Trail, Rubio Truant in the Senate

REUTERS/Joshua Roberts
By Martin Matishak
August 10, 2015

Last week Sen. Marco Rubio warned it’s “important to be qualified, but if this election is a resume competition, then Hillary Clinton's gonna be the next president” because of her long history in office and in federal government.

For his sake, he’d better hope the GOP primary doesn’t turn into a disqualifying truancy competition, too.

A study by The Tampa Bay Times found that of the four Republican senators running for the White House, Rubio has missed the most Senate votes.

In June alone, Rubio missed 67 percent of the Senate votes, and he wasn’t there for more than half of them in July, according to The Times.

Related: The New York Times Just Made Rubio the Hero of the Struggling Middle Class

In all, the first-term lawmaker missed 29 percent of Senate votes, or 76 of 262 recorded, in the first six months of 2015. Over 50 of those came after his April 13 campaign announcement.

The numbers show how much time Rubio has had to spend off Capitol Hill and on the campaign trail as he looks to break out of a crowded GOP field that includes his friend and former Florida Gov. Jeb Bush.

By contrast, Sen. Ted Cruz (R-TX) has missed 54 votes since declaring his candidacy in March, while Sen. Lindsey Graham (R-SC) was truant for 35 votes since he launched his presidential bid on June 1.

Sen. Rand Paul (R-KY) has skipped only three votes throughout 2015 and only one since declaring for president.

On the Democratic side, Sen. Bernie Sanders (I-VT) has missed four votes since hitting the campaign trail.

Rubio has missed nearly 11 percent of votes since he joined the Senate in January 2011, The Times analysis shows, well above the median 1.6 percent rate for the lifetimes of current senators.

A Rubio spokesperson did not respond to a request for comment.

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Did Kasich Just Do an About-Face on Climate Change?

Potential Republican 2016 presidential candidate Ohio Governor John Kasich speaks at the First in the Nation Republican Leadership Conference in Nashua
REUTERS/Brian Snyder
By Eric Pianin
August 10, 2015

Maybe it’s because he is still feeling his way as a late entrant into the GOP presidential campaign, but Ohio Gov. John Kasich did a fairly dramatic about-face over the weekend on the politically charged issue of climate change.

Kasich, a former House Budget Committee chair and Wall Street business executive, has positioned himself as a “kinder, gentler” conservative than Jeb Bush, Ted Cruz and the dozen other Republicans running for the 2016 presidential nomination. So it wasn’t surprising that he would take a more moderate stand on global warming during the first nationally televised GOP presidential debate Thursday evening.

Related: 10 Things You Need to Know About John Kasich

Kasich, a devout Christian, declared during the two-hour debate sponsored by Fox News that climate change is a real problem requiring government and society to protect the “creation that the Lord has given us.”

While the vast majority of Republicans on Capitol Hill and the campaign trail are highly skeptical of President Obama’s campaign to curb industrial carbon emissions to prevent the disastrous long term effects of global warming on the environment and economy, Kasich appeared to be one of the few who took the threat seriously.

He emphasized the importance of unity and cooperation, saying at one point that “we’ve got to unite our country again, because we’re stronger when we are united and we are weaker when we are divided.”

Just a few days later, though, after winning plaudits for his Thursday night performance – with some even favorably comparing his views on environmental threats to those of Pope Francis – Kasich sounded much like a climate-change doubter.

Related: Does Kasich Have a Chance? How He Can Catch Up to the GOP

During an appearance on NBC News’ “Meet the Press,”  Kasich told moderator Chuck Todd that “I think man absolutely affects the environment, but as to whether, you know, what the impact is, the overall impact, I think that’s a legitimate debate.”

Kasich went on to say that in Ohio, “we preciously take care of Lake Erie, and we’ve reduced emissions by 30 percent over the last ten years.”

“We believe in alternative energy,” he added. “So of course we have to be sensitive to it, but we don’t want to destroy people’s jobs, based on some theory that’s not proven.”

According to National Journal, the Kasich 2016 campaign attempted to clarify his remarks following his appearance on “Meet the Press.”  "The governor has long believed climate change is real and we need to do something about it,” according to the statement. “The debate over exact percentages of why it is happening is less important than what can be done about it. We know it is real, we know man has an impact, and we know we need to do something."

A number of prominent presidential candidates -- including former Florida governor Jeb Bush and Sens. Ted Cruz, Marco Rubio, and Rand Paul -- are climate change doubters or deniers.  Sen. Lindsey Graham of South Carolina is one of the few who unquestionably accepts scientific evidence that man-made greenhouse gas emissions are a principal cause of global warming, and has sharply criticized his party for lacking a comprehensive environmental platform.

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Need a Good Dentist? You Might Want to Head to Mexico

Children are missing out on vital dental care—risking their health and racking up costs to parents and taxpayers alike. In the past decade, the number of cavities in children between the ages of two and five has increased 15 percent.
iStockphoto
By Suelain Moy
August 10, 2015

Can you say “dentista?”

Increasingly expensive dental care costs are forcing seniors to bite down hard—and head to Mexico to preserve their pearly whites, the Associated Press reports.

Nearly 70 percent of seniors do not have dental insurance, according to a 2013 Harris Interactive survey commissioned by Oral Health America. Medicare does not cover dental care, and many employers do not offer post-retirement health benefits. You can get dental coverage through the Affordable Care Act, but only if you purchase general health coverage first. (Many seniors already have that coverage.)

Even with coverage, crowns, bridgework, implants and dental surgery can easily exceed the annual limit. As a result, seniors who need extensive dental work may have limited options and could face out-of-pocket costs running into the thousands or tens of thousands of dollars; 23 percent of seniors in the Oral Health America survey said they have not seen a dental provider in five years.

Related: The Hidden Costs of Dental Neglect

Just as people traveled to Canada to buy their prescription drugs at lower cost or traveling the world for other medical services and procedures, more Americans are now flocking to places like Los Algodones, Mexico for dental care. Dental care in Mexico is much cheaper, thanks to lower labor costs and fewer regulatory requirements — factors that you should keep in mind before heading south of the border. The dentists in Mexico maintain that they may not have as much education as their American counterparts, but they spend more time practicing clinical work.

It’s not just people who live in border cities like El Paso, Texas crossing the border to take care of their teeth. The Associated Press reports that shuttle services exist to take dental patients from the Phoenix area to Los Algodones, a 200-mile trip.

Before you book a trip, though, remember that should something go wrong you may not have the same legal recourse as in the U.S., and the dentists may use different types of equipment--so do your research first.

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