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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Don’t Feel Like a Chump When You Close on Your New Mortgage

iStockphoto
By Beth Braverman
August 4, 2015

Mortgage closing costs dropped 7 percent over the past year, falling to $1,847 on a $200,000 loan, according to a new analysis by Bankrate.

Typical closing costs varied by state, ranging from $2,163 in Hawaii to $1,613 in Ohio. You can find the average rate for your state in the table below.

Lenders compete for business, so shopping around with at least three mortgage providers can help you reduce the fees associated with your loan. “Homebuyers have more say over closing costs than they think,” Bankrate Senior Mortgage Analyst Holden Lewis said in a statement.

Even as banks lower their mortgage fees, they’re increasing fees in most other categories, according to MoneyRates.com.

While lower mortgage fees are good news for homebuyers and those refinancing their loans, the average saving amount to just $140. That’s not much relative to the total costs associated with buying a house. The average down payment for homebuyers in the first quarter of 2015 was $57,710, for example.

Related: Want Your Own Home? Here’s How to Do the Math

The costs don’t stop once the buyers move in. On top of mortgage payments, homeowners face an average of more than $6,000 in additional costs related to their house, including homeowners insurance, property taxes and utilities.

The National Association of Realtors expects home prices to increase 6.5 percent this year to a median $221,900, which would put them at the same level as their 2006 record high.

For buyers, better news than the lower mortgage fees is that rates remain relatively low, falling to 3.98 percent last week, per Freddie Mac.

Closing costs

StateAverage origination feesAverage third-party feesAverage origination plus third-party fees
Alabama $1,066 $776 $1,842
Alaska $935 $922 $1,857
Arizona $1,208 $761 $1,969
Arkansas $1,057 $760 $1,817
California $937 $896 $1,834
Colorado $1,192 $719 $1,910
Connecticut $1,074 $960 $2,033
Delaware $904 $924 $1,828
District of Columbia $1,077 $718 $1,794
Florida $1,028 $778 $1,806
Georgia $1,058 $821 $1,879
Hawaii $1,033 $1,130 $2,163
Idaho $894 $788 $1,682
Illinois $1,080 $767 $1,847
Indiana $1,067 $770 $1,837
Iowa $1,161 $762 $1,923
Kansas $1,047 $753 $1,800
Kentucky $1,060 $737 $1,797
Louisiana $1,060 $817 $1,877
Maine $897 $830 $1,727
Maryland $1,093 $742 $1,835
Massachusetts $905 $851 $1,756
Michigan $1,072 $746 $1,818
Minnesota $1,067 $689 $1,757
Mississippi $1,046 $837 $1,884
Missouri $1,040 $792 $1,833
Montana $1,062 $855 $1,917
Nebraska $1,047 $770 $1,817
Nevada $1,002 $848 $1,850
New Hampshire $1,084 $750 $1,835
New Jersey $1,181 $913 $2,094
New Mexico $1,076 $876 $1,952
New York $1,032 $879 $1,911
North Carolina $1,036 $875 $1,911
North Dakota $1,045 $791 $1,836
Ohio $933 $681 $1,613
Oklahoma $1,027 $734 $1,761
Oregon $1,080 $785 $1,864
Pennsylvania $1,055 $678 $1,733
Rhode Island $1,093 $802 $1,896
South Carolina $1,058 $837 $1,895
South Dakota $1,055 $704 $1,759
Tennessee $1,033 $773 $1,806
Texas $1,031 $833 $1,864
Utah $909 $788 $1,697
Vermont $1,074 $862 $1,936
Virginia $1,050 $787 $1,837
Washington $1,077 $824 $1,901
West Virginia $1,067 $904 $1,971
Wisconsin $1,047 $723 $1,770
Wyoming $874 $814 $1,689
       
Average $1,041 $807 $1,847

Bankrate.com surveyed up to 10 lenders in each state in June 2015 and obtained online Good Faith Estimates for a $200,000 mortgage to buy a single-family home with a 20 percent down payment in a prominent city. Costs include fees charged by lenders, as well as third-party fees for services such as appraisals and credit reports. The survey excludes title insurance, title search, taxes, property insurance, association fees, interest and other prepaid items.

Top Reads from The Fiscal Times:

Why Are Nearly 40 Million American Adults Not Using the Internet?

A man types on a computer keyboard in Warsaw in this February 28, 2013 illustration file picture. One of the largest ever cyber attacks is slowing global internet services after an organisation blocking "spam" content became a target, with some experts s
Kacper Pempel
By Millie Dent
July 31, 2015

For most of use, the Internet is inescapable. We use the Web for everything from paying bills and writing emails to signing up for health insurance and watching our favorite shows.

However, a surprisingly large number of adults in the U.S. have resisted the siren call of the digital life. According to new data from Pew Research, 15% of the adult U.S. population is not online.

Who makes up this group of Internet naysayers? Here are some highlights:

  • Unsurprisingly, adults aged 65 and older make up the largest single age group (39 percent) most likely to say they never go online.
  • The higher the level of educational achievement, the greater the likelihood of Internet usage. For adults with less than a high school education, a third do not use the Internet.
  • Household income is also a significant factor. Adults in the most affluent households are eight times more likely to use the Internet than adults in households with an income of less than $30,000 per year. Nineteen percent of the non-users cite the high expense of Internet service or owning a computer.
  • Americans living in rural areas are twice as likely as individuals in urban or suburban regions to not use the Internet.
  • As for race and ethnicity, 20 percent of blacks and 18 percent of Hispanics do not use the Internet, compared with 14 percent of whites and 5 percent of English-speaking Asian-Americans.
  • While 34 percent of people who do not use the Internet choose not to, for others it’s not a choice, according to an earlier Pew report.
  • Thirty-two percent say the Internet is too complicated or difficult to use. 

The Crazy Reason Treasury Department Officials Can’t Get Their Work Done

By Eric Pianin
July 31, 2015

Treasury Department officials are being driven to distraction these days, but it’s not because of the expiring debt ceiling or other pressing financial controversies.

Instead, loud music from a New Orleans-style street band known as Spread Love has reportedly driven some officials and employees at the Treasury building to wear earphones to block out the noise and even move meetings to other parts of the building to find some peace and quiet.

Related: The Next Debt Crisis Could Be Much Worse than in 2013, GAO Warns

“We have to relocate our conference calls,” one Treasury employee told The Washington Post. “We can’t have meetings in that corner of the building anymore. It’s like they’re playing music in the building.”

Members of Spread Love have become fixtures of downtown Washington’s street scene and are collecting generous donations for playing their drums, trombone and other brass instruments. Tourists and other office workers out during their lunch hour appear to love the group, but not so the serious-minded economists and bean counters at the Treasury – especially when the band moves within easy shouting distance at the corner of 15th and G Streets NW.

Treasury Secretary Jack Lew’s staff members aren’t the only ones complaining about the jarring music. Partners and associates at the law firm of Skadden, Arps, Slate, Meagher & Flom find it hard to concentrate on their cases with daily interruptions. It got to the point that the firm dispatched a security guard to offer band members $200 a week if they would play somewhere else. Lonnie Shepard, one of the trombonists, told the newspaper that he laughed at the offer because “We can make that in an hour.”

Related: End of Sanctions Worth Hundreds of Billions to Iran

Rob Runyan, a spokesperson for the Treasury Department, said that employee complaints have made their way to the office of the assistant secretary for management, Brodi Fontenot, but there really wasn’t much that could be done.

“The band and other street noise are part of the distractions of working in downtown D.C.,” Runyan said in an interview Friday.   

Cockroaches, Rats and Mice: These Are the Country’s Most Infested Cities

By Beth Braverman
July 31, 2015

New York really is the most infested city in the country, at least according to a Bloomberg analysis of Census Bureau data on cockroach, mouse and rat sightings.

The Big Apple doesn’t lead in any of those individual categories. Homes in Tampa, Fla., have the most roaches, and those in Seattle may have the most rats. Philadelphia houses had the most mouse sightings in the country. But when Bloomberg combined all three categories, New York came out with the highest cumulative score.

Perhaps surprising given the economic state of the city, Detroit residents were the least likely to report seeing a mouse, rat or roach.

Related: The Top 9 Summer Insects to Avoid and How

The data covered only 25 metro areas, so some large cities like Dallas, Los Angeles and San Francisco don’t appear on the list.

Roaches appear to enjoy nice weather. Nearly 40 percent of homes in Tampa had evidence in roaches in the past year, followed by Houston and Austin. Cities with the fewest roach sightings were Seattle, Minneapolis and Detroit.

Mice, on the other, hand, seem to prefer the northeast. Nearly 20 percent of Philly homes had evidence of mice, followed by Baltimore and Boston. Tampa, Jacksonville, and Las Vegas had the lowest percentage of mouse sightings.

More than 20 percent of homes in Seattle and Austin had rats, with Miami rounding out the top three. Richmond, Va., Hartford, Conn., and Minneapolis had the lowest level of rat sightings.

All those vermin lead to big business. Last year, the U.S. pest control industry generated nearly $7.5 billion in revenue, a 3.5 percent increase year-over-year.

Bloomberg reported that the data also showed a difference in infestation levels of homes with families living below the poverty line and minority families, which were more likely to report evidence of rats and roaches.

Top Reads from The Fiscal Times:

Facebook Is Testing a Solar-Powered Internet-Beaming Drone

Handout photo of Facebook drone Aquila
HANDOUT
By Millie Dent
July 31, 2015

Imagine looking up at the sky and seeing a 900 lb. drone the size of Boeing 737 moving in slow circles 11 miles above you. As part of Facebook’s plan to provide Internet access to the 4 billion people who currently lack it, that could soon be the reality for the 10 percent of Earth’s population that lives far from cell towers or fiber optic lines. 

Researchers at Facebook’s Connectivity Lab, a division of Facebook’s Internet.org, announced yesterday that the first such drone has been completed as a step toward building a larger fleet. The craft hasn’t been flown yet, but Facebook has been testing versions one-tenth the size over the U.K. and plans on beginning flight tests of the full-size craft before the end of this year. 

Related: 12 Weird Uses for Drones 

The drone, termed Aquila (Latin for “Eagle), is a solar-powered V-shaped carbon fiber craft that will carry equipment such as solar panels and communications gear that can beam down wireless Internet connectivity. Lacking wheels or the ability to climb, the drone will be launched using helium balloons and will be able to fly for 90 days at a time. 

One of the biggest breakthroughs in the project has been the team developing a way to increase the data capacity of the lasers involved. The new system allows a ground-based laser to transmit information to a dome on the underside of the plane at 10 GB per second, about 10 times faster than previously thought possible. 

Facebook’s mission isn’t without controversy. Worldwide, critics have been questioning many of Internet.org’s practices on privacy, fairness and security grounds. Those opponents fear that users of Internet.org might be monitored through state-run telecoms, in some cases allowing countries to spy on and repress their citizens. In addition, first-time users of the Internet might confuse Facebook for the entire Internet and only receive news and information from the one site. 

The flack Internet.org is receiving isn’t the only problem Facebook has to deal with. Rival Google also has a project in the works to bring wireless Internet to rural communities. Their program, called “Project Loon,” involves high-altitude helium balloons that have transmitters attached to them. Although the project hasn’t been launched yet, it’s in more advanced stages than Aquila. 

Watch the video from Facebook’s Connectivity Lab: