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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Here’s the Scoop: Fun Facts for National Ice Cream Day

Ice Cream Cone
Flickr/m01229
By Suelain Moy
July 18, 2015

When President Ronald Reagan in 1984 designated the month of July as National Ice Cream Month and declared the third Sunday of July as National Ice Cream Day, he probably never could have foreseen a time when flavors of the treat included Pork Rind, Strawberry Durian or Squid.

Ice cream shops around the country will be celebrating their special day again this Sunday, July 19. Carvel stores will be offering a buy-one-get-one-free deal on any size or flavor of soft-serve cones.  Friendly’s is celebrating its 80th birthday this weekend, with participating stores also offering buy-one-get-one-free deals. Baskin-Robbins is offering a free upgrade to waffle cones with double scoops during the entire month of July. It also will offer 31 percent off all its ice cream sundaes on Friday, July 31.

Related: Born in the USA: 24 Iconic American Foods

Those chains offer a wide variety of flavors, but probably nothing quite as exotic as the OddFellows Ice Cream Co. in New York City, known for formulations loaded with unusual ingredients: Edamame, Chorizo Caramel Swirl, Cornbread and Maple Bacon Pecan. OddFellows co-owner Mohan Kumar says National Ice Cream Day will be just a regular Sunday for him and his stores: “It’s a beautiful day for ice cream every day.”

As you consider indulging in a frozen snack, here are some fun facts to fuel our red hot passion for ice cream:

Who Screams for Ice Cream: California, Indiana, Pennsylvania, Texas and New York are the states that consume the most ice cream. California also produces the most ice cream—over 142,000 gallons every year. About 10.3 percent of all the milk produced by U.S. dairy farmers is used to make ice cream. The five most popular brands in the U.S. are private labels, followed by Blue Bell, Haagen-Dazs, Breyers and Ben & Jerry’s. According to the International Dairy Foods Association, vanilla is America’s favorite flavor of ice cream, followed by chocolate. And how’s this for being ice cream crazy? Ben & Jerry’s employees get three free pints a day. They also get a free gym membership.

Hard Facts About Soft Serve: Despite many headlines to the contrary, it does not look like former British Prime Minister Margaret Thatcher invented soft-serve ice cream before she became known as the Iron Lady. The honor instead goes to Tom Carvel of Carvel ice cream or Dairy Queen co-founder J. F. McCullough. In Carvel’s case, his ice cream truck got a flat tire in Hartsdale, New York, in 1934. As the ice cream started to melt, he noticed its soft, creamy consistency and began selling it right from the truck. Two years later, he opened his first Carvel shop at the site where the truck first broke down.

Related: The 9 Most Expensive Junk Foods

Why We’re All Coneheads:  Italo Marchiony, an Italian immigrant, was granted a patent for waffle-like ice cream cups in New York City in December 1903. But he may not be the father of the cones we enjoy today. As the story goes, Arnold Fornachou, an ice cream vendor at the 1904 World’s Fair in St. Louis, ran out of dishes. His neighbor, a Syrian man, was selling crisp, Middle Eastern pastries called Zalabias. When rolled up, the waffle-like Zalabias made a perfect cone to hold the ice cream. The International Association of Ice Cream Manufacturers and the International Dairy Foods Association credit Ernest A. Hamwi, the pastry maker, with creating the cone, but others have also claimed credit — including Abe Doumar, another Syrian immigrant at the 1904 fair who would go on to produce the first machine to mass-produce ice cream waffle cones.

Tiny Bubbles, Big Business: How Seltzer Became the Hot New Drink

Cans of soda are displayed in a case at Kwik Stops Liquor in San Diego, California February 13, 2014. REUTERS/Sam Hodgson/Files
SAM HODGSON
By Millie Dent
July 17, 2015

Struggling to decide between healthy but boring water and sweet, sugary soda, Americans are increasingly turning to fizzy water to quench their thirst.

Although soda remains the leader in the soft drink category, soda consumption has fallen for the 10th year in a row, to the lowest level since 1986, according to The Wall Street Journal. Americans have been dropping sugary soda for years due to health concerns, but lately even diet soda has been losing popularity over worries about artificial sweeteners.

Sales of fizzy water — the category includes such well-known brands as Perrier and San Pellegrino — have grown to about $1.5 billion a year, more than doubling since 2010, according to data from industry research firm Euromonitor quoted in The Washington Post.

Related: How Coke Beat Pepsi in the New Cola Ad War

One of the top new brands is National Beverage’s LaCroix Sparkling Water, whose dozen flavors of bubbly H20 seem to be aimed at millennials in particular. The brand’s bright, colorful cans convey an alternative vibe, and the drink’s Instagram is loaded with attractive young people hoisting a can at pools, beaches and other relaxing places.

National Beverage credited sparkling water as the main factor that grew the company’s stock 75 percent over the last five years. Sales of the LaCroix brand alone have grown to $175 million, almost tripling since 2009.

Another rapidly growing brand, Sparkling Ice, owned by Talking Rain Beverage Company, saw sales boom to more than $384 million in 2014 from $2.7 million in 2009.

Gary Hemphill, managing director and COO of research at Beverage Marketing, sees the sales of seltzer and sparkling water only increasing as consumer demand for healthier refreshments grows.

Hackers’ Delight: 1 Million Miles for Reporting United Airlines Security Flaws

A United Airlines plane with the Continental Airlines logo on its tail, sits at a gate at O'Hare International airport in Chicago October 1, 2010. REUTERS/Frank Polich
Frank Polich
By Suelain Moy
July 17, 2015

Now here’s a rewards program Julian Assange could love. United Airlines has confirmed that it paid 1 million frequent flier miles each to two hackers who found serious flaws and security breaches in its computer systems.

Related: Millions of Samsung Galaxy Phones May Be Vulnerable to Hackers

This past May, United started a “bug bounty” program to find loopholes in its security, but it’s hardly the first corporate entity to do so. Google, Facebook and Yahoo all offer rewards or incentives to hackers who report bugs to them privately. Netscape engineer Jarrett Ridlinghafer is largely credited with coming up with the concept of rewarding good, or “white hat,” hackers for trouble-shooting in 1995.

Jordan Wiens, founder of cybersecurity company Vector 35, was one of two winners to claim a million airline miles for his prize. He posted a screenshot of his mileage account on Twitter. (He submitted the bug on May 15, got a response on May 19, a validation notice on June 24 and then the payout on July 10.) A second bug he reported won a lesser prize of 250,000 miles. Kyle Lovett from Montgomery, Calif., was the other million-mile winner. Lovett Tweeted that he will use some of the miles to fly out his mother and brother to California.

No doubt the airline saved a ton of money in preventing computer issues. In recent months United has had to ground it flights twice as a result of computer system glitches. On June 2, an automation issue affected 150 flights, or 8 percent of its morning schedule. On July 8, a network connectivity issue due to a router malfunction locked up its reservations system and grounded thousands of flights worldwide.

Looks like the airline has more miles to dole out, too: Twitter was full of happy pronouncement from hackers claiming smaller prizes and begging Delta to do the same.

How the Emmys Made Netflix’s Very Good Week Even Better

'Arrested' bump disappoints Netflix investors, shares drop
Reuters
By Josh Herr
July 17, 2015

When the Emmy nominations were announced on Thursday, there were any number of people who were hoping Netflix’s already excellent week would end with a fizzle.

The old school broadcast networks (ABC, CBS, NBC and Fox), HBO, Amazon, Hulu, AMC, BBC America and FX all had shows that were widely admired and due for recognition at the annual awards extravaganza.

Netflix, on the other hand, was coming off the widely panned season of “House of Cards,” the critically admired but little-seen “Bloodline” and “Unbreakable Kimmy Schmidt,” and the domestic flop of its $90 million historical epic, “Marco Pollo.” Additionally, “Orange Is the New Black,” which had a strong third season both in terms of reviews and ratings, was forced by a change in the Emmy rules to submit as a drama rather than a comedy, putting it up against more hard-hitting dramatic programs.

Related: How the Video Game Industry Is Failing Its Fans

As it turns out, Netflix’s very good week would keep going with a record setting 34 nominations. This is dwarfed by HBO’s 127 nominations, but this is a remarkable number for the streaming service nevertheless.

The shower of nominations came on the end of a week in which Netflix stock price continued to climb at a rapid pace, making it the single best performing stock in the S&P 500 this year. Netflix continues to grow rapidly, adding 900,000 domestic users in Q2 and a staggering 2.4 million users internationally, widely exceeding expectations of 6000,000 and 1.9 million, respectively.

If there is a downside, it is that Netflix is unlikely to actually WIN in any of the major Emmy categories. The beloved series “Mad Men” and “Parks and Recreation” should have a lock on the comedy and drama awards (and if Jonathan Banks of “Better Call Saul” doesn’t win besting supporting actor in a drama, there will be riots!). But for Netflix, it is still an honor just to be nominated.

The streaming giant will not be resting on its laurels. Coming on the back of its critically-acclaimed and bone-crunching adaptation of “Daredevil,” the company will be teaming up with Marvel again for three more shows.  Netflix will also be amping up its feature film division with debuts from “True Detective” director Cary Fukunaga and an action movie starring Brad Pitt.

The company may walk away empty handed when they hand out the golden statues on September 20th, but for the time being, everything is coming up Netflix.

This Is the Best Time Since the Recession to Get a Small Business Loan

iStockphoto
By Millie Dent
July 17, 2015

Feeling the entrepreneurial itch? This is the best time in years to start a small business with a loan from a big bank, according to a new report from online loan marketplace Biz2Credit.

Banks with $10 billion or more in assets have raised their approval rates for small business loan requests to the highest level since 2011, when Biz2Credit started tracking them. In June 2011 big banks granted a measly 8.9 percent of small loan applications. Last month they approved 22.19 percent.

“These are the best numbers for big bank lending since the recession," Biz2Credit CEO Rohit Arora said in the report. 

Related: What the U.S. Must Do to Avoid Another Financial Crisis

Banks had pulled back sharply on small business lending during and after the financial crisis. As a result, startups began turning to alternative lenders and credit unions. Those other sources of funding now have approval rates of 61 percent and 43 percent respectively, but those rates have been steadily declining, making the rebound in bank loans all the more welcome.

Bank approval rates are still well below where they were before the recession — and the Biz2Credit report is based on an analysis of just 1,000 loan applications on the site — but the trend is an encouraging one for the entrepreneurs among us.