The Fiscal Times Newsletter - August 28, 2017

The Fiscal Times Newsletter - August 28, 2017

By The Fiscal Times Staff

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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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Cyberattacks on Washington Are Up 50 to 100 Percent

REUTERS/Kacper Pempel/Files
By Brianna Ehley, The Fiscal Times

As the government struggles to hire skilled workers to fend off hackers, cyberattacks on federal agencies are up between 50 and 100 percent in the past year.

A new survey by the Professional Services Council found that at least 28 percent of chief information officers at federal agencies reported an increase in cyberattacks of 51 to 100 percent over the past year.

Related: Cyber Security Office Deemed Dysfunctional

The increasing threat of cyber hacks against the government isn’t surprising. Earlier this year, the Government Accountability Office listed federal IT operations as one of the most serious weaknesses in the federal government and in its annual “High Risk” report, the GAO labeled this vulnerability a major threat to national security.

Just last week, the Obama administration announced that Chinese cyber thieves hacked into the Office of Personnel Management’s massive government data system and accessed more than 4 million federal workers’ personal data. ABC News reported that the hackers potentially gained access to some Cabinet member data as well.

In the aftermath of the breach, President Obama called on agencies to ramp up cyber security efforts. However, the problem, according to the PSC survey, is that the government is having trouble recruiting skilled cyber experts.

Related: Federal Government Hacked: Chinese Cyber Thieves Target Fed’s Personal Info

Some 63 percent of CIOs reported that their agencies were not sufficiently prepared to develop necessary talent. Most cited limited resources and government salaries as obstacles to competing with employers in the private sector.

Commerce Department CIO Steve Cooper said hiring young people is a major challenge. The average age of Commerce employees is about 50 years old, NextGov noted.

The CIOs’ responses are in line with a separate GAO report from earlier this year that found there is a major skills gap within the federal workforce when it comes to IT and cybersecurity.

Why Your Next Phone Could Be Powered By Seawater

Wikipedia
By Andrew Lumby

Lithium is more than just a pretty solid Nirvana track – it’s also the reason that the portable computer in your pocket can keep on tweeting, e-mailing and otherwise vibrating for hours on end.

But soon there may not be enough available to go around.

As the demand for long-lasting batteries in cell-phones, laptops, and electric cars increases, so too does demand for Lithium, their key ingredient.

The U.S. Geological Survey estimated recently that conventional lithium reserves provide enough for production of 37,000 tons of the element per year for 365 years. That sounds like a lot, but with over a million electric cars expected in 2020, the development of battery clusters that power smart homes (like Tesla’s Powerwall), and increasing availability of lithium-powered consumer electronics, demand is sure to rise exponentially every year.

To battle the problem of Lithium shortage, researchers are looking to some unconventional sources. In Japan, for instance, scientists at the Atomic Energy Agency are working on a method to extract lithium from seawater through dialysis. According to a report from MIT Technology Review, “The system is based on a dialysis cell with a membrane consisting of a superconductor material,” a sentence which presumably means something to someone, somewhere.

Though the method is a long way away from being used commercially, one of the lead scientists on the project, Tsuyoshi Hoshino wrote that this particular method of extracting Lithium “shows good energy efficiency and is easily scalable.” Hoshino adds that his method could be commercialized in five years.

If Hoshino’s method makes it to commercialization, it could be a huge boom for the lithium battery industry, especially to powerhouse Tesla. Mineral assays of Nevada’s salt lakes have shown promising concentrations of lithium, which also happens to be where the battery pioneer plans to build its massive battery production plant, known as the “Gigafactory.”

For now, though, we’re stuck with a reliance on more conventional lithium sources.

More Americans Smell Fear—not Roses—When They Retire

iStockphoto/The Fiscal Times
By Beth Braverman

The shine is coming off of Americans’ expectations for their Golden Years. 

Two-thirds of Americans anticipate being stressed about their finances in retirement, and nearly 60 percent don’t think they’ll have enough money, according to a new report by Merrill Edge

The report found that younger generations—Gen Xers and Millennial--are the most likely to expect to feel stress in retirement. Nearly half of those who aren’t retired expect to work in retirement, and 41 percent said they’ll rely on the government for financial help in retirement. 

It may not be as bad as they expect. The survey also looked at how current retirees were doing, and it found a brighter picture. About 75 percent of current retirees believe they’ll have enough money to last through retirement, while just 57 percent of pre-retirees feel the same.   

Related: 5 Things No One Ever Tells You About Retirement

One promising finding in the report: Americans are putting a higher priority on saving for the future, perhaps because of their anxiety about running out of money. More than 60 percent of those surveyed said they would prioritize saving for the future, versus less than half of those asked the same question last year. 

“In comparison to a year ago, we’re seeing a significant jump in positive investment behaviors and intent,” Aron Levine, head of Bank of America Preferred Banking and Merrill Edge said in a statement. “It’s encouraging to see Americans prioritizing the future along with the present and turning financial concerns into positive investment decisions.”

Marriage?? Young Americans Aren't Even Shacking Up

iStockphoto
By Millie Dent

You’ve probably heard that marriage among young adults has been on the decline, but a new Gallup poll finds that the percentage of 18-to-29-year-olds living with a partner has flatlined in recent years.

“This means that not only are fewer young adults married, but also that fewer are in committed relationships,” Gallup’s Lydia Saad wrote Monday. “As a result, the percentage of young adults who report being single and not living with someone has risen dramatically in the past decade.” 

Related: The Bad News About All the Singles in America

That percentage has risen from 52 percent in 2004 to 64 percent last year, Gallup says. The data doesn’t necessarily mean young adults are avoiding relationships entirely. Young people are just less likely to make a serious commitment associated with moving in together.

The trend hasn’t carried through to Americans in their 30s, who are only a bit more likely to be single than they were a decade ago. Marriage among people in this age group has also declined in popularity, but the percentage of 30-somethings living with a partner has jumped from 7 percent to 13 percent.

 

The new data suggests that, if young people don’t feel ready for marriage, they may not feel up for long-term commitment yet, either. (In some cases, that may be because they’re still living with their parents.) “This doesn't necessarily mean young adults are staying out of relationships, just that they are less likely to be making the more serious commitment associated with moving in together — whether in marriage or not,” Saad wrote.

The societal question, she said, is whether those single 20-somethings stay that way into their 30s. A Gallup poll from 2013 suggests that young adults may not be avoiding marriage altogether, but are just pushing it back. In that survey, 56 percent of Americans aged 18 to 34 said they were unmarried but did want to tie the knot at some point. Only 9 percent in the same age group said they were unmarried and wanted to stay that way. The most common reasons people listed for not being married yet included having not found the right person, being too young or not ready to get married and money concerns.

In other words, they might someday say “I do,” but for now they definitely don’t.

Obama Says King v. Burwell Is an ‘Easy Case’

Sylvia Burwell
REUTERS/Jonathan Ernst
By Brianna Ehley, The Fiscal Times

House Republicans are gearing up to grill Health and Human Services Secretary Sylvia Mathews Burwell this week over how the administration will handle any potential fallout if the Supreme Court strikes down federal subsidies for health insurance coverage in 34 states operating on the federal exchange. Burwell will testify before the House Ways and Means Committee on Wednesday, ahead of the high court’s ruling in the high-stakes case of King v. Burwell, expected later this month. 

The plaintiffs in that case contend that the law’s language only provides for subsidies to people in states that created their own exchange. The Obama administration and authors of the law maintain that the law was intended to offer subsidies to all enrollees who are eligible based on their income regardless of which exchange they used. 

Related: If Obamacare Collapses, These 9 Ideas Could Save Health Care 

If the court rules against the administration, an estimated 6.5 million people could lose their subsidized health coverage. If that happens, experts say it could create a ripple effect throughout health insurance markets in federal exchange states. Nearly everyone agrees that such a ruling would be devastating for millions of Americans. However, there is little agreement over what, if anything, to do to stem such fallout if the court rules for the plaintiffs. 

Asked why his administration has given little guidance to states on how to prepare for the potential loss of federal insurance subsidies, President Obama on Monday said, “there is no reason why the existing exchanges should be overturned through a court case.” 

King v. Burwell “should be an easy case,” Obama said. “Frankly, it probably shouldn’t even have been taken up. And since we’re going to get a ruling pretty quick, I think it’s important for us to go ahead and assume that the Supreme Court is going to do what most legal scholars who’ve looked at this would expect them to do.” 

Obama added that Congress could also resolve any problems raised by a court ruling “with a one-sentence provision.” 

Related: Double Digit Rate Hikes Loom for Obamacare 2016  

That kind of response is unlikely to satisfy House Republicans, who are likely to again question Burwell’s previous claims that the administration does not have a “Plan B” in place if the court strikes down federal subsidies for millions of Americans. 

Last week, during a Wall Street Journal breakfast, Burwell explained that the administration’s authority is limited. She added that her agency would work with states that are considering creating their own exchanges or using workarounds to avoid losing out on the federal subsidies. 

“As always, we will stand ready to work with states, but in terms of administrative authority, we can’t do much,” Burwell said. 

Republicans, who have long sought to repeal Obamacare, have criticized the administration for not having a contingency plan in place if the subsidies get struck down.