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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Commerce IG Accused of Whistleblower Retaliation Suddenly Quits

Flickr/sciencedemocrats
By Brianna Ehley, The Fiscal Times
June 4, 2015

Embattled Commerce Department Inspector General Todd Zinser, who has been accused of misconduct and retaliation against whistleblowers, just announced that he is stepping down after seven years at the agency. 

In an internal email to his staff, Zinser said he would be leaving his watchdog post to “pursue opportunities outside of government service,” GovExec first reported.

Zinser, the top watchdog in charge of keeping tabs on the Commerce Department, has been under intense scrutiny for nearly a year amid allegations of whistleblower retaliation and improperly hiring a woman with whom he was said to be romantically involved.

Related: Corruption in Commerce Dept? Lawmakers Want Him Out

For months, Rep. Eddie Bernice Johnson (D-TX) and two independent watchdog groups, have been calling on President Obama to fire Zinser over the alleged misconduct, which has been the subject of at least one federal probe by the White House Office of Special Council.

The White House has not responded to comment on whether Zinser was asked to leave.

A bipartisan group of lawmakers have been probing into multiple allegations brought by whistleblowers against Zinser for the better part of a year.

“The Committee has uncovered evidence questioning whether the Commerce IG’s office is functioning with integrity. We must determine if these allegations are true and if so, they are the result of systemic issues that may require legislative action,” the lawmakers wrote in a letter published last year.

Related: Why This Government Watchdog Needs Watching 

In one instance, the IG reportedly failed to discipline two employees in his office who intimidated potential whistleblowers.

Another whistleblower told the committee that the IG improperly hired his “girlfriend” for a senior role in the office, which had an annual salary of $150,000 plus bonuses. Zinser maintained that he and the woman were not romantically involved and defended her employment. 

He told the Council of Inspectors General for Integrity and Efficiency (CIGIE) that she was hired solely “on business necessity.”

There is currently a Government Accountability Office investigation into Zinser’s office conduct that is expected to be published in the coming months. 

Zinser previously served as the Transportation Department’s acting inspector general and deputy inspector general.

6.6M Homes at Risk of Hurricane Damage This Year. Here’s Which States They’re In

REUTERS
By Beth Braverman
June 4, 2015

As hurricane season gets underway, real estate analytics firm CoreLogic is warning that there are more than 6.6 million U.S. homes at risk of being hit by a storm surge. That could lead to as much at $1.5 trillion in damage.

The homes are in 19 states and the District of Columbia along the Atlantic and Gulf Coasts. Six states account for more than three-quarters of all at-risk homes, with Florida having the most (2.5 million), followed by Louisiana (760,000), New York (465,000), New Jersey (446,148), Texas (441,304) and Virginia (420,052).

Related: How Climate Change Costs Could Soar to the Billions

“The number of hurricanes each year is less important than the location of where the next hurricane will come ashore,” CoreLogic’s senior hazard risk analyst said in a statement. “It only takes one hurricane that pushes storm surge into a major metropolitan area for the damage to tally in the billions of dollars. With new home construction, and any amount of sea-level rise, the number of homes at risk of storm surge damage will continue to increase.” 

The District of Columbia has the lowest number of properties at risk (3,700), followed by New Hampshire (12,400) and Maine (22,500

State Table (Ranked by Number of Homes at Risk)

Rank

State

Extreme

Very High

High

Moderate

Low*

Total

1

Florida

793,204

461,632

524,923

352,102

377,951

2,509,812

2

Louisiana

97,760

104,059

337,495

138,762

82,196

760,272

3

New York

127,325

114,876

131,039

91,294

N/A

464,534

4

New Jersey

116,581

178,668

73,303

77,596

N/A

446,148

5

Texas

45,800

70,894

112,189

116,168

96,253

441,304

6

Virginia

94,260

115,770

98,463

84,015

27,544

420,052

7

South Carolina

107,443

57,327

65,885

46,799

30,961

308,415

8

North Carolina

73,463

51,927

48,595

40,155

37,347

251,487

9

Massachusetts

31,420

65,279

74,413

49,325

N/A

220,437

10

Maryland

47,990

39,966

27,591

28,975

N/A

144,522

11

Georgia

41,970

52,281

28,852

19,190

8,465

150,758

12

Pennsylvania

1,467

45,776

37,983

32,426

N/A

117,652

13

Mississippi

14,809

20,643

29,387

27,507

10,588

102,934

14

Connecticut

25,292

23,656

22,230

26,529

N/A

97,707

15

Alabama

7,403

12,707

10,182

13,749

14,086

58,127

16

Delaware

11,523

10,854

13,528

13,811

N/A

49,716

17

Rhode Island

6,595

5,988

6,720

7,187

N/A

26,490

18

Maine

5,159

2,753

7,368

7,211

N/A

22,491

19

New Hampshire

2,514

3,470

4,234

2,272

N/A

12,490

20

District of Columbia

N/A**

N/A**

545

3,123

N/A

3,668

Total

1,651,978

1,438,526

1,654,925

1,178,196

685,391

6,609,016


* The "Low" risk category is based on Category 5 hurricanes, which are not likely along the northeastern Atlantic coast. States in that area have N/A designated for the Low category due to the extremely low probability of a Category 5 storm affecting that area.
** Washington, D.C. has no Atlantic coastal properties, but can be affected by larger hurricanes that push storm surge into the Potomac River. Category 1 and 2 storms will likely not generate sufficient storm surge to affect properties in Washington, D.C. 

Jamie Dimon Is Now a Billionaire

REUTERS/Yuri Gripas
By Robert Frank
June 3, 2015

The vast majority of the billionaires in the U.S. made their money in one of two ways—they started a company, or they inherited their fortune or business.

But Jamie Dimon, chairman and CEO of JPMorgan Chase, has shown another path to riches. As a corporate manager, he may have amassed enough stock and boosted the share price enough to join the 10-figure club.

According to Bloomberg, Dimon is now worth $1.1 billion. His stake in JPMorgan through shares and options is worth $485 million and he also has real estate valued at $32 million. In addition, he has wealth from "an investment portfolio seeded by proceeds" from his previous stint at Citigroup. 

Related: America’s Highest Paid CEO: It’s Not Who You Think

While highly unusual, Dimon isn't the first billionaire professional manager or executive who gained his wealth from stock in a company he didn't found or take public. The first manager-billionaire in the U.S. was believed to be Roberto Goizueta, CEO of Coca-Cola during the 1980s and 1990s. During his tenure, Coca-Cola's stock jumped more than 70-fold and Goizueta had stock and options totaling more than $1 billion.

More recently, the billionaire managers have been from finance. James Cayne, the colorful CEO and chairman of Bear Stearns became a billionaire on paper—before Bear Stearns collapsed during the financial crisis.

Richard Fuld, CEO of Lehman Brothers, also became a paper billionaire in 2007—before the investment bank became the largest bankruptcy in U.S. history in 2008.

Plenty of other finance chiefs have become billionaires—from hedge-funders to private-equity kings Steve Schwarzman and David Rubenstein. Citi founder Sandy Weill was a billionaire, but he created the company.

So while he may not be the first, Dimon may make history another way—by becoming the first manager-billionaire in finance to run a bank that thrives for decades after his leadership. 

This article originally appeared on CNBC.
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Most Americans Think Our Morals Are Going To Hell

iStockphoto
By Millie Dent
June 3, 2015

Ask anyone about the state of moral values in the U.S. and you’re likely to get a response along the lines of, “we’re going to hell.”

Most Americans — 72 percent — are convinced that moral values in the U.S. are decaying, according to a new Gallup poll, and most people believe the current state of moral values isn’t all that great to begin with. Nearly half of those polled, 45 percent, called the state of moral values in the U.S. “poor,” while 34 percent said they are “only fair.”

Just 19 percent rated American morals as either “excellent” or “good,” and only 22 percent say the state of moral values is getting better.

Unsurprisingly perhaps, social conservatives have consistently been most likely to tell pollsters that the nation’s moral values are deteriorating, but the latest Gallup findings showed an uptick from 2014 to 2015 among social moderates and social liberals who believe moral values are regressing.

Related: How U.S. Morals Stack Up Against the World

Gallup also found that Americans’ views of the moral acceptability of a number of key issues has been shifting to the left since 2001. The largest shift was on gay or lesbian relations, with a 23 percentage point increase in the share of people who say that behavior is morally acceptable. The change coincides with a sharp increase in support for same-sex marriage. 

Sex between unmarried people has also become more acceptable, as has having babies outside of marriage. Polygamy and divorce are also now acceptable to a greater portion of the population than in 2001. On the other hand, the views of married men and women having an affair haven’t changed much, with just 8 percent of Americans saying it’s morally tolerable.

However, respondents to the poll about the current and future state of moral values weren’t necessarily responding with those charged social and political issues in mind. In many cases, Gallup suggests, their views of the moral direction of the country were rooted in something much more basic: “That is, their views have less to do with greater acceptance of same-sex marriage or having babies out of wedlock and other hot-button issues, and more to do with matters of basic civility and respect for each other,” Gallup’s Justin McCarthy wrote.

Clearly, the Golden Rule is still the bedrock of our moral code: Love thy neighbor as thyself.

Obama’s Approval Tanks Over the Economy and ISIS

By Eric Pianin
June 3, 2015

For a while, President Obama enjoyed a revival in popularity after years of public unease and displeasure with his stewardship of the economy and foreign policy. His approval rating jumped as high as 49 percent in mid-January, according to Gallup, and then tapered off a little amid renewed uncertainty about the economic recovery.

In the latest Washington Post/ABC News poll, however, 45 percent of Americans say they approve of Obama’s job performance, while 49 percent disapprove. That is his weakest rating in the survey since late 2014. The president effectively lost five points in approval since January and he hasn’t seen majority support since May 2013, according to survey analysis.

Obama Approval Ratings

Analysts blame the decline in the president’s approval on continued economic anxiety at home – despite a drop in the unemployment rate to 5.4 percent in April and other signs of economic revival – and the advance of ISIS and other Islamic extremists in Iraq and Syria. 

The condition of the economy consistently has topped the list of voters’ concerns heading into the 2016 campaign. The economic gains touted by the administration since the end of the Great Recession in June 2009 apparently haven’t been enough to calm fears, analysts say.

Seventy-three percent of those surveyed recently remain worried about the economy’s direction, and among them Obama’s approval drops to 35 percent, according to the survey. What’s more, Obama gets only a 31 percent approval rating specifically for handling the advance of ISIS militants, with 55 percent disapproving. Public approval of the president’s handling of the war against ISIS is 16 percentage points worse than his rating on handling the economy.