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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More Americans Have Health Insurance (Whether They Want it or Not)

iStockphoto
By Brianna Ehley, The Fiscal Times
April 13, 2015

The latest Gallup survey shows the rate of American adults without health insurance dipped to an all-time-low of 11.9 percent in the first quarter of this year, down from 12.9 percent at the end of 2014 and 18 percent in mid-2013. That means nearly nine in 10 adults now say they have health coverage, which Gallup attributes primarily to provisions in the Affordable Care Act.

So far, the White House estimates that more than 16 million people have gained health coverage through Obamacare.

Related: Obamacare Goes to Court as Uninsured Rate Hits New Low

Gallup notes that the uninsured rate is likely to continue trending downward this year as more people sign up for coverage during the special enrollment period, which ends on April 30. The administration granted extra time to people who were unaware of the law’s individual mandate requiring everyone to have health coverage or be subject to a tax penalty.

The pollsters noted that there are, of course, other factors that have helped lower the percentage of uninsured people in the U.S., including the improving economy and a falling unemployment rate. Even so, they suggested that Obamacare played the largest role: “The uninsured rate is significantly lower than it was in early 2008, before the depths of the economic recession, suggesting that the recent decline is due to more than just an improving economy.”

Related: Poll Shows Why Obamacare Ruling Could Be Devastating

The poll of 43,575 adults over the first three months of the year suggests that the health care reform law is succeeding in its primary goal of expanding access to coverage, though questions remain about just how affordable that care is — and whether the law will be undone by a Supreme Court ruling, scheduled to be announced in June in the case of King v Burwell. The high court’s interpretation of language in one sentence of the Affordable Care Act will determine whether roughly 8 million people will lose health insurance subsidies. Read about the case here. 

Top Reads from The Fiscal Times:

John Oliver Explains Why We Shouldn’t Hate the IRS

By Yuval Rosenberg
April 13, 2015

Everyone hates the IRS. Even the mothers of its agents hate the tax-collection agency. And that sentiment rises to new levels around this time of year.

On his HBO show last night, John Oliver said those feeling are only natural: “Is it any wonder that everyone hates the IRS?” he said. “Dealing with them is obligatory. It often functions badly. And it combines two of the things we hate most in life: someone taking our money and math.”

Still, Oliver went on to “attempt the impossible”: making viewers feel at least a smidgen of sympathy for the tax man — and explaining why our widespread hatred may be misguided. It’s Congress, after all, that writes the tax code. And it’s Congress that has made it harder for the agency to do its job by cutting the IRS budget from $13.4 billion in 2010 to $10.9 billion this year. As BusinessWeek just said in its latest cover story, "if you think paying your taxes is bad, try working at America's most unloved agency."

Related: IRS Says Budget Cuts Could Bilk Billions from Taxpayers

“I’m not saying the IRS is a likeable organization,” Oliver said. “But not everything that’s important is likeable. Think of our government as a body. The IRS is the anus. It’s nobody’s favorite part. But you need that thing working properly…”

It’s not that we should love the IRS, or even like them, Oliver said. But the agency deserves “a few minutes of at least grudging acknowledgment of the unpleasant, necessary function they serve.” And to provide that, Oliver brought on the singer who might be even more despised than IRS: Michael Bolton.

Watch the segment below (warning: it includes HBO-appropriate language):

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'Star Wars' Digital Downloads: Aren't You a Little Expensive for a 40-Year-Old Movie?

Lucasfilm
By Alexander Rader
April 10, 2015

The Star Wars movies are available today for digital purchase on services like iTunes, Google Play and Amazon Instant Video for the first time. For $89.99 you can own two and a half good movies, and then hours of other stuff George Lucas also made, now featuring nine additional hours of bonus features. 

That purchase price might be palatable to some fans, but seems a lot to charge as a promotional tool ahead of this December's new J.J. Abrams-directed installment in the franchise, now owned by The Walt Disney Company. Especially considering the franchise has already earned something on the order of $27 billion across its various outlets.

But most of that went directly to Lucasfilm, before Disney completed its purchase. Along with its Marvel revenues, Disney should see quite the revenue bump from the sci-fi/fantasy world this year, with The Avengers: Age of Ultron, the sequel to the third-highest grossing movie ever, opening next month, followed by Star Wars: Episode VII in November.

While there are probably some people out there who have no idea what it means to ask "who shot first?", those people are not likely to pay $90 to find out. And for those fans who do know, it seems the new digital versions still have the wrong answer.

Cavity Watch: 7-Eleven To Host 'Bring Your Own Cup' Slurpee Day

7-Eleven
By Andrew Lumby
April 10, 2015

If, for some reason, you’ve ever wanted to induce a diabetic coma, tomorrow might be the time to do it.

7-Eleven, the chain of convenience stores most favored by packs of high-school layabouts who aren’t yet old enough to hang out in bars, is holding a promotion called “Bring Your Own Cup Day” tomorrow, April 11.

What is it? Glad you asked. Bring Your Own Cup Day (or #BYOC if you’re on the Twitters) is a Bacchanalian feast of excess where customers bring a watertight vessel to their nearest 7-Eleven, smack $1.50 on the counter, and fill said vessel with the Slurpee of their choosing.

Related: 10 Best Fast Food Restaurants in America

There are limitations though, so hold your hedonistic horses. Whatever container you choose to use must be non-porous, so no baseball caps or fedoras. Also, whatever container you bring must be able to fit through a 10-inch diameter hole – so put that oil drum back in the basement. Even with the size limitations, you could still be getting a deal – USA Today posits that a cup that just makes the cut could hold a gallon of 7-Eleven’s finest sugar water.

According to 7-Eleven’s VP of marketing, Laura Gordon, the event is being presented as a “Summer Kickoff,” which seems a little optimistic considering the fact that it’s foggy, 48 degrees Fahrenheit, and drizzling right now in New York City. Still, who am I to judge? Maybe the gods will look favorably upon 7-Eleven’s offering, and bring a day of sunshine, Slurpees, and nothing but syrup:

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Six Reasons Not To Buy an Apple Watch Just Yet

A new iPad is seen follownig a presentation at Apple headquarters in Cupertino, California October 16, 2014. REUTERS/Robert Galbraith
© Robert Galbraith / Reuters
By Andrew Lumby
April 9, 2015

The Apple Watch is Apple's first entry into an entirely new product category in about five years, and it’s come under much scrutiny during the process of its development and unveiling. Reviewers have finally got ahold of the device and have released a glut of early evaluations. The consensus: The Apple Watch is great — definitely better than most, if not all, of its predecessors — but with some caveats potential buyers should keep in mind. Most critics so far agree that the device seems superfluous, tricky to use, and a little silly at first — but then it quickly grows on you. Reviewers like The New York Times's Farhad Manjoo, The Wall Street Journal's Joanna Stern and The Verge's Nilay Patel have extended cautious thumbs up for the product, but still warn that it’s a flawed device that may not be right for buyers just yet. Here are six reasons why the reviewers are hesitant — and perhaps you should be, too:

1. The Cost
The Apple Watch costs a pretty penny: The cheapest model clocks in at $349, with prices for fancier models going all the way up to an ultra-exclusive $17,000. At those prices, you want a device that does a lot more than look cool. “You only get a charging cable, which is lame,” Patel wrote. “For $700, you should get a nice charging stand, like you get with the $249 Moto 360. Apple makes a stand, but it only comes with the $10,000-and-up Apple Watch Edition models. Crazy.”
Watch It: As was the case with the original iPhone, the high price might be part of the appeal for some show-offs. As Joanna Stern says in her review: "After over a week of living with Apple’s latest gadget on my wrist, I realized the company isn’t just selling some wrist-worn computer, it’s selling good looks and coolness, with some bonus computer features."

Related: Apple Watch Could Be Apple’s First Major Flop This Century

2. The Learning Curve
A surprisingly common complaint was the apparent lack of out-of-the-box workability, with many reviewers claiming that it took them several days of tweaking to get things going just right. Said Manjoo: "Indeed, to a degree unusual for a new Apple device, the Watch is not suited for tech novices." Bear in mind, too, that this is an experienced tech writer who has presumably seen way more than his fair share of badly implemented devices with limited documentation, so if he had to spend time tweaking things, you can bet that your average out-of-the-box, "it just works" Apple user is going to be utterly baffled. Give it a year or so, and they'll have ironed out all the kinks and streamlined things a bit.
Watch It: Tech writers may be more critical than the average buyer, and less wowed by Apple’s cool factor. Early adopters in particular may be willing to scale the learning curve while Apple makes improvements for next generations of the Watch.

3. Battery Life Should Be Better
The Watch is on your wrist — it's always there and is intended to consistently be in use — but reviewers have found that the Apple Watch’s charge ran low after a day of heavy use. Stern’s barely managed to last the course of a full day, and that was while leaning on its "power saving mode," which cut features and dimmed the backlight. “Do you want another tiny computer in your life that you have to worry about and charge every day?” Patel asked.
Watch It: Hey, how often do you charge your smatphone? Is it such a big deal to plug in the device at night while we all wait for battery life to improve across all our devices?

Related: 10 Biggest Tech Flops of the Century

4. It's Painfully Slow
Here’s how Patel at The Verge summed it up: "There’s no getting around it, no way to talk about all of its interface ideas and obvious potential and hints of genius without noting that sometimes it stutters loading notifications. Sometimes pulling location information and data from your iPhone over Bluetooth and Wi-Fi takes a long time. Sometimes apps take forever to load, and sometimes third-party apps never really load at all. Sometimes it’s just unresponsive for a few seconds while it thinks and then it comes back."
Watch It: Apple has already claimed that it will be releasing a series of updates to address these issues. Of course, future generations of the Watch will undoubtedly come with hardware improvements as Moore's Law threatens to overtake us all.

5. It's Not Yet Ubiquitous Enough to Be Needed
The marketing of the Apple Watch frames it as a time-saving panacea: Swipe it at an Apple Pay-enabled checkout counter and complete your purchase without having to whip out your wallet; tap it against a hotel room door to gain entry without fussing with a keycard; or hail an Uber with a quick wrist-call to Siri. The thing is, none of those things have been put in place yet, at least not on a universal scale, so for now the Watch mainly serves to tell the time, browse Twitter, check e-mails and remind you of appointments. There are plenty of other devices that can handle that in the interim.
Watch It: Much like the slow takeover of the smartphone, though, we'll probably see an increased adoption of the technology as developers scope out the market and adoption grows. Have you checked out the App Store lately?

Related: What the Apple Watch Will Do for Apple

6. The Backlash
It's the curse that befalls all early adopters in the wearables industry: No matter how cool or slick a product may be, it’s kinda hard to wear out in public without attracting stares. Early adopters of Google Glass faced similar issues, becoming the unfortunate targets of the derogatory pseudonym "Glassholes." When the day-one fanboys start sitting on public transit, talking into their wrists like a low-budget Dick Tracy, it's hard to imagine they won't come under some kind of ridicule. If you think you can handle a bit of mockery and attention, more power to you.
Watch It: First off, Apple has made a concerted effort to make the Watch as aesthetically pleasing as possible at all points along the price spectrum. Second, those stares and questions are part of the appeal for some buyers. And even if you aren’t looking for added attention, it might not be long before the Apple Watch just becomes part of our everyday scenery. How many people are still asking to look at your iPhone 6 Plus?

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