Trump to Declare National Emergency for Border Wall

Plus, Amazon pulls out of New York HQ

Trump Will Declare National Emergency, Sign Border Deal to Avoid Shutdown

Roses are red,

violets are blue,

President Trump will sign the spending deal

and declare a national emergency too.

OK, it’s not the most romantic of gestures, but you could call it a Valentine’s Day gift of sorts for the American public: Congress is set to pass a massive 1,159-page spending deal that, once President Trump signs it, will end the threat of another government shutdown this fiscal year and close this chapter in the months-long impasse over border security funding — while immediately starting a new fight over presidential powers and his long-promised wall.

The $333 billion spending package, unveiled Wednesday just before midnight, means that the entire federal government will be funded through September. It provides $1.375 billion for 55 miles of new fences in Texas’s Rio Grande Valley, well shy of the $5.7 billion Trump had sought for 234 miles of barriers — and less than was available in deals considered before the five-week-long government shutdown.

The Senate passed the package in an 83-16 vote. The House is expected to follow suit Thursday night.

Some Late Drama

Trump had said he was unhappy with the compromise deal, and it wasn’t completely clear until mid-afternoon whether he would sign it, leaving GOP senators unsure about whether they’d have the president’s support. "One thousand pages filed in the in middle of the night take a little time to go through," a White House official told CNN.

After reviewing the deal with White House aides, Trump decided to support it and also declare a national emergency at the border. Senate Majority Leader Mitch McConnell announced the decision on the Senate floor, and White House Press Secretary Sarah Sanders confirmed it in a tweet.

As the White House was reviewing the deal, four high-profile new Democratic members of the House — Reps. Alexandria Ocasio-Cortez (NY), Ilhan Omar (MN), Rashida Tlaib (MI) and Ayanna Pressley (MA) — announced Thursday that they would not vote for the deal because it would increase funding for the Department of Homeland Security, in particular its Customs and Border Protection and Immigration and Customs Enforcement agencies.

“The Department of Homeland Security has separated thousands of children from their parents, denied asylum to those fleeing danger, and used taxpayers’ dollars as a slush fund to incite terror in immigrant communities," the lawmakers said in a statement.

Some conservatives also opposed the deal or objected to the rush to vote on a package lawmakers hadn’t had time to fully digest.

A New Phase in the Wall Fight

Trump’s decision means that the fight over funding for the president’s desired wall is about the enter a new phase, with legal challenges to the president’s declaration likely. “It’s not an emergency, what’s happening at the border,” House Speaker Nancy Pelosi said at an afternoon press conference. “The president is doing an end-run about Congress, about the power of the purse.”

Pelosi said that Democrats are reviewing their options.

What Else Is in the Spending Deal

While the border security measures in the deal have been the most contentious, the package also represents a broader rejection of Trump’s requested 2019 budget cuts. “An overview of the legislative package cites 84 instances were Congress allocated funds above the president’s budget request, for areas such as foreign aid, agricultural research, rural infrastructure, nutritional programs and climate research,” The Hill’s Jordain Carney and Niv Ellis note. “Only four areas have funding below the White House budget request.”

Per the Associated Press, the package includes:

Funding for an average of more than 45,000 detention beds for immigrants in the U.S. illegally, with financial flexibility to detain an even larger number.

  • More than $1 billion for other aspects of border security, including surveillance equipment, customs officers, immigration judges and $414 million in humanitarian aid for detained immigrants
  • A $1 billion increase in funding for the 2020 census
  • A 4 percent budget increase for NASA
  • $435 billion for a new Homeland Security Department to counter weapons of mass destruction
  • $468 billion more to combat the opioid epidemic
  • A 1.9 percent pay increase for federal workers, rebuffing Trump’s proposed pay freeze.

You can find the official summary of the legislation here or see a shorter rundown of what made it in the bill and what got left out at The Hill.

Quote of the Day

“Let’s all pray that the president will have wisdom to sign the bill so government doesn’t shut down.”

– Sen. Chuck Grassley (R-IA), presiding over the Senate as it came into session on Thursday, in what The Washington Post called “a rare breach of Senate decorum that reflected the depth of lawmakers’ angst over the events of recent months.”

Amazon Pulls the Plug on New NYC Headquarters

Amazon is canceling its plan to build a corporate campus in New York City, the company announced Thursday. The decision comes following months of local criticism of the project, in which the company promised to bring more than 25,000 new jobs averaging $150,000 in annual pay to Long Island City, Queens, while receiving roughly $3 billion in tax incentives from state and city governments.

Last November, Amazon chose locations in New York and Virginia for its “second headquarters,” dubbed HQ2, following a months-long competition in which dozens of cities vied for the honor. But critics in New York charged that the tax incentives given to one of the world’s most valuable companies were excessive and expressed concerns about the effect the new campus would have on the local community.

A company statement put the blame for its reversal squarely on the shoulders of local politicians who had questioned the deal: "While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City."

Amazon said it does not plan to look for a replacement site.

Poll of the Day

Democrats and Republicans receive roughly equal grades when it comes to the question of which party is best suited to handle taxes, according to an analysis by Navigator, a polling and research group that supports progressive causes. But a recent poll by the group indicates that Democrats gain the advantage when respondents are asked about “middle-class Americans” and “multi-millionaires.” The takeaway: Expect to hear more class-based debate as Democrats talk about their tax proposals in the coming months.

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The Great Debt Debate: How Dangerous Is It?

MIT economist Olivier Blanchard caused a stir in fiscal circles last month with an academic paper that suggested that current levels of public debt may be less worrisome than many experts think (see our analysis here and here). Now Blanchard has written a new policy brief to summarize his analysis and respond to the criticism he has received. Here’s a summary of Blanchard’s brief, which you can read in full here:

The Analysis

High public debt is seen as destructive for two reasons:

  1. It imposes fiscal costs involving higher taxes in the future; and
  2. It imposes welfare costs by crowding out investment capital and reducing future output.

Blanchard examined the validity of these claims in the current context of low interest rates, concluding that:

  1. High public debt may incur “no fiscal costs,” because the debt can be rolled over safely as long as the economy’s growth rate remains higher than nominal interest rates; and
  2. “The welfare costs are probably small,” because the risk-adjusted rate of return to capital is actually pretty low, reducing the crowding out effect.

To put it in less wonky terms, the warnings about the dangers of high debt may be overblown in some cases. Given the modest negative effects produced by high public debt in a low-interest environment, Blanchard says that “while public debt is probably bad, it is not catastrophic. It can be used but it should be used right.”

The Objections

Interest rates are bound to rise: Higher interest rates would impose much higher fiscal and welfare costs, critics charge, and there’s no guarantee that the current low-rate environment will persist. Blanchard argues that the odds are low that rates will rise any time soon, citing three factors:

  1. Low interest rates are the historical norm: “In the United States, for example, the one-year T-bill rate has been lower on average than the growth rate for the last 150 years. And over the last 50 years, the inequality has held in every decade except the 1980s, when the Volcker disinflation led to very high interest rates and low growth rates.”
  2. Secular stagnation, a theory that is looking more likely every year, puts downward pressure on rates;
  3. Even if rates rise, the U.S. can lock in low rates with long-maturity bonds.

Debt rollover may fail: Critics cite the risk of a failure to roll over the debt, but Blanchard points out that governments take risks all the time and the cost of such a failure would be relatively low.

Debt is already too high: Blanchard acknowledges the current high levels of debt, already roughly equal to GDP, but says critics are looking at the wrong number: “The debt-to-GDP ratio is the ratio of a stock to a flow, and as such of no particular significance without information about the interest on debt. A better concept is the ratio of real debt service to GDP, which is not particularly high (it is now, for example, half its 1995 level).” Additionally, the debt-to-GDP ratio has been shown to provide no clear threshold for the turning point at which debt becomes catastrophic.

Ratings agencies may balk: Critics worry that Moody’s or Fitch may downgrade U.S. debt, potentially raising its cost. But Blanchard argues that the agencies and investors can be “educated” about the lower level of risk, and that the real danger lies with the possibility of “strategic default” done for political reasons.

‘Infinite Amounts of Debt’?

Having moved through his argument and responded to critics, Blanchard asks: “So, do all these arguments add up to a license to issue infinite amounts of debt?” The answer he says, is “an emphatic no.” For one thing, there is reason to believe that, as economic theory indicates, more debt puts upward pressure on interest rates – even though “long-run effects of higher debt on safe rates are hard to detect.” For another, debt does impose a welfare cost, “even if it is small.”

So When Is Debt Justified?

Blanchard says there are two cases in which it makes sense for the government to finance spending with debt:

  1. When “private demand is weak, output is below potential, and monetary policy is sharply limited by the zero lower bound.” In this environment, debt-financed spending can have a significant effect on economic output, usually at a relatively low cost. “If it turns out that, as seems to be the case in Japan, domestic demand appears structurally low, and the shadow neutral rate remains consistently close to zero or negative, then permanent primary deficits, and thus the accumulation of debt, might be needed to sustain output and may have no fiscal or welfare cost.”
  2. To finance public infrastructure “whose risk-adjusted social rate of return exceeds the safe rate at which the government can issue debt.”

On the basis of those general rules, Blanchard concludes that the deficits under President Obama, which occurred in a powerful recession, were justified. The deficits occurring under President Trump “obviously are not.”

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