Pelosi Warns Trump on Foreign Aid Cuts

Plus - A discount moonshot?

Pelosi Warns Trump on Foreign Aid Cuts

House Speaker Nancy Pelosi (D-CA) said the Trump administration’s reported effort to cancel more than $4 billion in unspent foreign aid funds raises serious legal issues and could jeopardize the two-year budget deal agreed to earlier this summer.

In a letter written to Treasury Secretary Stephen Mnuchin on Friday, Pelosi said that according to a Government Accountability Office legal opinion, the so-called rescission package targeting the unspent funds would require the approval of Congress. And since the House will not pass such a package – “I can assure you that the House of Representatives will not take affirmative legislative action,” Pelosi wrote – the White House should abandon its effort.

“I request that you work within the administration to stop this proposed rescission which GAO states is illegal, which violates the good faith of our budget negotiations, which important Republicans say is ill advised, and which overrides Congress’ most fundamental Constitutional power,” Pelosi wrote.

Once formally submitted to Congress, the rescission package would freeze the funds designated for the Department of State and the U.S. Agency for International Development for 45 days, making it difficult to address the issue before the fiscal year ends on September 30.

Sen. Lindsey Graham (R-SC), who sits on the Senate Foreign Relations and Appropriations committees, and Rep. Hal Rogers (R-KY), ranking member of the House committee that oversees State Department funding, expressed support for Pelosi’s request. "A move to rescind funding absent policy input from the Department of State and USAID only undermines our national security interests and emboldens our adversaries,” Rogers and Graham wrote last week. “We strongly urge you to reconsider this approach.”

Graham and Rogers also warned that the Trump administration’s effort “could complicate the ability of the administration and Congress to work constructively on future appropriations deals.” Congress will have just a few weeks when it returns from its summer recess to pass funding bills for the 2020 fiscal year, which begins on October 1.

‘Helicopter Money’ at the Next Downturn?

The next recession will call for unprecedented coordination of fiscal and monetary policy in the U.S. and other advanced economies, according to a new report from the BlackRock Investment Institute.

“Monetary policy is almost exhausted as global interest rates plunge towards zero or below,” the report says, noting that about a third of all government and investment-grade bonds are trading at negative yields amid a powerful downward trend for interest rates.

As a result, it’s likely that fiscal policy will play a bigger role in the next downturn. “Fiscal policy can stimulate activity without relying on interest rates going lower – and globally there is a strong case for spending on infrastructure, education and renewable energy with the objective of elevating potential growth. The current low-rate environment also creates greater fiscal space,” the report says.

One problem, however, is that fiscal policy is often a political issue and can be slow to respond to crises. And adding to current high levels of debt may push interest rates higher, or create fears of future tightening, reducing or even eliminating the stimulative effect.

Given these constraints, policymakers may have to come up with a new approach. “An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough. That response will likely involve ‘going direct’: Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

Another term for this approach is “helicopter money” – a phrase associated with former Federal Reserve Chair Ben Bernanke that describes the government giving cash to people directly in order to boost the economy.

Such an approach would involve its own set of problems, the report says, including the challenge of regaining control over fiscal spending and constraining any inflation that is generated.

Read the full report here.

Chart of the Day: Bringing Billions Back from Tax Havens

The Tax Cuts and Jobs Act was supposed to spur U.S. firms to repatriate billions in profits that were held overseas to avoid U.S. taxes, bringing the funds home to invest and grow the domestic economy. “We expect to have in excess of $4 trillion brought back very shortly,” President Trump claimed. “Over $4 [trillion], but close to $5 trillion, will be brought back into our country. This is money that would never, ever be seen again by the workers and the people of our country.”

While the pace of repatriations did pick up in 2018, the totals were far smaller than those projected by the tax cut’s backers. “The notion that these funds were ‘trapped’ abroad was always a bit of a myth,” says Brad Setser, an economist at the Council on Foreign Relations. “The funds themselves weren’t actually abroad. They might be legally held by the offshore subsidiary of a U.S. firm—but the funds themselves were almost entirely in dollars and almost entirely invested in a portfolio of U.S. assets (often a mix of Treasury and corporate bonds). And any firm that wanted to make use of the funds onshore—whether to fund new investment or more likely a buyback—could do so without much difficulty.”  

What happened, last year, Setser says in a new analysis of the repatriation data, is that U.S. firms used the opportunity to pull money out of tax havens. Just three jurisdictions – Bermuda, the Netherlands and Ireland – accounted for the majority of the excess return cash flow that can be attributed to the tax law, which the economist says comes to about $350 billion on the year. “If you thought that funds were going to pour out of China or Germany to invest in the United States now that it has a more ‘competitive’ tax rate, well, that just isn’t what is in the data,” Setser writes.

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A Discount Moon Shot

NASA is working on a plan to return to the moon by 2024 at a cost that’s expected to exceed $50 billion. But according to Politico’s Bryan Bender, former House Speaker and noted lunar enthusiast Newt Gingrich is pitching a proposal to get the job done faster and at lower cost with a “reality-show style” competition among private developers. “The proposal, whose other proponents range from an Air Force lieutenant general to the former publicist for pop stars Michael Jackson and Prince, includes a $2 billion sweepstakes pitting billionaires Elon Musk, Jeff Bezos and other space pioneers against each other to see who can establish and run the first lunar base,” Bender says.

No word on whether President Trump has been pitched yet, though he has reportedly expressed interest in hearing alternative plans for the moon project. There are several private groups currently working on space travel who could play a role in the potential competition, Bender says, including Bezos' Blue Origin, Musk's SpaceX, a joint venture between Boeing and Lockheed Martin called United Launch Alliance, Bob Bigelow’s Bigelow Aerospace, and the European Space Agency.

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