Time to Start Worrying About a Shutdown?
Although Treasury Secretary Steven Mnuchin has expressed renewed interest in reaching a deal on the next coronavirus stimulus bill and even called House Speaker Nancy Pelosi (D-CA) yesterday to get the ball rolling again, the results so far have not been good.
Pelosi released a statement following the 36-minute phone call that makes it clear the two sides are still far apart: “Sadly, this phone call made clear that Democrats and the White House continue to have serious differences understanding the gravity of the situation that America’s working families are facing.”
The lack of progress on the stimulus bill, along with the rapidly approaching October 1 deadline for funding the federal government in the next fiscal year, has some observers talking about the possibility of a government shutdown to kick off the new fiscal year as lawmakers fail to make a deal on multiple complex negotiations.
Here’s how Politico’s Anna Palmer and Jake Sherman put it Wednesday:
“CONSIDER THIS: There are, at most, 11 days in session for the two sides to pass government funding, and solve the stimulus riddle that’s had PELOSI, MNUCHIN and White House chief of staff MARK MEADOWS tied up for months. That’s not much time.”
Palmer and Sherman say it’s too early to start taking bets one way or another, but we should have a better idea where things stand in the week of September 14, when the House returns to Washington from its summer break. At that point, they warn, “brace for lots of turbulence.”
Social Security Trust Fund Depleted by 2031: CBO
The Social Security Old Age and Survivors Insurance fund will be depleted by 2031, according to a report released Wednesday by the Congressional Budget Office.
The CBO said the surplus in the fund, which pays Social Security retirement benefits, would drop from $2.8 trillion this year to $533 billion in 2030, and run out the following year.
The CBO also estimates that the Highway Trust fund will be depleted in 2021, Medicare's Hospital Insurance Trust Fund will run dry in 2024, and the Social Security disability fund will run out by 2026.
The economic slowdown caused by the coronavirus pandemic has put a dent in the federal government’s trust funds, CBO said. In January, the trust funds as a whole were projected to record a surplus of $57 billion in fiscal year 2020, but now are projected to record a $43 billion dollar deficit – a swing of $100 billion. The change in the estimate was driven largely by an increase in payouts by the Unemployment Trust Fund.
National Debt Will Exceed Size of Economy in 2021
The CBO also updated its budget outlook Wednesday, estimating that the federal budget deficit for fiscal year 2020 would come in at $3.3 trillion, down from its previous estimate of $3.7 trillion. The deficit for the 2021 fiscal year was projected to be $1.8 trillion.
The new projections mean that the national debt is already close to the size of the total economy and will likely surpass it next year. The CBO said it expects federal debt held by the public to equal roughly 98% of the size of the economy by the end of 2020 and exceed 100% in 2021. By 2023, the debt will equal 107% of GDP – the highest level in U.S. history, exceeding the previous peak set in 1946 in the aftermath of World War II.
By comparison, the debt-to-GDP ratio stood at 79% at the beginning of 2019 and 35% in 2007.
The CBO said federal outlays will equal about 32% of GDP in 2020, a roughly 50% increase from the year before and the highest since 1945. Outlays are projected to fall to roughly 22% of GDP over the next five years. Revenues are expected to fall from 16.3% of GDP in 2019 to 15.5% in 2021, due to the economic effects from the pandemic, before rising to 18% of GDP by 2030.
Deficits expected to continue. “It will be hard to ratchet down this spending going forward, and we are going to be entering a long stretch of deficits well above historical averages,” G. William Hoagland of the Bipartisan Policy Center told The Washington Post. Hoagland also said he doubted the issue would take center stage politically any time soon: “[A]s a matter of national politics, the deficit was not a matter of concern before the pandemic and it won’t be after.”
Former CBO chief economist Wendy Edelberg said she doubted the latest increase in the size of the debt was significant in and of itself. “There’s no economic difference between a ratio of 99% and a ratio of 101%,” she told The Wall Street Journal. She also said he coronavirus-related deficit spending was money well spent: “It was a massive rise in borrowing and quite shocking, but incredibly effective. On the flip side, this is exactly why we, as a country, want to have room to increase borrowing during times of emergency.”
Maya MacGuineas of the Committee for a Responsible Federal Budget said the latest numbers serve as a reminder that the debt remains an important issue and needs to be addressed. "What should be absolutely clear from today’s report is that after the virus is contained and the economy has recovered, lawmakers cannot afford to continue ignoring the trajectory of our debt any longer," she said.
Biden Says He’d Use FEMA Funds to Help Schools
Democratic presidential candidate Joe Biden said Wednesday that he would use billions in federal disaster aid to help schools struggling to reopen amid the coronavirus pandemic pay for essential supplies such as hand sanitizer, face masks and cleaning supplies.
Biden would reverse a new policy announced Tuesday by the Federal Emergency Management Agency, under which it will no longer cover the cost of emergency supplies used by schools, election offices and various state and local agencies. The new rules, which take effect on September 15, narrow the definition of "emergency protective measure" so that it no longer applies to non-emergency settings such as schools.
"Supporting schools and other functions — courthouses and other related functions — are not a direct emergency protective measures and therefore they're not eligible for [public assistance]," Keith Turi, FEMA assistant administrator for recovery, said on a conference call Tuesday.
Schools will still be eligible for other forms of federal aid, though, including billions of dollars appropriated by the Cares Act in March, which can be used to purchase cleaning supplies and masks.
Speaking in Delaware, Biden outlined his proposed response. “If I were president of the day, I’d direct FEMA to make sure that our kids K-12 get full access to disaster relief and emergency assistance under the Stafford Act,” he said. “I’d make sure that PPE [personal protective equipment] and sanitation supplies for schools qualify as emergency protective measures … to fully be eligible for federal assistance.”
Biden also accused the Trump administration of abandoning schools amid the pandemic. “Now Trump’s FEMA director is cutting schools loose,” he said. “This is an emergency, Mr. president. This is an emergency. And Donald Trump and his FEMA should treat it as one.”
| | Most Americans Say the Government Is Making the Pandemic Worse
The federal government’s response to the coronavirus crisis gets a failing grade from most Americans, according to a new Axios-Ipsos survey.
Sixty percent of respondents in a late-August survey of 1,100 adults said the government is making the pandemic worse, while just 39% said it was making things better.
There is a serious partisan divide on the issue. While 80% of Democrats are critical of the government response, 74% of Republicans are supportive.
Axios’ Sam Baker says that while trust in government has remained steady in recent weeks, it has tumbled since the pandemic took hold. In March, most Americans said they trusted the government to “look out for their best interests.” But in the most recent survey, only 32% agreed with that statement, and similar results have been recorded for months.
Democrats Take Aim at Trump’s Payroll Tax Deferral
Senate Democrats are taking steps to overturn President Trump’s four-month deferral of payroll taxes, a controversial executive action that went into effect Tuesday. Employers now have the option to stop withholding the employee portion of Social Security taxes, a move intended to boost paychecks through the end of the year. Workers would have to pay back the taxes in the first four months of 2021.
Trump’s opponents in the Senate are trying to use a law called the Congressional Review Act to allow Congress to vote to overturn the executive action. To do so, they have asked the Government Accountability Office to review the rule by September 22, which could result in a vote.
The move is a long shot, says Richard Rubin of The Wall Street Journal. Even is the first step results in a favorable ruling for Democrats, the result would be votes that require two-thirds majorities in the House and the Senate – a scenario that is unlikely to succeed in a divided Congress.
- Yes, Trump’s Proposed Permanent Tax Cut Would Gut Social Security by 2023 – Erik Sherman, Forbes
- The 2020 Tax Year Is Going to Be a Hot Mess, and the Coronavirus Is Why – Michelle Singletary, Washington Post
- The U.S. Is Facing a Crisis of Confidence in Our Government Scientists – Leana S. Wen, Washington Post
- Covid Patients Are Receiving Eye-Popping Bills. It’s Not All Trump’s Fault – Libby Watson, New Republic
- Here Comes the Real Recession – Dion Rabouin, Axios
- Mark Meadows Has Been a Game Changer in Stimulus Talks, and Not in a Good Way – Ed Kilgore, New York
- Sadly, One Letter Perfectly Captures the Recovery – Barry Ritholtz, Bloomberg
- Too Many Children Are Going Hungry Amid the Pandemic – Bloomberg Editorial Board
- Taxing Robots Won’t Help Workers or Create Jobs – Noah Smith, Bloomberg