An ‘Immense’ Risk to the US Budget

By Yuval Rosenberg

Happy Monday! A busy week ahead in Congress, as Democrats look to confirm Ketanji Brown Jackson to the Supreme Court and lawmakers race to finalize a new Covid aid package, among other things, before they head out for a two-week recess. Tonight, though, much of the nation will be focused on New Orleans, where Kansas and North Carolina play for the men’s college basketball championship. Who ya got?

Climate Change an ‘Immense’ Risk for US Budget, White House Says

The increasing severity of floods, drought, wildfires, hurricanes and extreme heat due to climate change could cost the federal government trillions of dollars by the end of the century, according to a new report from the Office of Management and Budget.

“The fiscal risk of climate change is immense,” Danny Yagan, OMB’s chief economist, and Candace Vahlsing, OMB’s associate director for climate, energy, environment and science, said Monday. According to their analysis, the first of its kind, “climate change could lead to an annual Federal revenue loss at the end of the century of 7.1 percent, which in today’s dollars would equal $2 trillion per year."

The OMB report comes in response to an official request from President Biden last spring asking the agency, which prepares the president’s budget and works with government agencies to coordinate policy implementation, to examine the effect climate change could have on the federal budget.

Rapidly increasing costs: The analysis finds that climate change could force the federal government to spend an additional $25 billion to $128 billion per year in just six categories: “coastal disaster relief, flood insurance, crop insurance, healthcare insurance, wildland fire suppression, and flooding at Federal facilities.”

Buildings could be a particular problem. About 40,000 federal structures worth more than $80 billion sit in 100-year floodplains, which have a 1% chance of flooding each year and are considered high-risk by the Federal Emergency Management Agency. Another 60,000 worth nearly $500 billion sit on 500-year floodplains.

The report also says that the cost of fire suppression on federal lands could rise by as much as $9 billion per year, driving a nearly 500% increase by the end of the century relative to today. Spending on disaster relief could increase by $22 billion to $94 billion annually, and spending on crop insurance subsidies could rise by anywhere from 3.5% to 22% each year.

White House takes steps: Last year, Biden reinstated the Federal Flood Risk Management Standard, first established by President Obama but revoked by President Trump, which encourages federal agencies “to consider and manage current and future flood risks in order to build a more resilient nation.” The standard also established an interagency working group that includes more than 20 federal agencies to coordinate federal efforts.

In addition, Biden’s budget request for 2023, released last week, includes billions of dollars for programs that are intended to reduce the severity of climate change in the future, including funding for clean energy development and greenhouse gas emission reduction. “In total, the budget invests a historic $44.9 billion in discretionary funding to tackle the climate crisis, which is almost a 60% increase from the fiscal 2021 enacted level,” OM’s Yagan and Vahlsing said.

Although the White House budget has virtually no chance of passing in its original state, it does signal the president’s priorities, which will likely be addressed at least to some degree in the spending package eventually approved by Congress.

Senators Reach Deal on $10 Billion Covid Aid Package

With only days left before congressional lawmakers are scheduled to leave Washington, D.C. for a two-week recess, Senate negotiators are reportedly set to announce a $10 billion Covid-19 aid package that would fund domestic vaccination, testing and treatment programs but exclude a previously proposed $5 billion for global vaccination efforts.

The deal, as reported last week, is expected to be paid for by reprogramming funds previously appropriated as part of the $1.9 trillion pandemic relief law passed in March 2021. Lawmakers couldn’t agree on how to fund the global aid.

Republicans had demanded that the latest round of Covid funding be fully offset by savings elsewhere, and some Democrats had objected to a previous compromise agreement that would have provided $15.6 billion, including the money for global vaccination, because it would have involved clawing back coronavirus aid promised to states. Those state funds are not expected to be repurposed under the latest plan.

The bottom line: The emerging deal would provide less than half the $22.5 billion requested by the Biden administration, and some public health experts warn that the failure to provide money for global aid could prove costly as it may allow dangerous new coronavirus variants to emerge. “The U.S. has turned its back on the world,” Zain Rizvi, research director for consumer advocacy group Public Citizen, told The Washington Post. “Penny-pinching in a pandemic will have devastating consequences for vaccinating the world, for reducing the risk of variants, for all of us.”

Quote of the Day

“Millions of Americans were already struggling with diabetes, and then Covid came along and cut a huge swath of suffering and misery that has been largely overlooked by the public and policymakers. … Diabetes is a wicked problem and Covid has just shone a bright light on this crisis.”

– Dr. David Kerr, director of research and innovation at the Sansum Diabetes Research Institute in California, in a New York Times article looking at how people with diabetes have been particularly affected by the Covid pandemic. “Recent studies suggest that 30 to 40 percent of all coronavirus deaths in the United States have occurred among people with diabetes,” the Times’s Andrew Jacobs writes, adding that experts hope that the pandemic’s devastating effects will prompt policymakers to focus on tackling the nation’s diabetes crisis.

Wyden Presses Merck on How It Minimized Its Tax Rate

Senate Finance Committee Chair Ron Wyden (D-OR) has been investigating the tax practices of big pharmaceutical companies. His latest target: Merck.

Wyden on Monday released a letter to Merck CEO Robert Davis asking how the drugmaker managed to pay an effective tax rate of 11% last year and reported just 14% of its pretax income in the United States despite being headquartered and doing more than 46% of its sales here.

“Despite the United States market being the source of nearly half of Merck’s revenues and its richest price premiums, it appears that the company has minimized profits in the United States while reporting substantial foreign profits to avoid paying U.S. corporate income taxes,” Wyden said in his letter.

Wyden wrote that he is investigating how the 2017 Republican tax reform “created incentives for large multinational corporations to use offshore subsidiaries to report profits overseas as a way to avoid U.S. taxes.” He said that the 2017 law’s “flawed design enables large multinational corporations that primarily operate in the United States to structure their operations in a way that allows them to pay a tax rate that is a fraction of that paid by hard-working American families.”

The letter notes that Merck had lobbied for the 2017 law and its former CEO, Kenneth Frazier, had discussed tax policy with former President Donald Trump.

Wyden had previously sent similar letters to two other drug companies, AbbVie and Bristol Myers Squibb.

A spokesperson for Merck told Bloomberg News that the company had received the letter and would cooperate with the request.

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