The Wonder and Worry Surrounding Washington, DC

The nation’s capital is preparing for Christmas, but there isn’t much cheer on Capitol Hill as lawmakers narrowly avert a government shutdown, try to unsnarl problems in tax-cut legislation and muddle through sexual misconduct scandals

The nation’s capital is preparing for Christmas, but there isn’t much cheer on Capitol Hill as lawmakers narrowly avert a government shutdown, try to unsnarl problems in tax-cut legislation and muddle through sexual misconduct scandals

Congress temporarily averted a pre-Christmas federal government shutdown by approving a two-week spending resolutionHouse and Senate conferees are trying to work out differences, including an apparent $287 billion math error, in a $1.4 trillion tax-cut measure. House Speaker Paul Ryan foreshadowed entitlement spending cuts next year to curb a ballooning federal budget deficit.

A prominent Democratic House member and senator have resigned amid sexual misconduct scandals. An Arizona GOP congressman is quitting after discussing surrogacy with two staff members. Alabama is likely to send a new senator to Washington, DC who has been accused of dating teenage girls, denies any wrongdoing and says he would bring Alabama values to Capitol Hill.

President Trump announced he will send his long-promised infrastructure funding package to Congress in January without mentioning that private activity bonds, a key financing tool for transportation and affordable housing projects, may be eviscerated beforehand in tax legislation he has championed.

Trump efforts to rewrite the North American Free Trade Agreement are faltering amid concerns by many business sectors that what Trump wants in a new deal would hurt existing trade and endanger US manufacturing jobs. The United States has walked away from a trade deal with its Pacific Rim neighbors, but the deal is not dead. Japan is leading continuing talks, which could lead to provisions less favorable to the United States and, eventually a seat at the table for China.

Ignoring warnings by top Cabinet officials, Trump recognized Jerusalem as Israel’s capital while urging progress on stalled peace talks between Israelis and Palestinians. Two days later, Palestinian leaders refused to meet with Vice President Mike Pence.

Revelations in the Russian election meddling investigation continue to roll out, inflamed by a Trump tweet, a whistleblower’s account and Donald Trump Jr. who said what he told his dad after the infamous meeting with Russians last summer was protected by attorney-client privilege.

People abroad might be excused for wondering and worrying what is happening in the United States. People who live in the United States are wondering and worrying, too.

The President goes out of his way to stir the pot – retweeting inflammatory videos, pulling the rug out from under his GOP Capitol Hill colleagues and amping up rhetoric aimed at North Korea. Congress has failed to deliver a major legislative victory to Trump in his first year in office and is still fumbling with the last-chance tax bill. A late addition to the Senate version that would retain the corporate alternative minimum tax has caused corporate leaders – putatively the biggest winners in the measure – to voice concern. Polling indicates the tax bill is unpopular, including with many Republicans.

Democrats and Republicans are growing even more polarized. After a Trump tweet, the House and Senate Democratic leaders refused to join a White House pow-wow on spending and debt ceiling legislation. Their GOP counterparts called the snub rude. Trump said Democrats were putting border security at risk.

The parties have been split over cultural issues for a long time, but sexual misconduct scandals have turned litmus tests into flash points. The resignations of Democratic Congressman John Conyers and Senator Al Franken, which were accelerated by a collective shove in their backs by fellow Democrats, put the party on presumably higher moral ground to denounce Alabama senatorial candidate Roy Moore and Trump, each of whom has been accused by multiple women for sexual misconduct. Arizona Congressman Trent Franks apparently got the message.

Ryan’s prediction that action will be needed next year to stem the budget deficit could push Congress onto third-rail political issues such as Social Security and Medicare, as well as Medicaid. Conservative GOP members want to boost military spending while trimming spending and the deficit. Democrats are pressing for more domestic spending and to keep hands off Social Security and Medicare.

It is not a pretty picture, with a bruising holiday mash-up looming between now and December 22 over a longer spending measure and an increase in the debt ceiling.

 

What Lurks in the 479-Page Senate Tax Cut?

New Yorker Magazine’s Andy Borowitz spoofed that a child’s scribbled drawing accidentally was included in the Senate GOP tax-cut legislation. With time to read the actual 479-page bill that the Senate passed, the buried provisions might be more disturbing than a scribbled drawing.]

New Yorker Magazine’s Andy Borowitz spoofed that a child’s scribbled drawing accidentally was included in the Senate GOP tax-cut legislation. With time to read the actual 479-page bill that the Senate passed, the buried provisions might be more disturbing than a scribbled drawing.]

New Yorker Magazine’s Andy Borowitz spoofed that a scribbled drawing by one of Senate Majority Leader Mitch McConnell’s grandchildren made its way into the GOP-backed tax cut bill approved late last week. With time to read the bill this week, people may uncover a lot worse than scribbling tucked away in the Senate measure’s 477 pages.

Nothing will be final until a House-Senate conference committee resolves differences in their tax cuts and the compromise goes back to both chambers for final passage. Media coverage will focus on the size of the corporate tax rate decrease, the number of individual taxpayer brackets, the impact on the federal deficit, benefits accruing to wealthy taxpayers and the fate of the Obamacare individual health care mandate.

There also will be stories searching the shadier corners of the tax bill and how they got there.

Wielding a copy of the Senate tax bill with what appeared to be margin notes as amendments, independent Maine Senator Angus King told Face the Nation that a bill to cut corporate and individual tax rates would take, at most, 50 pages. He wondered aloud on camera what the remaining 420 or so pages contain. “We’re going to find some really stinky stuff,” King predicted, pointing to provisions dealing with oil and gas extraction.

One of the clear winners in the GOP tax-cut legislation, according to Tony Nitti writing for Forbes, are tax attorneys and CPAs. “As an American taxpayer, I’m saddened by the way the process played out. As a tax adviser, I’m downright giddy. The eventual signing of the Senate bill into law, regardless how it is ultimately married with the House bill, will signal the start of hunting season for tax professionals who…will find ample opportunity to game the system and minimize their clients’ tax liability.”

“Business owners or managers that plan well and pay for good advice will be able to achieve much more favorable rates,” Adam Looney, a senior fellow at the Brookings Institution and a former Treasury Department official, told The New York Times. “I’m not sure if that is a loophole or the intent of the legislation.”

So much for a simple tax code. But who benefits from all the complexity? Nitti offers one example. The Senate version reduces the depreciation period for rental property from 27.5 years to 25 years and excludes landlords from a limitation on mortgage interest deductions. The House version piles on landlord benefits by capping pass-through taxation at 25 percent, as opposed to the current law 39.6 percent.

Another headscratcher was a decision by Senate Republicans to retain “bonus depreciation” for corporations at the expense of retaining the corporate minimum tax.

The eventual tax bill could have unintentional effects. The Hill.com ran a story saying, “Preemptively removing private activity bonds as a financing tool for infrastructure projects would undermine the stated goal of Congress to leverage a $1 trillion investment in our nation’s infrastructure.” Eliminating the tax deduction on private activity bonds was included in the House GOP tax cut bill to save $40 billion over the next decade.

Published stories in the last few days have pointed out other buried provisions in the House and Senate tax measures:

  • Elimination of a tax credit for pharmaceutical companies to develop drugs for so-called orphan medical conditions;
  • Elimination of a tax credit to small businesses who provide accommodations for workers or customers with disabilities;
  • Elimination of the New Markets Tax Credit intended to spur investment in communities with high unemployment or poverty rates;
  • Eliminates deduction for student loan interest;
  • Eliminates deduction for sexual harassment settlements with gag orders;
  • Allows unborn children to qualify for college savings accounts;
  • Reduces taxes on beer and wine;
  • Lowers taxes on storing and staffing private jets;
  • Retains ability by banks to avoid taxes by making payments to offshore subsidiaries;
  • Allows up to $10,000 per year from 529 college savings plans to pay for religious schools and some home schooling;
  • Excludes car dealers from any limitation on interest deductions; and
  • Provides an employee credit for paid family and medical leave, except for employees in states that require paid family and medical leave.

While the merits and demerits will be discussed ad nauseam in the days ahead, the evidence is pretty clear that the legislation billed by Republicans as a middle-class tax cut is at once a whole lot more – and less – than that.

So Much Work, So Little Time

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

With only a dozen or so working days before the holiday break and the end of the year, Congress faces a daunting agenda that keeps growing longer and more challenging.

Based on published schedules, the Senate has 15 and the House 12 working days left in 2017. In that time, GOP congressional leaders want to pass tax-cut legislation and need to take action on a spending and debt ceiling bill to prevent a government shutdown.

Mixed in the politics of all that is the Dreamer’s Act and extension of funding for the Children’s Health Insurance Program (CHIP) that expired September 30, which has created a budgetary challenge for states trying to keep the popular insurance in place until Congress acts.

Then there are the series of subplots that fill headlines and color the policies and politics on Capitol Hill:

  • The intensifying investigation into Russian election meddling;
  • The Roy Moore scandal and Senate race in Alabama;
  • Unfolding disclosures about sexual behavior by Members of Congress;
  • An attempt by the Senate to repeal the Obamacare individual health care mandate as part of tax legislation; and
  • The Federal Communication Commission’s decision to end net neutrality.

Lurking in the wings are stalled talks over revisions to the North American Free Trade Agreement (NAFTA), continuing tensions over North Korea’s nuclear capabilities and the hope for an infrastructure investment package.

Dealing with all that is more like a year’s agenda, not one for a short month.

Egged on by President Trump, Republicans want to deliver tax legislation to the White House before heading home for Christmas. While GOP leaders continue to sell the tax cut as a boon for the middle class, the push to pass it quickly is aimed at satisfying the expectations of Republican donors.

When the Senate returns to work this week, it will try to pass its version of tax legislation under special rules that prevent a Democratic filibuster. It can only lose two Republican votes. It also will vote on the bill under a cloud of criticism from economists across the ideological spectrum who say it will do little for the middle class and compromise the nation’s ability to deal with an economic downturn by sharply increasing the federal budget deficit.

If the Senate passes a tax measure, it then faces a House-Senate conference committee to iron out differences, which could highlight contentious and regionally divisive issues such as home mortgage and state and local tax deductibility.

Even though Republicans are trying to pass their tax legislation without any Democratic support, they need Democratic votes to pass a spending measure and increase the debt ceiling. The tight time frames before the holiday break amplify Democratic leverage. CHIP funding, which provides coverage for 9 million children, is one enticement the GOP is trying to use. The Dreamer’s Act could be another, but it could backfire and drive away some conservative GOP votes.

The troubled Moore Senate campaign to fill the seat formerly held by Jeff Sessions comes at an especially awkward political moment on December 12. If Moore, who faces accusations of sexual misconduct with minors, loses to Democrat Doug Jones, it will make GOP control of the Senate razor thin, which could be a factor if tax legislation gets pushed into next year.

Congress is also getting some pushback on the tax plan from corporations that have become more concerned about Trump objectives in NAFTA negotiations. A fifth round of talks among Canada, Mexico and the United States failed to produce agreement, which leaves open the possibility that Trump may unilaterally pull out of the trade deal. A business coalition led by the U.S. Chamber of Commerce has lobbied Capitol Hill in opposition to radical changes to NAFTA, warning they could lead to US job losses and ironically lead to more US manufacturing moved offshore.

The special prosecutor investigation into Russian election meddling and possible collusion by the Trump campaign has taken another ominous turn. Former National Security Advisor Michael Flynn has broken off contact with the Trump defense team, signaling a possible plea deal that involves cooperating with the special prosecutor on other targets. There have been signs Special Prosecutor Robert Mueller and his team have expanded their scope to include financial dealings by the Trump Organization with Russian oligarchs associated with money laundering.

The FCC decision to end net neutrality has stirred up a wide range of opponents who fear it will hand too much power to telecommunications companies. Supporters downplay that concern, saying it will lead to more investment in digital technology. But this isn’t just a garden-variety policy issue. Net neutrality supporters have taken to social media to voice their concerns, galvanizing many people who ordinarily shun politics. Those activated voters could make a difference in the looming 2018 mid-term election.

Budget Expert Calls Tax Plan ‘Economic Insanity’

Stan Collender is widely regarded as a congressional budget guru. He says the GOP-backed tax cut legislation moving through Congress equates to ‘economic insanity.’

Stan Collender is widely regarded as a congressional budget guru. He says the GOP-backed tax cut legislation moving through Congress equates to ‘economic insanity.’

It’s not every day that Forbes publishes an op-ed, as it did over the weekend, proclaiming a pending congressional tax cut is the “end of all economic sanity.”

Written by veteran congressional budget analyst Stan Collender, the op-ed says Republican leaders are forging ahead on tax-cut legislation “without having any idea of what this policy will actually do to the economy.” Collender says it won’t be pretty.

Collender predicts the tax cuts will provide little economic stimulus to an already thriving economy, increase structural US deficits, raise interest rates and limit the ability of Congress to deal with economic downturns. “They [GOP congressional leaders] have wishes, hopes and prayers, but in reality nothing beyond the economic equivalent of pagan superstition.” Did we mention this op-ed was published in Forbes?

This makes Paul Krugman’s criticism of tax cuts seem timid.

Tax cut zealots may dismiss Collender as a kook. He isn’t. He has been around Congress for years, with his nose stuck under piles of congressional budgets. If you want to criticize Collender, call him a congressional budget nerd, which is what he is.

Collender’s context – the US economy, which may not be groovy for everybody, is humming along with an expanding gross domestic product, unemployment at around 4 percent and corporate profits at record levels. If there is an economic concern, it centers on lagging wage growth relative to inflation and growing income inequality. The tax measures that have passed the House and are pending in the Senate don’t address wage growth or income inequality and, in fact, may exacerbate both.

Republican leaders says Americans want a tax cut, but polling doesn’t bear that out. Even if Americans did want a broad-based tax cut, the GOP plans may not meet the mark. Benefits appear slanted toward corporations and wealthy individuals. That may not be the intent of GOP lawmakers working on the tax cuts, but impartial analysts say that would be the result.

Collender cuts even deeper. He says even though the House tax cut measure is scored as raising the US budget deficit $1.4 trillion over 10 years, the likely impact is even larger, perhaps as much as $2 trillion. That’s a byproduct of modified scoring decisions dictated by GOP political leaders.

Adding $2 trillion to the US deficit when the economy is solid doesn’t leave a lot of room for a President or Congress to stimulate the economy during an inevitable downtown, Collender says.“The federal government will have far less ability to respond to economic downturns unless previously unimaginable and politically intolerable deficits, tax increases or spending cuts suddenly become acceptable,” he predicts.

The ultimate victim, Collender says, will be programs such as Medicare, Medicaid, Social Security and even military spending. American’s ability to invest in infrastructure and research will also be severely limited. Collender labels this “economic insanity.”

If a foreign adversary proposed a strategy to strangulate the US economy, politicians would call it an act of aggression. On Capitol Hill, passing this tax policy is viewed as essential before Christmas.

 

Are We Missing a Death Threat to American Security?

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While Capitol Hill buzz centers on tax cuts and GOP Senate candidate Roy Moore’s alleged sexual abuse of teenagers, a more troubling story has quietly unfolded about the unmasking of US cyber secrets, which could expose the nation and its businesses to relentless hacks, ransoms or worse.

A group calling itself the Shadow Brokers apparently breached the cyber moat protecting the National Security Agency last year, resulting in a stream of leaked information that threatens to compromise America’s national security. It could be the equivalent of an invasion, without missiles, tanks and soldiers.

Leon Panetta, former director of the Central Intelligence Agency, told The New York Times, “These leaks have been incredibly damaging to our intelligence and cyber capabilities. The fundamental purpose of intelligence is to effectively penetrate out adversaries to gather vital intelligence. By its very nature, that only works if secrecy is maintained and our codes are protected.”

Infiltrating US cybersecurity is a lot cheaper and potentially more effective as a strategy.

Months of investigation have uncovered three leakers, but there is a lingering lack of confidence that all leakers have been discovered. The damage already done, experts say, exceeds what former NSA contractor Edward Snowden leaked, even though his disclosures earned more ink. Security experts say Snowden released code words; the Shadow Brokers shared actual code.

The Times article indicated that morale at NSA has plummeted. President Trump’s comments at the tail end of his Asia Pacific trip that expressed greater confidence in Russian President Vladimir Putin than US intelligence didn’t bolster sagging morale.

Tax cuts, universal health insurance and the size of national monuments are important issues, but none may have the long-term impact of cyber leaks. Which makes the relative silence in the White House and on Capitol Hill unnerving. It’s possible there is a high-security secret effort to counter the damage. It’s also possible top US officials are paralyzed by the staggering task of building a new, more impenetrable cybersecurity system.

One of the fundamentals of any conflict is the ability to identify the enemy. US intelligence sources pin the ultimate blame for leaks on Russian cyber operatives. Ironically, US public opinion polls show Republicans view Putin and his credibility more favorably than many Russians.

The recurring dissonance between the Trump White House and US intelligence officers in the cyber trenches adds to the puzzlement. Writings by the Shadow Brokers reflect a knowledge of US politics, using phrases like “deep state,” and seem to back Trump. One message said, “The Shadow Brokers is wanting America to be great again.”

Russian operatives can be expected to reveal US malware planted in other nations’ systems, which could further undermine the US security apparatus. There is a fear, not unjustified, that American could be blocked out of what’s happening in the world’s shadows, including nefarious activity potentially affecting US safety.

If this seems to dwarf tax cuts, the Obamacare individual mandate and Roy Moore’s sexual peccadillos in terms of significance, it does. Maintaining US security is the undisputed role and responsibility of the federal government. That security seems as tenuous today as it did when Pearl Harbor was bombed by the Japanese. Americans responded collectively to the attack in Hawaii. The response to a possible Russian cyberattack has been muted to non-existent. That is scarier than the attack.

A Look at Fast-Moving House GOP Tax Plan

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The delayed release of the GOP tax plan last week and scheduled markups this week in the House Ways and Means Committee hasn’t allowed much time to analyze the myriad tax cuts and tax increases and their impact. No matter, more tweaks are expected.

The plan includes benefits and costs to corporate and individual taxpayers, municipalities and other stakeholders. You can’t rely on either political party, media outlets or interest groups to explain fully or fairly all of the tax provisions. They either have an agenda, are narrowly focused on their special tax treatment or don’t have the sophistication to analyze the entire package.

It’s obvious to everyone the GOP is rushing this bill through the process. This is a deliberate tactic to hide the bill’s warts and gives less time for lobbyists to mobilize on individual tax items. There are pros and cons to this strategy. GOP rank and file members also have little time to absorb the consequences of the bill and may be reluctant to support a bill they don’t understand. That’s a risk GOP leadership is willing to take.

The House markup will start Monday and go through Thursday, so there will be time next week to weigh in. There may be an opportunity to amend the bill on the House floor the week before Thanksgiving. The Senate is expected to produce its own tax package and won’t be using the House bill as its base bill. Because of the nature of the Senate, it’s likely to be a more moderate proposal.

The Joint Tax Committee prepared a useful chart that provides a snapshot of the many individual, corporate and foreign tax changes in the GOP House tax reform plan. Here are a few observations and comments on the proposal:

  1. The implications and impacts of the bill vary by household, zip code and state for each taxpayer. Thus, it’s difficult to make a simple recommendation of whether you should support, oppose or take no position on the bill. For example, there are concerns with the state and local tax (SALT) deduction being partially eliminated, but the tax rate for a household making up to $90,000 is reduced from 25 percent to 12 percent. So many households, especially those that don’t own a home, may pay less taxes. Homeowners could pay more. Local government interests are mounting an effort to change the SALT limitation.
  2. Americans Against Double Taxation is a group made up of NACO, NLC, Conference of Mayors and a ton of public sector groups. They put out an analysis the day before Ways and Means Chairman Kevin Brady’s bill was published. You can see the findings here. They modeled the impacts of the Brady plan on an average family of four that owns a home and earns between $50,000 and $200,000. Their data suggests that middle-class homeowners in all 50 states would see a tax increase ranging from 3.7 percent to 26.4 percent. More than half of all states will experience double-digit percentage increases. For Oregon, the increase would be 18.4 percent increase and Washington 9.5 percent. These numbers are for homeowners only, not all middle-class families. For people who don’t own a home, many may receive a tax benefit.
  3. Private Activity Bond Elimination: PABs are a type of bond to fund private projects that have a public benefit, and the interest for the bonds is exempt from federal taxation (just like the interest for bonds issued directly by state and local governments). The bond market considers PABs to be a part of the municipal bond sector. The change came as a complete surprise to the infrastructure community – the White House has been discussing significant expansion of PABs in its forthcoming infrastructure proposal. It also was a surprise to states and cities – Emily Brock, director of the federal liaison center for the Government Finance Officers Association, told Bond Buyer magazine, “We’ve had over 90 Hill meetings and there was absolutely no talk of advance refundings, private activity bonds or tax credit bonds…”
  4. Regarding the Commuter Tax Benefit, under current law, “transportation fringe benefits” (employer-provided parking, mass transit passes, and bicycle commute cost reimbursement) are currently tax-free both to employers (as a deductible business expense) and to employees (the dollar value of the benefits are excluded from their income tax calculation). In the tax plan, the pretax payroll deduction option is retained, but the ability of employers to deduct the cost of this benefit is eliminated. This could provide a disincentive to employers from offering this key benefit which promotes job connectivity and growth.
  5. The proposal eliminates the New Markets Tax Credit and the Historic Buildings Tax Credit programs. Both of these programs have facilitated investment in large and small communities.

See the chart below for a summary of the major individual, corporate and foreign tax changes:

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As Vice President, Federal Affairs, Joel brings to CFM broad public policy experience as a senior Congressional aide and successful private sector lobbyist.

Business Groups Call NAFTA Changes ‘Dangerous’

NAFTA, Trump administration, U.S. Chamber of Commerce, cross-border trade, tariffs, US manufacturing, Robert Lighthizer, Mark Zandi, tax cuts, CFM Federal Affairs

NAFTA, Trump administration, U.S. Chamber of Commerce, cross-border trade, tariffs, US manufacturing, Robert Lighthizer, Mark Zandi, tax cuts, CFM Federal Affairs

Business groups, organized by the U.S. Chamber of Commerce, are combing Capitol Hill to warn of the economic harm that could result from changes proposed by the Trump administration to the North American Free Trade Agreement (NAFTA). They call many of the provisions “dangerous.”

The groups, which range from automakers to retailers to agricultural interests, say the negative effects of NAFTA changes could offset any economic benefits corporations might receive through tax reform. “It doesn’t matter what your tax rate is if you’re not competitive,” Bill Lane, chairman of the Trade Leadership Coalition, told The New York Times. “NAFTA makes North American manufacturing competitive.”

US trade officials are following up on President Trump’s persistent condemnation of NAFTA, including a threat to pull out of the trade deal. Negotiators from the United States, Mexico and Canada have begun working on revisions, raising a concern that Trump is following through on his campaign promise.

Lane said business groups have largely remained silent about NAFTA because they assumed Trump’s threat to withdraw was “bluster.” That view has changed as business groups review the proposals Trump’s team is pushing. In particular, they dislike the idea of putting a 5-year sunset on the trade pact, which would require a new round of negotiations and remove the relative certainty businesses now have with NAFTA.

Business groups also dislike Trump proposals to require higher domestic content standards for imported goods sold in the United States, a move intended to increase US manufacturing jobs, but which could upend tariff-free North American supply chains. They point to the analysis of economists, such as Mark Zandi of Moody’s Analytics, who say Trump NAFTA proposals would have negligible impact on US job levels and potentially devastating impacts on the overall economy. Recasting NAFTA with Trump changes, Zandi’s research indicates, could stunt the US economy at the same level of a $150 billion tax increase.

US Trade Representative Robert Lighthizer concedes corporate interests would take a hit if Trump gets his way with NAFTA, but he minimized the impact. In comments to The New York Times, Lighthizer said, “I think it’s possible to take a little bit of sugar away and have them [businesses] say, ‘Yeah, we’re still doing pretty well.’”

Business groups swarming Capitol Hill disagree. They say imposing cross-border restrictions and introducing uncertainty into trade policy could push manufacturing out of North America and wind up increasing prices paid by consumers. The negative impacts could be disproportionately high for states such as Oregon and Washington with economies that rely heavily on foreign trade.

U.S. Chamber officials report their lobby barrage has received a sympathetic ear on Capitol Hill, especially among Republicans. However, few lawmakers offered much hope that they can influence Trump on this issue. It probably wasn’t coincidental that Arizona Senator Jeff Flake, in his speech last week announcing his decision not to seek re-election, lamented GOP desertion of its long-time free trade positions.

Democratic lawmakers, especially from Rust Belt states that have suffered losses in traditional manufacturing sectors, are generally on board with Trump’s NAFTA agenda. “Any trade proposal that makes multinational corporations nervous is a good sign that it’s moving in the right direction for workers,” said Ohio Democratic Senator Sherrod Brown.

If talks falter to revise NAFTA, tariffs on exports to Mexico and Canada could be re-imposed. Many tariffs would be relatively low, but tariffs on US exports could be substantial – 25 percent on beef, 45 percent on turkeys and 75 percent for chicken, potatoes and high-fructose corn syrup.

The Federal Fiscal Sudoku Game

Keeping up with a pending federal budget, a growing federal deficit, a looming massive federal tax cut and a surging stock market is a lot like playing fiscal Sudoku.

Keeping up with a pending federal budget, a growing federal deficit, a looming massive federal tax cut and a surging stock market is a lot like playing fiscal Sudoku.

For fiscal junkies, these are the best of times. The GOP-controlled House and Senate passed versions of a $4 trillion Fiscal Year 2018 budget, the United States logged last year the sixth largest budget deficit in history and the stock market reached record highs last week in anticipation of a major corporate tax cut, which the budget makes easier to pass.

In many ways, the fiscal news is like a jig-saw puzzle with pieces that don’t exactly fit together:

  • The Senate-passed FY 2018 budget measure leaves federal spending at current levels and provides for a major tax cut, which Republicans concede will increase the federal deficit in the short-term.
  • US Treasury announced the federal government finished FY 2017 with a $666 billion budget deficit, $80 billion more than the previous year, as spending grew by 3 percent, but revenues only increased by 1 percent.
  • Even though tax legislation hasn’t been finalized, Wall Street became giddy over a congressional budget with a reconciliation process that makes it politically easier to pass a tax cut without any Democratic support. The Dow Jones industrial average on Friday surged more than 165 points to a record 23,328. Shares of JP Morgan Chase hit an all-time high.

Republicans have campaigned for decades on fiscal discipline and shrinking the federal government. The recent news about tax cuts and budget deficits run contrary to that ideology, though House Speaker Paul Ryan assured in a media interview that deficits were still concerning to his political party.

Not concerning enough to blunt the drive to enact a tax cut by the end of the year that no one denies will increase the federal deficit. GOP supporters say tax cuts will stimulate the economy and eventually economic growth will erase the red ink. Democrats disagree, claiming supply-side, trickle-down economics hasn’t produced the bonanza of benefits promised by its supporters, just widened income inequality at the expense of the US middle class.

The FY 2018 budget, which retiring GOP Senator Bob Corker of Tennessee called a “hoax,” seems designed to enact a tax cut, not implement a spending strategy. The tax cut is viewed by GOP leaders – and their wealthier supporters – as must-pass legislation to overshadow congressional failure to repeal Obamacare before the 2018 mid-term elections.

In addition to the impact of a tax cut, there will be pressure on the federal budget over the next year as Congress approves substantial funding to pay for severe hurricane and wildfire relief. Trump administration efforts to undermine Obamacare may have unpredictable negative economic consequences. The prospect of military conflict with North Korea along with accelerated modernization of the US nuclear arsenal also could dramatically push up spending levels.

To counter higher deficits, the FY 2018 budget points to $1.5 trillion in spending cuts on Medicare and Medicaid over the next decade. Higher outlays for Social Security, Medicare, Medicaid and payments on the national debt were blamed for pushing up the deficit last year, which now equals 3.5 percent of US gross domestic product. The national debt now exceeds $20 trillion. The Congressional Budget Office has estimated the national debt will rise to 91 percent of the US economy as early as 2027 absent any fiscal policy changes.

Keeping up with all this US fiscal activity is a little like playing a 3D Sudoku puzzle:

  • The House and Senate still need to agree on a final budget, which might come as early as this week if the House decides to accept the Senate version and skip a conference committee to iron out differences.
  • President Trump has dangled some tantalizing numbers about his dream tax-cut legislation, but there isn’t an official tax bill to review.
  • The budget reconciliation process might make it theoretically easier to pass tax legislation, but only three Senate Republican defections could doom the plan, a la Obamacare repeal. Given Trump’s testy relationships with a number of senators, a political roadblock isn’t inconceivable.
  • The budget reconciliation process isn’t a free ride. There are limits on how much the tax cut can raise the deficit, which could stoke a ferocious intra-GOP debate over what taxes cut.
  • While Democrats haven’t been consulted so far, they have been courted to support the tax cut. There are a lot of side issues that could come into play in the attempt to earn some level of bipartisan support.
  • Ryan has threatened to keep House members in session through Christmas to pass a tax bill. It may not be an idle threat.

If All Else Fails, an Infrastructure Package Might Pass

The much ballyhooed $1 billion Trump infrastructure package has slipped into the shadows as the White House and the GOP-led Congress dote on repealing Obamacare and passing major tax cut legislation. But it all else fails, a bipartisan infrastructure deal might be a surprise Christmas gift to take home to voters.

The much ballyhooed $1 billion Trump infrastructure package has slipped into the shadows as the White House and the GOP-led Congress dote on repealing Obamacare and passing major tax cut legislation. But it all else fails, a bipartisan infrastructure deal might be a surprise Christmas gift to take home to voters.

As a second child, I know what it’s like to live in the shadows of an older sibling. I have plenty of friends and neighbors with three kids and I can only assume the level of attention drops off even more for number three.

President Trump’s $1 trillion infrastructure package seems more and more like that third kid. He or she keeps jumping up and down for attention, but the first two children, in this case, health care and tax legislation keep getting all the love. The question is, if health care and tax legislation keep misbehaving, how quickly will the third child become the center of attention? It’s possible it may be sooner than you think.

The ultimate backdrop is this: President Trump needs a big legislative victory in 2017 and, despite what he says, he hasn’t landed one yet. If all three of these big-ticket items get pushed to 2018, an election year, it’s going to be extremely difficult to get anything done. 

Democrats already have a disincentive to work with Trump. Their base despises him and generally doesn’t want to see their party leaders giving him any “wins.” This problem will only get worse with every passing day as we get closer to November 2018 and the mid-term elections. 

With only a two-seat majority, the Senate is generally the biggest impediment to moving any party-line legislation. We should know shortly whether tax cuts will have a chance of getting through the Senate.

This week, the Senate will be taking up the FY18 budget resolution. The centerpiece of the resolution is a broad outline for $1.5 trillion in tax cuts – and a secret parliamentary passageway to approve the tax cuts with only a simple majority.

Passage of the resolution doesn’t ensure that a tax package will be passed later in the year, but if the budget resolution is defeated, tax reform is basically dead. Then where does that leave us? Oh yeah, our new industrious, job creating and hardworking favorite child, Infrastructure Package.

The Trump administration could quickly turn its attention to a broad bipartisan deal that is supported by most Democrats and moderate Republicans. Infrastructure projects for roads, bridges, transit, housing, water infrastructure and veteran’s facilities are all politically popular and could quickly come together in the final months of 2017. It may be the first Christmas in years that the third child gets a bigger present than his two siblings.

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As Vice President, Federal Affairs, Joel brings to CFM broad public policy experience as a senior Congressional aide and successful private sector lobbyist.

Budget Reconciliation, Round Two

After failing to repeal Obamacare using budget reconciliation procedures, GOP congressional leaders will try again, this time with major tax legislation, which President Trump calls a “middle-class miracle,” but critics berate as a tax giveaway to corporations and wealthy Americans.

After failing to repeal Obamacare using budget reconciliation procedures, GOP congressional leaders will try again, this time with major tax legislation, which President Trump calls a “middle-class miracle,” but critics berate as a tax giveaway to corporations and wealthy Americans.

The GOP-controlled Congress is gearing up for another budget reconciliation battle, this time over taxes. The parliamentary scenario is eerily similar to the failed effort to repeal and replace Obamacare.

Like the flawed plans to scrap the Affordable Care Act, Republican congressional leaders are snubbing bipartisan efforts to write a tax plan. Oregon Senator Ron Wyden, the ranking Democrat on the Senate Finance Committee, has worked on bipartisan tax legislation before, but he says he wasn’t consulted on the latest proposal, which President Trump calls a “middle-class miracle,” but critics say gives large tax cuts to corporations and wealthy Americans.

That major tax legislation is attached to budget reconciliation is itself an issue, reflecting GOP unease over the impact of large tax cuts on the federal deficit. Republicans want to make a critical one-word change in budget procedures – from “current law” to “current policy” – that would have the effect of substantially reducing the apparent loss of federal revenue from tax cuts, perhaps by as much as $500 billion. Rep. Richard Neal, the ranking Democrat on the House Ways and Means Committee, criticized the new set of numbers as a “sleight of hand to fool the public.”

Making the deficit impact shrinks is intended to mollify House budget hawks who want to trim federal spending – and who typically refuse to vote to raise the federal debt ceiling, an action that also is pending, but rarely discussed. The budget package approved by a 219-206 vote in the House calls for a $5.8 trillion in spending reductions over the next decade for Medicaid, Medicare, education and national infrastructure.

Trying to pass a tax cut under budget reconciliation procedures is largely a gambit to skirt by the 60-vote cloture rule in the Senate. Under reconciliation, Senate Republicans would only need 50 “yes” votes, plus an “aye” vote by Vice President Pence, to pass the tax cuts. There are only 52 GOP senators, so the margin, as shown by the Obamacare repeal, is tight.

Unlike the effort to repeal Obamacare, Senate Democrats aren’t all in lockstep in opposition to the GOP plan. Three Democrats who face re-election in 2018 have kept their powder dry on tax legislation. Their votes may not be needed to pass the tax cuts, but Republicans are courting them to give their tax legislation the patina of bipartisanship. Trump flew to Indiana to put pressure on Senator Joe Donnelly, promising that “we will campaign against him like you wouldn’t believe” if he didn’t vote for the tax plan.

The battle lines over Obamacare translated more easily into mobilization and messaging – millions of Americans would lose health insurance. Taxation is more abstract. It is harder to get worked up over rich people getting tax breaks than people losing access to health care. Senate Democratic Minority Leader Chuck Schumer’s opening salvo – calling the GOP tax plan “wealth-fare” – hasn’t caught on.

Another dimension of the looming tax debate is its many parts. For example, the child care credit that Republicans have indicated will be included, is popular among Democrats. The potential removal of a deduction for state and local taxes will hit some states, including Oregon that relies heavily on personal income taxation, harder than others. The Portland Tribune reported Oregonians deducted $5.9 billion in state and local taxes from their federal income tax returns in 2015. About half of that amount came on tax filers with income between $100,000 and $500,000 and twenty-nine percent of Oregonians could see higher state taxes as a result, state officials say.

Oregon Democratic Senator Jeff Merkley is taking a point position in opposing the GOP tax plan, describing it as a “massive giveaway to the rich.” And Vox reports that campaigns, such as “Not One Penny” and the Trump tax chicken, are heating up.  TrumpTaxScam.org is posting a calculator to help people determine how the tax changes will affect them.

 

Economic and Political Realities of Climigration

Devastation caused by Hurricane Irma has paralyzed Puerto Rico and spurred Puerto Ricans to become climate refugees.

Devastation caused by Hurricane Irma has paralyzed Puerto Rico and spurred Puerto Ricans to become climate refugees.

The hurricane-caused devastation in Puerto Rico that has left large chunks of the island in the dark and without drinking water poses a major challenge for humanitarian aid. It may also pose an unexpected political challenge as many Puerto Ricans flee their island home, perhaps for good.

They are climate refugees. Not in the technical and legal sense of “refugees,” but in the practical meaning of the word. They are fleeing what they view as an untenable existence, not because of a perceived slow response by the Federal Emergency Management Agency, but because they see a worsening climate affecting their safety and economic well-being.

Climigration may not be limited to Puerto Rico, which has been hit by back-to-back Category 5 hurricanes. Residents in the US Virgin Islands, Florida Keys and southeast Texas may retreat to higher ground to avoid future exposure to winds, flooding and water surges in floodplains and coastlines.

These climate refugees may or may not believe in human-caused climate change, but they no longer doubt the climate is changing in potentially dangerous ways. The specter of entire islands with flattened buildings, no electricity and a decimated economy can be deeply disheartening. In Puerto Rico, death counts and damage estimates are impossible because many areas remain virtually inaccessible.

FEMA and President George W. Bush took a beating for a sluggish response to Hurricane Katrina. FEMA has gotten higher marks for its response to Hurricanes Harvey, Irma and Maria. For Puerto Ricans standing in an impossibly long line to get on a cruise ship bound for the mainline, FEMA isn’t the issue. They just can’t picture themselves trying to put their lives back together on an island with dim prospects.

If you have a serious illness, you don’t see much chance of getting the care you need. If you are in the tourism industry, it is hard to imagine many of the 2.3 million tourists who visit Puerto Rico returning any time soon. If you are living on the economic edge, falling into poverty seems likely. If you are a political official for a territory already in deep debt, there may not be any light in the tunnel.

US-citizen climigrants will settle in new places, with a likely concentration in Florida. Like Cuban refugees, Puerto Rican refugees will bring their political views with them, including their views about the impacts of climate change. Experiencing historic back-to-back hurricanes can leave a lasting impression. And that’s the political dilemma.

Apart from a herculean effort to rebuild Puerto Rico and other devastated Caribbean islands, there is a huge question mark about their future economic footing. As an island without any commercially viable natural resources, Puerto Rico must rely on manufacturing and tourism, both of which need to count on basics like electricity. Puerto Rico already has seen an out-migration of its population – a net loss of almost 450,000 people between 2005 and 2015. Island flight may accelerate, as evidenced by the exodus on flights bound for the mainland.

Climigration isn’t new in the long history of earth. That’s probably how many people wound up where they are. Most recently, more than 400,000 residents pulled up stakes and left New Orleans after Hurricane Katrina. Chunks of the city remain more or less in ruins.

Congress passed an initial hurricane relief funding package in response to the devastation in Texas, but has been preoccupied with other issues, including a proposed massive tax cut, after the devastation in Puerto Rico. The perceived slight is becoming a political issue on Capitol Hill, with Democrats urging swifter, stronger actions to assist Puerto Rico.

Ultimately as many as 1 million Puerto Ricans may move and take their first-hand view of climate change – and the political response – with them to new constituencies.

Consensus Plan to Reduce Poverty and Enhance Opportunity

Speaking of strange bedfellows, the conservative American Enterprise Institute and liberal Brookings Institution teamed up in 2015 to produce a consensus report on addressing poverty and enhancing opportunity. It started with facts and contained policies that crossed partisan divides.

Speaking of strange bedfellows, the conservative American Enterprise Institute and liberal Brookings Institution teamed up in 2015 to produce a consensus report on addressing poverty and enhancing opportunity. It started with facts and contained policies that crossed partisan divides.

Since strange bedfellows became the order of the day on raising the debt ceiling, providing disaster relief and keeping the federal government running for three more months, maybe it is time to revisit more cats and dogs proposals.

One of the more interesting products of diametrically opposed groups is the 2015 American Enterprise Institute-Brookings Institution consensus report on how to reduce poverty in America. The report was published after 14 months of painstaking work by 15 experts from AEI, a conservative think tank, and Brookings, its liberal counterpart.

On its website, Brookings touts the report “as a consensus plan to reduce poverty and restore the American Dream [that] bridges the partisan divide and suggests a way forward despite the political polarization and gridlock that paralyzed much of Washington.”

In the nearly two years since the plan was made public, little in the nation’s capital has changed. The unexpected deal last week between President Trump and Democratic congressional leaders on the debt ceiling, spending authority and disaster relief is probably just a political blip.

Instructively, the AEI-Brookings report begins with “facts on poverty and opportunity that progressives and conservatives can agree on.” Even if the report contained no recommendations, agreeing on the facts would be a major boon.

According to the report, the percentage of single women with children has quadrupled to 40.8 percent as marriage rates declined between 1970 and 2010. In 2013, single-parent households earned an average of $36,000 annually, roughly a third of married-couple family incomes. Most troubling, only 4 percent of children born to poor families ever become high wage-earners, while 43 percent remain poor into adulthood. The data draws a correlation between family composition and education, employment and wages, which have downstream effects on poverty rates and economic mobility.

To address family trends, the AEI-Brookings report recommends policies that promote marriage, delayed and responsible childbearing, parenting skills and job skill development for men and women.

Brookings experts conceded the importance of marriage and family structure, while AEI experts acknowledged the benefits of family planning, which can include use of contraceptives as well as abortions.

On the jobs front, the report cites the need for higher-level skills in the workplace and how people, especially men, without advanced skills can fall behind and never climb the economic ladder.  Recommended policies included making more jobs available and make work pay better than it does now for lesser educated and skilled workers.

Reinforcing that “a good education is important to achieving the American Dream,” the report says achieving the American Dream now more than that ever requires hard work and a good education. “The education level of adult heads of households has been increasingly associated with their income as the income gap between the well-educated and the less-educated has grown steadily over the last four decades,” according to the report.

Policies to cope with a shrinking American Dream include increased public investment in preschool and postsecondary education, modernizing the organization and accountability of educational systems, closing funding gaps and educating the “whole child” to promote social-emotional as well as academic skills.

The way forward, the AEI-Brookings report concludes, should adhere to three core values:

  1. That all Americans should have the opportunity to apply their talents and efforts to better themselves and their children, regardless of the circumstances of their birth;
  2. That all Americans have a responsibility to provide for themselves and their families to the best of their abilities before asking others for help;
  3. That all Americans are entitled to a basic level of security against the vacissitudes of life and, in a nation as rich as ours, to a baseline level of material well-being.

“The only way forward, we believe, is to work together,” the report’s authors insist. “No side has a monopoly on the truth, but each side can block legislative action.”

It is striking in these passages to see conservative and liberal thinking crisscross as policy recommendations converge on addressing poverty and enhancing opportunity. There are significant give-and-takes in the report, but the challenges facing many Americans rise above partisan thinking or ideological purity.

“Poverty is changing,” the report’s authors say, “and policy responses must change, too.” So far, despite the good work of strange bedfellows, they haven’t.

Hurricane Harvey Blows DC Political Winds in New Direction

Devastation caused by Hurricane Harvey has shifted the political winds in Washington, DC to focus on funding relief efforts, which may provide the political cover for Congress to raise the debt ceiling and allow more time to come up with a spending bill before the new fiscal year begins October 1.

Devastation caused by Hurricane Harvey has shifted the political winds in Washington, DC to focus on funding relief efforts, which may provide the political cover for Congress to raise the debt ceiling and allow more time to come up with a spending bill before the new fiscal year begins October 1.

Hurricane Harvey tore into Texas and its winds continued to blow all the way to Washington, DC.

Congress returns to town Tuesday and now topping its list of to-dos is passage of legislation to add billions more in funding to the Federal Emergency Management Agency to cover soaring costs to build after the ravages of one of history’s worst hurricanes in Texas.

President Trump has called for $7.9 billion in increased funding, even though Texas Governor Greg Abbott predicts it will require as much as $180 billion to recover what was lost or damaged in Houston, Corpus Christie, Beaumont and other Southeast Texas communities.

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The increased funding comes as Congress must find a way to approve legislation raising the US debt ceiling and a funding measure to keep the federal government’s doors open when the new fiscal year begins October 1. Those already prickly political issues were complicated when Trump said he was willing to accept a government shutdown to get a down payment on funding of his border wall.

Congress is already under a tight deadline to raise the debt ceiling and approve a FY 2018 spending measure and now also must deal with funding Hurricane Harvey relief, legislation to maintain the so-called Dreamers program and possibly increased expenditures to fight a war with North Korea.

Congress is already under a tight deadline to raise the debt ceiling and approve a FY 2018 spending measure and now also must deal with funding Hurricane Harvey relief, legislation to maintain the so-called Dreamers program and possibly increased expenditures to fight a war with North Korea.

Trump seems to have backed off the border wall threat under the cover of pressing for immediate relief funding to hard-hit Texas and parts of Louisiana, which he visited twice since the hurricane made landfall August 25.

Even though there is no direct connection between increased FEMA funding and raising the debt ceiling, which reflects past federal spending, hurricane victim relief may give GOP congressional leaders the leverage they need to push through both measures without a lot of political infighting, especially from the conservative wing of the Republican Party. Both Texas senators, who have bona fide conservative credentials, have expressed support for more FEMA funding. Relief aid would be touted by Trump and other politicians as a significant legislative achievement.

If that happened, there would be would more space – and perhaps legislative days – for what are expected to be intense political negotiations over spending for the next fiscal year. The Trump administration has called for massive budget cuts in many federal agencies – including FEMA, but those cuts may not have much political traction, even among many Republicans.

Instead, GOP leaders may try to raise the stakes for congressional Democrats by threatening to cut back on spending for health care for children to gain political concessions on revisions to the Affordable Care Act and possibly other political objectives. There are bipartisan Capitol Hill discussions occurring on ways to repair, as opposed to repeal, Obamacare, which could become part of the budget conversation.

Congressional spending decisions rarely follow a straight line and the hard negotiating never occurs in public view. While budget negotiators may ignore Trump’s budget outline, there are less likely to dismiss the President’s push for major tax cuts. While there also is willingness and even preliminary discussion of a bipartisan tax reform measure, agreement is virtually impossible before the end of September when some kind of a spending bill must pass. That suggests Congress will resort once again to some kind of continuing resolution, perhaps to the end of the year, to allow more time for the tax issue to ferment – and the hurricane relief bill to grow.

All that is murky enough political water, but it will get murkier. Trump will announce his decision to roll back the Obama-era decision to grant work permits to the children of undocumented immigrants, possibly with a 6-month delay to give Congress a chance to act. While a number of states have threatened to sue if the so-called Dreamers program isn’t scrapped, many GOP congressional leaders, including Speaker Paul Ryan, have expressed support for legislation that would maintain the program.

The other wild card that could blow up budget talks is the heightening war of words between the United States and North Korea over its nuclear weapon capability. Diplomatic options seem to be dwindling and some kind of military action is becoming more probable, despite predictions of enormous collateral damage. At a minimum, the United States would need to reinforce its manpower levels in Asia. There are reports military units already have been put on notice. As we learned in Iraq and Afghanistan – and earlier in Vietnam, fighting on the ground and dropping bombs from the sky is budget-busting expensive.

It is hard to imagine how the political situation in Washington, DC could get much worse. Well, its name is Irma and it may be heading to Florida coast later this week.

Congress Faces Political Test on Debt Ceiling Vote

Congress faces once more the political contortion act of voting to increase the US debt ceiling by the end of September, a task made even harder by President Trump’s demand to connect it with funding for his border wall with Mexico.

Congress faces once more the political contortion act of voting to increase the US debt ceiling by the end of September, a task made even harder by President Trump’s demand to connect it with funding for his border wall with Mexico.

The House and Senate return to the Capitol after Labor Day and face the grim task of raising the national debt ceiling to avoid US default on its obligations.

While the vote itself is a relatively simple one, the politics surrounding the vote are anything but simple. President Trump has made it more complicated.

Even though Treasury Secretary Steven Mnuchin has urged Congress to pass a “clean” debt ceiling measure, Trump has poured gasoline on that idea by connecting the debt ceiling increase with funding for his border wall, threatening to shut down non-essential parts of the federal government if he doesn’t get his way.

Congressional Democrats are unlikely to support a debt ceiling increase tied to border wall funding and would privately chuckle if a Republican president caused a government shutdown out of political pique.

There is no evidence funding Trump’s border wall would overcome the ideological objections of enough GOP conservatives to provide the votes to raise the debt ceiling.

Mnuchin first raised the need to increase the debt ceiling in March. Now he says it must be increased by the end of September or risk a federal government default.

In the recent past, increasing the debt ceiling – and forestalling uncharted economic consequences if it isn’t raised – has been accomplished with bipartisan votes. GOP congressional leaders have been forced to defy their conservative wing and deal with Democrats. Accommodating Trump would make that political formula impossible.

Trump’s unrelenting attacks against Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan, along with other GOP leaders, hasn’t created a climate of brotherly love and trust. The President’s pardon of Maricopa County Sheriff Joe Arpaio’s conviction of contempt of court related to racial profiling has roiled, not smoothed the political waters, creating yet another potential distraction.

With only a dozen days in session for the House and 15 for the Senate during September, there isn’t time for distraction.

Getting Congress to increase the debt ceiling has typically required presidential prodding, starting as far back as Jimmy Carter and Ronald Reagan. Even though raising the debt ceiling accommodates spending already approved by Congress, many Members of Congress grow queasy at the thought of constituents conflating past out-of-control spending with future out-of-control spending. Without presidential pressure, Congress has little incentive to crawl out onto this particular political plank.

As he has with so many other norms, Trump has broken with tradition. Until recently, he never brought up the need to raise the debt ceiling. His initial comment was to criticize GOP congressional leaders for not trying to pass it as a rider to a popular veterans bill approved just before the August recess. His next comment was to link the already tenuous vote with the contentious question of funding a border wall that Trump promised campaign supporters that Mexico would pay for, one way or another.

McConnell and Ryan have indicated their intention to raise the debt ceiling with as little political fur-flying as possible. That probably means a debt ceiling measure with no riders to assure Democratic votes. If Trump is still paying attention, he could rile up the GOP conservative base, making the vote even more miserable for Republicans.

The historic storm that crashed into Southeast Texas creating submerged areas the size of Lake Michigan and dislocating thousands of people could offer a timely political off-ramp for the debt ceiling vote. Trump chose the eve of Hurricane Harvey’s landfall last week to pardon Sheriff Joe and issue an official order on transgender people in the military. The President is headed to Texas this week to survey the damage. He may find it useful to talk about massive federal assistance. This could be the perfect distraction that lets congressional leaders slide through the debt ceiling increase.

Good Jobs Nation Tour Elevates Economic Issues

A labor-backed tour started this week that seeks to put pressure on the Trump administration to keep its campaign promises on jobs, but also may signal a move by Democrats to focus on bread-and-butter issues heading into mid-term elections next year.

A labor-backed tour started this week that seeks to put pressure on the Trump administration to keep its campaign promises on jobs, but also may signal a move by Democrats to focus on bread-and-butter issues heading into mid-term elections next year.

Potential Russian election collusion, failed repeal and replacement of Obamacare and a tone-deaf response to violence in Charlottesville has eroded, but didn’t eviscerate President Trump’s hard-core political support. The Good Jobs Nation tour that began this week could pose a more serious political threat.

The two-week tour is designed to put pressure on Trump to live up to his campaign promises on jobs.

“Trump ran as a working-class hero, so let’s look at the results,” Joseph Geevarghese, executive director of Good Jobs Nation, told The Washington Post. “We’re seven months into his administration and wages are flat. People are still getting pink slips.”

The tour pointedly started in Indiana, home of the Carrier plant that starred in the Trump campaign and the early Trump presidency when he announced a deal with company management to keep manufacturing jobs in the United States instead of shifting them to Mexico in return for $700,000 per year in state tax breaks. Labor leaders say Carrier is laying off workers and moving manufacturing to Mexico despite the deal Trump negotiated.

“He made promises to working-class people,” said Chuck Jones, who represented steelworkers at the Carrier plant. “He said if he were president, jobs would not be leaving this country. Guess what? They still are. He could be signing executive orders. He’s not lifting a finger.”

Organized labor is also irked at Trump for turning his back on an Obama-era rule on overtime and a regulation requiring companies bidding on government projects to disclose labor law violations because business groups opposed them. The Communications Workers of America is upset because the Trump administration has failed to respond to its request for an executive order relating to US-based call centers.

Ironically, Trump has defended his record in office by pointing to an uptick on the stock market, continued steady job growth and a slight increase in wages – indicators Trump the candidate scorned as not reflecting the true economic condition staring at many American workers.

Souring relations with blue-collar workers is not a good political sign for Trump or Republicans generally. Those workers provided the marginal votes that enabled Trump in 2016 to carry traditionally Democratic states such as Wisconsin, Michigan and Pennsylvania and give him an electoral college victory.

The analytics of congressional districts don’t look all that promising for Democrats heading into the 2018 mid-term elections, which means they will need to bear down on economic issues to erode GOP electoral advantages.

The analytics of congressional districts don’t look all that promising for Democrats heading into the 2018 mid-term elections, which means they will need to bear down on economic issues to erode GOP electoral advantages.

The tour doesn’t overlook that fact. One of the stops is in Wisconsin, which will feature Randy Bryce, a labor organizer who is challenging House Speaker Paul Ryan in his re-election bid next year. Wisconsin is where Taiwan-based Foxconn has announced plans to build a plant to make components for the iPhone in exchange for $3 billion in subsidies, a deal that organized labor is opposing.

Trump, GOP leaders and business groups are likely to dismiss the Good Jobs Nation tour as a political ploy by organized labor and leftist Democrats, noting the kickoff speaker in Indianapolis is Senator Bernie Sanders. While the tour itself may not strike a decisive blow to the Trump presidency, it will elevate questions about Trump’s economic plans and his inability, at least so far, to move forward an economic agenda that includes tax cuts and infrastructure investment. Whether Democrats can take advantage is an open question.

Blue and Red State analytics aren’t all that encouraging for a major Democratic comeback in the 2018 mid-term election. But polls do indicate that the issue Trump supporters watch closely is boosting the economy and spreading the benefits to include people who feel left behind economically.

In the words of former White House adviser Steve Bannon, “The longer they [Democrats] talk about identity politics, I got ’em. I want them to talk about racism every day. If the left is focused on race and identity, and we go with economic nationalism, we can crush the Democrats.”

It will be worth tracking whether the Good Jobs Nation tour reveals a crack in Trump’s blue-collar support or signals a new emphasis by Democrats on bread-and-butter issues.

Turning Campaign Promises into Policy Plowshares

Political candidates who make bold campaign promises face the harsh reality if elected of turning those promises into policies that can pass legislative muster or judicial review and wind up doing more good than bad.

Political candidates who make bold campaign promises face the harsh reality if elected of turning those promises into policies that can pass legislative muster or judicial review and wind up doing more good than bad.

Turning campaign promises into policy is tricky. Especially if the campaign promise is an oversimplified version of reality.

The attempt by congressional Republicans and President Trump to repeal and replace the Affordable Care Act is a case in point. What sounded like a slam dunk turned out to be a quagmire. Instead of a policy triumph, the GOP has a concrete anchor around its political neck.

The Congressional Budget Office is once again the bearer of bad news. CBO scoring of the various iterations of the repeal and replace bills helped sink them with predictions of millions of Americans losing health insurance coverage.

Now CBO says if Trump carries through his pledge to deep-six subsidy payments to health insurers, as provided for in the Affordable Care Act, health insurance premiums could rise 20 percent next year – and the federal budget deficit could balloon by $194 billion over the next decade.

Since the chief GOP objectives of repealing and replacing “Obamacare” were to lower health insurance premiums and cut the budget deficit, the CBO estimate wasn’t reassuring.

Tennessee Senator Lamar Alexander, who chairs the Senate Health, Education, Labor and Pensions Committee, is entertaining bipartisan legislation to “stabilize and strengthen” the individual health insurance market. He is working with Washington Senator Patty Murray. There is a similar bipartisan tandem working in the House. Both the Senate and House efforts involve retaining the cost-sharing subsidies that Trump threatened to jettison.

The failure to repeal and replace the Affordable Care Act provides lots of lessons. One of the most important is not to promise what you can’t deliver.

For the Trump administration, this is a lesson that could be applied across a wider policy spectrum, including throwing out trade agreements. Negotiations to update and modify the North American Free Trade Agreement, which Trump called the worst trade deal in history, are just beginning among the United States, Mexico and Canada. One of the loudest skeptics about wholesale changes in NAFTA are US automakers – one of the industry sectors the administration wants to help.

Like the Affordable Care Act that interacts with a complex web of health insurance and health care delivery systems, international trade has deep roots in commercial activity that can easily be upset, resulting in unintended negative consequences – including job losses. You may think tariffs on foreign goods will boost US industry, only to discover it may hurt more than it helps. That explains why Trump’s negotiation points in the NAFTA talks are a lot more restrained than his campaign proclamations.

Politicians of all political stripes deserve some sympathy. Most voters aren’t interested in policy details or complication explanations. They tend to react to sound bites and bumpersticker phrases. Opponents and pundits are quick to pounce on spongy policy pronouncements, so candidates opt to go with punchy and simple.

For all the griping about the non-responsiveness of governmental institutions, political leaders and agency bureaucrats do listen. And the legislative process, which was designed to be messy, works in most cases to get to a more nuanced policy place than a campaign promise.

The prospects of bipartisan legislation to address shortcomings of the Affordable Care Act and negotiations to modernize, not destroy, a major continental trade deal are examples of how government is supposed to work.

 

Managing Winners and Losers in Globalizing Economy

Globalization has produced winners and losers, which has soured many Americans and US policymakers on the undisputed benefits of free trade. The problem may not be trade, but the failure of US policy to keep pace with demands in a more competitive global economy.

Globalization has produced winners and losers, which has soured many Americans and US policymakers on the undisputed benefits of free trade. The problem may not be trade, but the failure of US policy to keep pace with demands in a more competitive global economy.

Based on the 2016 election, Americans seemingly soured on international trade. But that may not be an entirely accurate perception.

The election focused on workers dislocated by globalization. Less attention went to the benefits of trade, such as low-cost apparel and year-round fruits and vegetables. Foreign-sourced clothing has enabled American families on average to reduce spending on clothing from 7 percent to 3 percent of total household budgets.

Right or wrong, trade policies produce winners and losers. The losers received the attention in 2016, not inappropriately. US policies to compensate dislocated workers have been inadequate and, at times, non-existent. But that oversight does not override the everyday benefits that freer flowing international trade has brought to a broad swath of Americans.

Innovation Hub, an NPR program airing over the weekend, carried an interview with Edward Alden, author of “Failure to Adjust: How Americans Got Left Behind in the Global Economy.” Alden argues that America at large has benefitted from trade, but at the expense of some Americans who lost their jobs. The impact was predictable, as far back as 1971, but US policymakers have by and large dodged responsibility for finding ways to compensate trade losers, unlike many foreign contemporaries.

That responsibility, Alden says, includes both showing respect for dislocated workers and preparing the next generation to compete in a global economy.

Pete Peterson, an economic adviser to President Nixon, wrote a prescient paper in 1971 citing the upside of international trade and the dangers lurking in the future. He accurately predicted that some American workers would be left behind by globalization and implored for policies to prepare Americans for intensified global competition. You can’t say we weren’t warned.

“A program to build on America’s strengths by enhancing its international competitiveness cannot be indifferent to the fate of those industries, and especially those groups of workers, which are not meeting the demands of a truly competitive world economy,” Peterson wrote. “It is unreasonable to say that a liberal trade policy is in the interest of the entire country and then allow particular industries, workers, and communities to pay the whole price.”

Trump's Trade Pullout Roils Rural America

Today, trade has become a four-letter word. Republicans and Democrats have made protectionist arguments for border taxes, punitive penalties for US corporations moving manufacturing overseas and dumping or renegotiating trade agreements such as the Trans-Pacific Partnership. Nobody cried when President Trump withdrew from the TPP, even as China quietly stepped in to fill the void left by the United States.

That is exactly the point Peterson made in 1971. Much closer to World War II, Peterson could foresee the rise of a new generation of industrial leviathans, starting with Germany and Japan, which the United States helped to resuscitate. It may have been harder back then to project the economic rise of China, let alone Vietnam, India and Brazil.

Alden’s view aligns with Peterson’s. You can’t stop the ineluctable move toward globalization, but you have to adapt. Clinging to the past is like playing poker without ever looking at your cards. It also ignores the fundamentals of why globalization has advanced – trading partners are less likely to engage in war and free trade rewards the economy of advantage, whether it is technological innovation or low wages.

Trade pacts are intended to create rules that sufficiently even out advantages and disadvantages in bilateral or multilateral arrangements, but not necessarily to erase all disadvantages. Those disadvantages can be groups of workers or communities dependent on businesses on the decline.

Automation can amplify the perceived effects of globalization on job losses. Factories may remain in the United States, but employ fewer people because assembly lines are manned by robots. Remaining jobs are for people with different skills, such as running sophisticated machine tools or designing computer programs.

Digital technology has led to greater international integration, generating a flood of information flows that is reaching all corners of the globe. Information has become less proprietary and in many cases the cost of entry into business sectors has been significantly or totally erased, creating new waves of competition, such as outsourced tax preparation in India. There is evidence to suggest that cross-border data flows are becoming the most dominant form of international commerce.

One of the ironic twists of a more competitive global economy is the investment in the United States by foreign-owned companies. Asian and European auto makers manufacture vehicles in the United States, both to sell here and export elsewhere. Taiwanese-based Foxconn announced plans to build what it called a multi-billion-dollar manufacturing facility to produce Apple iPhones. It also has plans for an R&D facility in Michigan for self-driving cars. Chattanooga Tennessee sports two dozen foreign-owned companies that have helped lower the state’s jobless rate to 3.6 percent, a record low.

Traded goods are just a part of international commerce. The movement of capital, supported by financial services, plays a significant role. That’s why large banks are closely watching the details of Great Britain’s exit from the European Union, which could create barriers to service free-flowing capital. Data indicates financial flows have more than doubled since the beginning of the 21st Century.

Alden concludes that opposition to trade deals and globalization is the result of ignoring advice Peterson gave Nixon almost half a century ago. A more competitive world demands American keep its competitive edge, promoting innovation, investing in modern infrastructure, ensuring top-notch education and getting serious about retraining workers who suffer dislocation caused by trade (or by automation).

Today’s disillusionment with trade is linked to growing economic inequality, itself a reflection of a nonchalant attitude toward global competitiveness. People frustrated with their economic lot often blame immigrants. A better focus for their anger might be US policymakers who have failed to do what’s necessary to keep America competitive.

Tax Bill: Regular Order and No Border Tax

White House, GOP congressional leaders agree on process to write a tax bill and move it through the House and Senate under regular order – without the Trump administration’s proposed border adjustment tax.

White House, GOP congressional leaders agree on process to write a tax bill and move it through the House and Senate under regular order – without the Trump administration’s proposed border adjustment tax.

In contrast to GOP efforts to repeal and replace Obamacare, Republican congressional leaders plan to move tax legislation in regular order, which means starting with a bill and working it through committees. They also plan to put aside the Trump administration’s proposed border tax.

The news came in the form of a joint statement from the White House, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. This is viewed as an olive branch to Democrats to play a role in shaping, at least at the margins, of tax legislation.

The basic goal of the legislation remains the same – to promote economic growth and American jobs. Core ideas will be to lower tax rates and simply the tax code. “The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence and creates a system that encourages American companies to bring back jobs and profits trapped overseas,” the statement read.

The flash points, as always, will be who benefits most from lower tax rates and how expected federal revenue losses will be offset. The statement didn’t offer any specifics, but junking the border tax idea, which would have taxed imports and exempted exports, removes one of the main ways the Trump administration proposed to offset revenue losses. That will make it harder to squeeze a tax cut into a budget.

In its statement, GOP leaders talked about “tax relief for American families” and helping small US businesses compete with larger business and larger business compete with foreign businesses.

Dropping the border adjustment tax, known as BAT, comes amid questions about its actual impact and the long-term consequences of shifting to a national consumption tax. Supporters claim it would bolster US manufacturing. Critics contend it could curtail US exports, raise prices for American consumers and possibly even spark a trade war.

There had been some thought that congressional Republicans would try to use the budget reconciliation process to move a tax measure. The health care legislative mess undoubtedly discouraged that thought. Republicans also believe there is willingness among some Senate Democrats to play ball on tax provisions. And they hope to have a more unified voice from business interests, if not others, in support of a tax code update. Inclusion of a border tax would have splintered the business community and probably doomed the legislation to vocal opposition from consumer groups.

No time table or specific provisions were included in the statement, but working through both House and Senate tax-writing committees will take time for public hearings, mark-up sessions and floor debates, not to mention an eventual conference committee to iron out differences. It is unlikely that serious work on tax legislation will start before lawmakers return from their August recess.

Looking Behind the Fuss over the CBO

The Congressional Budget Office, created in the Nixon era, has become a headline-grabber with its dramatic scoring on the number of Americans who would lose health insurance under various GOP health care plans.

The Congressional Budget Office, created in the Nixon era, has become a headline-grabber with its dramatic scoring on the number of Americans who would lose health insurance under various GOP health care plans.

GOP health care legislation has elevated the Congressional Budget Office (CBO) from an obscure arm of government to front-page news and a subject for snarky presidential tweets.
 
The ferocity of attacks on CBO’s integrity and accuracy prompted all eight former CBO directors to send a letter to Congress protesting the assaults, which most recently came from House Speaker Paul Ryan who called the scoring of Republican health care legislation “bogus.” A House member has filed an amendment to a major spending bill that would trim $15 million from CBO’s $48.5 million budget and result in a loss of 89 CBO jobs.
 
CBO was created in 1974 amid a fight between President Nixon and a Democratically controlled Congress over congressional competence to write budgets. CBO was made nonpartisan to produce independent analysis of budgetary and economic issues in support of the congressional budget process. The agency also provides cost estimates for legislation, but it offers no recommendations on policy questions.
 
CBO directors have been both Democrats and Republicans. Current CBO Director Keith Hall, a Republican who took over in 2015, served on President George W. Bush’s Council of Economic Advisers and was a critic of the Affordable Care Act, also known as Obamacare. Vermont Senator Bernie Sanders called Hall “outside the economic mainstream.” When a GOP-controlled Congress installed Hall, it came with a direction to embrace dynamic scoring when evaluating the macroeconomic effects of legislation.
 
“CBO’s approach produces consistent comparisons of competing legislative proposals and unbiased projections of the impact of policy changes,” the former directors wrote.
 
The directors concede “even nonpartisan and high-quality analysis cannot always generate accurate estimates,” but they add that CBO estimates are “more accurate, on average, than estimates or guesses by people who are not objective and not as well informed as CBO’s analysts.” They noted CBO is transparent in its analytic techniques to make estimates and often turns to outside experts for advice.
 
The current fight over CBO was ignited with its scoring of various GOP health care bills to replace parts of Obamacare. Those scores showed huge drops in the number of Americans who would be covered by private health insurance and Medicaid. President Trump, administration officials and congressional leaders have questioned the accuracy of the predictions.
 
Mick Mulvaney, director of the Office of Management and Budget, singled out a CBO analyst and questioned her objectivity because she previously worked at the Department of Health and Human Services under President Clinton. Douglas Holtz-Eakin, a Republican former CBO director who signed the letter, posted a tweet calling Mulvaney’s characterization a “disgrace.” Mulvaney subsequently apologized.
 
Republican sensitivities about CBO estimates on health care legislation date back to the Affordable Care Act, which critics note sharply under-estimated the cost Medicaid expansion and over-estimated the number of Americans who would enroll in the individual health insurance exchanges. Critics say CBO has a poor track record of predicting consumer behavior. Democrats have quarreled with CBO estimates, too.
 
Supporters believe that CBO continues to serve the purpose of giving a nonpartisan analysis of legislation that may not please either side of the political aisle, but arms congressional budget writers with a tool they can use to defend the constitutional prerogative of controlling the public purse. MIT economist David Autor says, "CBO has a good track record with a very difficult assignment. It errs, but not systematically or with partisan intent."
 
The kerfuffle over the CBO may be reprised as the Trump administration and congressional Republicans bring up tax legislation later this year. That process is guided by CBO’s cousin, the Joint Committee on Taxation, which scores tax proposals and effects on federal government deficits.

Schrader Offers Democratic Plan to Repair Obamacare

Oregon Congressman Kurt Schrader and nine other House Democrats offered what they called “real, concrete solutions” to cracks in Obamacare’s individual market health insurance. The plan won’t go anywhere until it’s clear whether Senate Republicans have enough votes to pass their own Obamacare replacement bill, with a vote expected next week.

Oregon Congressman Kurt Schrader and nine other House Democrats offered what they called “real, concrete solutions” to cracks in Obamacare’s individual market health insurance. The plan won’t go anywhere until it’s clear whether Senate Republicans have enough votes to pass their own Obamacare replacement bill, with a vote expected next week.

Led by Oregon Congressman Kurt Schrader, 10 House Democrats have floated a plan to fix Obamacare as Senate Republicans prepare to vote on a revamped alternative that still slashes Medicaid spending by $700 billion.

Schrader said the House Democratic plan proposes “real, concrete solutions that will stabilize and improve the individual market, making Obamacare work better for everyone and getting us closer to universal coverage for all Americans.”

One of the key elements in the Schrader proposal is a $15 billion annual reinsurance fund to pay health insurers that enroll higher-cost, sicker individuals. Obamacare contained a similar reinsurance fund from 2014-2016. The concept is to ease the cost burden for insurers of expensive care for some patients so average premiums for participants in the individual market can be lowered.

Other features include continuation of payments to insurers that offer discounts to low-income patients, changing the enrollment period from November to May to coincide with when taxpayers receive income tax refunds and expanding tax credits for buying insurance based on age, geography and income. The plan calls for robust marketing of health plans with subsidies and drawing bidding areas that provide more competition for underserved rural areas.

"Although we’ve made progress, Members of Congress have to acknowledge that too many Americans still struggle with costs, especially people in the individual market," Schrader said.

Schrader and his colleagues also would allow people nearing retirement age the option to buy into Medicare coverage and permit younger adults to purchase catastrophic health plans that include primary care coverage with anticipated lower premiums.

Oregon Senator Ron Wyden urged a bipartisan approach to stabilize the individual health insurance market. He also encouraged steps to lower prescription drug costs, such as allowing Medicare to negotiate drug prices with pharmaceutical companies.

The first inklings of Democratic willingness to work on cracks in Obamacare came after Senate Majority Leader Mitch McConnell indicated that if a GOP alternative fails to pass, the only avenue left is a bipartisan approach. President Trump and political conservatives have said failing to repeal and replace Obamacare would break a longstanding Republican promise. Kentucky GOP Senator Rand Paul has announced he will oppose the GOP health care bill because it doesn’t go far enough toward repealing Obamacare provisions.

Meanwhile, GOP moderates are worried about the impact of large cuts to Medicaid on elderly and disabled Americans, who consume the largest amount of Medicaid funding. In the revised version of the Senate health care bill, more money is set aside to combat the national opioid crisis in a play to win over some wavering Senate moderates, but it still might not be enough.

Maine Senator Susan Collins, one of the moderates unconvinced by the redrafted plan, pointed out there is a $70 billion math error. The Better Care Reconciliation Act includes an amendment by Texas Senator Ted Cruz that would allow bare-bones health plans also provides $70 billion in federal support for health insurers. Except the $70 billion Cruz would use for this purpose is already allocated in the bill. Tim Jost, a health care law expert and professor at Washington and Lee University, told MSNBC that the bill “gives an additional $70 billion to the states and then the Cruz amendment gives it to insurers that offer compliant plans in addition to noncompliant plans.”

Congressional Republicans are using the budget reconciliation process to replace Obamacare because this procedural is not subject to Senate filibuster rules. But the 52-member Senate GOP majority is thin and only can afford to lose two members to pass its health care legislation. Senate Minority Leader Chuck Schumer has said Democrats would work with Republicans if they dropped the reconciliation process. According to The Hill, some Republican senators, including Lindsey Graham, have entertained informal conversations with Democrats about a bipartisan legislative approach.

The GOP-backed American Health Care Act passed the House earlier this year with a narrow 2-vote margin. The changes under consideration in the Senate, including retaining two taxes imposed by Obamacare, might erode that margin and make a reconsideration vote in the House uncertain. House Minority Leader Nancy Pelosi has not offered to work with Republicans on Obamacare-related legislation. Pelosi did say the Schrader-led proposal offer “promising ideas to put solutions over politics to strengthen the Affordable Care Act and continue to lower costs for seniors and hard-working families.”