tax cuts

The Battle to Combat Recession Slowly Begins to Take Shape

Economists agree a recession is perhaps only months away. There is less agreement and discussion on how to combat the recession when it occurs. One think tank argues the cure is growing aggregate demand by addressing income inequality. [Illustration Credit: Ji Sub Jeong/Huffpost]

Economists agree a recession is perhaps only months away. There is less agreement and discussion on how to combat the recession when it occurs. One think tank argues the cure is growing aggregate demand by addressing income inequality. [Illustration Credit: Ji Sub Jeong/Huffpost]

The United States is enjoying its longest sustained economic expansion since World War II, but there are signs a recession could occur in the next 12 to 18 months. An emerging question is what weapons US policymakers will have at their disposal to combat an economic downturn.

Historically, the tools to dig out of recession have included higher spending, lower interest rates and tax cuts. However, those tools have been compromised and don’t have much headroom. Federal budget deficits are already at economic stimulus levels, interest rates remain low and taxes have been cut.

Many economists believe trade wars can tip US and global economies into recession and possibly make a recession deeper and longer. The Smoot-Hawley Tariff Act of 1930 is credited with adding to the economic strain of the Great Depression by constricting international trade, lowering the gross domestic product and forcing job layoffs. The escalating US-China trade war has moved from a negotiating tactic to a policy preference by the Trump administration, with profound impacts on manufacturing, agriculture and other business sectors in a far more globalized economy than the 1930s. 

The Republican tax cut in 2017, which largely benefitted corporations and wealthier taxpayers, has failed to generate a sustained stimulus as new business investment has stalled, in part because of uncertainty about disruptions in international trade and global supply chains. Meanwhile, Congress and the White House have agreed to a budget package extending past the 2020 election that will raise the deficit and national debt even more.

image002.png

President Trump has applied continuous pressure on the Federal Reserve Bank to cut interest rates faster and deeper. Critics charge Trump wants to extend the current economic recovery past the 2020 election, even if it risks longer-term economic problems.

One tried-and-true idea to stimulate the economy that rarely gets mentioned is an infrastructure investment package. There has been big talk from the White House to Capitol Hill about investments ranging from $1 to $2 trillion. However, talk breaks down when it comes to paying for such investments in roads, bridges, water systems, public transit and expanded broadband.

Political dialogue about the economy has become as polarized as other hot-button issues such as immigration, health care and gun legislation. As the threat of recession rises, more politicos, especially those appearing on the 2020 election ballot, will have heightened interest in reversing a downturn. That may account for the relatively sparse public discussion of fighting a recession when one next occurs. 

The Economic Policy Institute (EPI), a nonprofit think tank that promotes economic policies benefitting low- and middle-income workers, offers some perspective on how to approach the next recession. In a report issued in April, EPI argues for “an effective fiscal boost to aggregate demand growth,” adding, “Policies should be constructed not only to be effective economically, but also to be effective politically, in order to ensure broad and engaged popular support.”

The EPI report says, “A key lesson from the Great Recession is that fiscal policy is the most effective tool for aiding recovery. Monetary policy can lay the groundwork for fiscal policy, but really cannot be relied on to play more than a supporting role for fighting recessions.” Notwithstanding record deficits and spiraling national debt, EPI believes the United States has the “fiscal space” for a substantial stimulus package.

According to EPI, the United States is ill-prepared for a looming recession because it has failed to address income inequality during the historically long economic expansion.  Worsening inequality, it claims, has put a “drag on aggregate demand growth.” Spurring demand, EPI says, is what will get the country out of recession.

A fiscal stimulus in the form of an infrastructure investment or tax cut that seeks to grow demand by shrinking income inequality is likely to be viewed quite differently by Republicans who control the Senate and White House and Democrats who control the House and are running for President. Expect sparks to fly as political campaigns get into full gear this fall.

If predictions hold true and the 2020 election comes down to a handful of swing states, as it did in 2016, the debate over a fiscal stimulus, which EPI favors, or monetary stimulus, which Trump prefers, could be a key factor in who working-class voters support.

The US-China trade war is surfacing as a political talking point on the economy, as Democrats point out the toll tariffs are taking on American farmers, businesses and consumers. However, most of the leading Democratic presidential candidates don’t have a solid trade policy alternative, which makes a recession-fighting fiscal stimulus a more inviting option, especially on the campaign trail.

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.

download (3).jpeg

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

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.

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.

Paul Ryan and the Wikipedia War

Paul Ryan's selection as Mitt Romney's running mate ignited a war on Wikipedia over whether it was relevant to note his high school voted him as the biggest brown noser. Photo by Gage Skidmore.The selection over the weekend of Wisconsin Congressman Paul Ryan as Mitt Romney's Republican running mate  touched off a wave of pro and con commentary. None was more pitched than a series of edits and counter-edits to Paul Ryan's Wikipedia page.

The focus of the Wikipedia Wars quickly zeroed in on a 1988 reference in Ryan's high school yearbook that listed him as the "Biggest Brown-Noser."

Ryan sympathizers swept in to scrub the reference as irrelevant, but the vigilant opposition countered and put back the brown-nose reference, declaring it was relevant. The battle waged on with hundreds of revisions, including mention that Ryan was prom king his senior year.

Actually, a spate of Wikipedia edits in a politician's profile has now become a semi-official perch to judge whether a vice presidential candidate's stock is rising or falling. 

Writing for The Atlantic, Megan Garber said reporters staked out the various Wikipedia pages of leading vice presidential candidates to see which one had the most editorial activity, a clue to who might get the nod. She noted that short-listers Rob Portman, Bobby Jindal, Marco Rubio and Ryan each had about the same amount of pre-announcement editing.

This was in sharp contrast, Garber said, to 2008 when Sarah Palin's Wikipedia page was edited 68 times the day before John McCain's surprise announcement of her as his running mate.

Political mischief-maker Stephen Colbert, perhaps miffed because he wasn't on anyone's short list, openly encouraged people to "go on Wikipedia and make as many edits as possible to your favorite VP contender." Wikipedia locked down the pages of the short-listers, which sucked the air out of Colbert's party.