April 16, 2018 / by Charles S. Konigsberg

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Legislative and Regulatory Watch List:

  • FY 2019 Budget Resolution:  Contrary to previous comments, House Budget Chairman Steve Womack said his committee will write a 2019 Budget Resolution.
    • He indicated the Resolution will focus on entitlement cuts — which is likely a non-starter in the Senate.  The Budget Resolution requires House-Senate concurrence.
  • 2018 Farm Bill:  Chairman Conaway introduce the Agriculture and Nutrition Act on April 12, 2018.
  • Medicaid work requirements: 
  • Health care rule changes – impact on consumers: 
  • FY’18 Rescission Bill Unlikely:  White House officials and House GOP leaders have discussed “rescinding” some of the non-defense discretionary funding in the just-passed omnibus spending bill for FY’18, but such a measure would be unlikely to pass the Senate.  Rescission bills are filibuster-proof, but bringing a rescission bill to the Senate Floor would be certain to scuttle negotiations on FY 2019 appropriations, where bipartisan support is required. Background on rescission bills.
  • DACA remains an urgent issue, with 700,000 young people protected from deportation only by Federal District Court injunctions temporarily halting the Trump Administration’s termination of the program. The political impasse over a legislative solution continues.  Background on DACA.
  • Financial Regulation:  The House and Senate remain on separate tracks.
    • The fin-reg bill passed by the Senate with bipartisan support raises the SIFI threshold (regulation of systemically important financial institutions) and provides some regulatory relief for small community banks and credit unions, but leaves most of Dodd-Frank (including the CFPB) intact.
    • The House legislation would repeal Dodd-Frank — an approach that has no chance of passing the Senate.
    • Background
  • BBA Rejected:  H.J.Res. 2, the Balanced Budget Constitutional Amendment, failed to get the required 2/3 vote on Thursday, 233-184.
  • Major action on infrastructure has dropped off the 2018 agenda. 
    • The White House planclaiming that $200 billion in federal funds would leverage $1.5 trillion in spending by assuming State, local, and private sector investments that would not otherwise occur, gained little traction on Capitol Hill and the Administration’s point person on infrastructure left the White House in early April.
    • Senate Democrats’ “Jobs & Infrastructure Plan to invest $1 trillion of federal resources in infrastructure — paid for by rolling back parts of the 2017 tax cuts — has no support among Republicans.
    • More on Infrastructure…

Omnibus Appropriations Act:

CBO Report Projects Trillion-Dollar Deficits, Debt Rising to 100% of GDP, Interest Payments Nearing $1 Trillion per Year

  • On Monday, the Congressional Budget Office (CBO) released its annual budget and economic projections, portending danger to the U.S. economy from unsustainable deficits.
  • Trillion Dollar Deficits:  Annual deficits, under current spending and revenue policies, are projected to exceed $1 trillion per year beginning in 2020, reaching $1.5 trillion in 2028 — and that’s assuming no recessions.
  • Public Debt Rising to 100% of GDP:  Debt-Held-by-the-Public is projected to exceed $28 trillion within a decade, nearing 100% of GDP.
    • Explanation:  “Debt-held-by-the-public,” currently $15 trillion, is lower than “gross debt,” currently $21 trillion, which includes debt held by government trust funds, e.g. the Social Security Trust Funds.  Debt-held-by-the-public is typically viewed as more economically significant, although gross debt is significant, as well, because it more thoroughly reflects liabilities of the Federal government.
  • Interest Payments Nearing $1 Trillion:  Net Interest Payments on the Public Debt are projected to reach $915 billion per year within a decade, approaching one-fifth of tax revenues.
  • Realistic Projections are Even Worse: CBO’s “baseline” projections assume Congress will allow individual tax cuts to expire in 2025 (as currently scheduled) and will allow defense and non-defense spending levels to drop significantly in 2020–both of which are unrealistic.  If one assumes that current spending levels and tax cuts are continued, debt would rise to 105% of GDP.   
  • Why This is Dangerous:  A path to trillion-dollar annual interest payments:
    • diverts public resources away from productive investments, e.g., infrastructure, R&D, and education;
    • reduces credit available for private sector investment;
    • pushes up interest rates and inflation;
    • limits the nation’s ability to respond to critical needs and disasters; and
    • increases the likelihood of a fiscal crisis, where “investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply,” says CBO.
  • Key Drivers of Exploding Deficits:
    1. Aging of the population and the rising health care costs will cause Social Security, Medicare, and Medicaid outlays to double over the next decade adding to deficits and threatening the solvency of the Social Security and Hospital Insurance Trust Funds.
    2. Interest payments on the public debt are escalating rapidly (tripling over the next 10 years) due to the accumulating public debt and expected interest rate increases.
    3. The 2017 tax cuts will increase deficits by $1.85 trillion — even after netting out projected revenues from economic growth — on the heels of major tax cuts in 2013 and 2010.
    4. The Great Recession boosted the public debt due to necessary spending increases (the stimulus bill, unemployment insurance, food stamps, and other emergency benefits) and revenue losses from reduced economic activity and tax stimulus measures.
    5. The three Bipartisan Budget Acts (in 2013, 2015, and 2018) rolled back the steep 2013 automatic cuts (“sequestration”) in defense and non-defense discretionary spending.  While this has added to deficits, discretionary spending in the context of overall GDP has not been a principal driver of escalating debt. (see CBO table, p. 85)
  • How to Avoid a Fiscal and Economic Crisis: A serious, bipartisan effort that addresses all areas of the budget — spending and tax revenues.  This has not occurred since 2010 when two bipartisan commissions  — Domenici-Rivlin and Simpson-Bowles — proposed major reforms.