Economic Policy Implications of the Midterms (November 13)

Update 312:  Economic Policy Implications
of the Midterms and the 116th Congress

The result of last week’s midterms will have important ramifications for economic policy during the 116th Congress.  Democrats have taken the majority in the House and will take majority control of key committees setting the legislative agenda.

More than 100 women were projected to win seats in the House of Representatives, easily shattering the record of 84.  Overwhelmingly, they were Democrats, including 30 candidates endorsed by 20/20 Vision (out of 40).

Below, a look at the economic policy implications of last week’s midterms.  

Best,

Dana

————————————

Financial Regulation and Oversight

The Democrats’ winning the House gives Rep. Maxine Waters the gavel of the House Financial Services Committee (HFSC).  Depending on the final seat tally, between 10 and 12 new Democratic members will be added to the Committee. Waters’ vote against S. 2155 and continued opposition to deregulatory overreach will change the tone and direction of the Committee, making it unlikely that any new deregulatory bills get through the House.

Oversight is likely to be a central theme of Waters’ regime. Recent actions by the Financial Stability Oversight Council (FSOC) to de-designate the last remaining nonbank systemically important financial institution (SIFI), as well as staffing and budget cuts at the Office of Financial Research (OFR) are likely to be scrutinized. The HFSC under Waters will also be a bulwark against rulemakings and practices that increase systemic risk; regulators will likely be called in to testify, which will increase public accountability, and perhaps slow down the deregulatory agenda. Kathy Kraninger, a Mick Mulvaney acolyte, looks set to be confirmed as CFPB director by the Republican-controlled Senate, so a Waters-controlled HFSC will be a welcome check on the direction of the Bureau under Kraninger’s tenure.

Democratic Senators who supported S. 2155 didn’t fare well last week.  Sens. Joe Donnelly and Heidi Heitkamp both lost their reelection bids, leaving two vacancies to fill on the influential Senate Banking Committee. The loss of Donnelly and Heitkamp opens the possibility to get different Democratic voices on the Committee, which will hopefully provide some welcome dissent to the Committee’s deregulatory program during the last Congress.  Kyrsten Sinema, the recently-announced winner of the Senate race in Arizona, could wind up with a seat on the committee given her role on HFSC. With Republicans still at the helm, the Committee looks set to continue its confirmations agenda as well as push for a fast implementation of S. 2155.

Tax Policy

During the president’s post-midterm press conference on November 7, he highlighted some legislative areas where he may be willing to work with a Democratic House.  One of those areas was tax policy. In response to a question at Wednesday’s press conference about how he’d pay for his promised 10 percent tax cut on middle-income households, the President said, “if Democrats come up with an idea for tax cuts, which I am a big believer in tax cuts, I would absolutely pursue something, even if it means some adjustments.”

While the news cycle will focus mainly on the oversight that is sure to come, as well as the messaging bills that will be introduced, the main area in fiscal policy to watch will be the possible 10 percent tax break for middle class households. The main question now is how Democrats will propose to pay for the cut. Some have proposed bills to expand the Earned Income Tax Credit, financing an increase in the program with tax increases on corporations and big businesses.

The policy areas Democrats could mine here would be expanding tax breaks for retirement savings programs, healthcare, and tuition, but many seem to be skeptical of a major overhaul like we saw in the 115th Congress. We can expect several messaging bills and potentially some technical corrections to the Tax Cuts and Jobs Act (TCJA), but it is unlikely that much will pass the Senate, let alone the president’s veto.

Political Reform

Political reform and oversight will be at the top of the agenda for Democrats in Congress come January.  A large majority of Democratic challengers, several of whom will now move into junior roles in the House, made political reform a key platform item on the campaign trail, with almost 200 progressive candidates rejecting corporate PAC money this cycle.

In the 115th Congress, House and Senate Democrats developed a plan entitled “A Better Deal for Our Democracy” (BDD). They managed to tuck some BDD provisions into the spending bill in bipartisan areas like rural broadband access, child care assistance, and infrastructure improvement. In August, the week that Paul Manafort was convicted on eight counts of fraud, Sen. Warren introduced an anti-corruption bill that proposes toughening rules on conflict-of-interest, lobbying ethics, and campaign finance reform. In the Republican-controlled Senate, Warren’s bill has little-to-no-chance of passing. House Democrats, however, are making democracy reform their number one priority in January.

On Monday, Rep. Sarbanes (D-MD) announced that H.R. 1, the first vote in the House, will be a reform package removing obstacles to voting, closing loopholes in government ethics law, and reducing the influence of political money. H.R. 1 would establish automatic voter registration, shift redistricting power from states to independent commissions, overturn the Supreme Court’s Citizens United ruling, expand disclosure mandates, and establish public financing to match small contributions.  Rep. Sarbanes admits that though the bill is unlikely to pass the Senate, it will force political reform issues to the forefront of the legislative agenda for both chambers of Congress.

Other Policy Areas of Note

There are a few issues that emerged as major talking points during this election season that we should keep an eye on moving forward:

  • Infrastructure

Infrastructure spending appears to be the best hope for a bipartisan bill in the coming Congress.  Both parties and the president publicly seem to agree that fixing and modernizing America’s infrastructure is a high priority and point of cooperation. This issue has been ongoing for years because a key source of infrastructure funding, the federal gas tax, has not been raised or adjusted for inflation in the last 25 years. President Trump has voiced support for raising the tax, in addition to signing onto a comprehensive spending package, but it remains to be seen if any infrastructure bill will come to fruition. Many observers believe that the two parties are so far apart on key aspects of an infrastructure package that the likely outcome is no bill at all or only a modest one that falls well short of the nation’s infrastructure needs.

  • Education

Many Democratic candidates campaigned on improving education at the K-12 and university levels. For K-12 public education, the focus was mainly on increasing funding in general. At the university level, many candidates advocated for reducing the costs of a four-year degree and increasing options for job training programs. With Secretary Betsy DeVos at the head, national changes seem unlikely, but newly elected Dems can work within their districts to improve local public schools and universities.

  • Healthcare

Healthcare was a cornerstone of both Democratic and Republican platforms this cycle. Democratic victories in the House will, at the very minimum, mean that further attempts to repeal the ACA will be stopped. It is possible that we will see some proposals pass through the House, with select GOP support, calling for modest expansions in Medicare. There is also likely to be an emphasis on increased protections for the ACA, primarily through oversight rather than legislation. With the Senate firmly locked down by the GOP, it is unlikely that substantial overhauls will be adopted this term.

In the end, it is not clear whether the midterm elections this year saw a true “blue wave” or more of a harbinger of still greater things. The loss of seats in the Senate — all but inevitable given the map, which reverses and favors Democrats in 2020 and 2022 — somewhat obscures the fact that Democrats might end up with their biggest gain in the House since the post-Watergate election of 1974.  This resounding win will mean that Democrats have a strong mandate to press ahead with much needed reforms, forge a progressive agenda to challenge the current GOP status quo, and chart a path to 2020.

Omnibus Situation (Mar. 22)

Update 258 — Omnibus Situation:
Last Stop Before Two-Week Recess

As of this writing on Thursday afternoon, one more piece of Congressional business remains before members and staff can start a long and long-awaited recess.  Once again, Congress confronts a deadline of midnight tomorrow to keep the federal government funded. But no one wants to wait that long.

And once again, a budget that is not supposed to make new policy does so, with significant provisions and omissions, with some key Democratic gains.  Omnibus status and details, see below.

Best,

Dana

——————————————————————-

The Omnibus Toplines

Last night, congressional leaders and White House officials reached a deal on H.R. 1625, a 2,232 page, $1.2 trillion fiscal 2018 omnibus spending package.

Top line figures indicate:

• $629 billion in defense discretionary spending
• $579 billion in non-defense discretionary spending

The deal increases spending for appropriators by margins not seen since 2010:

• $80 billion above prior restrictions for defense-related spending
• $63 billion more for non-defense related spending

President Trump’s FY19 budget request proposed cutting $54 billion from the existing non-defense statutory cap. House Republican Appropriations bills were written at a level cutting $5 billion from the total cap.  Following the Republican majorities’ failure to enact Appropriations laws, the Bipartisan Budget Act of 2018 increased non-defense discretionary (NDD) spending by $63 billion. The omnibus conforms with the Bipartisan Budget Act of 2018 mandate.

Majority Leader McConnell, Minority Leader Schumer, Speaker Ryan, and Minority Leader Pelosi may adjust these spending numbers and strike the final deal to avert a government shutdown before midnight tomorrow.  The bill would extend the government’s spending cliff to September 30, guaranteeing six months without a major budgetary shutdown.

Negotiation Points and Resolution

The debate around the omnibus focused on a few key provisions each with their own nuances regarding funding levels, disbursement schedules, and administrative issues.  Democrats faired fairly well in these negotiations.

One victory was an item to permit the CDC to study gun violence by incentivizing municipalities to update the NICS database, which is used for background checks. Democrats also beat back attempts by Sens. Collins and Alexander to fund high risk pools in the health insurance marketplace.  Similar provisions: limiting the funding for Trump’s wall to narrow projects, primarily reinforcing and updating existing fencing.

But Democrats are not fully onboard with this bill.

—  there are no DACA protections
—  the Gateway, a key infrastructure project in New York and New Jersey is not directly funded
—  massive increases in military spending outstrip domestic discretionary increases

Freedom Caucus Republicans and Rand Paul are not enthused about this bill as it increases spending by $143 billion; they have said that Speaker Ryan and Majority Leader McConnell left too much on the table.

Policy Riders

Packed into this very large omnibus package are numerous policy riders on issues that run the gambit from health care to labor issues, to environment and more. With respect to economic policy, the following policy riders related to tax, infrastructure, and financial regulation were worked in.

Tax Riders: Apparently, the “meticulous” legislative process surrounding the Tax Cuts and Jobs Act missed a few details.

IRS Funding – Despite Trump’s expressed desire to cut IRS funding, this deal increases its budget. The omnibus also allocates $320 million to the Internal Revenue Service to support the agency as it implements the new law. Though the IRS will still be prohibited from auto-completing parts of tax returns, a continued victory for tax preparers like Turbotax. In addition, the base IRS budget was cut by $125 million from 2017 in nominal terms, making the net gain of $195 million.

The Tax “Grain Glitch” Fix – Representatives from farming states have decried a glitch in the Tax Cuts and Jobs Act that gives farmers greater tax savings if they have sold crops to farm cooperatives at a disadvantage to corporate competitors. Agricultural trade groups pushed Senators like Chuck Grassley (R-IA) and Pat Roberts (R-KS) to change this “Grain Glitch”. The proposal, that limits farmers to a 20 percent deduction of their net income from sales to cooperatives, has been included in the omnibus.

Low-Income Housing Tax Credit – In exchange for the “grain glitch” amendment to the GOP tax law, Democrats were able to win an expansion of the low-income housing tax credit by 12.5 percent from 2018 to 2021.

Infrastructure Spending:  The omnibus also includes minimal increases in infrastructure spending. While the funds are badly needed, significantly more funding is needed to address the nation’s crumbling infrastructure.  The American Society of Civil Engineers estimates, conservatively, that Congress will require a $2 trillion investment over the next decade to adequately address the nation’s infrastructure needs.

Spending Increase – The omnibus sets aside $10 billion in new spending for infrastructure including:
◦ $2.6 billion more for the Federal Highway Administration
◦ $1.2 billion more for the Federal Railroad Administration
◦ $600 million for high-speed internet

Dodd-Frank Rider: Just after the Senate passed its bipartisan banking bill, S. 2155, House Republicans continue to take aim at the Dodd-Frank Act in the omnibus bill.  But the financial services rider the GOP won here is of marginal significance, merely requiring the OMB to report on Dodd-Frank’s cost.

Cost Estimates of Dodd-Frank Implementation – The omnibus includes a provision requiring the OMB to report to the Appropriations Committee on the cost of implementing the Dodd-Frank Act.

Omnibus State of Play

This morning, the House of Representatives narrowly passed a procedural rule 211-207 to open up debate on H.R. 1625.  11 Democrats, expected to vote no, were waiting to vote when the vote was gaveled closed in a disruptive break from precedent and norms.

The House ultimately passed the omnibus bill comfortably Thursday afternoon by 256-167 and now it moves to the Senate.  Sen. Rand Paul has expressed vehement opposition to the bill on multiple grounds. But the omnibus package is unlikely to change in the Senate.  The only question will be how long will Sen. Paul hold the floor before the Senate is able vote. While this bill will, barring sudden snowfall, be signed into law in advance of the midnight deadline tomorrow night, the drama in the details is yet to conclude.

Primary Recap: TX, IL (Mar. 21)

Update 257 — Primary Recap: TX, IL


Key Candidates, Races, and Results

Last week’s primary elections in Texas and yesterday’s in Illinois mark a turning point in the year. Washington saw a major winter snowstorm on the first official day of spring. And there have been some surprises in the hinterland as primary season 2018 opens.

Our focus on post-primary days now and going forward on relevant Wednesdays this year (mostly in May, June, and August) will be on races in flippable R to D U.S. House districts and on candidates running on economic policy issues confronting voters, offering new ideas and solutions.  More below on the context of the first two primaries this far.

Best,

Dana
———–––––––

Texas Primary


The 2018 midterm primary election season kicked off in Texas on Tuesday, March 6. Democrats looking for an anti-Trump surge were heartened by a level of turnout not seen in decades.  Democratic vote totals were near one million, twice the level of the comparable 2014 midterms.  Still, Republican voters heavily outnumbered their Democrats in the state, surpassing 1.4 million votes.

SENATE:  O’Rourke vs. Cruz — The headline event of the Texas midterms was the fight between Beto O’Rourke and Ted Cruz, who will face off with the incumbent Republican Cruz’ for his Senate seat in the general election in November.

O’Rourke and Cruz easily won their respective primaries. Cruz got 85 percent of the Republican vote; O’Rourke fended off a surprise challenge from Sema Hernandez to claim 62 percent of Democrats.

While O’Rourke remains somewhat unknown to many Texans, an assertive fundraising and advertising campaign is underway to change that.  Those who know him this far like him.  Sen. Cruz is framing his opponent as too liberal for Texas, trying to him to the national party on immigration and gun control.

O’Rourke’s Economics

  • Consumers — Rep. O’Rourke has pledged to encourage companies to direct investments back to consumers, and has pushed for augmented consumer financial protections.
  • Job Training — O’Rourke is promoting an agenda to invest in training, certification, and registered apprenticeship programs to allow those without college degrees to keep pace with the specialization of the professional world.

HOUSE:  Seats in Contention



Although Texas remains a deeply red state, widespread discontent with President Trump has left a handful of sitting House Republicans in vulnerable positions.  These include Will Hurd in the 23rd district, Pete Sessions in the 32nd district, and John Culberson in 7th district.  One trend these races: big money went only so far in the Texas primaries. In all three cases belie, the most well-funded candidates fell.

TX-23: (D) Jones/Trevino v. (R) Rep. Hurd

  • 2016 Pres. Vote Clinton 50/Trump 46
  • 2012 Pres: Romney 51/Obama 48
  • 2016 House: Hurd (R) 48/Gallego 47
  • Cook Performance District v Nation: R+1

In a west Texas district stretching from the San Antonio suburbs to the Mexican border, GOP incumbent Will Hurd will have a fight on his hands in November.  The 23rd is seen as the foremost flippable district in the state of Texas. Rep. Hurd has not won 50 percent of the vote in his district in either of his two election victories.  He won his 2016 race 48.3 percent to 47 percent.  Hurd is expected to have a lucrative warchest and enjoys the reputation of doing good constituent service.

Hurd’s challenger could be one of two Democrats, both of whom failed to cross the 50 percent threshold in the March 6 Democratic primary, forcing a runoff on May 22.  While Jay Hulings was said to be the favored Democrat nationally, but he fell substantially short to a candidate that voters felt more connected to.  The two remaining Democrats competing for the nomination are:

  • Gina Ortiz Jones served in the office of the U.S. Trade Representative under Obama and as U.S. Air Force Intelligence officer.  She won over 41 percent of the Democratic vote. Jones is gay and Filipino with a Latino surname in a predominately Latino district, where voters are outraged about Donald Trump.
  • Rick Trevino, a local Democratic party leader and Bernie Sanders delegate, won 17 percent of the Democratic vote.

TX-32: (D) Allred v. (R) Rep. Sessions

  • 2016 Pres. Vote: Clinton 49/Trump 47
  • 2012 Pres: Romney 57/Obama 42
  • 2016 House: Sessions (R) 71/Rankin 19
  • Cook Performance District v Nation: R+7

Just outside of Dallas in the 32nd district, Rep. Pete Sessions will be challenged by one of two former Obama officials, Colin Allred or Lillian Salerno.  Allred, a lawyer and former NFL player who served as a special assistant at HUD, received 38 percent of the vote.  Allred, who ran a decidedly progressive campaign in support of a $15 minimum wage, paid family leave, and infrastructure development, appears to be the most likely candidate to challenge Rep. Sessions in November.  Salerno, also a lawyer, served as Deputy Undersecretary of Rural Development under President Obama, come in at a distant second with 18 percent of the vote.

TX-07: (D) Fletcher v. (R) Rep. Culberson

  • 2016 Pres. Vote: Clinton 49/Trump 47
  • 2012 Pres: Romney 60/Obama 39
  • 2016 House: Culberson (R) 56/Cargas 44
  • Cook Performance District v Nation: R+2

Many see the rapidly changing 7th district in southeast Texas as firmly in play for Democrats. Hillary Clinton beat Trump in the district by one point.  Rep. Culberson trails a generic Democratic ballot 39-49 percent, according to recent polling. The district is a kind of canary in the mineshaft for Republicans stateside and will be watched by progressives who see a rising tide here and statewide.

Illinois Primary


IL-06: (D) Casten v. (R) Rep. Roskam


  • 2016 Pres. Vote: Clinton 50/Trump 43
  • 2012 Pres: Romney 53/Obama 45
  • 2016 House: Roskam 59/Howland 41
  • Cook Performance District v Nation: R+2

Held by Ways and Means Tax Subcommittee Chair Peter Roskam, IL 6 is a top target for Democrats. The two leading Democratic primary candidates were Sean Casten, a former green energy executive with a moderate tone, and Kelly Mazeski, a breast cancer survivor with the endorsements of EMILY’s List and Deputy Minority Whip Jan Schakowsky.  Yesterday, Illinoisans gave Casten a slim victory, 30 percent to Mazeski’s 27.

Casten will now hope that his stance on issues like infrastructure will allow him to take on Roskam who has represented the moderate suburban Chicago district since 2007. On his website Casten calls for a public-private infrastructure plan “that invests both federal dollars and private capital to build critical and necessary bridges, roads, power plants and industrial facilities that will provide decades of future value.”

Roskam carried the district in 2016, even while the top of the ticket went to Hillary Clinton by a seven-point margin. Casten looks to the moderate tone to replicate what Conor Lamb did in PA-18, flip moderate Republican voters disenchanted with the direction of their party under the President, while turning out the fired up base of Democrats.

IL-12: (D) Kelly v. (R) Rep. Bost


  • 2016 Pres. Vote: Trump 55/Clinton 40
  • 2012 Pres: Obama 50/Romney 48
  • 2016 House: Bost 54/Baricevic 39
  • Cook Performance District v Nation: R+5


Another strong pickup chance for Democrats to pick up a seat in Illinois, the 6th district may be the most comparable to PA-18. It contains Illinois side St. Louis suburbs and the rural counties that turned out heavily for President Trump in 2016. The district was a Democratic stronghold in the past voting for Gore, Kerry, and Obama before switching to Trump in 2016.

The primary highlighted the fact that Democrats are motivated to vote. In the 12th district Democrats turned out an astounding 49,000 voters, to the Republicans 38,000. These figures highlight that Illinois’ 12th district may be the best opportunity in the state for a Democratic pickup.

Democrat Brendan Kelly, and former prosecutor and navy veteran, will take on incumbent Republican Representative Mike Bost. Brendan Kelly has been combining a healthcare message of saving the Affordable Care Act, and making drug prices more affordable with strong language on improving America’s infrastructure and reinvigorating organized labor. Kelly is seen by local Democrats as a rockstar on the ground, gifted in retail politics.

IL-14: (D) Underwood v. (R) Rep. Hultgren

  • 2016 Pres. Vote: Trump 49/Clinton 45
  • 2012 Pres: Romney 54/Obama 44
  • 2016 House: Hultgren 59/Walz 40
  • Cook Performance District v Nation: R+5



IL 14 lies just west of Chicago in the 86 percent white suburbs with a median income just under $78,000. While Randy Hultgren, the incumbent Republican, defeated Jim Walz in 2016 by nearly 20 points Trump only held on to the district by four. Walz did run again in yesterday’s primary, but was handily defeated by the African American, former Obama HHS official, Lauren Underwood. Running with a strong focus on “21st century” job creation, Underwood secured nearly 58 percent of the Democratic primary votes in a six way race.

Trump may bring down Hultgren’s support this year as the incumbent votes with the president more than 95 percent of the time including the tax bill.  The fight will be a tough one against the savvy four-term Republican.



IL-13: (D) Londrigan v. (R) Rep. Davis

  • 2016 Pres. Vote: Trump 50/Clinton 44
  • 2012 Pres: Romney 49/Obama 49
  • 2016 House: Davis 59/Wicklund 40
  • Cook Performance District v Nation: R+3

More rural than the 14th, the 13th district voted for Trump (by six percent in this case) and supported it’s Republican Incumbent, Rodney Davis, by nearly 20 points in 2016. With a median income of only $44,000 that includes the East St. Louis these voters have been the prime targets of healthcare and entitlement cuts cooked up in Washington. Because of this, observers on the ground in Illinois see Rep. Davis as a potentially vulnerable target.

Betsy Londrigan, co-founder of Women Rising, an organization offering training and supporting female candidates for elected office, started her campaign last July focusing on healthcare, jobs, and women’s issues.  Davis has broken only rarely with the administration.  To the extent that district 13 voters are experiencing buyers remorse with Trump and Davis, Londrigan presents a strong chance to flip the seat.

Coming Down the Legislative Track (Jan. 10)

Update 241 • Coming Down the Legislative Track:
A Preemptive Strike at Infrastructure in the House 

This past weekend, NEC chief Gary Cohn delivered a long-awaited outline of the administration’s plan to fix the nation’s crumbling infrastructure.  The long-overdue plan calls for up to $200 billion in tax expenditures to attract $1  trillion in private infrastructure investment.

There was just one problem.  The plan appeared to contradict what Trump said his administration’s infrastructure plans were just 24 hours earlier at a Camp David retreat with Republican leaders, when the President repeated his view that public-private Infrastructure partnerships do not work.

The administration’s plans and a report and proposal released Wednesday by the Infrastructure Working Group of the 50/50 bipartisanship Problem Solvers Caucus are covered below.

Best,

Dana

————————————————————

Unsurprisingly, aides are furious that, once again, the President has undercut his own administration’s plans to tackle one of his most popular campaign promises.  All this confusion makes it less likely that Democrats will strike an infrastructure deal this year.  The back and forth suggests that the current proposal is just what Trump’s advisors want, but not necessarily what the President hopes to get out of such a deal. Picking up on this, Democrats will prefer to wait until 2019, after the midterm elections, to see what kind of deal they can strike with Trump.
The Regressive Approach to Infrastructure 

The administration’s proposal directs $200 billion towards the private sector and state and local governments in order to incentivize one trillion dollars in infrastructure spending. How exactly this would happen is unclear, but rumors of a seventy-page memo to be delivered to Congress in early January suggests that specifics might soon be forthcoming.

What is clear at this point is that the administration plans to lean heavily on tax incentives to encourage private enterprises to partake in infrastructure projects. That’s right, another tax reward for businesses, just after the massive deficit-financed Tax Cut and Jobs Act passed before the holidays.
Pressure on States

Rather than allocating $200 billion in direct federal spending, the administration will likely offer more incentives to state and local governments to generate their own revenue. This would involve: incentives for cities and states that raise their own revenue streams, block grants for rural areas, money for “transformational projects,” and “infrastructure financing programs.”

Funds would be available on a competitive basis, and jurisdictions could consider a number of measures to raise their own infrastructure funds and gain access to federal aid. These might include:

  • Raising gas or sales tax;
  • Imposing new tolls on roads; or,
  • Selling off existing assets to the private sector.

Raising the gas tax might be the most expedient way of raising infrastructure funds, but this would only be a marginal increase in the amount of revenue raised. The highway trust fund — funded by the gas tax — has been insolvent for years and will continue to lose spending power as inflation rises, fuel efficiency increases, and electric vehicles become more popular.

While the details remain murky, this kind of package could lead to a total “devolution” of infrastructure spending from the federal government to state and local governments. Perhaps Bannonistic strands remain in Trump’s impulses — this plan may dismantle the federal administrative state’s role in infrastructure finance.

Beyond this, the cap on state and local tax deductions enacted in the new tax law will further constrain states trying to manage the costs of new infrastructure projects. The new tax law will undoubtedly make infrastructure more expensive for state and local governments, as states are already pressured to finance infrastructure projects. Three out of every four dollars spent for operating, maintaining, and improving infrastructure occurs at the local and state level.

Under this pressure, it is unclear whether states will be willing or able to raise more revenue for infrastructure. The administration’s plan to shift the burden onto the states to fund new projects could be disastrous for their finances.

 

A Progressive Infrastructure Approach

Democrats have offered a progressive approach to fund a broad infrastructure plan. At the beginning of 2017 a plan was offered to inject one trillion dollars into the transportation system to revamp the nation’s airports, roads, and bridges. This would create fifteen million jobs over the next ten years.

The Democratic plan would rely on direct federal spending on projects to revitalize roads, bridges, and airports; expand the nation’s broadband network; revamp hospitals run by the Department of Veterans Affairs; and improve schools. The program is ambitious and will likely require deficit financing.
Democrats will gladly finance a stimulative infrastructure bill that stands to have widespread social benefits.  The Federal Highway Administration estimates that for every one billion dollars invested in this plan, there would be a net gain of 13,000 jobs.  The expected returns on public infrastructure investment would likely generate more than enough economic growth to compensate the cost of financing.

Problem Solvers’ Say

Today a group of 48 Republican and Democratic members from the House Problem Solvers Caucus agreed on a broad outline for an infrastructure bill.  The working group, chaired by Rep. John Katko, unveiled details of the deal but did not put a dollar amount or set targets for how to raise revenue.  The deal takes a different approach from the Trump administration’s regressive infrastructure policy.  Could this be a signal to the White House that bipartisan legislation is going to be the only way to pass an infrastructure plan?

 

Takeaways/Next Steps

The infrastructure plan proposed by the Trump administration is nothing short of another tax break for wealthy corporations with uncertain results.  A more progressive alternative would create beneficial programs that will stimulate economic growth and revitalize America’s infrastructure and protect the public and its assets from overreach by private investors.

Yesterday afternoon, President Trump’s Infrastructure team met with a bipartisan mix of Senators on Capitol Hill.  Participants include Environment and Public Works Chair John Barrasso and Sen. Tom Carper, the committee’s ranking member.  Sen. John Thune, Chair of the Science, Commerce, and Transportation Committee, we will sit down with administration officials later this week to work on the plan.

Don’t expect to see much movement on the infrastructure front despite this bipartisan overture. All indications are that the nation’s crumbling roads and bridges will have to endure another year of messaging and partisan jousting. Both sides see 2019 as a better option.

Ex-Im: Rep. Garrett to Run the Bank? (Apr. 21)

Update 174 — Recess Reading

Ex-Im:  Rep. Garrett to Run the Bank?
The relief of the recess will soon give way to the resumption of hostilities on the Hill.  Those in the states and districts are seeing the hostilities up close.
Much of the Congressional version of it is self-inflicted.  Take the Export-Import Bank.  Trump consigned the Bank to the dustbin of history during the campaign, whispered privately to Ex-Im’s big clients that it was safe, finally told the national media Wednesday, then Friday appoints defeated GOP Cong. Scott Garrett, opposed to Ex-Im vociferously for years, to be the Bank’s President.
Best,
Dana
___________________________________

Trump Shifts on Ex-Im

In a move contradicting Congressional GOP orthodoxy and 2016 campaign rhetoric, Donald Trump seemed to throw his support last week behind full re-authorization of the Export-Import Bank of the United States.   Trump suggested that he recently learned that the bank actually makes money for the United States and that it might be in our business leaders’ interests to keep it.

The Bank aims to subsidize American exports, which is a boost for manufacturers in the United States, and it can make loans that private lenders won’t because of political risk, lack of collateral, or size.

Lawmakers were aware of the president’s flip flop several months ago, when he pledged his support for the Bank in a private meeting.  Trump kept silence about his support for the Bank up until his interview with the Wall Street Journal last week, where he publicly endorsed it.

Yet shortly after supporting a revival of the bank, the president went on 48 hours later to nominate former GOP House member and staunch Ex-Im Bank opponent Scott Garrett to head the institution.  He also nominated to its board former Alabama Congressman Spencer Bachus III, a Bank supporter

The GOP has long sought to shutter the Bank as an example of “crony capitalism,” a waste of taxpayer money and an unnecessary addition to federal bureaucracy.  The GOP-led Senate consistently rejected former President Obama’s nominees to head the Bank, further stifling the banks functionality.

If Trump is serious about its revival, this initiative could garner bipartisan support, as Democrats have shown support for the bank in the past.   It would also generate support from large employers and special interest groups.

What Does Trump Want?

Trump’s platform — to the extent discernible — is largely centered around job creation.  Throughout the campaign and during his first hundred days, the president has suggested that he will create millions and millions of jobs.  At one point, he said he will be the “greatest jobs president that God ever created.”

But as unemployment hovers around 4.5 perfect, there is no clear indicator that we actually are in a recession or could even afford to add that many jobs at the pace the president wants.  With labor participation down, it’s not easy to predict how willing people are to reenter the labor force and whether they will do so at the rate of job creation.

While some argue that the Bank is a tool for “crony capitalism” as it promotes corporate welfare, as Trump’s nominee to head the bank once did, it should be noted that the bank does generate revenue and create jobs for the United States.  Whether those jobs are small business jobs or jobs from conglomerates like Boeing is another debate, but this much is clear: Ex-Im is a US job creator.

Given that the administration has been exaggerative in its ambitions for job growth but has yet to have anything to show for it in its first hundred days, the bank may very well be a good starting point.

If Personnel be Policy

While the president has recently flip flopped on his stance on the bank, his nominees to head the institution are a signal that he might be sticking with his campaign promises.  Scott Garrett voted consistently during his long House career against renewing the bank’s charter, claiming that it’s simply just a form of corporate welfare.

Similarly recently former GOP Congressman Spencer Bachus III, on the other hand, voted in favor of reauthorizing the banks charter as consistently.  Bachus was nominated to sit on the banks board, having previously served as Chairman of the House Financial Services Committee.  In Congress, Bachus supported the bank, saying that it “is available to help those small businesses compete and win in the global marketplace.”

According to the bank’s charter, not more than three out of its five members can be of one party, meaning that the president will also have to nominate Democrats to the board if he is interested in having a fully functioning Export-Import Bank.
This rule is strictly followed, so the president will not be able to fill the board with members of his own party. Neither of the two sitting board members have an official or confirmed party affiliation, although Scott P. Schloegel, the acting Vice Chairman and Vice President, served as a legislative aide for a Democratic Member of Congress.

Trump’s Next Steps

During the course of the campaign, Donald Trump had bashed the Ex-Im Bank, saying that it was a “ridiculous thing.” The position aligned him with conservative Republicans, as the Tea Party wing had more or less turned the bank into a piñata. Recently, however, Trump claims to have come to the realization that the bank makes money for the United States, saying, “But actually, it’s a very good thing. And it actually makes money, it could make a lot of money.”

The Export-Import Banks reauthorization under President Obama is set to expire in 2019 and so the Trump administration will have to grapple with which direction it wants to see the bank go. Closing the bank entirely is estimated to cost business owners, both small and large, billions of dollars in exporting opportunities and exporting credit support. According to the bank itself, 90 percent of its customers are small businesses.

Yet while the bank was reauthorized, it is stifled at every corner. The bank has been operating with only two board members for almost two years, making it difficult to approve large scale projects. In order to green light transactions greater than $10 million, for example, the bank needs at least three board members.  This leaves the bank in a quorum failure, as it cannot be functional on the large scale it needs to be in order to be productive.

There are 67 countries with trade finance agencies to give their companies an edge in world markets.  If the United States opts to close down its bank, it would only put American manufacturers and other businesses at a disadvantage.   While the Tea Party advocates closing the Bank, House Financial Services Chair Jeb Hensarling introduced a bill to close the Bank in 2015.   Some Democrats, however, also see the bank as a facilitator of corporate welfare.

As one of the banks largest subsidiaries, Boeing is heavily invested in the future of the banks. The amount of subsidies it receives from Ex-Im are currently being targeted in a House tax plan to reform corporate border taxes. Boeing is frequently accused of benefiting from the banks “corporate welfare program,” but few can argue that it doesn’t result in job growth in the United States.

With Trump’s pick to head the bank, there is reason to be skeptical of his embrace for the Ex-Im Bank’s revival. After all, Garrett once accused the bank of embodying “the corruption of the free enterprise system.” Although as we’ve learned with other cabinet appointees like Rick Perry, some people don’t grow to appreciate an agency until they sit at the head of the table.

Infra. Policy • Senate Democratic Bill (Jan. 26)

Yesterday, Senate Democrats unveiled a new, $1 trillion plan to rebuild the nation’s infrastructure plan, one they believe is a bolder and more productive approach to infrastructure than what Donald Trump has so far sketched out. Presented by Sen. Chuck Schumer, Sen. Bernie Sanders, and six other Senate Democrats, the plan aims to create more than 15 million jobs over a ten year period.

While the Senate Democrats and President Trump appear to see eye to eye in the importance of investing in our infrastructure, their plans are not the same, with Democrats opting for a more economically productive and politically compelling plan.

The plans are compared and critiqued below.

Best,

Dana

_______________________________

The Senate Democratic infrastructure proposal introduced yesterday broadens  the standard set of sectors l, reaching beyond traditional projects such as  building and rebuilding roads, bridges, and pipelines to include schools, hospitals operated by the VA, and the national broadband network.

What comes first, jobs or taxes?

Rep. Bill Shuster of Pennsylvania, chair of  House Transportation and Infrastructure:  “We have an opportunity going through this tax reform that’s a high priority not only for the president but for the Congress, if we can find the dollars to put it forward, to do a significant infrastructure bill.”

If the dog is tax reform, suggests Senator John Thune chair of Senate Commercez, the tail is infrastructure which “could hitch a ride perhaps on some tax reform bill.  But I think at this point that’s probably a preliminary discussion to have.  We’ve got a very focused agenda, things that we want to get done in the next 200 days… How infrastructure plays into that, we’re not sure yet.”

Here are the main differences between the two plans:

Size/Scope of Projects

While the two plans have the same estimated cost, they differ in range and scope. The plan presented by Senator Schumer would cover more ground in regard to infrastructure projects. The Senate Democrats have added the call for building and improving schools, hospitals run by the VA, and the nation’s broadband network, which was an issue that Barack Obama often spoke about as America’s internet speeds were falling far behind other developed countries.

The plan also aims to invest in renewable energy, airports and seaports, and expanded bus and railroad lines which is promising for cities with failing subway and metro rail systems.

Infrastructure Choices/Industrial Policy

While these infrastructure plans talk about creating jobs, one of their main focus would be to invest in the construction and manufacturing sectors, as both plans have claimed that they are looking to work with materials made in the U.S. and invest in American owned companies. Donald Trump’s private sector approach, however, would leave investors and private sector companies with a lot of freedom over their operations, where they might attempt to minimize cost by buying products and raw materials from foreign companies.

The Senate Democrats’ bill would control where the federal spending goes and would provide a better stimulus for the construction and manufacturing sectors. The Democrats’ plan will require compliance with “Buy American” and the Davis-Bacon Act, which requires paying prevailing wages. Trump’s plan has no such requirements.

The two plans have an estimated cost of $1 trillion, but they differ in their financing mechanisms.  President Trump’s plan mainly assumes that the private sector will decide to invest in infrastructure to take advantage of favorable tax benefits; there is a real chance that the plan simply gives companies money for investments they would have made anyway

Paying for Infrastructure

The GOP his gambit has not impressed Democrats, some of whom have argued that the hundreds of billions of dollars in tax credits will be nothing short of a massive hand out for large companies. Democrats also fear that the program will not have enough investors and will fall short on job creation and bettering American infrastructure.

Per Americans for Tax Fairness:   “Trump wants to give big tax credits to Wall Street investors to encourage them to build infrastructure projects that generate a steady stream of toll or other user-fee revenue. Charging expensive tolls and user fees to earn big profits for Wall Street investors just hurts the pocketbooks of average taxpayers. It also ensures projects will be developed where they can generate the most profits for investors, not where they are most needed.”

The argument for direct federal spending as opposed to private-public partnerships is that this program will give taxpayers more bang for their buck, as they don’t have to worry about increased tollroad rates that investors would implement to maximize returns on their investment.

Timing:  Taxes Take Precedence

Rep. Bill Shuster of Pennsylvania, chair of  House Transportation and Infrastructure:  “We have an opportunity going through this tax reform that’s a high priority not only for the president but for the Congress, if we can find the dollars to put it forward, to do a significant infrastructure bill.”

If the dog is tax reform, suggests Senator John Thune chair of Senate Commercez, the tail is infrastructure which “could hitch a ride perhaps on some tax reform bill.  But I think at this point that’s probably a preliminary discussion to have.  We’ve got a very focused agenda, things that we want to get done in the next 200 days… How infrastructure plays into that, we’re not sure yet.”

Deficit Impact, Political and Fiscal

Congressional Democrats and Donald Trump both claim that their plans will not add to the deficit.  Both plans have a different approach to avoid any budget deficit increase. Donald Trump’s plan relies on private investment incentivized by large tax credits and public private partnerships, which Wilbur Ross and Peter Navarro argued would pay itself off because it would be revenue neutral. This was widely criticized by many economists – Larry Summers callez their research paper the equivalent of “creationism for economics.”

But Democrats argue that the $1 trillion in federal spending will be made up by closing tax loopholes, thus increasing tax revenue.  While increasing tax revenue might provide a scenario where the government raises an extra trillion dollars to pay off the infrastructure plan, the Democrats have been unclear about which loopholes they would close and how to go about closing them.

Strategic Value of Schumer Bill 

A clear advantage to an infrastructure plan would be the betterment of what many have deemed a crumbling system. The main notable advantage from a massive infrastructure investment program is rooted in increasing economic output and productivityIt is not clear, however, if the U.S. economy is in need of such a massive stimulus, as the country now hovers around full employment and the Federal Reserve is in the process of raising interest rates.

The stimulative impact of a large infrastructure plan could be reduced or even nullified by the Federal Reserve raising rates. Chicago Fed President Charles Evans warned that an investment of this size is untimely as we approach full employment. A disadvantage with this project is that, realistically speaking, both plans will add to the government’s budget deficit.

Politics of Infrastructure

One goal of the Senate Democrats’ infrastructure plan is to create tension between the Republicans in Congress and the Trump administration. Senator Schumer stated that it was Trump’s Democratic issues that he campaigned on that earned him enough blue collar votes to push him to victory, making it clear that these infrastructure proposals are not in the interest of the GOP.

Donald Trump also seems unconstrained by concerns about adding to the deficit, as he has introduced proposals that require large amounts of federal spending, which coincide with tax reduction proposals. If Trump does go along with the Democrats plan, there would be a clear shift in Republican Party’s approach to investment programs and federal spending.

Conclusion 

Even if Schumer’s proposal goes nowhere in congress, it symbolizes the direction that the Democratic Party hopes to take in the field of infrastructure and a starting point in legislative negotiations going forward.

Infrastructure Report: Donald Doubles Down (Aug. 5)

Mike & Co.,
This Tuesday, Donald Trump announced his intention to seek to improve the state of American infrastructure with an investment of over half a trillion dollars, financed through a bond program.  The lack of details stands in contrast with HRC’s highly developed infrastructure agenda, which features an investment of $275 billion, including an infrastructure bank and a revitalized and strengthened bond program.

Below is a recap of HRC’s infrastructure proposals, followed a comparison with what is known about Trump’s current plan and a look at California’s ambitious infrastructure investment program, which serves as an instructive model for national infrastructure modernization.

Good weekends, all.

Best,

Dana

———-
Present State of U.S. Infrastructure

In 2013, the American Society of Civil Engineers gave the United States a D+ rating in its four-year review of the country’s infrastructure.  The ASCE cited several significant problems, such as a backlog of deferred maintenance of infrastructure systems and a “pressing need” for modernization.  The ASCE estimated that the U.S. would need to invest $3.6 trillion by 2020 to make the necessary improvements to upgrade the infrastructure system.

Water-related projects, including levees, dams, inland waterways, wastewater and drinking water projects, account for some of the worst evaluations.  Transit, aviation, schools, roads, and hazardous waste facilities also all earned D grades.

As of May 2016, the United States has fallen $1.44 trillion short of the necessary spending on infrastructure through 2025.  needed to keep facilities such as highways, bridges, and ports up to date over the next decade, at a cost of $3.32 trillion, but the government has thus far supplied only 56 percent of that amount.  Should the gap in funding not be met, the ASCE forecasted a loss of 2.5 million jobs and $4 trillion in GDP. Americans’ disposable income is impacted as well, as each household will pay approximately $3,400 annually over the next decade due to infrastructure deficiencies.

HRC’s Investment in Infrastructure

HRC has proposed a comprehensive agenda to upgrade American infrastructure.  Federal infrastructure investment under HRC would increase by $275 billion over a five-year period.  The vast majority of that sum, $250 billion, would be channeled into direct spending on public infrastructure, with the remaining $25 billion for a national infrastructure bank.  HRC would also reauthorize President Obama’s Build America Bonds program.

The National Infrastructure Bank would have the authority to provide loans, loan guarantees, and other forms of credit enhancement to finance infrastructure projects.  It would also be allowed to issue “super” Build America Bonds to support state and local investments.  The Bank could be used by local governments and private investors alike.  The Bank would leverage its capital to provide up to $225 billion in additional financing.

HRC’s infrastructure plan would include expanding public transit, especially to low-income communities, providing all American households with affordable internet access, as well as free Wi-Fi for public buildings and transit, and modernizing energy infrastructure, with an eye towards promoting clean energy. HRC intends to increase funding to inspect, repair, and expand hydroelectric capabilities, using new technologies to reduce operations and management over time, helping small and large communities to better manage their budgets.

Her plan also seeks to reduce traffic congestion to lower fuel costs, develop safe, high capacity passenger rail lines, and revitalize the Federal Aviation Administration’s NextGen program to upgrade America’s airports. In addition, HRC’s plan would support and encourage favorable legislation supporting public private partnerships, unleashing the power of the private sector to be an active part of rebuilding our infrastructure.

Fiscal and Economic Impact

HRC has stressed her infrastructure initiative would be fully paid for through revenue-positive business tax reforms. Her full proposal on this financing effort has yet to be released, but she has said her reforms may involve eliminating tax breaks for corporate filers.

The campaign has stressed that the infrastructure plan would “create good-paying jobs” and increase wages.  Of note, the Council of Economic Advisors estimates that every $1 billion invested by the federal government in infrastructure stimulates the creation of 13,000 new jobs.  In addition, every dollar invested in improvements to highways, railways, and bridges results in a $1.60 increase in GDP. HRC’s plan not only proposes practical solutions to one of the country’s greatest challenges, but also provides ideas for how to pay for these changes.  Most importantly, these initiatives represent long-term investments in our country that would help ensure it remains competitive in an ever more globalized world.

Trump’s Counterproposal 

On Tuesday, Trump floated the “details” of his own infrastructure agenda, which would cost approximately $500 billion.  He had not previously previously spoken about his plans in this area during the campaign.  While he never confirmed specifically how much his plan would cost, Trump criticized HRC’s proposal for being “a fraction” of what is needed to address infrastructure concerns in the U.S. and stated the solution needs “at least double her numbers.”

To pay for the infrastructure investments, Trump proposed a low interest rate fund through which investors and the average American could buy infrastructure bonds. Presumably, this process would allow people to invest in the infrastructure fund, which would be used to pay for projects around the country.  The investors would at a later date be repaid the full amount of their investment with a small rate of return.

Trump’s proposal signifies a break from traditional Republican rhetoric on this issue.  The idea of an infrastructure fund has been endorsed primarily by liberal economists.  At the DNC last week, former Clinton Treasury Secretary Larry Summers spoke in favor of infrastructure investments totaling between $1 and $2 trillion over a decade.  Republicans frequently oppose such proposals on they grounds that they would have to be debt financed.

It is hard to see how Trump’s proposed infrastructure investment would square with his stated goal of reducing the national deficit.  HRC would ensure that her program is paid for from day one with revenues that will cover these costs.  Trump would not.

The California Infrastructure Model

In recent years, California Gov. Jerry Brown has supported numerous initiatives to improve infrastructure in his state.  In addition to proposing a $55 billion five-year spending plan for infrastructure, the Governor has endorsed two headline projects: a $68 billion high-speed rail line between Los Angeles and San Francisco, and two conveyances beneath the Sacramento-San Joaquin River Delta to create a more reliable water supply for Southern California, at a cost of $15.7 billion.
Both initiatives, and their pay-fors, have faced controversies.  Numerous methods have been used to finance the high-speed rail project, including bonds, federal dollars, and private investment.  Some in the California legislature support diverting the proceeds from the bonds towards water projects.  The rail initiative is also receiving some funding from auction proceeds from the state’s cap and trade program, a move that has received some controversy.

Though these projects are still in their beginning phases, California could serve as a kind of model for the federal government in terms of implementing infrastructure reforms.  It has the potential to demonstrate how to prioritize, enact, and implement initiatives, as well as suggest potential obstacles at the state and national levels.  The size of California alone, in addition to the nature and scale of the projects, may offer clues as to what sort of initiatives could be feasible for the federal government and what the main challenges might be.