The tsunami of red ink barreling toward the nation’s fiscal house is coming in higher and faster than expected, a tide menacing the economic expansion that could force a reckoning among policymakers who have only made the problem worse.
That’s among the takeaways from the Congressional Budget Office’s latest forecast (find it here), the first by the nonpartisan agency since President Trump signed a budget-busting tax cut and a massive spending bill into law. The federal deficit is set to top $1 trillion a year by 2020 on its way to getting higher. And if lawmakers decide to extend tax cuts they approved last year and continue discretionary spending at current levels, the nation’s debt load will equal 105 percent of GDP in a decade — a tab seen only once, right after World War II.
CBO Director Keith Hall sounded the alarm, telling reporters on Monday it would have “serious negative consequences” for the country. “The bigger the debt, the bigger the chances of a fiscal crisis,” Hall said. “When do you start to fix a thing like this? The longer you wait, the more draconian the measures have to be to fix the problem. That's the biggest warning.”
Some other takeaways:
1. Don’t expect any meaningful attempt to address the issue soon.
Congressional Republicans will perform some pantomimes of fiscal concern in the days ahead. The House is set to vote Thursday on a balanced-budget amendment to the Constitution. But adoption would require two-thirds majorities in both chambers, then ratification by three-fourths of states, which is not in the cards. (Tim Phillips, president of the Koch-backed Americans for Prosperity, dismissed the vote as a “fig leaf.”) And the Trump administration is working with House Majority Leader Kevin McCarthy (R-Calif.) on a measure to cancel portions of the $1.3 trillion spending bill the president signed last month — but a pair of key Senate Republicans on Monday told my colleague Mike DeBonis they’ll oppose the bid, likely dooming it.
Besides, there is little pressure for action beyond a small chorus of deficit hawks. Thanks to all that fiscal stimulus from the tax cuts and new spending, economic growth continues to look strong in the near term, with the CBO projecting 3 percent growth this year, up from the 2.2 percent it predicted last June, and 2.9 percent growth for next year, up from 1.7 percent. Meanwhile, the bond market, a potential early warning sign of trouble, shrugged off the CBO report, which was in line with private-sector projections.
2. The tax cuts won’t pay for themselves.
This point is probably implicit by now. But it’s worth remembering Republicans insisted they didn’t need to find offsets for their tax package last year because the cuts would pay for themselves through new economic growth. On the contrary, the CBO projects the cuts will reduce federal revenue by $1.3 trillion over the next decade, a sum that climbs to $1.9 trillion including the extra interest payments.
3. The tax overhaul provides only a marginal boost to jobs and worker pay.
The CBO report projects the tax law will add 1.1 million jobs over the next decade while bumping up wages and salaries by 0.9 percent per year on average. That pay hike is well below the $4,000 a year in annual income boosts that the administration predicted the measure would deliver to average households at a minimum.
4. The tax measure is complicated and has effects we don’t yet understand.
That’s especially true for the way the overhaul remade the portion of the corporate tax code dealing with multinational operations. The CBO found that two tweaks in particular will encourage companies to move physical assets like plants and machinery abroad to diminish their U.S. tax bills. Critics of the measure who have argued it would accelerate offshoring of U.S. jobs and investment claimed vindication in that bit of analysis. Others argued the CBO has it wrong, including Tax Analysts chief economist Martin Sullivan, who tweeted that the agency is “simply incorrect:”
That is simply incorrect. A common mistake.— Martin Sullivan (@M_SullivanTax) April 9, 2018
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— Stocks slip after Trump lawyer raided. Reuters's April Joyner: "Wall Street’s major indexes rose on Monday as a softer stance by U.S. policymakers on China tariffs powered a rebound from last week’s selloff, but stocks pared much of their gains late in the session after a report that the Federal Bureau of Investigation raided the office of... Trump’s lawyer... Stocks climbed after Trump’s new economic adviser Larry Kudlow told CNBC that the president may be open to forming an international coalition to grapple with trade issues involving China... But stocks began paring gains late in the afternoon, a downward trend that accelerated after a report that the FBI had raided the New York office of Michael Cohen, Trump’s personal lawyer, upon a referral by Special Counsel Robert Mueller."
Trump complained about the drop while blasting the investigation as a witch hunt. “The stock market dropped a lot today as soon as they heard the noise of this nonsense that’s going on," the president told reporters Monday before a cabinet meeting on Syria. "It dropped a lot. It was up — way up, and then it dropped quite a bit at the end.”
More on the raid. The Post's Carol D. Leonnig, Tom Hamburger and Devlin Barrett: "Michael Cohen, the longtime attorney of... Trump, is under federal investigation for possible bank fraud, wire fraud and campaign finance violations, according to three people with knowledge of the case. FBI agents on Monday raided Cohen’s Manhattan office, home and hotel room as part of the investigation, seizing records about Cohen’s clients and personal finances... Investigators took Cohen’s computer, phone and personal financial records, including tax returns, as part of the search of his office at Rockefeller Center... In a dramatic and broad seizure, federal prosecutors collected communications between Cohen and his clients — including those between the lawyer and Trump."
— CEO steps into congressional spotlight. The Post's Elizabeth Dwoskin: "The insularity that shielded Zuckerberg from having to directly defend Facebook in front of lawmakers and regulators has finally cracked. This week, for the first time, the 33-year-old billionaire is scheduled to testify before Congress, part of a crusade to protect not only the company he founded as a college dropout but also his broader legacy... Zuckerberg traveled to Washington over the weekend and has holed up with advisers to prepare for the hearings... One of those advisers was Reginald J. Brown, a former special assistant to President George W. Bush, from the Washington law firm WilmerHale. Zuckerberg is training for the hearings as a candidate would for a debate, engaging in role play; getting coached on how not to appear defensive; and anticipating questions about data privacy, disinformation, his ability to prevent foreign interference in elections and whether the company’s business model causes harm."
"We didn’t do enough to prevent these tools from being used for harm," Zuckerberg will tell the House Energy and Commerce Committee on Wednesday, according to prepared testimony the panel released Monday. "That goes for fake news, foreign interference in elections, and hate speech, as well as developers and data privacy. We didn’t take a broad enough view of our responsibility, and that was a big mistake. It was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here."
Courtesy calls. NYT's Cecilia Kang and co.: "Zuckerberg... tried to get ahead of a week of intense scrutiny for him and his company by visiting several top lawmakers in Washington on Monday and reiterating how sorry he was for the social network’s failings. Mr. Zuckerberg, in a dark suit and tie and accompanied by an entourage of aides, held several meetings with leaders of the Senate Commerce and Judiciary Committees."
The CEO earned some positive reviews, per Axios's David McCabe. That included his home-state Sen. Dianne Feinstein (D-Calif.), the top Democrat on the Senate Judiciary Committee:
"He's a very nice young man" -FEINSTEIN after meeting ZUCKERBERG.— Steven Dennis (@StevenTDennis) April 9, 2018
"He's very young. And he has 27,000 employees. And it's - that's amazing. He's obviously smart. He obviously knows what he's doing and he has a very pleasant personality. He's not hard-edged in any way that I saw."
14 years of Zuck apologies. The Post's Geoffrey A. Fowler and Chiqui Esteban collect the Facebook founder's history of offering public mea culpas for missteps. Turns out he's had a lot of practice.
— Bankers push Crapo bill. Washington Examiner's Joseph Lawler: "House Republicans eager for more regulatory relief for banks are testing the patience of the banking industry. A prominent trade group called on House leadership Monday to hurry up and pass the Senate version of a major bank relief bill, rather than holding out for additional bipartisan changes sought by House Financial Services Chairman Jeb Hensarling, R-Texas. 'We believe now is the time to get S. 2155 to the president’s desk for his signature,' the heads of the American Bankers Association wrote in a letter to House leaders. 'We therefore urge the House to move on S. 2155 as soon as possible.'"
— Shelby to lead Approps. AP: "Alabama Republican Sen. Richard Shelby is on the brink of becoming the new chairman of the Appropriations Committee, a post with great influence over more than $1 trillion in annual spending. Shelby was confirmed by panel members to lead the committee and is sure to be ratified by the full Senate soon. He will replace Mississippi Republican Thad Cochran, who recently retired from the Senate due to poor health."
— Talks break down over tech. Bloomberg's Keith Zhai: "Trade talks between the world’s biggest economies broke down last week after the Trump administration demanded that China curtail support for high-technology industries, a person familiar with the situation said, signaling that a resolution may be some ways off. Liu He, a vice premier overseeing economics and finance, told a group of officials Thursday that Beijing had rejected a U.S. request to stop subsidizing industries related to its “Made in China 2025” initiative, the person said. The U.S. has accused China of using the policy to force companies into transferring technology in areas like robotics, aerospace and artificial intelligence.
"The U.S. demands came after Beijing offered to narrow the trade deficit by $50 billion, including by importing more liquefied natural gas, agricultural products, semiconductors and luxury goods, according to the person. The plans also included opening the financial sector at a faster rate and giving U.S. companies more access to China’s booming e-commerce market... The dust-up suggests that the trade dispute won’t be resolved quickly, despite Trump’s optimistic tweets and [Chinese president] Xi [Jinping]’s conciliatory address to a regional economic forum Tuesday."
Xi vows liberalization. The Post's Simon Denyer: "Xi... renewed a pledge Tuesday to open China’s markets further for trade and investment, including in its automobile sector, and said he would also work harder to boost imports, in what was seen as a conciliatory speech amid an escalating trade conflict with the United States. Speaking at annual economic forum 40 years after China began what is known as the 'reform and opening up' of its economy, Xi pledged to begin a new phase of that process... But his speech was more a reiteration of existing commitments than any major new initiatives, and experts said it was neither concrete enough in itself, nor far-reaching enough, to defuse the trade dispute with Washington — especially after years of broken promises."
From Inside Trade's Jenny Leonard:
A person advising the admin on China policy told me promises of isolated tariff removals, particularly in autos, and one-off purchases were “really meaningless.” Meaningful concessions would’ve been mentions of cutting subsidies for Made in China 2025 sectors and data flows, etc. https://t.co/Jr3qVBsA5D— Jenny Leonard (@jendeben) April 10, 2018
Trump to farmers: We'll make it up to you. Politico's Quint Forgey: "Trump on Monday attempted to reassure American farmers staring down market uncertainty amid an escalating trade dispute with China, which has threatened to level hefty tariffs on soybeans and other agricultural goods. 'We’ll make it up to them,' Trump told reporters ahead of a meeting with military leaders. 'The farmers will be better off than they ever were. It will take a little while to get there, but it could be very quick, actually.' Trump said the Midwestern growers are “great patriots” who 'understand that they're doing this for the country.'"
Bannon: Tariffs test Trump's beliefs. NYT's Mark Landler: "To Stephen K. Bannon, the political strategist who helped get President Trump elected but no longer speaks to him, the next few weeks will present his former client with the ultimate litmus test. If Mr. Trump stands firm on $150 billion worth of tariffs he has threatened to impose on China, Mr. Bannon said, he will fulfill the promise of his nationalist presidential campaign. If he retreats, because of either a hemorrhaging stock market or a rebellious Republican Party, he will demonstrate that the Trump movement was not much of a movement after all. 'This is going to be a bumpy ride,' Mr. Bannon said in an interview Monday. 'I don’t think he’ll back off because of a couple of bad days in the stock market — and I do think he’ll have a couple of bad days.'"
— No NAFTA deal this week. Bloomberg's Eric Martin and Cyntia Aurora Barrera Diaz: "Mexican Economy Minister Ildefonso Guajardo lowered expectations that the three Nafta nations will reach an initial deal this week, saying instead he sees an 80 percent chance of an agreement by the first week of May. 'We are within weeks of knowing if the Nafta talks close with success,' according to Guajardo, who is in charge of the negotiations for the Mexican government... The White House has been pushing to announce a preliminary deal on the North American Free Trade Agreement at the April 13-14 Summit of the Americas in Peru."
— CFPB readies record fine against Wells. Reuters's Patrick Rucker: "The top U.S. watchdog for consumer finance is seeking a record fine against Wells Fargo & Co that could exceed several hundred million dollars for auto insurance and mortgage lending abuses... The CFPB is readying sanctions alongside the Office of the Comptroller of the Currency, Wells Fargo’s day-to-day regulator. The agencies are ready to sanction Wells Fargo for layering extra insurance on drivers and collecting commissions on those policies... Both agencies have also been investigating the bank for wrongly levying fees on mortgage borrowers. [CFPB director Mick] Mulvaney is eyeing a penalty that would settle both those matters and dwarf the $100 million the CFPB fined Wells Fargo in September 2016 to settle its phony accounts scandal... That 2016 fine had been the CFPB’s largest ever."
So far, Mulvaney's CFPB hasn't leveled a single enforcement action against finance companies. AP's Ken Sweet: "A review of a CFPB database obtained by the AP through a Freedom of Information request shows that the bureau issued an average of two to four enforcement actions a month under former Director Richard Cordray, President Obama’s appointee. But the database shows zero enforcement actions have been taken since Nov. 21, 2017, three days before Cordray resigned."
— Payday lenders sue CFPB. The Post's Renae Merle: "The payday-lending industry sued the Consumer Financial Protection Bureau on Monday in an attempt to block an agency rule the industry says will destroy it. The regulation, which was finalized under the Obama administration, will radically change how payday lenders operate by requiring firms to verify that borrowers can afford the debt before giving them the money and capping the number of times someone can take out successive loans... The rule was already under assault. Republicans in the House and Senate have introduced legislation to block its implementation, and Mick Mulvaney, appointed by... Trump to temporarily lead the financial protection agency, has said he is reviewing the regulation."
- The Heritage Foundation holds an event on the Kansas tax plan.
- The House Financial Services Committee holds a hearing on “The 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection” on Wednesday.
- Facebook CEO Mark Zuckerberg will testify before the House Energy and Commerce Committee on Wednesday.
- The Senate Finance Committee holds a hearing on the 2018 tax season and future IRS challenges on Thursday.
- The Securities and Exchange Commission holds an event on Thursday.
- The House Ways and Means Subcommittee on Human Resources holds a hearing on jobs and opportunity on Thursday.
- The House Ways and Means Committee holds a hearing on the effects of tariff increases on Thursday.
- The Heritage Foundation holds an event on the tax provisions that expired in 2017 on Thursday.
- The House Financial Services Subcommittee on Monetary Policy an Trade holds a hearing on Thursday.
- The House Financial Services Subcommittee on Oversight and Investigations holds a hearing on oversight of the FHFA on Thursday.
- The American Action Forum holds an event on CFIUS reform on Friday.
From the New Yorker:
Chinese President Xi Jinping promised to open the country’s economy further for investment and lower import tariffs on certain products:
Russia’s currency takes large fall in light of new U.S. sanctions:
Stephen Colbert on the FBI raiding Trump's attorney's office, home and hotel room: