Saturday, January 12, 2019

Presidential Emergency Power: Can Trump Build a Wall?

The more President Trump changes his mind about declaring a national emergency to build his wall the less likely it is that he has the authority to do it.  But even if he had declared a national emergency immediately, it is unlikely the Constitution or congressional statute allows him to do it.  That is perhaps why Trump has not invoke emergency powers to build the wall–basic principles of American law suggest he lacks the authority to do it.
The US Constitution is a power conferring document.  There are no extra-constitutional powers.  Before the president or any branch of the national government does something it needs to trace authority back to the explicit text of the Constitution or the power must be necessarily implied.  In the case of the president, his authority comes from Article II of the Constitution, or he may be delegated some additional authority to him from Congress via Article I.
Under Article II section 1, executive power is vested in the president.  Under Article II, section 3, the president shall take care that the laws are faithfully executed.  Through either of these clauses the president can issue an executive order and declare a national emergency, but what does that really mean?  Does it mean presidents can ignore existing law or do whatever they want for whatever reason?  Doubtful.  President’s cannot manufacture an emergency and then invoke undefined  powers to ignore the law or the Constitution; this idea violates the very idea of rule of law and the concept of American constitutionalism.
Presidents do not get the right to decide what is an emergency and do whatever they want.  The Supreme Court said this arguably one of the most important cases of all time, Youngstown v Sawyer, 343 U.S. 579 (1952).  Here President Truman declared an emergency and nationalized the steel mills during the Korean War to prevent a labor strike that would have affected production.  If ever there was a crisis, war was it, and the Court ruled against Truman.  In Youngstown many legal scholars think Justice Jackson’s concurrence is best statement ever on presidential power.  Acting with congressional assent presidents have  enhanced power, with congressional silence they only have the powers given to them by Article II, and acting against congressional wishes, presidents have diminished authority.  Truman was acting on his own and lacked the authority to act.  However this third scenario is where Trump is right now when it comes to the wall and the emergency here is no greater than what Truman faced.  There are at least two laws that limit Trump’s discretion to act.
The first law is the 1974 National Emergencies Act.  Responding to abuse by previous presidents, this Act sought to constrain unregulated use of presidential declarations of national emergencies.  Unfortunately, the Act does not define what a national emergency is, leaving it up to the president’s discretion, subject to congressional veto or check on the declaration.  However, there are three problems with this Act. 
First, the original concept of this legislative veto is arguably unconstitutional  as a result of other Supreme Court decisions such as INS v. Chadha, 462 U.S. 919 (1983).  Second, it is not clear that Congress can give the president unbridled or unrestricted discretion to act, especially to disregard  other congressional statutes or provisions, unless it specifically says so.  While the Court is reluctant to invoke the delegation doctrine to limit presidential authority and has not done so since the New Deal, the wide-open language of the National Emergencies Act is a perfect place for the Roberts Court to do this.
But third, there is another law that points to why the president cannot invoke the National Emergencies Act to build the wall.  It is the 1974 Budget Act.  Responding to abuses by Richard Nixon who impounded or refused to spend money allocated by Congress, the Act placed limits on the ability of the president to do this.   In Train v. City of New York, 420 U.S. 35 (1975), the Supreme Court upheld the Budget Act saying that once Congress has allocated money for something the president is not free to disregard the law and spend or not as he wishes. 
The question is, does the authority grant to the president under the National Emergencies Act supersede the Budget Act?  There is no indication that the latter was meant to free the president to disregard spending priorities mandated by Congress.  If there were, Congress would have said so in the Act.  But even if such an intent or purpose was implied, it is doubtful given the purposes of the Budget and National Emergencies Acts that these statutes could be interpreted to be expanding as opposed to contracting presidential authority.  But, as noted above, if Congress did intend this,  it is unconstitutional.  Finally, supposedly Trump is looking at raiding money from hurricane  relief funds.  There is no indication that in allocating this money Congress intended it to be diverted for other purposes.  Whatever general intent the Emergencies Act has, it cannot override specific intent or a mandate to spend as decided by a particular statute. 
There are two addition  problems with Trump invoking the National Emergencies Act.  First, the Act is not for politically manufactured emergencies, especially ones created by the president himself.    Trump today could end the emergency by agreeing to sign a spending bill or continuing resolution.  Giving presidents the ability to invoke a national emergency during negotiations with Congress so that they can get their way is like letting someone take their bat and ball and going home if they are losing.  The National Emergencies Act is not a tool to bypass the Constitution.   Under Chevron v. NRDC, 468 U.S. 1227 (1984), courts are supposed to give deference to reasonable executive agency determinations of ambiguous statutes.  Conservatives, including Justice  Gorsuch, have increasingly questioned Chevron deference and there many be a majority either unwilling to give Trump the benefit of doubt regarding what a national emergency is, finding his use  or interpretation is unreasonable.
Second,  the longer and more Trump delays or vacillates in declaring an emergency the more it shows that the border problem is not an emergency in any ordinary dictionary meaning of the term.
Perhaps then why the President is not invoking the National Emergency Act simply is that  he has been told he will not win this legally, on top of the fact that he is not winning this fight politically.

Monday, January 7, 2019

Alexandria Ocasio-Cortez and High Taxes on the Wealthy: Do they matter?

Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman.

–Beatles, The Taxman

Taxes impede economic growth and high taxes kill the economy, right?. This is the belief among many who criticize Representative Alexandria Ocasio-Cortez’s proposal to raise taxes on the wealthy to 70% or more.  But what does the evidence really tell us?

Do high taxes really hurt the economy as much as they believe, and will lowering them have much of an impact on stimulating it? The economic literature is clear — tax breaks to encourage economic relocation or investment decisions are inefficient and wasteful. Hundreds of studies reach this conclusion. When businesses are surveyed regarding factors important to their investment decisions, taxes often come in behind proximity to markets, suppliers, and the quality of the labor force. These other factors occupy a larger percentage of a business's budget than do taxes, and all of them are far more critical to long-term success than are taxes. Businesses occasionally admit this. Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals.

Anecdotal stories and illustrations also confirm the tax fallacy. High tax states such as Minnesota have generally fared better in terms of economic growth, unemployment, median family incomes, and location of Fortune 500 companies than low tax ones such as Mississippi and Alabama. In many situations high taxes, and with that, government expenditures on education, workforce training, and infrastructure, correlate positively with income, low unemployment, and business retention. One needs to look not just a one side of the equation—taxes—but the other side too—what taxes buy—to see what value businesses get out of them in terms of educated workforces and infrastructure investments. Most debates fail to do this.

Bureau of Economic Analysis statistics demonstrate how economic growth is related to tax rates. One can compare annual economic growth as measured by the percent change in the gross domestic product (GDP) percent based on current dollars to the highest federal individual tax rate and the top corporate tax rate since 1930. If taxes are a factor affecting economic growth, one should see an inverse relationship between growth of the U.S. economy and higher tax rates. The GDP should grow more quickly when top individual and corporate tax rates are lower. If taxes are a major factor deterring economic growth, lines on a graph should go in opposite directions: As tax rates go up the GDP should go down.

No such pattern emerges between high taxes and GDP growth over 80 years. During the Depression of the 1930s corporate and individual taxes rates increased, but in 1934 through 1937 the GDP grew by 17%, 11%, and 14% annually. Top corporate tax rates climbed to over 50% through the 1960s, again with no discernable pattern associated with decreased economic growth. The same is true with top tax rates on the richest which were 91% into the 1960s. Conversely, since the 1980s after Kemp-Roth and then after 2001 with the Bush era tax cuts, there is no evidence that the economy grew more rapidly than in eras with significantly higher tax rates on the wealthy and corporations.  The same is true even of the much heralded 1960s Kennedy tax cuts.  While at one time economists thought they had an almost magical impact on the economy, more recent evidence questions that.

Looking at time periods when tax rates were at their highest, GDP often grew more robustly than when taxes were cut.

Pictures are worth a thousand words, but statistics are priceless. Statistically, if a tax hurts economic growth, the correction with it is -1. If they positively facilitate growth the relationship is 1, and if they have no impact the relationship is 0. The correlation between GDP and top individual taxes is 0.29, between GDP and top corporate taxes is 0.32, and among the three it is 0.14. Statistically, there is a slight positive impact on either top individual or corporate taxes or economic growth, but overall almost no connection between tax rates on the wealthy and corporations and economic growth in the United States.

But what about taxes as job killers? Again running similar statistical tests, there is little connection. Using Bureau of Labor Statistics data on unemployment rates since 1940, the correlation among top individual and corporate taxes and the annual unemployment rate is -0.02—essentially no connection at all.

The simple claim that high tax rates on the wealthy and corporations hurt economic growth and job production is false. The evidence is simply not there to support assertions that high taxes alone hurt the economy or that cutting them will have the stimulus effect asserted.  Representative Alexandria Ocasio-Cortez may be correct that increasing taxes on the wealthy will not only be more fair, but an efficient means to stimulate the economy, help the poor, and generate the resources necessary to fund a fair and equitable America.

Saturday, January 5, 2019

Taxing Politics in the 2019 Minnesota Legislative Session

Taxes are always a contentious issue in Minnesota politics.   Who pays, how much, and for what purposes divides the DFL and Republican parties.  The same will be true in the 2019 session.  While the focus going into the session has been Governor Walz’s plan to raise the gas tax to pay for long term infrastructure maintenance to roads, bridges, and highways, four or five other taxes could shape the session and complicate the gas tax debate.

First, one of the items left undone from the 2018 legislative session was changing Minnesota tax law to conform with federal changes in 2017.  It was passed by the Republican legislature and vetoed by Governor Dayton.  The failure to pass tax conformity makes it more complicated by taxpayers to do their state taxes, but it also will cost them more if the state does not change its tax code. One estimate is the the failure to change the law will cost taxpayers nearly $60 million;  conversely conformity potentially means less money coming into the state.

Second, the Minnesota Health Care Provider tax expires at the end of the year.  It generates $700 million annually, paying for programs such as MinnesotaCare, the insurance for the working poor.  Tim Walz and the DFL wish to renew it, Republicans views it as a  "sick tax."  Were this tax to expire it would leave a major hole in the state budget, complicating Democrat's plans to create a single payer health care law in the state.

Third, Minnesota like every other state has an infrastructure problem.  There is insufficient money  to pay for transportation infrastructure maintenance.  Even though the Minnesota Constitution has language authorizing a gas tax, the revenues it generates are insufficient for the needs in the state.  Simply put, we have more roads, bridges, and highways than ever, more people driving on them than ever before.  Current revenues are not keeping pace with needs, therefore necessitating additional money.

The obvious revenue source is the gas tax.  On the one hand increasing the gas tax makes sense–it is sort of like a  user few on driving.  The more you drive or use the roads the more of a fee or tax you pay.  On the other hand, there are several problems with the gas tax.  First, it is not directly  a user fee on driving–it is really a carbon fuels fee that in theory acts to discourage people from polluting.  Second, the gas tax is regressive, hurting people more heavily who are low income and have to drive to work and may not have a mass transit alternative (including in rural areas).  Third, as cars become more fuel efficient, the gas tax produces less revenue.  Finally, increasing the gas tax is politically explosive.  When it was last raised under Governor Pawlenty and several Republicans  voted for it they were ousted from the party in primaries or elections.  Governor Dayton wanted a gas tax as part of a more permanent fix for Minnesota’s infrastructure spending, but it went nowhere.

Enter Tim Walz.  He too wants to fix and fund Minnesota’s infrastructure deficit, looking  at the gas tax as a possible solution.  His cabinet appointments, such as Margaret Anderson Kelleher as MNDOT commissioner, point to this as a priority because she was the Speaker of the House when the last gas tax was adopted.  But Republican opposition to a gas tax persists, and the illusionary  $1.5 billion budget surplus complicates any argument to raise taxes. Why, for Republicans, should we raise taxes when there is a surplus?  Use it to pay for infrastructure.

This surplus is illusionary for several reasons.  First, state law still factors in inflation for revenue projections but not obligations.  This was the pact Tim Pawlenty and Roger Moe made in 2002 when they were in the legislature and running for governor and they wanted to deal with a budget deficit though cooking the state’s books.  Adjust for inflation, a lot of the surplus disappears.  Second, part of the surplus must go into a rainy day fund.  Third, even at its full value, $1.5 billion  is barely three-percent in a $50+ state budget.  Fourth,  the surplus assumes  status quo in terms of some revenue sources.  For example, if the Health Care Provider tax were to expire it alone might cut into half of the projected surplus.  Finally, as the recent state fiscal forecast pointed out, revenue estimates can changes with a slowing economy projected to occur in 2020. The point is that the surplus really does not exist, but the belief that it does will harden opposition to a gas tax.

Yet there are three other potential taxes or sources of revenue out there that could serve as bargaining tools for infrastructure and much of the budget negotiations this year.  First, last June 2018 the Supreme Court ruled in South Dakota v. Wayfair that states, including Minnesota, could require Internet and out of state businesses such as Amazon to collect sales or use taxes on purchases.  While short term the windfall from Wayfair could be significant, short term it has not so far generated much.  Nonetheless, Internet sales taxes open up one new revenue stream.

Second, another Supreme Court decision, Murphy v. NCAA, struck down a federal law preventing states from legalizing sports gambling.  This decision opens the possibility for Minnesota to legalize a new revenue stream with potential large payoffs.  However, tribal casinos, non-profits (the latter who do charitable gambling), and the state lottery may oppose this.

Finally, Forbes magazine recently ran an article depicting Minnesota as one of a handful of states likely to legalize recreational marijuana.  It is not clear that will happen and if so, what legalization will look like.  But one possibility is also to allow for commercial sale.  Commercial, if done as it has occurred in Colorado, too could be a source of tens of millions of dollars of new revenue.  Whether there is a political coalition to support this option is unclear.

But given the options of Internet sales tax, sports betting, and marijuana taxes, their possibilities may complicate demands for a gas tax.   One could also see strange options, with calls to legalize marijuana or sports betting  and tax them to pay for infrastructure or replace the Health Care Provider tax.  Or perhaps federal tax conformity--something more prized by Republicans perhaps, is traded for something else such as expansion of sports gaming, the gas tax, or the Provider tax. . Perhaps trading tax options might build support, even among Republicans, for legalizing marijuana or supporting spending programs the Walz administration wants.

Friday, January 4, 2019

Democrats vs. Trump: Why Status Quo Ante and Obamaism are Not Enough

Today's blog originally appeared in Counterpunch.

Beginning January 3, the Democrats have a choice:  Do they act simply as anti-Trumps, seeking to reverse his policies and revert to status quo ante Obama- politics, or do they move toward something more transformational?  If they are politically smart, they do the latter and build policies and a coalition more permanent.  If they do the former they set themselves for failure and position themselves for setting up the conditions that led to their demise over the last generation.  The challenge for Democrats is navigating this choice, and it is not clear they can successfully do it given the distinct interests within their party.

Democrats, especially in the US House, face complex challenges governing.  In part, their agenda is determined by the lessons of 2016 and 2018 elections.  Theory one is that Clinton and the Democrats lost in 2016 because they failed to take Trump seriously.  Clinton was a weak candidate with a poor message and campaign strategy who ran on the politics of the status quo in an election whose geography came down to a handful of swing states.   She and her party lost because  critical voters, such as women, people of color, and those under the age of 30 stay home because Democrats assumed they would show up to vote, and they did not, while at the same time angry white men did.

Democrats  won in 2018 because Trump was despised, especially by female voters in more affluent and better educated suburbs where Democrats ran candidates who worked hard to get out the vote and mobilize voters who stayed home in 2016.  If this is the theory of what happened, then the Democratic agenda is set: Reverse Trumpism, bring back Obama-era policies, and take on the president with aggressive investigations and checks that could include impeachment.  Do this and many of those lost white, working class voters will return to the party.

Theory two is that the lesson of 2016 and 2018 is tht the Democrats lost because of 40 years of complicity in neoliberal politics, transcending the Bill Clinton and Barack Obama administrations, and which Hillary Clinton personified.  It was a set of policies where Democrats, having embraced  big money from Wall Street, did little to address the rising gap between the rich and poor, where trade, industrial, and tax policies disproportionally hit those lacking a college education, and where the primacy of identity politics ignored the plight of white working class America–still the largest voting block in the country.  When the Great Recession of 2009 hit, Democrats bailed out the banks but not the people, ignored  unions who wanted labor laws updated, and adopted a tepid Republican-inspired health care bill.  If this is the theory of what happened, simply going back to Obama-era policies is not enough.  Democrats need a more transformative agenda, linking policy change to constituencies, including  major voting rights and elections reform, health care, education funding, and addressing the gap between the rich and poor.

The reality is that the lessons of 2016 and 2018 may be a little bit both theories.  For many  simple reversal and opposition of Trumpism is enough, and this might appeal to the suburban voters and establishment Democrats.  Tinkering with Obama-era policies may be the limit of what these voters want.  But for others, especially many of the Millennial and Gen Z voters located in the urban cores, they want a more transformational agenda because the legacy of the Democratic Party’s Neo-liberalism have left them broke, holding significant college loans, or in the case of people of color, policies that failed to address all the disparities between them and White America.

The Democrats challenge is knitting together a set of policies that make sense of both theories about why they won and lost and hold together a coalition that may have very different perceptions of what it means to be anti-Trumpism.  While short-term expediency may require Democrats to moderate their policies to hold suburban voters in their fold, longer term this strategy  clashes with the more progressive agenda needed to hold the other wing of the coalition together.  However, thinking that simply returning to Obamaism is enough will fail to hold either of these constituencies.  Even the more moderate and suburban voters want more than the return of Obamacare.  Democrats need to delivery on reality of  making health care and education more affordable.  They want safer schools with fewer guns, they want a clearer environment, and they want an economy where they feel they are treated fairly.  Simple Obamaism was not enough to do that, and it will do nothing to bring back white working class voters to the Democrats, although it is not clear really anything will move the core base of Trump to switch their vote.

The 2016, 2018, and 2020 elections are potentially producing what political scientists call a critical realignment in American politics that redefines party coalitions, agendas, and policies.  The Democrats lost because they failed to adopt and adapt politics to an emerging new coalition in America while also ignoring or taking for granted their base.  There is no question that Democrats have lost some voters and will never recapture them, but if it has any hope at  building a new permanent coalition it cannot simply be the Obama antithesis party to Trump.

Wednesday, January 2, 2019

Congress, Trump, and U.S. Foreign Policy

Note:  Today's blog also appears in the International Policy Digest.

With Democratic Party control of the US House of Representatives, most of the speculation is about how they will check Donald Trump’s domestic policy or use their investigatory powers to probe executive branch criminality or perhaps impeach the president. Neglected, yet equally important, is how Congress may influence Trump’s foreign policy. While Congress has imposed some limits on Trump in this area such as mandating Russian sanctions and expressing disapproval of the way he handled the Khashoggi murder, for the most part, they have given him a free hand to direct American foreign policy. This hands-off approach potentially will change.

Trump’s foreign policy record is well known. He pulled the US out the Paris Accords, the Trans Pacific Partnership and the Iran Nuclear Agreement. He has withdrawn the US from UN Human Rights Council, moved the US embassy in Israel to Jerusalem, sought a Muslim travel ban, tightened up on immigration, restricted political asylum, and continues to demand a wall along the US southern border. He has also announced troop pullouts in Syria and Afghanistan, initially threatened war with North Korea, engaged in tariff and trade wars with China, praised Vladimir Putin and Kim Jong-Un and fought with Angela Merkel and Emmanuel Macron. He rejects liberal democratic interventionism as a guiding principle of US foreign policy, preferring nationalism and has given us the definite impression that he is indifferent to human rights.

US Presidents have significant leeway and authority over foreign policy. They have been given that authority both through the Constitution and congressional legislation. In United States v. Curtiss-Wright Export Corporation (299 U.S. 304, 1936,) the US Supreme Court declared that whatever constitutional powers limit presidents domestically, they have more authority to act in foreign affairs.

Youngstown Sheet and Tube v. Sawyer (343 U.S. 579, 1952) also known as the “Steel Seizure” case, may be one of the most influential cases on foreign policy in the Court’s history—at least it has become so. While the Court struck down President Truman’s effort to nationalize the steel industry in order to avert a strike and the interruption of steel production during the Korean War, Justice Jackson’s concurring opinion described a tripartite division of presidential power in foreign affairs depending on whether the chief executive is acting alone or with or against congressional approval.

Presidents from Lyndon Johnson to George Bush cite it to support their military ventures, especially when they can point to congressional resolutions endorsing their actions. It seems to suggest, following Curtiss-Wright, that Congress can augment presidential power in foreign affairs by authorizing the chief executive to act. Finally, in Dames & Moore v. Regan (453 U.S. 654, 1981), the Court upheld President’s Carter’s authority to resolve the Iran hostage crisis and make private claims against the Iranian government. Collectively, these three cases and others suggest that presidents have broad authority over foreign policy.

Yet this power is not unlimited. Textually, Article I of the Constitution gives Congress more foreign policy authority than the president, if they opt to use it. The problem has been that Congress over time has abdicated much of its authority. Trump’s incoherent if not destructive (to many observers) foreign policy decisions gives Congress the occasion to act.

Congress has at least four broad powers it can use to control US foreign policy–budgetary, statutory, investigatory, and advice and consent. The House and the Senate can use the power of the purse to specifically fund or refuse to pay for various Trump foreign policy initiatives. It could refuse to fund covert or military activities, or not fund his wall. Second, Congress could impose statutory obligations on the president to fund or provide certain programs, fill diplomatic posts, withdraw or limit discretion to impose tariffs or sanctions or constrain his ability to affect immigration. Third, congressional investigatory authority can force the president to be more accountable and disclose actions or information he is undertaking. Finally, the Senate’s advice and consent role can check presidential appointments and treaty actions. Many of the powers that Congress has to check the president can be imposed even in the face of a veto or if the Democratic House and Republican Senate do not agree. Particularly, withholding budgetary authority or using its investigatory power can be accomplished unilaterally by the House.

Congress had the authority to check Trump’s international agenda and one can expect that it will. Reigning in this aspect of the Trump presidency has been one of the ignored consequences of the 2018 elections. But control of US foreign policy, specifically over several issues such as China, Korea, trade, immigration, and military matters, will be one the areas where Congress and Trump will clash for the next two years.

Monday, December 24, 2018

Federal Budgeting 101: Making Sense of the Government Shutdown

So why has the United States  federal government shutdown?

The simple answer is that the federal government cannot spend money unless it is appropriated and Congress and the president have not agreed on spending for approximately 25% of the federal government’s functions.  This means that for about one-quarter of the federal government there is no legal authority to spend money and therefore it must close down.

We seem to have a lot of federal government shutdowns in recent years, why?

The federal government process is broken and there is a political polarization over how to spend money.  This is the general answer.  But now, there is a fight between Donald Trump who insists on funding for his Mexican wall and Democrats who refuse to appropriate money for it.  However, to understand why so many shutdowns it is useful to understand something about the history of federal budgeting in the US.

Take us back in time before WW I, there was no federal budget.  If money was needed for something then the president asked for it and Congress simply allocated money for it.  Essentially, when money was needed Congress effectively wrote a check.  Such a process worked okay when the US government did not spend much money.  However, World War I pointed to the need to have a budget so that the government could spend more efficiently.

The 1921 Budget Act was the first effort to create a budget process for the US government.  It created congressional budget committees to centralize budgetary process, and it created the Bureau of the Budget (later the Office of Management and Budget) in the executive branch to bring some order to federal spending.

The Act helped but increased spending starting during the New Deal and then World War II, the Korean War, and then the Vietnam War led to a dramatic explosion of federal spending.    But something else happened while this spending increased, the philosophy and view about the role of the federal government changed.

What do you mean the philosophy and role of the Federal government changed?

There are two parts to this answer.

First, really prior to the New Deal the federal government had a limited role in the economy and in domestic politics.  Fighting wars and providing for the defense were generally accepted as federal government functions, but providing for the retirement benefits (Social Security), welfare, health care, or other social welfare issues were not considered to be federal functions until the 1930s.  The New Deal seemed to change that.  With a new philosophy about what the federal government should do, that meant more federal spending and therefore a need to have a budget to spend this money.

Second, , let’s think about what budgets are.  On one level budgets are simply tools to tell us the sources of federal revenue and how we wish to spend out money.  But budgets are more than that.

Political scientist V.O. Key once argued that budgeting is about the concept of opportunity costs–should we give money to A versus B?  His point was that budgeting is really about an issue of values.  How we spend money reflects normative choices.  Do we want to spend money on defense, health care, roads, or in the case of the current dispute, a wall along the Mexican border, or something else.  Budgetary politics is difficult because it is a fight over values.

But budgeting is also complex because of the multiple purposes attached to budgets.  Budgets are ways to spend money, but they are also tools for planning and measurement.  Budgets are also at the center of interest group politics and varying groups seek spending for their projects or interests.  Finally, for those of us schooled in economics, budgets and federal spending can be tools for economic development.  By that, there is a branch of macroeconomics tracing back to John Maynard Keynes in the 1930s who argued that federal spending can be used to stimulate the economy.  A discussion of Keynesian or social welfare economics is beyond the discussion here, but the point is that there are multiple purposes connected to federal spending.

So why is all this relevant to the present crisis?
By the time Nixon became president in 1969 a major dispute began to emerge, contesting how the federal government should spend money.  The Vietnam War and the Great Society programs of the Johnson presidency came together to create significantly larger federal spending and, with that, disputes over it.  Nixon refused to spend money allocated by Congress, and this led to the passage of the 1974 Congressional Budget and Impoundment Act.

What did this Act do?
The 1974 Congressional Budget and Impoundment Act is the basis of modern US budgeting.  It created the Congressional Budget Office, , it created time dates for budget passage, it required a  presidential budget.  This law took effect in 1976.

In summary, the  President proposes a budget and Congress is supposed to pass it. Congress is supposed to pass an annual budget before October 1, every year.  (On a personal note, I was in college taking a macroeconomics class when this law passed and as required reading we had to read the very first budget of the president submitted to Congress under this law)

The Federal budget is composed of 12 appropriation bills, and different committees in Congress are assigned the task to adopt them, with final votes required of both Houses of Congress and a signature by the president.

If budget not passed, either there is a government shutdown or Congress and president can agree to a continuing resolution to keep government funded.  A continuing resolution simply is a temporary funding mechanism agreed to by Congress and the president to keep the government funded until  they can reach agreement on a budget or another continuing resolution.

However, the government has never really shutdown completely.  By that, approximately 75-80% of the federal budget is composed of legal entitlements or longer term contractual agreements that mandate spending.  Thus, for what is often called mandatory spending the government cannot shutdown because there is legal authority to spend money.  This is the case with Social Security–there is ongoing legal authority to spend for this and therefore grandma should never have to worry that she will not get her check.  The same is true now.

The current fight now is over that 20-25% of the budget which is referred to as discretionary spending.  This is money that Congress and the president have to authorize every year.

How well has the 1974 law worked?
Not well.   A good budget process only works if there is a consensus on values and spending.  But since 1976 the two parties have become more polarized, leading to more and more disagreements over taxing and spending priorities. 

Since 1976, only four budgets passed on time (the last time 1997).

Most of time operating on continuing resolutions.

Since 1976,  there have been 20 budget or funding gaps, some have resulted in government shutdowns, other unnoticed.

Under Reagan three one day funding gaps not noticed.

Under George H.W. Bush a 1990 weekend shutdown.

Under Clinton two shutdowns.  In 1995   for 5 days over budget disputes, and in 1996   for 21 days over budget disputes.

Under Obama there was one shutdown in 2013 that last for 15 days over a fight over the Affordable Care Act.

Under Trump there were two prior shutdowns to this one.  In 2018for two days in January and an overnight funding gap in February.

Are there costs associated with a shutdown?
Yes.  There are costs with the government closing down, laying off people, and then rehiring and starting up again.  In 2013 the shutdown cost the economy and GDP more than $24 billion and it affected the US bond rating.  The current shutdown is affecting confidence on Wall Street, the stock market, and leading to additional economic problems.  Forecasters were already predicting an economic slowdown in later 2019 and 2020 and this shutdown could hasten or worsen the problem.  Simply put, everyone pays for the shutdown.

What do we know about the current shutdown and dispute?
The current dispute is over spending for Trump’s Mexican wall.  Remember, when he ran for president he said he was going to build a wall and Mexico was going to pay for it.  Now he wants taxpayers to pay for it.  Trump has made funding for the wall a non-negotiable item.  Congress, including Democrats, have offered enhanced border security but in a Twitter message on Sunday Trump rejected that compromise. 

In many ways, Trump understands that this may be his last chance to get funding for the wall.  With Democrats taking over the House in January there will be even less of a chance to get this funding  Trump has made the border wall a campaign promise and wants it to appease his base, Democrats oppose it in part to appease their base, but also because less than a majority of Americans support it. 

How long with the partial shutdown last?
It will go until late this week but I could see the current Congress simply passing this problem down the line to the next Congress (and Democrats in the House) to solve.  For the outgoing Republican majority, they have nothing to lose by not resolving the partial shutdown and they can then pass the problem on to the Democrats.  The recipe here is for a long partial shutdown.

Who are the winners and losers?
Federal employees and taxpayers are the clear losers.  Generally the party who is tagged with the responsibility for the shutdown pays politically which is why the blame game now.  Republicans in the House can escape responsibility since they are no longer in the majority in a week.  Trump at one time claimed ownership of the shutdown but now he is trying to blame Democrats, especially in the Senate.   If it lasts till next year, he will blame House Democrats.  In some ways, if Trump does not get the wall he gets to use it as an issue in 2020, but if he does get funding then he loses it as an issue.

Final question, assume the money is appropriated, is the wall feasible?
No.  From an engineering perspective it is impossible to build along rivers and lakes, and it poses environmental problems.  In addition, even in the places where the wall already exists, people dig under it or find ways around it.  The wall will have little impact on immigration.

Saturday, December 22, 2018

Unhinged: The Predictable and Overdue Collapse of the Trump Presidency

Aren’t we where many of us always thought it would be when it came to the Trump presidency?
Not quite half way through his presidency it is at a point where it is unhinged, demonstrating clear incompetence, unethical, if not illegal with Trump himself, trailing all the way down through his administration and all that he touches.  The government is partially shutdown, the stock market is tanking, law suits are mounting and grinding Trump to a halt, and Republicans in Congress are at war with him.  All entirely predictable, the only question is why it took so long.
For all those who wrung their hands with worry after the 2016 elections your greatest fears were realized and not.  On the one hand the fear was that Trump would pursue an anti-Obama agenda, seeking to reverse all that he did and more.  Trump is doing that, but also to those who feared there would be no checks on him, the fears were overblown.  Contrary to what many thought, it was not only Trump’s basic incompetence and perhaps crookedness that is bringing him down, but the irony of it all is that the system is working.  Courts, even those increasingly packed with Trump appointees, are coming to bear as they limit many of his government decisions.  The Mueller investigation, along with parallel ones by the New York Attorney General and New York federal prosecutor are closing in on the president and his inner circle of business and political associates.  Political appointees are fleeing as they face corruption charges.  The political process has motivated voters to elect Democrats.  The worst of Trump has been checked, and it will become more exacting come January as Congress changes power.
But what has happened since election day is that the Trump presidency has become fully unhinged.    What held this presidency together was a soaring economy but the tariffs are driving the economy down.  The tax  cuts gave an adrenaline rush that was short term and fizzled out, and the mounting debt and overall bad stewardship of the economy are pushing the US into a likely slowdown in2020.  Trump’s twitter presidency whose agenda is driven by what he sees on “Fox and Friends” has reduced his support to the base of his base, alienating him from all but a few extreme conservatives and angry  white guys who seem to resonate to fears of immigrants and the need for a wall.
Trump’s America First or Make America Great Again is simply a self-defeating  pitiful parody of itself.    The tariff wars show no sign of helping the US economy.  Gutting Obamacare lays bare the emptiness of Trump’s and GOP promises to fix health care, especially for those who voted for them. Whatever the wisdom of initially sending troops into Afghanistan and Syria, pulling them out now does little to make America more safe.  The move empowers Iran and terrorists, destabilizing the Middle East even more than now.   Trump’s foreign policy team is in shambles, and in the last few days Mattis resigns in protest, Wall street collapses, the government shuts down.
Yet Trump’s base of his base sticks with him, and will throughout the shutdown and presidency.  Trump is in a no lose position when it comes to the wall, the shutdown, and his base.  If he gets the wall he claims a win.  If he does not get the wall he gets to blame it on the Democrats and use the issue for another day.  The longer the shutdown, the stronger his argument is with his base.  It is entirely possible the Democrats get outplayed on this issue–no deal with this Congress and Trump blames it on the Senate Democrats.  No deal in January blame it on the House Democrats.  Never mind the issue does not work with the majority of voters, Trump’s end game is to look good on Fox and Friends, not govern responsibility.