DONALD TRUMP’S EXCITING WEEK
Back at it: President Trump has been talking about this “exciting” week upcoming with the President’s one hundredth day in office on April 29th, Saturday. It will be a very confusing week. We will hear a great deal about the government shutting down. The threat of shut down springs both from a need for an unusual authorization for government spending between now and October, and, from a simultaneous need to raise the debt limit. Given a very divided Congress and a new and inept administration trying to achieve any victory in the first one hundred days, things are going to seem almost comically chaotic. Let us think it through!
First, the authorization of spending: The way government budgeting is intended to work, the President and his Office of Management and Budget create a series of budget bills, one for each department (there isn’t just one budget), which are supposed to be submitted to the House and the Senate by April 15. The House and the Senate then make changes they want made in those departmental bills. The Appropriations Committees in the House and in the Senate then write appropriations bills giving the departments and agencies the legal authority to withdraw money from the Treasury to carry out their programs. Those appropriation bills are to be completed and passed by the time a new fiscal year begins on October 1st.. The departments can then pay their bills so that the government can continue to function.
That assumes that the members of a majority in the House and the Senate can agree on departmental budgets. Traditionally, members of the House and Senate who are not, after all, profiles in courage, don’t want news of budget cuts to come out on Oct. 1st just before they have to run for election on the first Tuesday in November. So, they don’t pass the appropriations bills and instead adopt continuing resolutions extending the previous budget until they are safely past the election. That happens often. But, in December of 2016, the Republican majority in the House and Senate added something new. They decided on continuing resolutions but had them extend only to April 28, four days from now. They did that knowing that Donald Trump had been elected and would be inaugurated in January. By not extending the continuing resolutions until Oct. 1, the Republican majority knew they were giving President Trump the chance to force changes in the budget in the middle of the year by threatening to shut down the government. That could happen because unless spending was reauthorized, the departments would lose the right to withdraw money from the Treasury. The government would shut down! And that is what is happening! This week with what looks suspiciously like blackmail, Mick Mulvaney, President Trump’s Director of the Office of Management and Budget is demanding money for the Mexican Wall, the ending of money to subsidize care for lower income people under the Affordable Care Act (Cost Sharing Reduction Subsidies), and the defunding of Planned Parenthood, or the Republican majority will shut down the government.
Second, dealing with the debt limit: The government routinely borrows money to pay its bills. And, that money in recent years has been borrowed very cheaply because governments, banks, and major investors need a safe place to park their money and, of all governments, ours has been viewed as most safe. For years the House and the Senate routinely raised the debt limit without question (It was raised almost automatically eight times during the Reagan years, for instance.). Then Republicans came to realize that it might be used to force selected cuts in spending. But, in 2015, with the blame for a shut down looming, the House and the Senate decided to simply allow the debt to rise until March 15 of this year. New Secretary of the Treasury Steven Mnuchin (me nu chin), has announced that the government can go without borrowing till April 28, this Friday, but that it can continue for a short time without borrowing by taking “extraordinary measures”. What that means in practice is that the government stops making payments to the Civil Service Retirement and Disability Fund (the pension plan for federal workers), and several similar funds until the debt limit is raised. The money for those funds still has to be paid back later. Without the limit being raised, the government will be unable to pay all its bills sometime in October, another opportunity for conservative blackmail. Conservative Representatives often argue that nothing bad will happen if the government can’t pay everything. Donald Trump, during his campaign, suggested that we should force lenders to accept less money than promised. What that does mean is that the interest rate on the money that we do borrow will rise. Think about the effect of a one percent interest increase on 20,000 billion dollars (each billion is a thousand million)!
If those two challenges are not sufficient, the White House is pressuring the House and the Senate to vote this week once more on a revised version of the American Health Care Act. Wiser heads in the Congress recognize that their effort to pass a substitute for Obamacare was a political disaster. It was withdrawn in the face of certain defeat! But, the White House is determined to gain some kind of victory before the President’s one hundredth day in office, and is pressuring the Congress to try yet again. The Republicans in the House apparently have worked out a compromise among themselves. A vote, however, is rendered more difficult because they still don’t actually have the new version in printed form. They may still take the plunge and try to vote in Trumpcare once more!
And, to complicate things further, President Trump announced last week that he would introduce tax reform and recommend “the greatest ever tax cuts,” during this crowded week. His staff seemed to be as surprised as everyone else. The truth is that there will not really be tax reform this year partly because one of the greatest losers would be the real estate industry (more about that in another paper), with which the President is intimately acquainted. There certainly may be an attempt to introduce tax cuts. Those tax cuts represent one more effort to win some kind of victory during the first one hundred days. Those tax cuts, by the way, are supposed to be paid for by growth in the economy. In the real world if those tax cuts are put in place, the loss of revenue will have to be made up through increased borrowing. The national debt will rise further.
It does promise to be an interesting week!