Subject: Below the Radar II -- Infrastructure Finance
From: Dana <[email-masked]>
To: Mike Pyle <[email-masked]>
Cc: Mike Schmidt <[email-masked]>
Date: Thu, 18 Feb 2016 22:57:27 -0500

Mike & Co. --

One week ago, the House passed a bill that could alter and perhaps ease the way state and local infrastructure is financed in the capital markets, when HR.2209, a bill to "require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes" was adopted by the House with a voice vote.  

Thought the bill has flown below the media radar, it is significant.  Municipal obligations, including bonds, are at the heart of infrastructure investment in America.  And infrastructure investment has been a large focus of this primary.  Both Democratic candidates have proposed multi-hundred billion dollar infrastructure investment proposals.

Details below...

Best,

Dana

Infrastructure is mostly funded at the state or local level through the use of municipal bonds.  Between 2003 and 2012, counties, states, and other localities invested $3.2 trillion in infrastructure through long-term tax-exempt municipal bonds, 2.5 times more than the federal investment.  

The Bill

HR 2209 requires federal banking regulators to include municipal bonds under the Liquidity Coverage Ratio (LCR).  The LCR is designed to ensure that financial institutions have the necessary assets available to handle a liquidity disruption.  Local officials have said that if the new rules aren’t changed, it will saddle them with higher borrowing costs by eliminating incentives banks have to purchase their bonds. Without bonds, these governments will lose a significant source of their funding.  Per Indiana State Treasurer Kelly Mitchell: “This bill helps ensure cash-strapped school districts and municipalities will continue to have access to bonds to finance projects they think are best for their communities.” 

Rep. Luke Messer, an Indiana Republican who wrote the bill:  “Put simply, our bill requires the federal government to recognize the obvious, that our municipal bonds are some of the safest investments in the world and that we shouldn’t have rules that give preferential treatment to corporate bonds or other countries’ bonds over our own.” 

After passing the House with unanimous bipartisan support, a companion bill is expected to be introduced in the Senate this year.  

Municipal Bond Issue

After the crisis of 2008, federal regulators adopted international banking standards that require banks to have enough "High-Quality Liquid Assets" to cover their cash outflows for 30 days in case of a future financial meltdown.  Now, municipal bonds are not considered liquid assets and therefore cannot be included under the  LCR.   As a result, financial institutions have been discouraged from holding municipal debt, which means that cash strapped municipalities and school districts may eventually be forced to reduce or even stop work on projects  financed with municipal bonds. 

Infrastructure Financing -- Alternative Financing

•   Tax-exempt bonds:  Exemption from federal taxes and many state and local taxes is possible through the use of municipal bonds.   In recent years, with the increasing use of PPPs, barriers to this tax exemption have arisen.  Treasury has reviewed relevant tax rules and based on their findings and have put forth a proposal for an expanded and permanent America Fast Forward Bond Program as an alternative to tax-exempt bonds.  Based on the successful Build America Bond program, “would provide an efficient borrowing subsidy to state and local governments while appealing to a broader investor base than traditional tax-exempt bonds [and] would cover a broad range of projects for which tax-exempt bonds can be used.” 

 •  Obama’s budget proposal:  Obama has also put forth a plan to strengthen local and state government infrastructure projects. His plan relies on a new Federal credit program to support public-private partnerships within the Department of the Treasury. It will provide direct loans to US infrastructure projects developed through PPPs. The Obama Administration believes that private investment is crucial for infrastructure development moving forward, so there should be more flexibility in regards to what PPP is subject to. In addition to that, President Obama has proposed the taxable, direct-pay America Fast Forward bond program to help finance infrastructure.  

State Infrastructure Banks

Local governments receive financing in a number of ways.  Traditional sources such as tax revenues have been dwindling and local authorities have been relying on federal government loan programs, public-private partnerships, and State Revolving Funds (SRFs).  State Infrastructure Banks (SIBs) are a subset of SRFs -- the funds act like a bank, because they don’t own the infrastructure asset, but act as a lender or guarantor to the project sponsor. Per Brookings:  “SRFs rely on principal repayments, bonds, interest and fees to re-capitalize and replenish the fund as a perpetual source of debt financing.”

SIBs generate more investment per dollar than traditional federal and state grant programs.  They only exist in 33 states and 10 of those SIBs are currently inactive. A large problem may be compliance with federal regulations.  Brookings again: 

“We found that many SIB officials cite compliance with federal regulations as slowing down the investment process either because of environmental and contractual requirements or due to the lack of flexibility in projects that are not Title 23 or 49 eligible. For states with smaller projects, this may be prohibitively costly compared to the advantage of using the low-cost SIB financing.” 

Just being called a bank subjects SIBs to regulations that commercial banks are subject to.  SIBs are non-for-profit organizations with a goal of increasing infrastructure investment, so they don’t quite fit into the category of the average bank.  SIBs may be more successful outside this classification.  

For or Against Dodd-Frank

Before Dodd-Frank, particularly in the case of relatively small municipalities, many underwriters forged long-term relationships with municipalities and would provide financial advice before and after a bond issuance.  With Dodd-Frank, that relationship changed, with a new “municipal adviser” category that must register with the SEC and be regulated by the Municipal Securities Rulemaking Board (MSR).  Now, it is widely illegal to provide advice to governmental entities concerning the issuance of municipal bonds, the use of financial derivatives, and the investment of the proceeds of a bond issue to, or on behalf, of a municipal entity or an obligated person unless the adviser is registered with the SEC. 

HR 2209 appears to address a problem within Dodd-Frank, but it is unclear if it vitiates the law materially.  At face value, it appears to be more a technical fix. Dodd-Frank expanded regulations for banking institutions, but the entities that fund state and local governments are far unlike the TBTF institutions that Dodd-Frank was meant to regulate.   

Groups like Americans for Financial Reform oppose HR 2209: “While we sympathize with the belief that municipal debt was incorrectly treated under the initial LCR rule, we believe that it is inappropriate to classify such debt as a Level 2A asset. AFR therefore opposes this bill unless a more appropriate liquidity classification is used.”  AFR has previously said it supports treating municipal bonds as more liquid and does not approve the type of classification used in HR 2209, because it goes too far in its treatment of municipal debt as level 2A liquid assets and specifically with micromanaging regulators with this kind of detail and they prefer a Level 2B classification. 

The bill could provide relief for smaller institutions, so that they can fund infrastructure investment more easily. In terms of Dodd-Frank, it is yet to be decided if it is simply a necessary tweak or a criticism.                              

Looking Ahead

HR 2209 could end up being an important issue in the national infrastructure discussion.  It brings up questions about how far a state or local government can go before its activities begin to resemble an actual bank.  With the growth of PPPs, the private sector is being even more integrated into the process – should those companies be given tax exemptions, as well? 

Upcoming/Recent Updates

•  Derivatives Agreement w. EU
•  Budget (Ir)Resolution
•  Puerto Rico
•  Econ. Revitalization/Housing

Infrastructure Finance Update  (Feb. 18) 
Does DFA Fail on Too Big to Fail? (Feb. 17)
Below the Radar/Customs Bill  (Feb. 16) 
International Tax Status  (Feb. 11)
The Fed Holds Steady  (Feb. 10)
Obama's FY17 Budget  (Feb. 9) 
Tax Talk of the Town  (Feb. 3)
Defending Dodd-Frank  (Feb. 2)
Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
The Fed Holds Rates, for Now  (Jan. 28)
Debate Myths Challenged  (Jan. 25)
Regulating the Regulators  (Jan. 21)
Sanders' Tax/Healthcare Policy  (Jan 20)
HRC's Tax Policy  (Jan. 17)
2016 Tax Agenda on the Hill  (Jan. 16)
Glass-Steagall, Take 2  (Jan. 13)
2016 Tax Policy Issues  (Jan. 8)
Sanders Proposals/GS & TBTF (Jan. 7)
Sanders' Fin Reg Proposals  (Jan. 5)
Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
Omnibus Situation  (Dec. 14)
FY 2016 Omnibus Talks (Dec. 10)
Customs Bill  (Dec. 8)
Tax Extender Negotiations  (Dec. 6) 
Brown on HFT  (Dec. 4)
Shelby 2.0 Update  (Dec. 3)

----

Mike & Co.  --

The newly-installed the Minneapolis Federal Reserve Bank and former Special Investigator overseeing the TARP program came to town yesterday advocating drastic action to head off a financial sector systemic risk crisis, calling for the nation's biggest banks to be broken up. 
His speech, delivered at Brookings, got noticed, with lengthy coverage in the NYT, WSJ, and WaPo.  And perhaps with reason -- the TBTF (too big to fail) issue has dogged Congress and the administration for years and is one of the central ones in the Democratic presidential campaign this far. 

Or maybe it was just a slow news day.  You decide...

Best, 

Dana

A Peculiar Package of Proposals

Kashkari argued in the alternative that Dodd-Frank needs to be used and/or needs to be reformed.  He says the law as written does not solve the TBTF problem.  He also wants regulators to use the yet-untried tools at their disposal under the law.   “While significant progress has been made to strengthen our financial system, I believe the [Dodd-Frank] Act did not go far enough."  He then laid out three ideas meant to end TBTF once and for all.  

•  break up large banks into smaller, less connected, less important entities;

•  turn what remains of the large banks into public utilities by forcing them to hold so much capital that they can’t fail; and

•  tax leverage throughout the financial system "to reduce systemic risks wherever they lie."

•  Break up the Banks

From the perspective of current laws, breaking up big banks is already a policy avenue available to regulators.  The Federal Reserve, through the Financial Stability Oversight Council, can elect to take a number of actions to deal with banks that it feels are both systemically important and organized in an unstable way.  Section 121 of the Dodd-Frank Act gives the Board of Governors these powers.  

So this first proposal – break up big banks - has been covered here before but just for the sake of argument... which banks need to be broken up most urgently?  Few commentators believe there is an imminent threat demanding action.  

Unsurprisingly, the Fed doesn’t believe that banks are so hopeless that they need to be dissolved.  That doesn’t mean it’s not a possibility under current legislation, however.

•   Make Banks “Utilities”

The second proposal is to push capital requirements for banks so high that they “essentially turn into public utilities.”  Kashkari never explains how exactly high capital reserves turn banks into utilities, but that’s for another time.  

He is voicing his support for one of the oldest forms of banking regulations that we still use and use far more now in the Dodd-Frank era – he wants banks to hold more capital.  Supporters of the law may be heartened by his full-throated endorsement of the law on this score. 

•   Cribbing from Clinton?

The third proposal was just about lifted out of Secretary Clinton’s plan to regulate Wall Street –- though the reporting on the speech doesn’t much mention it much.  It is reasonable both from a policy and a political perspective. But he doesn't provide further details about his proposal after first outlining it.

Kashkari contra Yellen

Fed Chair Yellen has been an outspoken proponent of existing banking regulations, making it known that while the job of regulators is not done yet. we’re in a much better situation now than we were before DFA.  During her testimony before House Financial Services, Yellen fielded a question about why she had not yet broken up big banks, saying: “…we [at the Fed]vare using our powers to make sure that a systemically important institution could fail, and it would not be -- have systemic consequences for the country. We're doing that in a whole variety of ways.”  

The ways Yellen is referring to include enforcing Liquidity Coverage Ratios, capital reserve requirements, and a rule passed last November forcing the biggest banks to issue long-term debt equal to 18 percent of risk-weighted assets.  

Evidently it's not enough.  But it is nonetheless uncommon for a newly minted Federal Reserve Bank President to taking to task the Chair of the Federal Reserve’s Board of Governors.

Upcoming/Recent Updates

•  Municipal Bond Rule
•  Budget (Ir)Resolution
•  Puerto Rico
•  Derivatives Agreement w. EU
•  Econ. Revitalization/Housing

Does DFA Fail on Too Big to Fail? (Feb. 17)
Below the Radar/Customs Bill  (Feb. 16) 
International Tax Status  (Feb. 11)
The Fed Holds Steady  (Feb. 10)
Obama's FY17 Budget  (Feb. 9) 
Tax Talk of the Town  (Feb. 3)
Defending Dodd-Frank  (Feb. 2)
Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
The Fed Holds Rates, for Now  (Jan. 28)
Debate Myths Challenged  (Jan. 25)
Regulating the Regulators  (Jan. 21)
Sanders' Tax/Healthcare Policy  (Jan 20)
HRC's Tax Policy  (Jan. 17)
2016 Tax Agenda on the Hill  (Jan. 16)
Glass-Steagall, Take 2  (Jan. 13)
2016 Tax Policy Issues  (Jan. 8)
Sanders Proposals/GS & TBTF (Jan. 7)
Sanders' Fin Reg Proposals  (Jan. 5)
Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
Omnibus Situation  (Dec. 14)
FY 2016 Omnibus Talks (Dec. 10)
Customs Bill  (Dec. 8)
Tax Extender Negotiations  (Dec. 6) 
Brown on HFT  (Dec. 4)
Shelby 2.0 Update  (Dec. 3)

Mike & Co.  --

A national holiday, a snowstorm, and a congressional recess stilled DC yesterday and a quiet week is expected.  It gives us a chance to have a look at some developments thus far this year that have flown below the radar.

Today's item is the one bill on its way to the President’s desk -- the Customs bill -- and the caboose attached to it that extends the internet tax moratorium permanently  and may be the bill's important title... at least until the TPP comes up on the Senate floor. 

Best,

Dana

The Customs Bill:  Comity on the Hill

The Senate cleared the first overhaul of the Customs and Border Protection (CBP) agency in more than a decade in a 75-20 vote last Thursday, sending the bill to the President and ending months of wrangling over the measure.  The Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644) retools CBP to increase its focus on blocking illegal trade and ensuring that legal trade moves smoothly.
 
The major facets of this legislation are:

•  new protections on intellectual property rights
•  new tools to fight currency manipulation
•. a permanent extension of the Internet Tax Freedom Act

Said Senate Finance ranking member Ron Wyden:  “This bill is about coming down hard on the trade cheats who are ripping off American jobs, and the truth is past trade policies were often too old, too slow or too weak for our country to fight back."

Wyden was perhaps the most outspoken Democrat in support of the bill, continuing his role as a strong backer of free trade legislation.  He was a key factor in getting Trade Promotion Authority legislation passed through Congress last summer, splitting from some of his colleagues in voicing support for that act.

Unusual Coalition

27 Democrats, 47 Republicans, and 1 Independent voted affirmatively.  Industry groups including the National Retail Federation, as well as the U.S. Chamber of Commerce were supportive of the legislation.  National Association of Manufacturers’ president Jay Timmons said “if senators want to grow manufacturing in the United States, then they should pass this bill immediately.”

Notable “Nay” votes include Sens. Durbin and Reid, who both expressed disappointment that the legislation was a “watered down” version of a bill previously passed by the Senate.  ”I like that [Senate] version, and that strong language on currency manipulation,” Durbin said – that language required Commerce to consider “undervalued” currencies to be equivalent to countervailable subsidies.  “The conference report that’s back to us now and before the Senate at this moment is a much different bill."

Purpose and Provisions

House and Senate negotiators agreed on a final customs bill in December.   The House passed the measure 256-158 but the legislation stalled in the Senate over a provision added in conference that permanently extends a moratorium on Internet access taxes.

That provision is perhaps the most reported on section in the bill – it’s almost certainly the most popular - it applies to localities, states, and the federal government itself.   Sen. Lamar Alexander cited it though as explanation for his “nay” vote: "the federal government shouldn't be telling the states what their tax structure should be."

Another important provision, known as the ENFORCE Act, would require the CBP to more aggressively investigate complaints that companies are evading anti-dumping or countervailing duties on imports by mislabeling or disguising the shipments.

The bill includes a new Trade Enforcement Fund to bring trade cases through the WTO, to investigate the implementation of trade requirements by other countries, and to respond to complaints of trade violations.  It also creates a nine-member Advisory Committee on International Exchange Rate Policy, whose members must be comprised of individuals from the private sector who are selected by both chambers of Congress and the President (three members each).

Currency Manipulation

Currency manipulation has been a long-standing concern of American policy-makers and a particularly contentious issue in global trade relations; claims that China has been chronically undervaluing its currency have made the news for a number of years.  Advocates for stricter enforcement of currency manipulation provisions claim that undervalued currencies operate similarly to export subsidies – a prohibited practice within the World Trade Organization.

The final bill dropped a Senate provision that would have required the Commerce Department to treat undervalued currency as an illegal subsidy under U.S. countervailing duty law.  This provision would have opened the door for compensatory tariffs to be levied against goods which originate from countries which are found to purposely undervalue their currency in order to boost their exports. The bill does, however, include other measures that give the Treasury Department new tools to fight currency manipulation:

•  creates a special fund for the CBP to ensure trading partners follow the rules and to bring disputes before the WTO
•  increases funding to the National Intellectual Property Rights Coordination Center
•  establishes the Commercial Customs Operations Advisory Committee jointly between CBP and Treasury
•  requires CBP to investigate claims from other agencies of evasion of anti-dumping or countervailing duties.

Relation to TPP

Sen. Majority Leader McConnell has said that the Senate will not vote on the Trans-Pacific Partnership before the November elections, so it may come as a surprise to see a bill which deals with enforcing trade deals like TPP pass both houses of Congress.  However this bill’s provisions for protecting IP rights, toughening countervailing duties, and tackling currency manipulation are a necessary prerequisite for agreements like TPP (or the far more nebulous TTIP).  The new age of trade agreements  will deal extensively in issues like intellectual property protection, trade in services, and high-tech product trading; types of commerce which are far more difficult to regulate compared to the trade of physical goods.

So, despite the fact that TPP won’t get a vote until after November (and perhaps not in 2016 at all), and may not pass even then, the protections set forward in the customs bill are necessary to allow American companies to continue to compete in the global marketplace.

Price of Passage

In order to include the permanent extension of the Internet Tax Freedom Act, McConnell had to promise that a vote would be held this year on the Marketplace Fairness Act.  That legislation grants states greater authority to collect sales taxes from online businesses who sell products within their borders.  While McConnell himself opposes the bill, it was the only way to get the customs bill (with the tax amendment attached) unstuck.

Just because McConnell has promised it will be brought to a vote doesn’t mean it will be a smooth process - the Senate passed the Marketplace Fairness Act in 2013 with 69 votes, and most of the lawmakers who voted for it are still in the chamber.  Some lawmakers like Kelly Ayotte, who is facing a tough reelection campaign this year, have vowed to fight tooth-and-nail against it.  Despite these detractors in the Senate, the real battle may occur in the House, where two competing proposals have been brought forward.  

Upcoming/Recent Updates

•  Municipal Bond Rule
•  Budget (Ir)Resolution
•  Puerto Rico
•  Derivatives Agreement w. EU
•  Econ. Revitalization/Housing

Below the Radar/Customs Bill  (Feb. 16) 
International Tax Status  (Feb. 11)
The Fed Holds Steady  (Feb. 10)
Obama's FY17 Budget  (Feb. 9) 
Tax Talk of the Town  (Feb. 3)
Defending Dodd-Frank  (Feb. 2)
Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
The Fed Holds Rates, for Now  (Jan. 28)
Debate Myths Challenged  (Jan. 25)
Regulating the Regulators  (Jan. 21)
Sanders' Tax/Healthcare Policy  (Jan 20)
HRC's Tax Policy  (Jan. 17)
2016 Tax Agenda on the Hill  (Jan. 16)
Glass-Steagall, Take 2  (Jan. 13)
2016 Tax Policy Issues  (Jan. 8)
Sanders Proposals/GS & TBTF (Jan. 7)
Sanders' Fin Reg Proposals  (Jan. 5)
Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
Omnibus Situation  (Dec. 14)
FY 2016 Omnibus Talks (Dec. 10)
Customs Bill  (Dec. 8)
Tax Extender Negotiations  (Dec. 6) 
Brown on HFT  (Dec. 4)
Shelby 2.0 Update  (Dec. 3)

----

> On Feb 11, 2016, at 7:47 PM, Dana <[email-masked]> wrote:
> 
> Mike & Co.  --
> 
> One thing the two parties agree is that international tax reform is a fiscally necessary issue to take up -- that Uncle Sam is leaving hundreds of billions of dollars on the table overseas annually.   But they would also generally agree that it is not going to get done this year.  
> 
> Under current law, those profits are subject only to federal taxes if they are returned, or repatriated, to the U.S. where they face a top rate of 35 percent.  Many companies avoid U.S. taxes on those earnings by simply leaving them overseas.
> 
> There is bipartisan activity on the issue in both houses of Congress. Obama has a major reform proposal on the table.  So is this the year, in the year of surprises?
> 
> Best,
> 
> Dana
> 
> Reforms in the area of international tax deal with both the repatriation of foreign-derived profits and the issue of corporate inversions.  Testifying today, Treasury Secretary Jack Lew encouraged the parties in Congress to overcome their differences on both, which he believes surmountable:  “I just want to underscore the urgency of dealing with inversions … We can’t wait a year to deal with this,” Lew said during a Senate Finance hearing on the Obama administration’s budget. Congress could pass narrow legislation on inversions, he said, even if broader reform of the international system is preferable. 
> 
> Stirrings in the Senate
> 
> Sen. Schumer also announced today that he is in contact with Speaker Ryan about coming to an agreement on repatriating corporate profits.  They were unable to come to an agreement last year on a similar measure put forth as part of a larger reform effort.  Schumer said today: “We’re trying to bridge over, of course, the divide between existing proposals.  I remain at the table ready to work.”  
> 
> One of the key differences between the parties concerns whether the money raised from tax reform should be turn into government revenue for more spending, or used to pay down the debt or pass tax cuts.  After the Senate Finance hearing yesterday, Chair Hatch said:  “I'm actually working on international, but I just don't think it's going to get done this year, because, you know, let's face it, the Democrats are going to want to raise revenue.  They want money to spend.”  
> 
> At that same hearing, Sen. Shelby pushed a corporate integration plan he is developing to eliminate the double taxation of corporate income by providing corporations a dividend deduction.  He's awaiting a score by the Joint Committee on Taxation.  Dividend deductions are usually quite expensive and regressive, so it will a feat to attract any Democratic support, especially for him. 
> 
> Brady's Push 
> 
> Meanwhile, Ways and Means Chair Kevin Brady has said that he wants a vote this year on moving the United States into a territorial tax system, which would permanently exempt US-based businesses from paying taxes on income earned abroad.  He also wants to lower the corporate rate to 20 percent.  In the face of these proposals it is difficult to see what sort of compromise can be found between Democrats and Republicans, as the former may be more preoccupied just keeping alive the idea that foreign profits should be taxed at all. “The goal of these reforms are not to generate more spending,” Brady said. “It’s to bring back real dollars to be reinvested in the United States.”
> 
> Brady has been advocating for international tax reform since he took over Ways and Means.  Last month, he spoke with Sen. Hatch and they were both committed to getting something done.  Senior Republicans believe the country’s international tax problems — inversions and Europe going after revenues from U.S. companies among them — are urgent.  But Brady strongly hinted that all that work would be aimed at setting things up for 2017, when Republicans want “pro-growth tax reform under a Republican president.” Perhaps that’s no huge shock, but it does seem to set up something of a disconnect, given all the talk of urgency.
> 
> Brady and his supporters have been pushing the idea that American money is either being taxed by other countries or being taken over by foreign competitors in an inversion -- typically, when an American company incorporates abroad so its earnings are no longer subject to American taxes.  Brady says the result is an erosion of our tax base and a lock-out effect of American capital being “trapped” abroad that can be solved by fixing our uncompetitive tax code.
> 
> Presidential Proposal
> 
> The President’s FY 2017 budget contains a surprising source of new revenue to pay for its spending programs – a major piece of international tax policy reform: a six-year, $478 billion public-works program for highway, bridge and transit upgrades, half of it to be financed with a one-time, 14 percent tax on U.S. companies’ overseas profits and a 19 percent rate thereafter.  The issue of companies holding foreign profits at locations abroad, where they are exempt from taxation until repatriated, has vexed policy makers on both sides for some time.  It’s estimated that these profits add up to nearly $2 trillion. 
> 
> The issue of companies holding foreign profits at locations abroad, thereby exempt from taxation unless those profits are brought home, has vexed policy makers on both sides for some time.  Microsoft Corp., Apple Inc., Google Inc. and five other tech firms now account for more than a fifth of the $2.10 trillion in profits that U.S. companies are holding overseas.  In keeping with the idea that Obama’s final budget is “more politics than policy,” these revenue-gaining proposals are meant to spark discussion more so than be a model for laws going forward. 
> 
> Upcoming/Recent Updates
> 
> •  Customs Bill
> •  Municipal Bond Rule
> •  Budget Irresolution 
> 
> International Tax Status  (Feb. 11)
> The Fed Holds Steady  (Feb. 10)
> Obama's FY17 Budget  (Feb. 9) 
> Tax Talk of the Town  (Feb. 3)
> Defending Dodd-Frank  (Feb. 2)
> Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
> The Fed Holds Rates, for Now  (Jan. 28)
> Debate Myths Challenged  (Jan. 25)
> Regulating the Regulators  (Jan. 21)
> Sanders' Tax/Healthcare Policy  (Jan 20)
> HRC's Tax Policy  (Jan. 17)
> 2016 Tax Agenda on the Hill  (Jan. 16)
> Glass-Steagall, Take 2  (Jan. 13)
> 2016 Tax Policy Issues  (Jan. 8)
> Sanders Proposals/GS & TBTF (Jan. 7)
> Sanders' Fin Reg Proposals  (Jan. 5)
> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
> Omnibus Situation  (Dec. 14)
> FY 2016 Omnibus Talks (Dec. 10)
> Customs Bill  (Dec. 8)
> Tax Extender Negotiations  (Dec. 6) 
> Brown on HFT  (Dec. 4)
> Shelby 2.0 Update  (Dec. 3)
> 
> 
> On Feb 10, 2016, at 7:41 PM, Dana <[email-masked]> wrote:
> 
>> Mike & Co. --
>> The Chair of the Federal Reserve went before House Financial Services to provide a report on the nation's economic condition, a kind of bi-annual checkup. No news was made, no fireworks went off and no market mood swings occurred.  As for the Fed's next move, it's wait-and-see a little while longer. 
>> We thought it might happen in March, signs pointed to it.  Now, the guess is June (sound familiar?)  For details, don't wait, see below.
>> Best, 
>> Dana 
>> ----------
>> Economic Checkup
>> Fed Chair Yellen testified before House Financial Services this morning for the Federal Reserve’s bi-annual Monetary Policy Report.  These appearances allow Yellen to explain the Fed’s, actually the Federal Open Market Committee (FOMC)’s, analysis and projections regarding America's economic performance as well as to signal the factors underlying its actions in the months ahead.  
>> The rate change in December 2015 was the first time the Fed raised rates since 2006 -- some worry that even a modest increase in rates at this juncture would further slow already limited economic growth after years of uncertainty.
>> The Basics
>> The bottom line: the FOMC won’t rollback rates in March and it’s not likely to raise them either.  The Fed likes what it sees in the labor market, wage growth looks strong, and emerging market missteps continue to be a threat to the US economy but perhaps not an immediate one.  The next rate move is almost certain to be an increase but it could wait until June or later. 
>> Yellen reiterated much of the FOMC statement from last month:  the labor market remains strong, but shows some signs of remaining slack, that the low inflation we have seen is caused by “transitory” effects (low energy prices), and that global market uncertainty creates some level of risk for slow growth at home and abroad.  Though Yellen did not make a prediction on how long these transitory market effects would last, a number of forecasts for oil prices show the dip lasting through 2016.
>> Expanding on global growth issues, Yellen said "These developments, if they prove persistent, could weigh on the outlook for economic activity and the labor market, although declines in longer-term interest rates and oil prices could provide some offset," she added: "Foreign economic developments, in particular, pose risks to US economic growth." 
>> 
>> Partisan Review
>> 
>> The GOP is generally critical of "accommodative" (lower) Fed rates.   High-net-worth individuals benefit the most from high rates through dividends and interest from savings.  Low rates allow more growth for the middle- and lower-classes at the risk of inflation, tacitly supporting Democrats’ progressive fiscal policy goals.  Some conservative economists have gone so far as to blame low interest rates pushed by the Fed in the 1990’s for the market meltdown in 2007, claiming that cheap credit was the cause of the overheated housing market.
>> 
>> Strong Labor Market
>> 
>> Discussing the labor market in greater detail, Yellen pointed to the cumulative increase in employment since 2010 of 13 million jobs.  The rate in January fell to 4.9 percent, 0.8 points below its level one year ago; measures of labor market conditions such as the number of people who are working part-time but want to move to full-time positions and the number of individuals who want to work but haven’t searched recently are also decreasing steadily.  Regarding these broader labor market indicators Yellen testified that “… these measures remain above the levels seen prior to the recession, suggesting that some slack in labor markets remains. Thus, while labor market conditions have improved substantially, there is still room for further sustainable improvement."
>> 
>> Forward Guidance
>> 
>> As always, Yellen was careful not to give hints on what the Fed is planning to do in future meetings; speaking on the path forward for the Fed Funds rate Yellen said “Of course, monetary policy is by no means on a preset course. The actual path of the federal funds rate will depend on what incoming data tell us about the economic outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2 percent inflation.”
>> 
>> Yellen was asked about the chances of the FOMC rolling back the rate hike it announced in December:  "I do not expect the FOMC is going to be soon in the situation where it's necessary to cut rates If the FOMC delayed the start of policy normalization for too long, it might have to tighten policy relatively abruptly in the future to keep the economy from overheating and inflation from significantly overshooting its objective. Such an abrupt tightening could increase the risk of pushing the economy into recession." 
>> 
>> Comment on Dodd-Frank
>> 
>> During the Q&A portion of her testimony, Yellen was asked about financial regulation, both in terms of breaking up the banks and enforcing the regulations brought on by Dodd-Frank. 
>> 
>> In response to being asked if the Fed is trying to break up the banks, she responded: "We are using our powers to make sure that a systemically important institution could fail, and it would not have systemic consequences for the country." Her answer was interesting, because she's not outright saying the banks will be broken up or reduced, just that the Fed is trying to ensure that even if they did fail, it wouldn't negatively effect the economy.
>> 
>> Yellen was also asked about the burden of new Dodd-Frank regulations on banks. She responded: "For our part, we're focused on doing everything that we conceivably can to minimize and reduce the burden on these banking organizations. We've been conducting an EGRPRA review to identify potential burdens that our regulations impose." An EGRPRA review is connected to the Economic Growth and Regulatory Paperwork Reduction Act, which requires regulations imposed on financial institutions to be reviewed by the agencies at least once every 10 years. The purpose is to prevent burdensome regulations that could hinder a bank's ability to serve its customers. 
>> 
>> The Bottom Line
>> 
>> Fed watchers make their living by trying to predict what the FOMC will or won’t do at their meetings, and on days when Yellen is scheduled to testify before Congress you can bet that they’re listening intently.  While Yellen was careful not to project the Fed’s moves, the general sentiment in the markets is that FOMC won’t be raising rates at its March meeting.  The CME Group FedWatch tool, which estimates FOMC rate hikes based on its futures prices, predicts a 95% probability that the Fed will maintain its current rate target in March.  Some forecasters go even further -- expecting that the funds rate won’t be raised all year. 
>> 
>> Traders see the ongoing economic struggles of emerging economies, particularly in China, as evidence that the Fed won’t continue with its scheduled 4 rate hikes this year.  Certainly, considering the testimony today that 1) continued emerging market uncertainty can weigh down the US economy and 2) that poor performance in the US economy would cause the Fed to change course on its rate hike schedule, a link between poor emerging market performance and fewer Fed rate hikes seems plausible.  Certainly the trading on Fed fund futures indicates that the markets believe this is the case.
>> 
>> -------
>> 
>> Recent Updates
>> 
>> The Fed Holds Steady  (Feb. 10)
>> Obama's FY17 Budget  (Feb. 9) 
>> Tax Talk of the Town  (Feb. 3)
>> Defending Dodd-Frank  (Feb. 2)
>> Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
>> The Fed Holds Rates, for Now  (Jan. 28)
>> Debate Myths Challenged  (Jan. 25)
>> Regulating the Regulators  (Jan. 21)
>> Sanders' Tax/Healthcare Policy  (Jan 20)
>> HRC's Tax Policy  (Jan. 17)
>> 2016 Tax Agenda on the Hill  (Jan. 16)
>> Glass-Steagall, Take 2  (Jan. 13)
>> 2016 Tax Policy Issues  (Jan. 8)
>> Sanders Proposals/GS & TBTF (Jan. 7)
>> Sanders' Fin Reg Proposals  (Jan. 5)
>> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
>> Omnibus Situation  (Dec. 14)
>> FY 2016 Omnibus Talks (Dec. 10)
>> Customs Bill  (Dec. 8)
>> Tax Extender Negotiations  (Dec. 6) o
>> Brown on HFT  (Dec. 4)
>> Shelby 2.0 Update  (Dec. 3)
>> 
>> ----
>> 
>> 
>>> On Feb 9, 2016, at 7:42 PM, Dana <[email-masked]> wrote:
>>> 
>>> 
>>> Mike & Co. --
>>> Today, President Obama submitted his eighth and final budget proposal to Congress.  It tops the $4 trillion mark for the first time.   Despite the historical tendency for lame duck presidential budgets to be treated as scrap paper -- this one won't even be accorded the courtesy of a hearing in House Budget -- there are a few noteworthy proposals and initiatives which, if nothing else, are likely to generate discussion on the Hill and off.  
>>> That’s the real purpose of this budget -- to help frame the debate in 2016 about where America is headed what the nation's priorities should be.  A number of the proposals in this budget resonate with issues and themes already being debated.  Candidates in particular seeking to emphasize support for or opposition to the President have a new set of proposals at their disposal. 
>>> What is new and noteworthy in the White House budget and what's next for it?  Detail below. 
>>> Special thanks to those of you in NH tonight.  Fingers crossed and stay tuned this way:   http://politi.co/20n5W2w 
>>> Best,
>>> Dana
>>> ---------
>>> The Obama Administration put forth a myriad of budget proposals revolving around a variety of issues.  Below are thoughts on some of the most significant of these from a fiscal and financial regulatory perspective: 
>>> •  $10/Barrel Transportation Tax
>>> A perennial favorite of Democrats has made a return in the Obama budget:  a $10.25 per barrel tax on oil, $319 billion in revenue from which will go toward funding “a 21st Century Clean Transportation Plan to upgrade the nation’s transportation system, improve resilience and reduce emissions."  The proposed tax is a simplified version of “carbon taxation” policies, which aim to tax energy producers and oil companies based on the level of pollution they produce; “cap and trade” was a similar policy idea but with more complicated implementation.  
>>> The tax will be phased in over five years and levied against oil companies, with the revenue to help fund clean energy initiatives like expanding high-speed rail systems and also to increase national infrastructure spending.  The appeal of this flat-tax on oil is its simplicity –- there is nothing complicated about charging oil companies $10.25 per barrel of oil, meaning there’s no way for them to shirk the charge. 
>>> Supporting the tax would lend candidates some environmental bonafides, but might be seen as a backdoor  tax on the middle-class. Though paid for by oil companies, the  price is expected to be passed along to consumers through higher prices.  The tax is expected to increase the price of gasoline by 25 cents per gallon.
>>> •  Funding Fin. Reg. Like it Matters 
>>> Obama proposes to double the budget for Wall Street regulators SEC and CFTC over ten years, beginning with an 11 percent increase for SEC and 32 percent for CFTC in 2017.  Clinton has a lot to like in this particular section – she’s the only candidate who has defended Dodd-Frank and is campaigning on proposals to strengthen current regulations, including through greater budgets for regulatory agencies.  Leaders for both regulators have complained that their responsibilities far outstrip their budget. 
>>> The proposal is more realistic than the oil tax, although not necessarily something that will definitely be enacted.  The SEC has called for increased funding recently.  SEC chairman Mary Jo White asked at a House Financial Services Committee hearing in November for $1.8 billion in funding for fiscal 2017.  In a time when Republicans are looking to reduce regulatory burdens against banks, an increase in regulators’ budgets highlights the difference in priorities on Wall Street. 
>>> •  Boosting R and D
>>> The budget increases R&D funding by four percent for a total of $152 billion in 2017; among changes are a doubling of clean energy research and funding a $1 billion cancer “Moonshot” research program aimed at eliminating the disease. 
>>> •   Apprenticeship Training Fund
>>> The budget establishes a $2 billion mandatory Apprenticeship Training Fund – meant to double the number of apprenticeships across the United States.  Only HRC has talked about the need for increasing the number of apprenticeships in the country during the election, favoring a tax-credit policy rather than direct funding. 
>>> Congressional Prospects
>>> Obama’s proposal is not only a prelude to battle.  Lawmakers and the administration will have to strike some sort of deal to keep the government running when the current fiscal year ends on Sept. 30 — most likely a continuing resolution to keep the lights on through the election and early into 2017.  In a sign that Obama isn’t looking for a knock-down spending fight this year, the president’s proposal abides by the discretionary caps for fiscal 2017 set by last year’s bipartisan budget deal. 
>>> Congressional leadership may have a fight on its hands even without Obama making waves – if the Freedom Caucus membership decides to make its displeasure on the budget known then it could cause rancor amongst the GOP.  In a year when the party is desperate to project an image of capable leadership, in part by passing a complete budget for the first time since 1997, a blow-up between Ryan and the back-benchers would amount to nothing less than catastrophe.
>>> At a more granular level, Obama’s blueprint is a grab-bag of Democratic priorities.  The administration is once again calling for expanding early education in his 2017 budget, asking for more pre-K grants, a child care expansion and a small boost to Head Start.  The budget boosts spending for Obamacare Medicaid expansion by $2.6 billion over a decade, designed to be an enticement to the 19 holdout states that have yet to take effect.
>>> Republicans and the Budget
>>> 
>>> The Republicans have a different plan for the budget this year, naturally.  Speaker Ryan has stated that he intends to pass the budget and all 12 appropriations through the house -- a feat that hasn't been accomplished in two decades.
>>> 
>>> The Republicans have a different plan for the budget this year, naturally.  Speaker Ryan has stated that he intends to pass the budget and all 12 appropriations through the house - a feat that hasn't been accomplished since 1997.  Although Ryan and the GOP House leadership hope to gain the faith of the American people back by bringing about the return of regular order, they face a tight calendar and the political implications of an election year -- not to mention internal opposition in the form of the Freedom Caucus.  Should the back-benchers feel their concerns aren’t being adequately addressed, they may try to disrupt the passage of appropriations bills.  The care and feeding of these members on budget matters may be turn out to be one of the toughest challenges Ryan will face this year.
>>> 
>>> -----------------
>>> 
>>> Recent Updates
>>> 
>>> Obama's FY17 Budget  (Feb. 9) 
>>> Tax Talk of the Town  (Feb. 3)
>>> Defending Dodd-Frank  (Feb. 2)
>>> Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
>>> The Fed Holds Rates, for Now  (Jan. 28)
>>> Debate Myths Challenged  (Jan. 25)
>>> Regulating the Regulators  (Jan. 21)
>>> Sanders' Tax/Healthcare Policy  (Jan 20)
>>> HRC's Tax Policy  (Jan. 17)
>>> 2016 Tax Agenda on the Hill  (Jan. 16)
>>> Glass-Steagall, Take 2  (Jan. 13)
>>> 2016 Tax Policy Issues  (Jan. 8)
>>> Sanders Proposals/GS & TBTF (Jan. 7)
>>> Sanders' Fin Reg Proposals  (Jan. 5)
>>> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
>>> Omnibus Situation  (Dec. 14)
>>> FY 2016 Omnibus Talks (Dec. 10)
>>> Customs Bill  (Dec. 8)
>>> Tax Extender Negotiations  (Dec. 6) o
>>> Brown on HFT  (Dec. 4)
>>> Shelby 2.0 Update  (Dec. 3)
>>> 
>>>> On Feb 3, 2016, at 7:09 PM, Dana <[email-masked]> wrote:
>>>> 
>>>> Mike & Co. --
>>>> 
>>>> Upbeat tax talk is as common this time of year as predictions that this year the Cubs will win the World Series this fall.  The word is that Messrs. Ryan and McConnell want to run a smooth, efficient, maybe even a productive ship this year on the theory that voters will reward the GOP in November and that they will forget the record of the last seven years.  The Speaker and the President have had a recent meeting and mini-meeting of the minds on taxes.  That might create the right climate for passage of broad tax reform. 
>>>> But really the gravitational pull is not toward gravitas, but away from the center, away from the Hill itself.  The GOP presidential nominee might very well have to run against any bipartisan ("Washington") compromise on tax policy, making for an embarrassing intraparty policy conflict at the time the leadership most needs to project unity.
>>>> 
>>>> Amid the turbulence of the broader campaign, where do the various tax discussions in the Hill stand, what bills night come up for votes, is there anything that might pass?
>>>> Best,
>>>> Dana
>>>> ________________________________
>>>> Forms of Reform under Discussion
>>>> • Comprehensive -- Defined as involving a bipartisan trade-off between lowering taxes and broadening the base; closing exemptions, deductions, credits, etc.  Both Democratic candidates have outlined plans to reduce loopholes, such as the "Romney loophole" and the "Bermuda loophole," which allow very rich Americans to avoid paying their fair share. 
>>>> • Corporate -- Many of the issues with the corporate tax system could be addressed through international tax reform, because so many companies earn capital abroad. However, corporate tax reform at home deals with issues like taxing dividends and leveling the playing field between small and large businesses. 
>>>> • International - Deals with foreign earnings of American firms abroad. Specifically, current international tax reform aims at preventing inversions and coming up with a more successful way to tax foreign capital earned by American companies, as well as finding ways to encourage companies to move profits home from abroad.
>>>> Forums for Tax Reform
>>>> • Ways & Means:  Kevin Brady became Chair of the Committee in November 2015. He reportedly hopes to have an international tax reform proposal out of Ways and Means this year.  He says he wants to allow American companies to bring their foreign profits back and invest at home and to lower the corporate tax rate to less than 20 percent.
>>>> Brady gave the opening statement at a hearing on “Reaching America’s Potential.”   For what it's worth, he laid out six goals for his committee in the coming months -- and they are ambitious:
>>>> 
>>>> · Tax reforms to boost investment and job creation;
>>>> · Welfare reforms to help more people join the workforce and achieve the American dream.
>>>> · Health reforms to truly make health care more affordable and accessible; 
>>>> · Trade expansion to open more foreign markets to American goods and services;
>>>> · Entitlement reforms to strengthen Medicare and Social Security for the long haul and;  
>>>> · Government reforms to boost efficiency and effectiveness instead of stifling jobs and higher wages.
>>>>  
>>>> Brady’s statement that tax reform will come up in the coming weeks, coupled with Ryan’s recent visit with Obama (specifically to find areas of cooperation), may indicate a broad-based reform package making its way forward in 2016.  Another interesting bullet point is trade expansion, despite McConnell’s promise that TPP won’t be voted on before November. 
>>>>  • Senate Finance:   The Senate Finance Committee has its focus set on bipartisan working groups designed to produce tax reform on multiple levels -- individual, corporate, and international. However, there have been many challenges and stalemates along the way because of the stringent partisanship currently ailing the Senate. 
>>>> This election has been defined, more so than others, by the massively diverse set of tax policies proposed by each candidates – from flat taxes, capital gains reforms, financial transaction taxes and more.  Sen. Hatch, Chair of Finance, has already called for reform efforts in 2016, targeting international corporate rates specifically – but it’s possible that Brady is trying to shift him and others toward more ambitious proposals.  Any high profile move Ryan makes here will likely be a controlling factor on tax policy.  
>>>> • Between the Branches -- Speaker Ryan and Pres. Obama met yesterday to discuss a variety of issues, one of which was related to the Earned Income Tax Credit.  Both hope to expand the credit to include low-earning workers who DON'T have children.  It's unclear how successful their cooperation will be, but at the very least, they share a common goal. 
>>>> Politico portrayed the meeting as campaign kabuki: “Rather than cut any deals with Obama, Ryan’s hoping to spend 2016 developing what he’s calling a detailed GOP agenda on poverty, taxes, health care and other issues he’s hoping will factor into the presidential campaign and provide a blueprint for House Republicans as they grapple with a new president next year.”  It’s not surprising to see this given the pressure this election will put on the new Speaker.  He needs to set a strong foundation for his own future, and helping Obama score a tax touchdown on him is not on the top of his list of objectives.  
>>>>  
>>>> During a statement before he met with Obama, Ryan said “We will take our conservative principles and we will apply those conservative principles to the problems of the day to offer our fellow citizens solutions to the problems in their daily lives …. These are not going to be things that we will be able to accomplish with this president still in the White House. It is an agenda for what we will do next year with a Republican president to get our country back on track. This is what 2016’s all about. It’s going to be a year of ideas.”
>>>>  
>>>> Political Realities
>>>> William Gale and Aaron Krupkin, researchers at Brookings, recently wrote a paper titled “Major Tax Issues in 2016;” Keeping in mind both the current political climate and the probable environment for legislation in 2016, the two researchers write that “Comprehensive tax reform is easy to talk about, but hard to do. The pursuit of sweeping tax simplification is a noble goal, but quixotic.”  
>>>> 
>>>> At the end of the day 2016 is an election year and any legislative proposals that come forward during it will reflect that.  There are many exciting possibilities for tax reform in 2016, but there is also no reason to think that the political gridlock that has defined Washington for so long will ease up enough while both parties vie for control of the country by drawing contests. 
>>>> ----------------
>>>> Recent Updates
>>>> 
>>>> Tax Talk of the Town  (Feb. 3)
>>>> Defending Dodd-Frank  (Feb. 2)
>>>> Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
>>>> The Fed Holds Rates, for Now  (Jan. 28)
>>>> Debate Myths Challenged  (Jan. 25)
>>>> Regulating the Regulators  (Jan. 21)
>>>> Sanders' Tax/Healthcare Policy  (Jan 20)
>>>> HRC's Tax Policy  (Jan. 17)
>>>> 2016 Tax Agenda on the Hill  (Jan. 16)
>>>> Glass-Steagall, Take 2  (Jan. 13)
>>>> 2016 Tax Policy Issues  (Jan. 8)
>>>> Sanders Proposals/GS & TBTF (Jan. 7)
>>>> Sanders' Fin Reg Proposals  (Jan. 5)
>>>> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
>>>> Omnibus Situation  (Dec. 14)
>>>> FY 2016 Omnibus Talks (Dec. 10)
>>>> Customs Bill  (Dec. 8)
>>>> Tax Extender Negotiations  (Dec. 6) o
>>>> Brown on HFT  (Dec. 4)
>>>> Shelby 2.0 Update  (Dec. 3)
>>>> 
>>>> ----
>>>> 
>>>> 
>>>>> On Feb 2, 2016, at 11:59 PM, Dana <[email-masked]> wrote:
>>>>> 
>>>>> Mike & Co. --
>>>>> Congratulations, team.  Last night's narrow win in Iowa provided a big moral victory and took some of the win out of the challenger's sails.  It also means that, for at least several weeks, the Democratic nomination contest will continue apace.  And it is likely that Wall Street regulation will likely remain one the  campaign's central issues.  
>>>>> At the heart of this debate is the Dodd-Frank Act (DFA).   Public opinion is still influenced in the main by memories of the 2008 financial crisis and the recession that followed, so the candidates' views on DFA get special attention.  
>>>>> Below, we re-examine these views and try to clear up the misconceptions that make it hard for voters to identify the candidate best able to defend the protections that DFA provides millions of American consumers, investors, and workers. 
>>>>> Best,
>>>>> Dana
>>>>> -----------------
>>>>> The assertion that DFA doesn’t do enough to rein in Wall Street has become some sort of progressive shibboleth that as misleading as it is short-sighted and self-defeating.   
>>>>> Polling shows the American public believes strong financial regulation is critically needed (74 percent of Democrats, 56 percent Independents, 46 percent Republicans, 64 percent all voters).  Polling has also shown that 66 percent of Americans are either “not very familiar” with or have “never heard of” Dodd-Frank.  It is difficult for reasonable dialogue to be conducted in an environment made up of strong support for regulatory reform on one hand and a lack of knowledge of what is in DFA on the other.
>>>>> Any public debate on DFA is hampered by the complexity of the issues involved.  Additionally, there is a perception that it has failed in its objectives.  Beyond the fact that the law isn’t even fully implemented, major financial institutions have already begun restructuring in ways that indicate the law is working properly.   But how many voters know this?
>>>>> Has Dodd-Frank Worked?
>>>>> The Great Recession and the resulting Dodd-Frank Act changed the trajectory of the financial industry.  The law isn't perfect but it is having a stabilizing effect.  Some of the biggest firms on Wall Street -- MetLife, CitiGroup, General Electric -- have shrunk since the law was enacted and as a direct result of its regulations.  Those that haven't shrunk are under even more pressure to break up or reduce their size now than they were before Dodd-Frank.
>>>>> The candidates are split concerning whether or not DFA is an full and sufficient model for regulating financial markets.  While HRC wants to preserve and protect the progress made by DFA while bolstering certain parts of the law, while Sanders considers the law to be well intentioned yet deeply flawed.  However, questions should be raised about judging the DFA’s efficacy right now - each candidate is forming an opinion on the act despite the fact that DFA hasn’t even reached maturity yet - only about 70 percent of DFA provisions have been implemented.  Beyond the implementation gap is the issue that the results of financial reform cannot be seen overnight.  A piece of legislation as large and multifaceted as Dodd-Frank might take a decade to ripen. 
>>>>> Even as the greatest effects of DFA remain to be see, recent events indicate that DFA is working as it was intended to.  Any candidate who claims that DFA is in need of major overhaul needs to answer this question: What pressing need is there to overturn a law that has, to this point, largely accomplished its overarching objectives? 
>>>>> 2016 Candidates and Dodd-Frank
>>>>> The candidates in this year's primaries have given voters two choices: stick with Dodd-Frank and add some tweaks or repeal it/change it fundamentally. There is only one candidate in the former group - HRC. Every other candidate, including Bernie Sanders, intends to greatly change Dodd-Frank, or get rid of it all together, if elected. With that choice in mind, it is necessary to remember how monumental Dodd-Frank was and the political climate that it was passed in - one with a Democratic majority in both houses.   
>>>>> DFA enjoyed widespread support in the years immediately following its passage; Clinton needs to ring the alarm bells that her opponents intend to kill off an effective tool for regulating Wall Street for the sake of trying out unproven strategies that are built more on ideology than policy.  
>>>>> Obviously, most Republican candidates would prefer to do away with Dodd-Frank completely as it is greatly disliked by their biggest supporters. Bernie Sanders proposes something similar to Glass-Steagall, but also wants to create a list of the banks that are "too-big-too-fail" and "break them up." He outlined his intentions in legislation he proposed to Congress back in May 2015. Bloomberg Politics notes, "Similar to legislation he introduced in previous years, when Democrats controlled the U.S. Senate, the bill has little chance of advancing."  
>>>>> So voters can decide on strengthening a law that is already working to reign in Wall Street's risks or abandoning it for either less regulation or poorly aimed regulations. Considering the historical record of these other reform ideas, how can voters be expected to take those suggestions seriously?
>>>>> 
>>>>> 
>>>>>> On Jan 28, 2016, at 8:19 PM, Dana <[email-masked]> wrote:
>>>>>> 
>>>>>> Mike & Co. --
>>>>>> 
>>>>>> Ordinarily this time of year, you would perhaps start to spot leaks or hear scuttlebutt about the president's spending plans for the next fiscal year, in anticipation of the statutory February White House budget rollout.  No one noticed when the administration announced it would miss next week's legal budget submission deadline.  
>>>>>> 
>>>>>> With FY17 toplines set in the omnibus bill passed last month, you may hear little in the Beltway about the budget anytime soon (although the Chair did announce plans yesterday to introduce a budget resolution this year, to the surprise of many, including Majority Leader McConnell).  
>>>>>> 
>>>>>> Even on the campaign trail in the Granite State, with its famously flinty tax-o-phobes, nary a word is heard about the debt, let alone defaulting it, not this year.  
>>>>>> 
>>>>>> The federal budget, deficits, and the debt have not yet gotten much air play yet this campaign.  But if we lifted up the car hood, what would we see?  What is our medium-long term fiscal outlook, what would the impact on it of the candidates' proposals be, and what fiscal issues are most likely to arise in the primary debate?
>>>>>> 
>>>>>> Best,
>>>>>> 
>>>>>> Dana
>>>>>> 
>>>>>> --------------
>>>>>> 
>>>>>> CBO 10-year Deficit Projections
>>>>>> 
>>>>>> The CBO reported last week that it expects the annual deficit to grow from its current $450 billion to $1.3 trillion by 2016. Candidates issuing calls for increased spending, against this backdrop, may be called to account.  
>>>>>> 
>>>>>> Perhaps in recognition of this, both HRC and Sen. Sanders have recently and admirably detailed how they would use executive actions to enact parts of their revenue packages without Congressional support.  Both have proposed extensive new spending plans as part of their primary platform. however, it may be time for the candidates to get serious about the fiscal viability of these plans from a fiscal perspective.
>>>>>> 
>>>>>> Clinton -- Fiscal Stimulus?
>>>>>> 
>>>>>> HRC has proposed a tax package that will raise federal revenue by $500 billion over ten years, to be used for a $350 billion “College Compact” plan, for tax deductions on health care spending, and to fund an ambitious infrastructure investment package.  Her spending plans are split between those which provide short-term economic stimulus and those which are aimed at providing longer-term boost.  Her $250 billion plan to increase infrastructure investment in the country – paid for by reviving the “Build America Bonds” program and federal revenue --  works on two fronts.
>>>>>> 
>>>>>> First, hiring middle-class workers in construction, engineering, and the trades the plan puts more money into the hands of people who tend to spend that money quickly.  Second, improving roads, bridges, and tunnels in America the plan will make future transport of goods more reliable, speedy, and safe, all calculated to spur economic growth. 
>>>>>> 
>>>>>> The “College Compact” aims to forgive student loans, lower college tuition, and make community colleges tuition-free.  By removing the burden of debt from young graduates, HRC hopes to free those people up to begin consuming at a higher rate.  The current home-ownership rate for young Americans is distressingly low largely due to their debt burden after college, HRC would rather young Americans take debt on in an equity-building purchase than spend thirty years repaying their college degree.  
>>>>>> 
>>>>>> The Sanders Health Care Tax Bill
>>>>>> 
>>>>>> Sanders’ $14 trillion spending plan, his “Medicare for All” proposal, would require the single largest tax hike in the nation’s history, bringing taxes on the wealthy to levels not seen since Reagan.  These taxes, the size of which already makes them non-starters even among Democrats in Congress, are to be used to enact single-payer healthcare legislation – legislation which didn’t even get a vote during a Democratic majority in Obama’s first term.
>>>>>> 
>>>>>> Sanders must hope that the economic efficiency of a single-payer health care plan, which finds its savings in the reduced role of middle-men and insurance companies, will result in savings passed onto Americans – Americans who will, in their turn, spend those savings in the economy at large.
>>>>>> 
>>>>>> He has found political success in his promise to make colleges and universities in America tuition-free.  The impetus behind this plan is similar to that of Mrs. Clinton – students with lower debt burdens are going to spend a greater portion of their income on food and entertainment, as well as on equity-investments like homes.
>>>>>> 
>>>>>> Campaign Impact
>>>>>> 
>>>>>> The CBO’s federal budget projections released last week indicated that the annual federal deficit will grow to $1.3 trillion by 2026.  It’s unlikely that the CBO report will be linked to the candidates' spending plans in any meaningful way.  And to be fair, each candidate has put forward proposals to raise revenue equivalent to the costs of their plans (or at least to the extent that their own analyses can be trusted); this is often a rarity amongst politicians running for office and they should be applauded for doing so.  Because of this, both campaigns can claim that their proposals will not raise the federal deficit – it’s unlikely that those claims will remain unchallenged in the future.
>>>>>> 
>>>>>> Tax Foundation Analysis
>>>>>> 
>>>>>> Recent analyses by the Tax Foundation, a group which uses dynamic scoring methods to judge revenue, have found that Clinton’s plan will reduce economic output by 1 percent over a decade, while Sanders’ proposals will lower GDP by a staggering 9.5 percent.  Dynamic scoring is a controversial method of analyzing revenue estimates – it takes into account the supposed deleterious effects caused by tax increases and attempts to adjust growth the reflect those effects.
>>>>>> 
>>>>>> A CRS report published in 2014, however, stated that “A review of statistical evidence suggests that both labor supply and savings and investment are relatively insensitive to tax rates.” 
>>>>>> 
>>>>>> While each campaign will be inclined to argue that any analysis which mentions economic contraction as an effect of their plans is based on improper economics, it may not matter to voters whether they’re right or not.  American voters have always been tax-averse but will pay for what they want.  Maybe the biggest yet-unanswered question: do they want another overhaul of he nation's healthcare enough to pay a new record in tax increases?
>>>>>> 
>>>>>> Recent Updates
>>>>>> 
>>>>>> Fiscal Pol: Deficit/Debt Dormancy (Jan. 28)
>>>>>> The Fed Holds Rates, for Now  (Jan. 28)
>>>>>> Debate Myths Challenged  (Jan. 25)
>>>>>> Regulating the Regulators  (Jan. 21)
>>>>>> Sanders' Tax/Healthcare Policy  (Jan 20)
>>>>>> HRC's Tax Policy  (Jan. 17)
>>>>>> 2016 Tax Agenda on the Hill  (Jan. 16)
>>>>>> Glass-Steagall, Take 2  (Jan. 13)
>>>>>> 2016 Tax Policy Issues  (Jan. 8)
>>>>>> Sanders Proposals/GS & TBTF (Jan. 7)
>>>>>> Sanders' Fin Reg Proposals  (Jan. 5)
>>>>>> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
>>>>>> Omnibus Situation  (Dec. 14)
>>>>>> FY 2016 Omnibus Talks (Dec. 10)
>>>>>> Customs Bill  (Dec. 8)
>>>>>> Tax Extender Negotiations  (Dec. 6) o
>>>>>> Brown on HFT  (Dec. 4)
>>>>>> Shelby 2.0 Update  (Dec. 3)
>>>>>> 
>>>>>> 
>>>>>> 
>>>>>>> On Jan 28, 2016, at 10:12 AM, Dana <[email-masked]> wrote:
>>>>>>> 
>>>>>>> Dear Mike & Co.,
>>>>>>> 
>>>>>>> Pre-primary endorsements from Party leaders in tight contests are rare and sometimes understated.  To wit, President Obama remarks this week that HRC is as prepared to be president as any non-Vice President as anyone: “I think that what Hillary presents is a recognition that translating values into governance and delivering the goods is ultimately the job of politics, making a real-life difference to people in their day-to-day lives.”
>>>>>>> 
>>>>>>> Yesterday, House Democratic leader Nancy starting doing precisely that, assessing the centerpiece of Sanders' platform:  "He's talking about a single-payer, and that's not going to happen. I mean, does anybody in this room think that we're going to be discussing a single-payer? ... We're not running on any platform of raising taxes." 
>>>>>>> 
>>>>>>> Far from the cauldron of Congress and the icy campaign trail was an announcement by the Fed with implications for the overall economy and for the election year ahead.  More on the Fed's statement and its implications below.  
>>>>>>> 
>>>>>>> Please let me know if you have any questions or issue coverage requests. 
>>>>>>> 
>>>>>>> Best,
>>>>>>> 
>>>>>>> Dana
>>>>>>> 
>>>>>>> -----------------
>>>>>>> 
>>>>>>> The Fed's Statement
>>>>>>> 
>>>>>>> The Federal Open Market Committee (FOMC) of the Federal Reserve decided yesterday not to raise rates in January.  Last month, the Fed voted to raise interest rates for the first time in nine years, setting its rate target between 0.25 and 0.5 percent.  Today's statement reaffirmed this decision, noting that recent market turbulence had not stayed the Fed from its plan to continue “only gradual increases in the federal funds rate.”  Speculation and hope are rife that the FOMC will hold off raising rates in March and wait until June.  
>>>>>>> 
>>>>>>> But the statement today indicated no change in the Fed’s plan for previously outlined  rate increases, four 0.25 percent increases this year, with total increases of one percent this year and next.  However, the FOMC is largely comprised of dovish voters, who may change tack if current market corrections continue.   
>>>>>>> 
>>>>>>> Market Reaction
>>>>>>> 
>>>>>>> The Dow Jones Industrial average is down from 17.759 on December 16 to 15,951 today; the S&P 500 has declined from 2,073 to 1,879 over the same period.  The 
>>>>>>> Fed however expressed confidence in continuing economic growth, calling low inflation and the decline in energy prices “transitory” and predicting 2 percent inflation in the medium-term as energy prices rise again.  
>>>>>>> 
>>>>>>> In a nod to beleaguered investors, the Committee wrote that it “... is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.”  So the Fed has, unusually, acknowledged the global scope of its deliberations.  FOMC also indicated a focus on “labor market indicators [which] will continue to strengthen."
>>>>>>> 
>>>>>>> For now, though inflation is running just 0.4 percent, well below its two percent target, the Fed has not disavowed its plan to raise rates four times this year.   This cannot be welcome to global equine markets.  Domestic and global capital markets have already lost roughly ten percent since the December rate hike.  Fed policy may be having a decelerating effect on growth and so could be a marginal drag on Democratic prospects.  
>>>>>>> 
>>>>>>> New FOMC Members
>>>>>>> 
>>>>>>> The FOMC is made up of rotating board of seven voting members taken from Board of Governors members as well as regional bank officials; these members rotate on an annual basis at the first meeting of each year.  The 2016 committee members are listed below (identified as"hawks," those favoring tight monetary policy or "doves," supporting more accommodative policy). 
>>>>>>> 
>>>>>>> Janet L. Yellen, Board of Governors, Chair (dove)
>>>>>>> William C. Dudley, New York, Vice Chair (dove)
>>>>>>> Lael Brainard, Board of Governors (dove)
>>>>>>> James Bullard, St. Louis (hawk)
>>>>>>> Stanley Fischer, Board of Governors (hawk)
>>>>>>> Esther L. George, Kansas City (hawk)
>>>>>>> Loretta J. Mester, Cleveland (hawk)
>>>>>>> Jerome H. Powell, Board of Governors (swing)
>>>>>>> Eric Rosengren, Boston (dove)
>>>>>>> Daniel K. Tarullo, Board of Governors (dove)
>>>>>>> 
>>>>>>> New members this year are James Bullard, Esther George, Loretta Mester, and Eric Rosengren.  The FOMC consists of 12 voting members, with two nominees awaiting Senate confirmation.  A shift in the balance of power between hawks and doves may occur but the doves hold a slim majority for now.
>>>>>>> 
>>>>>>> Code Breaking
>>>>>>> 
>>>>>>> Fed watchers have made an art form out of reading between the lines of these policy releases, even the most benign of which can cause huge swings in markets (the Dow dropped over 200 points in the wake of today’s release).  Fed statements are famously difficult to parse but one point was unmistakable: the Fed is keeping a close eye on the labor market -- employment and participation rates, wages, etc. -- as a leading indicator for inflation and overall growth perhaps more than any other variable.  
>>>>>>> 
>>>>>>> Campaign Consequences
>>>>>>> 
>>>>>>> None of the candidates has commented on today’s release, not surprisingly, but the policy may draw ire from some on the right, who oppose fiat rate-targeting (though it took no action today) and the left, where lowering rather than raising rate is preferred (except for holders of fixed income securities).  
>>>>>>> 
>>>>>>> Sen.  Sanders, true to his reputation of standing far outside the Democratic fold, has long opposed the Fed for being too involved with the bankers they are meant to be regulating.  Sanders has called for reform measures at the Fed, including prohibiting people serving on bank boards from serving on the Fed at the same time. 
>>>>>>> 
>>>>>>> The Fed was confident that economic growth would continue on its steady pace, indicating strength in labor markets and downplaying both financial market reactions and diving commodities prices.  The FOMC sets monetary policy on a long-term basis; the full ramifications of their decisions aren’t felt until months or years out, so any contention that the economy is strong enough to handle higher interest rates is essentially an endorsement of macroeconomic policy in the last few years. Democratic candidates will need to hammer this point home - but it is yet to be seen if voters will understand the message that Democratic policies are responsible for the sunny outlook for the American economy, especially compared to Western Europe, Latin America, and Asia.
>>>>>>> Below is the first sentence of the FOMC statement from yesterday, edited to reflect changes from last month's statement:
>>>>>>> 
>>>>>>> For immediate releaserelease at 2:00 p.m. EST
>>>>>>> Information received since the Federal Open Market Committee met in OctoDecember suggests that economic activity has been expanding at a moderate pacelabor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at solidmoderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including ongoistrong job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; somedeclined further; survey-based measures of longer-term inflation expectations have edged downare little changed, on balance, in recent months.
>>>>>>> 
>>>>>>> --------------------
>>>>>>> 
>>>>>>> Recent Updates
>>>>>>> 
>>>>>>> The Fed Holds Rates, for Now  (Jan. 28)
>>>>>>> Debate Myths Challenged  (Jan. 25)
>>>>>>> Regulating the Regulators  (Jan. 21)
>>>>>>> Sanders' Tax/Healthcare Policy  (Jan 20)
>>>>>>> HRC's Tax Policy  (Jan. 17)
>>>>>>> 2016 Tax Agenda on the Hill  (Jan. 16)
>>>>>>> Glass-Steagall, Take 2  (Jan. 13)
>>>>>>> 2016 Tax Policy Issues  (Jan. 8)
>>>>>>> Sanders Proposals/GS & TBTF (Jan. 7)
>>>>>>> Sanders' Fin Reg Proposals  (Jan. 5)
>>>>>>> Year-End Review: Fiscal Policy (Jan. 1)  Year-End Review: Fin. Reg.  (Dec. 29)  Omnibus Review (Dec. 15)
>>>>>>> Omnibus Situation  (Dec. 14)
>>>>>>> FY 2016 Omnibus Talks (Dec. 10)
>>>>>>> Customs Bill  (Dec. 8)
>>>>>>> Tax Extender Negotiations  (Dec. 6) o
>>>>>>> Brown on HFT  (Dec. 4)
>>>>>>> Shelby 2.0 Update  (Dec. 3)