Government Executive - Authors - Clifford Marks

S&P's warning on deficits could strengthen 'gang of six'

Clifford Marks — Tue, 19 Apr 2011 00:00:00 -0400

The markets ultimately shrugged off Standard and Poor's downgrade on Monday of America's debt outlook, but the report's pointed criticism of legislative gridlock may give a boost to budget compromise efforts led by a bipartisan group of senators known as the "Gang of Six."

The ratings agency cited bipartisan bickering as the main reason for deciding to lower its outlook on the United States' creditworthiness from "stable" to "negative." The downgrade means, S&P added, that it thinks there is at least a one-in-three chance it could lower America's Triple-A rating in the next two years. The main reason: concern that political intransigence on both sides of the aisle will derail agreement on long-term deficit reduction.

"We see the path to agreement as challenging, because the gap between the parties remains wide," the agency wrote in its report. "We believe there is a significant risk that congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 congressional and presidential elections." If that's the case, it added, the earliest possible agreement would affect the budget for 2014, and "a delay beyond that time is possible."

It was a clear warning shot, delivered shortly after Democrats and Republicans unveiled rival deficit-reduction plans that showed little more than the big gulf between the two sides.

If the United States actually did lose its Triple-A credit rating, an idea that would have seemed inconceivable before the financial crisis, Americans would probably see an immediate jump in interest rates. Even a small downgrade would set off anxiety. And because many institutional investors are required by their charters and sometimes by laws to hold Triple-A securities, a downgrade would reduce demand for Treasury securities.

Other things being equal, that would push up the cost of federal borrowing, which would add to the government's fiscal problems and also tend to push up interest rates for corporate bonds, mortgage debt, and other borrowing.

It's not clear yet whether the S&P warning will inject new urgency into the partisan warfare over deficit reduction. But Sen. Tom Coburn, R-Okla., a Gang of Six member, jumped on it as an opportunity to press his colleagues on reaching a compromise.

"Today's warning from S&P highlights the dangers of waiting for the perfect political moment to tackle our debt crisis," Coburn said in a statement. "It's time for both sides to drop their partisan talking points and decide what we can do together while we still control our own destiny. If we refuse to negotiate within our own government, we will soon find ourselves negotiating with foreign governments and the international financial community on terms far less favorable than we enjoy today."

The Gang of Six consists of Sens. Coburn, Kent Conrad, D-N.D.; Dick Durbin, D-Ill.; Mark Warner, D-Va.; Saxby Chambliss, R-Ga.; and Mike Crapo, R-Idaho. The group has been working toward producing a compromise deficit reduction plan modeled on the Bowles-Simpson plan released through President Obama's bipartisan commission last fall. The plan was harshly criticized on both sides of the aisle: Republicans abhorred its tax increases; Democrats hated its changes to Social Security.

It has often been said that only a crisis will drive the two parties to compromise. A National Journal survey of economic policy experts released on Monday found that most see dim odds for any agreement this year. And, certainly, the S&P's decision does not qualify as crisis, or anything more than perhaps a premonition of turmoil. But it could strengthen the Gang of Six's hand if it makes the specter of a downgrade more plausible.

The downgrade could also cause concern surrounding a related but more pressing issue: raising the U.S. debt ceiling. The U.S. government will run out of headroom in the next few months, and many Republicans have said they won't vote to raise the ceiling unless it comes paired with spending cuts. Republican lawmakers said that S&P's warning strengthened their arguments.

"Today's announcement makes clear that the debt-limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending," said House Majority Leader Eric Cantor, R-Va., in a statement. "For decades, Washington has blindly increased the debt limit while doing little to stop spending money that it doesn't have, a dangerous pattern that must end."

In fact, S&P didn't endorse the GOP platform of deep spending cuts and no tax increases. It merely insisted on the need for deficit reduction.

Nevertheless the Obama administration pushed back hard on S&P's conclusions.

"We simply believe that the prospects are better," said White House press secretary Jay Carney. "We think the political process will outperform S&P expectations."

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S&P lowers U.S. debt outlook from 'stable' to 'negative'

Clifford Marks — Mon, 18 Apr 2011 00:00:00 -0400

Credit rating agency Standard & Poor's dropped its long-term outlook for America's debt position to 'negative' on Monday, citing concern that politicians will fail to reach agreement on how to tame the budget deficit, which is projected to be about $1.4 trillion for fiscal 2011.

"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013," S&P analysts wrote, according to excerpts posted by the Wall Street Journal. "If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns."

S&P reaffirmed Uncle Sam's top-shelf 'AAA' credit rating, but the warning shot clearly reverberated across financial markets this morning, where major markets opened down more than one percent.

The Treasury Department downplayed S&P's concerns about legislative gridlock in a press release sent out shortly after the news broke Monday morning.

"As the President said last week, addressing the current fiscal situation is well within our capacity as a country. He has initiated a bipartisan process that will allow us to make progress on a balanced approach to restoring fiscal responsibility," Assistant Secretary for Financial Markets Mary Miller said in the release. "We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation."

At least in the short-run, though, S&P's assumptions track with the conventional wisdom among policymakers on both sides of the aisle. Over 60 percent of a group of top econmic policymakers and experts polled by National Journal last week rated the odds of a long-term deficit reduction deal this year at less than one third. Fourteen percent said there was zero chance of an accord this year.

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Economy Insiders: Long odds on long-term budget deal

Clifford Marks — Mon, 18 Apr 2011 00:00:00 -0400

National Journal's poll this week rated the odds of Congress agreeing on a long-term deficit reduction plan this year at less than one-third.

A majority -- 27 of 43 -- said the Bowles-Simpson plan proposed late last year by President Obama's bipartisan commission stood the best chance of forming the basis for an eventual compromise. Several responders, though, thought none of the choices, which included Rep. Paul Ryan's "Path to Prosperity" and Obama's proposed 2012 budget, had a prayer of providing a blueprint for agreement.

No "none of the above" option was provided. Still, seven insiders made their own.

"Correct answer is: None of the above," wrote one. "NONE OF THE ABOVE," responded another.

Others expressed strong doubts that even their choice would lead to compromise. "Given that there won't be a long-term plan agreed upon, it's hard to say what's the best basis for one," wrote one insider who viewed the Obama 2012 budget plan as the best shot at a viable framework.

The poll did not include the deficit-reduction plan Obama announced Tuesday, which built on his earlier 2012 budget, because it had not been released when the polling period began.

National Journal asked more than 50 economic policy experts from across the political spectrum to rate the odds of Congress agreeing to a long-term deficit reduction plan this year and to choose which of four budget proposals they considered most likely to provide a framework for eventual compromise. The options were the "Roadmap to Prosperity" plan released last week by Rep. Paul Ryan, R-Wisc., the Simpson-Bowles proposal, Obama's 2012 budget, and the plan put forward by the Congressional Progressive Caucus.

All responses are kept anonymous, to encourage candor. Republicans include former economic advisers to President George W. Bush like Susan Schwab and Douglas Holtz-Eakin. Democratic or liberal insiders include Stanley Collender of Qorvis Communications and co-founder of the Capitol Gain and Games blog; Dean Baker, co-director of the Center for Economic Policy Research; and Charlene Barshefsky, former U.S. trade representative under President Clinton.

Read the whole story, including graphs and question details, at National Journal.

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Two former Republican EPA administrators warn of 'siege' against agency

Clifford Marks — Fri, 25 Mar 2011 00:00:00 -0400

The Environmental Protection Agency is "under siege" from a Congress bent on cutting its budget and blunting its responsibilites to science, two former Enviornmental Protection Agency directors who served under Republican presidents wrote in a Washington Post op-ed Friday.

"Today the agency President Richard Nixon created in response to the public outcry over visible air pollution and flammable rivers is under siege," Christine Todd Whitman, EPA administrator under George W. Bush, and William D. Ruckelshaus, administrator under Nixon and Reagan, wrote.

"[W]e have observed firsthand rapid changes in scientific knowledge concerning the dangers posed by particular pollutants, including lead additives in gasoline, benzene and the impact of contaminants on our drinking-water supply. In each of these cases, the authority of our major environmental statutes was essential to protect public health and the most vulnerable members of our society, even in the face of remaining scientific debate."

Whitman and Ruckelshaus also took aim at Republican efforts to defund the EPA, a move they said would "impede its ability to protect our air and water."

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Treasury slams proposal for tax holiday on foreign corporate profits

Clifford Marks — Thu, 24 Mar 2011 00:00:00 -0400

A top Treasury Department official lashed out on Wednesday against proposals to give corporations a tax holiday on their overseas profits, arguing that a previous experiment with the idea lowered revenues without boosting job creation.

"In 2004, when the U.S. enacted a repatriation tax holiday, the goal was to encourage U.S. multinationals to pay bigger cash dividends from their overseas subsidiaries and use the cash to make investments in the United States," wrote Michael Mundaca, the assistant secretary for tax policy, in a post on Treasury's website. "Unfortunately, there is no evidence that it increased U.S. investment or jobs, and it cost taxpayers billions."

American multinationals have racked up hundreds of billions of dollars in profits overseas, and they are allowed to defer the 35 percent U.S. corporate tax on those profits as long as the money stays outside the country.

Proponents of a temporary tax break on overseas profits say it would encourage U.S. multinationals to "repatriate'' that money back home and use it to create jobs here. House Majority Leader Eric Cantor, R-Va., said earlier this week that Congress should pass such a holiday before trying to tackle fundamental tax reform.

But many tax policy experts say the repatriation holiday would be little more than a giveaway, and that corporations would park even more of their future profits outside the United States as they waited for Congress to approve yet another "holiday."

Congress passed an earlier holiday in 2004, over the opposition of the George W. Bush administration.

Mundaca pointed to an earlier assessment from the Joint Committee on Taxation that estimated the 2004 tax holiday would cost billions, rather than raise revenue as proponents said. He added that a second holiday might weigh even more heavily on revenue, by encouraging multinationals to shift even more profits overseas.

Citing the nonpartisan Congressional Research Service, Mundaca also said that the corporations that benefited most from the 2004 tax holiday actually cut jobs in 2005 and 2006 and appeared to use the funds more for stock repurchases or dividend payments.

"Today, when U.S. corporations have ready access to cash they have accumulated and are holding here in the United States, it is even harder to make the case that a repatriation holiday will unlock new investment and job creation," he wrote.

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SEC's Shapiro comes under fire for general counsel's Madoff conflict

Clifford Marks — Wed, 09 Mar 2011 00:00:00 -0500

Mary Schapiro, chairwoman of the Securities and Exchange Commission, is coming under fire from Congress for hiring a general counsel who profited off an investment with notorious financial criminal Bernard Madoff and played a role in determining how Madoff's victims would be compensated.

Along with his brothers, the general counsel, David Becker, received $2 million from a Madoff investment made by their late mother, the New York Times reports. The conflict was brought to light when Becker and his siblings were sued by the trustee handling the Madoff case for part of the money.

In his role at the SEC, Becker argued for a policy that would have benefited him by allowing people to keep some earnings from Madoff investments above what they initially put into the accounts, according to the Times. The agency recommendation called for investors to keep only their original investment.

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'Gang of six' close to deficit reduction proposal

Clifford Marks — Tue, 08 Mar 2011 00:00:00 -0500

A bipartisan "gang of six" led by Sens. Mark Warner, D-Va., and Saxby Chambliss, R-Ga., is close to finishing a deficit-reduction plan similar to the one proposed by Alan Simpson and Erskine Bowles, the co-chairs of President Obama's deficit-reduction panel, the Wall Street Journal reports.

The group is planning to hit the road soon to drum up public support for their proposal, as Simpson and Bowles themselves are helping launch a separate "Moment of Truth" campaign to focus public attention on long-term budgetary issues.

Warner and Saxby told a group of business leaders in Richmond that their plan would slash the federal deficit by $4 trillion over the course of a decade. President Obama's recent budget proposal would cut the deficit by $1.1 trillion over 10 years.

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Deficit commission's final plan released

Katy O'Donnell, Jim Tankersley, and Clifford Marks — Wed, 01 Dec 2010 00:00:00 -0500

Adding detail - but no fundamental policy shifts - to a draft plan floated last month by its chairmen, President Obama's fiscal commission called this morning for "America's leaders to put up or shut up" and adopt a massive overhaul of taxation, government spending and the social safety net, in order to reduce the nation's mounting national debt.

The commission's final proposal was dubbed The Moment of Truth and officially released at 9:30 a.m., but posted earlier on several websites. It includes cuts to both defense and non-defense discretionary spending; comprehensive tax reform; Social Security reform; and health care cost containment.

Appearing on Capitol Hill following the release, commission co-chairs Alan Simpson, a Republican, and Erskine Bowles, a Democrat, expressed little hope that Congress will act on the plan's recommendations immediately, or even that the plan would gather the 14 votes on the commission required to guarantee the proposal a Senate vote. But the chairmen warned Washington would be forced to deal with the issue in short order.

"Whether we get two votes or 18" on the commission, Simpson said, "this baby ain't going away. Oh sure, it may be buried in an unmarked grave, and soon, but when the votes for the budget and extending the debt limit and debate on that comes up in the spring, this cadaver will rise from the crypt."

Bowles said the commission had "fundamentally changed the debate in America. We've put the debt issue on the map." And he conceded that "I don't like every aspect of this plan. To vote for this plan, each of us will need to tolerate provisions we oppose or previously opposed to reach a compromise."

The report scored an early endorsement from Sen. Kent Conrad , D-N.D., a commission member, who declared that after reading it three times, he concluded "while there are things that I dislike intensely - and I do - there are also things in this plan there are grand slam home runs for the American economy." He said he would support the plan strongly "because I don't see another alternative. I just don't."

Another commission member, Sen. Judd Gregg , R-N.H., also said he would back the plan. Sen. Dick Durbin , D-Ill., said he was studying the proposal and would not commit either way.

The most important reactions will come from congressional leaders and the president. When Simpson and Bowles released a draft document three weeks ago, they were met with indignation and outrage. House Speaker Rep. Nancy Pelosi, D-Calif., called the plan "simply unacceptable."

The final plan offers little real change from that proposal, other than more details and some flexibility in rates.

Perhaps most importantly, the final proposal adds emphasis on the importance of economic growth to deficit reduction. It pledges to delay major spending cuts until 2012 to allow the economy more time to recover, and it floats an idea to further spur growth: asking Congress to consider a temporary payroll tax holiday, originally proposed by the Bipartisan Policy Center's unrelated Domenici-Rivlin commission, to encourage consumer spending.

Still, the basic concept of the plan's attack on the deficit remains the same. It begins with a modest increase in the overall tax burden, softened by a broad tax reform that knocks out most tax breaks and reduces tax rates at every level. It then calls for an increase in the retirement age for Social Security -- which would save tens of billions of dollars over the next decade alone -- and more changes aimed at slowing the growth in health care costs.

The commission goes further than the president's stated goal of reducing the deficit to 3 percent of gross domestic product, instead whittling it down to 2.3 percent of GDP by 2015. It caps revenue and spending, meanwhile, at 21 percent of GDP each.

The plan recommends the immediate implementation of fundamental tax reform and the elimination of nearly all of the 150-plus tax expenditures, with a few exceptions: the earned income tax credit, the child credit, mortgage interest deductions (but only for primary homes), employer-provided health insurance credits, retirement savings and pensions credits, and charitable giving deductions. Itemized deductions would be eliminated, and capital gains and dividends would be taxed at ordinary rates.

The plan cuts tax rates across the board, reducing the top rate to between 23 percent and 29 percent. Originally, the co-chairs recommended establishing three rates -- 15 percent, 25 percent, and 35 percent. Their proposal to implement a 15 cent-per-gallon fuel tax hike within the next five years remains unchanged.

The corporate tax rate would be streamlined, with the rate necessarily falling between 23 percent and 29 percent, down from the current top rate of 35 percent. The plan suggests a 28 percent rate in its illustrative proposal, a 2-point increase over the chairmen's mark proposal. Meanwhile, a territorial system would be established for foreign-owned companies with U.S. subsidiaries, allowing them to keep foreign profits. All tax deductions and expenditures for businesses would be eliminated.

The plan calls for discretionary spending to return to pre-crisis 2008 levels in 2013, while freezing spending in 2012 at 2011 levels and constraining spending growth to half the rate of inflation through 2020. It would cut non-war defense spending at the same rate as non-defense spending, while war spending would fall under the responsibility of the president, who would be required to propose annual limits.

The plan adds details on how to reduce federal health care spending, which were noticeably absent in the initial Simpson-Bowles proposal. They include changing how Medicare pays doctors, scrapping a long-term care insurance plan created by President Obama's signature health care bill, overhauling medical malpractice litigation, and chipping away at Medicare and Medicaid costs through a variety of measures.

But the final proposal still lacks specifics on how to control upward-spiraling health care cost increases throughout the economy - the biggest driver of long-term budget deficits, according to the Congressional Budget Office.

The commission's boldest attempt to control those costs is by eliminating the tax exemption for employer-paid health benefits, which many economists say would help reduce costs by forcing individuals to shoulder more of the burden of their health-care choices.

The retirement age would be raised to 69 from 65 in order to rein in Social Security spending to ensure the program's solvency.

More generally, the plan proposes budget process reforms to encourage accountability in the budgeting process.

The plan faces opposition from both liberals and conservatives. Republicans remain implacably opposed to any increase in the overall tax burden. Rep. Paul Ryan , R-Wis., the author of a long-term fiscal plan that includes no tax increases, signaled earlier this week that he was unlikely to support the co-chairs' plan. Democrats, meanwhile, oppose cuts in domestic programs and are even more militant about imminent cuts in Medicare. Rep. Jan Schakowsky, D-Ill., one of the panel's most outspoken liberals, has served notice that she will vote against cuts to either Medicare or Social Security.

People close to the commission told National Journal that at least 10 of the panel's 18 members support the plan. Under the panel's charter, any recommendation to Congress needs the support of at least 14 members. But that threshold has always been viewed as unrealistic, given the intense party polarization in Congress. Current House and Senate lawmakers make up 12 of the panel's members.

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TSA works on alternative airport screening process for pilots

Sara Sorcher and Clifford Marks — Mon, 15 Nov 2010 00:00:00 -0500

The Transportation Security Administration is working to create an alternative screening process for pilots, the agency's chief said this morning, amid mounting protests by airline pilots over new airport scanners criticized as invasive and hazardous to health due to radiation exposure.

"Obviously, they are a trusted group in so many different ways, and so it makes sense to do some type of different type of screening which we will explore and we will have a way forward in the near future," TSA Administrator John Pistole said on CNN's American Morning.

Pistole said his agency has been talking with pilot groups about a new screening process but declined when pressed to say what it might entail. "I don't want to broadcast anything prematurely," he said, "but I think there are options that we are looking at that make sense."

Controversy over the full-body scanners, which use radiation to produce a graphic image of those screened, has escalated in recent days. Last week, unions that represent pilots for American Airlines and U.S. Airways urged their members to avoid the scanners despite assertions by TSA and the Food and Drug Administration that the potential health risk of exposure was "miniscule." The unions argued that pilots face an untenable choice between submitting to an "invasive" full-body scan or what they insinuated can be an X-rated pat-down by TSA agents that involves touching breasts and genitals.

Passengers are voicing concerns over invasions of privacy by both the scanners and the friskings as well. A passengers' group has planned a National Opt-Out Day on Nov. 24, when it will encourage opponents of the new screening regime to refuse both full-body screening and the "enhanced" pat down required of those who decline the scanner.

California traveler John Tyner has become the latest flashpoint in the debate. Tyner refused a body scan, and was offered a pat down by a TSA agent. The video he recorded during the resulting exchange, captured on a cell phone, had over 213,000 hits on YouTube as of Monday morning.

"If you touch my junk, I'll have you arrested," Tyner warned a TSA agent in the video. Police escorted him from the screening area, and a supervisor told him he could be faced with a fine of $10,000.

The TSA is now working now to "balance" the issues of privacy concerns and safety of both pilots and the general public, Pistole said.

"We know that everybody on every flight wants to insure that everybody around them has been properly screened so there's not a group with box cutters or liquid explosives or underwear bombs or shoe bombs or whatever it may be," he said. The TSA is balancing "security on the one hand, partnerships [with pilots and travelers] on the other hand," Pistole said.

In an opinion piece published in USA Today, Homeland Security Secretary Janet Napolitano said that the "vast majority of travelers" preferred the full-body scanners used at 68 airports nationwide to "alternative screening measures." The machines "are safe, efficient, and protect passenger privacy," Napolitano said.

Napolitano emphasized the need to strike a balance between security and facilitating travel in a meeting with travel industry officials on Friday, and said in her opinion piece that the best defenses against terrorists remain in a "risk-based, layered security approach that utilizes a range of measures, both seen and unseen, including law enforcement, advanced technology, intelligence, watch-list checks and international collaboration."

Napolitano, who has been trying to diffuse growing anger over airport screening procedures and physical pat downs, encouraged the American public to speak out if they see any potential threats and to cooperate with the screening procedures-and to remain patient ahead of a busy travel season before Thanksgiving.

"We ask for cooperation, patience and a commitment to vigilance in the face of a determined enemy," Napolitano said.

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Report: TARP contracting has 'significant' transparency issues

Clifford Marks — Fri, 15 Oct 2010 00:00:00 -0400

Treasury's use of private contractors as part of the much-criticized Troubled Asset Relief Program raises "significant" transparency and conflict concerns, the Congressional Oversight Panel said in a report Thursday.

The panel, created by the TARP legislation to oversee the vast program, said that the Treasury Department had worked hard to mitigate such concerns, but the report authors added that deficiencies in broader government contracting standards raise particular concerns for the program's 96 private contracts -- together worth about $437 million.

The panel noted that private contractors were not subject to Freedom of Information Act requests or public audits of their performance, and in addition, private contractors could employ subcontractors without disclosure. It also criticized Treasury for relying too heavily on contractors to self-disclose conflicts and recommended an independent mechanism be established to gather such information.

"The largest TARP contracts have gone to law firms, investment management firms, and audit firms," the report said. "The nature of these firms' relationship to the financial system inevitably gives rise to a wide range of potential conflict issues, including the potential for conflicts of interest with these firms' other clients, self-interested behavior in the management of TARP contracts, and the misappropriation of sensitive market information."

The report could prove fodder for candidates campaigning against TARP, which, though it was considered largely successful in its task of staving off financial catastrophe, has few enthusiastic backers left on Capitol Hill.

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