Washington Insider -- Thursday
Early, Early Signs of Inflation
Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.
Japan May Lift Age Limit on Cattle For Imports Of US BeefThe research unit of the Food Safety Commission of Japan will meet Thursday to potentially clear a plan that would remove the age-limit restrictions on cattle for U.S. beef exports to Japan, according to a Kyodo report.
The research unit has been discussing the potential impacts of removing the age limit since April, a situation brought about by continued pressure from the U.S. to remove the BSE-linked restriction.
The Health, Labor and Welfare Ministry requested the research unit undertake the situation, and the report indicated that no problems have arisen during the discussions held to-date. Removing the age restrictions could help the U.S. relative to competitiveness in the Japanese market as it seeks to compete against Australia with both Japan and Australia in the revised Trans-Pacific Partnership (TPP) agreement.
The commission is expected to report the plan to the ministry later and there is no timeline indicated on when the action would be finalized.
Tax Extenders in Congress
A draft bill to address a host of tax extenders is almost ready to be released, according to House Ways & Means Committee Chairman Kevin Brady, R-Texas, a plan which would include the biodiesel tax credit which lapsed at the end of 2017.
Permanently extending all 26 tax provisions that expired at the end of 2017 that are currently in play would reduce federal revenue by about $92.5 billion over the coming decade, according to a Congressional Research Service analysis based on Joint Committee on Taxation estimates.
Most costly of the lapsed provisions is a $1.00 per gallon tax credit for the sale of biodiesel. “There is enormous public benefit to home-grown, renewable clean energy,” said Kurt Kovarick, vice president of federal affairs for the National Biodiesel Board, a trade association. “Without that credit, we would not have the support to grow the industry. We don’t want to remain at two percent to three percent of the market.”
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The biodiesel credit is an expensive proposition for some, above $3 billion per year. Permanently extending the credit would cost an estimated $35.2 billion over 10 years, according to the Congressional Research Service.
One of the key players in creating the biodiesel credit as chairman of the tax-writing Finance Committee in 2004, Sen. Chuck Grassley, R-Iowa, told reporters Tuesday that extending it was one of his top lame duck priorities. "There some important provisions that need to be dealt with, and the one that I’m most interested in is the biodiesel tax credit,” said Grassley, who is in line to become Finance chairman once again if he decides to leave his top slot on Judiciary.
Washington Insider: Early, Early Signs of Inflation
It seems that nothing is ever simple. Now, Bloomberg is reporting that former Federal Reserve Chairman Alan Greenspan is opining that that the rising U.S. debt burden could derail the current expansion. And he is warning that the tight labor market could lift inflation.
“I’m beginning to see the first signs of it,” Greenspan said about inflation during an interview on “The David Rubenstein Show: Peer-to-Peer Conversations” on Bloomberg Television. “We’re seeing it basically in the tightening of the labor markets first, which, as you know, have gotten very tight now. We’re beginning finally to see average wages rise and clearly there’s no productivity behind it.”
Inflation measured by the Fed’s preferred gauge of price pressures known as the personal consumption expenditure index was 2% – at the central bank’s target – in the 12 months through September after running mostly below that threshold since 2012. A separate gauge, the consumer-price index, rose 2.5% in October from the year before, according to Wednesday’s Labor Department report.
Unemployment has fallen to 3.7%, the lowest level since 1969 and average hourly earnings are creeping up. However, Greenspan said a lack of productivity growth meant “you’re getting into a system now which has no outcome that’s in equilibrium other than inflation and no productivity growth.”
“The tax cut actually did get a buoyancy, and we’re still feeling some of it, but it’s nowhere near enough to offset the actual deficit,” Greenspan said. “You can’t have a tax cut without finding the revenues elsewhere, or you run into problems.”
Tax cuts and federal spending signed by President Donald Trump helped spur business confidence and lift US growth to 3% in the year through the third quarter. But the deficit widened to a six-year high of $779 billion during the administration’s first full fiscal year, raising concern the country’s debt load of more than $21.7 trillion will grow out of control. The government this week reported a $100.5 billion budget gap for October, the first month of the new fiscal year, an increase of about 60% from a year earlier.
Greenspan said curbing spending on Social Security, Medicaid and Medicare were key to putting the nation’s finances on a sustainable footing – certainly a call to arms for Democrats who can be expected to resist any such policy shifts.
Whether or not Greenspan’s concerns have much of an impact on the long lame-duck to-do list remains to be seen and POLITICO says that most policy makers are focusing on narrower concerns. For example, it thinks that pushing a final farm bill through Congress by January is a heavy lift on its own, given the outstanding policy disagreements and sometimes bitter relations between top negotiators. It concludes that “the crush of other year-end legislative priorities makes the chances of finishing the farm bill in 2018 appear even dicier.”
House Agriculture leaders met Monday but emerged without much progress to speak of. There was talk of putting together a bipartisan House offer, which could spur negotiations among the House and Senate agriculture chiefs toward a deal.
Some items on the “lame-duck list” still include the “hope” of striking a bipartisan deal in time to pass a final farm bill before January, debates that will compete for floor time and legislative oxygen with plenty of other big-ticket issues. The Senate is expected to churn through additional nominations, both parties and chambers will hold leadership elections — and then there’s the annual year-end spending showdown, POLITICO says.
Congress still needs to fund large portions of the government by Dec. 7 when a temporary stopgap expires. There are just 12 joint legislative days until then and a partisan struggle over funds for President Donald Trump’s U.S.-Mexico border wall is sure to complicate spending talks, POLITICO thinks.
Also additional tax legislation could be on the agenda: The Senate has yet to take up the House-passed “Tax Cuts 2.0” legislative package, which would permanently establish parts of the 2017 GOP tax code rewrite. Technical fixes to that overhaul and a separate extension of expired temporary tax breaks, or extenders,” could also be on deck. The slate of extenders includes biofuel tax credits, POLITICO notes.
One final note, POLITICO is reporting that that progressives could be a roadblock to trade pact approval. The Congressional Progressive Caucus fought against trade promotion authority in 2015 and helped fend off a vote on the Trans-Pacific Partnership. Now the U.S.-Mexico-Canada agreement is expected to come before Congress in 2019.
Caucus co-chair Mark Pocan, D-Wis., said Monday that the group has major concerns about the deal. Come January, when Democrats control the House, the liberal caucus will have at least some influence over the fate of the new pact. Some observers are suggesting that Democratic leaders might be less inclined to shove it through the House if a large and influential segment of their party is opposed to it.
So, we will see. Not only is trade policy uncertain, but a vast new set of priorities and concerns can be expected to surface and demand attention, leading to new controversies that likely will drag well into the coming months – and which should be watched closely by producers as they emerge, Washington Insider believes.
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