Washington Insider-- Tuesday

GOP and Red Ink

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

FSA Starting To Issue Some Guidance on CFAP

USDA’s Farm Service Agency (FSA) has started the process of preparing state and county offices for the coming Coronavirus Food Assistance Program (CFAP), alerting offices that they may be dealing with producers that have never dealt with the agency previously.

For those growers, FSA offices will need to collect several forms relative to verifying eligibility for CFAP payments, including farm income certifications.

On the key topic of pay caps, FSA said details on that will be issued in the handbook which will cover operation of the program.

The final rule was sent to the Office of Management and Budget (OMB) May 5 and it still was listed as being under review as of late Monday.

USDA Approves Contracts For COVID-19 Food Aid

USDA Friday announced it has approved $1.2 billion in contracts under the USDA Farmers to Families Food Box Program, noting that the effort will start distributing food “within days.” USDA published a list of approved suppliers for the program.

President Donald Trump took to social media Saturday to note the situation, tweeting, “Starting early next week, at my order, the USA will be purchasing, from our Farmers, Ranchers & Specialty Crop Growers, 3 Billion Dollars worth of Dairy, Meat & Produce for Food Lines & Kitchens. “FARMERS TO FAMILY FOOD BOX” Great news for all!”

USDA’s Ag Marketing Service said the effort will spend $461 million on fresh fruit and vegetable boxes, $317 million for dairy boxes, $258 million for meat boxes and $175 million for boxes that combine fresh produce, dairy or meat products.

Washington Insider: GOP and Red Ink

Bloomberg is reporting this week that while Republicans seemed to accept programs that boosted recent deficits, the flood of pandemic-relief has rekindled deficit concerns among Republican lawmakers. It cites this as one of several hurdles facing the next round of stimulus many economists say is needed to pull the U.S. out of its downward spiral.

After backing almost $3 trillion to offset the economic impact of the coronavirus, Senate Majority Leader Mitch McConnell, R-Ky., and other Republicans now have begun raising alarms about the deficit and characterizing a new relief package as an if, not when, proposition. President Donald Trump is also “tapping the brakes” on the idea of swift action on any new aid package, even after Friday’s Labor Department report showing an unprecedented 20 million jobs were lost in April.

Nevertheless, Democrats are still pressing for another package of relief that will likely carry a trillion-dollar price tag, Bloomberg says. House Speaker Nancy Pelosi, D-Calif., even cited Fed Chairman Jerome Powell in a new push to spend more to rescue the economy.

Still, Bloomberg thinks this shift “lags behind a change in thinking on the risks posed by deficits.” It notes that the ramped-up spending and lending following the last recession didn’t trigger the inflation critics had warned about. And, Europe endured a much slower recovery after pivoting to austerity budgets.

Also, President Trump, who called himself “the king of debt,” has generally broken with Republican orthodoxy on deficits and spending, all while fully supporting the GOP on lowering taxes. Trump’s chief economic adviser, Larry Kudlow, said Sunday that the White House isn’t necessarily opposed to new relief legislation but “wants to pause and take a look at the economic impact of assistance programs already passed.”

Nevertheless, Powell has urged lawmakers to deliver more fiscal stimulus and the U.S. Treasury says it may borrow a record $3 trillion this quarter alone. Powell says the debt is on an unsustainable course, but that, “this is not the time to act on those concerns.”

For Democrats, there’s no question that there will be another relief package with few limits on how much it would cost. House Speaker Pelosi noted that state and local governments alone are clamoring for $1 trillion in federal aidâ??and that the House “may vote on an additional proposal as soon as this week.” She thinks the coming proposal will largely follow the contours of previous ones, with money for state and local governments, testing, expanded unemployment insurance, and “putting money into the pockets of Americans.”

In a separate news conference Pelosi called the debt being racked up “an important challenge” that will have to be dealt with at some point, but that the focus right now needs to be on helping people and stimulating the economy. “The chairman of the Fed, Chairman Powell, has said again and again, publicly, and has said it to me, think big. Interest rates are very, very low. Think big, and that’s what we’re doing,” Pelosi told reporters.

Others have expressed agreement and noted that the ballooning deficit -- projected to hit at least $3.7 trillion this year -- is bound to color tax and spending policy now and for years to come. For example, Ray Dalio, founder of the investment management firm Bridgewater Associates LP, told JPMorgan Chase & Co.’s private-banking clients to expect higher tax rates “no matter who wins November’s race for the White House.”

Still, earlier tax cuts and the business bailouts have dimmed any hopes of a fundamental restructuring of the federal budget according to conservative economist Brian Riedl, a fellow at the Manhattan Institute and former adviser to several senior Republicans, including Senators Rob Portman, Mitt Romney and Marco Rubio.

But, while the Republican Study Committee, for example, a group of House conservatives, is lobbying for the next package to offset any new borrowing with longer-term savings, Senate leadership hasn’t coalesced around any specific plan for future spending or cuts.

And, pressure for relief is intensifying. Zach Moller, an economist at Democratic-aligned group Third Way think tank, which has proposed a sweeping proposal to save states’ budgets, said he fears a premature emergence of deficit concerns could hamper the recovery from the COVID-19 pandemic.

“We saw what could happen the last time,” Moller said. “From 2009 to 2013, state governments cut hundreds of billions of dollars in spending. Recovering from the Great Recession was made a lot longer because of the relatively limited state and local aid we were able to provide.”

So, it seems that the pandemic and its impacts are continuing to drive fiscal policy and likely will continue to do so until significant recovery seems assured, amid growing controversies that producers should watch closely as these fights intensify, Washington Insider believes.

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