Day: April 26, 2017

President Donald Trump’s plan to slash business and household taxes could shift the U.S. economy into higher gear, but it may have one effect the White House would not welcome — interest rates ratcheted higher than expected by a wary central bank.

The Trump administration says hundreds of billions of dollars fed into the economy via deep cuts in business taxes and more generous exemptions for individuals will unleash a wave of investment and make the U.S. economy more competitive than ever.

But the plan, if approved in the form Trump officials outlined on Wednesday, could add inflationary fuel to an economy already running near full capacity, a risk Federal Reserve officials have been warning about since Trump got elected.

Confronted with the prospect of massive cuts that would slash the corporate tax rate to 15 percent from 35 percent and overhaul the personal tax code, Fed officials will need to start debating if they can maintain a measured pace of rate hikes or they might need to move faster, say analysts and economists who follow the U.S. central bank.

Fed’s inflation goal is 2 percent

The Fed aims to hold inflation at around 2 percent, and is close to that threshold, with its target short term rate expected to rise two more times, to about 1.5 percentage points, by the end of the year.

Trump has said he hopes low rates will continue, a potential source of friction with the Fed if officials do decide they need to move faster because of his policies.

An estimated up to $700 billion a year in tax cuts could threaten to derail such a scenario, especially if not all of that money finds its way into productive investments, or drives price and wage hikes.

“The premise is that all the tax savings get plowed into high-return investments to generate growth. But if they don’t and they just get churned around into M&A and other financial engineering things, it’s even worse because you’re raising risks elsewhere in the economy,” said Mark Mazur, former U.S. treasury assistant secretary for tax policy during the Obama administration, now head of the Urban-Brookings Tax Policy Center in Washington.

Uncertainty as to whether and in what shape the plan will get implemented adds to other challenges the Fed faces in trying to chart its course over the next several months.

Looming threats

The threat of a government shutdown and renewed debate over the federal debt ceiling late this summer or early in the fall will test both the new administration and the Fed’s ability to set its policy course. Republican and Democratic lawmakers need to pass a series of bills to keep the government running, but are sparring over issues such as whether to fund a border wall with Mexico.

Government closures, forced budget cuts, and a tense 2013 debt ceiling debate have thrown the Fed off course before, dragging down economic growth and idling hundreds of thousands of workers.

Taken together, the coming discussions will be critical for the Fed and for world markets looking for proof Trump can oversee a functioning government, said David Stockton, a former Fed research director now with the Peterson Institute of International Economics.

“If you have a shutdown followed by a serious flirtation with default … some of the optimism built into household and business confidence could deflate and deflate pretty quickly,” Stockton said. “If all of a sudden it begins to look like even with one party in control nothing seems to be happening, it could be a shock.”

For the Fed, those would be self-inflicted wounds in an otherwise calm economic environment. From healthy corporate profits to strong consumer confidence and geopolitical developments like the recent French election results, events have been breaking in favor of steady U.S. growth and job gains — and a gradual pace of Fed rate increases.

Policymakers are hesitant

Policymakers currently foresee two more rate increases this year, a view investors largely accept in how they have priced different securities.

So far, policymakers have been hesitant to mold their thinking too much around speculation about what Trump might do because details have been scant and Congress’ reaction uncertain.

With the scope of the tax plan now revealed and fiscal deadlines on the horizon, that is now likely to change — for better or worse.

Though the Republicans now control both the White House and the Congress, there is no guarantee they will easily reach agreement on either spending or tax plans, or on the debt ceiling. Divisions in the GOP doomed Trump’s first stab at healthcare overhaul, and some Republican lawmakers are likely to oppose either raising the debt limit or cutting taxes too much because of the larger deficits that would produce.

“The next few months are going to be make or break. They are going to have to show they are going to get something done,” said IHS Markit economist Chris Christopher.
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Ivanka Trump has been involved in discussions with the World Bank about establishing a funding operation to support female entrepreneurs, bank and administration officials said Wednesday.

The officials stressed that nothing has been set up yet and that talks are ongoing about how this would be structured.

They said it could be a World Bank-run “facility,” which accepts contributions from governments and private donors and then provides funding and support to women in developing countries.

According to a senior administration official, Trump recently pitched the idea to World Bank Group President Jim Yong Kim.

The administration official, who sought anonymity because the project is in its early stages, said Trump would have no official authority over the fund and would not solicit contributions, but would be a “strong advocate.”
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President Donald Trump “has no intention” of releasing his tax returns to the public, Treasury Secretary Steve Mnuchin said Wednesday, asserting Americans have “plenty of information” about the president’s financial matters.

For decades, presidents have released their tax returns. But Trump has so far refused, suggesting he would share the tax documents only after the Internal Revenue Service completes an “audit” of them. He’s never disclosed proof of an audit.

Mnuchin appeared to close the door completely Wednesday.

“The president has no intention. The president has released plenty of information and I think has given more financial disclosure than anybody else. I think the American population has plenty of information,” he said, inaccurately characterizing the president’s disclosures.

The comment came as the secretary briefed reporters on the president’s new proposal to overhaul taxes. Democrats have sought to use the tax debate to pressure Trump to release his returns, arguing the information is necessary to evaluate how Trump’s tax proposals would affect his personal wealth and his business’ bottom line.

Mnuchin declined to comment on how Trump would benefit from his proposals. He and other administration officials left the room as reporters shouted questions about how the plan would affect the Trump family.

Trump, a billionaire, owns a global real estate, marketing and property management company, which at the start of his presidency he placed in a trust that he can revoke at any time. His daughter and son-in-law, White House advisers, are also holding onto significant business assets. And Trump’s adult sons run his Trump Organization.

Trump officials have offered varying explanations for why the president does not disclosure his returns.

White House senior counselor Kellyanne Conway said in a television interview in January that the fact that he won the election without putting out the information shows that “people didn’t care” about it.

Trump’s sons Eric and Donald Trump Jr. have made similar points in various interviews.

There’s evidence the president has been thinking about the issue in recent weeks. He asked his friend and Las Vegas business partner Phil Ruffin, a fellow billionaire, whether he should put out the returns, Ruffin said.

“I advised him not to,” Ruffin said. “It’s a waste of time, and he’ll spend years explaining them and never get to accomplishing any of his goals.”

Ruffin said he told the president that Democrats would hire “armies of accountants” to pore over the documents and “make an issue out of any and everything.”

Even with Mnuchin’s seemingly definitive answer, the issue of Trump’s tax returns isn’t likely to go away. Democrats have threatened to hold up his tax proposals until they see the returns.

Senate Finance Committee Ranking Member Ron Wyden, a Democrat from Oregon, called Trump’s tax plan “unprincipled” — and one that “will result in cuts for the one percent, conflicts for the president, crippling debt for America and crumbs for the working people.”

Democrats also have been pushing for a vote on a bill that would require the president and all major-party nominees to publicly disclose their previous three years of tax returns with the Office of Government Ethics or the Federal Election Commission.

The Democrats have initiated a petition process that would lead to a House vote if they can get a majority of lawmakers to sign it — an unlikely prospect, but one that gives Democrats a chance to highlight which Republicans declined to help with their effort.
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The president’s desire to cut refugees is also costing U.S. jobs.

A reduction in refugee resettlement that began after an executive order by President Donald Trump in late January has led to at least 300 layoffs in the U.S. nonprofit sector and nearly 500 positions abroad, according to data collected by VOA. In some cases, the jobs slashed were held by resettled refugees.

A review of news releases, media reports, and information obtained from a survey sent by VOA to the nine primary resettlement agencies shows that seven of those organizations contracted by the government to coordinate refugees’ first months and years of living in the United States have had layoffs at their headquarters and local offices around the country, or at affiliate and partner organizations.

VOA documented more than 300 part-time and full-time positions cut in the United States, including:

Sources: World Relief; Church World Service (CWS); Exodus; Catholic Charities of Tennessee; Community Refugee and Immigration Services; Catholic Charities-San Antonio; US Together; Catholic Charities of Southeast Michigan; Refugee Empowerment Center in Omaha; Catholic Charities in Cleveland

Additional organizations reported cutting employees’ hours and not filling vacancies to trim budgets.

“Our budget as a refugee resettlement agency was heavily dependent on the government funding and the suspension and reduction of U.S. admissions for 2017 as well as [the] same dim prospect for 2018 has caused a huge negative impact on agencies like ours,” Aklilu Adeye, Executive Director of the Ethiopian Community Association of Chicago, told VOA in an email. The organization recently cut five positions.

The tally is not exhaustive: Two of the nine primary resettlement organizations — Episcopal Migration Ministries and International Rescue Committee — did not respond to VOA’s request for information or make that figure otherwise public; the United States Conference of Catholic Bishops — historically one of the most active resettlement agencies — declined to provide data or comment about layoffs.

After the first executive order in January that would have stopped refugee arrivals for four months and cut the overall number for the fiscal year to 50,000, Sister Donna Markham, President and CEO of Catholic Charities USA, said that the program’s suspension would affect about 700 employees of Catholic Charities agencies nationwide, “with layoffs expected for nearly all of the workers.”

“If we’re talking about American jobs, this is laying off people in these public-private partnerships,” she told the National Catholic Reporter in February.

Overseas, Church World Service has laid off almost all 600 staff members at its Resettlement Support Center Africa, which coordinates with the State Department under a separate part of the refugee process from U.S.-based affiliates: 484 in Kenya, 27 in South Africa, and 19 in Tanzania.

“The decision to reduce our staff was a direct result of these executive orders, which sabotage our ability to offer vital services, support and counsel to families seeking to rebuild their lives in safety,” CWS President and CEO Reverend John L. McCullough said in a statement in March.

The contracts between the government and the nonprofit organizations — some of which have resettled refugees for decades — are based per capita on how many refugees are resettled by the agencies. They receive about $900 for each refugee to cover the administrative costs of helping the newcomers in their first 90 days in the country, from picking them up at the airport, setting up their first home and enrolling children in school, to hosting English classes and advising on job searches. Another $1,125 goes directly to each refugee for initial costs of setting up their lives in the United States, such as rent and furniture.

Fewer arrivals mean less funding, and that jeopardizes jobs — including some held by refugees themselves, who often are hired to interpret for members of their community or find other positions in the resettlement field.

In some cases, the nonprofit organizations are planning to receive thousands fewer refugees than anticipated by the end of the fiscal year.

From high hopes to layoffs

The fiscal year started with a surge ordered by then-President Barack Obama: The United States would take 110,000 refugees — more than it had in decades.

But those plans came to a screeching halt in late January, when one of Trump’s initial executive orders trimmed that number to 50,000; a revised order in March upheld the president’s call for that 55 percent reduction.

Despite federal lawsuits and injunctions rolling back those orders, the president maintains broad power over the ultimate number of refugees that will be allowed into the country. Trump has repeatedly expressed interest in significantly lower arrivals, leaning on what he says is a lack of confidence in the screening process for admitted refugees — although refugees are among the most rigorously vetted immigrants to the U.S.

Many resettlement organizations signed amicus briefs in support of lawsuits that challenged the refugee-related executive order, stating in one case that “faith-based refugee organizations’ ability to maintain operations and services moving forward has been devastated.”

The nonprofits have tried to rally financial support from the public in recent months, but several indicated in phone and email interviews that donations would not make up for any reduction in funding from the government.

The government’s Office of Refugee Resettlement operated on a budget of $1.67 billion in fiscal year 2016. That includes more than services for refugee resettlement, however. The bureau handles other programs, such as anti-trafficking efforts, and unaccompanied children. ORR asked for $2.18 billion for FY2017.

Refugee admissions in flux

So far this fiscal year, the U.S. has resettled about 42,000 refugees, but there has been no final word from the executive branch about how many more will be allowed in. The administration could halt the process abruptly at 50,000. At the current rate of arrivals — 800 to 900 individuals a week — that cap would be reached around the end of June or early July. (Last year, the country admitted 84,995.)

Fluctuations in the weekly refugee arrival numbers since Trump’s inauguration Jan. 20 reflect a system rattled by uncertainty, though in recent weeks that number has stabilized to align with a State Department comment to Huffington Post, indicating a goal of about 900 arrivals a week.

Trump promised to dramatically change not only the number of refugees admitted but the composition of where they come from and what religions they are, initially pledging to block Syrians and increase the number of Christians. However, the demographics remain nearly identical to those from before Trump took office.

A VOA analysis of refugee arrival data from Oct. 1 to Jan. 20 — the part of the fiscal year under Obama — compared with data from the beginning of Trump’s term until the end of March, shows the top 10 origin countries remain the same (DRC, Syria, Somalia, Burma, Iraq, Ukraine, Bhutan, Iran, Eritrea and Afghanistan). At the beginning of the fiscal year, about 48 percent of arriving refugees were Muslim. That figure is now 46 percent. Forty-three percent were Christian, which remained the same under Trump.

Lavinia Limon, head of USCRI, emphasizes that while U.S. refugee policy may leave some people out of work now, she believes the greater toll is on refugees awaiting resettlement. Even as the United States reduces its intake, the need for finding permanent new home-countries for some refugees remains the same.

“USCRI has been around for 104 years, and we have seen a lot of different politicians and politics surrounding the issues related to refugees and immigrants come and go,” Limon said. “I believe the focus needs to be on those thousands of refugees who will not be rescued and who will continue to suffer and might lose their lives because of politics in their homeland and politics in America.

“Whatever financial strain we may experience pales in comparison to their plights,” she added.

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Have you or your resettlement organization been affected by staffing reductions? We want to hear from you. Email the reporter at vmacchi@voanews.com
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India’s plans to invest in a strategic port in Sri Lanka as a counterbalance to China’s massive infrastructure investments in the Indian Ocean island country got a push Wednesday as Sri Lankan Prime Minister Ranil Wickremesinghe visited New Delhi.

China’s development of the key Hambantota port in Sri Lanka, which is a gateway to crucial shipping lanes, has raised concerns in New Delhi about Beijing’s widening naval influence in its neighborhood.

In New Delhi, India and Sri Lanka signed a memorandum of understanding on economic cooperation and expressed commitment to its implementation. Foreign Ministry spokesperson, Gopal Baglay, tweeted that it signaled “deepening economic collaboration.”

The specific deal to develop the World War II oil storage facility in the eastern port of Trincomalee, South Asia’s deepest natural harbor, is expected to be signed next month when Modi visits Colombo.

Although India’s planned investment in energy infrastructure in Trincomalee will be far more modest compared to Beijing’s ambitious Hambantota project, analysts say it will enable New Delhi to secure a foothold and ensure that no other country uses the harbor for military purposes.

While Colombo has assured India that Hambantota will be used only for commercial activity, its potential use as a naval base worries New Delhi. Those worries have intensified since a Chinese submarine docked briefly in Colombo port in 2014.

India has long fretted about China’s expanding foothold in the Indian Ocean region through infrastructure projects in countries such as Sri Lanka, Pakistan and Bangladesh.

“We find that India is now getting more and more strategically encircled by economic infrastructure projects,” according to Vijay Sakhuja, Director of the National Maritime Foundation in New Delhi.

Besides Hambantota port in Sri Lanka, he points to China’s building of Gwadar port in Pakistan. Warning that these projects, built to facilitate trade, also have a strategic element, he says, “We should not be surprised by frequent PLA [People’s Liberation Army] navy presence in the Indian Ocean, particularly in Gwadar, which will cause some discomfort to the naval planners in New Delhi.”

For Sri Lanka, India’s planned investment in the energy project in Trincomalee will help counterbalance the massive infrastructure deals signed with China by the former government of Mahinda Rajapaksa, who had leaned heavily toward Beijing.

“The spin off of that [project] is balancing what is perceived as predominant Chinese influence as far as the economy is concerned,” said Paikiasothy Saravanumuttu at the Center for Policy Alternatives in Colombo.

The new government is trying to move away from the heavy dependance on Beijing for foreign investment. During a recent visit to Tokyo, Prime Minister Wickremesinghe sought Japanese investment for the Colombo and Trincomalee ports.

 
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