“U.S. Imposes Sanctions on Venezuela’s Oil Industry.”  Last night’s Wall Street Journal article led with:

The U.S. imposed sanctions (Treasury’s press release) on Venezuela’s state-owned oil giant in a dramatic move designed to empower the opposition and cripple the government of President Nicolás Maduro by preventing the proceeds of U.S. crude sales returning to Caracas.

The sanctions on Petróleos de Venezuela SA, the South American country’s main exporter, are the culmination of a two-year pressure campaign, and are an attempt to funnel income from the country’s biggest revenue generator into the hands of opposition leader Juan Guaidó.

The Hill reported this morning:

U.S. – China trade: A new round of senior-level trade talks with China begins Wednesday in the Eisenhower Executive Office Building adjacent to the White House, facing a March 1 deadline (The Hill).

Trump – China meeting: Trump will meet with Chinese Vice Premier Liu He on Thursday (Reuters).

More in last night’s Wall Street Journal article and New York Times article.

Feb. 15 shutdown negotiations will resume tomorrow.  I expect a deal to be enacted in time to avoid another shutdown because, as The Hill reported this morning:

Bipartisan lawmakers in both chambers will meet on Wednesday to begin negotiations. Trump has already said he doesn’t expect to receive a bill that contains sufficient funds for a border wall. …

There is one noteworthy difference as round two of negotiations get underway: Trump and Republicans are not unified this time around.

Republicans are enormously frustrated by what they view as a politically damaging and pointless 35-day shutdown. They’re in no mood for it to happen again, and many are opposed to Trump’s threat of declaring a national emergency if he doesn’t get additional money for a border wall.

“U.S. Treasury Set to Borrow $1 Trillion for a Second Year to Finance the Deficit.”  Yesterday morning’s Bloomberg article led with:

The U.S. Treasury Department is set to maintain elevated sales of long-term debt to finance the government’s widening budget deficit, with new issuance projected to top $1 trillion for a second-straight year.

Many strategists at primary-dealer firms predict that this Wednesday’s quarterly refunding announcement will see the Treasury maintain note and bond sales at the record high levels they have boosted them to in recent months.

The total amount of 3-, 10- and 30-year securities to be offered at next week’s refunding auctions is seen by most at $84 billion. While that’s $1 billion more than the total for these maturities three months ago, that’s only because the size of the three-year sale was already nudged higher in December.

A heightened supply of Treasury securities follows tax cuts and government spending increases implemented under the current administration. That’s darkening a fiscal outlook already made worrisome by rising entitlement-program expenses and higher costs to service America’s nearly $16 trillion in debt. The Federal Reserve’s balance-sheet runoff is also adding to supply, forcing Treasury Secretary Steven Mnuchin to tap the public for more funding.

President Trump’s schedule (EST):
No public events scheduled.

CBO Director Keith Hall will testify on the Budget and Economic Outlook before the House Budget Committee at 10 AM and before the Senate Budget Committee at 2:30 PM.  Click on the links to watch them live.

“Top GOP senators propose repealing estate tax, which is expected to be paid by fewer than 2,000 Americans a year.”  Yesterday afternoon’s Washington Post Wonkblog led with:

Three Republican Senators introduced a plan Monday to repeal the federal estate tax, moving to eliminate a tax on a small number of the wealthiest households just as leading Democrats ramp up calls to tax the richest Americans.

Senate Majority Leader Mitch McConnell (R-Ky.) joined Sens. Charles E. Grassley (R-Iowa) and John Thune (R-SD), members of the Senate Finance Committee, in releasing legislation to permanently repeal the federal estate tax, which conservatives refer to as “the death tax.”

The Republican tax law passed in 2017 already dramatically weakened the estate tax, allowing couples with $22 million to pass on their estates without facing the tax.

In 2018, following the GOP tax law, only 5,000 taxpayers were expected to file estate tax returns, according to projections by the American College of Trust and Estate Counsel, an organization of estate attorneys, based on Internal Revenue Service data. About 1,700 families are expected to actually pay the tax annually, said Howard Gleckman, a tax expert with the Tax Policy Center, a nonpartisan think tank.

If this were included in a budget reconciliation bill, which is unlikely to materialize this year, it might pass the Senate, but there’s not much chance of passing the House, controlled by Democrats.

“$1.5 trillion tax cut had no major impact on business spending.” Yesterday morning’s Reuters articleled with:

The Trump administration’s $1.5 trillion tax cut package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the tax code in more than 30 years.

The National Association of Business Economics’ quarterly business conditions poll, published on Monday, found that while some companies reported accelerating investments because of lower corporate taxes, 84 percent of respondents said they had not changed plans. That compares to 81 percent in the previous survey published in October.

The White House had predicted that the massive fiscal stimulus package, marked by the reduction in the corporate tax rate to 21 percent from 35 percent, would boost business spending and job growth. The tax cuts came into effect in January 2018.

“A large majority of respondents, 84 percent, indicate that one year after its passage, the corporate tax reform has not caused their firms to change hiring or investment plans,” said NABE President Kevin Swift.

The lower tax rates, however, had an impact in the goods producing sector, with 50 percent of respondents from that sector reporting increased investments at their companies, and 20 percent saying they redirected hiring and investments to the United States from abroad.

CRFB: “Analysis of CBO’s January 2019 Budget and Economic Outlook.”  Yesterday’s Committee for a Responsible Federal Budget’s analysis stated:

CBO’s budget projections have improved modestly since its last baseline in April 2018, though these improvements may prove illusory. In total, CBO projects deficits through 2028 will be roughly $1.2 trillion lower than previously projected.

The entirety of this improvement can be explained by two factors – almost two-thirds is the result of reductions in assumed disaster spending (and related interest savings), while the remaining third is the result of tariffs imposed by the Administration last year. It is possible that a large share of these reductions will ultimately not materialize. …

CBO’s latest budget projections confirm our country remains on an unsustainable fiscal path. Even under current law, trillion-dollar deficits will become the new normal, and debt will grow indefinitely as a share of the economy.

CBO “Director’s Statement on The Budget and Economic Outlook: 2019 to 2029.”  “This morning [January 28, 2019] I briefed the press about The Budget and Economic Outlook: 2019 to 2029, which the Congressional Budget Office published today. I delivered the following remarks about that report. Also presented here are some answers to questions that I expected to receive.”

CBO: “Workbook For How Changes in Economic Conditions Might Affect the Federal Budget, January 2019.”  Download yesterday’s Congressional Budget Office spreadsheet to estimate how changes in productivity, labor force, interest rates, and inflation would affect the federal budget.

“CBO’s Waterfall Model for Projecting Discretionary Spending, January 2019.”  Download yesterday’s Congressional Budget Office spreadsheet to estimate discretionary federal outlays using different assumed budget authority, inflation, and spendout rates.

GAO: “RETIREMENT SECURITY: Alternate Price Indexes for Cost-of-Living Adjustments Present Tradeoffs.”  Yesterday’s Government Accountability Office report (a 5-page memo and a 45-slide presentation) stated: “This report provides information on the benefits and disadvantages of alternate price indexes for measuring the cost of living for older Americans.”

GAO: “OVERSEAS CONTINGENCY OPERATIONS: Alternatives Identified to the Approach to Fund War-Related Activities.”  Yesterday’s 30-page Government Accountability Office report stated:

Since September 2001, the Department of Defense (DOD) has received more than $1.8 trillion in funds designated for Overseas Contingency Operations (OCO), primarily in Iraq and Afghanistan. DOD defines “contingency operations” as small, medium, or large-scale campaign-level military operations, including but not limited to support for peacekeeping operations, foreign disaster relief efforts, and noncombatant evacuation operations, and international disaster relief efforts. In contrast, regular or “base” activities include, for example, operating support for installations, training and education, and civilian personnel pay, which are costs that would be incurred, regardless of contingency operations. Since fiscal year 2010, DOD has submitted separate requests for both base and OCO funding as part of its annual budget request to Congress. Congress separately appropriates amounts for base and OCO activities into the same appropriation accounts and directs how funds are to be spent by designating specific amounts at the activity level in conference reports or explanatory statements accompanying annual appropriations acts. However, congressionally designated amounts are not binding unless they are also incorporated by reference into an appropriations act or other statute. In addition, DOD’s OCO budget request now includes some funding for enduring activities—activities that would continue in the absence of contingency operations that could be transitioned to DOD’s base budget. According to the Congressional Budget Office, for each year since 2006, about $53 billion of the total funding designated for OCO has been used to pay for enduring costs.2 It further estimates that about 70 percent of all OCO funding in DOD’s Fiscal Year 2019 OCO budget is expected to be used for enduring costs.

Overseas Contingency Operations funding is the largest slush fund in the federal budget and is not subject to the spending constraints under the Budget Act.

GAO: “HEALTH INSURANCE EXCHANGES: Claims Costs and Federal and State Policies Drove Issuer Participation, Premiums, and Plan Design.”  Yesterday’s 36-page Government Accountability Office report stated:

Since 2014, millions of individuals have purchased coverage through the health insurance exchanges established under PPACA. PPACA altered the individual health insurance market by setting federal standards for coverage and subsidizing exchange coverage for certain low-income individuals. In the first 5 years of exchanges, issuers have moved in and out of the market and increased premiums, but little is known about issuers’ claims costs or the factors driving their business decisions.

PPACA included a provision for GAO to examine exchange activities, including issuers’ experiences participating in the individual market exchanges. This report examines (1) claims costs of issuers participating in exchanges, and (2) factors driving selected issuers’ changes in exchange participation, premiums, and plan design. GAO reviewed data from nine issuers participating in five states, which were selected to represent a range in size, tax status, and exchange participation. The five states— California, Florida, Massachusetts, Minnesota, and Mississippi—were selected to provide variation in geography and whether they had a federally facilitated or state-based exchange. GAO also conducted a literature review, reviewed federal data, and interviewed the selected issuers, officials in the selected states, and stakeholder groups.