News: Breaking down the Biden budget

Tuesday, March 29, 2022

Breaking down the Biden budget

Mar 29, 2022

By Kate Davidson and Aubree Eliza Weaver

Presented by Sallie Mae®

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The Biden White House released its $5.8 trillion budget plan on Monday, proposing higher funding for the military and domestic programs, including spending to combat climate change, bolster pandemic preparedness and public health and ramp-up antitrust enforcement.

Our all-star financial services and tax teams have the key highlights for MM readers:

Treasury — Victoria Guida: The budget would aggressively beef up funding to guard the Treasury Department against cyberattacks by setting aside $215 million for that purpose, up from just $80 million enacted earlier this month.

It would also boost funding for the Treasury's new climate hub to $293 million, a 20 percent jump from the current year. And it would raise funding for Treasury's anti-money laundering unit to $210 million, a gain of $49 million, or 30 percent, "to increase oversight of the financial sector, strengthen corporate accountability, and provide adequate support to law enforcement and investigative entities."

IRS — Brian Faler: Monday's budget proposal would boost IRS funding 18 percent, or $2.2 billion, bringing total agency funding to $14.1 billion. It also asks for an additional $798 million to improve IRS customer service, and proposes spending $310 million to improve the agency's technology infrastructure.

HUD — Katy O'Donnell: The president requested a major infusion of federal funding for housing construction and supply in a bid to ease the nation's affordable housing shortage. The proposal would provide $50 billion to boost housing supply, including $35 billion in funding for state and local housing finance agencies to provide grants and revolving loans.

Under the budget, overall funding for the Department of Housing and Urban Development would rise 34 percent, to $71.9 billion. The plan also includes a bump for Low-Income Housing Tax Credits to increase construction of affordable units.

SEC — Sam Sutton: The White House proposal would bump up the Securities and Exchange Commission's annual appropriation to $2.15 billion, a 7.5 percent boost from the $2 billion appropriated to the markets regulator in omnibus spending legislation signed into law earlier this month.

The bulk of the increase would go toward increasing compensation for full-time personnel, according to the president's budget proposal. The SEC has been ramping up enforcement efforts around digital assets and has recently proposed new rules that would force companies to disclose information about greenhouse gas emissions.

The plan would also provide $57 million to support the "move, replication, and related costs" for a replacement lease for the SEC's Washington headquarters.

CRYPTO — Also from Sam: The budget includes a trio of changes that would fold digital assets into the tax code and raise a projected $11 billion over the next decade in the process.

The White House would like to give dealers the option of electing to have mark-to-market rules apply to their inventory of actively traded digital assets and derivatives — meaning that crypto assets that appreciate but aren't sold could be taxed as gains in a manner similar to traditional commodities. Under the proposal, digital assets "would not be treated as a security or commodity for purposes of the mark-to-market rules," according to Treasury's Green Book, which also notes that the department would have the authority to determine which crypto assets are deemed "actively traded." That shift could raise around $4.8 billion in 2023 and around $6.6 billion over the next decade.

A second proposal would expand an existing requirement for taxpayers to report foreign assets in excess of $50,000 to include any digital assets held through a foreign exchange or service provider. The change would raise around $50 million next year and $2.2 billion by 2032.

Lastly, new rules requiring crypto brokers to report information about transactions to the IRS — a controversial piece of last year's infrastructure bill — are expected to generate around $48 million for the federal government in the 2023 fiscal year and roughly $2.1 billion by 2032.

ECONOMIC PROJECTIONS — When economists at the Council of Economic Advisers locked in their forecasts for the budget in November, they saw gross domestic product growing 3.8 percent this year, consumer prices rising 4.7 percent compared with 2021 and the jobless rate averaging 3.9 percent.

Since then, Russia's invasion of its neighbor has introduced huge new risks to the outlook, including higher energy prices and supply chain disruptions that could push up inflation and weigh on economic growth. Meanwhile, the labor market continues to strengthen rapidly, and the Federal Reserve has signaled it is prepared to cool the economy rapidly to help contain price pressures.

IT'S TUESDAY — We sat down with IntraFi's Banking with Interest podcast to talk about sanctions, Fed nominations, digital assets, newsletter writing, journalism and more. Give it a listen! And let us know what you think: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson or @aubreeeweaver.

A message from Sallie Mae®:

When does a private student lender become more like an education solutions provider? When they help students search for scholarships and provide free resources like college savings calculators. When they help students make informed decisions by providing all loan and repayment choices before they commit. That's the difference between lending and responsible private student lending. And these are the reasons why Sallie Mae makes sense for students and parents.

Driving the Day

February JOLTS data released at 10 a.m. … Senate Banking hearing on the economic impact of medical debt at 10 a.m. … House Financial Services hearing on home appraisal bias at 10 a.m. … Philadelphia Fed's Harker speaks at 10:45 a.m. … Atlanta Fed's Bostic speaks at 6:30 p.m.

DESPERATELY SEEKING DIRT: COOK CRITICS PERSIST — The flap over Fed nominee Sarah Bloom Raskin in recent weeks has detracted from the initial GOP lawmaker criticism of Michigan State University economist Lisa Cook, whom Biden also tapped for a seat on the Fed board.

But her critics haven't given up. The American Accountability Foundation — a conservative opposition research firm that pushed attacks on Raskin, Supreme Court nominee Ketanji Brown Jackson and other White House nominees — has been soliciting criticism from Cook's colleagues at Michigan State in recent weeks.

AAF co-founder Matthew Buckham wrote to dozens of MSU economics faculty asking for information about the circumstances of Cook's 2013 tenure promotion, according to emails obtained by POLITICO. He also pointed to comments criticizing Cook's promotion on the Economics Job Market Rumors website — an online forum that one prominent economist once referred to as "a cesspool of misogyny."

Cook's supporters have characterized the criticism that she isn't qualified as thinly veiled racist attacks.

Tom Jones, a former aide to Sen. Ron Johnson (R-Wis.) who co-founded AAF, called that assertion "lazy," and defended the group's effort to seek more details that they hope will show Cook's tenure promotion was unjustified. "I can't see U.S. senators, with the gravity of the inflation crisis, going and voting for someone who's just not qualified," Jones added.

Cook's nomination has been endorsed by prominent economists on both sides of the aisle. She is a former Marshall scholar who studied at Oxford University, a University of California-Berkeley econ Ph.D., a former professor at Harvard's Kennedy School of Government and a staff economist at the Obama White House Council of Economic Advisers, and held visiting appointments at the National Bureau of Economic Research and several regional Fed banks.

The Senate Banking Committee voted 12-12 to advance Cook's nomination. That means the full Senate must vote to discharge her nomination from the committee in order for her to advance — a vote that could come as soon as today.

In other nominations news — If you've been keeping track, one source familiar with the process told MM the White House's SEC nominations could come any day. The person also noted that the LinkedIn profile for Jaime Lizarraga, whom MM reported is the likely pick for the Democratic seat, has been taken down.

SUBSCRIBE TO NATIONAL SECURITY DAILY : Keep up with the latest critical developments from Ukraine and across Europe in our daily newsletter, National Security Daily. The Russian invasion of Ukraine could disrupt the established world order and result in a refugee crisis, increased cyberattacks, rising energy costs and additional disruption to global supply chains. Go inside the top national security and foreign-policymaking shops for insight on the global threats faced by the U.S. and its allies and what actions world leaders are taking to address them. Subscribe today.

FED'S RECORD ON BEATING INFLATION MARKED BY FAILURES — Our Ben White: "The fate of the economy — and Democratic control of Congress — rests largely in the hands of the Federal Reserve , the unelected technocrats who call the shots on monetary policy. But a look at the record shows that the Fed often stumbles in its efforts to save the day."

CFPB WANTS REPEAT OFFENDER BANKS STRIPPED OF LICENSES — NYT's Emily Flitter: "For the last two decades, the worst punishment federal financial regulators seemed willing to impose was forcing companies caught repeatedly violating the law to admit they had done something wrong. Rohit Chopra, the director of the Consumer Financial Protection Bureau, says regulators should go much farther: He wants banks and other big financial firms that break the same law multiple times to face harsh penalties — which could effectively force some of them to break up for failing to stay on the right side of the rules."

—Speaking of CFPB, the Consumer Bankers Association released a new video this week ahead of Thursday's House hearing on overdraft fees pushing back on what they say is misinformation about the fees — for example, that such fees are hidden (they're required to disclose them), or that they harm competition. Watch the full video here.

FIRST IN MM: DEMOCRATS URGE CFPB TO TAKE ON MEDICAL DEBT — Senate Banking Committee Democrats in a new letter to Chopra are calling on the CFPB to establish an ombudsman for consumer medical debt ahead of a hearing on the issue this morning. They also ask the bureau to use its authority to curb unfair medical debt collection practices. "Accessing medical care is a necessity that has resulted in too many Americans facing overwhelming bills, harassment from debt collectors and the long-term effects of negative credit actions," they wrote.

SEC PROPOSES TO EXPAND THE DEFINITION OF BROKER-DEALERS — Reuters' Katanga Johnson: "The U.S. Securities and Exchange Commission (SEC) on Monday proposed expanding the definition of broker-dealers and mandating that Principal Trading Firms (PTFs) must register with the agency in a bid to enhance market resiliency and help level the playing field.."

FORMER WORLD BANK CHIEF DIDN'T ACT ON WARNINGS OF SEXUAL HARASSMENT — WSJ's Santiago Perez: "Former World Bank chief Kristalina Georgieva knew about a top official's sexual misconduct but failed to take any action despite publicly saying she was a strong defender of female victims of sexual harassment, according to current and former bank staff. Ms. Georgieva, now the head of the International Monetary Fund, agreed to extend the term of the bank's then-chief in Indonesia in 2018 even after a staff outcry about his behavior."

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Inflation Watch

FED STUDY POINTS FINGER AT FISCAL BOOST FOR HIGH INFLATION — Bloomberg's Alister Bull: "Who's to blame for high U.S. inflation? The folks who create fiscal policy — at least says those behind monetary policy. U.S. consumer prices have surged more than in other developed economies and one reason may be the massive government support provided to Americans during the pandemic, according to researchers at the Federal Reserve Bank of San Francisco."

FED FACTORY SURVEYS SHOW PICKUP IN INFLATION EXPECTATIONS — Bloomberg's Vince Golle: "Manufacturers from Texas to the East Coast signal they'll be paying more for raw materials in the next six months, and they also see room to pass some of those costs on to customers. Survey results from the Federal Reserve Bank of Dallas on Monday showed a net 59.2 percent of Texas manufacturers in March expect to receive higher prices for their products six months from now."

Jobs Report

Brian Cheung has become a full-time anchor for Yahoo! Finance. Cheung has worked at the outlet since 2018 as an on-air and online reporter covering the Federal Reserve, U.S. economy and the intersection of finance and policy.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

Fly Around

U.S. lawmakers asked Credit Suisse Group AG to hand over information related to the bank's compliance with sanctions over Russia's invasion of Ukraine. — WSJ's Margot Patrick

The spread between the yields of five-year and 30-year U.S. Treasuries turned negative for the first time since 2006 on Monday as investors price in an aggressive rate-hiking plan by the Federal Reserve as it attempts to bring inflation down from 40-year highs. — Reuters' David Randall, Davide Barbuscia and Saqib Iqbal Ahmed

A federal judge on Monday dismissed long-running litigation accusing seven U.S. stock exchanges of defrauding ordinary investors by quietly allowing high-frequency traders to trade faster and at better prices. — Reuters' Jonathan Stempel

A message from Sallie Mae®:

What makes Sallie Mae different from other private student lenders and federal student lending? We help students search for scholarships and provide free resources like college savings calculators and comparison tools. We help students make informed decisions by providing all loan and repayment choices to them before they commit. And last year, less than 2% of our loans defaulted. These are the differences between lending and responsible private student lending. And these are the reasons why Sallie Mae makes sense for students and parents.