CRS Reports

The State and Local Role in Election Administration: Duties and Structures

The administration of elections in the United States is highly decentralized. Elections are primarily administered by thousands of state and local systems rather than a single, unified national system. States and localities share responsibility for most election administration duties. Exactly how responsibilities are assigned at the state and local levels varies both between and within states, but there are some general patterns in the distribution of duties. States typically have primary responsibility for making decisions about the rules of elections (policymaking). Localities typically have primary responsibility for conducting elections in accordance with those rules (implementation). Localities, with varying contributions from states, typically also have primary responsibility for paying for the activities and resources required to conduct elections (funding). The structures of the state and local systems that conduct elections also vary between and within states. Common variations include differences related to the leadership of the system, the relationship between local election officials and the state, and the population size and density of the jurisdiction the system serves. The leadership of a state or local election system may be elected or appointed, and both the leaders and the methods used to select them may be partisan, bipartisan, or nonpartisan. State officials may have more or less direct influence over local election officials, and the extent of their influence may be affected by other structural features of the state’s election systems, such as the methods used to select local officials. Finally, larger election jurisdictions have different administrative advantages and challenges than smaller ones, and more urban jurisdictions have different advantages and challenges than more rural ones. These differences between jurisdictions may be reflected in structural features of the election systems that serve them, such as how the systems allocate resources and where they find specialized expertise. Understanding the duties and structures of state and local election systems may be relevant to Congress for at least two reasons. First, the way state and local election systems work can affect how well federal action on election administration serves its intended purposes. The effectiveness of federal action depends in part on how it is implemented. How it is implemented can depend, in turn, on how the state and local election systems that implement it work. Second, Congress can make or incentivize changes to the way state and local election systems work. Congress has a number of policy tools it can use to affect the administration of federal elections. The use of these tools can—either intentionally or unintentionally—affect the state and local election systems that administer federal elections.

Mar 4, 2019

BB&T and SunTrust: The Latest Proposed Merger in a Long-Term Trend of Banking Industry Consolidation

On February 9, 2019, BB&T and SunTrust—the 16th- and 17th-largest U.S. banks by asset size, respectively—announced they intend to merge, which would create the 8th-largest U.S. bank. This proposed merger illustrates a transformative 35-year trend of banking industry consolidation. Banks are becoming fewer, and industry assets are increasingly concentrated in large banks. Observers have warned that this trend could leave certain markets traditionally served by small banks underserved or unserved. In addition, large, complex banks—or “too big to fail” (TBTF) banks—potentially create market distortions and threaten systemic stability. This Insight examines industry consolidation in general and the proposed BB&T-SunTrust merger specifically. For a detailed examination of related policy issues, see CRS Report R45518, Banking Policy Issues in the 116th Congress. Industry Consolidation The number of institutions insured by the Federal Deposit Insurance Corporation (FDIC) fell from a peak of 18,083 in 1986 to 5,406 in 2018. Banks with less than $1 billion in assets fell from 17,514 to 4,631, and the share of industry assets held by them fell from 37% to 7%. Meanwhile, the number of banks with more than $10 billion in assets rose from 38 to 137, and the share of assets held by those banks increased from 28% to 84%. The decline occurred mainly through three methods: mergers, failures, and lack of new banks. Bank mergers, which averaged almost 396 per year from 1990 to 2018, are the largest factor in this decline, although mergers have slowed since the 2007-2009 financial crisis (see Figure 1). Figure 1. Mergers of FDIC-Insured Depository Institutions / Source: FDIC. Bank failures played a large role in this decline during and after financial crises (over 1,000 depositories failed following the savings and loans crisis, and over 500 failed following the 2007-2009 crisis). Failures have declined as economic conditions have improved, but the number of new banks has been extraordinarily small in recent years. On average, 152 new banks formed annually between 1990 and 2007; in 2018, 8 new banks formed. Certain analysts attribute the lack of new banks to slow economic growth and low interest rates. Critics of new bank regulations argue that regulatory burden inhibits new bank formation. Merger Motivations Banking operations in general may be subject to increasing economies of scale—meaning banks become more profitable as they get bigger—perhaps due to the growing role of information technology. If this is the case, banks could be merging to become more profitable through greater efficiency. Some observers argue that banks experience economies of scale specifically in regulation compliance, meaning compliance costs may increase more slowly than revenues as bank size increases. Based on this argument, critics of new regulations assert regulatory burden is driving smaller banks to merge into larger institutions. However, the role regulatory burden plays in bank consolidation is a matter of debate, in part because empirically measuring economies of scale in compliance is difficult. Mergers also could occur for reasons other than scale. For example, a bank that is struggling financially may look to merge with a stronger bank to stay in business. Alternatively, a larger bank may buy a small bank that has been outperforming its peers to add the successful portfolio to its own. Other regulatory factors also could be driving consolidation. Through much of the 20th century, federal and state laws restricted banks’ ability to open new branches and operate across state lines. States substantially relaxed these restrictions in the late 1980s, and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 did so at the federal level. As a result, it became easier for banks to consolidate and spread operations to other markets. BB&T-SunTrust Merger BB&T has nearly $226 billion in total assets ($219 billion at its main depository) and 1,884 U.S. depository branch offices across 15 mostly southeastern states and the District of Columbia (DC). SunTrust has nearly $216 billion in total assets ($210 billion at its main depository) and 1,254 U.S. branches across 10 mostly southeastern states and DC. The two organizations have characteristics that observers identify with “regional” banks—an unofficial bank classification. Both have a large amount of assets, mostly attributable to a single depository subsidiary, but are not nearly as large as the very largest U.S. banks. Both also have a relatively high concentration in loan making and deposit taking and a less-than-national geographic footprint. Regional bank advocates argue these characteristics make such banks similar to “community” banks and dissimilar to risky, complex TBTF banks. Thus, they argue, certain regulations aimed at TBTF banks should be applied based on criteria that regional banks would not meet. Opponents of this position, citing the size of the banks’ exposures and the amount of available resources for compliance, assert it is appropriate to subject the banks to stringent regulation. Given that, if the merger is approved, the new entity can reasonably be expected to have about $442 billion in total assets and continue to operate primarily as a lender and deposit taker, the merger may stir this ongoing debate. Both banks are individually approaching the $250 billion asset threshold at which banks become subject to stricter advanced approaches capital requirements. Some research suggests that banks approaching such thresholds are motivated to merge, because they would prefer entering a more stringent regulatory regime with cost savings from a big jump in economies of scale to incrementally crossing the line. Arguably, this “in-for-a-penny-in-for-a-pound” strategy could be a factor in the proposed BB&T-SunTrust merger. The $250 billion asset threshold will—once regulators implement Section 401 of P.L. 115-174—also be the criterion that automatically subjects banks to enhanced prudential regulation (EPR). BB&T and SunTrust currently are subject to EPR based on the original $50 billion threshold that Section 401 raises to $250 billion. Thus, depending on the timing of the implementation and the merger, the two banks may not technically cross into a new EPR regime. However, the in-for-a-penny-in-for-a-pound logic still may hold, because without a merger, even post-Section 401 implementation, each bank would be incrementally approaching a threshold that would trigger more stringent regulation.

Mar 4, 2019

Changes to House Rules Affecting the Congressional Budget Process Included in H.Res. 6 (116th Congress)

On January 3, 2019, the House adopted Title I of H.Res. 6, the standing rules for the House of Representatives for the 116th Congress. In addition to the standing rules, H.Res. 6 included a separate order related to the consideration of appropriations bills. This report provides information on changes to both the standing rules and separate orders that might affect the consideration of budgetary legislation in the House of Representatives. These include the following: Deleting language in Rule X added in the 115th Congress providing for committees to include a review of authorizations for programs or agencies within their jurisdiction in their oversight plans. Deleting language in Rule XIII, previously adopted in the 114th and 115th Congresses, requiring that any budgetary estimates provided by the Congressional Budget Office (CBO) include, to the extent practicable, a macroeconomic impact analysis (often referred to as “dynamic scoring”) as well as a requirement that any estimate provided to CBO by the Joint Committee on Taxation also include a macroeconomic impact analysis. Deleting language added to Rule XXI in the 104th Congress requiring the vote of a three-fifths majority to approve a federal income tax rate increase as well as a requirement in Rule XX to automatically order the yeas and nays for a vote of the House on such measures. Establishing new language as Rule XXVIII providing for certain measures concerning the debt limit to automatically be engrossed and deemed to have been passed by the House. This measure would suspend the debt limit through the end of the budget year in the concurrent resolution on the budget (but not through the period covered by any outyears beyond the budget year). The engrossed measure would then be transmitted to the Senate for further action. This rule is similar to language that was previously part of House rules from the 96th-107th Congresses (known as the “Gephardt Rule”). Reestablishing a PAYGO requirement in the House, which had previously been in effect during the 110th and 111th Congresses. This PAYGO rule (Rule XXI, clause 10) replaces the CUTGO rule that was a part of Rule XXI between the 112th and 115th Congresses. The new rule prohibits the consideration of direct spending or revenue legislation that is projected to increase or cause a deficit in either of two time periods: (1) the period consisting of the current fiscal year, the budget year, and the four ensuing fiscal years following the budget year or (2) the 11-year period consisting of the current year, the budget year, and the ensuing nine fiscal years following the budget year. The rule applies to any bill, joint resolution, amendment, motion, or conference report that affects direct spending or revenues. H.Res. 6 also included a separate order establishing a limit on advance appropriations, defined as applying to funding provided in FY2019 appropriations acts that are to become available in any fiscal year following FY2019. In addition, several separate orders from previous congresses are not included in H.Res. 6 for the 116th Congress. These include language prohibiting House consideration of measures estimated by CBO as causing a net increase in spending in excess of $5 billion in any of the four 10-year periods beginning with the fiscal year 10 years after the current fiscal year, two points of order that previously supplemented the point of order in Section 302(f) of the Congressional Budget Act of 1974 as a means for enforcing 302(b) suballocations, language requiring that appropriations bills include a spending reduction account, and language allowing certain legislative amendments in appropriations bills (known as the “Holman Rule”).

Mar 4, 2019

The First Step Act of 2018: An Overview

On December 21, 2018, President Trump signed into law the First Step Act of 2018 (P.L. 115-391). The act was the culmination of several years of congressional debate about what Congress might do to reduce the size of the federal prison population while also creating mechanisms to maintain public safety. This report provides an overview of the provisions of the act. The act has three major components: (1) correctional reform via the establishment of a risk and needs assessment system at the Bureau of Prisons (BOP), (2) sentencing reform via changes to penalties for some federal offenses, and (3) the reauthorization of the Second Chance Act of 2007 (P.L. 110-199). The act also contains a series of other criminal justice-related provisions. The First Step Act requires the Department of Justice (DOJ) to develop a risk and needs assessment system to be used by BOP to assess the recidivism risk of all federal prisoners and to place prisoners in programs and productive activities to reduce this risk. Prisoners who successfully complete recidivism reduction programming and productive activities can earn additional time credits that will allow them to be placed in prerelease custody (i.e., home confinement or a Residential Reentry Center) earlier than they were previously allowed. The act prohibits prisoners convicted of any one of dozens of offenses from earning additional time credits, though these prisoners can earn other benefits, such as additional visitation time, for successfully completing recidivism reduction programming. Offenses that make prisoners ineligible to earn additional time credits can generally be categorized as violent, terrorism, espionage, human trafficking, sex and sexual exploitation, repeat felon in possession of firearm, certain fraud, or high-level drug offenses. The act makes changes to the penalties for some federal offenses. The act modified mandatory minimum prison sentences for some drug traffickers with prior drug convictions by increasing the threshold for prior convictions that count toward triggering higher mandatory minimums for repeat offenders, reducing the 20-year mandatory minimum (applicable where the offender has one prior qualifying conviction) to a 15-year mandatory minimum, and reducing a life-in-prison mandatory minimum (applicable where the offender has two or more prior qualifying convictions) to a 25-year mandatory minimum. The act made the provisions of the Fair Sentencing Act of 2010 (P.L. 111-220) retroactive so that currently incarcerated offenders who received longer sentences for possession of crack cocaine than they would have received if sentenced for possession of the same amount of powder cocaine before the enactment of the Fair Sentencing Act can submit a petition in federal court to have their sentences reduced. The act also expands the safety valve provision, which allows courts to sentence low-level, nonviolent drug offenders with minor criminal histories to less than the required mandatory minimum for an offense. Finally, the act eliminated the stacking provision, which allowed prosecutors to charge offenders with a second and subsequent use of a firearm in furtherance of a drug trafficking or violent offense in the same criminal incident, which, if the offender is convicted, carries a 25-year mandatory minimum. Now, the mandatory minimum will only apply when the offender has a prior conviction for use of a firearm in furtherance of a drug trafficking or violent crime from a previous criminal prosecution. The First Step Act contains the Second Chance Reauthorization Act of 2018. This act reauthorizes appropriations for and expands the scope of some grant programs that were initially authorized under the Second Chance Act of 2007 (P.L. 110-199). The reauthorized programs include the Adult and Juvenile State and Local Offender Demonstration Program, Grants for Family-Based Substance Abuse Treatment, Careers Training Demonstration Grants, the Offender Reentry Substance Abuse and Criminal Justice Collaboration Program, and the Community-Based Mentoring and Transitional Service Grants to Nonprofit Organizations Program. The act also reauthorized and modified a pilot program that allows BOP to place certain elderly and terminally ill prisoners on home confinement to serve the remainder of their sentences. Finally, the First Step Act includes a series of other criminal justice-related provisions. These provisions include a prohibition on the use of restraints on pregnant inmates in the custody of BOP and the U.S. Marshals Service; a change to the way good time credit is calculated so prisoners can earn 54 days of good time credits for each year of imposed sentence rather than for each year of time served; a requirement for BOP to provide a way for employees to safely store firearms on BOP grounds; a requirement for BOP to try to place prisoners within 500 driving miles of their primary residences; authority for the Federal Prison Industries to sell products to public entities for use in correctional facilities, disaster relief, or emergency response, to the District of Columbia government, and to nonprofit organizations; a prohibition against the use of solitary confinement for juvenile delinquents in federal custody; and a requirement that BOP aid prisoners with obtaining identification before they are released.

Mar 4, 2019

Internal Revenue Service Appropriations, FY2019

Mar 4, 2019

The Power Marketing Administrations: Background and Current Issues

The federal government, through the Department of Energy, operates four regional power marketing administrations (PMAs), created by statute: the Bonneville Power Administration (BPA), the Southeastern Power Administration (SEPA), the Southwestern Power Administration (SWPA), and the Western Area Power Administration (WAPA). Each PMA operates in a distinct geographic area. Congressional interest in the PMAs has included diverse issues such as rate setting, cost and compliance associated with the Endangered Species Act (ESA; P.L. 93-205; 16 U.S.C. §§1531 et seq.), and questions of privatization of these federal agencies. In general, the PMAs came into being because of the government’s need to dispose of electric power produced by dams constructed largely for irrigation, flood control, or other purposes, and to achieve small community and farm electrification—that is, providing service to customers whom it would not have been profitable for a private utility to serve. With minor exceptions, these agencies market the electric power produced by federal dams constructed, owned, and operated by the U.S. Army Corps of Engineers (Corps) and the Bureau of Reclamation (BOR). By statute, PMAs must give preference to public utility districts and cooperatives (e.g., “preference customers”), and sell their power at cost-based rates set at the lowest possible rate consistent with sound business principles. The Federal Energy Regulatory Commission regulates PMA rates to ensure that they are set high enough to repay the U.S. Treasury for the portion of federal facility costs allocated to hydropower beneficiaries. With energy and capacity markets changing in the western United States (especially with the growing need to integrate increasing amounts of variable renewable sources), and the development of the Energy Imbalance Market in the West, BPA and WAPA may have to adapt their plans with regard to generation needs and how transmission systems are developed. In 2018, the Trump Administration proposed to sell the transmission assets (lines, towers, substations, and/or rights of way) owned and operated by the federal Power Marketing Administrations. The proposal suggested that “eliminating or reducing” the federal government’s role in owning and operating transmission assets, and increasing the private sector’s role, would “encourage a more efficient allocation of economic resources and mitigate unnecessary risk to taxpayers.” The resulting PMA entities would then contract with other utilities to provide transmission services for the delivery of federal power, similar to what SEPA does currently. Reportedly, the proposed sale of PMA assets was dropped after opposition to the plan emerged from stakeholders. Under Section 208 of the Urgent Supplemental Appropriations Act, 1986 (P.L. 99-349), the executive branch is prohibited from spending funds to study or draft proposals to transfer from federal control any portion of the assets of the PMAs unless specifically authorized by Congress. Environmental, fishing, and tribal advocates have sued the federal government over concerns that operating rules for hydropower dams on the Columbia and Snake Rivers (i.e., the National Marine Fisheries Service Biological Opinion) are inadequate to ensure survival of species threatened or endangered under the ESA. In 2016, a federal judge overturned a previous management plan for the dams, finding that it would not be sufficient to protect salmon runs, and ordered a new management plan that could include removing the dams. However, in 2018, President Trump issued a Presidential Memorandum accelerating the process for a new management plan, requiring the biological opinion to be ready by 2020. Since FY2011, power revenues associated with the PMAs have been classified as discretionary offsetting receipts (i.e., receipts that are available for spending by the PMAs), thus the agencies are sometimes noted as having a “net-zero” spending authority. Only the capital expenses of WAPA and SWPA require appropriations from Congress.

Mar 1, 2019

Definition of National Emergency under the National Emergencies Act

Mar 1, 2019

Management of the Colorado River: Water Allocations, Drought, and the Federal Role

Mar 1, 2019

Caribbean Basin Security Initiative

Mar 1, 2019

2019 Tax Filing Season (2018 Tax Year): The State and Local Tax Deduction

Mar 1, 2019

Suspension of the Rules: House Practice in the 114th Congress (2015-2016)

Suspension of the rules is the most commonly used procedure to call up measures on the floor of the House of Representatives. As the name suggests, the procedure allows the House to suspend its standing and statutory rules in order to consider broadly supported legislation in an expedited manner. More specifically, the House temporarily sets aside its rules that govern the raising and consideration of measures and assumes a new set of constraints particular to the suspension procedure. The suspension of the rules procedure has several parliamentary advantages: (1) it allows nonprivileged measures to be raised on the House floor without the need for a special rule, (2) it enables the consideration of measures that would otherwise be subject to a point of order, and (3) it streamlines floor action by limiting debate and prohibiting floor amendments. Given these features, as well as the required two-thirds supermajority vote for passage, suspension motions are generally used to process less controversial legislation. In the 114th Congress (2015-2016), measures considered under suspension made up 62% of the bills and resolutions that received floor action in the House (743 out of 1,200 measures). The majority of suspension measures were House bills (83%), followed by Senate bills (11%) and House resolutions (4%). The measures covered a variety of policy areas but most often addressed government operations, such as the designation of federal facilities or amending administrative policies. Most measures that are considered in the House under the suspension procedure are sponsored by a House or Senate majority party member. However, suspension is the most common House procedure used to consider minority-party-sponsored legislation regardless of whether the legislation originated in the House or Senate. In 2015 and 2016, minority-party members sponsored 31% of suspension measures, compared to 9% of legislation subject to different procedures, including privileged business (17 measures), unanimous consent (21 measures), and under the terms of a special rule (one Senate bill). Most suspension measures are referred to at least one House committee before their consideration on the floor. The House Committee on Oversight and Government Reform (now called the Committee on Oversight and Reform) was the committee of primary jurisdiction for the plurality of suspension measures considered in the 114th Congress. Additional committees—such as Energy and Commerce, Homeland Security, Natural Resources, Foreign Affairs, and Veterans’ Affairs—also served as the primary committee for a large number of suspension measures. Suspension motions are debatable for up to 40 minutes. In most cases, only a fraction of that debate time is actually used. In the 114th Congress, the average amount of time spent considering a motion to suspend the rules was 13 minutes and 10 seconds. The House adopted nearly every suspension motion considered in 2015 and 2016. Approval by the House, however, did not guarantee final approval in the 114th Congress. The Senate passed or agreed to 40% of the bills, joint resolutions, and concurrent resolutions initially considered in the House under suspension of the rules, and 276 measures were signed into law. This report briefly describes the suspension of the rules procedure, which is defined in House Rule XV, and provides an analysis of measures considered under this procedure during the 114th Congress. Figures and one table display statistics on the use of the procedure, including the prevalence and form of suspension measures, sponsorship of measures by party, committee consideration, length of debate, voting, resolution of differences between the chambers, and the final status of legislation. In addition, an Appendix illustrates trends in the use of the suspension procedure from the 110th to the 114th Congress (2007-2016).

Feb 28, 2019

Enforcing U.S. Trade Laws: Section 301 and China

Feb 28, 2019

U.S.-Japan Trade Agreements and Negotiations

Feb 28, 2019

Declarations under the National Emergencies Act, Part 1: Declarations Currently in Effect

Feb 28, 2019

The Federal Land Management Agencies

Feb 27, 2019

Farm Bill Primer: Energy Title

Feb 27, 2019

Defense Primer: Electronic Warfare

Feb 26, 2019

Federal Records: Types and Treatments

Feb 26, 2019

Disaster Housing Assistance: Homeland Security Issues in the 116th Congress

/ After the President issues an emergency or major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, 42 U.S.C. §§5121 et seq.), the Federal Emergency Management Agency (FEMA) may provide various temporary housing assistance programs to meet disaster survivors’ needs. However, limitations on these programs may make it difficult to transition disaster survivors into permanent housing. This Insight provides an overview of the primary housing assistance programs available under the Stafford Act, and potential considerations for Congress. Transitional Sheltering Assistance FEMA-provided housing assistance may include short-term, emergency sheltering accommodations under Section 403 of the Stafford Act (42 U.S.C. §5170b), including the Transitional Sheltering Assistance (TSA) program, which received significant attention as it was coming to an end for disaster survivors of Hurricane Maria from Puerto Rico. This transition process highlighted challenges to helping individuals and families obtain interim and permanent housing following a disaster. TSA is intended to provide short-term hotel/motel accommodations to individuals and families who are unable to return to their pre-disaster primary residence because a declared disaster rendered it uninhabitable or inaccessible. The initial period of TSA assistance is 5-14 days, and it can be extended in 14-day intervals for up to 6 months from the date of the disaster declaration. However, some Hurricane Maria disaster survivors from Puerto Rico remained in the TSA program for nearly one year due to extensions of the program (including by court order). Hurricane Maria is not the only incident that has received multiple TSA program extensions; disaster survivors of Hurricanes Harvey, Irma, and Sandy also received extensions for nearly a year. Research suggests that housing-instable individuals and families may have an “increased risk of adverse mental health outcomes,” which may reveal a drawback to using an emergency sheltering solution, such as TSA, to house individuals and families in hotels/motels for extended periods of time. Individuals and Households Program Interim housing needs may be better met through FEMA’s Individuals and Households Program (IHP) under Section 408 of the Stafford Act (42 U.S.C. §5174). Financial (e.g., assistance to reimburse temporary lodging expenses and rent alternate housing accommodations) and/or direct (e.g., multi-family lease and repair and manufactured housing units (MHUs)) assistance may be available to eligible individuals and households who, as a result of a disaster, have uninsured or under-insured necessary expenses and serious needs that cannot be met through other means or forms of assistance. IHP assistance is intended to be temporary, and is generally limited to a period of 18 months from the date of the declaration, but may be extended by FEMA. Although IHP provides various assistance options, eligibility and programmatic limitations exist on their receipt and use. For example, disaster survivors whose primary residence is determined to be habitable or who have access to adequate rent-free housing may be ineligible to receive assistance, even if they are unable to return for other reasons (e.g., lack of employment). Challenges to providing financial assistance, such as rental assistance, may include lack of available, affordable housing stock. Additionally, regulations and policies may not permit FEMA to immediately adjust rental payment rates to reflect the location where a disaster survivor has relocated. So even if housing stock is available, the difference in cost may result in the inability of some eligible applicants to secure a housing unit. Challenges to providing direct assistance, such as MHUs, may include restrictions on the placement of MHUs. Additionally, FEMA’s direct lease assistance program is usually only offered if rental resources are scarce, and the area where direct lease assistance is available may be limited. Further, following a catastrophic incident additional challenges include the need to restore infrastructure, community services, and employment opportunities, which may impact where disaster survivors decide to locate following a disaster. This decision may impact the benefits for which they may be eligible. Disaster Housing Assistance Program Following Hurricanes Katrina and Rita, Ike and Gustav, and Sandy, FEMA executed Interagency Agreements with the U.S. Department of Housing and Urban Development (HUD) to administer the Disaster Housing Assistance Program (DHAP) in order to provide rental assistance and case management services. Although DHAP fell under Section 408 of the Stafford Act and was funded through the Disaster Relief Fund, it was not subject to some of the limitations of the IHP, and it may have allowed families to receive more assistance for longer periods of time than they may have received under IHP. Despite being identified as a promising interim housing strategy and potential solution to the challenge of meeting long-term housing needs in the National Disaster Housing Strategy, FEMA has not implemented DHAP following more recent disasters. Most recently, in response to the Governor of Puerto Rico’s request to authorize DHAP, FEMA stated DHAP would not be implemented, because FEMA and HUD “offered multiple housing solutions that are better able to meet the current housing needs of impacted survivors.” FEMA also noted that the Office of Inspector General (OIG) had raised concerns about DHAP’s cost effectiveness; the OIG recommended that, before FEMA activates DHAP again, it “[c]onduct a cost-benefit analysis.... ” Potential Considerations for Congress FEMA provides temporary housing assistance to meet short-term and interim disaster housing needs; however, clearly defining the use of these programs and identifying a process to assist some disaster survivors with attaining permanent housing may be needed to comprehensively address disaster housing needs throughout all phases of recovery. Congress may request an evaluation of FEMA’s capacity to adequately and cost-effectively meet the needs of disaster survivors. Congress may also evaluate the roles of government and private/nonprofit entities in providing disaster housing assistance; require FEMA to collaborate with disaster housing partners to identify and outline short, interim, and long-term disaster housing solutions; and require an update to the National Disaster Housing Strategy to reflect the roles and responsibilities of housing partners, current practices and solutions, and the findings of any such evaluations. Congress may also pursue legislative solutions, including by consolidating, eliminating, or revising existing authorities and programs, or creating new programs that address unmet needs.

Feb 26, 2019

Medicaid Disproportionate Share Hospital (DSH) Reductions

Feb 26, 2019

Iran: Efforts to Preserve Economic Benefits of the Nuclear Deal

Feb 26, 2019

Redirecting Army Corps of Engineers Civil Works Resources During National Emergencies

Feb 26, 2019

Venezuela: Overview of U.S. Sanctions Policy

Feb 25, 2019

Digital Services Taxes (DSTs): Policy and Economic Analysis

Several countries, primarily in Europe, and the European Commission have proposed or adopted taxes on revenue earned by multinational corporations (MNCs) in certain “digital economy” sectors from activities linked to the user-based activity of their residents. These proposals have generally been labeled as “digital services taxes” (DSTs). For example, beginning in 2019, Spain is imposing a DST of 3% on online advertising, online marketplaces, and data transfer service (i.e., revenue from sales of user activities) within Spain. Only firms with 750 million in worldwide revenue and 3 million in revenues with users in Spain are to be subject to the tax. In 2020, the UK plans to implement a 3% DST that would apply only to businesses whose revenues exceed £25 million per year and groups that generate global revenues from search engines, social media platforms, and online marketplaces in excess of £500 million annually. The UK labels its DST as an “interim” solution until international tax rules are modified to allow countries to tax the profits of foreign MNCs if they have a substantial enough “digital presence” based on local users. The member states of the European Commission are also actively considering such a rule. These policies are being considered and enacted against a backdrop of ongoing, multilateral negotiations among members and nonmembers of the Organization for Economic Cooperation and Development (OECD). These negotiations, prompted by discussions of the digital economy, could result in significant changes for the international tax system. Proponents of DSTs argue that digital firms are “undertaxed.” This sentiment is driven in part by some high-profile tech companies that reduced the taxes they paid by assigning ownership of their income-producing intangible assets (e.g., patents, marketing, and trade secrets) to affiliate corporations in low-tax jurisdictions. Proponents of DSTs also argue that the countries imposing tax should be entitled to a share of profits earned by digital MNCs because of the “value” to these business models made by participation of their residents through their content, reviews, purchases, and other contributions. Critics of DSTs argue that the taxes target income or profits that would not otherwise be subject to taxation under generally accepted income tax principles. U.S. critics, in particular, see DSTs as an attempt to target U.S. tech companies, especially as minimum thresholds are high enough that only the largest digital MNCs (such as Google, Facebook, and Amazon) will be subject to these specific taxes. DSTs are structured as a selective tax on revenue (akin to an excise tax) and not as a tax on corporate profits. A tax on corporate profits taxes the return to investment in the corporate sector. Corporate profit is equal to total revenue minus total cost. In contrast, DSTs are “turnover taxes” that apply to the revenue generated from taxable activities regardless of costs incurred by a firm. Additionally, international tax rules do not allow countries to tax an MNC’s cross-border income solely because their residents purchase goods or services provided by that firm. Rather, ownership of assets justifies a country to be allocated a share of that MNC’s profits to tax. Under these rules and their underlying principles, the fact that a country’s residents purchase digital services from an MNC is not a justification to tax the MNC’s profits. DSTs are likely to have the economic effect of an excise tax on intermediate services. The economic incidence of a DST is likely to be borne by purchasers of taxable services (e.g., companies paying digital economy firms for advertising, marketplace listings, or user data) and possibly consumers downstream from those transactions. As a result, economic theory and the general body of empirical research on excise taxes predict that DSTs are likely to increase prices in affected markets, decrease quantity supplied, and reduce investment in these sectors. Compared to a corporate profits tax—which, on balance, tends to be borne by higher-income shareholders—DSTs are expected to be more regressive forms of raising revenue, as they affect a broad range of consumer goods and services. Certain design features of DSTs could also create inequitable treatment between firms and increase administrative complexity. For example, minimum revenue thresholds could be set such that primarily large, foreign (and primarily U.S.) corporations are subject to tax. Requirements to identify the location of users could also introduce significant costs on businesses. This report traces the emergence of DSTs from multilateral tax negotiations in recent years, addresses various purported policy justifications of DSTs, provides an economic analysis of their effects, and raises several issues for Congress.

Feb 25, 2019

Low Interest Rates, Part 1: Economic and Fiscal Implications

Feb 25, 2019

Low Interest Rates, Part 2: Implications for the Federal Reserve

Interest rates have been unusually low by historical standards since the 2007-2009 financial crisis. This Insight discusses the implications for monetary policy, and it frames this discussion in terms of the neutral interest rate. It is the sequel to a previous Insight, Low Interest Rates, Part 1. For background on monetary policy, see CRS Report RL30354, Monetary Policy and the Federal Reserve: Current Policy and Conditions, by Marc Labonte. The Neutral Interest Rate The neutral interest rate (sometimes called r*) is conceptual and not directly observed—it is the idea that at any given time there is some level for the federal funds rate that will neither stimulate nor hold back economic activity. The Federal Reserve (Fed) implements monetary policy by targeting the federal funds rate. The Fed raises or lowers the federal funds rate in an attempt to properly balance the tradeoff between its statutorily mandated goals—full employment and stable price inflation. Economists judge monetary policy to be contractionary or stimulative based on whether the actual federal funds rate is above or below, respectively, the neutral rate. As shown in Figure 1, monetary policy was contractionary for most of the 1980s because the federal funds rate was above the estimated neutral rate. Since the crisis, monetary policy has been stimulative because the federal funds rate has been below the estimated neutral rate. Figure 1. Real Neutral Rate and Federal Funds Rate 1961-2018 / Source: New York Fed; St. Louis Fed, FRED database. Note: Rates are adjusted for inflation using Consumer Price Index. Since the crisis, the federal funds rate (as well as long-term rates) has been very low by historical standards; it was nearly zero from 2008 to 2015. Before the crisis, many economists assumed that the real (inflation-adjusted) neutral rate was about 2% and fairly constant over time; at the prevailing inflation rate of 2%, that would translate to a neutral rate of about 4%. If the actual federal funds rate is consistently below the neutral rate—in other words, if monetary policy is persistently stimulative—at full employment, inflation would be expected to rise. Yet the actual federal funds rate has now been below 4% since 2008 without any noticeable sustained increase in inflation, even as the economy has returned to full employment. This outcome implies that the neutral rate must have fallen. According to the estimate shown in Figure 1, the real neutral rate has fallen by more than a percentage point since 2008. Implications for Monetary Policy The decline in the neutral rate has implications for monetary policy. It means that any given federal funds rate is less stimulative or more contractionary than it would have been before the neutral rate fell. As a result, a simple historical comparison of prevailing federal funds rates before and after the crisis would give the misleading impression that monetary policy since the crisis has been more stimulative than it actually was. (Also, inflation has been lower since the crisis than it was in earlier decades, so the difference in real rates is smaller than the difference in actual rates.) Although the neutral rate is a useful concept for framing monetary policy decisions, uncertainty about its true value points to the difficulty of basing policy on a variable that cannot be directly observed. Current policy illustrates why that is the case. Fed Chairman Jerome Powell stated in January that “our policy rate is now in the range of the [Fed’s] estimates of neutral.” If the Fed is correct, the Fed faces some risk that the economy will overheat and inflation will rise with a neutral monetary policy at full employment. But if the Fed has incorrectly estimated that the neutral rate has fallen more than it has, then monetary policy is still stimulative and the risk of inflation rising is greater. In light of this uncertainty, the neutral rate could be de-emphasized in policymaking, but without it, policy decisions may become less forward-looking, which could lead to worse outcomes because of lags between policy changes and economic outcomes. De-emphasizing the neutral rate would also be problematic for those advocating that the Fed rely on policy rules, as the neutral rate is a key variable in standard policy rules (such as the “Taylor rule”). H.R. 10, which passed the House in the 115th Congress, is an example of legislation that would have required the Fed to compare its monetary policy decisions to a policy rule. A lower neutral rate also has implications for the Fed’s ability to use monetary stimulus to fight the next economic downturn. Because the neutral rate is low and the inflation rate is low, the federal funds rate is currently closer to the “zero lower bound” than it has been in previous expansions. That means the Fed has limited ability to use conventional monetary stimulus to respond to a future downturn because interest rates cannot be cut (significantly) below zero. As a result, the Fed is more likely to need to use unconventional monetary stimulus, such as “quantitative easing,” to combat a future downturn.

Feb 25, 2019

Department of Defense Use of Other Transaction Authority: Background, Analysis, and Issues for Congress

The Department of Defense (DOD) obligates more than $300 billion annually to buy goods and services, and to support research and development. Most of these acquisitions are governed by procurement statutes and regulations found in Title 10 (and parts of other select titles) of the United States Code, the Federal Acquisition Regulation (FAR), and the Defense Federal Acquisition Regulation Supplement. Under certain circumstances, DOD can enter into an other transaction (OT) agreement instead of a traditional contract. OT agreements are generally exempt from federal procurement laws and regulations. These exemptions grant government officials the flexibility to include, amend, or exclude contract clauses and requirements that are mandatory in traditional procurements (e.g., termination clauses, cost accounting standards, payments, audit requirements, intellectual property, and contract disputes). OT authorities also grant more flexibility to structure agreements in numerous ways, including joint ventures; partnerships; consortia; or multiple agencies joining together to fund an agreement encompassing multiple providers. Other transaction agreements are legally binding contracts; they are referred to as agreements to distinguish them from the traditional procurement contracts governed by the FAR and procurements laws. Other transaction authorities are set forth in two sections of law: 10 U.S.C. 2371—granting authority to use OTs for basic, applied, and advanced research projects. 10 U.S.C. 2371b—granting authority to use OTs for prototype projects and follow-on production. Under this authority, a prototype project can only be conducted if at least one nontraditional defense contractor significantly participates in the project; all significant participants are small businesses or nontraditional defense contractors; at least one-third of the total cost of the prototype project is provided by nongovernment participants; or the senior procurement acquisition official provides a written justification for using an OT. Follow-on production can only be conducted when the underlying prototype OT was competitively awarded, and the prototype project was successfully completed. OTs have the potential to provide significant benefits to DOD, including attracting nontraditional contractors with promising technological capabilities to work with DOD, establishing a mechanism to pool resources with other entities to facilitate development of, and obtain, state-of-the-art dual-use technologies, and offering a unique mechanism for DOD to invest in, and influence the direction of, technology development. A number of analysts warn that along with the potential benefits come significant risks, including potentially diminished oversight and exemption from laws and regulations designed to protect government and taxpayer interests. In FY2017, DOD obligated $2.1 billion on prototype OT agreements, representing less than 1% of contract obligations for the year. However, the use of OTs is expected to grow at a rapid pace, due in part to recent statutory changes expanding other transaction authorities. A number of analysts and officials have raised concerns that if DOD uses OTs in ways not intended by Congress—or is perceived to abuse the authority—Congress could clamp down on the authority. Generally, DOD lacks authoritative data that can be used to measure and evaluate the use of other transaction authorities.

Feb 22, 2019

Trump Administration Tariff Actions (Sections 201, 232, and 301): Frequently Asked Questions

The Constitution grants Congress the sole authority over the regulation of foreign commerce. Over the past several decades, Congress has authorized the President to adjust tariffs and other trade restrictions in certain circumstances through specific trade laws. Using these delegated authorities under three trade laws, President Trump has imposed increased tariffs, largely in the range of 10% - 25%, on a variety of U.S. imports to address concerns related to national security, injury to competing industries, and China’s trade practices on forced technology transfer and intellectual property rights, among other issues. Several U.S. trade partners argue that these tariff actions violate existing U.S. commitments under multilateral and bilateral or regional trade agreements and have imposed tariffs on U.S. exports in retaliation. Congress continues to actively examine and debate these tariffs, and several bills have been introduced either to expand, limit, or revise existing authorities. U.S. Trade Laws Authorizing the President’s Tariff Actions Section 201 of the Trade Act of 1974—Allows the President to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry. Section 232 of the Trade Expansion Act of 1962—Allows the President to adjust imports if the Department of Commerce finds certain products are imported in such quantities or under such circumstances as to threaten to impair U.S. national security. Section 301 of the Trade Act of 1974—Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce. The President’s recent tariff actions raise a number of significant issues for Congress. These issues include the economic effects of tariffs on firms, farmers, and workers, and the overall U.S. economy, the appropriate use of delegated authorities in line with congressional intent, and the potential implications and impact of these measures for broader U.S. trade policy, particularly with respect to the U.S. role in the global trading system. The products affected by the tariff increases include washing machines, solar products, steel, aluminum, and numerous imports from China. Retaliatory tariffs are affecting several U.S. exports, including agricultural products such as soybeans and pork, motor vehicles, steel, and aluminum. Using 2017 values, U.S. imports subject to the increased tariffs accounted for 12% of annual U.S. imports, while exports subject to retaliatory tariffs accounted for 8% of annual U.S. exports. A pending Section 232 investigation on motor vehicle and parts imports could result in increased tariffs on more than $360 billion of imports, and the President has stated that additional tariffs could be imposed on imports from China absent a negotiated agreement to address certain Chinese trade practices of longstanding concern to the United States. U.S. Imports and Exports Affected by the Recent Tariff Actions / Sources: CRS analysis of U.S. import data from the U.S. Census Bureau and trade partner data from Global Trade Atlas IHS Markit. Although the consensus among most economists is that the tariffs are likely to have a negative effect on the U.S. economy overall, they may have both costs and benefits across different market sectors and actors. Import tariffs are effectively a tax on domestic consumption and thus increase costs for U.S. consumers and downstream industries that use products subject to tariffs. Retaliatory tariffs create disadvantages for U.S. exports in foreign markets, and can lead to fewer sales of U.S. products abroad and depressed prices. However, domestic producers who compete with affected imports can benefit by being able to charge higher prices for their goods. The Administration also argues the tariffs may have an indirect benefit if they result in tariff reductions by U.S. trading partners and lead to resolution of U.S. trade concerns affecting key sectors of the U.S. economy. Economic analyses of the tariff actions estimate a range of potential effects, but generally suggest a 0.1%-0.2% reduction in U.S. gross domestic product (GDP) growth annually owing to the actions to date. The economic effects of the President’s actions are likely to be central to ongoing congressional debate on legislation to alter the President’s tariff authority.

Feb 22, 2019

U.S.-Mexico-Canada (USMCA) Trade Agreement

Feb 22, 2019

The 2018 Farm Bill (P.L. 115-334): Summary and Side-by-Side Comparison

Congress sets national food and agriculture policy through periodic omnibus farm bills that address a broad range of farm and food programs and policies. The 115th Congress established the direction of farm and food policy for five years through 2023 by enacting the Agricultural Improvement Act of 2018, which the President signed into law on December 20, 2018, as P.L. 115-334. The Congressional Budget Office (CBO) has scored the cost of programs with mandatory spending—such as nutrition programs, commodity support programs, major conservation programs, and crop insurance—in the enacted 2018 farm bill at $867 billion over a 10-year budget window of FY2019-FY2028. This amount is budget neutral compared with CBO’s baseline scenario of an extension of 2014 farm bill (P.L. 113-79) programs with no changes. CBO estimates that over the five-year life of the law (FY2019-FY2023), outlays will amount to $428 billion, or $1.8 billion above the baseline scenario. In general, the new law largely extends many major programs through FY2023, thereby providing an overlay of continuity with the existing framework of agriculture and nutrition programs even as it modifies numerous programs, alters the amount and type of program funding that certain programs receive, and exercises discretion not to reauthorize some others. The enacted 2018 farm bill extends agricultural commodity support programs largely along existing lines while modifying them in various ways. For instance, producers acquire greater flexibility, compared with prior law, to switch between the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) revenue support programs. Producers may update program yields that factor into payments under PLC, while a newly added escalator could raise a commodity’s reference price under the program. The law also makes several modifications to ARC, including introducing a trend-adjusted yield that has the potential to raise ARC revenue guarantees for producers. Other changes include an increase in marketing assistance loan rates for a number of crops and revising the definition of family farm to include nephews, nieces, and cousins, making these individuals eligible for farm program payments. The law modifies dairy programs, including renaming the Margin Protection Program as Dairy Margin Coverage (DMC) and revising it to expand the margin protection between milk prices and feed costs that milk producers may purchase, as well as lowering the cost of this coverage for the first 5 million pounds of milk produced. Loan rates under the sugar program are increased. The Supplemental Nutrition Assistance Program (SNAP), the largest domestic nutrition assistance program, is reauthorized through FY2023. The law amends SNAP in a number of ways, including making changes to policies intended to reduced errors and fraud in SNAP, limiting fees that electronic benefit transfer processors may charge, and requiring nationwide online acceptance of SNAP benefits. Not included in the enacted bill are provisions in the House-passed bill that would have expanded work requirements and SNAP employment and training programs. The enacted bill does make certain modifications to these elements of the program, such as expanding the employment and training activities that a state may provide. Beyond SNAP, the law amends programs that distribute U.S. Department of Agriculture foods to low-income households, and it increases funding for The Emergency Food Assistance Program (TEFAP). The enacted farm bill addresses agricultural conservation on several fronts. For one, it reauthorizes the two largest working lands programs—the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP)—while reducing the overall funding allocated for these two programs. It also reauthorizes the primary land retirement program, the Conservation Reserve Program (CRP), allowing it to expand from a maximum of 24 million acres in FY2019 to 27 million acres in FY2023 while offsetting the added cost of any enrollment increase through lower payments to participants. The law also expands grazing and commercial uses on CRP acres and provides options for new and limited resource producers for transitioning CRP land. The enacted 2018 farm bill addresses a range of issues of importance to rural America, including combatting substance abuse by prioritizing assistance under certain programs, by expanding broadband access and providing additional authorized appropriations to that end and by amending the definition of rural by excluding certain groups of individuals from population-based criteria. The credit title increases the maximum loan amount for guaranteed loans, and these amounts are adjusted for inflation thereafter. The ceiling for direct loans is also raised, among other changes. Among the broad and diverse array of other provisions in the law are provisions intended to facilitate the commercial cultivation, processing, and marketing of hemp. Among these, hemp with low levels of the psychoactive ingredient in marijuana is excluded from the statutory definition of marijuana. The law creates a new hemp program under USDA oversight and makes hemp an eligible crop under the federal crop insurance program. The enacted 2018 farm bill also strengthens the National Organic Program and increases funding for organic agricultural research. Within the Miscellaneous title, the livestock industry is the object of several initiatives to guard against disease outbreaks and strengthen the response to such events. These include the establishment of the National Animal Disease Preparedness Response Program and the National Animal Vaccine and Veterinary Countermeasures Bank. The law also addresses USDA organizational changes in recent years, requiring USDA to reestablish the position of Under Secretary for Rural Development and creating a Rural Health Liaison, among other changes. Among its provisions, the Forestry title addresses the accumulation of biomass in many forests and the consequent risk of wildfires by establishing, reauthorizing, and modifying various assistance programs to promote wood use and biomass removal. With these programs, policies, and initiatives codified into law, the job that remains is for USDA, other federal agencies, and entities designated by the enacted farm law to implement the will of Congress through regulatory actions and other administrative measures. As implementation of the farm law proceeds, Congress may find it prudent to monitor this process and to provide direction and feedback through the exercise of its oversight responsibilities.

Feb 22, 2019

The Army’s Optionally Manned Fighting Vehicle (OMFV) Program: Background and Issues for Congress

Feb 22, 2019

Banking Policy Issues in the 116th Congress

Regulation of the banking industry has undergone substantial changes over the past decade. In response to the 2007-2009 financial crisis, many new bank regulations were implemented pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203) or under the existing authorities of bank regulators to address apparent weaknesses in the regulatory regime. While some observers view those changes as necessary and effective, others argued that certain regulations were unjustifiably burdensome. To address those concerns, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (P.L. 115-174) relaxed certain regulations. Opponents of that legislation argue it unnecessarily pared back important safeguards, but proponents of deregulation argue additional pare backs are needed. Meanwhile, a variety of economic and technological trends continue to affect banks. As a result, the 116th Congress faces many issues related to banking, including the following: Safety and Soundness. Banks are subject to regulations designed to reduce the likelihood of bank failures. Examples include requirements to hold a certain amount of capital (which enables a bank to absorb losses without failing) and the so-called Volcker Rule (a ban on banks’ proprietary trading). In addition, anti-money laundering requirements aim to reduce the likelihood banks will execute transactions involving criminal proceeds. Banks are also required to take steps to avoid becoming victims of cyberattacks. The extent to which these regulations (i) are effective, and (ii) appropriately balance benefits and costs is a matter of debate. Consumer Protection, Fair Lending, and Access to Banking. Certain laws are designed to protect consumers and ensure that lenders use fair lending practices. The Consumer Financial Protection Bureau has authorities to regulate for consumer protection. No consensus exists on whether current regulations strike an appropriate balance between protecting consumers while ensuring access to credit and justifiable compliance costs. In addition, whether Community Reinvestment Act regulations as currently implemented effectively and efficiently encourage banks to provide services in their areas of operation is an open question. Large Banks and “Too Big To Fail.” Regulators also regulate for systemic risks, such as those associated with very large and complex financial institutions that may contribute to systemic instability. Dodd-Frank Act provisions include enhanced prudential regulation for certain large banks and changes to resolution processes in the event one fails. In addition, bank regulators imposed additional capital requirements on certain large, complex banks. Subsequently, some argued that certain of these additional regulations were too broadly applied and overly stringent. In response, Congress reduced the applicability of the Dodd-Frank measures and regulators have proposed changes to the capital rules. Whether relaxing these rules will provide needed relief to these banks or unnecessarily pare back important safeguards is a debated issue. Community Banks. The number of small or “community” banks has declined substantially in recent decades. No consensus exists on the degree to which regulatory burden, market forces, and the removal of regulatory barriers to interstate branching and banking are causing the decline. What Companies Should Be Eligible for Bank Charters. To operate legally as a bank, an institution must hold a charter granted by a state or federal government. Traditionally, these are held by companies generally focused on and led by people with experience in finance. However, recently companies with a focus on technology are interested in having legal status as a bank, either through a charter from the Office of the Comptroller of the Currency or a state-level industrial loan company charter. Policymakers disagree over whether allowing these companies to operate as banks would create appropriately regulated providers of financial services or inappropriately extend government-backed bank safety nets and disadvantage existing banks. Recent Market and Economic Trends. Changing economic forces also pose issues for the banking industry. Some observers argue that increases in regulation could drive certain financial activities into a relatively lightly regulated “shadow banking” sector. Innovative financial technology may alter the way certain financial services are delivered. If interest rates rise, it could create opportunities and risks. Such trends could have implications for how the financial system performs and influence debates over appropriate banking regulations.

Feb 21, 2019

Hong Kong’s Legislative Council (Legco)

Feb 21, 2019

2019 Tax Filing Season (2018 Tax Year): Examples of Deducting Interest on Mortgage Debt and Home Equity Loans

Feb 21, 2019

The Defense Department and 10 U.S.C. 284: Legislative Origins and Funding Questions

Introduction On February 15, President Donald J. Trump confirmed recent reports that described the Administration’s consideration of Department of Defense (DOD) authorities and funds to emplace physical barriers along the U.S.-Mexico border. A White House fact sheet detailed the potential availability of up to $8.1 billion “to build the border wall”—including, among other authorities and funding sources, “up to $2.5 billion under the Department of Defense funds transferred for Support for Counterdrug Activities (Title 10 United States Code, section 284).” The full title of the referenced authority is “Support for Counterdrug Activities and Activities to Counter Transnational Organized Crime.” It is one of several DOD authorities to conduct counterdrug missions. In the context of Administration priorities along the southern border, this authority has gained congressional attention because its use is not contingent on the declaration of a national emergency. What Does 10 U.S.C. 284 Authorize? 10 U.S.C. 284 authorizes the Secretary of Defense to provide specified support to other federal departments or agencies, as well as state, local, tribal, or foreign law enforcement agencies, to conduct counterdrug activities or to counter transnational organized crime. The authority specifies 10 types of authorized domestic support, including the “construction of roads and fences and installation of lighting to block drug smuggling corridors across international boundaries of the United States.” According to Joint Chiefs of Staff guidance issued in 2014, such activities encompass “engineering support” for mobility and counter-mobility purposes and are limited to the southern border. Other authorized domestic support activities include the maintenance, repair, or upgrading of certain equipment; transportation of personnel; establishment and operation of certain bases or training facilities; counterdrug or counter-transnational organized crime training; detection, monitoring, and communication of the movement of air, sea, and surface traffic near U.S. boundaries; establishment of command, control, communications, and computer networks for interoperability; provision of linguist and intelligence analysis services; and aerial and ground reconnaissance. How Did 10 U.S.C. 284 Come to Exist? The authority traces its origins to Section 1004 of the FY1991 National Defense Authorization Act (NDAA; P.L. 101-510). The original provision authorized DOD to support the “construction of roads and fences and installation of lighting to block drug smuggling corridors across international boundaries of the United States.” Enactment of Section 1004 fit within the context of U.S. government-wide efforts to combat drugs in the 1980s—and congressional desire to assign DOD a key role. In 1988, for example, the FY1989 NDAA mandated DOD to serve as the “single lead agency ... for the detection and monitoring of aerial and maritime transit of illegal drugs into the United States.” DOD’s role in counternarcotics has long been a source of policy debate, raising questions over the use of the military to perform law enforcement functions, concerns regarding the use of force along the southern border, and the impact of such efforts on military readiness. In part due to lingering questions over whether the authorities in Section 1004 should be made permanent, Congress, for more than two decades, mandated the authority to sunset unless explicitly reauthorized. Although Section 1004 continued to be reauthorized over the years, it was not until the FY2017 NDAA (P.L. 114-328) that Congress codified the provisions of Section 1004. The current law, which does not sunset, incorporates a key change made to its scope in the FY2015 NDAA (P.L. 113-291): it authorizes DOD to support efforts to combat transnational organized crime, in addition to drugs. How Are Activities Authorized by 10 U.S.C. 284 Funded? 10 U.S.C. 284 does not address the availability of funds. DOD’s counterdrug activities, including those carried out pursuant to 10 U.S.C. 284, are funded out of the “Drug Interdiction and Counter-Drug Activities” central transfer account (CTA) in annual DOD appropriations for Defense-wide operations and maintenance (O&M). For FY2019, Defense appropriations (Division A; P.L. 115-245) provided a total of $881.5 million to this CTA, excluding $152.1 million in overseas contingency operations (OCO) counterdrug funding (primarily for activities in Afghanistan). This amount is above the President’s FY2019 base budget request of $787.5 million—including $130.3 million for domestic support (the President requested an additional $152.1 million in OCO counterdrug funding). Counterdrug funding through the CTA is disbursed through the Office of the Deputy Assistant Secretary of Defense for Counternarcotics and Global Threats. Requests for domestic counterdrug support are fielded by U.S. Northern Command (USNORTHCOM), while Joint Task Force North (JTF-N) plans and coordinates domestic counterdrug support missions. Outlook In light of President Trump’s memorandum of April 4, 2018, instructing the Secretary of Defense to support Department of Homeland Security (DHS) efforts to secure the southern border, the House Armed Services Committee held a hearing on January 29 on the topic. In congressional testimony, Under Secretary of Defense John Rood stated that 10 U.S.C. 284 has not been used by DOD to support DHS to harden ports of entry or to lay concertina wire between them. A DOD press release from February 15 stated that if DHS were to request support pursuant to 10 U.S.C. 284, it would “review and respond appropriately to any request for assistance received.” Questions related to DOD’s counterdrug authorities and funding remain and may include the following: How might the role and scope of active duty military and National Guard personnel along the border evolve with the invocation of 10 U.S.C. 284 or other authorities available to DOD to conduct counterdrug missions? What role might defense contractors play? How does the border mission fit within DOD’s priorities for counterdrug programming? If funding were reprogrammed or diverted from other DOD priorities in order to fund engineering projects along the southern border, what current counterdrug activities would be affected? In addition to FY2019 funds appropriated in DOD’s counterdrug CTA, what additional amounts may be available for the purposes of 10 U.S.C. 284 through reprogramming or transfers? How might the FY2020 budget request for DOD counterdrug activities be affected by the President’s February 15 announcement?

Feb 20, 2019

Are Excessive Fines Fundamentally Unfair?

Feb 20, 2019

Legislative Proposals to Address National Park Service Deferred Maintenance

Feb 19, 2019

Immigration: U.S. Asylum Policy

Asylum is a complex area of immigration law and policy. While much of the recent debate surrounding asylum has focused on efforts by the Trump Administration to address asylum seekers arriving at the U.S. southern border, U.S. asylum policies have long been a subject of discussion. The Immigration and Nationality Act (INA) of 1952, as originally enacted, did not contain any language on asylum. Asylum provisions were added and then revised by a series of subsequent laws. Currently, the INA provides for the granting of asylum to an alien who applies for such relief in accordance with applicable requirements and is determined to be a refugee. The INA defines a refugee, in general, as a person who is outside his or her country of nationality and is unable or unwilling to return to that country because of persecution or a well-founded fear of persecution on account of race, religion, nationality, membership in a particular social group, or political opinion. Under current law and regulations, aliens who are in the United States or who arrive in the United States, regardless of immigration status, may apply for asylum (with exceptions). An asylum application is affirmative if an alien who is physically present in the United States (and is not in removal proceedings) submits an application to the Department of Homeland Security’s (DHS’s) U.S. Citizenship and Immigration Services (USCIS). An asylum application is defensive when the applicant is in standard removal proceedings with the Department of Justice’s (DOJ’s) Executive Office for Immigration Review (EOIR) and requests asylum as a defense against removal. An asylum applicant may receive employment authorization 180 days after the application filing date. Special asylum provisions apply to aliens who are subject to a streamlined removal process known as expedited removal. To be considered for asylum, these aliens must first be determined by a USCIS asylum officer to have a credible fear of persecution. Under the INA, credible fear of persecution means that “there is a significant possibility, taking into account the credibility of the statements made by the alien in support of the alien’s claim and such other facts as are known to the officer, that the alien could establish eligibility for asylum.” Individuals determined to have a credible fear may apply for asylum during standard removal proceedings. Asylum may be granted by USCIS or EOIR. There are no numerical limitations on asylum grants. If an alien is granted asylum, his or her spouse and children may also be granted asylum, as dependents. A grant of asylum does not expire, but it may be terminated under certain circumstances. After one year of physical presence in the United States as asylees, an alien and his or her spouse and children may be granted lawful permanent resident status, subject to certain requirements. The Trump Administration has taken a variety of steps that would limit eligibility for asylum. As of the date of this report, legal challenges to these actions are ongoing. For its part, the 115th Congress considered asylum-related legislation, which generally would have tightened the asylum system. Several bills contained provisions that, among other things, would have amended INA provisions on termination of asylum, credible fear of persecution, frivolous asylum applications, and the definition of a refugee. Key policy considerations about asylum include the asylum application backlog, the grounds for granting asylum, the credible fear of persecution threshold, frivolous asylum applications, employment authorization, variation in immigration judges’ asylum decisions, and safe third country agreements.

Feb 19, 2019

Child Welfare: Purposes, Federal Programs, and Funding

Feb 19, 2019

Selected Issues for National Flood Insurance Program (NFIP) Reauthorization and Reform: Homeland Security Issues in the 116th Congress

/ NFIP Reauthorization The National Flood Insurance Program (NFIP) is the primary source of flood insurance for residential properties in the United States, with more than 5.1 million policies providing over $1.3 trillion in coverage in over 22,000 communities. Since the end of FY2017, 10 short-term NFIP reauthorizations have been enacted, and the NFIP is currently authorized until May 31, 2019. Unless reauthorized or amended by Congress, on May 31, 2019, (1) the authority to provide new flood insurance contracts will expire and (2) the authority for the NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion. A number of bills were introduced in the 115th Congress to provide longer-term reauthorization of the NFIP and numerous other changes to the program. The House passed H.R. 2874 on November 14, 2017. Three reauthorization bills were introduced in the Senate, S. 1313, S. 1368, and S. 1571; however, none of these were considered by the Senate in the 115th Congress. Premiums and Affordability Historically, Congress has asked the Federal Emergency Management Agency (FEMA) to set NFIP premiums that are simultaneously “risk-based” and “reasonable.” Except for certain subsidies, statute directs that NFIP flood insurance rates should reflect the true flood risk to the property. Properties paying less than the full risk-based rate are determined by the date when the structure was built relative to the date of the community’s Flood Insurance Rate Map (FIRM), rather than the flood risk or the policyholder’s ability to pay. Congress has directed FEMA to subsidize flood insurance for properties built before the community’s first FIRM (the pre-FIRM subsidy). When FIRMs are updated, FEMA also “grandfathers” properties at their rate from past FIRMs through a cross-subsidy. Under existing law, pre-FIRM subsidies are being phased out, whereas grandfathering is retained indefinitely. Reforming the premium structure to reflect full risk-based rates could place the NFIP on a more financially sustainable path, risk-based price signals could give policyholders a clearer understanding of their true flood risk, and a reformed rate structure could encourage more private insurers to enter the market. However, charging risk-based premiums may mean that insurance for some properties becomes unaffordable. FEMA currently does not have the authority or funding to implement an affordability program. An NFIP-funded affordability program would require either raising flood insurance rates for NFIP policyholders or diverting resources from another existing use. Properties with Multiple Losses An area of controversy involves NFIP coverage of properties that have suffered multiple flood losses. One concern is the cost to the program; another is whether the NFIP should continue to insure properties that are likely to have further losses. According to FEMA, claims on repetitive loss (RL) and severe repetitive loss (SRL) properties since 1968 amount to approximately $17 billion, or approximately 30% of claims paid. Reducing the number of RL and SRL properties, through mitigation or relocation, could reduce claims and improve the NFIP’s financial position. Under current statute, the NFIP cannot refuse to insure any property; however, from April 1, 2019, FEMA will introduce an SRL premium equal to 5% of the annual premium for SRL properties. Private Flood Insurance Private insurers play a major role in administering the NFIP through the Write-Your-Own (WYO) program, where private insurance companies are paid to issue and service NFIP policies. WYO companies take on little flood risk themselves; instead, the NFIP retains the financial risk of paying claims for these policies. Few private insurers compete with the NFIP in the primary residential flood insurance market. However, private insurer interest in providing flood coverage has increased recently, and many see private insurance as a way of transferring flood risk from the federal government to the private sector. For example, FEMA has transferred $4.322 billion of its flood risk to the capital markets through reinsurance in 2017, 2018, and 2019. Private flood insurance may offer some potential advantages over the NFIP, including more flexible policies, broader coverage, integrated coverage with homeowners’ insurance, business interruption insurance, or lower-cost coverage for some consumers. Private marketing also might increase the overall amount of flood coverage purchased. More people purchasing flood insurance, either NFIP or private, could help to reduce the amount of disaster assistance provided by the federal government. Increasing private insurance, however, may have some disadvantages compared to the NFIP. Unlike the NFIP, private coverage availability would not be guaranteed to all floodplain residents, and consumer protections could vary in different states. In addition, private sector competition might increase the financial exposure and volatility of the NFIP, as private markets likely will seek out policies that offer the greatest likelihood of profit. In the most extreme case, the private market might “cherry-pick” (i.e., adversely select) the profitable, lower-risk NFIP policies that are “overpriced” either due to cross-subsidization or imprecise rate structures. This could leave the NFIP with a higher density of actuarially unsound policies that are directly subsidized or benefit from cross-subsidization. An increase in private flood insurance policies that “depopulates” the NFIP also may undermine the NFIP’s ability to generate revenue, reducing the ability or extending the time required to repay previously incurred debt. The NFIP’s role has historically been broader than just providing insurance. As currently authorized, the NFIP also encompasses social goals to provide flood insurance in flood-prone areas to those who otherwise would not be able to obtain it and to reduce the government’s cost after floods. The NFIP has tried to reduce the impact of floods through flood-mapping and mitigation efforts. It is unclear how effectively the NFIP could play this broader role if private insurance became a large part of the flood marketplace. The majority of funding for flood mapping and floodplain management comes from the Federal Policy Fee (FPF), paid by all NFIP policyholders. To the extent that the private flood insurance market grows and policies move from the NFIP to private insurers, FEMA would no longer collect the FPF on those policies and less money would be available for floodplain mapping and management.

Feb 19, 2019

A Brief Introduction to the National Flood Insurance Program: Homeland Security Issues in the 116th Congress

The National Flood Insurance Program (NFIP) is authorized by the National Flood Insurance Act of 1968 (Title XIII of P.L. 90-448, as amended, 42 U.S.C. §§4001 et seq.) and is the primary source of flood insurance coverage for residential properties in the United States. The NFIP has two main policy goals: (1) to provide access to primary flood insurance, thereby allowing for the transfer of some of the financial risk from property owners to the federal government, and (2) to mitigate and reduce the nation’s comprehensive flood risk through the development and implementation of floodplain management standards. A longer-term objective of the NFIP is to reduce federal expenditure on disaster assistance after floods. The NFIP engages in many “noninsurance” activities in the public interest: it identifies and maps flood hazards, disseminates flood-risk information through flood maps, requires community land-use and building-code standards, contributes to community resilience by providing a mechanism to fund rebuilding after a flood, and offers grants and incentive programs for household- and community-level investments in flood-risk reduction. Over 22,000 communities participate in the NFIP, with more than 5.1 million policies providing over $1.3 trillion in coverage. The program collects more than $4.7 billion in annual revenue from policyholders’ premiums, fees, and surcharges. Floods are the most common natural disaster in the United States, and all 50 states have experienced floods in recent years. Structure of the NFIP The NFIP is managed by the Federal Emergency Management Agency (FEMA) through its subcomponent, the Federal Insurance and Mitigation Administration (FIMA). Communities are not legally required to participate in the program; they participate voluntarily to obtain access to NFIP flood insurance. Communities choosing to participate in the NFIP are required to adopt land-use and control measures with effective enforcement provisions and to regulate development in the floodplain. FEMA has set forth in federal regulations the minimum standards required for participation in the NFIP; however, these standards have the force of law only if they are adopted and enforced by a state or local government. Legal enforcement of floodplain management standards is the responsibility of participating NFIP communities, which also can elect to adopt higher standards to mitigate flood risk. The NFIP approaches the goal of reducing comprehensive flood risk primarily by requiring participating communities to collaborate with FEMA to develop and adopt flood maps called Flood Insurance Rate Maps (FIRMs). Property owners in the mapped Special Flood Hazard Area (SFHA), defined as an area with a 1% annual chance of flooding, are required to purchase flood insurance as a condition of receiving a federally backed mortgage. This mandatory purchase requirement is enforced by the lender rather than FEMA. Property owners who do not obtain flood insurance when required may find that they are not eligible for certain types of disaster assistance after a flood. Financial Standing of the NFIP The NFIP is funded from (1) premiums, fees, and surcharges paid by NFIP policyholders; (2) annual appropriations for flood-hazard mapping and risk analysis; (3) borrowing from the Treasury when the balance of the National Flood Insurance Fund is insufficient to pay the NFIP’s obligations (e.g., insurance claims); and (4) reinsurance proceeds if NFIP losses are sufficiently large. The NFIP was not designed to retain funding to cover claims for truly extreme events; instead, the statute allows the program to borrow money from the Treasury for such events. For most of the NFIP’s history, the program was able to borrow relatively small amounts from the Treasury to pay claims and then repay the loans with interest. However, this changed when Congress increased the borrowing limit to $20.775 billion to pay claims in the aftermath of the 2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma). Congress increased the borrowing limit again in 2013, after Hurricane Sandy, to the current limit of $30.425 billion. The 2017 hurricane season was the second-largest claims year in the NFIP’s history, with approximately $10.5 billion currently paid in response to Hurricanes Harvey, Irma, and Maria. At the beginning of the 2017 hurricane season, the NFIP owed $24.6 billion. On September 22, 2017, the NFIP borrowed the remaining $5.825 billion from the Treasury to cover claims from Hurricane Harvey, reaching the NFIP’s borrowing limit. On October 26, 2017, Congress canceled $16 billion of NFIP debt in order to pay claims for Hurricanes Harvey, Irma, and Maria. FEMA borrowed another $6.1 billion on November 9, 2017, bringing the debt back up to $20.525 billion. For the 2018 hurricane season, as of November 2018, the NFIP had paid $117 million in claims for Hurricanes Florence and Michael. As of January 2019, the NFIP has $9.9 billion of remaining borrowing authority. The NFIP’s debt is conceptually owed by current and future participants in the NFIP, as the insurance program itself owes the debt to the Treasury and pays for accruing interest on that debt through the premium revenues of policyholders. Since 2005, the NFIP has paid $2.82 billion in principal repayments and $4.2 billion in interest to service the debt through the premiums collected on insurance policies. The October 2017 cancellation of $16 billion of NFIP debt represents the first time that NFIP debt has been canceled. NFIP Reauthorization Since the end of FY2017, Congress has enacted 10 short-term NFIP reauthorizations. The NFIP is currently authorized until May 31, 2019. The statute for the NFIP does not contain a comprehensive expiration, termination, or sunset provision for the whole of the program. Rather, the NFIP has multiple different legal provisions that generally tie to the expiration of key components of the program. Unless reauthorized or amended by Congress, the following will occur on May 31, 2019: (1) the authority to provide new flood insurance contracts will expire; however, insurance contracts entered into before the expiration would continue until the end of their policy term and (2) the authority for the NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion.

Feb 19, 2019

Medicare Graduate Medical Education Payments: An Overview

Feb 19, 2019

Can the Department of Defense Build the Border Wall?

Feb 18, 2019

The Transportation Infrastructure Finance and Innovation Act (TIFIA) Program

The Transportation Infrastructure Finance and Innovation Act (TIFIA) program, administered by the Department of Transportation’s Build America Bureau, provides long-term, low-interest loans and other types of credit assistance for the construction of surface transportation projects (23 U.S.C. §601 et seq.). The TIFIA program was reauthorized from FY2016 through FY2020 in the Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94). Direct funding for the TIFIA program is authorized at $300 million for each of FY2019 and FY2020. Additionally, state departments of transportation can use other federal-aid highway grant money, both formula and discretionary, to subsidize much larger loans. To date, states have not had to use other grant funding to subsidize credit assistance because the TIFIA program has a relatively large unexpended funding balance. The primary goal of the TIFIA program, historically, has been to enable the construction of large-scale surface transportation projects by providing financing to complement state, local, and private investment. The TIFIA program has been one of the main ways in which the federal government has encouraged the development of public-private partnerships (P3s) and private financing in surface transportation often backed by new, but sometimes uncertain, revenue sources such as highway tolls, other types of user charges, and incremental real estate taxes. To be eligible for TIFIA assistance, a project sponsor must be deemed creditworthy, that is, a good risk for repaying its debts, and must have a dedicated source of revenue for repayment. Project sponsors, therefore, are required to develop a funding mechanism, whether this is a new user fee or tax or the repurposing of existing fees and taxes. Changes to the TIFIA program have sought to make TIFIA assistance more accessible to less costly projects, but so far every TIFIA-supported project has cost $175 million or more. Financing projects instead of relying on pay-as-you go funding from taxes and other existing revenues can mean such projects can be constructed years earlier. TIFIA, therefore, is a means to accelerate project delivery and the benefits that flow from new infrastructure. The TIFIA program is also a relatively low-cost way for the federal government to support surface transportation projects because it relies on loans, not grants, and the TIFIA assistance is typically one-third or less of project costs. Another advantage from the federal point of view is that a relatively small amount of budget authority can be leveraged into a large amount of loan capacity. Because the government expects its loans to be repaid, an appropriation need only cover administrative costs and the subsidy cost of credit assistance. Program funding of $300 million can support approximately $4 billion in TIFIA loans. Since its enactment in 1998, the TIFIA program has provided assistance of $32 billion to 74 projects with a total cost of about $117 billion (in FY2018 inflation-adjusted dollars). All but one TIFIA credit agreement has been a loan; the exception is a loan guarantee. The average TIFIA-supported project cost is $1.5 billion, and the average TIFIA loan is $430 million (both in FY2018 dollars). About two-thirds of TIFIA loans have gone to highway and highway bridge projects, and another quarter to public transportation. TIFIA has supported at least one project in 21 states, the District of Columbia, and Puerto Rico, but the top 10 states account for about 80% of the 74 projects supported. The TIFIA program is likely to be considered in the 116th Congress during the reauthorization of the surface transportation programs. Program funding is one issue that may be discussed, because some stakeholders would like more budget authority despite a relatively large unexpended balance and the existing authority of states to use grant funding to pay the subsidy cost of credit assistance. Criticisms of the program and its implementation include the often slow decisionmaking process, the program’s increasing risk aversion, and the limitation of the federal share of project costs to 33%, despite a statutory limit of 49%. Because of the relatively large unexpended balance, Congress might considered broadening the use of TIFIA assistance to nonsurface transportation and nontransportation infrastructure. Another option might be to create a national infrastructure bank, a federal infrastructure financing entity largely independent of other executive branch agencies, to take the place of TIFIA and other federal infrastructure credit assistance programs.

Feb 15, 2019

The Venezuela Regional Humanitarian Crisis and COVID-19

Feb 15, 2019

Supreme Court Cert Grant Creates Uncertainty in Post-Heller World: Part I

Feb 14, 2019

Where’s My Refund? A Look at Tax Refund Trends over Time and Across Income Levels

The issue of tax refunds has received robust media attention as 2018 tax returns are filed in early 2019. For individual income tax filers, 2018 was the first year in which the major changes signed into law by President Trump at the end of 2017 (P.L. 115-97) became effective. What Determines Tax Refunds? A taxpayer’s tax refund (or payment) in a given year is determined by income tax liability: what a taxpayer owes in federal income tax; and income tax withholding: the amount that the taxpayer has paid toward that tax bill during the year, often through their employer withholding income taxes from their paychecks. The refund (or amount owed) is the liability less the amount already paid through withholding. For many low-income taxpayers, the amount of their refund is largely determined by refundable credits. Refundable credits, unlike nonrefundable credits, are not limited to a taxpayer’s tax liability. Thus, taxpayers with little to no income tax liability—including many low-income taxpayers—can receive the full value of the credit. The amount of the refundable credit that exceeds tax liability is received as a refund. Income Tax Liability Income tax liability depends on several factors—including where a taxpayer lives, the number of children they have, and whether they own their home, for example. Although some taxpayers experienced no changes in their economic or personal circumstances, the numerous changes that P.L. 115-97 made to the tax code could result in these same taxpayers experiencing a change in their tax liability. The Tax Policy Center estimates that approximately 80% of taxpayers will have a lower income tax liability in 2018 as a result of P.L. 115-97, while 5% will experience a tax increase. Income Tax Withholding The amount of income tax withheld from employees’ paychecks is determined by withholding tables that the IRS provides employers. Employees can adjust this amount (both upward and downward) by filing IRS Form W-4 with their employer. A 2018 Government Accountability Office (GAO) report provides a detailed overview of the withholding process and examples of withholding tables. Taxpayers who do not withhold enough throughout the year to pay their income tax in full are said to be “underwithheld” and owe tax to settle the balance, while those whose total withholdings are greater than their liability are said to be “overwithheld” and receive a tax refund. Generally, a taxpayer’s federal income tax refund has no bearing on their tax liability. However, a change in tax liability can affect a taxpayer’s refund. Trends in Tax Refunds Most taxpayers receive a federal tax refund after filing their individual income tax returns. Throughout the 1990s, about 70% of tax returns filed resulted in a refund (see Figure 1). The share of tax returns filed resulting in a refund increased following the tax cuts of the early 2000s. Over the past decade, on average, 77% of returns filed have resulted in a refund. Figure 1. Share of Returns with Tax Refund, 1990-2016 / Source: Internal Revenue Service (IRS), Individual Statistics of Income (SOI), Table A: Selected Income and Tax Items for Selected Years. Note: The shaded region includes returns filed in the 1990s before tax cuts were enacted in the early 2000s (e.g., P.L. 107-16). While the share of taxpayers receiving a refund has remained relatively stable over time, the average refund amount has increased, even after adjusting for inflation. The average tax refund in 1990 was $1,261 in 2016 dollars (see Figure 2). By 2016, the average tax refund was $2,229. Refunds were higher following the start of the Great Recession, reflective of lower incomes and stimulus-oriented tax policies. Refunds subsequently declined as the economy recovered and many tax stimulus policies expired. Figure 2. Average Tax Refund, 1990-2016 / Source: IRS, Individual SOI, Table A: Selected Income and Tax Items for Selected Years. Note: Nominal dollars adjusted for inflation using the CPI-U. Lower-income taxpayers are more likely to receive a tax refund than higher-income taxpayers (see Figure 3). The amount of refund, however, generally increases for higher-income taxpayers (see Table 1). The composition of the refund also tends to change across the income distribution. Specifically, for lower-income taxpayers, a larger share of their refund is due to the refundable portion of refundable tax credits (the earned income tax credit or the additional child tax credit, for example). Higher-income taxpayers generally cannot claim refundable tax credits. For these taxpayers, their tax refund is a function of the amount of tax withheld. Figure 3. Share of Returns with Refunds and Share of Refund from Refundable Credits by Adjusted Gross Income (AGI) Category, 2016 / Source: CRS calculations using data from IRS Individual SOI, All Returns: Tax Liability, Tax Credits, and Tax Payments. Table 1. Tax Refunds by Income Category, 2016 AGI Category Number of Returns Number of Returns with Refund Number of Returns with Refundable Portion of Refundable Credits Average Refund Average Refundable Credit Less than $20,000 43,733,263 36,013,997 16,138,041 $1,564 $1,056 $20,000 to $50,000 45,488,420 38,170,631 11,510,062 $2,242 $835 $50,000 to $100,000 33,199,220 24,372,272 1,075,571 $2,198 $48 $100,000 to $200,000 18,858,241 11,650,297 41,259 $2,728 $3 $200,000 to $1 million 6,475,930 2,418,309 24 $3,694 $0 $1 million or more 424,442 88,956 0 $29,154 $0 All Returns 150,272,157 113,547,753 29,138,314 $2,229 $0 Source: CRS calculations using data from IRS Individual SOI, All Returns: Tax Liability, Tax Credits, and Tax Payments. Notes: All returns include returns with no adjusted gross income. Thus, the sum of the values in each income category is not necessarily equal to the value for all returns. Filing 2018 Tax Returns: Observations for the 2019 Tax Filing Season There is limited information regarding the effect of P.L. 115-97 and the subsequent changes in withholdings on tax refunds. The 2018 GAO report indicated that the percentage of taxpayers overwithheld (receiving refunds) could decline by 3 percentage points in 2018, while the number of taxpayers underwithheld (owing taxes) could increase by 3 percentage points. The report did not, however, provide any information on how the value of tax refunds might change for taxpayers filing their 2018 taxes. The first filing statistics of the 2019 tax filing season suggest that refunds are down. In a tweet, the Department of the Treasury warned that this information was based on a small sample, suggesting that the actual effects of recent changes on 2018 tax refunds will not be known until the filing season is over.

Feb 13, 2019

Defense Primer: Emerging Technologies

Feb 12, 2019

The Federal Income Tax: How Did P.L. 115-97 Change Marginal Income Tax Rates?

At the end of 2017, President Trump signed into law P.L. 115-97, which is commonly referred to as the Tax Cuts and Jobs Act, or TCJA. (The title of the bill as passed by the House was the Tax Cuts and Jobs Act, but it was eliminated before final passage under the reconciliation process used to consider the bill in the Senate.) This law made numerous changes to the federal income tax for individuals and businesses. Of the many changes made to individual income tax provisions, the law temporarily changed marginal tax rates. These changes are currently in effect from 2018 through the end of 2025. What Are Marginal Income Tax Rates? For many taxpayers, calculating federal income tax liability can be broken down into three main steps Taxpayers calculate the amount of income subject to taxation (i.e., their taxable income). Taxpayers apply marginal income tax rates to their taxable income to determine their “pre-tax credit” income tax liability. Taxpayers subtract tax credits from their pre-tax credit income tax liability to determine their final income tax liability. Marginal income tax rates are the tax rates applied to the last dollar of taxable income. Taxable income is often equal to total income minus the standard deduction or the sum of itemized deductions, whichever is greater. Specific marginal rates apply over discrete ranges of taxable income. For example, as illustrated below, if a married taxpayer has $750,000 of taxable income, only the amount above $600,000—or $150,000—is subject to a marginal rate of 37%, not the entire $750,000. Note: The maximum taxable income displayed in this graphic and all subsequent graphics is $1,000,000. This Insight looks only at statutory marginal tax rates and not effective marginal tax rates, which may differ. Effective marginal tax rates are the amount paid in tax on the next dollar of income, taking into account interactions with other features of the tax system. Thus, effective marginal tax rates are a function of (1) a taxpayer’s statutory marginal tax rate; and (2) interactions with other credits, deductions, exemptions, and special provisions in the tax code. Of note, capital gain or dividend income is taxed at different rates. In addition, some taxpayers may be subject to the alternative minimum tax (AMT), which in addition to a different definition of taxable income has different marginal tax rates. For a visualization of how federal income tax liability is calculated, see CRS Infographic IG10011, The U.S. Individual Income Tax System, 2018. How Did Marginal Income Tax Rates Change? Below are visualizations of marginal income tax rates in 2018 before and after the changes made by the TCJA (P.L. 115-97). The pre-TCJA rates are gray (what the 2018 marginal tax rates would have been, had P.L. 115-97 not become law), while the new marginal tax rates are pink. The three figures reflect the tax rates for taxpayers who file their federal income taxes as single filers (generally unmarried individuals without dependents), head of household filers (generally unmarried individuals with dependents, like a single parent), and married couples who file jointly (most married couples file their taxes this way). Several patterns are visible in these figures First, the lowest-income taxpayers generally see no change in their marginal tax rates since the 10% tax bracket is unchanged by the law. This is illustrated when the height of the pink and gray rectangles are the same. Second, for many medium- and upper-income taxpayers, their marginal tax rates are often lower. This is illustrated when the height of a pink rectangle is below the height of a gray rectangle for a given range of taxable income. Third, for single and head of household filers, and to a lesser extent married joint filers, there is a range of taxable income subject to higher marginal tax rates under the new tax law. This is illustrated when the height of a pink rectangle is above the height of a gray rectangle for a given range of taxable income. Each of these points is discussed in detail for a given filing status. Importantly, marginal tax rates are not the only factor that determines whether an individual has a lower or higher tax liability as a result of P.L. 115-97. A broad constellation of factors can result in taxpayers receiving a tax cut or a tax increase as a result of the TCJA. These factors include, but are not limited to, where the taxpayer lives, the number of children they have, whether they incurred significant medical expenses, and whether they own a home. Single Filers / For single filers, the TCJA left unchanged, reduced, or increased marginal income tax rates over different ranges of taxable income. For the lowest-income taxpayers, the 10% tax bracket was unchanged by the law and applied to the first $9,525 of taxable income. For taxable income greater than $9,525 up to $157,500, marginal rates are lower under the TCJA. Marginal rates are higher under the TCJA between $157,500 and $424,950 of taxable income (excluding a rate reduction between $195,450 and $200,000 of taxable income). The marginal tax rate on taxable income between $424,950 and $426,700 was unchanged by the TCJA. For taxable income above $426,700, marginal rates are lower under TCJA. Head of Household Filers / For head of household filers, the TCJA left unchanged, reduced, or increased marginal income tax rates over different ranges of taxable income. For the lowest-income taxpayers, the 10% tax bracket was unchanged by the law and applies to the first $13,600 of taxable income. For taxable income greater than $13,600 up to $157,500, marginal rates are lower under the TCJA. Marginal rates are higher under TCJA between $157,500 and $424,950 of taxable income. The marginal tax rate on taxable income between $424,950 and $453,350 was unchanged by the TCJA. For taxable income above $453,350, marginal rates are lower under TCJA. Married Couples Filing Jointly / For married couples filing jointly, the TCJA left unchanged, reduced, or increased marginal income tax rates over different ranges of taxable income. For the lowest-income taxpayers, the 10% tax bracket was unchanged by the law and applies to the first $19,050 of taxable income. For taxable income greater than $19,050 up to $400,000, marginal rates are lower under the TCJA. The marginal income rate is higher under TCJA between $400,000 and $424,950 of taxable income. The marginal tax rate on taxable income between $424,950 and $480,050 was unchanged by the TCJA. For taxable income above $480,050, marginal rates are lower under TCJA. Acknowledgments Kevin Borden created the data visualizations used in this Insight.

Feb 12, 2019

Social Security Dual Entitlement

Feb 12, 2019