Aurelia Butler

Good morning. After weeks of climbing higher, yields fell on Friday, setting off a relief rally in stocks. Suspects include dovish Fedspeak and erratic services activity data. Neither seems terribly durable to us. Higher for longer is the unmistakable drumbeat coming from the Fed.Today, we look ahead to a choice the central bank may well face later this year, which has been attracting interest on Wall Street. Email us: [email protected] and [email protected] the Fed might fudgeThe Federal Reserve has pledged to keep inflation somewhere around 2 per cent. Here is one problem with that:If inflation is largely unpredictable, and hence not finely controllable, then . . . the central bank could always argue that wide misses were the result of bad luck, not bad faith . . . This possible escape hatch for the central bank . . . suggests that building up credibility for its inflation-targeting framework could be a long and arduous process.This, from a 1997 paper by Ben Bernanke and Frederic Mishkin, captures why there is so much hand-wringing anytime someone suggests the Fed ditch its 2 per cent inflation target. Central bank credibility — often defined as its ability to influence long-term interest rates through the short-term policy rate and strategic communication — is hard-won and easily lost. Changing the well-established 2 per cent target risks throwing years of hard-earned credibility away.Might the Fed do it anyway? On that question, Jay Powell is very tight-lipped. But later this year, he could face an agonising choice between abandoning 2 per cent or engineering a recession. Inflation is an enigma, but as Don Rissmiller of Strategas has argued for months, history suggests it is symmetrical; it falls about as fast as it rises. This implies there is a long way to go, with mounting job losses along the way. It’s no large leap to imagine a scenario where inflation is falling but still above target, while unemployment is rising but not yet recessionary. The political pressure to loosen policy would be immense. The Fed might conclude raising its inflation target, or at least acting chill about enforcing it, is the best of a bad set of options.On the merits, though, the case for a higher inflation target — perhaps 3 per cent — is strong. First, it lets prices adjust more flexibly. In general people like price cuts but hate wage cuts, an asymmetry that makes downturns more violent. Firms have to slow price growth but can’t do the same for wages, so they stop hiring instead. Research suggests running inflation a touch hotter gives prices more room to move, dampening the hit to employment and growth.Second, and more importantly, a higher inflation target keeps rates further from the dreaded zero lower bound. At the ZLB, cutting rates doesn’t do much and the policy alternatives, such as quantitative easing, are messy and more poorly understood. Policy rates are set in nominal terms, but the larger policy stance (how tight or easy monetary policy is) depends on real rates, which in turn depends on inflation. Running inflation hotter would produce higher nominal rates for any given policy stance. That would give the Fed more room to lower nominal rates when it needs to. Even critics of a higher target nod to this. They counter on different grounds. Maybe 2 per cent isn’t theoretically optimal, but moving to 3 per cent, especially now, would wreck Fed credibility. As Jonathan Pingle, chief US economist at UBS, put it to us:If the central bank suddenly said, ‘OK, our inflation target is 2, we’re not meeting that target, so we’re gonna make the target 3’, then immediately the next question for most economic agents should be: ‘well, maybe they’ll turn around and make it 4’. And if they do that, maybe they’ll turn around and make it 5. That logic is a slippery slope . . . Once it starts to erode [it] creates real problems for the effectiveness of monetary policy.Those problems might include long rates pricing in a big inflation risk premium the Fed can’t dislodge. Last year’s UK gilts crisis shows what can happen in the short run when policymakers lose credibility, notes Michael Metcalfe of State Street Global Markets. Nothing good. Even if something that extreme is unlikely, he thinks a “bond market buyers’ strike” can’t be ruled out.Thundering into this discussion is Olivier Blanchard, the French economist who has for a decade (including in the FT last year) advocated a higher inflation target. Blanchard told Unhedged he thinks the case for a higher target is “overwhelming”. As an academic matter, few would dispute that. But in policymaking terms, too, he downplays the risks to credibility:I think, in the right environment, a one-time goalpost move would be credible. There is no slippery slope here. It is clear that the earlier conclusions and computations that 2 per cent was the right target, and the probability of hitting the ZLB was small, were wrong. I think any reasonable economist, including [Harvard’s Kenneth Rogoff and Gramercy’s Mohamed El-Erian], agree about that. I think there is zero risk of moving the target further and further. I heard the same argument about credibility when central banks started QE. The point here is that context matters. Dropping anchor at 3 per cent — a still-low inflation rate that makes rate-setting easier in the long run — as the price of avoiding a recession wouldn’t mean the Fed has tossed out its inflation mandate. It means it’s weighing the balance of risks and picking the better option. As we like to say, it makes no sense to do stupid policy in the name of credibility.However, Blanchard concedes that some credibility hit is likely. Rather than an inflammatory formal target change, he expects a Fed fudge: When inflation is down to, say, 3 per cent, at some stage in, hopefully, the not too distant future, I am nearly sure the debate will be: Are we willing to further increase unemployment in order to get to 2 per cent, or should we revisit?I suspect the debate will be muddled, central banks will not formally change their target, but will be more relaxed about getting to 2 per cent. As Andy Haldane pointed out in the FT on Friday, a less aggressive attitude towards the speed of disinflation, once it is clear that policy is tight enough (not there yet!), is the Fed’s hidden policy tool. “They don’t talk about this as a lever,” adds Claudia Sahm, the former Fed economist now at Sahm Consulting. “But the reality is that it’s very fuzzy, and not by accident.” Some discretion over “when, and how fast, and how long” would help “take some pressure off of this 2 per cent vs 3 per cent” debate, she says.But make no mistake: the Fed exercising discretion is a policy choice, carrying many of the same risks as an explicit target change. Sahm points out that before the pandemic, the central bank considered changing its target to 3 per cent, but declined to do so. The Fed likes 2 per cent inflation, in other words. Giving that up to avoid a recession would be defensible. But that decision feels precarious indeed.One good readIn his widely read annual letter, Dan Wang on China’s lockdowns: “Weibo censored the first line of the national anthem: ‘Arise, you who refuse to be slaves.’” More

Longtime macro disaster tourists eurozone-watchers will know that one of the thorniest problems Europe faced in the post-financial crisis decade was unanchored inflation expectations — on the downside.No matter how desperately the ECB tried to reflate the eurozone, inflation expectations — as measured by the “break-even” rate differential between inflation-proofed and conventional government bonds — kept sagging. “Japanification” was all everyone talked about. Even several years of negative interest rates, started in large part in a desperate attempt to change the narrative, did zip. But check out this Morgan Stanley chart:That inflation break-even rates have jumped everywhere is natural, given what actual inflation has done. But the 10-year German break-even rate — a decent proxy for long term expectations for the eurozone as a whole — has shot up above the US rate for the first time since 2009. As Morgan Stanley’s Andrew Sheets said in a note on some current market narratives yesterday evening (his emphasis below):. . . the eurozone may now have a more lasting inflation problem: Again, price has been very supportive of this story. Both yields and inflation expectations have jumped; Germany 10-year inflation break-evens are now ~20bp higher than in the US, the largest such gap since 2009.Inflation in the eurozone is high, with upside surprises this week, leading our economists to add another expected hike. But again, this narrative is facing an interesting near-term test: The cost of energy continues to fall, while all prices are about to lap the one-year anniversary of Russia’s invasion of Ukraine. As the calendar flips from February to March, year-on-year data will get very noisy.Last March, the average month-ahead price of EU gas (TTF) was ~€128/MWh. It is currently €47/MWh, 63% lower. Assuming current prices hold, year-on-year declines get larger as we move further into the year, one reason why we forecast inflation to moderate — significantly — over the course of 2023.Eurozone inflation could be more persistent. But take a step back and consider just how much confidence the market used to have in the other direction. Have all those structural drivers of lower growth and inflation really gone away? If they have, eurozone banks, at ~8x earnings and a ~5% yield, could still have significant upside. If they haven’t, market expectations that inflation will be higher in Germany than the US over the next decade look vulnerable.To be honest, we’re inclined to agree with Sheets. It’s hard to see how inflation can become entrenched in Europe given ~gestures helplessly at everything and anything~ well, you know. But not so long ago it looked unlikely that European break-evens ever jump over US ones in our lifetimes. So who knows? More

America leads on innovation, and Europe on regulation, or so the conventional wisdom goes. But recently, the US seems to have taken the lead in the latter, particularly in politically powerful industries like technology, pharma and finance. Just last week, Eli Lilly, the producer of popular insulin medications Humalog and Humulin, pledged to reduce its insulin list prices by 70 per cent in an effort to make the medicine more affordable. The move was seen as a direct response to Joe Biden’s policy pressure on Big Pharma. In June 2022, the Federal Trade Commission issued a unanimous policy statement criticising pharmaceutical middlemen, known as pharmacy benefit managers, for taking illegal bribes and rebates to keep prices high.Some competition experts say this supports the theory that even the threat of tough antitrust action can be enough to nudge companies in the right direction. And the threats from American regulators seemed far greater than those from their European peers at a high-profile competition conference in Brussels last week, which brought together policymakers, economists, lawyers and politicians from both sides of the Atlantic.EU competition commissioner Margrethe Vestager gave the opening speech, which was critical of the US Inflation Reduction Act for offering subsidies to American manufacturers as part of the clean energy transition. But Vestager seemed far less of a force than she did a few years ago. Rather, it was the energetic crop of young American regulators who were the rock stars of the event, complete with their own swag — fan mugs emblazoned with “Wu&Khan&Kanter” were spotted in the venue.Certainly, Team USA seemed to be thinking bigger and broader than its EU peers. FTC commissioner Rebecca Slaughter stressed that her agency was making policy based on how “people participate in the economy as whole people”, not just as consumers. The Justice Department officials in attendance made it clear they were going after entirely new areas, like labour markets, with a competition lens, and pursuing criminal as well as civil penalties for violators.American regulators have become more ambitious because they believe the stakes are so high. They view their work not in technocratic but existential terms; a battle against the risk of corporate oligopoly which threatens liberal democracy. Many of their European peers, meanwhile, still think in terms of narrow definitions of consumer pricing, which is perhaps why the average number of mergers prohibited by the European Commission’s directorate-general for competition per year over the past three decades is only one, as Imperial College economist Tommaso Valletti pointed out.In bank regulation, too, Americans are taking a more aggressive tack than their European peers. The Fed vice-chair for bank supervision, Michael Barr, has pushed back hard against recent efforts by the global financial lobby to water down Basel III requirements, rejecting the usual bank arguments that holding more capital will mean fewer business loans. He’s also pointed out that the lack of bank failures since the pandemic began has less to do with financial institution strength than government backstopping of the economy.The European parliament, meanwhile, voted in late January to weaken capital rules, which seems to be at least in part a capitulation to the European banking industry’s argument that tougher capital requirements will put them at a disadvantage compared to their larger, more profitable US peers.It’s a story that neither EU nor US financial watchdogs are buying. Moves to make Basel III transitional arrangements permanent “will not defend EU banks against US ones but only protect the vested interests of European megabanks, vis-à-vis their smaller European competitors,” wrote Thierry Philiopponnat, the chief economist of the European non-profit Finance Watch.In fact, says Carter Dougherty, the communications director of Americans for Financial Reform, the EU pushback against capital requirements is its own kind of subsidy. “Europeans have gotten their knickers in a twist over American efforts to address climate change [via the Inflation Reduction Act],” he says, but they don’t seem to realise watering down bank regulation for Europe is essentially a subsidy in itself. Carter fears that reducing bank capital levels “will just lead us down the path of financial instability, bigger paychecks for executives, or worse”.Both the US and the EU have myriad ways of boosting their own companies. But until quite recently, it was assumed that Europe would lead the way in regulating the world’s largest and most powerful corporations. That’s now shifted, perhaps because the more extreme concentrations of corporate power in the US have put the potential dangers, both economic and political, top of mind.As Franklin Delano Roosevelt put it in a 1936 speech, “We stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the market place.” The new and more robust American regulatory response harks back to an era when power mattered more than price and politicians weren’t afraid to take on big [email protected]

Video: Manufacturing in America, post-globalisation | FT Film More

The Biden administration’s subsidies for companies investing in green technologies could be grabbed by foreign governments under global minimum tax rules, in a “massive” transfer of US tax dollars overseas, a group of multinationals is warning.In summer 2021, 130 of the world’s leading economies signed up to a plan to force multinational companies to pay a global minimum corporate tax rate of at least 15 per cent following negotiations in Paris at the OECD.But the Global Business Alliance, a Washington trade group representing the largest foreign multinationals investing in the US, says its members face “great uncertainty” over how billions of dollars of new US clean energy tax credits will be treated under the terms of the OECD deal. The concern is that US tax credits might reduce a company’s US tax liability to less than the globally agreed 15 per cent, leaving multinational corporations investing in the US open to being taxed by foreign jurisdictions as part of a “top-up tax” mechanism to increase the tax liability to 15 per cent. Although no single country has yet fully implemented the OECD arrangement, the UK, South Korea and Switzerland have already produced draft legislation, while the United Arab Emirates, Australia, Hong Kong, New Zealand and Singapore have launched consultations on the OECD’s rules.“As Europe, Korea and other nations move forward, US companies have been given little guidance and could very soon find that the tax incentives to invest here become little more than a massive US tax transfer to foreign countries,” said Nancy McLernon, head of the Global Business Alliance. A separate Washington-based business group said its member companies were also seeking clarity on the interaction of the OECD rules with the Inflation Reduction Act tax credits. Anne Gordon, vice-president of international tax policy at the National Foreign Trade Council, a US business lobby group, said the group’s member companies were “not comfortable” about the issue, and that guidance from the OECD to date had not “explicitly” addressed US green credits. “Our members are trying to get clarity over how this is going to be treated,” said Gordon. “Some of the ones who are investing large sums of money are very concerned if they make all these investments and do this stuff, and then the credits don’t count or reduce their tax rate, and they get stuck with paying the top-up tax to 15 per cent.” The IRA, Biden’s flagship climate bill, offers close to $370bn in subsidies for clean energy industries aimed at spurring private sector investment and supercharging the country’s decarbonisation efforts. But the law involves novel types of tax credit, giving developers of renewable energy projects the ability to get the value of the tax credits upfront by selling them to third-party investors. It is unclear how these so-called “transferable” tax credits are treated in tax calculations made to work out whether a company is paying its minimum 15 per cent tax. Joshua Odintz from Holland & Knight, a tax practitioner who works on OECD issues, said there was an “open question” over how the tax credits would be viewed by the global minimum tax guidance, meaning some companies receiving them could be seen as paying less than 15 per cent. “Today, we just don’t know how all the IRA tax credits will be treated,” said Odintz. Tax lawyers say the credits offered in the IRA are hybrids of the two most common types of tax credit — refundable and non-refundable. Companies claiming refundable tax credits are eligible to receive the credit as a cash payment even if they have no tax liability in the country, whereas non-refundable credits are available only as a discount to a tax liability. The US Treasury said “several green credits” included in the IRA would be protected according to recently released OECD guidance on “non-controlled partnerships”, while “several” others would be protected by existing guidance. A Treasury official said: “[The] Treasury continues to work through the OECD/G20 Inclusive Framework process to provide additional certainty on the treatment of other tax credits.”

Aharon Friedman, a former senior tax counsel to the House of Representatives ways and means committee, said that international disagreements over which tax credits were acceptable and which were not would create maddening complexity for multinationals — and potentially trade wars.“It’s not just a relatively narrow technical question of, does this particular tax credit meet OECD guidelines? It’s more a matter of who has sovereignty to enact tax law,” he said. “The OECD just issued guidance. Is this now international law? In the US, a law has to be passed by Congress and signed by the president or the Treasury has to follow administrative procedure. It can’t just surprise people by issuing guidance and saying this is law.” More

The writer is a former chief investment strategist at Bridgewater AssociatesThe European Commission’s consumer confidence index could be seen as an economist’s attempt at dark humour — since it was launched in the 1980s, the gauge has always been negative, with fluctuations just reflecting relative shades of gloom.While the commission’s index suggests that eurozone consumers today are only modestly downbeat (with a level of minus 19 points in February compared with minus 29 last September), other reflections of Europe’s macro picture have become positively sunny. Europe’s double-digit equity market returns so far this year are handily outpacing developed-market peers. Meanwhile, economic data has sharply surprised expectations to the upside. Only months ago, most forecasts assumed a 2023 recession. The growing risk today is that investors simply assume these trends will continue. While that’s always possible, the positive macro and market forces are likely to fade as the year progresses. For those investors who have benefited from strong gains this year, it makes sense to consider taking some profits off the table, for at least four reasons.First, the bump in economic activity from China’s reopening after Covid-19 lockdowns is likely to prove a one-off rather than a sustained support for European growth. With Asia now representing more than 20 per cent of Euro Stoxx 600 revenues, according to JPMorgan, and China alone around 10 per cent of overall European exports, it is no surprise that the pent-up Chinese demand is helping European equity sentiment and regional activity. But in contrast to much of the developed world, where a post-pandemic splurge in spending was reinforced by large fiscal transfers, Chinese consumers seem likely to quickly revert to a more cautious stance. They face uncertainty around the critical property sector that is the basis of much Chinese household wealth creation. At the same time, the government remains intent on pursuing policies to support the economy over the longer-term versus short-term “floods” of liquidity-fuelled growth.Second, the monetary backdrop in Europe will be getting significantly tighter at a time when global liquidity is also being withdrawn. A run-off of the European Central Bank’s bond portfolio is set to begin this month. And given growth is resilient and inflation remains multiples above the central bank’s target, there is likely to be a continuation of rate rises to take monetary policy further into restrictive territory. The ECB is “catching up” to the Federal Reserve — with the impact of the tightening ahead to be increasingly felt as 2023 progresses.Third, and part of the ECB’s challenge, will be the direction of natural gas prices, which remains highly uncertain. The region clearly benefited in recent months from milder than expected winter weather and business efforts to limit gas consumption. That has led to high storage levels and influenced a sharp fall in prices. Benchmark wholesale gas prices in late February tipped below €50 per megawatt hour, their lowest level since September 2021 and a fraction of the all-time high of €320 reached last August. Still, prices remain well above prewar long-term averages, and there is a wide cone of possible outcomes for prices this year as countries seek to replenish reserves. Will Russian gas deliveries fall further? How much will China compete for supply? This is not a macro support one should count on.Fourth and finally, Europe — like the US — has a potential fiscal fight in store this year. The region’s stability and growth pact that requires fiscal prudence was suspended in 2020 but is set to come back into force in 2024. There is hope that reform of the fiscal rules could help ease government burdens, especially for more indebted countries such as Italy where the debt-to-GDP ratio has risen to nearly 150 per cent (versus the bloc’s 60 per cent long-term target). For now, though, there are proposals but no agreement. It’s reasonable to expect this to come to a head over the summer (possibly sharing headlines with US debt-ceiling deadlines) so any new framework is resolved in time for year-ahead budgetary discussions. Even with modest reforms and potential economic support from the ECB through its transmission protection bond-buying instrument, probable fiscal belt tightening next year will coincide with higher interest rates and less external growth support from China and the US. That seems highly probable to get many investors in Europe gloomy again. More

SACRAMENTO, Calif. (Reuters) -Record rain and snowfall in recent weeks has eased half of California out of a persistent drought and bolstered the store of mountain snow that the state relies on to provide water during the warm, dry spring and summer.Statewide on Friday there was nearly twice as much snow in the Sierra Nevada Mountains as is typical for March 3, the California Department of Water Resources said. The snow also was dense and wet, meaning that it held nearly 170% of the typical amount of water for this time of year, the agency said.The snowpack is considered California’s largest reservoir, and is vital to fill streams and lakes as it slowly melts.”We could not be more fortunate to have this kind of precipitation after three very punishing years of dry and drought conditions,” said Department of Water Resources Director Karla Nemeth. The record precipitation and accompanying powerful storms in December and February have also dramatically lessened California’s ongoing drought, a team of U.S. government agencies said this week.The U.S. Drought Monitor map released Thursday by the National Oceanic and Atmospheric Administration and cooperating agencies showed that 17% of California was not experiencing any sort of abnormal dryness, while another third was dry but no longer officially in a state of drought.By contrast, just three months ago the entire state was considered to be experiencing drought conditions. California has cycled through four periods of drought since 2000, making less water available to irrigate crops and sustain wildlife along with meeting the needs of the state’s 40 million residents. More

SHANGHAI (Reuters) – Some Chinese companies are holding on to dollar revenues from exports, while others are turning to foreign exchange hedging in anticipation of a fall in the value of the yuan, according to executives, bankers and data analysed by Reuters.Several bankers in China told Reuters that clients are reluctant to convert export receipts, while exchange filings show more than 30 A-share listed companies have signed up to use currency derivatives for risk-hedging so far this year.Central bank data also shows a shift, with dollar deposits at China’s commercial banks, which had declined over the past year, jumping by $34 billion in January to $887.8 billion.The moves are at odds with bank forecasts for a rising yuan in 2023 and broader market expectations that the U.S. dollar will fall this year, and could contribute to yuan weakness.Ms. Zhu, the owner of a Shanghai-based electronic components exporter, said she is setting aside dollars, betting that her management of some $7 million annual inflow of the U.S. currency will prove crucial to the profitability of her company.”I may need to convert some dollars into yuan to make payments to domestic suppliers,” said Zhu, who prefers to go by her last name. “(But) it feels like I should keep some dollars on hand, as the yuan will depreciate further.”Others anticipating a bumpy ride ahead for the Chinese currency include China Southern Airlines.China’s largest carrier by fleet size said in a Feb. 28 stock exchange filing that it planned up to $4 billion worth of currency hedging in 2023 to “smooth out exchange gains and losses”, up from $850 million last year.Such moves are perhaps not surprising given yuan volatility since Beijing suddenly unwound its zero-COVID strategy. The currency hit six-month highs in January, before dropping close to the closely-watched 7 per dollar level.The yuan last traded at 6.9085 to the dollar. In response to faxed questions on the yuan weakening past 7 to the dollar, the People’s Bank of China (PBOC) directed Reuters to comments by its governor Yi Gang who said the level is not a “psychological barrier”.    “Over the past five years, the exchange rate has been volatile, with a volatility rate of about 4%. And such a volatility rate is about the same as major economies,” he said.    “Overall, yuan exchange rate will remain basically stable at reasonable levels,” he added at a March 3. news briefing. ‘BENIGN’The yuan had its worst year in 2022 since China unified market and official exchange rates in 1994, dropping nearly 8% as rising U.S. interest rates diverged from falling Chinese ones, supporting dollar gains.Now the prospect of Chinese tourists using foreign exchange for their trips abroad, fresh concerns that U.S. interest rates might rise further and geopolitical tensions keeping investment flows away from China are all weighing on the currency.”It’s possible to see the yuan go past the 7-mark against the dollar in the near term given the escalating geopolitical tensions between China and the U.S.,” said Tommy Wu, senior China economist at Commerzbank (ETR:CBKG). “Still, the yuan could stabilise somewhat if the upcoming economic data shows continued improvement in the economy.”China on Sunday set a modest target for economic growth this year of around 5% as it kicked off its annual parliamentary gathering. With the economy staging a steady recovery, this could put a floor under the yuan and ultimately attract inflows.While Chinese authorities have stepped in to lend support in the past and have already made it pricier to bet against the yuan, markets do not expect intervention in the near term.”Reaction from the regulator has been benign so far, their tolerance of volatility in the yuan has risen quite a lot since last year,” Becky Liu, head of China strategy at Standard Chartered (OTC:SCBFF) Bank, said.And unlike in 2022, the PBOC does not seem to be using the daily setting of the currency trading band to lend support.”We do not think the central bank will defend 7 as CFETS stays strong at around 100,” said Lemon Zhang, FX strategist at Barclays (LON:BARC), referring to the trade-weighted CFETS index.This gauge of the yuan’s value against its major trading partners is up about 2% this year.Zhang expects the yuan to hold at 7 per dollar until the end of June, before strengthening to 6.7 at the end of the year. Ju Wang, head of Greater China FX and rates strategy at BNP Paribas (OTC:BNPQY), said she still holds short yuan positions against the dollar, although she does not expect significant weakness.($1 = 6.9009 Chinese yuan) More

WASHINGTON (Reuters) – U.S. President Joe Biden plans to unveil his upcoming budget proposal to Congress with unusual fanfare on Thursday, holding a campaign-style event intended to trumpet an economic agenda imperiled by high inflation and Republican debt limit threats.Biden plans to roll out the tax-and-spending plans at a Philadelphia union hall, a venue in a competitive battleground state that will highlight the president’s worker-centric political pitch in the weeks running up to his expected announcement of a 2024 re-election bid.”The President will deliver remarks on his plans to invest in America, continue to lower costs for families, protect and strengthen Social Security and Medicare, reduce the deficit, and more,” the White House said in a statement.The main highlight of the proposal for the 2024 fiscal year is a pledge to cut $2 trillion from the government’s deficit over 10 years, and to extend the life of the Medicare health benefit program by at least two decades.Biden is also planning to revive his plans to raise taxes on billionaires and to fund initiatives like a child tax credit. A proposal to raise payroll taxes on very high-income people is also on the table. But Biden is planning to stand by a 2020 campaign pledge not to raise rates on Americans making less than $400,000 a year.”On March the 9th, I’m going to lay down in detail every single thing, every tax that’s out there that I’m proposing, and no one … making less than $400,000 is going to pay a penny more in taxes,” Biden told an audience in Virginia Beach, Virginia, last week.”I want to make it clear: I’m gonna raise some taxes,” the Democratic president added.Biden, under pressure from Republicans who are threatening not to raise the U.S. debt limit unless he agrees to sharp spending cuts, has challenged Republicans to release their own proposals and to negotiate over those plans rather than over whether the country should raise the debt ceiling and pay its existing bills.An unprecedented U.S. default could halt growth in an economy that rebounded strongly in terms of output and jobs since the COVID-19 pandemic. Prices, too, have risen to levels that are seen as politically damaging, and economists worry that efforts led by the Federal Reserve to tamp down inflation pressures might spark a recession.Biden aides regard union backing as well as success in Pennsylvania as critical to any re-election bid by Biden. Presidential budget roll-outs in other years are done at the White House and with no special events drawing attention to them. The venue for Biden’s remarks and his travel to Philadelphia have not previously been reported.While Republican lawmakers have not yet fully outlined or voted on their spending plans for the coming fiscal year, the White House has nonetheless seized on some past statements and proposals by members of Congress as evidence that they are hell-bent on unraveling federal healthcare and old-age programs popular with voters. Republicans control the House of Representatives while Democrats control the Senate. More