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Inflation Report Dampens Biden’s Claims of Economic Progress

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The president is trying once again to accentuate the positives in the recovery from recession, but stubbornly high prices are complicating the message.The Consumer Price Index report for August showed inflation had not cooled as the administration had hoped and Americans had lost buying power over the last year as prices rose faster than wages.Sarah Silbiger for The New York TimesWASHINGTON — President Biden gathered with top Democrats at the White House on Tuesday to celebrate their inflation fight at an inopportune moment, as a sobering new report showed just how far the economy still has to go to bring soaring consumer prices under control.The Consumer Price Index report for August contained a large dose of unwelcome news for the president, who has sought to defuse Republican attacks over rising prices in the run-up to November’s midterm elections. It showed that inflation had not cooled as White House economists and other forecasters had hoped, and that workers had lost buying power over the last year as prices increased faster than wages.Another report, from the Census Bureau, showed that the typical American household saw its inflation-adjusted income fall slightly in 2021 from 2020. Perhaps more troubling for a president who has promised to close the gap between the very wealthy and the middle class, it showed that income inequality increased last year for the first time in a decade.Those developments challenged Mr. Biden’s renewed efforts to reframe the economy as a winning issue for him and his party before the midterms — though the president seemed unfazed.Mr. Biden welcomed thousands of supporters to the White House lawn to toast a new law that he says will help reduce the cost of electricity, prescription drugs and other staples of American life.The event was essentially a rally for the so-called Inflation Reduction Act, which raised taxes on large corporations, targeted nearly $400 billion in spending and tax incentives to reduce the fossil fuel emissions driving climate change, and took steps to reduce prescription drug costs for seniors on Medicare and premium costs for Americans who buy health insurance through the Affordable Care Act.Mr. Biden called the law “the single most important legislation passed in the Congress to combat inflation and one of the most significant laws in our nation’s history.”“There’s an extraordinary story being written in America today by this administration,” Mr. Biden said, adding, “This bill cut costs for families, helped reduce inflation at the kitchen table.”On Wednesday, Mr. Biden will head to the Detroit auto show, where he will champion his policies to bolster manufacturing and low-emission sources of energy.But the country’s economic reality remains more muddled than Mr. Biden’s rosy message, as the inflation report underscored. Food prices are continuing to spike, straining lower-income families in particular. The global economy is slowing sharply, and threats remain to the American recovery if European sanctions force millions of barrels of Russian oil off the global market in the months to come.The State of the 2022 Midterm ElectionsWith the primaries winding down, both parties are starting to shift their focus to the general election on Nov. 8.Polling Warnings: Democratic Senate candidates are polling well in the same places where surveys overestimated President Biden in 2020 and Hillary Clinton in 2016.Democrats’ Dilemma: The party’s candidates have been trying to signal their independence from the White House, while not distancing themselves from President Biden’s base or agenda.Intraparty G.O.P. Fight: Ahead of New Hampshire’s primary, mainstream Republicans have been vying to stop a Trump-style 2020 election denier running for Senate.Abortion Ballot Measures: First came Kansas. Now, Michigan voters will decide whether abortion will remain legal in their state. Democrats are hoping referendums like these will drive voter turnout.A possible railroad strike could disrupt domestic supply chains. The White House press secretary, Karine Jean-Pierre, told reporters on Tuesday that the president had called union and company leaders on Monday in an attempt to broker an agreement to avert the strike.Most important — and perhaps most damaging for Mr. Biden and Democrats — Americans’ wages have struggled to keep pace with fast-rising prices, an uncomfortable truth for a president who promised to make real wage gains a centerpiece of his economic program. Inflation-adjusted average hourly earnings ticked up across the economy in August, the Labor Department said on Tuesday, but they remain down nearly 3 percent from a year ago.Republicans were quick to criticize Mr. Biden after the report on Tuesday. “Every day, Americans endure Biden’s economic crisis,” said Representative Blaine Luetkemeyer of Missouri, the top Republican on the Small Business Committee. “The Democrats’ inflation continues to drive up costs and leads more and more small businesses and families questioning their future.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Mr. Biden and his aides have celebrated falling gasoline prices on a daily basis throughout the summer. Those decreasing prices have helped inflation moderate from its high point this year, though not enough to offset rising rent, food and other costs last month.Even as he acknowledges the pain of rapid price increases across the economy, Mr. Biden has claimed progress in the fight against inflation, including with the signing last month of the energy, health care and tax bill that Democrats called the Inflation Reduction Act. On Tuesday morning, he sought to put a positive shine on the August data, saying in a statement issued by the White House that it was a sign of “more progress” in bringing down inflation.At his celebration on Tuesday afternoon, Mr. Biden barely mentioned the word “inflation.” Instead, he talked about reducing medical and energy costs — and, to a much larger extent, about the law’s efforts to combat climate change.Near the end of the speech, he gave a strident defense of his administration’s economic record, including strong job creation, record small-business formation and a rebound of the manufacturing sector.“And guess what?” Mr. Biden said. “For all the criticism I got and the help you gave me for gas prices bringing — they’re down more than $1.30 a gallon since the start of the summer. We’re making progress. We’re getting other prices down as well. We have more to do. But we’re getting there.”Recent weeks have brought signs of hope for administration officials, among both consumers and companies. The National Federation of Independent Business reported on Tuesday that its Small Business Optimism Index rose in August as inflation anxiety eased, continuing a rebound from its depths this year. The Federal Reserve Bank of New York reported on Monday that consumer inflation expectations were also falling.Officials inside the administration and at the Federal Reserve say strong job growth and consumer spending this summer have put to rest fears that the country slipped into recession in the first half of the year.“What is most notable about where we are right now is the resilience of the labor market recovery, the resilience of American consumers and households, and that we are beginning to see some signs that prices may be moderating,” Brian Deese, the director of Mr. Biden’s National Economic Council, said in an interview this week.“There’s more work to do,” Mr. Deese said. “But I think that is a signal that the economic decisions that this president has made are bearing fruit.”But polls continue to show that inflation is hurting Mr. Biden and his party at a pivotal moment, as Democrats seek to retain control of the House and the Senate. High prices loom as the top issue for voters in national opinion polls, and Americans say they trust Republicans more to handle inflation and the economy overall than Democrats.On Tuesday, stock markets recorded their largest daily loss in two years, driven by investor fears of stubborn inflation pushing the Federal Reserve to raise interest rates higher and faster than many expected.Economists on Wall Street and in policy circles are debating whether the U.S. economy can achieve a so-called soft landing, with economic and job growth slowing in order to bring inflation down — but not slowing so much as to push millions of Americans out of work. Some, like the former Treasury Secretary Lawrence H. Summers, have warned that the unemployment rate will need to rise significantly to bring price growth down to historical levels.Mark Zandi, the chief economist at Moody’s Analytics, whose analyses of Mr. Biden’s policy proposals are often promoted by the White House, said on Twitter on Tuesday that “job and wage growth must sharply slow” to reduce price increases in the service sector. “This is on the Fed, which must hike rates to get job and wage growth down without pushing the economy under.”Tuesday’s inflation report, he added, “suggests that while still doable, it won’t be easy.” More

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    Biden’s Big Dreams Meet the Limits of ‘Imperfect’ Tools

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    The student loan plan is the latest example of Democrats practicing the art of the possible on the nation’s most pressing economic challenges and ending up with risky or patchwork solutions.WASHINGTON — President Biden’s move this week to cancel student loan debt for tens of millions of borrowers and reduce future loan payments for millions more comes with a huge catch, economists warn: It does almost nothing to limit the skyrocketing cost of college and could very well fuel even faster tuition increases in the future.That downside is a direct consequence of Mr. Biden’s decision to use executive action to erase some or all student debt for individuals earning $125,000 a year or less, after failing to push debt forgiveness through Congress. Experts warn that schools could easily game the new structure Mr. Biden has created for higher education financing, cranking up prices and encouraging students to load up on debt with the expectation that it will never need to be paid in full.It is the latest example, along with energy and health care, of Democrats in Washington seeking to address the nation’s most pressing economic challenges by practicing the art of the possible — and ending up with imperfect solutions.There are practical political limits to what Mr. Biden and his party can accomplish in Washington.Democrats have razor-thin margins in the House and Senate. Their ranks include liberals who favor wholesale overhaul of sectors like energy and education and centrists who prefer more modest changes, if any. Republicans have opposed nearly all of Mr. Biden’s attempts, along with those of President Barack Obama starting more than a decade ago, to expand the reach of government into the economy. The Supreme Court’s conservative majority has sought to curb what it sees as executive branch overreach on issues like climate change.As a result, much of the structure of key markets, like college and health insurance, remains intact. Mr. Biden has scored victories on climate, health care and now — pending possible legal challenges — student debt, often by pushing the boundaries of executive authority. Even progressives calling on him to do more agree he could not impose European-style government control over the higher education or health care systems without the help of Congress.The president has dropped entire sections of his policy agenda as he sought paths to compromise. He has been left to leverage what appears to be the most powerful tool currently available to Democrats in a polarized nation — the spending power of the federal government — as they seek to tackle the challenges of rising temperatures and impeded access to higher education and health care.Arindrajit Dube, an economist at the University of Massachusetts Amherst who consulted with Mr. Biden’s aides on the student loan issue and supported his announcement this week, said in an interview that the debt cancellation plans were necessarily incomplete because Mr. Biden’s executive authority could reach only so far into the higher education system.“This is an imperfect tool,” Mr. Dube said, “that is however one that is at the president’s disposal, and he is using it.”But because the policies pursued by Mr. Biden and his party do comparatively little to affect the prices consumers pay in some parts of those markets, many experts warn, they risk raising costs to taxpayers and, in some cases, hurting some consumers they are trying to help.Mr. Biden’s plan would forgive up to $10,000 in student debt for individual borrowers earning $125,000 a year or less and households earning up to $250,000, with another $10,000 for Pell grant recipients.Cheriss May for The New York Times“You’ve done nothing that changes the structure of education” with Mr. Biden’s student loan moves, said R. Glenn Hubbard, a Columbia University economist who was the chairman of the White House Council of Economic Advisers under President George W. Bush. “All you’re going to do is raise the price.”Mr. Hubbard said Mr. Biden’s team had made similar missteps on energy, health care, climate and more. “I understand the politics, so I’m not making a naïve comment here,” Mr. Hubbard said. “But fixing through subsidies doesn’t get you there — or it gets you such market distortions, you really ought to worry.”Mr. Biden said on Wednesday that his administration would forgive up to $10,000 in student debt for individual borrowers earning $125,000 a year or less and households earning up to $250,000, with another $10,000 in relief for people from low-income families who received Pell grants in school.What’s in the Inflation Reduction ActCard 1 of 8What’s in the Inflation Reduction ActA substantive legislation. More

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    Howard Rosenthal, Who Quantified Partisanship in Congress, Dies at 83

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    He took part in studies that found the widening ideological divide to be the largest since post-Civil War Reconstruction.Prof. Howard Rosenthal, a political scientist whose pioneering research confirmed quantitatively that Congress is more politically polarized than at any point since Reconstruction, died on July 28 at his home in San Francisco. He was 83.His son Prof. Jean-Laurent Rosenthal, a professor at the California Institute of Technology, said the cause was heart failure.There was good news from the algorithm that Professor Rosenthal and his colleagues developed to analyze congressional roll-call votes: The ideological gap between the left and right had grown so great that, mathematically at least, it could not get much worse.“Professor Rosenthal was a trailblazing figure in political science, who collaborated with economists and drew on game theory and other formal methods to help define the modern subfield of political economy,” said Prof. Alan Patten, chairman of the politics department at Princeton, where Professor Rosenthal taught between stints at Carnegie Mellon University in Pittsburgh and New York University.“With his co-authors,” Professor Patten said, “he was especially known for work measuring and analyzing political polarization, a phenomenon that is of more relevance than ever in contemporary American politics.”With his fellow professors Keith T. Poole of the University of Georgia and Nolan McCarty of Princeton, Professor Rosenthal systematically calculated the conservatism or liberalism of members of Congress.In 2002, they concluded that a representative’s votes can generally be predicted on the basis of his or her previous positions on issues regarding race and on government intervention in the economy, like tax rates and benefits for the poor.Their analysis showed that a legislator’s party affiliation was a much better augur of voting behavior than it had been 25 years earlier.Moreover, they concluded, from 1955 to 2004 the proportion of unalloyed centrists in the House of Representatives had declined to 8 percent from 33 percent, and the number of centrist senators had dropped to nine from 39.In 2013, with Professors Poole and McCarty and Prof. Adam Bonica of Stanford, Professor Rosenthal investigated why the nation’s political system had failed to come to grips with growing income inequality.Among other conclusions, they found a correlation between the changes in the share of income going to the top 1 percent and the level of polarization between the political parties in the House.The researchers also documented an increase in campaign contributions to Democratic candidates from millionaires listed in the Forbes 400 — as that list included more technology innovators than oil and manufacturing magnates — and a tack in the party’s platform from general social welfare policies to an agenda focused on identities of ethnicity, gender, race and sexual orientation.In 2014, Professors Rosenthal and Poole and their collaborators wrote in The Washington Post that “Congress is now more polarized than at any time since the end of Reconstruction” in the 19th centurySamuel L. Popkin, a professor emeritus of political science at the Massachusetts Institute of Technology who befriended Professor Rosenthal when they were classmates there, said in an email that he was “the instigator or spark for most of the advances” in studying legislatures and voting. He credited Professor Rosenthal with developing new statistical measurements for analyzing data.Howard Lewis Rosenthal was born on March 4, 1939, in Pittsburgh to Arnold Rosenthal, a businessman, and Elinor (Lewis) Rosenthal, a homemaker.He received a Bachelor of Science degree in economics, politics and science in 1960 and a doctorate in political science in 1964, both from M.I.T. He was a professor at Carnegie Mellon from 1971 to 1993 and at Princeton from 1993 to 2005, and had been at N.Y.U. since 2005.His marriage to Annie Lunel ended in divorce. His second wife, Margherita (Spanpinato) Rosenthal, died before him. In addition to his son Jean-Laurent, from his first marriage, he is survived by a daughter from that marriage, Illia Rosenthal; a son, Gil, from his second marriage; a sister, Susan Thorpe; and four granddaughters.Predicting votes by members of Congress on the basis of statistical models built on previous votes was initially considered controversial. But one byproduct of those predictions, applied to election voters, went a long way toward establishing the model’s credibility.“Challenged by a detractor to predict the 1994 midterm elections,” John B. Londregan, a political scientist at Princeton and a partner in one project, said in a statement, “we predicted a Republican majority in the U.S. House for the first time in almost 40 years, something that met with incredulity on the part of many colleagues.” They were, of course, right.Professor Rosenthal was awarded the Duncan Black Prize from the Public Choice Society in 1980, the C.Q. Press Award from the American Political Science Association in 1985 and the William H. Riker Prize for Political Science from the University of Rochester in 2010.In 1997, he and Professor Poole published “Congress: A Political-Economic History of Roll Call Voting.” With Professor McCarty, they wrote “Polarized America: The Dance of Ideology and Unequal Riches” (2006).In 2007, after analyzing 2.8 million roll-call votes in the Senate and 11.5 million in the House, Professors Rosenthal and Poole produced an updated version of their 1997 book, which had predicted “a polarized unidimensional Congress with roll-call voting falling almost exclusively along liberal-conservative ideological lines.”“We were right,” the authors concluded. “This makes us feel good as scientists, but lousy as citizens.” More

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    Biden Signs Industrial Policy Bill Aimed at Bolstering Competition With China

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    WASHINGTON — President Biden on Tuesday signed into law a sprawling $280 billion bill aimed at bolstering American chip manufacturing to address global supply chain issues and counter the rising influence of China, part of a renewed effort by the White House to galvanize its base around a recent slate of legislative victories.Standing before business leaders and lawmakers in the Rose Garden, Mr. Biden said the bill was proof that bipartisanship in Washington could produce legislation that would build up a technology sector, lure semiconductor manufacturing back to the United States and eventually create thousands of new American jobs.“Fundamental change is taking place today, politically, economically and technologically,” Mr. Biden said. “Change that can either strengthen our sense of control and security, of dignity and pride in our lives and our nation, or change that weakens us.”The bipartisan compromise showed a rare consensus in a deeply divided Washington, reflecting the sense of urgency among both Republicans and Democrats for an industrial policy that could help the United States compete with China. Seventeen Republicans voted for the bill in the Senate, while 24 Republicans supported it in the House.While Republicans have long resisted intervening in global markets and Democrats have criticized pouring taxpayer funds into private companies, global supply chain shortages exacerbated by the pandemic exposed just how much the United States had come to rely on foreign countries for advanced semiconductor chips used in technologies as varied as electric vehicles and weapons sent to aid Ukraine.Read More on the Relations Between Asia and the U.S.Pelosi’s Taiwan Visit: House Speaker Nancy Pelosi’s trip to Taiwan has exacerbated tensions between the United States and China, which claims the self-governing island as its own. The visit could also undermine the Biden administration’s strategy of building economic and diplomatic ties in Asia to counter Beijing.Reassuring Allies: Amid China’s military exercises near Taiwan in response to Ms. Pelosi’s visit, the Biden administration says its commitment to the region has only deepened. But critics say the tensions over Taiwan show that Washington needs stronger military and economic strategies.CHIPS and Science Act: Congress passed a $280 billion bill aimed at building up America’s manufacturing and technological edge to counter China. It is the most significant U.S. government intervention in industrial policy in decades.In a sign of how Beijing’s rise drove the negotiations for the legislation, Mr. Biden explicitly mentioned China multiple times during his remarks at the bill-signing ceremony.“It’s no wonder the Chinese Communist Party actively lobbied U.S. business against this bill,” the president said, adding that the United States must lead the world in semiconductor production.The bill is focused on domestic manufacturing, research and national security, providing $52 billion in subsidies and tax credits for companies that manufacture chips in the United States. It also includes $200 billion for new manufacturing initiatives and scientific research, particularly in areas like artificial intelligence, robotics, quantum computing and other technologies.The legislation authorizes and funds the creation of 20 “regional technology hubs” that are intended to link together research universities with private industry in an effort to advance technology innovation in areas lacking such resources. And it provides funding to the Energy Department and the National Science Foundation for basic research into semiconductors and for building up work force development programs.“We will bring these jobs back to our shores and end our dependence on foreign chips,” said Senator Chuck Schumer, Democrat of New York and the majority leader, who pumped his fists as he stepped toward the lectern. More

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    Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

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    Changes demanded by Senator Kyrsten Sinema will preserve a tax loophole that Democrats have complained about for years.For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.What is carried interest?Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.What would the Manchin-Schumer agreement have done?The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.Why hasn’t the loophole been closed by now?Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.What would the change have meant for private equity?The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”Jim Tankersley More

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    Voters See a Bad Economy, Even if They’re Doing OK

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    A New York Times/Siena poll shows remarkable pessimism despite the labor market’s resilience. That could be costly for the Democrats, and the economy.The fastest inflation in four decades has Americans feeling dour about the economy, even as their own finances have, so far, held up relatively well.Just 10 percent of registered voters say the U.S. economy is “good” or “excellent,” according to a New York Times/Siena College poll — a remarkable degree of pessimism at a time when wages are rising and the unemployment rate is near a 50-year low. But the rapidly rising cost of food, gas and other essentials is wiping out pay increases and eroding living standards.Americans’ grim outlook is bad news for President Biden and congressional Democrats heading into this fall’s midterm elections, given that 78 percent of voters say inflation will be “extremely important” when they head to the polls.

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    Thinking about the nation’s economy, how would you rate economic conditions today?
    Based on a New York Times/Siena College poll of 849 registered voters from July 5 to 7.By The New York TimesIt could be bad news for the economy as well. One long-running index of consumer sentiment hit a record low in June, and other surveys likewise show Americans becoming increasingly nervous about both their own finances and the broader economy.Economists have long studied the role of consumer sentiment, which can be driven by media narratives and indicators unrepresentative of the broader economy, like certain grocery prices or shortages of particular goods. At least in theory, economic pessimism can become self-fulfilling, as consumers pull back their spending, leading to layoffs and, ultimately, to a recession.Christina Simmons grew up poor and has worked hard to give her 7-year-old son a better life. She has climbed the ranks at the health insurer where she works near Jacksonville, Fla., and has more than doubled her salary over the past few years. Yet she feels as if she is falling behind.“I worked my butt off to get to where I’m at so I could take vacations with my son,” she said. “We would take off for the weekend and get a hotel room in another state, and go do a hike and see a waterfall and order a pizza in a hotel room and all of that. And I just can’t do that anymore.”Ms. Simmons, 30, is still able to make ends meet, partly because she is able to save money on gas by working remotely. But she is worried about what could happen if the economy slows and puts her job in jeopardy — one consequence of being promoted, she said, is that she is farther from customers, making her more vulnerable to layoffs. She has cut out modest luxuries, like a gym membership and nights out with friends, to build up her savings.“I’m saving the money just in case it gets even worse,” she said. “I’m being more strict than I have to because I don’t know how it’s going to go.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Democrats Face Deepening Peril as Republicans Seize on Inflation Fears

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    Economists warn that a blitz of midterm election campaign ads could push consumer prices even higher.WASHINGTON — Triple-digit gasoline bills. Bulging hamburger prices. A Fourth of July holiday that broke the bank.Prices are rising at the fastest rate in four decades, a painful development that has given Republicans a powerful talking point just months ahead of the midterm elections. With control of Congress very much in play, Republicans are investing heavily in a blitz of campaign advertisements that portray a dark sense of economic disarray as they seek to make inflation a political albatross for President Biden and Democrats.According to Kantar’s Campaign Media Analysis Group, candidates running in House, Senate and governor races around the country have spent nearly $22 million airing about 130,000 local and national television ads that mention inflation from early April through the beginning of July. Inflation was the 10th most common issue mentioned by Democrats and 11th most common for Republicans, according to the data, underscoring how critical the issue is to both parties this election cycle.The data released Wednesday showing that prices in June climbed 9.1 percent over the past year gave Republicans fresh ammunition against Mr. Biden and his party, ammunition that includes faulting Democrats for passing a $1.9 trillion stimulus package last year and efforts to push through additional spending in a sweeping climate and economic package known as “Build Back Better.”The intensifying focus on inflation is already weighing on Mr. Biden’s poll numbers. A New York Times/Siena College poll this week showed his approval at a meager 33 percent, with 20 percent of voters viewing jobs and the economy as the most important problem facing the country. Inflation and the cost of living followed closely behind. The poll also showed that the race for control of Congress is surprisingly tight.While gas prices have fallen from their $5 a gallon peak and there are signs that inflation might be slowing, consumers are unlikely to feel better off anytime soon. Gas prices are still much higher than they were a year ago, with the average national price for a gallon at $4.60 versus $3.15 in 2021, according to AAA.Voters view jobs and the economy as among the most important issues facing the country.Hiroko Masuike/The New York Times“It’s a very negative thing politically for the Democrats,” said Jason Furman, an economist at Harvard University and former Obama administration economic adviser. “My guess is that the negative views about inflation are so deeply baked in that nothing can change in the next few months to change them.”The White House, while acknowledging the pain that inflation is causing, has tried to deflect responsibility, saying that it is a global problem and attributing it to shortages of food and oil stemming from Russian President Vladimir V. Putin’s invasion of Ukraine.On Wednesday, Mr. Biden called the latest Consumer Price Index “out-of-date” given the recent fall in gas prices and said the data “is a reminder that all major economies are battling this Covid-related challenge, made worse by Putin’s unconscionable aggression.”8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Democrats Propose Raising Taxes on Some High Earners to Bolster Medicare

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    The draft plan, which is expected to be unveiled in the coming days, is part of talks over how to salvage pieces of President Biden’s domestic agenda.WASHINGTON — Senate Democrats will push to raise taxes on some high-earning Americans and steer the money to improving the solvency of Medicare, according to officials briefed on the plan, as they cobble together a modest version of President Biden’s stalled tax and spending package.The proposal is projected to raise $203 billion over a decade by imposing an additional 3.8 percent tax on income earned from owning a piece of what is known as a pass-through business, such as a law firm or medical practice. The money that would be generated by the change is estimated to be enough to extend the solvency of the Medicare trust fund that pays for hospital care — currently set to begin running out of money in 2028 — until 2031.It is the most recent agreement to emerge from private negotiations between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a conservative-leaning Democrat who has demanded that his party rein in its sweeping ambitions for a domestic policy plan. In December, Mr. Manchin torpedoed efforts to pass Mr. Biden’s $2.2 trillion social safety net, climate and tax package because of concerns over its cost and impact on the economy at a time of rising inflation.His backing is critical because, with Republicans expected to be uniformly opposed, the only way Democrats can pass the package through the evenly divided Senate is to win unanimous backing from their caucus and do so under special budget rules that would shield it from a filibuster and allow it to pass on a simple majority vote.Mr. Schumer has worked to salvage key components of the plan that could meet that test, including a plan released on Wednesday to lower the cost of prescription drugs. Mr. Manchin has repeatedly said such legislation should focus on tax reform and drug pricing, as well as efforts to lower the national debt. The bill is also expected to include some climate and energy provisions, a key priority for Democrats, although they have yet to be agreed upon.Democratic leaders, who hope to move the legislation through the Senate this month, are expected to formally release the Medicare plan in the coming days, according to the officials, who disclosed preliminary details on the condition of anonymity.The fast-track budget process that the party plans to use for the overall package, known as reconciliation, requires legislation to abide by strict budgetary rules enforced by the Senate parliamentarian. The prescription drug legislation has been submitted to the parliamentarian, and Democrats plan to submit the tax increase and Medicare piece in coming days.The portion of Medicare that pays for hospital bills is funded through a special trust fund, largely financed by payroll taxes. But with escalating health care costs and an aging population, current revenues won’t be enough to pay all of Medicare’s hospital bills forever. According to the most recent report from Medicare’s trustees, the fund will be depleted in 2028 without new revenues or spending cuts.The Democrats’ plan would extend an existing 3.8 percent net investment income tax to so-called pass-through income, earned from businesses that distribute profits to their owners. Many people who work at such firms — such as law partners and hedge fund managers — earn high incomes, but avoid the 3.8 percent tax on the bulk of it.The new proposal would apply only to people earning more than $400,000 a year, and joint filers, trusts and estates bringing in more than $500,000, in accordance with Mr. Biden’s pledge that he would not raise taxes for people who make less than $400,000 a year. The proposal is similar to a tax increase Mr. Biden proposed in 2021 to help offset the cost of a set of new spending programs meant to help workers and families, like home health care and child care.Senator Joe Manchin III has said Democrats should focus on tax reform, prescription drug costs and efforts to lower the national debt.Tom Brenner for The New York TimesImposing the new tax on pass-through income would raise about $202.6 billion over a decade, according to an estimate from the Joint Committee on Taxation provided to Senate Democrats and reviewed by The New York Times. Those funds would be funneled directly into the Hospital Insurance Trust Fund, which covers inpatient hospital care, some home health care and hospice care.The Office of the Actuary in the Centers for Medicare & Medicaid Services informed Democratic staff that the additional revenue generated would extend the hospital trust fund’s solvency from 2028 to 2031.“Medicare is a lifeline for millions of American seniors and Senator Manchin has always supported pathways to ensure it remains solvent,” said Sam Runyon, a spokeswoman for Mr. Manchin. “He remains optimistic there is a path to do just that.”She cautioned that an overall deal on a broader climate, tax and spending package has yet to be struck. Some Democrats also hope to include an extension of expanded Affordable Care Act subsidies, which passed on a party-line vote in the $1.9 trillion pandemic aid package in 2021.“Senator Manchin still has serious unresolved concerns, and there is a lot of work to be done before it’s conceivable that a deal can be reached he can sign onto,” Ms. Runyon said.While Mr. Manchin has said he would support additional tax increases, any changes to the tax code must also win the support of Senator Kyrsten Sinema of Arizona, a centrist who opposed many of her party’s initial tax proposals.And while many Democrats are anxious to address climate change before the midterm elections, which may change the balance of power in Washington, Mr. Manchin, who has been protective of his state’s coal industry, continues to haggle over that issue.The heart of the climate plan is expected to be approximately $300 billion in tax credits to expand the development of clean energy like wind, solar and battery storage, a significantly smaller plan that reflects concessions to Mr. Manchin, according to several people familiar with the negotiations.Negotiators are also considering tax credits to incentivize the purchase of electric vehicles, though it is unclear whether Mr. Manchin will support such a provision.Lisa Friedman More

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    Veterans of Carter-Era Inflation Warn That Biden Has Few Tools to Tame Prices

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    President Biden and Democrats face political peril as costs keep rising and midterm elections loom.WASHINGTON — When inflation surged in the late 1970s, President Jimmy Carter convened his top economic advisers for weekly lunch meetings in which they tended to offer overly optimistic forecasts of how high prices would rise.But the political consequences of rising prices could not be escaped: By 1978, Democrats had lost seats in the House and Senate. A year later, Mr. Carter’s Treasury secretary, W. Michael Blumenthal, was ousted in a cabinet shake-up. In 1980, Mr. Carter lost his re-election bid in a landslide as the Federal Reserve, intent on bringing inflation down, raised interest rates so aggressively that it tipped the economy into a painful recession.President Biden and the Democrats in power now face a similar predicament as they scramble to tame inflation after a year of telling Americans that price gains would be short-lived. In recent weeks, Mr. Biden has pressed oil refineries to ramp up production, proposed a three-month gas tax holiday and called on the Federal Reserve to do what is needed to cool an overheating economy. But to veterans of the Carter administration, the echoes of the past call for a greater sense of urgency from Mr. Biden despite his limited power to bring prices down.“The basic problem that this president faces is really not too dissimilar from the one that confronted Carter,” said Mr. Blumenthal, who is 96 and divides his time between Princeton, N.J., and Germany, where he was born. “President Biden faces this dilemma, and it’s certainly my hope that he will choose clearly, choose decisively and be very clear not only about the fact that he recognizes that inflation has to be dealt with, but that he is really willing to support painful steps to do that.”That pain could be severe if the Fed, as economists increasingly expect, is forced to tip the economy into recession in order to bring inflation to heel. The central bank has already begun raising interest rates quickly and signaled it will do whatever it takes to restore “price stability” as it tries to avoid the mistakes of the 1970s.Veterans of the Carter administration say Mr. Biden would be wise to also learn from the past and avoid half-measures that have popular appeal but do little to resolve the underlying problem, as well as forgoing large spending initiatives.The United States has been buffeted by soaring prices this year as supply chain disruptions that emerged during the pandemic coincided with a surge in food and energy prices spurred by Russia’s war in Ukraine. The Consumer Price Index picked up by 8.6 percent in May from a year earlier, as price increases climbed at the fastest pace in more than 40 years. Gas hit $5 per gallon in June and is now averaging around $4.80.The dynamic has parallels to the 1970s, when the Arab oil embargo of 1973-74 and the Iranian revolution of 1979 curtailed oil supply so severely that it fueled shortages, sending gas prices soaring. Inflation peaked at 14.6 percent in 1980 before easing as Paul A. Volcker, who was the Fed chair, aggressively raised interest rates to nearly 20 percent and triggered a recession that eventually tamed inflation.The Carter administration tried an array of measures to contain rising inflation that proved ineffective. Among them was a scheme to encourage businesses to voluntarily cap wages and prices, a release of grain reserves to smooth food prices and a call for deficit reduction.In an impassioned “fireside chat” to the nation in February 1977, Mr. Carter urged Americans to embrace conservation to cope with energy shortages and rising fuel costs.Understand Inflation and How It Impacts YouInflation 101: What’s driving inflation in the United States? What can slow the rapid price gains? Here’s what to know.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Changing Behaviors: From driving fewer miles to downgrading vacations, Americans are making changes to their spending because of inflation. Here’s how five households are coping.“All of us must learn to waste less energy,” Mr. Carter said. “Simply by keeping our thermostats, for instance, at 65 degrees in the daytime and 55 degrees at night, we could save half the current shortage of natural gas.”Mr. Blumenthal said Mr. Biden should heed the lessons of Mr. Carter’s failed attempts to curb inflation by avoiding measures that are counterproductive. He urged Mr. Biden to support a substantial interest rate increase and to abandon his sweeping legislative package in favor of deficit reduction, which some economists argue could dampen prices by slowing growth depending on how it is approached.“Inflation fighting comes first,” said Mr. Blumenthal, who escaped Nazi Germany and lived in Shanghai during a period of hyperinflation in the 1940s. “He has to show the recognition to the public that inflation has lasting deleterious effects on the economy and that by trying to take half measures now, you merely prolong the pain of these effects.”Mr. Carter, center, with Mr. Blumenthal, second from right, at the White House in 1977. “The basic problem that this president faces is really not too dissimilar from the one that confronted Carter,” Mr. Blumenthal said. Bettman/Getty ImagesMr. Biden has acknowledged that inflation could be persistent and has said his administration is doing what it can to ease price pressures. He has primarily blamed President Vladimir V. Putin and his invasion of Ukraine for price increases but has also faulted American oil refineries and even gas stations. As travelers set out for the July Fourth holiday weekend, Mr. Biden accused gas station owners of profiteering and urged them to lower their prices.“Bring down the price you are charging at the pump to reflect the cost you’re paying for the product,” Mr. Biden said on Twitter.The Biden administration has been looking for ways to lower oil prices globally. Treasury Secretary Janet L. Yellen has been pressing her European counterparts to impose a price cap on Russian oil exports, and the Group of 7 industrialized nations agreed last week to explore the idea.Some of the proposals for easing the pain of inflation on Americans, such as the gas tax holiday or student loan debt forgiveness, have been dismissed by economists who say they might make inflation worse. Others have been criticized, like Mr. Biden’s upcoming trip to Saudi Arabia, which some have called pandering to a state that the president once likened to a “pariah” over its role in the assassination of Jamal Khashoggi, a Washington Post columnist and a prominent dissident. Mr. Biden said last week that he would not ask the Saudis to increase oil production.C. Fred Bergsten, the assistant secretary for international affairs at the Treasury Department from 1977 to 1981, said the United States should avoid the kind of domestic oil price controls that were in place during the 1970s and that the Carter administration eventually abandoned in 1979. Describing them as an “abysmal failure,” Mr. Bergsten said they distorted energy markets.“One lesson from the Carter administration is don’t do that,” Mr. Bergsten, 81, said. “Energy price controls discourage production and held down the supply side over time.”Mr. Bergsten suggested that rolling back some of the Trump-era tariffs on $360 billion worth of Chinese goods that economists say have driven up costs for American consumers could offer some marginal relief from inflation. He also thinks Democrats should consider tax increases that would be targeted mostly at the wealthy to reduce the pent-up demand in the economy that continues to push prices higher. Proposals such as the gas tax holiday would most likely just fuel more inflation, he predicted, by giving drivers more money to spend, and would make the Biden administration look desperate by resorting to gimmicks.“Even if Biden doesn’t have many alternatives to deal with it, the image is of a lack of decisive and effective management of the country and the economy,” said Mr. Bergsten, who made several trips to Saudi Arabia in the 1970s to try to get Riyadh to boost oil production.The moment is politically perilous for Mr. Biden, with the November midterm elections approaching, and politics is also complicating the federal response.Republicans have realized the political power of rising prices, seizing on inflation as a key talking point ahead of the midterms, often comparing Mr. Biden to Mr. Carter.Inflation F.A.Q.Card 1 of 5What is inflation? More