Tax Cuts and Jobs Act (2017)

More stories

  • 138 Shares99 Views

    in Economy

    Britain’s Gamble on Tax Cuts has Economists Warning of Past Mistakes

    by

    The International Monetary Fund is just one of the many voices that have criticized a plan to cut rates for high earners.WASHINGTON — A stunning rebuke from the International Monetary Fund this week underscored one of the biggest risks of the new British government’s plan to slash taxes on high earners: It could exacerbate rapid inflation and destabilize markets at a precarious economic moment.The alarm from economists, central bankers, investors and top U.S. officials centered on the likelihood that the tax cuts could stoke consumer demand by giving people more money to spend, pushing crushingly high prices even higher. That would put the British government in direct conflict with aggressive efforts of the central banks around the globe — and in the United Kingdom — that are raising interest rates in a bid to bring inflation under control.Many economists say British officials are also ignoring the lessons of the most recent bout of tax cuts — those engineered in the United States by former President Donald J. Trump. Empirical research on the early results of those cuts suggests that they mostly helped the economy by temporarily increasing consumer demand, an outcome that could prove particularly damaging in the high-inflation environment that Britain and much of the world are experiencing.Liz Truss, Britain’s new prime minister, has staked her fledgling government on a oversize, once-in-a-generation package of tax cuts and deregulation meant to energize the economy. It includes a cut in rates for the country’s lowest income tax bracket — and, in what was a surprise move, a five-percentage-point cut in the country’s top income tax rate, which applies to those earning more than 150,000 pounds, or about $164,000, a year.The International Monetary Fund responded to those proposals with the sort of pointed criticism it typically reserves for an emerging-market economy, not for the economy of one of the wealthiest nations in the world.“Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” the I.M.F. said in a news release on Tuesday.The statement noted that the tax cuts would most likely increase economic inequality, and it urged the British government to “provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners.”More on Politics in BritainPrime Minister Liz Truss was chosen by a divided British Conservative Party to lead a country facing the gravest economic crisis in a generation.A Domestic Push: After a period of mourning for the death of Queen Elizabeth II, the new government led by Ms. Truss began to work in earnest, announcing several initiatives to address Britain’s economic and social problems.A Turn Toward Thatcherism: Ms. Truss bet on a heavy dose of tax cuts, deregulation and free-market economics to reignite growth. The negative reaction from financial markets underscored the extent of the gamble.Seizing the Moment: Accusing Ms. Truss of losing control of Britain’s economy, the leader of the opposition Labour Party, Keir Starmer, staked his claim as the guardian of sound fiscal policy.Energy Policies: The British government said it would freeze electric and gas bills for households and cut energy costs for companies in an effort to mitigate the effects of Russia’s restriction of gas supplies to Europe.Investors have also recoiled from the plan, sending British bond yields soaring — forcing the Bank of England to intervene to stabilize them — and causing the value of the pound to plummet.Ms. Truss is not the first conservative politician in recent years to come into office promising to slash taxes. Mr. Trump also campaigned on — and ultimately delivered — “massive tax cuts” in 2017, a package that only Republican lawmakers backed. Decades ago, President Ronald Reagan and Prime Minister Margaret Thatcher of Britain both pursued tax-cutting agendas that cemented their legacies in office.Ms. Truss has been cheered on by conservative champions of supply-side economics in the United States, including many of the chief backers of Mr. Trump’s tax cuts. Stephen Moore, who served as an outside economic adviser to the former president, praised Ms. Truss for her willingness “to challenge the reigning orthodoxy by sharply cutting taxes to boost growth,” calling the package “a gutsy and sound policy decision.”“By far the most important change is the reduction in the top income tax rate from 45 percent to 40 percent,” Mr. Moore wrote. “This will bring jobs, capital and businesses back to the U.K.”A host of critics, though, have lined up to denounce the tax package, warning it will provoke economic war with the Bank of England and risk a damaging combination of economic contraction and soaring prices, which could in turn hurt the global recovery.The impact of previous tax cuts, including those signed into law by Mr. Trump in 2017, provides fodder for those critiques.Much as Ms. Truss has proposed to do, Mr. Trump reduced tax rates for income earners across the spectrum, including those in the highest bracket. He also cut a variety of business tax rates — a contrast with the British plan, which cancels a planned increase in corporate taxes. Mr. Trump said his full package of cuts would jump-start economic activity by encouraging businesses to invest, hire and raise wages.Yet initial evidence, which includes studies from I.M.F. economists, suggests Mr. Trump’s cuts did not deliver the steep gains in investment and productivity that conservatives had promised. If such gains came to pass in Britain, they could help counter inflation there.Instead, the cuts increased consumer spending, an outcome that helped temporarily expand growth in the United States, the I.M.F. found, but which could be dangerous in a high-inflation environment.“The record through 2019 from the Trump tax cuts is not encouraging for the U.K.,” said William G. Gale, a co-director of the Urban-Brookings Tax Policy Center in Washington.Last year, Mr. Gale and a colleague, Claire Haldeman, published a study on the effects of Mr. Trump’s tax cuts up until the start of the pandemic recession. They looked for supply-side effects — whether the cuts increased investment incentives and other means of stimulating sustained economic growth — and found little evidence of such results.Instead, they found that the cuts did little to promote job growth or investment outside the oil and gas sector, which is highly correlated with the global price of fossil fuels. And they found that the cuts significantly reduced federal tax revenues, contrary to Republicans’ promises that the cuts would pay for themselves by inciting additional economic growth.Broader research suggests that Ms. Truss’s cuts for top earners are unlikely to drive significant gains in economic growth. In a recent study of decades of tax changes, Owen Zidar, an economist at Princeton, found that cuts for the top 10 percent of earners did little to prompt job gains.The hope that cuts in Britain’s top rate will supercharge the economy, Mr. Zidar said in an interview, “is completely at odds with the empirical record of the United States since 1950.”Mr. Gale, Mr. Zidar and other economists joined the I.M.F. in noting a particular challenge for the British tax cuts: the likelihood that they will be offset by interest rate increases from the Bank of England, as it seeks to bring down price growth.Other rounds of tax cuts, like those under Mr. Reagan, helped to increase growth by working in tandem with interest rate cuts taken by the Federal Reserve, according to economists who specialize in tax policy. In Britain’s case, the opposite appears to be true: The Bank of England has already been raising rates, and it appears ready to push them even higher to offset the effects of Ms. Truss’s policies. Those rate increases would negate a major goal of the tax cuts — to make it cheaper for companies to invest — by raising the costs of borrowing across the economy.Economists say faster rate increases also heighten the risk of recession in Britain.Supporters of the British tax cuts are already accusing the central bank of crippling them — much as Mr. Trump accused the Fed of undermining his tax cuts when it raised interest rates repeatedly after they were enacted.“It hasn’t helped that the Bank of England has launched a public campaign to sabotage the Truss agenda,” Mr. Moore wrote this week, echoing comments he made about the Fed in 2019.The actions of the British government could reverberate far beyond that country’s borders given the flows of international trade and the potential for a far-flung financial crisis. In recent days, President Biden has grown more concerned with the situation in Britain. On Wednesday, he met with members of his economic team to discuss developments in global financial markets, instructing them to brief him regularly on the situation.“We’re watching this very closely,” Jared Bernstein, a member of the White House’s Council of Economic Advisers, said on Wednesday at the Peterson Institute for International Economics. “The president’s being kept up on all the developments.”When asked about the cuts this week, the White House press secretary, Karine Jean-Pierre, said the administration would leave British policy to Ms. Truss’s government. But other administration officials have criticized the plan.Speaking at an event at the Brookings Institution on Wednesday, Gina Raimondo, the secretary of commerce, said Britain’s combination of cutting taxes and increasing spending would neither help the country fight inflation in the short term nor send it in the direction of long-term growth.“Investors, businesspeople want to see world leaders taking inflation very seriously, and it’s hard to see that out of this new government,” she said, adding, “We’re pursuing a different strategy.”Ana Swanson More

  • 113 Shares179 Views

    in Economy

    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

    by

    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More

  • 163 Shares199 Views

    in Economy

    In Social Policy Bill, Businesses See a Lot to Like. They Oppose It.

    by

    Resistance to tax increases outweighs the appeal of a $3.5 trillion measure containing child care credits and other items that corporations embrace.WASHINGTON — The far-reaching social policy bill under construction in Congress has much that corporate America has long sought from Washington.Federal funding for family leave would ease the burden of businesses that currently pay for it while helping those that cannot afford it compete for workers. Child care tax credits would get women back in the work force. Income supports for young families could ease upward pressure on wages.But the bill also contains plenty for corporate America to dislike — particularly the tax increases that would pay for it — and in the cold calculus of corporate lobbying, industries are working hard to bring the whole enterprise down.“It’s not fair to say we like all the spending but don’t want to pay for it. There is some investment that is more valuable than others,” said Neil Bradley, the executive vice president and chief policy officer for the U.S. Chamber of Commerce. But, he added, “ultimately we’re making the case that taken as a whole, this is economically devastating for the country and in particular members’ districts and states.”Businesses have long seen a role for the government in creating and sustaining the kind of trained, healthy work force that can keep them competitive in a global economy.Access to affordable child care and early childhood education would help parents who stopped working during the coronavirus pandemic return to the labor force. Expanded higher education aid and worker retraining could create a more flexible labor pool, programs that business groups have supported for years. Federally financed family and medical leave would help small businesses that cannot afford it compete for talent with larger businesses providing the benefit.“What’s holding back growth? Labor force participation, which hasn’t recovered; nonaffordability of child care, which is going to take the biggest leap forward that we’ve ever had; paid leave for illness and family leave,” said Representative Donald S. Beyer Jr., a Virginia Democrat who owned and ran car dealerships before his political career. “On the business side, I think it will make for a better workplace, an easier one with less tension.”Yet the Chamber of Commerce, the Business Roundtable, the National Federation of Independent Business and the National Association of Manufacturers are implacably opposed. Many have made it clear: Taxes trump policy.“We’re hearing somewhere between $1.8 and $3.5 trillion on job creators in America. That would take us back to where we were before the 2017 tax reforms,” Jay Timmons, the chief executive of the manufacturers’ association, said on CNBC. “We will oppose the bill with any of those factors in there.”That 2017 tax law, signed by President Donald J. Trump, is at the heart of the opposition. The net tax cuts were supposed to cost the Treasury Department about $1.5 trillion over 10 years, but the total tax cutting, more than $5 trillion over a decade, was far larger than the tax increases now being contemplated — though it was partly offset by other tax increases, mainly on individuals.The major business groups are divided on precisely how to respond to the emerging social policy bill, but they are united in their defense of the Trump-era tax cuts. For instance, the Retail Industry Leaders Association, in a letter to congressional leaders on Thursday, embraced a proposal by President Biden to create a corporate minimum tax, declaring, “For too long, some of the largest corporations have paid minimal or no taxes.”But retailers pleaded with lawmakers to hit other companies first before even contemplating an increase in the corporate income tax rate, which the 2017 tax cut lowered to 21 percent from 35 percent. Mr. Biden has proposed raising it to 28 percent.The social policy bill under construction in Congress has much that corporate America has long sought from Washington.Stefani Reynolds for The New York Times“This is, in many ways, just a small response to the 2017 Tax Cuts and Jobs Act bill that passed under Trump, which led to some $2 trillion in lost revenue that could have gone to the public investments that we are all calling for and everyone agrees are needed,” said Didier Trinh, the director of policy at the Main Street Alliance, a liberal small-business group that is dwarfed by the groups opposing the measure. “The corporate tax rate at 28 percent would only be halfway to the pre-Trump tax rate.”Beyond the corporate tax rate, Democrats are considering taxing business repurchasing of stocks, raising taxes on overseas profits, limiting tax write-offs for foreign investment, tightening access to a special low tax rate for partnerships and other companies that do not pay corporate income taxes, and dozens of other measures.Jeffrey Hollender, a co-founder and former chief executive of Seventh Generation, which makes “green” household and personal care products, said Congress’s progress toward what would be the most significant expansion of the social safety net since the 1960s was testing the business community’s stated commitments to social change. He said he was not surprised that the calls for change were not standing up to the reality of paying for it.“People say they’re for this new stakeholder economy, that they’re committed to sustainability,” said Mr. Hollender, now the chief executive of the liberal American Sustainable Business Council. “But at the same time, there is a system of incentives designed to maximize profits, and when those profits are threatened, businesses don’t like it.”More mainline business groups recoiled at the accusation. Mr. Bradley, of the Chamber of Commerce, agreed that parts of the Democratic vision mirrored the business lobby’s longstanding wishes. Accessible child care is a high priority, he said, and addressing climate change with investments in clean energy is overdue.“The administration was right to raise I.R.S. enforcement to close the tax gap,” he added. “We want a pro-growth tax code, but we want people to comply with that tax code.”But he said the way Democrats were addressing those issues — by hastily lumping them into one voluminous $3.5 trillion measure to be passed through a fast-track process known as reconciliation — guaranteed opposition.For instance, business groups had been working with lawmakers from both parties to try to create a paid family and medical leave program that would be paid for with a payroll tax, shared among businesses, workers and the government. To satisfy Mr. Biden’s pledge not to raise any taxes on people with incomes below $400,000, the payroll tax has disappeared, replaced by a variety of tax increases on rich people and corporations that are no longer connected to the program they are to finance.“Paid family leave, outside a reconciliation context, would require intense negotiations and trade-offs, but it wouldn’t be outside the realm of possibility that we could find a proposal that we could support,” Mr. Bradley said. “Inside reconciliation, it’s only getting worse.”The Business Roundtable, which represents the chief executives of the nation’s largest corporations, expressed a similar desire. “There is strong bipartisan support for some of these policies, and we encourage Congress to take them up through that deliberative process, not via reconciliation,” the group said in a statement.To many Democrats, that sounds like an excuse, “a tactic to avoid having to pay,” Mr. Hollender said. For many of the programs under consideration, like paid family leave, recently championed by Ivanka Trump, former President Donald J. Trump’s older daughter, bipartisan negotiations have dragged on fruitlessly for decades. Now that legislative efforts are moving forward in earnest, supporters are dropping away.Heather Boushey, a member of the White House Council of Economic Advisers, defended the broad-based approach of addressing social policy needs and paying for them with tax policies generally devised to address income inequality, not narrowly tailored as direct offsets to specific programs.“This is a pro-growth agenda, based on the notion that when the middle class does well everyone does well,” she said, “and one history will show is the right way to go.” More

  • 138 Shares99 Views

    in Economy

    Biden, Needing a Win, Enters a Sprint for His Economic Agenda

    by

    As his poll numbers slide, the president and his aides have mounted an aggressive pitch in Congress and around the country for his spending plans on infrastructure and more.WASHINGTON — President Biden, his aides and his allies in Congress face a September sprint to secure a legislative victory that could define his early presidency.Democrats are racing the clock after party leaders in the House struck a deal this week to advance the two-track approach that Mr. Biden hopes will deliver a $4 trillion overhaul of the federal government’s role in the economy. That agreement sets up a potentially perilous vote on one part of the agenda by Sept. 27: a bipartisan deal on roads, broadband, water pipes and other physical infrastructure. It also spurred House and Senate leaders to intensify efforts to complete a larger, Democrats-only bill to fight climate change, expand educational access and invest heavily in workers and families, inside that same window.If the party’s factions can bridge their differences in time, they could deliver a signature legislative achievement for Mr. Biden, on par with the New Deal or Great Society, and fund dozens of programs for Democratic candidates and the president to campaign on in the months to come.If they fail, Mr. Biden could find both halves of his economic agenda dashed, at a time when his popularity is slumping and few if any of his other top priorities have a chance to pass Congress.The president finds himself at a perilous moment seven months into his term. His withdrawal of American troops from Afghanistan has devolved into a chaotic race to evacuate tens of thousands of people from the country by the month’s end. After throwing a July 4 party at the White House to “declare independence” from the coronavirus pandemic, he has seen the Delta variant rampage through unvaccinated populations and send hospitalizations and death rates from the virus soaring in states like Florida.Mr. Biden’s approval ratings have dipped in recent months, even on an issue that has been an early strength of his tenure: the economy, where some recent polls show more voters disapproving of his performance than approving it.The country is enjoying what will most likely be its strongest year of economic growth in a quarter century. But consumer confidence has slumped in the face of rapidly rising prices for food, gasoline and used cars, along with shortages of home appliances, medical devices and other products stemming from pandemic-fueled disruptions in the global supply chain.While unemployment has fallen to 5.4 percent, workers have not flocked back to open jobs as quickly as many economists had hoped, creating long waits in restaurants and elsewhere. Private forecasters have marked down their expectations for growth in the back half of the year, citing supply constraints and the threat from the Delta variant.White House economists still expect strong job gains through the rest of the year and a headline growth rate that far exceeds what any forecasters expected at the start of 2021, before Mr. Biden steered a $1.9 trillion stimulus plan through Congress. But the White House economic team has lowered informal internal forecasts for growth this year, citing supply constraints and possible consumer response to the renewed spread of the virus, a senior administration official said this week.Mindful of that markdown, and of what White House economists estimate will be a hefty drag on economic growth next year as stimulus spending dries up, administration officials have mounted a multiweek blitz to pressure congressional moderates and progressives to pass the spending bills that officials say could help reinvigorate the recovery — and possibly change the narrative of the president’s difficult late summer.The importance of the package to Mr. Biden was clear on Tuesday, when he pre-empted a speech on evacuation efforts in Afghanistan to laud House passage of a measure that paves the way for a series of votes on his broader agenda.For the infrastructure bill to pass, Congress must balance the desires of progressives who see a generational chance to expand government to address inequality and curb climate change and moderates who have pushed for a smaller package.Stefani Reynolds for The New York Times“We’re a step closer to truly investing in the American people, positioning our economy for long-term growth, and building an America that outcompetes the rest of the world,” the president said.Many steps remain before Mr. Biden can sign both bills into law — but his party has given itself only a few weeks to complete them. The infrastructure bill is written. But the House and Senate must agree on the spending programs, revenue increases and overall cost of the larger bill, balancing the desires of progressives who see a generational chance to expand government to address inequality and curb climate change and moderates who have pushed for a smaller package and resisted some of the tax proposals to pay for it.It is a timeline reminiscent of what Republicans set for themselves in the fall of 2017, when they rushed a nearly $2 trillion package of tax cuts to President Donald J. Trump’s desk without a single Democratic vote.Sticking to it will require sustained support from administration officials both in and out of Washington. In the first three weeks of August, Mr. Biden dispatched cabinet members to 31 states to barnstorm for the infrastructure bill and his broader economic agenda, with events in the districts of moderate and progressive members of Congress, according to internal documents obtained by The New York Times. His secretaries of transportation, labor, interior, energy, commerce and agriculture sat for dozens of local television and radio interviews to promote the bills.Even with those efforts, the initial clash over advancing the budget this week was resolved with a flurry of calls from Mr. Biden, top White House officials and senior Democrats to the competing factions in the House.Congressional leaders say they have spent months laying the groundwork so that their party can move quickly toward consensus. Speaker Nancy Pelosi of California told colleagues in a letter on Wednesday that “we have long had an eye to having the infrastructure bill on the president’s desk by the Oct. 1,” the date when many provisions in the bipartisan package are slated to go into effect.Committee leaders have been instructed to finish their work by Sept. 15, and rank-and-file lawmakers have been told to make their concerns and priorities known quickly as they maneuver through substantive policy disagreements, including whether it should be as much as $3.5 trillion and the scope of Mr. Biden’s proposed tax increases.“I’m sure everybody’s going to try their best,” said Representative John Yarmuth of Kentucky, the House Budget Committee chairman. “Some committees will have it rougher than others.”Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, has been releasing discussion drafts of proposals to fund the $3.5 trillion budget reconciliation spending — the larger bill that Democrats plan to move without any Republican support — including raising taxes on high earners and businesses. On Wednesday, he provided granular details of a plan to increase taxes on the profits that multinational companies earn and book overseas.“I’m encouraged by where we are,” Mr. Wyden said in an interview.Democratic leaders and the White House have pushed analyses of their proposals that speak to core liberal priorities; on Wednesday, Senator Chuck Schumer of New York, the majority leader, released a report suggesting the two bills combined would “put our country on the path to meet President Biden’s climate change goals of 80 percent clean electricity and 50 percent economywide carbon emission reduction by 2030.”White House economists released a detailed report this week claiming the spending Mr. Biden supports, like universal prekindergarten and subsidized child care, would expand the productive capacity of the economy and help reduce price pressures in the future.While Republicans are not expected to get on board with the larger spending bill, they are still making their concerns known, labeling the bill socialist and a spending spree and claiming it will stoke inflation and drive jobs overseas.Mr. Biden can pass the entire agenda now with only Democratic votes, but the party’s thin majorities — including no room for even a single defection in the Senate — complicates the task. Ms. Pelosi said on Wednesday that the House would “write a bill with the Senate, because there’s no use our doing a bill that is not going to pass the Senate, in the interest of getting things done.”As part of an agreement to secure the votes needed to approve the $3.5 trillion budget blueprint on Tuesday, Ms. Pelosi gave centrist and conservative Democrats a commitment that she would only take up a reconciliation package that had the support of all 50 Senate Democrats and cleared the strict Senate rules that govern the fast-track process.“I’m not here to pass messaging bills — I’m here to pass bills that will actually become law and help the American people,” said Representative Stephanie Murphy of Florida, one of the Democrats who initially announced that she would not support advancing the budget, but ultimately joined every Democrat in advancing it.For moderates, Ms. Pelosi’s commitment served to shield them from potentially tough votes on provisions that the Senate may reject. It also signaled the political realities that could shape the final legislation. No Democrat will want to vote on a large spending bill doomed for failure. It will be Mr. Biden’s job to lead his coalition to a bill that can pass muster with moderates and progressives alike — and to convince every holdout that failure is not an option. More

  • 100 Shares199 Views

    in Economy

    Biden Narrows Infrastructure Proposal to Win Republican Support

    by

    The president offered new concessions this week, including dropping his plan to reverse some of the 2017 tax cuts, as he tries to win support from Senate Republicans.WASHINGTON — President Biden offered a series of concessions to try to secure a $1 trillion infrastructure deal with Senate Republicans in an Oval Office meeting this week, narrowing both his spending and tax proposals as negotiations barreled into the final days of what could be an improbable agreement or a blame game that escalates quickly. More

  • 138 Shares99 Views

    in Economy

    Biden’s Tax Plan Aims to Raise $2.5 Trillion and End Profit-Shifting

    by

    The plan detailed by the Treasury Department would make it harder for companies to avoid paying taxes on both U.S. income and profits stashed abroad.WASHINGTON — Large companies like Apple and Bristol Myers Squibb have long employed complicated maneuvers to reduce or eliminate their tax bills by shifting income on paper between countries. The strategy has enriched accountants and shareholders, while driving down corporate tax receipts for the federal government.President Biden sees ending that practice as central to his $2 trillion infrastructure package, pushing changes to the tax code that his administration says will ensure American companies are contributing tax dollars to help invest in the country’s roads, bridges, water pipes and in other parts of his economic agenda.On Wednesday, the Treasury Department released the details of Mr. Biden’s tax plan, which aims to raise as much as $2.5 trillion over 15 years to help finance the infrastructure proposal. That includes bumping the corporate tax rate to 28 percent from 21 percent, imposing a strict new minimum tax on global profits and cracking down on companies that try to move profits offshore.The plan also aims to stop big companies that are profitable but have no federal income tax liability from paying no taxes to the Treasury Department by imposing a 15 percent tax on the profits they report to investors. Such a change would affect about 45 corporations, according to the Biden administration’s estimates, because it would be limited to companies earning $2 billion or more per year.“Companies aren’t going to be able to hide their income in places like the Cayman Islands and Bermuda in tax havens,” Mr. Biden said on Wednesday during remarks at the White House. He defended the tax increases as necessary to pay for infrastructure investments that America needs and to help reduce the federal deficit over the long term.Still, his 15 percent tax is a narrower version of the one he proposed in the 2020 campaign that would have applied to companies with $100 million or more in profits per year.Mr. Biden’s proposals are a repudiation of Washington’s last big tax overhaul — President Donald J. Trump’s 2017 tax cuts. Biden administration officials say that law increased the incentives for companies to shift profits to lower-tax countries, while reducing corporate tax receipts in the United States to match their lowest levels as a share of the economy since World War II.Treasury Secretary Janet L. Yellen, in rolling out the plan, said it would end a global “race to the bottom” of corporate taxation that has been destructive for the American economy and its workers.“Our tax revenues are already at their lowest level in generations,” Ms. Yellen said. “If they continue to drop lower, we will have less money to invest in roads, bridges, broadband and R&D.”The plan, while ambitious, will not be easy to enact.Some of the proposals, like certain changes to how a global minimum tax is applied to corporate income, could possibly be put in place by the Treasury Department via regulation. But most will need the approval of Congress, including increasing the corporate tax rate. Given Democrats’ narrow majorities in the Senate and the House, that proposed rate could drop. Already, Senator Joe Manchin III of West Virginia, a crucial swing vote, has said he would prefer a 25 percent corporate rate.Mr. Biden indicated he was willing to negotiate, saying: “Debate is welcome. Compromise is inevitable. Changes are certain.” But he added that “inaction is not an option.”At the core of the tax proposal is an attempt to rewrite decades of tax-code provisions that have encouraged and rewarded companies who stash profits overseas.It would increase the rate of what is essentially a minimum tax on money American companies earn abroad, and it would apply that tax to a much broader selection of income. It would also eliminate lucrative tax deductions for foreign-owned companies that are based in low-tax countries — like Bermuda or Ireland — but have operations in the United States.“We are being quite explicit: We don’t think profit-shifting is advantageous from a U.S. perspective,” David Kamin, the deputy director of the National Economic Council, said in an interview. “It is a major problem,” he said, adding that with the proposed changes, “We have the opportunity to lead the world.”Treasury Secretary Janet L. Yellen said that the plan would end a global “race to the bottom” of corporate taxation that has been destructive for the American economy and its workers.Al Drago for The New York TimesThe corporate income tax rate in the United States is currently 21 percent, but many large American companies pay effective tax rates that are much lower than that. Corporations that have operations in multiple countries often shift assets or income — sometimes in physical form, but other times, simply in their accountants’ books — between countries in search of the lowest possible tax bill.Companies also shift jobs and investments between countries, but often for different reasons. In many cases, they are following lower labor costs or seeking customers in new markets to expand their businesses. The Biden plan would create tax incentives for companies to invest in production and research in the United States.Previous administrations have tried to curb the offshoring of jobs and profits. Mr. Trump’s tax cuts reduced the corporate rate to 21 percent from 35 percent in the hopes of encouraging more domestic investment. It established a global minimum tax for corporations based in the United States and a related effort meant to reduce profit-shifting by foreign companies with operations in the country, though both provisions were weakened by subsequent regulations issued by Mr. Trump’s Treasury Department.Conservative tax experts, including several involved in writing the 2017 law, say they have seen no evidence of the law enticing companies to move jobs overseas. Mr. Biden has assembled a team of tax officials who contend the provisions have given companies new incentives to move investment and profits offshore.Mr. Biden’s plan would raise the rate of Mr. Trump’s minimum tax and apply it more broadly to income that American companies earn overseas. Those efforts would try to make it less appealing for companies to book profits in lower-tax companies.That includes discouraging American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign-located firm.Under current law, companies with headquarters in low-tax countries can move some of their profits earned by subsidiaries in the United States and send them back to headquarters as payments for things like the use of intellectual property, then deduct those payments from their American income taxes. The Biden plan would disallow those deductions for companies based in low-tax countries.Treasury Department officials estimate the proposed changes to offshore taxation would raise about $700 billion over 10 years.Companies defend their decisions to locate profits and operations offshore, saying they do so for a variety of reasons, including so that they can compete globally.Business groups blasted the proposal on Wednesday, saying that while they agreed that the United States needed to invest in infrastructure, the tax plan would put American firms at a significant competitive disadvantage.Neil Bradley, an executive vice president and the chief policy officer of the U.S. Chamber of Commerce, said in a statement on Wednesday that the proposal would “hurt American businesses and cost American jobs” and that it would hinder their ability to compete in a global economy.And members of the Business Roundtable, which represents corporate chief executives in Washington, said this week that Mr. Biden’s plan for a global minimum tax “threatens to subject the U.S. to a major competitive disadvantage.”Republican lawmakers also denounced the plan as bad for business, with some on the House Ways and Means Committee saying that “their massive tax hikes will be shouldered by American workers and small businesses.”Still, some companies expressed an openness to certain tax hikes.John Zimmer, the president and a founder of Lyft, told CNN on Wednesday that he supported Mr. Biden’s proposed 28 percent corporate tax rate.“I think it’s important to make investments again in the country and the economy,” Mr. Zimmer said. “And as the economy grows, so too does jobs and so too does people’s needs to get around.”Mr. Biden’s team hopes the proposals will ultimately spur a worldwide change in how and where companies are taxed, which could resolve some of the global competitiveness concerns.The administration is supporting an effort through the Organization for Economic Cooperation and Development to broker an agreement on developing a new global minimum tax. Ms. Yellen threw her support behind that effort on Monday, and the Biden plan includes measures meant to force other countries to go along with that new tax. Global negotiators are aiming to come to an agreement by July. More