<?xml version="1.0" encoding="UTF-8"?><rss version="2.0" xmlns:content="http://purl.org/rss/1.0/modules/content/" xmlns:wfw="http://wellformedweb.org/CommentAPI/" xmlns:dc="http://purl.org/dc/elements/1.1/" xmlns:atom="http://www.w3.org/2005/Atom" xmlns:sy="http://purl.org/rss/1.0/modules/syndication/" xmlns:slash="http://purl.org/rss/1.0/modules/slash/" > <channel> <title>Fiscal Relief – The Musings Of A Politics Junkie & Closet Economist</title> <atom:link href="https://kurtdavisjr.com/tag/fiscal-relief/feed/" rel="self" type="application/rss+xml" /> <link>https://kurtdavisjr.com</link> <description></description> <lastBuildDate>Wed, 03 Jan 2024 15:07:03 +0000</lastBuildDate> <language>en-US</language> <sy:updatePeriod> hourly </sy:updatePeriod> <sy:updateFrequency> 1 </sy:updateFrequency> <generator>https://wordpress.org/?v=6.7.2</generator> <item> <title>The Fed, Investment Firms, And Rising Interest Rates</title> <link>https://kurtdavisjr.com/themortgagenote-com-the-fed-investment-firms-and-rising-interest-rates-inflation/?utm_source=rss&utm_medium=rss&utm_campaign=themortgagenote-com-the-fed-investment-firms-and-rising-interest-rates-inflation</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 05 Jun 2023 13:41:10 +0000</pubDate> <category><![CDATA[United States]]></category> <category><![CDATA[Debt Ceiling]]></category> <category><![CDATA[Economy]]></category> <category><![CDATA[Federal Reserve]]></category> <category><![CDATA[Fiscal Relief]]></category> <category><![CDATA[Inflation]]></category> <category><![CDATA[Interest Rate]]></category> <category><![CDATA[Jamie Dimon]]></category> <category><![CDATA[Jerome Powell]]></category> <category><![CDATA[Shadow Banking]]></category> <category><![CDATA[Tax]]></category> <category><![CDATA[The Fed]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=721</guid> <description><![CDATA[There are some simple life lessons in business: It is hard to be liked by all people and it is hard to be liked all the time. Leaders at central banks and investment firms know this very well… today’s economic crisis will likely end with a simple reminder of these lessons...]]></description> <content:encoded><![CDATA[<div class="wp-block-image"> <figure class="aligncenter size-large"><img fetchpriority="high" decoding="async" width="1024" height="683" src="https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-1024x683.jpg" alt="" class="wp-image-725" srcset="https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-1024x683.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-768x512.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-1536x1024.jpg 1536w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-1130x753.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res-750x500.jpg 750w, https://kurtdavisjr.com/wp-content/uploads/2023/06/fed-res.jpg 2048w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">(Photo Credit: TheMortgageNote.org)</figcaption></figure></div> <p><strong><em>This originally appeared on <a href="https://www.themortgagenote.org/guest-voices-the-fed-investment-firms-and-rising-interest-rates/" data-type="link" data-id="https://www.themortgagenote.org/guest-voices-the-fed-investment-firms-and-rising-interest-rates/">TheMortgageNote.org</a></em></strong></p> <p>There are some simple life lessons in business: It is hard to be liked by all people and it is hard to be liked all the time<em>. </em></p> <p>Leaders at central banks and investment firms know this very well… today’s economic crisis will likely end with a simple reminder.</p> <h2 class="wp-block-heading"><em>The Federal Reserve: Essential to Society or The Source of the Problem?</em></h2> <p>There are few, if any, central bankers who are not taking some public criticism today for raising rates.</p> <p>For Jerome Powell, chairman of the Federal Reserve, and the other Fed members, their position cannot be enviable: stop inflation and maintain financial stability.</p> <p>It is always a tough assignment to raise interest rates (the usual dose of medicine for inflation) without any market disorder… the degree of complexity being a direct correlation to how low the existing interest rate is and how long that current interest rate has existed.</p> <p>Between January 2009 and November 2015, the Fed rate did not exceed 0.2%. It climbed to 2.4% in 2019, then dropped to near zero through 2021 in response to the Covid-19 pandemic. These low rates are a stark contrast to the 20% implemented in 1980 to combat double-digit inflation. Thus, when the Fed began raising rates in March 2022, it was “disrupting” 13 years of low rates.</p> <p>The Fed rate is now targeting 5% to 5.25% with politicians and consumers alike fearing a weakened economy will soon fall into a recession. Much of the pain inflicted on consumers in 2022 was in the pocketbook with inflation hitting prices at the grocery store and the gas pump among other things.</p> <p>In 2023, the pain inflicted is hitting consumer wealth – property prices are cooling for house owners yet buying a house is more expensive with mortgage rates up, banks are failing and putting deposits at risk, and the stock market is more volatile with the uncertainty of rates in the near term.</p> <h2 class="wp-block-heading"><em>Blaming inflation was the trend in 2022. What’s the trend in 2023?</em></h2> <p>The truth is inflation will take longer to come down (compared to the general public’s expectations). The Fed must also contend with differing strategies on the size and pace of rate increases across the globe alongside the usual dynamics of engaging a global economy.</p> <p>Asia Pacific central banks may already be holding rates steady for now, including U.S. trade partners South Korea and India. China’s inflation has already cooled to its lowest rate since February 2021. The UK raised rates again earlier this month. Germany is now in a recession.</p> <p>The Fed rate is simply one of a few levers (not some secret sauce) that the Fed can utilize to achieve its stated goals of “maximum employment, stable prices, and moderate long-term interest rates.” The Fed can also consider reserve requirements, which has increased for 2023 compared to 2022, and open market operations, which is the tool the Fed has most frequently used to manage monetary policy.</p> <p>That said, it is a proven reality that raising interest rates combats inflation. Thus, how can we blame central bankers for pursuing this strategy (for as long as required)?</p> <p>To be fair to the Fed, inflation is not the result of one thing. Blaming OPEC+ was once the ‘cool’ thing with high oil prices. Covid-19 impacted global supply chains while the Russian invasion of Ukraine, coupled with U.S.-European sanctions, certainly did not help the situation. And, ultimately, many central banks, including the U.S., were slow to raise rates. How to allocate the percentage among these causes is not a precise exercise.</p> <p>If inflation is the original sin, then consumers view central bankers, like the Fed governors, as a bunch of Judas-types with interest rate hikes… forgetting that Judas was part of the overall resurrection story.</p> <p>Nonetheless, critics will ask if Judas was necessary to achieve the greater story.</p> <h2 class="wp-block-heading"><em>Shadow Banks: Resolving Financial Problems Or Exacerbating Them?</em></h2> <p>Rising interest rates and a few bank failures have created a crisis for the Fed and an opportunity for investment firms.</p> <p>When banks pull back on lending, investment firms have long stepped in to fill the gaps. Investment firms and related financial institutions (also described as unregulated banks or shadow banks) have increased their share of the leveraged loan market from 54% in 2000 to 75% in 2022.</p> <p>It is this “shadow bank” industry that significantly expanded in the aftermath of the 2008 global financial crisis when new financial regulations and rules were introduced by Congress. The Fed rate may have dropped to zero in 2009, but traditional banks tightened lending back then with reduced risk appetite and higher reserve requirements, with business accordingly migrating away from traditional banks.</p> <p>Major CEO banks (and regulators) are keenly aware of the changing dynamics in lending markets. Jamie Dimon, CEO of JPMorgan Chase & Co, highlights, in his annual letter, “the decreasing role and size of U.S. banks relative to the global economy alongside the increasing role and size of shadow banks” and adds that “many of the new ‘shadow bank’ market makers are fair-weather friends — they do not step in to help clients in tough times.”</p> <p>Investment firms, like Apollo and Blackstone, will tell a different story. Many regulated banks are currently shackled by loans written before interest rates began to rise and face constraints on new lending. The outcome is many large and small businesses in the market searching for credit.</p> <p>Shadow banks are both infusing liquidity into this tightening market with new loans as well as purchasing and extending existing loans. And, if regulators adopt new rules under consideration for small and medium-sized lenders, including new capital requirements, then even more business will migrate to the shadow bank market.</p> <p>Still, some politicians are already adopting the narrative of sharks at the gate, or uncontrolled bad actors in the market. It is true that the shadow bank market is less regulated – the word “shadow” naturally suggests this reality. But it is these investment firms and related financial institutions that help banks offload risks that they are unable or unwilling to hold. This relationship effectively helps banks manage their liquidity.</p> <h2 class="wp-block-heading"><em>Is there contagion risk? Potentially.</em></h2> <p>Regulated banks and non-regulated banks can share exposure to the same clients with significant financial losses having a spillover effect across the balance sheets of multiple financial institutions.</p> <p>Yet, the current market chaos is better described by fallout at regulated banks, which should not inherently suggest that the shadow bank market is at risk of catastrophe – again, let’s not forget that investment firms stepped in to help jumpstart the revival of the U.S. economy following 2008.</p> <p>Critics will argue that the shadow bank market has grown too big to not be regulated – in other words, its opacity and size should raise concern. It is true that these shadow banks are lending to firms that traditional banks will not extend credit to – this is not a secret. There are two perspectives, however, on this situation. Shadow banks are lending to companies that the market fundamentally should be avoiding. Or shadow banks are crafting and creating lending options for small and medium-sized companies that have no credit rating but require capital and help fuel growth in the U.S. economy.</p> <p>Sounding the alarm today feels like a stretch. But, similar to the central bankers, investment firms can do a lot of good work for the economy, especially when traditional banks are weakened and cannot provide liquidity, and still become the villain when something goes wrong.</p> <hr class="wp-block-separator has-css-opacity"/> <p></p> ]]></content:encoded> </item> <item> <title>Tax Policy Is Never So Simple</title> <link>https://kurtdavisjr.com/american-tax-policy-is-never-so-simple-income-tax-capital-gains-consumption-taxes/?utm_source=rss&utm_medium=rss&utm_campaign=american-tax-policy-is-never-so-simple-income-tax-capital-gains-consumption-taxes</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Thu, 26 Aug 2021 17:27:58 +0000</pubDate> <category><![CDATA[United States]]></category> <category><![CDATA[Capital Gains]]></category> <category><![CDATA[Consumption Tax]]></category> <category><![CDATA[Debt Ceiling]]></category> <category><![CDATA[Fiscal Relief]]></category> <category><![CDATA[Income Tax]]></category> <category><![CDATA[Tax]]></category> <category><![CDATA[Tax Policy]]></category> <category><![CDATA[Unemployment Insurance]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=501</guid> <description><![CDATA[The focus of tax policy should be to create the ‘necessary’ revenue mixed with a manageable level of debt to cover the requisite spending for the country. That tax revenue will involve a balance between capital, labor, and consumption taxes. Mix in the targeted investment incentives and managed spending (better said than done) and maybe you can find a solution…]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" width="1024" height="681" src="https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-1024x681.jpg" alt="" class="wp-image-502" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-1024x681.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-768x511.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-1536x1021.jpg 1536w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-2048x1362.jpg 2048w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-1130x751.jpg 1130w, https://kurtdavisjr.com/wp-content/uploads/2021/08/tax_rich_2_0-750x499.jpg 750w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Activists spell out #TaxTheRich at Grand Central Station in New York City on March 4, 2021. <br>(Photo Credit: Erik McGregor/LightRocket via Getty Images)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em>Taxing wages, capital, and…consumption?</em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>The U.S. is facing a debt problem…nothing new. While the timing of a fiscal cliff remains a political debate, the reality of a debt problem is not being questioned (but rather the strategy to escape it).</p> <p>The imbalance between projected federal tax revenue and projected federal spending highlights the problem. The U.S. deficit is estimated to hit $3 trillion in 2021, according to the Congressional Budget Office (CBO), with the total national debt increasing to $35 trillion by 2031 compared to $23 trillion this year.</p> <p>The covid-19 pandemic created an extra fiscal burden for the federal government. Unemployment insurance benefits, including the $300 top-up payments approved last January and other covid-19 relief payments, are perfect examples of those additional federal costs.</p> <h3 class="wp-block-heading"><strong>Taxing To Pay The Bill</strong></h3> <p>Unable to tax wages more in this political environment, President Joe Biden’s proposed tax plan will focus on big business, the rich, and Wall Street. The Biden plan imagines a corporate tax rate of 28% (up from the current 21%), underwritten by a global corporate minimum tax of 15% (as agreed by the G7 countries). </p> <p>For Americans earning more than $1 million per year, the plan would align the capital gains tax with the top rate for wage income, which the plan would bump up to 39.6%. The overall effect would be doubling the tax on capital income (from 20% to 39.6%) for rich investors, who are a large percent of corporate shareholders.</p> <h3 class="wp-block-heading"><strong>Simplistic Critiques and Unintended Consequences</strong></h3> <p>The natural critiques, from Wall Street to Silicon Valley, are tax hikes, especially amid an ongoing pandemic, will short-circuit an economic recovery and ultimately kill economic growth. That response is too simple. The tax hikes will have some consequences on the economy. Those consequences, however, may be more unintended than imagined.</p> <p>First, taxing savings and investment income can feel unfair. Those who earn today and spend today only pay income taxes and consumption taxes while those who defer gratification today for future gains pay additional taxes. Put that way, the spenders win, and the savers lose…discouraging saving and investment undercuts any economy in the long run. Thus, some Biden critics argue that tax plan will reduce the size of the American economy in the long run, as compared to the current projection.</p> <p>Secondly, the Biden tax plan <em>could</em> placate the political concern of tax avoidance. Taxing capital gains at a lower rate than wage income incentivizes efforts to mask wages as capital income – this tax dance is a favorite for the wealthy. For example, the “carried interest” loophole permits hedge fund and private equity managers to categorize their fees as capital gains rather than wage income. Most consultant firms, law firms, and doctor offices utilize ‘pass through’ structures to reclassify significant income within such partnership structures as dividends and capital gains.</p> <h3 class="wp-block-heading"><strong>Tax Policy and Its Many Levers</strong></h3> <p>Tax policymaking cannot be simplified to an exercise of combatting inefficiency and tax avoidance. The conversation also should not be limited to a binary debate on parity between taxing capital and labor.</p> <p>Taxes are cumulative. Before companies return profits to shareholders, they pay corporate taxes…then those investors pay taxes on their return on investment. Investors can do the math…state taxes, as an example, can drive certain investors to change tax residency from New York to Florida or Texas to avoid the higher tax bill.</p> <p class="has-medium-font-size"><em>Consumption Taxes</em></p> <p>Policy considerations should be given to consumption taxes and investment incentives. Critics will argue that consumption taxes are regressive in nature with the poor bearing a greater tax burden on their income than the rich – though the current tax system already has its consumption tax elements, i.e. sales taxes, excise taxes, and some forms of property taxes.</p> <p>The history of the U.S. tax system, to be fair, suggests that policymakers do not miss an opportunity to add a new tax instead of re-fitting current taxes for today’s market. That would be the concern with an increased policy focus on consumption taxes, but income taxes have proved tough to administratively oversee let alone increase without the necessary political support.</p> <p>A weak criticism could be that consumption taxes can become paternalistic. Taxpayer behavior is already influenced by certain tax rules. For example, ‘sin’ taxes help to curb cigarette smoking and alcohol use and create additional tax revenue. Charitable deductions and interest deductions incentivize nonprofit donations and house purchasing. On a positive note, consumption taxes could theoretically help to reduce consumption in such areas such as health care and energy.</p> <p class="has-medium-font-size"><em>Re-Distribution of Wealth and Income</em></p> <p>Some policymakers will emphasize the redistributive nature of the American tax system – the combined system of consumption and income taxes can maintain progressive elements through a moderated (i.e, lower than today) income tax that is still progressive with more aggressive consumption taxes. Federal spending then can increasingly target progressive spending and outcomes. The focus of the ‘progressive’ spending could change with political parties. But that is already the reality of today’s politics and the federal budgeting process.</p> <p>The ultimate concern should be to create the ‘necessary’ revenue mixed with a manageable level of debt to cover the requisite spending for the country. That revenue collection will involve finding a balance between capital, labor, <em>and</em> consumption taxes. Mix in the targeted investment incentives and managed spending (better said than done) and maybe you can find a solution.</p> <p>This sadly is the same tax reform discussion that comes up with each new president with the main agreement between Democrats and Republicans being Americans are not fond of tax hikes thus the U.S. borrows and spends too much relative to the tax revenue it collects – again that is the problem and not the solution.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> <item> <title>Five Things To Watch As The U.S. Economy Recovers</title> <link>https://kurtdavisjr.com/five-things-to-watch-as-the-u-s-economy-recovers/?utm_source=rss&utm_medium=rss&utm_campaign=five-things-to-watch-as-the-u-s-economy-recovers</link> <dc:creator><![CDATA[Kurt L. Davis Jr.]]></dc:creator> <pubDate>Mon, 02 Aug 2021 18:03:15 +0000</pubDate> <category><![CDATA[United States]]></category> <category><![CDATA[Debt Ceiling]]></category> <category><![CDATA[Fiscal Relief]]></category> <category><![CDATA[Infrastructure]]></category> <category><![CDATA[Tax]]></category> <category><![CDATA[Unemployment Insurance]]></category> <category><![CDATA[Vaccination]]></category> <category><![CDATA[Vaccines]]></category> <guid isPermaLink="false">https://kurtdavisjr.com/?p=484</guid> <description><![CDATA[U.S. GDP has reached its pre-covid 19 level…should we be celebrating? The answer is yes. But the economy continues to provide mix signals to the market. And, as it continues to recover, there are five things to watch…]]></description> <content:encoded><![CDATA[ <div class="wp-block-image"><figure class="aligncenter size-large"><img decoding="async" width="1024" height="683" src="https://kurtdavisjr.com/wp-content/uploads/2021/08/US-Economy.jpg" alt="" class="wp-image-485" srcset="https://kurtdavisjr.com/wp-content/uploads/2021/08/US-Economy.jpg 1024w, https://kurtdavisjr.com/wp-content/uploads/2021/08/US-Economy-300x200.jpg 300w, https://kurtdavisjr.com/wp-content/uploads/2021/08/US-Economy-768x512.jpg 768w, https://kurtdavisjr.com/wp-content/uploads/2021/08/US-Economy-750x500.jpg 750w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>(Photo Credit: AP Photo/Mary Altaffer, File)</figcaption></figure></div> <hr class="wp-block-separator"/> <h4 class="has-text-align-center wp-block-heading"><strong><em><em>2021 is the year of vaccines and government spending…maybe?</em></em></strong></h4> <hr class="wp-block-separator"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p>U.S. GDP has reached its pre-covid 19 level…should we be celebrating? The answer is yes.</p> <p>But the economy continues to provide mix signals to the market. Quarterly earnings from tech companies suggest strong demand and economic recovery. However, consumers accumulated an estimated $1.5 trillion in excess saving during the past year…are these earnings capturing a bump from that pent-up demand that could ultimately wane?</p> <p>Unemployment is significantly down, but the economy also has 6 million less jobs than it did in February 2020 (prior to covid lockdowns). Yet consumer confidence is at its highest since the start of the pandemic. Equity investors are conveying similar optimism that the negative economic effects of covid-19 and associated disruptions will soon be behind us.</p> <p>In short, there is an ongoing pandemic, and the recovery remains vulnerable.</p> <p>Below are the five things to watch as the U.S. economy continues with its recovery.</p> <h3 class="wp-block-heading"><br><strong>Unemployment Insurance and Benefits</strong></h3> <p>The media reports of labor shortages can feel overstated. But a drive through small town American cities, such as Syracuse (New York), or large American cities, such as Miami (Florida), demonstrate that there are many job openings (with hiring signs posted alongside the road and in stores) and that people are not filling them. Restaurants are short-staffed and factories struggle to find laborers. Is that a labor shortage or a problem of policy?</p> <p>The answer to that question is quite complex. The fiscal relief approved in January provided a $300 weekly top-up to unemployment insurance in addition to other covid-related unemployment benefits. The simplistic math suggests the extra $300 on top of the basic unemployment payment makes unemployment more lucrative than working 40 hours at $15 per hour (though many jobs are not paying $15 per hour). Numerous states have done the math and ended the $300 weekly top-up…the August job reports will be telling and either disavow or validate that approach to policy and the intuition of state policymakers.</p> <p>On the other hand, there is the reality of an ongoing pandemic, and many Americans fear returning to work until covid ‘feels more under control’…thus why vaccination rates will be a factor to watch. Others may be waiting for the right opportunity…career trajectory and ownership is a thing not solely for the rich. And others may have their spouse’s income to bridge them to a more opportune time. It is not clear headline numbers capture the underlying nuances.</p> <p></p> <h3 class="wp-block-heading"><strong>Vaccination Rates</strong></h3> <p>Slowing vaccination rates and increasing covid infection numbers in some states will continue to be a factor. Some states, particularly in the South, are seeing covid infection rates at 3 to 5 times the national average with vaccination rates below the national average. For example, less than 50% are vaccinated in the state of Florida yet the city of Miami gives the impression that covid is done. Many private businesses have requirements that the unvaccinated wear a mask, but little will be done to enforce the rule.</p> <p>Vaccine passports and documentation have little chance of becoming normalized in Florida or across most U.S. states. Thus Americans still must interact with the public at their own risk. The consequence of that reality will become clear over the next several months. For example, many Americans remain fearful of eating at a restaurant or stepping into an office. Part of that is due to a developed appreciation for more ‘home life’ and remote work but it is also a true fear of the risk of catching covid. The U.S. additionally has not faced the big test, i.e. when it opens its borders to travelers from all countries at a level comparable to pre-covid times. Americans traveling abroad and tourists visiting the U.S. will likely introduce more exposure to a growing list of covid-19 variants, including the Delta variant. That opening of borders may coincide with fall and winter seasons when the risk of spread would increase.</p> <p></p> <h3 class="wp-block-heading"><strong>Infrastructure Bill (or Agreement)</strong> </h3> <p>The Senate’s overwhelming bipartisan decision to advance a $1.2 trillion infrastructure framework feels positive. President Joe Biden signaled the agreement as evidence that U.S. democratic institutions “can function, deliver and do big things.” Support for the bill included the 50 Senate Democrats, Senate Minority Leader Mitch McConnell and 16 other Republicans, which, as a procedural requirement, helped to avoid a filibuster. But sufficient Republican support for passing a complete bill will be dependent on the details. The current agreement includes $110bn for roads, bridges, and related projects, $73bn for the electric grid, $65bn for universal broadband access, $55bn for clean drinking water, $42bn for ports and airports, and $7.5bn for a national network of charging stations for electric vehicles. Even so, the current agreement requires policymakers writing the full piece of legislation for passage. Getting from ideas to drafted legislation to passage of that legislation will be not be easy. Perspectives on big spending and what is required to sustain the recovery and growth may rightfully change in the meantime as the fact patterns and economic climate continue to change.</p> <p></p> <h3 class="wp-block-heading"><strong>Debt Ceiling</strong></h3> <p>Are there any remaining deficit hawks? If there are some, the upcoming debt ceiling discussion will expose and /or rejuvenate those remaining ‘true’ hawks. A two-year suspension of the debt ceiling expired at the end of July and now the bipartisanship that underwrote an infrastructure agreement must find a way to prevent a possible default. The debt ceiling had been set at $22 trillion since 2019 with borrowing rising to $28.5 trillion, which became the new limit on August 1<sup>st</sup>. The bickering and posturing of ten years ago lasted too long and became too rancorous with Standard & Poor’s stripping the U.S. of its AAA rating. Amid an ongoing global pandemic and many Americans still reeling from the pandemic, both parties can expect to feel some voter anger if the political dance hurts American financial standing.</p> <p></p> <h3 class="wp-block-heading"><strong>Tax Policy</strong></h3> <p>Let’s be honest…someone will have to pay for all the spending. Tax policy will be the lever to be pulled by policymakers. President Biden wants to raise corporate taxes from 21% to 28% He may have achieved a coup with the finance ministers of the G7 countries agreeing on a deal to reform taxation of multinational companies by curbing tax avoidance and imposing a minimum tax of, at least, 15% to reduce the economic incentive of recognizing revenue in low tax jurisdictions. Like any revolution, the coup requires official recognition in policy and by public institutions…this will take some time as finance ministers will have to convince their local legislatures to approve such changes in tax policy. The agreement will need to include other countries beyond the G7 to be truly effective…and other countries will push back. President Biden also wants to raise the federal capital gains and dividend tax rate. Conventional thinking suggests these raises will undercut business and the recovery. However, some economists argue that the money supply and excess capital in consumer hands will likely offset any negative effects of tax increases on capital investment. That said, tax policy and the economic recovery both feel partially uncertain today.</p> <hr class="wp-block-separator"/> <p></p> ]]></content:encoded> </item> </channel> </rss>