There are split feelings on President Biden’s $2 trillion infrastructure plan. Now, some experts argue that his “Made in America Tax Plan” would actually reduce the incentive to make most things in America. The infrastructure projects within the plan were designed to make the nation more competitive, but one economist and policy analyst say the fact that the plan will be paired with corporate tax increases suppresses private investment and damages our global competitiveness. On the other hand, many experts are predicting strong economic growth. While Jerome Powell says the economy is “rapidly recovering,” he says “it’s highly unlikely” that the Fed would raise interest rates. “I’m in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery,” he told “60 Minutes.”

 

CNN Business/Erica York and Garrett Watson
Biden wants to make the US more competitive. His tax hikes will do the opposite

President Joe Biden recently introduced his “Made in America Tax Plan” as part of his ambitious infrastructure agenda. But the problem is, the plan would reduce the incentive to make most things in America.

At the core of the $2 trillion package is a paradox: infrastructure projects are designed to make the United States more competitive, but they will be paired with corporate tax increases that will do just the opposite. While rebuilding roads, bridges, and other infrastructure is a laudable goal, funding it with taxes that suppress private investment and damage our global competitiveness undermines that goal.

The Biden plan would raise the corporate tax rate to 28% from 21%. Tax Foundation research found that this 7-point jump would erode America’s current competitive advantage. Increasing the federal corporate tax rate to 28% would raise the US federal-state combined tax rate to 32.3% — that’s higher than every country in the Organisation for Economic Co-operation and Development (OECD), the G7 and all our major trade partners and competitors, including China.

Additionally, we found that the proposed corporate tax increase would reduce after-tax incomes for workers across all income levels; for example, by nearly 1.5% for the bottom 20% of earners. Raising the corporate rate would also reduce long-run economic output by 0.8%, eliminate 159,000 jobs and reduce wages by 0.7%.

And this is just one proposal in the plan that would diminish American investment and result in a more onerous and complicated corporate tax system. President Biden is also proposing a new 15% minimum tax on the book income that large corporations report on their financial statements, which follows a different set of accounting rules than taxable income. He would increase taxes on multinational firms by raising the minimum tax on foreign profits to 21%, modifying it to be calculated on a country-by-country basis, and eliminating the 10% exemption on tangible investment abroad. Plus, his plan would repeal the deduction incentivizing firms to move intellectual property into the United States, though it would provide a tax credit for certain onshoring activity and deny expense deductions on jobs that were offshored.

Read the full article, here.

 

Wall Street Journal via Fox Business/Gwynn Guilford and Anthony DeBarros
With economy poised for best growth since 1983, inflation lurks

Ronald Reagan was in the White House, “Return of the Jedi” was in theaters, and economic growth hit an astonishing 7.9%.

The U.S. has produced many more Star Wars films since 1983, but growth has never approached that level—until this year, if economists are right. Those surveyed by The Wall Street Journal boosted their average forecast for 2021 economic growth to 6.4%, measured as the change in inflation-adjusted gross domestic product in the fourth quarter from a year earlier. If realized, that would be one of the few times in 70 years that the economy has grown so fast.

“We had an incredible shock, but look how fast we’re bouncing back,” said Allen Sinai, chief global economist and strategist at Decision Economics Inc. “We’re in the early stages of recovery, and we’ve got three to five years to go. I think we’re going to end up in a boom.”

Economists expect growth to slow to 3.2% next year, which would still make 2021-22 the strongest two-year performance since 2005.

That boom might have a potentially troubling side effect. Inflation, as measured by the consumer-price index, is expected to jump sharply from 1.7% in February when March data is released Tuesday. That is partly a quirk of the data, as outright declines in consumer prices recorded at the start of the pandemic in March of last year drop from the 12-month calculation.

Still, economists see further price pressures as the economy reopens, with inflation accelerating to 3% in June, which would be the highest since 2012, before slowing to 2.6% by December. They see the Federal Reserve starting to raise rates in mid-2023, rather than 2024 or later, as officials at the central bank have indicated.

Read more, here.

 

CNBC/Jeff Cox
Powell says it’s ‘highly unlikely’ the Fed will raise rates this year, despite stronger economy

Despite what he sees as a rapidly recovering economy, Federal Reserve Chairman Jerome Powell has reaffirmed the central bank’s commitment to keep loose monetary policy in place.

That includes a statement of near-certainty that interest rates won’t be going anywhere as inflation remains tame and millions of Americans remain in need of assistance as the nation rebuilds from the damage caused by the COVID-19 pandemic.

“I think it’s highly unlikely that we would raise rates anything like this year,” Powell told CBS “60 Minutes” journalist Scott Pelley in an interview broadcast Sunday evening.

“I’m in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.”

That support includes near-zero short-term borrowing rates and $120 billion a month in bond purchases put in place following a sharp rebound from the plunge in activity between February and April 2020.

Though the economy has recovered more than 13 million jobs since the depths of the crisis, there remain about 9 million more still sidelined. As states and localities have loosened restrictions, more people have gone back to work.

But Powell said more needs to be done, particularly for those in the lower-income brackets who have suffered the most.

“We don’t have the answer to everything, but the job that we do for the benefit of the public is incredibly important, and we do understand that if we get things right, we can really help people,” he said. “If the people who are at the margins of the economy are doing well, then the rest of it will take care of itself.”

Continue reading, here.

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