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‘A Large and Costly Mistake’: Unions Slam Trump Tax Cuts

By Yuval Rosenberg and Michael Rainey
Tuesday, May 21, 2024

Happy Tuesday! Day 20 of the Trump election interference trial saw the defense rest without calling the former president to testify. Closing arguments are scheduled for next week. Here’s what else is happening.

100+ Unions and Public Interest Groups Call for Major Tax Reform

A coalition of more than 100 unions, advocacy groups and think tanks wrote to congressional leaders Tuesday urging them to use the upcoming expiration of some 2017 Trump tax cuts to make the tax code more fair and fiscally responsible.

The Congressional Budget Office recently said that extending all the expiring tax cuts would cost $4.6 trillion over 10 years. The groups behind the letter are urging lawmakers to think about broader reforms. "We urge you to use the expiration of these provisions as an opportunity to address long-standing problems with our tax code, not just to tinker around the edges," they said in a letter to congressional leaders and the heads of tax-writing committees.

The groups behind the letter include the AFL-CIO, the National Education Association, Service Employees International Union and United Auto Workers as well as left-leaning think tanks such as the Center for American Progress, Center on Budget and Policy Priorities, the Economic Policy Institute and the Groundwork Collaborative.

The organizations involved argue that the Tax Cuts and Jobs Act "made massive and permanent cuts to corporate taxes and temporary cuts to individual and estate taxes that have largely benefitted the wealthy and eroded tax revenues even further." They say the 2017 overhaul was "a large and costly mistake" and "a failure on its own terms" because it did not raise wages for most Americans even as the compensation for top corporate leaders soared.

"American workers were promised that if we spent $2 trillion on tax cuts primarily for corporations and the rich, it would trickle down into higher wages," said Michael Linden, the former executive associate director at the White House Office of Management and Budget and a coordinator of the letter. "That didn’t happen. Corporations got their tax cut, but workers didn’t get their pay raise."

Citing a 2023 analysis by the Center for American Progress, the letter also argues that, without the tax cuts enacted under Presidents Donald Trump and George W. Bush, "national debt, as a percent of GDP, would also be on a permanent downward trajectory today."

The groups lay out three overarching goals for 2025 reforms:

* Make the tax code "more fair" by asking large corporations and those taking home more than $400,00 a year to pay more — and not just what they would pay if the 2017 laws were allowed to expire. "Tax reform must result in a more progressive tax code that asks higher-income and higher-wealth households, corporations, and Wall Street to pay a greater share of their income in tax than they would in the absence of the TCJA," the letter says.

* Raise more revenue than would be generated by letting the 2017 provisions expire. The groups say that the 2017 cuts led to tax revenue equal to just 16.5% of GDP in 2023. "We need a tax code that generates sufficient revenue to fund our national priorities while appropriately reducing fiscal risks," the groups say. "The pre-TCJA tax code was expected to generate roughly 18 percent of GDP, but even that level is ultimately below what is needed to ensure adequate investments in our children, reduce poverty, address racial and gender disparities, fulfill our commitments to America’s seniors, veterans, and people with disabilities—and support our continued growth and prosperity as a country."

* Foster "greater and more inclusive economic growth," which they say can result from investments in child care, expanding the Child Tax Credit and building a more climate-friendly sustainable energy system. "Under the Biden Administration, we have seen that investments in everyday people are the real key to economic growth," the letter says.

Trump’s Tariffs Would Cost Ordinary Americans $1,700 a Year: Analysis

In his quest to return to office, former President Donald Trump has promised to increase tariffs on imported goods, including a 10% levy on all products entering the country and a special 60% (or more) tariff on goods coming from China. A new report from analysts affiliated with the Peterson Institute for International Economics finds that Trump’s proposed tariffs would be a regressive tax that harms virtually all households.

"As fiscal policy, the Trump agenda amounts to regressive tax cuts, only partially paid for by regressive tax increases," the report’s authors, economists Kimberly A. Clausing and Mary E. Lovely, write. "A lower-bound estimate of costs to consumers indicates that the tariffs would reduce after-tax incomes by about 3.5 percent for those in the bottom half of the income distribution; tariffs would cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year."

The negative effects of the tariffs are enough to wipe out any gains delivered by the rest of Trump’s fiscal agenda, which includes extending the 2017 tax cuts. The chart below shows the net effect of Trump’s proposals, which are estimated to provide a small net gain to only the top 20% of households, with a notably larger gain for the top 1%.

The losses could be significantly larger if Trump’s tariff increases spark a trade war. "This is the tip of the iceberg," the authors told CNN. "The cost of retaliation will be very large. The Europeans will tariff us. The Mexicans and Canadians will be very upset. People aren’t going to take it lying down."

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Number of the Day: 1 Million

The Biden administration announced plans Tuesday to release roughly 1 million barrels of gasoline from the nation’s reserve during the peak summer driving season between Memorial Day and the Fourth of July. The U.S. Department of Energy said the majority of the gasoline (900,000 barrels) would come from a storage site in Port Reading, New Jersey, with a smaller amount (98,824 barrels) coming from a facility in South Portland, Maine.

The release will effectively close the Northeast Gasoline Supply Reserve, which was created in the aftermath of Hurricane Sandy in 2014. Storing the gasoline proved to be more costly than the gasoline itself, and the 2024 government funding package signed into law in March included a provision calling for the closure of the Northeast reserve.

The average price of a gallon of gasoline currently stands at $3.60 per gallon nationwide, about 6 cents more than a year ago, according to AAA data cited by Reuters. Energy analyst Patrick De Haan of GasBuddy told the Associated Press that the planned release will likely have little effect on retail prices nationally, though there could be a slight price dip locally.

Still, there’s no doubting the political importance of gasoline prices during an election. According to Moody's chief economist Mark Zandi, the price of gas could determine who wins the White House. "Based on my econometric analysis of past presidential election outcomes looking at the state electoral college vote, which accounts for a wide range of political and economic factors, if gasoline falls toward $3 a gallon by election day, President Joe Biden should win re-election," he wrote in an opinion piece on CNN. "However, if pump prices rise to more than $4, former President Donald Trump is more likely to prevail."

Some States Seek Bigger Tax Boost from Sports Betting Boom

As legalized sports gambling has exploded over the past few years, a number of states are now looking to boost tax rates on sportsbooks’ gross revenue, The Washington Post’s Danny Funt reports:

"New York’s sky-high 51 percent tax has allowed the state to collect a staggering $1.9 billion over just three years. Envious of that windfall, a few states are pursuing a much larger cut of the action than they currently receive, with more expected to follow. Illinois and New Jersey legislators are considering proposals to double their tax on sportsbooks’ gross revenue after Ohio became the first state to do so last year. Sportsbooks are warning customers they’ll pay a price for higher taxes, raising the prospect of stingier promotions, worse odds and fewer companies with which to wager."

Funt notes that tax rates on sports gambling operators very widely across the country, from 6.75% in Iowa to 51% in New York and New Hampshire. And debates are raging over what tax approach is appropriate and how best to address the dangers of problem gambling, with the businesses involved aggressively pushing back against higher tax proposals.

Funt reports that, since a 2018 Supreme Court ruling opened the door for states to legalize sports betting, Americans have legally wagered $353.6 billion on sports — and have lost nearly $30 billion — while states have collected about $5.5 billion in revenue.

Read the whole story at The Washington Post.

Quote of the Day

"On interest rates I am fanatically confused. Anyone who claims to know for sure what the answer is to that, is deluding themselves."

— Economist Paul Krugman, speaking to Bloomberg Television. Interest rates could fall back to where they were before the pandemic, Krugman said, or they could remain elevated in an economy that appears to have boosted its growth rate thanks to immigration, manufacturing investment and new technologies such as artificial intelligence.

Policymakers at the Federal Reserve project a benchmark interest rate of about 2.6% over the medium term, but some economists think the rate will be closer to 4%. A separate measure of borrowing costs, the 10-year Treasury rate, was below 2% before the pandemic but now stands at about 4.4%, and analysts at the Congressional Budget Office estimate that it will hold at an average of about 4% over the next decade.

Krugman also said he isn’t too worried about federal debt levels right now, but he does think lawmakers need to do something about persistently large deficits. "If you consistently spend lots more money than you take in, that can’t go on forever," he said. "To cope with that at some point, you either have to start raising more revenue or you have to start cutting benefits to seniors. And we don’t seem to be politically able to do either of those things."

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