Tax Fraud Could Cost the US Over $300 Billion a Year

Good evening! President Trump's lavish summit with Chinese President Xi Jinping is over, and analysts say it didn't produce much progress on the major geopolitical, economic, trade and tech issues where the two countries have differences. The two countries announced a short-term extension of their trade truce, and Trump got to put on the kind of show he likes, with plenty of pageantry, pomp and circumstance. Here's what else is going on.

Tax Fraud Could Cost the US Over $300 Billion a Year: GAO

Fraud may be costing the federal government more than $300 billion a year in lost tax revenues, according to a new estimate from the Government Accountability Office.

Reviewing data from 2018 through 2024, GAO determined that annual tax fraud loss is between $116 billion and $304 billion each year. GAO said its analysis is based on IRS fraud cases, potential fraud in the tax gap (the taxes that are owed but not paid), and tax evasion in the informal or shadow economy.

GAO noted that the estimates are inherently uncertain but are based on the best evidence and analytical methods available. And even with uncertainty, the analysis should be useful to lawmakers as they look for ways to reduce cheating.

"The estimate could help Congress and agency officials understand the potential scale and scope of tax fraud loss and decide how to allocate resources for fraud risk management," GAO said. "For example, the estimate could inform decisions about the costs and benefits of implementing new controls to prevent, detect, and respond to tax fraud."

GAO made two specific recommendations. First, the nonpartisan federal agency recommended that the IRS develop and document an anti-fraud strategy. Second, GAO recommended that the IRS designate a dedicated anti-fraud entity.

The IRS "partially agreed" with the recommendations, GAO said. IRS Chief Executive Officer Frank Bisignano disputed the report's definition of fraud, saying GAO was casting too wide a net and including taxpayer noncompliance that falls short of fraud.

Rep. Richard Neal, the senior Democrat on the House Ways and Means Committee, said the report shows how important it is to fund the nation's tax agency - something Democrats tried to do before Republicans pulled back the funding.

"Democrats were right to make overdue investments into IRS staffing and enforcement against wealthy tax cheats," Neal said in a statement. "Trump's deliberate sabotage of the IRS is making this problem worse, sending audits plunging and opening the door for more fraud. While his billionaire friends continue taking advantage of the tax code, the American people are getting ripped off by a system that's rigged against them."

1% Higher Interest Rates Add Trillions to National Debt, CBO Says

U.S. Treasury yields continue to climb as investors factor in the likelihood that surging energy prices will further fuel inflation, as well as expectations that the Federal Reserve will respond with more interest rate hikes after it raised its benchmark rate this month for the first time since 2023. Worries about the growing U.S. debt and competition in bond issuance due to the AI investment boom add more ingredients to the current cocktail of concerns.

The yield on the 30-year Treasury bond briefly rose above 5.5% on Friday for the first time in 22 years before dropping back slightly. The yield on the benchmark 10-year note was little changed on the day after reaching its highest rate since June 2007 on Thursday.

As Treasury yields continue to reach multi-decade highs, the Congressional Budget Office published a new analysis Thursday showing how dramatically the higher rates can affect is projections for the national debt.

The CBO said that an eventual 1-percentage-point increase in rates above the agency's long-term baseline would raise primary deficits - that is, deficits excluding interest costs - by 0.2 percentage points through fiscal year 2056, raising them to 2.3% of GDP on average. That may not sound like much, but it means that debt held by the public would grow to 222% of GDP by 2056 - 47 percentage points higher than under the current baseline projections. Total deficits from 2026 to 2036 would be about $1.5 trillion larger than in the baseline, and the additional interest costs would rise to $35.7 trillion through 2056, according to the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

CRFB also points out that the CBO analysis "assumes that the average interest rate on the federal debt is below the current 10-year Treasury yield until 2047 - so the actual fiscal situation could be even worse."

Consumer Sentiment Falls to Second-Lowest Level on Record

Soaring gas prices and persistent inflation are severely weighing on Americans' view of the economy and their prospects for the future.

The University of Michigan's consumer sentiment index fell to 48.1 at the end of September, the second-lowest reading on record. The all-time low of 44.8 was reached in May, when fuel prices rose near record highs due to the war against Iran.

A return to hostilities in recent weeks after a period of relative calm has sent fuel prices soaring again, with gasoline prices hitting a record high for the month of September at $4.48 a gallon, and diesel prices hitting an all-time high of $6.53 a gallon.

Inflation has remained elevated, as well, running well above the Federal Reserve's target rate of 2% for more than five years. Price increases have touched on virtually all aspects of life, from food and housing to entertainment and transportation. And consumers expect the pricing pain to continue, as year-ahead inflation expectations jumped from 4.0% last month to 4.6% this month. Expectations for personal finances currently and a year from now fell 10%.

Joanne Hsu, director of the consumer survey, noted that the decline in sentiment has been widespread. "Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year," she said. "After particularly large declines in sentiment this month, Republican sentiment is now 20% lower than January 2026; Democrats are down 13% over the same period."

The bottom line: Americans are remarkably sour about the state of the economy. The Michigan survey has data going back to 1952, and the September score indicates that Americans feel worse now about the economy than they did during some notable historical low points, including the stagflation of the 1970s, the Great Recession and the Covid pandemic.

Overall, fuel prices appear to be the driving force behind the darkening mood. "Obviously, the biggest factor is the higher gasoline prices and higher diesel prices," Gus Faucher, chief economist at PNC Financial Services Group, told CNN. "People see that every day when they go to fill up their car."

Lawmakers Propose New Tax Incentives for Film and TV Industry

A group of Republican and Democratic lawmakers introduced a bill Thursday that would create a federal tax break to keep movie and television production in the United States.

Sens. Tim Scott, a Republican, and Adam Schiff, a Democrat, were joined by other senators and House members of both parties in introducing the "Motion Picture, Television, and Entertainment Revitalization Act," meant to help American cities and states compete with foreign filming locations that have grown more popular in large part because of the lucrative tax incentives they offer.

"We cannot stand by as more and more American film production moves overseas, taking jobs, investment, and an important source of American cultural influence with it," Scott said in a statement. "This legislation will create jobs in communities across America, support local economies, and help ensure that the next generation of iconic American films is made right here in America."

The new plan would provide a 20% federal tax credit based on labor costs to U.S. film and television productions that spend at least $1 million and have at least 75% of their principal photography days occur in the United States. The base credit can rise to a maximum of 30% under certain circumstances and would be available for post-production and visual effects if at least 75% of those activities take place domestically.

President Trump recently called for lawmakers to pass such a bill and do it right away. "Hollywood is a Complete and Total Disaster!" Trump wrote on his social media site late last month. "Despite the name, it is getting very little work. There is no incentive to be there, and it is hurting California very badly."

Trump credited the actor Jon Voight, one of his Hollywood ambassadors, for working with other entertainment industry figures to encourage new federal tax incentives for film and TV production.

"The amount of money spent on Tax Incentives will be made up tenfold by the money pouring into the Treasury's coffers," Trump wrote. "Meetings are being set up with the Leaders of both Parties in order to get this done. It should be Bipartisan, especially since so much money is being lost in California, and other largely Blue States."

Politico's Daniel Miller notes that the proposal "could face resistance from conservatives wary of a new tax break - particularly one benefitting an industry centered in heavily Democratic California." Still, as Miller writes, some Republican-run states have film and TV production hubs that stand to benefit.

Most states reportedly already offer their own production incentives, and California last year boosted its yearly tax credit from $330 million to as much as $750 million until 2030. But Hollywood studios say that a federal tax incentive could make a big difference.

"Earlier this month," Miller reports, "a report commissioned by the Motion Picture Association, which represents and lobbies on behalf of major Hollywood studios, projected a federal incentive would lead to $125.3 billion in additional U.S. production spending from 2027 to 2035. It also forecasted that the measure would support 143,500 additional full-time-equivalent jobs in an average year and generate $133.1 billion in additional labor income during the credit's first nine years."

Rep. Laura Friedman, a California Democrat, told reporters that federal action has been the missing piece in restoring U.S. competitiveness. "For over a year, I've worked to build a coalition of unions, studios, Republicans and Democrats, and the White House, because we knew that a national film tax credit would bring hundreds of thousands of jobs back to our country," Friedman said in a statement. "This bill is a result of that coalition. It tells every country that has been outbidding us for American work that we are done losing."

Lawmakers reportedly hope to pass the legislation during the lame-duck session after the midterm elections.

Fiscal News Roundup

• Trump-Xi Summit Ends With Tea and Tour but Little Visible Policy Progress – New York Times
• Supreme Court, Over Liberal Dissents, Lets DHS Overhaul Immigration Database for Midterms – The Hill
• US Military Lays Groundwork for Potential Action Around Cuba – CBS News
• Bracing for Midterm Losses, Republicans in Congress Try a Pre-election Pivot – New York Times
• Taxpayer-Funded Pro-Trump TV Ad Campaign Grows With New Spot, Wider Reach – Associated Press
• White House Eyes Diesel Fuel Moves That Fall Short of Export Ban – Politico
• New Bill Would Lower Social Security Retirement Age for Some Workers – CBS News
• NIH Funding Cuts Delayed a Promising Childhood Brain Cancer Trial. Patients Lost Time They Didn't Have – CNBC
• Bond Sell-Off Continues as 10-Year Yield Hits 5.19% – Axios
• Warsh's Regime Change at the Fed Pushes Ahead - and Meets Resistance – CNBC
• Fed's Hammack Says Yields Reflect Growth, US Debt and Rate Path – Bloomberg
• Appropriators Push to Protect Kennedy Center From Demolition – Roll Call

Views and Analysis

• History Shows Financial Calamities Occur When Rates Rise Rapidly Like This: 'Something Always Breaks' – Sean Conlon, CNBC
• Bond Yields at 5% Mark New Era 'Until Something Breaks' – Michael MacKenzie and Enda Curran, Bloomberg
• Why the Bond Market Is Freaking Out, and What It Means for Your Money – Aimee Picchi, CBS News
• Watch: The Less-Scary Reason Behind Surging Bond Yields – Telis Demos, Wall Street Journal (video)
• The Robust U.S. Economy Powers Through Rate Hikes and Rising Bond Yields – Matt Grossman and Sam Goldfarb, Wall Street Journal
• Trump and Xi's Empty Summit Is Straight Out of the 1930s – Andreas Kluth, Bloomberg
• Republicans Had 690 Days to Oppose Trump – David Dayen, American Prospect
• Vance's Plan for Stay-at-Home Moms Thinks Too Small – Abby McCloskey, Bloomberg
• The Economic Squeeze Is Pushing Up Poverty Rates for Older Adults – Jennifer Ludden, NPR
• Rise of the Red-State Democrats – Ed Kilgore, New York
• Young Democrats Are Putting the Party Back in Politics. It's Working – Eric Blanc, New York Times
• Tax Complexity Now Costs the US Economy over $544 Billion Annually – Alex Muresianu and Guy Cardwell, Tax Foundation
• How Private Equity Is Killing Public Access to Hospitals and Emergency Care – Dr. Heather Prendergast, The Hill
• Will an FDA Crackdown Curb Access to Cheaper GLP-1 Weight-Loss Drugs? Here's What to Know – Daniel Gilbert, CBS News