Deficit Will Hit $3 Trillion — Again — This Year

By Yuval Rosenberg

130 Countries Back Global Minimum Tax in Big
Win for Biden Administration

A group of 130 nations has agreed on the broad outlines of a
global minimum tax on corporations, a major milestone in the Biden
administration’s effort to overhaul the tax system and generate
more revenues for domestic spending.

In a statement,
Treasury Secretary Janet Yellen said the agreement marks a
“historic day for economic diplomacy” that will help ensure that
corporations pay their “fair share” to support investment in public
goods like infrastructure and education.

“For decades, the United States has participated in a
self-defeating international tax competition, lowering our
corporate tax rates only to watch other nations lower theirs in
response,” Yellen said. “The result was a global race to the
bottom: Who could lower their corporate rate further and faster? No
nation has won this race.”

The Organization for Economic Co-operation and Development,
which hosted the negotiations, said that the plan could generate
about $150 billion a year in new tax revenues.

A key part of the Biden agenda: President Biden has
proposed raising the domestic corporate tax rate, from 21% to 28%,
and the White House is hoping that a global agreement on minimum
taxes would help prevent U.S. companies from fleeing in search of
lower rates.

Plenty of work left to do: The agreement means that the
130 countries, which include all of the advanced Group of 20
nations, will seek to pass laws that require multinational
corporations with revenues of at least $24 billion to pay a minimum
tax of 15% on earnings in each nation in which they operate.

But many technical details still need to be hammered out, and
resistance to the tax plan could slow or derail the process in any
number of countries. In addition, several key players in the
current international tax reduction system, including Ireland and
Hungary, have not signed on, though the agreement attempts to
address the problem of non-participation by billing parent
companies for the taxes below the minimum paid in tax haven
jurisdictions.

Opposition to the plan could be fierce in some countries, not
least in the U.S. The Wall Street Journal editorial board recently

dismissed the idea of a “global race to the
bottom” in corporate taxation as a “figment of the progressive
imagination” that threatens to undo years of pro-business tax
reform. Taking a slightly different tack, Sen. Pat Toomey (R-PA),
who sits on the Banking, Budget, and Finance committees, recently
embraced the “race to the bottom,” but not in the way Secretary
Yellen would necessarily understand.

“‘Race to the bottom’ is the way the Biden administration
describes competition among developed countries to get to a tax
code that attracts investment and maximizes growth,” Toomey

said. “It is a race we should be leading, not
trying to prevent.”

What’s next: G20 finance ministers are expected to sign
the agreement in Venice next week, and national leaders are
expected to affirm it at a summit in October, with the goal of
implementing the new system in 2023.

Budget Deficit Will Hit $3 Trillion in 2021:
CBO

The U.S. federal budget deficit will come to $3 trillion in
fiscal year 2021, according to the latest
estimate from the Congressional Budget Office. The new
projection is about a third higher than the CBO’s previous analysis
from February.

Driven by massive emergency spending in response to the Covid-10
pandemic, the deficit in 2021 will equal 13.4% of GDP – the second
highest level since the end of World War II. Only last year’s level
of 14.9% of GDP was higher. In dollar terms, the 2021 deficit will
be about $130 billion smaller than in 2020.

“The economic disruption caused by the 2020–2021 coronavirus
pandemic and the legislation enacted in response continue to weigh
on the deficit (which was already large by historical standards
before the pandemic),” CBO said.

After 2021, deficits are projected to decline, CBO said,
with the decrease faster and deeper than previously estimated.
Deficits are expected to average $1.2 trillion from 2022 to 2031,
or about 4.2% of GDP. Boosted by a stronger than expected
economic recovery, with a 7.4% growth rate in calendar year 2021
and 3.1% in 2022, the cumulative deficit from 2022 to 2031 is now
estimated to be $12.1 trillion, about 1% smaller than previously
thought.

Still, the deficits over the next decade are expected to run
well above the 50-year average of 3.3% of GDP, and after falling
for a few years, annual deficits are projected to start growing
larger again starting in 2025.

Debt to climb to record high: The publicly-owned portion
of the national debt equaled the size of the economy at the end of
the 2020 fiscal year and will exceed it by the end of 2021,
standing at $23 trillion, or 103% of GDP, CBO said. The ratio will
hover near the 100% level for several years after that before
climbing again, reaching about 106% of GDP in 2031.

Budget hawks say the CBO’s latest budget outlook confirms the
need to get a handle on the nation’s fiscal trajectory. “Today’s
report underlines the need for us to address our nation’s fiscal
challenges,” Maya MacGuineas of the Committee for a Responsible
Federal Budget said in a
statement. “Despite the improvements in the
outlook from the recovering economy, the national debt is set to
hit a new record, exceeding even World War II levels. From there,
we expect the debt to experience unfettered growth. This is not
sustainable.”

House Passes $760 Billion Infrastructure
Bill

The House on Thursday passed a roughly $760 billion,
five-year transportation and water package that some Democrats say
could be used to flesh out the framework of a bipartisan
infrastructure bill, adding another layer of intrigue and potential
complexity to the ongoing effort to develop a legislative package
that can get through Congress.

The 221-201 vote fell largely along party lines, with two
Republicans — Christopher Smith of New Jersey and Brian Fitzpatrick
of Pennsylvania — joining Democrats in favor of the
bill.

What’s in the bill: The measure,
called the INVEST in America Act, authorizes $343 billion for
roads, bridges and safety programs, including $4 billion for
electric vehicle charging infrastructure; $109 billion for transit,
which represents an increase of 140%, according to
The New York Times; $95 billion for passenger and
freight rail, including a tripling of Amtrak funding to $32
billion; $117 billion for drinking water infrastructure; and more
than $51 billion for wastewater infrastructure.

“Amendments adopted over two days of debate added at least
$44 billion to the bill’s price tag, mostly to support the adoption
of electric vehicles,” The Washington Post
reports.

In all, the package reportedly would represent a 50%
increase over current spending levels and provide more funding to
address climate change that the bipartisan Senate package that
President Joe Biden has endorsed.

What’s not in the bill: The
legislation does not lay out how the new spending will be paid for,
with those details to be laid out in separate legislation yet to be
crafted by the House Ways and Means Committee.

Why it matters: House Democratic
leaders have pitched the bill as the basis for fleshing out the
infrastructure package being developed in the Senate. “I’m
suggesting that substantial amounts of the policy in our bill
should be negotiated by the White House and the Senate and the
House to be part of that bipartisan proposal,” Rep. Peter DeFazio,
the lead sponsor of the bill and chair of the House Committee on
Transportation and Infrastructure, said. He called his bill “the
transformative policy that the Biden administration
wants.”

But so far there are more questions than answers about
where the House legislation goes from here. “Just how the House
Democratic vision of infrastructure will be melded with the deal
struck by five Republicans and five Democrats in the Senate is
anything but clear,” Jonathan Weisman of the Times reports. “The
House bill and the Senate deal are not far apart in spending
numbers on traditional infrastructure. Both efforts take up Mr.
Biden’s call to replace all of the country’s lead drinking water
pipes. But while the Senate framework only lays down broad
categories of spending, the House bill extends surface
transportation policies and user funds that are set to expire Oct.
1. It also established new policies like water bill assistance, buy
American requirements and a pilot program for low-income transit
access.”

The return of earmarks: The package
marks the first time the House has passed legislation containing
earmarks since lawmakers reinstated them earlier this year,
according to
Reuters. The legislation includes nearly 1,500
earmarks totaling almost $5.7 billion — including more than 400
projects from Republicans valued at about $17 billion.

Even so, nearly all Republicans opposed the package, which
failed to muster the type of bipartisan backing such transportation
measures usually get. Republicans instead slammed the spending in
the package, its focus on transit and its climate measures,
derisively labeling it the “Green New Deal and Inflation
Transportation Act.”

What’s next: After the bill passed,
the House adjourned for its July 4 recess. The Senate is also away.
Both chambers will have lots of work to do to get an infrastructure
package passed before the current surface transportation law
expires at the end of September.

Another Cloud Over Infrastructure Deal: GOP Ire at IRS

One of the key ways President Joe Biden and a bipartisan group
of senators are proposing to pay for the $579 billion in new
spending under their infrastructure plan is to have the Internal
Revenue Service step up enforcement and collect more unpaid taxes.
The plan calls for providing the IRS with an additional $40 billion
in funding, which the negotiators project will lead to the
collection of
$140 billion more in taxes, for a net gain of $100
billion.

Not surprisingly, a number of Republicans have objected to
beefing up IRS funding and enforcement or
expressed doubts about the bipartisan proposal.
After all, Republican opposition to taxes runs strong and the
party’s skepticism of the IRS has only been increased after the
agency’s past targeting of political groups for additional scrutiny
and its recent leak of confidential taxpayer data to
ProPublica.

“Throwing billions more taxpayer dollars at the IRS will only
hurt Americans struggling to recover after waves of devastating
lockdowns,” Sen. Ted Cruz (R-TX) said, according to Axios. “Instead
of increasing funding for the IRS, we should abolish the damn
place."

Again, those kinds of comments aren’t surprising coming from
Cruz, but a number of other GOP senators have expressed alarm about
the proposed funding increase. Sen. John Barrasso (R-WY) told Axios
that "spending $40 billion to super-size the IRS is very
concerning," and "law-abiding Americans deserve better from their
government than an army of bureaucrats snooping through their bank
statements."

Even Sen. Lindsey Graham (R-SC), a backer of the bipartisan
deal, questioned the IRS funding proposal. He told Axios: “There's
some people on our side who don't like empowering the IRS; I don't
mind empowering the IRS if it's a reasonable thing to do. But I
mean, how much uncollected taxes can you gather with $40
billion?"

The key question in terms of the infrastructure agreement is
whether GOP opposition to additional IRS funding could further
undermine the
already dubious financing for the deal.

After Spending Millions on Development, US Navy
Pulls the Plug on Railgun

The Navy has been working for more than a decade on a futuristic
weapon that would fire projectiles at more than seven times the
speed of sound, powered by electricity.

The Navy seriously considered using the railgun on its
high-tech, stealthy Zumwalt-class destroyers, but despite spending
an estimated $500 million on research and development, the weapon
was not ready for deployment in time. The destroyers themselves
have proved to be something of a fiasco, with the Navy canceling
most of its order for what was supposed to be 28 ships.

Now, according to its latest budget request, the Navy is
abandoning the railgun and shifting its focus to other types of
advanced weapons, including hypersonic missiles and lasers. “The
railgun is, for the moment, dead,” defense analyst Matthew Caris
told the
Associated Press.

One problem with the railgun is its relatively limited effective
range. Able to fire a projectile about 110 miles, it would have
required putting its platform within range of enemy anti-ship
missiles. There were also serious questions about the gun’s firing
rate and longevity, with components needing replacement after just
a few dozen firings.

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