The Great Tax Cut Race

The Great Tax Cut Race

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Plus - Trump rails against infrastructure deal
Friday, July 30, 2021
 

A lively end to an unusually busy mid-summer week as lawmakers advance the bipartisan infrastructure bill in the Senate and Democrats in the House scramble to extend the eviction moratorium scheduled to expire this weekend. Beyond Capitol Hill, the U.S. women’s soccer team squeaked by the Netherlands in Tokyo to advance to the semifinals, superstar guard Russell Westbrook is headed to Los Angeles, and some big names are changing teams in MLB. (Max Scherzer to the Dodgers? The rich get richer, as they say.) To top it off, August is just around the corner! Here’s what you need to know.

Bipartisan Infrastructure Proposal Takes a Major Step Forward

The Senate on Friday voted to start debate on the $550 billion infrastructure proposal negotiated by a bipartisan group of lawmakers, clearing another procedural hurdle in the long and still uncertain journey to becoming law.

The vote was 66-28, with all 50 Democrats and 16 Republicans – including Senate Minority Leader Mitch McConnell (R-KY) – voting in favor of advancing the measure.

Senate Majority Leader Chuck Schumer (D-NY) called the package “a massive down payment towards rebuilding our nation’s infrastructure,” and said the Senate may stay in session through the weekend to push the bill forward.

A last-minute snag delayed the vote Friday morning. The bill still has no formal text, and lawmakers are voting on a shell that will be swapped out for legislative language once it is finished. But a supposed draft of the bill circulating on Capitol Hill contained language that upset some Republicans, who were reassured that the draft did not reflect the latest version of the bill.

“There are different versions of the language that apparently are floating out there, none of them are accurate,” Republican Sen. Rob Portman (OH) said before the vote. Deeply involved in making the deal on infrastructure, Portman said he had received “personal assurances” that the final text would reflect the agreement reached by the bipartisan negotiators.

What’s next: Schumer said he hopes the Senate will vote on the bill next week. Passage will require 60 votes, and not all the Republicans who voted to allow debate will necessarily support the bill. Further complicating matters, the fate of the infrastructure package appears to be inseparable from the fate of the $3.5 trillion spending package Democrats hope to pass as a companion piece via budget reconciliation. Expect to see plenty of fireworks ahead.

Trump Rails Against Infrastructure Agreement

Former President Donald Trump is taking aim at the bipartisan infrastructure agreement that is making its way through the Senate. In statements released this week, Trump made it clear that he wants Republican lawmakers to oppose the agreement, charging that it is a “loser” for the country.

“Hard to believe our Senate Republicans are dealing with the Radical Left Democrats in making a so-called bipartisan bill on ‘infrastructure,’ with our negotiators headed up by SUPER RINO Mitt Romney,” Trump said in one of the statements. “This will be a victory for the Biden Administration and Democrats, and will be heavily used in the 2022 election. It is a loser for the USA, a terrible deal, and makes the Republicans look weak, foolish, and dumb.”

The former president has threatened to challenge lawmakers who support the plan – “Don’t do it Republicans—Patriots will never forget! If this deal happens, lots of primaries will be coming your way!” – but his appeals don’t appear to be having much of an effect so far.

Fiscal Policy Starting to Drag on Growth: Analysis

Fiscal policy played an important role in providing a cushion as the Covid-19 pandemic took hold, pumping trillions of dollars into the economy through direct payments, enhanced unemployment benefits, small business loans and tax credits. But that support is fading, and as a result, fiscal policy is becoming a drag on economic growth, according to the latest analysis by the Hutchins Center Fiscal Impact Measure at the Brookings Institution.

“Fiscal policy reduced U.S. GDP growth by 2.6 percentage points at an annual rate in the second quarter of 2021,” the Hutchins Center says. “The drag on economic growth in the second quarter was primarily the result of a decline in federal transfer payments as the two rounds of rebate checks ended. This included the $600 per person from legislation enacted in December that was paid in January, and the $1,400 per person from the American Rescue Plan Act that was paid in the last few weeks of March. A reduction in state and local purchases (net of purchases financed by federal grants) further contributed to the drag on growth.”

Assuming no new legislation is passed by Congress, the negative effect will continue in the coming quarters, the Hutchins analysts say.

Chart of the Day: The Great Tax Cut Race

Though the new rules still have a long way to go before they become law, the G20 nations have agreed to support a global minimum tax for international corporations, and updated data from the Organization for Economic Co-operation and Development highlights the problem that the countries are trying to solve.

Global companies have seen their income tax rates fall for decades, the OECD says, driven by competition between countries and the shifting of profits to low-tax jurisdictions. “Evidence of continuing base erosion and profit shifting behaviors as well as the persistent downward trend in statutory corporate tax rates reinforce the need to finalize agreement and begin implementation,” the group says.

Reviewing the data Thursday, Bloomberg’s William Horobin and Zoe Schneeweiss report that over the last 20 years, corporate tax rates have dropped in about 85% of the 111 countries the OECD monitors.

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