The Great Tax Cut Race

By Michael Rainey

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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