Good Tuesday evening! The House is scheduled to vote tonight on a nearly $40 billion aid package for Ukraine after lawmakers unveiled the legislative text in the afternoon. The bill is expected to clear both the House and Senate with bipartisan support, though some congressional Republicans reportedly say that more funding will be needed in the coming months.
Meanwhile, two top Senate Democrats now say they favor allowing Republicans a vote on an amendment to block the Biden administration from ending pandemic-era immigration restrictions at the southern border as a way to move forward on a stalled $10 billion Covid funding bill.
Here’s what else is going on.
Biden Says Inflation Is Top Priority, Slams ‘Ultra-MAGA’ GOP
President Joe Biden on Tuesday called inflation “the number one challenge facing families today” and said that addressing rising prices is at the top of his domestic agenda.
“I know that families all across America are hurting because of inflation. I understand what it feels like,” Biden said. “I want every American to know that I’m taking inflation very seriously and it’s my top domestic priority.”
Inflation has climbed to a four-decade high — and analysts expect a monthly government report on consumer prices for April to show prices rising 8.2% year over year, only a modest decrease from March.
The president has a limited ability to fight inflation, and Biden acknowledged Tuesday that the Federal Reserve plays a primary role in combating rising prices. But he also outlined steps his administration is taking or planning to bring down the cost of fuel, prescription drugs and other items and he again touted the deficit reduction achieved during his time in office, calling it “one of the main ways we can ease inflationary pressures.”
Countering GOP attacks: Biden has faced months of attacks by Republicans who have sought to pin the blame for rising prices on him. On Tuesday, the president said that the Covid pandemic and Russian President Vladimir Putin were to blame — and with the midterm elections rapidly approaching, Biden sought to flip the script on Republicans, drawing a sharp contrast between his approach to the economy and what he called “the ultra-MAGA agenda” of the Republican Party.
“My plan is to lower everyday costs for hardworking families and lower the deficit by asking large corporations and the wealthiest Americans to not engage in price gouging and to pay their fair share in taxes,” he said. “The Republican plan is to increase taxes on the middle-class families and let billionaires and large companies off the hook as they raise prices and reap profits at record amounts. And it's really that simple.”
It’s not quite that simple: The Republican plan Biden hammered on Tuesday is an 11-point agenda released earlier this year by Sen. Rick Scott (R-FL). The plan, among other things, called for all Americans to pay some federal income tax and for all federal laws to sunset after five years, which would require Congress to renew programs including Social Security and Medicare.
Democrats have sought to score political points ahead of the elections by pointing to that plan, even though it has not been broadly embraced by Republicans, and some in the GOP have been critical of it. “We will not have as part of our agenda a bill that raises taxes on half of the American people and sunsets Social Security and Medicare within five years,” Senate Minority Leader Mitch McConnell told reporters in early March. Scott himself later backed away from the idea that all Americans should have to pay federal income tax, writing that he really meant to target “able-bodied, working-age Americans” who “live off government handouts, even though they could be working” and “some very wealthy people who can hire an army of lobbyists, lawyers and accountants to avoid paying their fair share.”
What’s next: Many of the ideas Biden described to lower prices are stalled in Congress. Meanwhile, gas prices have hit fresh highs and Wednesday’s inflation report likely won’t deliver the president — or consumers — much relief. So while the inflation outlook remains uncertain, the campaign attack lines are clear.
Republicans will keep hitting Biden and Democrats on the economy. Scott, for his part, on Tuesday called the president “incoherent, incapacitated, and confused” and suggested that Biden should resign. "Democrats’ agenda is hurting American families and no amount of spin can change that," Scott said in a statement. "If Joe Biden wants to have a real debate on the issues, I’d welcome him to Florida anytime.”
Biden and Democrats, meanwhile, will be looking to frame the election as a choice between them and a Trumpian GOP. Biden said Tuesday: “The MAGA Republicans are counting on you to be so frustrated by the pace of progress they have done everything they can to slow down that you will hand power to them so they can enact their extreme agenda.”
Quote of the Day
“It’s hard to imagine how we get back to 2 or even 3 percent [inflation] without a recession. There are very few examples in history. [Federal Reserve Chair Jerome] Powell has pointed to so-called soft landings, but in almost none of them did the inflation rate come down very much. In cases where the inflation rate came down a lot, they’re almost all hard landings. The most recent one was the 2008 financial crisis. The more canonical example would be the early ’80s, when a recession brought inflation down.”
− Jason Furman, who led the Council of Economic Advisers in the Obama administration, from an interview with Jen Wieczner of New York magazine.
Trump’s ‘Temporary’ Tax Rules May Stick Around
The Tax Cuts and Jobs Act signed into law by President Donald Trump in 2017 included a number of temporary and delayed provisions that helped limit the official cost of the package to $1.5 trillion over 10 years, but critics warned from the start that those provisions were mere gimmicks that lawmakers had no intention of extending when the time came.
Now, five years later, Congress is debating one of those provisions, which affects the way corporate research and development costs are treated in the tax code, in what The Washington Post’s Jeff Stein and Yeganeh Torbati call a “first test” of the Republican strategy – and it looks like the critics may have had a point.
At stake is a rule starting this year that requires companies to stretch out their R&D tax credits over five years, rather than taking them all at once. Republicans made this change to produce more revenue that was used (on paper, at least) to reduce the cost of the tax cut package, but the GOP delayed the change until this year — arguably to give lawmakers a chance to undo it before it took effect.
Last week, a bipartisan group of senators voted on a non-binding resolution that calls for the rule to revert to its earlier setting, eliminating the longer time horizon for the tax credit and saving some major U.S. corporations billions of dollars. Doing so would also increase the cost of the Trump tax package by about $130 billion.
More battles to come: Congress will need to confront similar issues dozens of times in the coming months and years. For example, a deduction for interest expenses is set to shrink, and the treatment of capital investments is scheduled to change — both of which will generate plenty of pushback from those who face higher tax bills. And a lot of money is at stake: If Congress extends all of the “temporary” tax cuts in the TCJA and eliminates all of the scheduled revenue increasers, it could end up adding $4 trillion to the deficit, Stein and Torbati report.
“This fight is a preview of the big show to come,” Marc Goldwein of the Committee for a Responsible Federal Budget told the Post, referring to the R&D tax break. “And it’s a bad omen.”
States Plan Tax Cuts, Fueling Inflation Worries
Flush with cash from surging tax receipts and billions in pandemic aid, state governors and legislators are cutting taxes as they look for ways to take the sting out of inflation for their residents. Some economists, however, worry that the tax cuts could end up making inflation even worse by putting more money into circulation.
More than 30 states have announced some kind of tax relief, The New York Times’s Alan Rappeport reports. The plans include a $1,000 tax rebate in New Mexico, a suspension of fuel taxes in New York and a $1.2 billion tax cut in Florida — made possible in part by the $8.8 billion the Sunshine State received in federal pandemic aid.
There’s little doubt that states can afford to be generous. According to a new study by Pew Charitable Trusts, states now have the largest fiscal cushion on record.
“During fiscal 2021 alone, states grew their collective rainy day funds by $37.7 billion, or an increase of roughly 50% from a year earlier—driving the total held among all states to a record high of $114.6 billion,” Pew’s Justin Theal and Joe Fleming write. “Moreover, amid widespread budget surpluses, states reported the largest annual increase in leftover general fund budget dollars (known as ending balances) in at least the past 21 years.”
But widespread fiscal generosity at the state level could end up causing more problems at the national level. “The challenge for policymakers is that simply cutting checks to taxpayers can feed the inflationary environment rather than offsetting it,” Jared Walczak of the Center for State Tax Policy at the Tax Foundation told the Times.
In addition to inflation, states need to keep an eye on their fiscal situation down the road. Fitch Ratings warned in March that overzealous tax cutting at the state level now could contribute to budget problems in the future. “Substantial tax policy changes can negatively affect revenues and lead to long-term structural budget challenges, especially when enacted all at once in an uncertain economic environment,” Fitch said.
- Congress Races to Pass $40B Ukraine Aid Package – Politico
- Gas Prices Reach Record Highs as Biden Vows Inflation Top Priority – Washington Post
- Biden Elevates Rick Scott as Economic Policy Adversary – Roll Call
- Inflation Is So Bad Democrats Want Biden to ‘Do More’ for Midterms – Bloomberg
- Dems Edge Closer to Giving GOP a Border Vote as a Price for Covid Aid – Politico
- Tax Revenue Boom Fuels Steep Budget Deficit Decline – Roll Call
- IRS Has Millions of Delayed Tax Returns, and Is Paying Billions in Interest to Those Waiting – Wall Street Journal
- States Turn to Tax Cuts as Inflation Stays Hot – New York Times
- Small Businesses Worry Final Aid Package Will Neglect Them Again – Roll Call
- Gun Deaths Surged During the Pandemic’s First Year, the C.D.C. Reports – New York Times
Views and Analysis
- Jason Furman Saw Inflation Coming. Does He Now See Recession Coming Too? – Jen Wieczner, New York
- It’s Probably Still the Economy, Stupid – Stuart Rothenberg, Roll Call
- The Worst Pandemic in a Century Has Outlasted Our Attention Span – Walter Shapiro, Roll Call
- For Tens of Millions of Americans, the Good Times Are Right Now – David Streitfeld, New York Times
- Democrats Have an Image Problem. Please Don’t Make It Worse – Jeff Maurer, New York Times
- Monopolies and the Baby Formula Shortage – David Dayen, American Prospect
- Airline Abuses and Government’s Dormant Power – Robert Kuttner, American Prospect
- Rethinking the Incidence of the Corporate Income Tax – William G. Gale, Tax Policy Center
- Budget Surpluses Push States’ Financial Reserves to All-Time Highs – Pew Charitable Trusts