Happy Monday!
We’ve got lots to look ahead to this week. President Joe Biden, just back from his trip to France to commemorate the 80th anniversary of D-Day, will head to Italy on Wednesday for a summit of the leaders of the Group of 7 nations. Wednesday will also bring the conclusion of the Federal Reserve’s two-day policy meeting, with no change in interest rates expected, and the Consumer Price Index report for May. Analysts expect a 0.1% monthly increase and a 0.3% rise in core CPI. Former President Donald Trump, who has been dinged in some polls on the 2024 presidential race following his 34 felony convictions in New York, was scheduled for a virtual pre-sentencing probation interview Monday ahead of turning 78 on Friday. Trump also made a tax promise yesterday, and we’ve got more on that below.
White House Slams Republican Tax Cut Plans
Republican lawmakers say they will push to extend the 2017 tax cuts for individuals set to expire at the end of next year, laying the groundwork for what is expected to be a major battle over fiscal policy. But extending existing tax cuts is not all Republicans are planning; according to The Washington Post’s Jacob Bogage, some GOP lawmakers want to pass new tax cuts next year if they expand their power in the fall election, with a focus on helping businesses.
The 2017 tax law — passed by Republicans in Congress and signed into law by then-President Donald Trump — includes individual and corporate tax cuts, with the former set to expire at the end of 2025 for budgetary purposes and the latter made permanent. Republicans are signaling that those permanent corporate tax cuts, which include a reduction of the top income tax rate from 35% to 21%, didn’t go far enough.
Rep. Steve Scalise, the Republican from Louisiana who serves as the House Majority Leader, told the Post that his caucus is not satisfied with the current top corporate rate. “We want to keep rates as low as we can, ideally lower than 21 percent,” he said.
Anti-tax activist Grover Norquist told the Post that there is a “discussion” going on about reducing the corporate rate to 15% or maybe even lower, with a sub-15% rate intended to strike a blow against “globalists” who are working toward a global minimum tax rate of 15%.
The White House pushes back: The Biden administration seized upon the Post story, saying it highlights the difference between the policies of Presidents Biden and Trump.
“The Washington Post exposes that congressional Republicans are plotting even more deficit-busting tax giveaways to major corporations on top of extending the Trump tax scam for rich special interests,” deputy press secretary Andrew Bates said in a memo. “Republican officials who back MAGAnomics stand up for price gouging, tax giveaways for the rich, and across the board tariffs that would all raise prices, and they’d sell the middle class out with a skyrocketing deficit and cuts to Medicare and Social Security.”
Whatever the politics, it’s clear that further reductions in the corporate tax rate would put upward pressure on the deficit and debt. Analysts at MIT and Stanford reviewed the potential cost of various Republican tax proposals, including one that would lower the top corporate income tax rate to 15% and another that would lower it to 18%. Using projections developed by the Office of Management and Budget, they found that a six-point reduction would cost $1.1 trillion over 10 years, while a three-point reduction would cost $628 billion.
Deficit for First 8 Months of Fiscal 2024 Totaled $1.2 Trillion: CBO
The federal budget deficit for the first eight months of this fiscal year totaled $1.2 trillion, or $38 billion more than for the same period last year, according to estimates published Monday by the Congressional Budget Office.
Revenues for the October-though-May period climbed 10%, or $294 billion, to roughly $3.3 trillion. Outlays, meanwhile, rose by 8%, or $332 billion, to nearly $4.5 trillion. Outlays were boosted by calendar-related shifts in the timing of some payments. If not for those changes, the deficit for the first two-thirds of fiscal year 2024 would have been $46 billion less than over the same period a year earlier.
CBO is scheduled to publish an updated 2024 deficit projection and budgetary outlook next week. But the nonpartisan federal budget scorekeeper is already saying that the deficit will grow as a result of student debt forgiveness and foreign aid. “Several factors will cause the deficit for 2024 to be larger than last year’s—and larger than CBO estimated in February,” the new report says. “In particular, spending this year is now anticipated to be greater than previously projected. Contributing to that outcome are additional costs—that have not yet been recorded—stemming from administrative actions associated with student loans and from legislation providing international assistance.”
Quote of the Day: Trump Floats an End to Taxes on Tip Income
“Hotel workers and people that get tips, you’re going to be very happy because when I get to office, we are going to not charge taxes on tips, people making tips. We’re not going to do it, and we’re going to do that right away, first thing in office.”
− Former President and presumptive 2024 Republican presidential nominee Donald Trump, promising at a Sunday rally in Las Vegas to eliminate taxes on income from tips if he’s reelected.
Trump’s proposal — a blatant financial appeal to service-industry workers in Nevada, a key swing state — would require an act of Congress and would likely have far-flung implications for employers and employees. “The proposal would create a two-tiered labor market where tipped workers would gain a significant advantage over other low-wage employees because they could potentially avoid Social Security taxes, Medicare taxes and federal income taxes,” The Wall Street Journal’s Richard Rubin and Vivian Salama write. “Employers, who owe payroll taxes on both tips and wages, would have an incentive to keep wages low and encourage tips instead.”
The idea would likely also reduce federal revenue by billions of dollars a year given that IRS data show that workers received more than $38 billion in tips in tax year 2018, per the Journal.
Ted Pappageorge, secretary-treasurer for the Culinary Workers Union in Las Vegas, dismissed Trump’s campaign proposal. “Relief is definitely needed for tip earners,” he said in a statement, “but Nevada workers are smart enough to know the difference between real solutions and wild campaign promises from a convicted felon.”
Fiscal News Roundup
- Republicans Pitch Tax Cuts for Corporations, the Wealthy in 2025 – Washington Post
- White House Hits GOP Over Reported Corporate Tax Cut Preparations – The Hill
- Trump Floats Tax-Free Tips for Workers. That Could Mean More Tipping for Customers – Wall Street Journal
- In Nevada, Trump Proposes Ending Taxation of Tips – Washington Post
- Trump Loyalist Pushes ‘Post-Constitutional’ Vision for Second Term – Washington Post
- The Republicans Taking Credit for Federal Funding They Voted Against – Politico
- Lindsey Graham Pushes Biden to Seize Frozen Russian Assets to Aid Ukraine – Politico
- For an Older Homeless Population, a New Type of Care – New York Times
- Federal Judge Halts Disaster Aid Program for Minority Farmers – Washington Post
- Homeownership Costs in US Jumped 26% Since Pandemic Began – Bloomberg
- FDA Advisors Recommend Eli Lilly’s Alzheimer’s Drug Donanemab, Paving Way for Approval – CNBC
- What to Know About Moderna’s Combined Covid-Flu Vaccine on the Horizon – Washington Post
- NY MTA Will Shrink Infrastructure Program After Congestion Pricing Pause – Bloomberg
Views and Analysis
- Trump Could Care Less About Cheesecake Factory Workers – Jessica Karl, Bloomberg
- Americans Really, Really Hate Inflation—and That’s a Big Problem for the Fed – Justin Lahart, Wall Street Journal
- Why the Recession Still Isn’t Here – Nick Timiraos, Wall Street Journal
- Trump Wants a Government of Amateurs — Accountable Only to Him – Karen Tumulty, Washington Post
- Your Government at Work – Andy Kessler, Wall Street Journal
- The Billionaires Backing Trump Have Selective Memory – Robert Burgess, Bloomberg
- Biden Needs to Run an Aggressive, 1936-Style Class Warfare Campaign – Michael Tomasky, New Republic
- Neoliberalism Worked Pretty Well, Actually – Allison Schrager, Bloomberg
- What Happened to Liberal Conservatism? – Edmund Fawcett, Financial Times
- Which States Make the Most From Sports Betting? What About Lotteries? – Andrew Van Dam, Washington Post
- An Object Lesson From Covid on How to Destroy Public Trust – Zeynep Tufekci, New York Times
- Federal Officials Urge Mpox Vaccinations to Blunt a Summer Surge – McKenzie Beard and Sabrina Malhi, Washington Post
- America’s Biggest Tax Scam May Finally End – Arjun Singh, The Lever (podcast)