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Would Biden’s Tax Plan Help or Hurt a Weak Economy?

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At a drive-in campaign rally last week at a union hall in Toledo, Ohio, Joseph R. Biden Jr. asked those in the audience to beep their car horns if they earned more than $400,000 a year. “You’re going to get a tax raise,” he declared as some cars honked.

Mr. Biden, the Democratic presidential nominee, has proposed sweeping tax increases on high earners and large corporations, which various independent forecasting models project would raise around $2.5 trillion or more in revenue over a decade. In a rare case of agreement, both Mr. Biden and his incumbent opponent, President Trump, have sought to elevate those tax plans in the closing weeks of the campaign.

The competing strategies reflect diverging views of how voters respond to tax increases — and of how those increases will affect a fragile economic recovery in the years to come.

Mr. Biden and his advisers say tax increases now would accelerate growth by funding a stream of spending proposals that would help the economy, like infrastructure improvement and investments in clean energy. At least one independent study supports those claims, finding that Mr. Biden’s full suite of plans would bolster economic growth. Researchers at some conservative think tanks project that his tax increases would exert only a modest drag on the economy.

Mr. Trump and congressional Republicans say otherwise, arguing that tax increases of any kind threaten to derail the rebound from recession. “If he comes along and raises rates, all those companies that are coming in, they will leave the U.S. so fast your head will spin,” the president said on Thursday during an NBC town hall event. “We can’t let that happen.”

A group of Mr. Trump’s former economic advisers released a study last week projecting steep losses in employment, wage and economic growth from the enactment of Mr. Biden’s agenda, including significant damage from a tax proposal that has drawn relatively little scrutiny in the campaign: Mr. Biden’s plan to lift the cap on wages subject to the payroll tax that funds Social Security. That move will raise money from high earners, but two of Mr. Trump’s former economic advisers say it will punish small-business owners and reduce hiring.

Polls show Americans largely support raising taxes on the rich. But Mr. Biden has faced mounting questions about whether, given the pandemic, he would delay his tax increases, which also include raising the corporate rate to 28 percent from 21 percent and increasing the rate on investment and labor income for high earners.

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The questions have come largely from Republican critics, but also arose during an ABC town hall event on Thursday. Asked if it was wise to raise taxes on the wealthy and corporations now, in the middle of a weak economy, Mr. Biden replied, “Absolutely.”

Republicans have long asserted that any Democratic proposals to raise taxes would hurt the economy, regardless of whether it was booming or ailing. In recent years, including in the Democratic presidential primaries this year, Democrats and liberal economists have more forcefully argued the opposite: that raising taxes on the rich to fund government spending that bolsters the productivity of the United States economy will accelerate economic growth.

Economists advising Mr. Biden’s campaign from the outside say that they remain confident that his agenda will promote growth — and that Mr. Biden should not wait, if elected, to raise taxes on corporations and the rich.

“This has been a hugely unequal recession. And the high-income people, and big corporations, many of them have not had a recession at all,” said Austan D. Goolsbee, a former chief of the White House Council of Economic Advisers under President Barack Obama who is now a professor at the Chicago Booth School of Business and an outside adviser to Mr. Biden.

If you raise taxes on those groups as Mr. Biden has proposed, Mr. Goolsbee said, “and use the money for the things Joe Biden is talking about, that doesn’t decrease growth. That increases growth.”

ImageSupporters of Mr. Biden at his rally in Toledo. On the campaign trail, Mr. Biden makes a point to note his pledge not to raise taxes on people earning less than $400,000 a year.
Credit…Emily Elconin for The New York Times

Several independent tax modelers have analyzed Mr. Biden’s plans in recent weeks, estimating how much tax revenue they could generate and whether they would help or hurt the economy. Some analyze Mr. Biden’s tax and spending proposals together. Others focus only on taxes.

The most bullish of those analyses for Mr. Biden comes from Moody’s Analytics, which reported recently that if Mr. Biden wins and Democrats control both the House and Senate, the nation’s real gross domestic product would be $960 billion larger at the end of his term than it would be at the end of a second Trump term with Republicans controlling both houses. The gains from Mr. Biden’s spending programs would outweigh the drag from his tax increases, Moody’s determined.

Others have found relatively small effects on growth from the taxes. The Tax Foundation, which typically forecasts large gains from cutting taxes, predicts the Biden plan would reduce the size of the economy by nearly 1.5 percent over about 30 years. Kyle Pomerleau and Grant M. Seiter of the American Enterprise Institute find the tax plan would shrink the economy by 0.16 percent over a decade.

In an interview, Mr. Pomerleau said the drag was small from the proposals because Mr. Biden was largely taxing savings of high earners, which are not major drivers of economic growth given those Americans have a lot of their wealth saved.

“Some tax increases have larger effects on growth than others,” he said. “Biden has chosen taxes that don’t have a massive effect.”

Kevin Hassett, a former chairman of Mr. Trump’s Council of Economic Advisers now at Stanford University’s Hoover Institution, and Casey B. Mulligan, a former top economist for the council who is a University of Chicago professor, along with their co-authors, Timothy Fitzgerald and Cody Kallen, find much larger damage to growth in an analysis that examines Mr. Biden’s tax, health care and regulatory proposals.

They project that Mr. Biden’s plan to expand subsidies for health insurance under the Affordable Care Act will discourage Americans from working and earning more. And they predict that corporate tax increases will reduce in investment, that new environmental regulations will raise energy costs and that the increased Social Security payroll taxes will discourage hiring for small-business owners whose profits are taxed as individual income. High-earning owners of such businesses would be subject to additional taxes from the lifting of the Social Security wage cap, which the authors contend would reduce the amount of money they have available to hire.

Mr. Hassett said in an interview that the study was meant to show how “implausible” it would be for Mr. Biden to try to carry out his plans at a time when the economy was still struggling. “Jacking up the corporate rate right now seems like a disaster,” he said, “given how close to the edge so many firms are.”

Both Mr. Trump and Mr. Biden have been eager to make their tax plans a campaign issue. Mr. Trump frequently says that Mr. Biden’s plans would destroy the economy and plunge the country into another Great Depression.

On the campaign trail, Mr. Biden makes a point to note his pledge not to raise taxes on people earning less than $400,000 a year. His campaign is also emphasizing that promise in television ads, including one that concludes, “Biden’s plan: Corporations pay more. You benefit.”

Mr. Biden has leaned into the plan in the campaign’s final days. He has also acknowledged the potential political hurdles to enacting it. “So there’s not going to be any delay on the tax increases?” the moderator of the ABC event, George Stephanopoulos, asked Mr. Biden on Thursday.

“No, well, I got to get the votes,” Mr. Biden said. “I got to get the votes.”

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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