Biden Administration Mulls Tax Increases to Offset Some Coming Big Spending

Posted on 03/15/2021 3:23 AM

Today is deadline to complete election, enrollment for 2021 ARC, PLC programs

 


In Today’s Digital Newspaper


 

Market Focus:
• Yellen talks about U.S. debt and potential tax increases ahead; says inflation subdued
• Ten-year Treasury yields stay above 1.6%
• Traders focus on FOMC statement and presser on Wednesday
• Oil higher and Bitcoin slid below $60,000 after a weekend rally to a record

• SEC to examine Nasdaq diversity proposal for listed companies
• OECD will announce its new chief this week
• Analyst: Argentina has been dry, and crops hurt from levels in USDA reports
• Analyst: March 31 Grain Stocks report is ‘make or break of the bean market in particular’
WSJ: Commodities supercycle looks like a stretch

 

Policy Focus:
• Biden plans cross-country tour to tout Covid-19 aid and stimulus
• Today is deadline to complete election, enrollment for 2021 ARC, PLC programs
• House Ag hearing March 25 on challenges Black farmers face in agriculture
• Expanded tax credits from trillion Covid aid/stimulus available April 1 on HealthCare.gov
• Biden administration mulls tax increases to offset some coming big spending

 

Biden Administration Personnel

• Biden expected to tap Gene Sperling to implement Covid relief plan
• Senate will finally vote on Katherine Tai to be USTR
• Biden considering Nancy Lee, a former Treasury official, to be Treasury’s top diplomat

 

China Update:
• U.S./Chinese officials to meet Thursday in Alaska
• U.S./China Economic and Security Review Commission annual report Friday

 

Coronavirus Update:
• Dr. Fauci warns of another virus surge
• Fauci suggests less social distance space under certain conditions
• Singapore Airlines to use IATA’s travel pass mobile application for digital health verification
• CDC updates Covid-19 guidance for childcare centers
• AstraZeneca facing further pressure

 

Politics & Elections:
• Majority of Iowans (55%) want U.S. Sen. Chuck Grassley to decide not to run in 2022
• Democratic Rep. Ann Kirkpatrick won't run again in Arizona
• House Democrats want fast repeal of 2002 Iraq War authorization
• Germany faces regional election upheaval


Other Items of Note:
• Biden has op-ed in WashPost with the other three Quad leaders
• Reuters: North Korea unresponsive to behind-the-scenes Biden administration outreach
• Riots, violence erupt in West Coast cities on Breonna Taylor anniversary

 


MARKET FOCUS


 

Equities today: Most Asian stocks dipped along with U.S. equity futures, with European futures trending marginally higher in early trading. Federal Reserve policy makers are due to gather Tuesday through Wednesday and have signaled that the central bank won't try to stem a recent rise in Treasury yields — a contrast with the Fed's European counterpart, which is speeding up bond purchases as it seeks to shore up the eurozone economy.

 

     U.S. equities Friday: The Dow finished up 293.05 points, 0.90%, at 32,778.64. The Nasdaq shed 78.81 points, 0.59%, at 13,319.86. The S&P 500 was up 4.00 points, 0.10%, at 3,943.34. The 10-year Treasury yield jumped 10 basis points to 1.64% at its session high, hitting its highest level since February a year ago.

 

     For the week, the Dow led the major market benchmarks with a 4.1% gain, while the Nasdaq jumped 3.1% despite its see-saw action and the S&P 500 added 2.7%. The Russell 2000 surged 7.35%.

 

     SEC to examine Nasdaq diversity proposal for listed companies. The Securities and Exchange Commission (SEC) said it will closely review a Nasdaq Stock Market LLC proposal aimed at promoting board diversity at companies that list on its exchanges.

 

On tap today/this week and updates to calendar in The Week Ahead:

 

     • Organization for Economic Cooperation and Development will announce its new chief. Former EU Trade Commissioner Cecilia Malmstrom is vying with Australia’s former Finance Minister Mathias Cormann to lead the OECD.
     • World Health Organization plans to release its report on the origins of the coronavirus this week, along with recommendations for further study. Members of the mission have expressed frustration with the limited information provided by Chinese authorities.
     • President Biden plans cross-country tour to tout Covid-19 aid and stimulus. The president and his top advisers will fan out across battleground states this week to promote the $1.9 trillion coronavirus relief/stimulus law, starting with an event Monday at the White House, before visits to Pennsylvania on Tuesday and Georgia on Friday.
     • President Biden will sit down this week with ABC’s George Stephanopoulos on Good Morning America, while Vice President Kamala Harris will be interviewed by CBS’ Gayle King on This Morning.
    • American Bankers Association will hold its Washington Summit virtually on Tuesday and Wednesday. It will feature comments from House Financial Services Committee Chair Maxine Waters (D-Calif.), Senate Banking Committee Chair Sherrod Brown (D-Ohio), FDIC Chair Jelena McWilliams and Senate Banking Committee ranking member Pat Toomey (R-Pa.).

 

Market perspectives:

 

     • Outside markets: Liquidity concerns weighed on Chinese shares and benchmark Treasury yields traded around a one-year high. The dollar climbed. West Texas Intermediate crude rose 0.6% to $66.03 a barrel. Gold was at about $1,724 an ounce, down 0.1%.

 

        10-year yields


     • Argentina has been dry, and crops have had to be hurt from levels in USDA reports, says commodity trader and analyst Richard Crow. “Early yields on beans and corn would support crops under 46 million tons.  Brazil’s bean crop has been supported with larger acreage.  The yields have not been favorable to support a 136-million-ton crop.  Brazil’s corn crop hinges on the second corn crop which is being planted some two to three weeks late.”

 

        March 31 Grain Stocks report is “the make or break of the bean market in particular,” Crow adds. “For the most part, people using an ending stock of around 110 million bushels would be expecting to find around 20 million bushels in the stock. The question on the bean stock number centers around the large export program from August to February.  The afloat bean adjustments raise questions. The stock number will make for a volatile bean market. If it stays within 20 million bushels on the upside, little changes as the export figure has room to be adjusted up from 2.250 billion bushels.  Will the acreage number mean much? It all depends on the stock number in my opinion. The soy oil market remains the product of strength. The crush is running larger than the meal market needs. Oil is a hard product to alter demand with the elasticity of demand.  Integrated bio-diesel plants are said to be very profitable. Renewable oil use is increasing, adding pressure to the supply.”

 

     • Commodities supercycle looks like a stretch, according to a Wall Street Journal article (link). It says some investors are betting commodity prices will surge over a long period, but history suggests the conditions aren’t right. A swift expansion in the global economy this year and next is likely to power demand. Beyond that, many analysts see oil consumption, in particular, slowing down.

 

        Super cycle

        Change in Prices

 

     • Bitcoin prices continue to run, hitting $60,415.34 Saturday morning and currently trading below $60,000. Bitcoin's previous peak was just over $58,000 on Feb. 21. Many financial institutions are mainstreaming Bitcoin as at least digital asset, while Tesla buying $1.5 billion of Bitcoin is one of several companies investing in the cryptocurrency. The $1.9 trillion Biden stimulus is seen flooding more money into Bitcoin and financial markets generally. Focus is also on the gains in crypto-linked shares, like Bitcoin miners and trading firms, as retail investors on Reddit banned from posting on digital currencies use these stocks as a proxy for the token itself.

 


POLICY FOCUS


 

— Today is deadline to complete election, enrollment for 2021 ARC, PLC programs. Agricultural producers who have not yet elected and enrolled in the Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) programs for 2021 have until today. Producers who have not signed a contract or who want to make an election change should contact their local USDA Service Center to make an appointment.  Currently, about 1.4 million farms have enrolled, approximately 81% of expected participation. Link for details.

 

— House Ag hearing coming on challenges Black farmers face in agriculture. House Ag Chairman David Scott (D-Ga.) said the committee plans a March 25 hearing on the challenges Black farmers face in agriculture. The $1.9 trillion Covid aid/stimulus package now law, includes an estimated t$4 billion to provide direct payments of up to 120% of a selected socially disadvantaged farmer’s or rancher’s outstanding debt as of Jan. 1, 2021.  The loans include USDA Farm Service Agency direct farm loans, USDA guaranteed loans, and Commodity Credit Corporation farm storage loans, among others. The additional 20% is intended to pay off the taxes associated with the amount of the direct payment related to the outstanding debt.  Some lawmakers and legal analysts believe the program could invite a legal challenge. 

 

— Expanded tax credits from the $1.9 trillion Covid-19 relief law will become available April 1 on HealthCare.gov, according to the Centers for Medicare & Medicaid Services (CMS). The savings will reduce premiums by $50 per member per month on average. Meanwhile, CMS delayed a Trump-era rule that would provide four years of automatic Medicare coverage to designated breakthrough medical devices. The new effective date is May 15.

 

— Biden administration mulls tax increases to offset some of the coming big spending for Building Back America ideas, including proposals regarding infrastructure, clean energy and education. Treasury Secretary Janet Yellen said Sunday that the Biden administration hasn’t decided whether to pursue a wealth tax, and that while the administration intends to issue proposals to rein in deficits over time, U.S. borrowing costs are currently.

 

     A group of far-left lawmakers including Sen. Elizabeth Warren (D-Mass.) recently proposed an ultra-millionaire tax. The legislation would create a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion and an additional 1% surtax on those above $1 billion. “That’s something that we haven’t decided yet and can look at,” Yellen said on ABC’s This Week with George Stephanopoulos, referring to the wealth tax. She said Biden proposed higher taxes on corporations, on some individuals and on capital gains or dividend payments during his 2020 presidential campaign. “Those are alternatives that address — that are similar in their impact to a wealth tax.”

 

     While some congressional Democrats want to borrow more to finance programs such as infrastructure if the economic benefits are big enough, Republicans and some moderate Democrats, including Sen. Joe Manchin (D-W.Va.), say the surging national debt is a reason to ensure the spending is offset with tax increases or cuts elsewhere. In the past year, stimulus spending to combat the coronavirus and its economic fallout have contributed to a nearly $4.5 trillion increase in federal debt held by the public, to $21.9 trillion as of March 1. At nearly the size of the nation’s entire economic output, the debt is the highest since the aftermath of World War II. “In spite of the fact that the debt has increased substantially, interest payments relative to the size of the economy have remained quite low,” Yellen said Sunday. But that could change ahead as the Congressional Budget Office this month projected that the national debt would double as a proportion of gross domestic product over the next 30 years. The projection doesn’t include the Covid-19 aid package signed by Biden last Friday or for additional spending plans.

 

     Biden has continued to talk about his campaign proposals to raise taxes on corporations and high-income households to pay for new permanent programs.

 

     Facts and figures. The federal government currently collects the biggest portion of its revenue — about half in 2019 — from individual income taxes. Those top out at 37% of income above $518,000 per year.

 

     The wealth tax proposed by far-left Democrats would generate $3 trillion of revenue over a decade, according to an analysis by University of California, Berkeley, economists Emmanuel Saez and Gabriel Zucman.

 

     While Biden has been silent regarding annual wealth taxes advanced by some Democrats, he instead has proposed several tax increases on corporations and high-income households. For example, when someone dies with appreciated assets, currently there are no income taxes due. Their heirs pay capital-gains taxes only when they sell and only on increases in value after the previous owner’s death. Under Biden’s approach, someone who dies with appreciated assets would be considered to have sold the assets for a taxable gain. Biden also wants to raise the top capital-gains tax rate from 23.8% to 39.6%.

 

     Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, has been mulling a plan that would impose annual income taxes on appreciated assets for the wealthiest households.

 

     Bottom line: For the Biden administration, the coming changes are an opportunity not just to fund key initiatives like infrastructure, climate and expanded help for poorer Americans, but also to address what Democrats argue are inequities in the tax system itself. Democratic strategists see the next package as the last chance to reshape the U.S. economy on a major scale before lawmakers turn to the 2022 mid-term campaign. But major pushback is expected from Republicans. “We’ll have a big robust discussion about the appropriateness of a big tax increase,” Senate Minority Leader Mitch McConnell (R-Ky.) said last month, predicting Democrats would pursue a reconciliation bill that forgoes the GOP and would aim for a corporate tax even higher than 28%. The following are among proposals currently planned or under consideration, according to Bloomberg and other reports:

  • Raising the corporate tax rate to 28% from 21%
  • Paring back tax preferences for so-called pass-through businesses, such as limited-liability companies or partnerships
  • Raising the income tax rate on individuals earning more than $400,000
  • Expanding the estate tax’s reach
  • A higher capital-gains tax rate for individuals earning at least $1 million annually. (Biden on the campaign trail proposed applying income-tax rates, which would be higher)

     As for timing, if passed, tax measures would likely take effect in 2022.
 


BIDEN ADMINISTRATION PERSONNEL


 

— Biden expected to tap Gene Sperling to implement Covid relief plan. President Biden today is expected to tap Gene Sperling, a veteran of Democratic administrations, to lead implementation of the $1.9 trillion coronavirus relief/stimulus law, an administration official said Sunday. Politico was the first to report the development. Sperling led the White House National Economic Council under President Bill Clinton and President Barack Obama and served as an informal adviser to Biden’s presidential campaign. Biden is set to give remarks today on the implementation of the law. An administration official said of Sperling: “There’s no one who knows how the federal government works better than Gene Sperling, and there’s no one better qualified to take charge of the implementation of the Rescue Plan and make sure it delivers for the American people.” The official added that Sperling “will work with the heads of the White House policy councils and key leaders at federal agencies so we can get funds out the door quickly, maximize its impact, and accelerate the work the administration is doing to crush Covid-19 and rescue our economy.”

 

— Senate will finally vote on Katherine Tai to be the U.S. Trade Representative (USTR). Her approval was never in doubt, but it still took longer than most thought for her confirmation vote which should occur sometime this week as Senate Majority Leader Chuck Schumer (D-N.Y.) signaled late last week.

 

— Biden is considering Nancy Lee, a former Treasury official, to be the Treasury Department's top diplomat, and Elizabeth Rosenberg, a Treasury adviser, to head the Terrorism and Financial Intelligence unit, according to reports. Both jobs would require Senate confirmation.
 


CHINA UPDATE


 

U.S./Chinese officials to meet Thursday in Alaska. U.S. Secretary of State Antony Blinken and President Joe Biden’s national security adviser, Jake Sullivan, will meet with China’s most senior foreign policy official, Yang Jiechi, and foreign minister Wang Yi, in Anchorage, Alaska.

 

    Meanwhile, the U.S./China Economic and Security Review Commission on Friday will present its annual report to Congress on the national security implications of the economic relationship between the U.S. and China.

 

U.S./China Phase 1 tracker: China’s purchases of U.S. goods. Link

 


CORONAVIRUS UPDATE


 

 Summary: Sources: Johns Hopkins University as of 11:30 a.m. ET Sunday, March 14; Vaccination figures from the Centers for Disease Control and Prevention.
 

     • 105,703,501: Vaccine doses given so far in the U.S.
     • 53,215: New U.S. cases recorded Saturday
     • 1,725: Deaths in the U.S. recorded Saturday
     • 534,347: Total U.S. deaths
     • 29,403,102: Total confirmed cases in the U.S.
     • 119,648,892: Confirmed cases world-wide, and 2,650,236 deaths    

 

       Link to Covid Case Tracker
       Link to Our World in Data

 

— Dr. Fauci warns of another virus surge; suggests less social distance space under certain conditions. Dr. Anthony Fauci told Jake Tapper on CNN's State of the Union that the CDC is aware of accumulating data that suggest 3 feet of social distance "are OK under certain circumstances." Meanwhile, Fauci warned state leaders against the “risky business” of eliminating public health measures, raising concerns on Sunday’s Meet the Press that the nation could see a new surge in cases if it lets its guard down. While Fauci celebrated the decline in cases, he warned that a surge is still possible thanks to newer variants of the virus, which experts warn could evade vaccines or be more contagious. “If you look at the numbers that have gone down, they’ve gone down so nicely in a very steep decline. But in the last couple of weeks, we’ve had a plateauing of infections. And the thing that concerns me, because history proves I should be concerned, is when you get a plateau around the level of 60,000 new infections per day, there is always a risk of another surge,” he said.
 

     Fauci said Sunday he wishes former President Donald Trump would use his popularity among Republicans to persuade more of his followers to get the Covid-19 vaccine. Fauci lamented polling showing that Trump supporters are more likely to refuse to get vaccinated, saying politics needs to be separated from "commonsense, no-brainer" public health measures. Fauci said it would be a "game changer" for the country's vaccine efforts if the former president used his "incredible influence" among Republicans. "If he came out and said, 'Go and get vaccinated. It's really important for your health, the health of your family and the health of the country,' it seems absolutely inevitable that the vast majority of people who are his close followers would listen to him," Fauci told Fox News Sunday.
 

— Singapore Airlines said it will be the first to use the IATA’s travel pass mobile application for digital health verification. Passengers traveling from Singapore to London March 15-28 will be asked to download and use the app. China, Britain, the EU and the U.S. are also planning or considering forms of virus “passports.”
 

— CDC updates Covid-19 guidance for childcare centers. The Centers for Disease Control and Prevention on Friday updated recommendations for safe childcare operations during the Covid-19 pandemic, building on guidelines last updated in July.
 

— AstraZeneca is facing further pressure with Ireland on Sunday joining a series of countries moving to suspend the shot over concerns about possible side effects. The company, meanwhile, says there is no evidence of increased blood-clot risks.

 


POLITICS & ELECTIONS


 

— Iowa poll: A majority of Iowans (55%) want U.S. Sen. Chuck Grassley to decide not to run in 2022; 28% hope he will; another 17% are unsure. The poll of 775 Iowa adults was conducted March 7-10 by Selzer & Co. of Des Moines. It has a margin of error of plus or minus 3.5 percentage points. The 87-year-old Republican has served in elected office continuously since 1959, when he joined the state Legislature, and he is mulling an eighth run for the U.S. Senate in the coming midterms. He would be 95 at the end of another six-year term. Link to details via the Des Moines Register.

 

     Grassley poll

 

— Democratic Rep. Ann Kirkpatrick won't run again in Arizona. Arizona Democrat Ann Kirkpatrick announced Friday that she won’t seek another term to her Tucson-area House seat, which Republicans are targeting. Kirkpatrick, 70, who took a leave of absence last year to recover from alcohol dependency, told the Arizona Republic her health was not a factor in her decision. Kirkpatrick is currently in her second term representing Arizona’s 2nd District. She previously represented the largely rural 1st District for three nonconsecutive terms, before giving up the seat for an unsuccessful Senate run in 2016, losing to Republican John McCain. She also won two terms to the Arizona House in 2004 and 2006. The 2nd District, which takes in rapidly growing suburban areas surrounding Tucson through sparsely populated land to the state’s southeast border with Mexico, has long been considered a swing seat. But it has moved to the left in recent presidential elections. Democrat Joe Biden beat Donald Trump there by by 11 points in November’s presidential election, according to calculations by Daily Kos Elections. Kirkpatrick won reelection last fall by a similar margin. The district is one of two in Arizona that the House GOP campaign arm, the National Republican Congressional Committee, put on its initial list of 2022 targets. CQ/Roll Call notes it is unclear how competitive the 2nd District will be since congressional lines will be redrawn before the midterm elections to reflect the 2020 census, the results of which have been delayed. Arizona’s congressional map is drawn by a bipartisan commission that the state’s Republican-controlled legislature has been working to eliminate.

 

— House Democrats want fast repeal of 2002 Iraq War authorization. Leading House Democrats on Friday announced plans to begin repealing and replacing the anti-terrorism military authorizations that have been on the books for nearly two decades.

 

— Germany faces regional election upheaval. German Chancellor Angela Merkel's center-right bloc, shaken by discontent over Germany's slow vaccinations and a face-mask scandal, suffered its worst result ever in two regional elections. Voters in the southern state of Baden-Wuerttemberg, Germany's third-most populous, shifted towards Greens and Liberals, which could see Merkel's conservatives yanked from its ruling coalition there. With the country heading into elections this September and its chancellor preparing to hand off the reins after more than 15 years, its next leader may not be a conservative at all.
 


OTHER ITEMS OF NOTE     


 

— Biden has op-ed in WashPost with the other three Quad leaders. President Biden joined with India Prime Minister Narendra Modi, Australia Prime Minister Scott Morrison and Japan Prime Minister Yoshihide Suga in an op-ed with the headline, "Our four nations are committed to a free Indo-Pacific region." Link for details.

 

— Reuters: North Korea unresponsive to behind-the-scenes Biden administration outreach — U.S. official. “North Korea has not responded to behind-the-scenes diplomatic outreach since mid-February by President Joe Biden’s administration, including to Pyongyang’s mission to the United Nations,” according to Reuters (link).

 

— Riots, violence erupt in West Coast cities on Breonna Taylor anniversary. Major cities on the West Coast were among those seeing riots and protests Saturday night as demonstrators marked the one-year anniversary of Breonna Taylor’s death in a police raid in Louisville, Kentucky. Several U.S. cities were beset by riots and protests on Saturday night as demonstrators marked the one-year anniversary of the death of Taylor in Louisville, Kentucky. Los Angeles, Portland, and Seattle saw protests and clashes between crowds of people and police. Rioters threw rocks at police officers in Hollywood and smashed store windows, according to reports and footage published from the scene.

 


 

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