Category: zerohedge

Authored by Dave DeCamp via AntiWar.com,

While talks to revive the Iran nuclear deal, known as the JCPOA, kicked off in Vienna, Israeli Prime Minister Benjamin Netanyahu railed against the agreement and said Israel must “act” against Tehran.

“The danger that Iran will return — and this time with an international imprimatur — to a path that will allow it to develop a nuclear arsenal is on our doorstep on this very day,” Netanyahu said at a meeting of his Likud party in the Knesset on Tuesday.

Like most Israeli officials, Netanyahu claims the JCPOA is somehow a path to a nuclear-armed Iran even though the agreement puts strict limits on the Islamic Republic’s nuclear program. And after the JCPOA expires, Iran would still be bound by the Non-Proliferation Treaty, which Israel refuses to sign since it has a secret nuclear weapons program.

“We cannot go back to the dangerous nuclear plan, because a nuclear Iran is an existential threat and a very big threat to the security of the whole world,” Netanyahu said.

Netanyahu also said Israel should take action against Iran.

“We must act against the fanatical regime in Iran that is simply threatening to erase us from the earth,” he said.

Israeli officials have threatened to attack Iran if the Biden administration returns to the JCPOA, and Israel frequently takes covert action against Tehran to stoke tensions in the region.

Reports on Tuesday said an Iranian ship was targeted by a limpet mine in the Red Sea, a type of attack Israel has a history of carrying out in the region.

The talks in Vienna established working groups that will determine the actions needed to be taken by the US and Iran to revive the JCPOA. While there still seems to be a long way to go, and the US isn’t lifting sanctions right away, Iran’s chief negotiator describes Tuesday’s talks as “constructive.”

That giant sucking sound is the richest New Yorkers – tired of virtue signaling in a city that is about to tax them as much as Europe’s socialist paradise – packing up their belongings and bailing for Palm Beach.

Why? Because days after we reported that New York Millionaires are about to be slapped with the highest income tax in the country, surpassing even the liberal utopia that is California, we now have some more details on what will likely be a 50% tax on the richest New Yorkers.

As Bloomberg writes, last August scandal-plagued NY Governor Andrew Cuomo begged the rich to return to the state, saying “‘we’ll go to dinner, I’ll buy you a drink, come over, I’ll cook.” What he didn’t say is that while he would pay for a drink, it’s the rich that would be stuck with the very hefty bill.

Details of said bill emerged on Tuesday when state lawmakers and Cuomo reached an agreement to raise taxes as part of a $212 billion budget deal. Under the deal, the top tax rate would temporarily increase to 9.65% from 8.82% for single filers earning more than $1.1 million. Income between $5 million and $25 million would be taxed at 10.3% and for more than $25 million it would be 10.9%. The new rates would expire in 2027.

And with New York City residents also paying city taxes, the combined top rate for the highest earners would be between 13.5% and 14.8%, surpassing the 13.3% rate in California, currently the highest in the nation, as we reported previously.

Even though New York’s budget crisis never materialized, state officials are moving forward with a tax increase that will bring the top income tax rate in NYC to 14.776%.

The biggest risk is that high earners don’t come back post-pandemic. Why make it a self-fulfilling prophesy?

— Jared Walczak (@JaredWalczak) April 5, 2021

Lump in Federal Taxes and the increases would mean that the richest New Yorkers would be hit with a combined marginal rate of 51.8% — higher than levels in some European countries.

So with the highest taxes in the US to look forward to, will (former) New Yorkers rush back to the Big Apple? We doubt it:

“Employers and employees alike are increasingly mobile, and raising taxes on newly mobile taxpayers is a risky proposition,” said Jared Walczak, the vice president of State Projects at the conservative Tax Foundation. “High earners in particular have considerable flexibility, and many already temporarily relocated during the pandemic. Raising tax rates on the most mobile cohort of taxpayers is a good way to lose many of them outright.”

New York’s move is the latest attempt to target the wealthy in the U.S. to fund budget shortfalls or future spending.

Meanwhile, those earning more than $400,000 a year are already bracing for higher federal taxes from the Biden administration, which has also proposed raising the corporate levy to 28% from 21%. However, as Bloomberg explains, increasing levies at the state level though brings a different dynamic.

Prior to Covid-19, there were concerns that residents would leave when a tax overhaul passed by Republicans and signed by President Trump in 2017 capped state and local tax deductions at $10,000.

Then the pandemic hit and some of the most affluent people in the city fled to other parts of the state, such as the Hamptons, while others moved to Florida or Texas, which don’t levy income taxes. The exodus has fired up real estate markets and even led New York City restaurateurs to open Palm Beach locations.

Now, with the vaccine increasingly prevalent, there are signs some people are returning… but not many if all they have to look forward to are huge tax spikes. As such, there’s concern that many of NY’s richest will make their moves permanent, especially as low-tax states court hedge funds and banks.

“Cuomo is making a bet that the wealthy won’t leave the state even if he raises taxes on them,” said Andrew Silverman, a tax analyst with Bloomberg Intelligence. “That’s a risky bet. It’s almost certain that people will leave the state and the city as a result of these tax increases. What’s different this time is that jobs are so mobile that people, especially wealthy people, don’t have to work where they live.”

The total number of those leaving may be tiny compared to the overall population, but they are the ones paying the most taxes and New York City and New York state get a disproportionate share of tax revenue from the wealthy. The state is home to more than 90 billionaires, according to the Bloomberg Billionaires Index, and the city has more than 30,000 millionaires.

The top 1% of New Yorkers reported a combined $133.3 billion in income in 2018, the latest year of data available, according to the city’s Independent Budget Office. They paid $4.9 billion in local income taxes, making up 42.5% of total income tax collected by the city.

In 2018, 1,786 tax filers earned more than $10 million or more — and the top 1% — about 38,700 taxpayers — earned almost as much as the bottom 90% of New Yorkers.

It remains unclear if New York state will get help from the Biden administration to repeal the cap on the SALT deduction; so far it appears that Biden is unwilling to make this concession which would infuriate the socialist wing of the Democrat party.

Earlier this week, when looking at the latest BofA card spending data, we observed that “whereas previously the bulk of the upside spending game from debt card outlays, in recent weeks we have seen a solid increase in credit card spending as well as consumers turn more optimistic on their financial futures. This means that the period of credit card deleveraging that market much of 2020 is now officially over.”

Turns out this was once again prescient, because while consensus expected today’s consumer credit print to rise by just $2.8BN after four consecutive months of credit card paydowns to end 2020 and the first month of 2021, moments ago the Fed reported in its latest monthly G.19 statement that in February consumer credit exploded by a whopping $27.6 billion, which not only was the highest monthly increase in the series since November 2017…

… but was about 10x higher than the expected number of $2.8BN, making it the biggest beat on record!

And while non-revolving credit – i.e., student and auto loans – continued its relentless ramp higher, increasing by $19.5BN in February, the most since June of 2020…

… it was the surge in credit card debt in February that made all the difference because after 4 months of paydowns, revolving (i.e. credit card) debt surged by $8.1 billion, the most since December 2019!

This latest shift in spending patterns, means that things are now indeed almost back to normal, and that with consumers now spending not just using their debit cards (which is where the stimmy checks arrive) but their credit cards, it appears that Americans are increasingly more confident about the future, and are spending appropriately.

Authored by Gregory Gordon via The Mises Institute,

If you were to stroll through any typical upper-middle-income American neighborhood in 2021, the odds are very high that you’d observe at least one yard sign exuberantly proclaiming something like this: “In this house, we believe that science is real, love is love, no human is illegal … ” and other banal tautologies. There are usually six or seven examples in this litany, but really, one of the main goals of the yard sign – aside from signaling virtue – can be accomplished with just this: the curtsy to Science.

In a country where the traditional definition of virtue has “evolved” and the search for metaphysical truth has largely been sidelined, millions of Americans seem to believe that there is no higher truth than the Science and that there are no more virtuous citizens than those who deferentially submit to the experts, the societal planners, and the proclaimers of the Science.

We can thank the Enlightenment for this spirit of scientism, as Science has now been fully separated from teleology (i.e., “goal directedness”) and final causality, which many elites consider to be backward Medieval thinking.

This separation—and the general idea that human beings and their interactions can be boiled down to and predicted by physical phenomena and scientific methods—has led to numerous destructive movements such as scientific socialism, historical materialism, and even progressive racialism. While Science has indeed provided wonderful breakthroughs that enhanced human flourishing, it does not engender all knowledge that is necessary for human societies.

As John Gray has documented in Seven Types of Atheism, several of the leading Enlightenment figures—including David Hume, Immanuel Kant, and Voltaire—infused some of their writings with a pseudoanthropological racism. This is particularly evident in Kant’s Observations on the Feeling of the Beautiful and Sublime and Hume’s notes accompanying his “National Characters” essay. Gray states that: “Though twenty-first century missionaries for ‘Enlightenment values’ resist the fact, modern racism emerged from the work of Enlightenment philosophes.”

Out of the Enlightenment’s penumbra of positivism, proponents of eugenics and scientific racism achieved some prominence in the late 1800’s and the Progressive Era of the early 1900’s. Eugenics notoriously sought to use Science to “purify” the human race through selective breeding practices and even forced sterilization. Francis Galton, a cousin of Charles Darwin, coined the term “eugenics” and began to apply Darwin’s work in evolution to human societies. Margaret Sanger, the well-known founder of the American Birth Control League and the first president of the International Planned Parenthood Federation, infamously—and with a disturbing enthusiasm—worked to reduce the birth rate in African American communities as part of the “Negro Project.” Sanger also advocated for the sterilization of disabled people.

None of this is meant to imply that all Enlightenment thinkers were racists (they weren’t), or that all progressives support eugenics (they don’t). Going beyond merely calling attention to the dark underbelly of one of the West’s sacred cows, though, it’s a relatively safe assertion that the Enlightenment’s intellectual offspring—including technocrats, government science advisors, and the elite expert class of academics and commentators—have been responsible for disastrous public policy measures over the past several decades.

Thankfully, not all of their recommendations and prognostications have come to fruition. Paul Ehrlich (a professor of biology at Stanford, fellow at the National Academy of Sciences, and evangelist for population control measures) outlandishly predicted a number of neo-Malthusian horrors, including the mass starvation of hundreds of millions of humans, increases in global poverty, and an exploding world population in the 1970s and 1980s. The spread of free market ideas, advances in medicine, and other latent factors have ensured that his “Population Bomb” never went off, but impacts of his work still haunt us, in the modern Green and Build Back Better movements.

Harmful, impractical, and costly ideas of the expert class, as well as the experts themselves, often infiltrate the government’s regulatory machine, at which time they are inflicted upon the general populace. Murray Rothbard discussed this in Power and Market:

Furthermore, the government itself contains mechanisms that lead to poor choices of experts and officials. For one thing, the politician and the government expert receive their revenues, not from service voluntarily purchased on the market, but from a compulsory levy on the populace. These officials, therefore, wholly lack the pecuniary incentive to care about serving the public properly and competently. And, what is more, the vital criterion of “fitness” is very different in the government and on the market. In the market, the fittest are those most able to serve the consumers; in government, the fittest are those most adept at wielding coercion and/or those most adroit at making demagogic appeals to the voting public.

Despite all of their misaligned incentives, which often lead to detrimental outcomes for individuals and small communities, the technocratic expert class is still intimately involved in practically every aspect of our lives. Nothing in recent times illustrates this more poignantly than the arrival of SARS-CoV-2.

In early 2020, Americans were besieged by a tidal wave of sloppy, reckless, and malevolently pessimistic news stories and information about the burgeoning coronavirus pandemic. Medical scientists and bureaucrats at the World Health Organization overestimated covid’s mortality rate at an alarming 3–4 percent. (The infection fatality rate is now estimated at ~0.15 percent.) Public health officials took the worst-case-scenario fatality estimates of epidemiological modelers such as the now disgraced Niall Ferguson at Imperial College London, promulgated them throughout the corporate media, and began implementing draconian measures that would radically alter civil society.

In the first months of the pandemic, the government monopolized and bungled the distribution of covid tests and the Food and Drug Administration delayed approvals for new test alternatives. Then US surgeon general Jerome Adams and Dr. Anthony Fauci admonished the public that they should not be wearing masks in public, before completely reversing themselves months later. Fauci would go on to mislead Americans about threshold numbers for herd immunity, and the Centers for Disease Control and Prevention would end up changing the scientifically conjured social distance spacing from precisely six feet to precisely three feet, coinciding with growing political pressure to reopen schools. In March of 2020, the federal government and most states coordinated a de facto national lockdown of the economy.

Millions of people were ordered to “stay home, stay safe” for the disastrous two-week “flatten the curve” crusade that would last for more than a year in some states. Government scientists and public health experts decided that the livelihoods of tens of millions were expendable, and the educational and social needs of a generation of young Americans could be sacrificed for the common good. Thousands of cancer screenings and other medical tests were postponed for several months, under the Lockdown regime. Many small businesses and restaurants will never open again. The pain caused by government experts will be felt for many years.

Of course, scientists qua scientists were never supposed to run our society. Scientific technocrats and the expert class cannot possibly possess all of the knowledge that they would need to effectively run the lives of 330 million Americans, but that will not stop them from trying. They might be Enlightened, but perhaps there is still an incorrigible, ornery remnant in the United States who will resist efforts to be managed, regulated, and perfected by the experts.

Tesla is reportedly delaying deliveries of both its refreshed Model X and refreshed Model S vehicles, according to Wednesday report from electrek.

Those hoping for refreshed version of the two mainstays in Tesla’s lineup are going to have to wait as the automaker is “experiencing delays in bringing the vehicles to production,” according to the report.

The new models had been unveiled in January and Elon Musk had said that deliveries would begin “within a few weeks”. That, obviously, didn’t happen – and this marks yet another timeline miss to add to Tesla’s litany of such delays.

Musk had also said in late February that the company was “almost done” retooling its production lines to produce the vehicles. “Model S/X production lines are almost done with the retooling and will be aiming for max production next quarter. There is high demand, so we are soon going to need to go back to two shifts. Please recommend friends for recruiting,” the e-mail read.

6 weeks later, there is still no report of any new Model S or X deliveries. Many people who bought refreshed Model S vehicles are seeing their delivery dates pushed back “by a few months,” the report notes. “Most of them had March and April estimated delivery dates, but they have now been pushed to a May-July timeframe.” 

electrek speculates that the delay could actually have to do with Tesla’s software. Recall, we wrote about the company’s most recent, horribly embarrassing test of its “Full Self Driving” software here. 

Among the most “controversial” claims that Musk has made over the last couple of years, nothing quite tops the list like his bold predictions for Full Self Driving and his company’s autonomous capabilities. Those topics were also debunked thoroughly in a video we wrote about days ago, which compared Musk’s public statements on FSD – which he has been charging customers thousands for, for years – and the harsh reality of where the company’s “feature” stands today. 

By Nicholas Colas of DataTrek Research

Q2 2021 will determine how much of the rally to fresh highs for US/global equities is sustainable. We know how we got here: lots of profitable “stay at home” trades plus a more recent cyclical rally. The path forward needs a very specific formula to keep the rally alive: further fiscal stimulus, higher long-term rates, a clear perspective on US consumer “reopening” behavior, and not too much bad news on the tax front. We’re still bullish on US large cap stocks, primarily due to outsized earnings leverage from penny-pinching companies.

* * *

As we consider how much the world has changed in the last 12 months and what that means for investing in Q2 2021, consider that:

• The S&P 500 is +17 percent versus its February 2020 high

• The Russell 2000 is +29 percent versus its January 2020 high

• The MSCI EAFE index is +8 percent versus its January 2020 high

• The MSCI Emerging Markets index is +14 percent versus its January 2020 high

• And 10-year Treasury yields are in line with their January – February 2020 levels of 1.6 – 1.8 percent. It’s not lower discount rates powering those comparisons.

As the good book says, “From everyone who has been given much, much will be demanded”. Q2 2021 is when the bill really comes due for global equities given the obvious optimism imbedded in the returns listed above. Investor confidence is a fragile thing, and never more so than when valuations are high after a big move higher.

Serious business, all this, but we’ll try to lighten up the discussion as we run through the 5 topics we see dominating Q2’s investment environment.

* * *

#1: The word of the quarter will be “trillion”. Since so many big numbers sound alike in English it’s easy to forget the relative scale of each. Here’s one way to think about that:

• A million seconds = 12 days

• A billion seconds = 32 years

• A trillion seconds = 31,710 years

President Biden will deliver his infrastructure plan, and its price tag will certainly have a multiple “T” in front of the “rillion”. Also, the Fed’s bond buying program will continue apace in Q2. The central bank’s balance sheet stands at $7.7 tn today and will certainly top $8 tn before any signs of tapering.

The offsetting negative for Q2 will be the beginning of the political discussion about how to pay for “t-rillions” of fiscal stimulus. We have always been of the opinion that markets never believed President Trump’s corporate tax cuts would be permanent. Raising them to the old levels would therefore not change our bullish outlook. Changes in individual tax rates, especially those related to capital gains, are another matter. Given the outstanding gains of the last few years, especially in speculative tech stocks, changes in cap gains would certainly cause taxable account selling with no near-term offset in demand.

Takeaway: we’re still bullish on US equities given 1) large scale fiscal stimulus and 2) high incremental margins from post-pandemic, penny-pinching public companies. We do, however, encourage you to take a hard look at any really big winners you’ve had over the past 2-3 years. Changes to the tax code, or even whispers thereof, could cause further weakness in those names.

* * *

#2: The phrase of the quarter will be “yield curve”. History shows the US Treasury yield curve initially steepens in economic recoveries because the Fed lowers rates and, only later, because 10-year yields start to rise. The first bit happened last year. The second part is happening now.

Q2 2021 should see further increases in 10-year Treasury yields due to rising inflation (more on that in a minute). Remember that just 2 years ago 10-years yielded 2.8 percent. While the global economy was in much better shape than today, we do have multiple “T-rillion” of stimulus to absorb. And, of course, fund.

Takeaway: in every recovery since 1990 the difference between 3-month and 10-year Treasuries has been at least 3 percent points, and while we doubt we’ll see a 3.0 percent note yield in Q2, next quarter should continue our journey to that destination. This will be positive for cyclical stocks, which as we’ve seen in Q1 very much like to see the bond market confirm a durable economic expansion before rallying.

* * *

#3: The question of the quarter will be “what’s the US consumer doing?” In many ways, this is the single most important issue for Q2 2021. Last year we knew exactly how the American consumer was spending money: items for the home, tech hardware, and tech-enabled shopping and entertainment. This largely carried over into Q1 2021 due to seasonal factors.

Starting in Q2 and for the rest of 2021 markets will have to evaluate just how much/quickly US consumers really are going back to old pre-pandemic spending patterns. As Jessica has been chronicling, thus far they’ve been spending money on home renovations (very 2020, that) but also eyeing summer and Holiday 2021 trips (so 2019…). So, which is it? Is the US really reopening or are consumers comfortable simply staying home the rest of the year and replaying their 2020 experience but with friends and family allowed to come over?

Takeaway: we’ve mentioned this before, but it really bothers us that Home Depot is making new highs here (as it did, again, today) – this is not the sign of a market which believes Q1 2021 is the start of a big domestic economy reopening.

* * *

#4: The one phrase no one will use in Q2 2021: “global synchronized recovery”. European vaccine rollouts are still too slow, and regional lockdowns are still common. Everything we see from our regular review of Chinese traffic data says that economy is nowhere near back to 2019 levels. Latin America’s pandemic experience, especially in Brazil, is still very difficult. And in terms of just equity markets, the Chinese government’s crackdown on local Big Tech will clearly be an issue in Q2. That will continue to weigh on domestic equities there as well as the MSCI Emerging Markets index.

Takeaway: this is why we’re so focused on the US consumer (prior point), for they are the anchor tenant of a Q2 bull case.

* * *

#5: Lastly, inflation will be the most-discussed topic in Q2. The chart below shows the Consumer Price Index for the last 5 years, indexed to 100 on the May 2020 observation. As you can see, the February 2021 CPI was 2.8 percent above the May 2020 reading.

Takeaway: this is the “easy comp” effect Chair Powell has mentioned, and it will absolutely be a factor in Q2 2021’s CPI readings. As much as “everyone knows this”, actually seeing a 3 pct CPI print in Q2 may surprise some.

Final thought: we adhere to the old trader’s adage that daily stock moves largely reflect the market’s view of the economic and profit outlook 6 months in the future. That makes Q2 2021 really “about” Q4 2021. As you formulate your own near-term market perspective, consider what datapoints best inform the trajectory between now and wherever we end up on December 31st.

Since The Fed’s last statement and press conference (on March 17th), stocks and bonds are up marginally, gold has roundtripped back to unchanged (from a sizable loss) and the dollar is holding on to modest gains…

Source: Bloomberg

Interestingly, on the equity front, growth has dominated value as reflation themes fade…

Source: Bloomberg

And Big-Tech has dominated Small Caps, back near 7-week highs relatively-speaking…

Source: Bloomberg

On the rates front, the market tightened significantly after the FOMC statement but has recently eased back as hopes for Biden’s stimulus malarkey faded a bit…

Source: Bloomberg

With all eyes on the latest FOMC Minutes for any signs of The Fed walking back any of its unprecedentedly easy policies, we note that Federal Reserve Bank of Dallas President Robert Kaplan warned today that “I do worry about excesses and imbalances,” adding that “failing to communicate Fed exit could stoke risk-taking,” adding that The Fed “should withdraw some accommodation once the pandemic is over.”

Additionally, San Francisco Fed’s Daly said today that The Fed “can ultimately return its balance sheet to more normal levels.” We doubt it. Daly also shares some optimism – in opposition to Powell’s more downbeat view that the situation is still dark  – saying that “though we are not through the pandemic yet, there is light at the end of the tunnel.”

The Fed has said it will start to slow asset purchases when there’s “substantial further progress” toward its employment and inflation goals.

Bloomberg Chief U.S. Economist Carl Riccadonna note that “with the Fed firmly on hold, the utility of the minutes will be concentrated toward gleaning clues on policy makers’ preconditions to commence tapering asset purchases. We expect the Fed to develop a clearer framework for dialing back purchases around midyear, but actual tapering will not commence until 2022.”

So what will The Fed choose to share in the Minutes?

The Fed has said it will start to slow asset purchases when there’s “substantial further progress” toward its employment and inflation goals, and the Minutes confirmed that Fed officials see “more time” before the “substantial progress” had been made.

“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”

There was some optimism around vaccinations and fiscal stimulus:

“Participants anticipated consumer spending would be bolstered by the recently enacted fiscal stimulus packages as well as by accommodative monetary policy. Many participants also pointed to the elevated level of household savings and judged that the release of pent-up demand could boost consumption growth further as social distancing waned.”

But as usual they quickly assuaged that by warning of downsides…

“While generally acknowledging that the medium-term outlook for real GDP growth and employment had improved, participants continued to see the uncertainty surrounding that outlook as elevated.”

The Fed brushed off the rise in yields:

Fed staff highlighted that the brightening U.S. economic outlook had an impact not only on Treasury yields but also on bond yields globally. There were “sizable increases in sovereign yields in advanced foreign economies.”

And as far as the bond-buying malarkey, it appears they won’t be changing their plans anytime soon…

“Participants noted ‘a benefit of the outcome-based guidance was that it did not need to be recalibrated often in response to incoming data or the evolving outlook.’”

However, a couple of officials were worried that easy financial conditions were raising stability risks.

For now markets seem much more focused on the tax implications of President Joe Biden’s proposed $2.25 trillion infrastructure plan, and how that might impact U.S. growth.

Full Minutes below:

President Joe Biden will deliver his second sales pitch for his “American Jobs Plan” in under a week on Wednesday, when he will “ramp up the pressure” (according to Bloomberg) on recalcitrant Republican lawmakers by appealing directly to their voters while Congress is in recess and lawmakers are home visiting in their districts. Biden’s plan calls for $2.3 trillion of government spending,

His speech from the White House is slated to begin at 1345ET. According to Bloomberg, Biden and his team have been scrambling to reach out to governors, mayors and the broader public through phone calls, briefings and local TV appearances to make their case for “Part 1” of the president’s two-part infrastructure/climate change/wealth redistribution program (and the massive federal tax hikes needed to pay for them…or at least offset some of the cost).

BBG added that Biden will insist that certain less-popular aspects of his plan (replacing lead pipes, expanding high-speed broadband access, upgrades of the electric grid) are necessary to help the US compete against China.

White House aides have said they want Congress to make significant progress on an infrastructure bill by Memorial Day. House Transportation and Infrastructure Committee Chair Peter DeFazio said Tuesday his panel aims to complete its part “probably” in the third week of May.

But while Biden and his handlers have been eager to paint the massive stimulus bill as accretive for both the economy and taxpayers, an analysis conducted by the Penn Wharton Budget Model found that the proposed business tax provisions – which continue past the budget window – will decrease GDP by 0.8% in 2050, relative to current law. Here’s why:

• the spending provisions of the AJP, in absence of any tax increases, would increase government debt by 4.72% and decrease GDP by 0.33% in 2050, as the crowding out of investment due to larger government deficits outweighs productivity boosts from the new public investments.
• the tax provisions proposed in the AJP, in the absence of any new spending, would decrease government debt by 11.16 percent in 2050. Despite the reduction in public debt, the AJP’s tax provisions discourage business investment and thus reduce GDP by 0.49 percent in 2050.

Bloomberg economists, meanwhile, have said the plan would boost annual fixed investment in the economy by about 6%.

White House Press Secretary Jen Psaki has said Biden will host lawmakers, including GOP leaders, in the Oval Office to discuss the Biden plan, but the president has also said he’d be willing to go the “reconciliation” route, which would allow him to bypass the filibuster and pass the plan through the Senate with a 50-50 vote (with the tie presumably broken by VP Kamala Harris).

Republican lawmakers have blasted Biden’s plan, calling it too large after his $1.9 trillion pandemic-relief bill and saying it would damage the economy with the proposed corporate-tax hikes to help fund it. The White House is hoping to make an end-run around that criticism through public appeals.

“We hope that Republicans can join their constituents across the country in supporting this effort,” Energy Secretary Jennifer Granholm said Sunday on CNN’s State of the Union. “Ultimately, if that doesn’t happen, he is elected to do the job, to win the future for America, to invest in our people.”

Watch the video live below:

Anyone searching for more details on the Biden infrastructure plan should consult this fact sheet released by the White House. Remember, Biden and his team are also planning another $1 trillion to focus on “human infrastructure” in a separate bill that the administration hopes to push through in a few months, assuming everything goes according to plan with Part 1. Most recently, NY Gov. Andrew Cuomo has become the latest to push for Dems to remove the cap on SALT deductions imposed as part of the Trump tax cuts.

Submitted By SouthFront,

Open and wide-scale hostilities appear unavoidable in Eastern Ukraine. Kiev is on the war path, with the “unwavering” support of the US and NATO. 

Over April 5th, and going into April 6th, the Ukrainian Armed Forces (UAF) continued their usual activities of deploying more troops to the demarcation line. Russia is also transferring forces to the border with Ukraine and in the Crimea. In total, over the last 24 hours 7 separate ceasefire violations were recorded, each including a high number of shots and shells. Two UAF soldiers were killed.

Near the Luhansk People’s Republic (LPR), the UAF has several armored personnel carriers deployed at the village of Schstastye. Still, the LPR said its militia was fully prepared to deal with any Ukrainian provocation, as according to them 60% of Kiev’s military hardware was entirely non-operational.

The Donetsk People’s Republic (DPR) reported that its militia had thwarted an attempt by a Ukrainian sabotage group to conduct reconnaissance near the borders of the Republic in the area of the village of Shumy near Horlivka. Incidents of Ukrainian servicemen being blown up by their own mines continue.

Russia, for its part, is making further deployments, as footage showed that Nona-S self-propelled howitzers were being delivered towards the potential frontline. It is also deploying the units of the 76th Guards Air Assault Division, commonly known as the Pskov paratroopers.

Ukraine is continually blaming Russia for the concentration of forces, while it keeps shelling both the DPR and LPR. It is negotiating with its allies, speaking with British Prime Minister Boris Johnson and others.

NATO’s military attaché and its advisers are expected to arrive on the front line in Ukraine and provide their military expertise in the potential upcoming hostilities.

The active movement of military transport aircraft between NATO countries and the Ukraine continues. The United States and its allies continue to saturate the Ukrainian army with military equipment, including UAVs, electronic warfare systems, anti-tank systems, MANPADS and other modern high-precision systems.

Meanwhile, the US carried out a typical diplomatic maneuver when a war may break out. It said it would hold discussions with Moscow, as that is the precise form of support Kiev is likely to receive in the case that open hostilities take place. The toolkit includes a willingness to partake in the discussion, and sending Washington’s hopes and prayers.

War between Russia and Ukraine seems to be highly likely. Many military-political experts claim that the current situation can only be resolved by a military conflict. Some of them declare a war now is preferable to a war later for Russia.

Last week, Joe Biden released the American Jobs Plan (AJP), aka the “Infrastructure” plan which proposed $2.3 trillion in new federal spending on various forms of public infrastructure, research and development, workforce training, affordable housing, and caregiving. Later reporting confirmed that the AJP would include an additional $400 billion in clean energy tax credits not specified in the administration’s original announcement.

And while Biden and his handlers have been eager to paint the massive stimulus bill as accretive for both the economy and taxpayers, an analysis conducted by the Penn Wharton Budget Model found that the proposed business tax provisions – which continue past the budget window – will decrease GDP by 0.8% in 2050, relative to current law. Here’s why:

• the spending provisions of the AJP, in absence of any tax increases, would increase government debt by 4.72% and decrease GDP by 0.33% in 2050, as the crowding out of investment due to larger government deficits outweighs productivity boosts from the new public investments.

• the tax provisions proposed in the AJP, in the absence of any new spending, would decrease government debt by 11.16 percent in 2050. Despite the reduction in public debt, the AJP’s tax provisions discourage business investment and thus reduce GDP by 0.49 percent in 2050.

Considered together, the model finds that tax and spending provisions of the AJP would increase government debt by 1.7% by 2031 but decrease government debt by 6.4% by 2050. More importantly, the Biden plan ends up decreasing GDP by 0.8% in 2050. In other words, not only is there no benefit from the BIden plan but it will actually detract from growth over the next 4 decades.

Here are the details:

Projected Budgetary Effects

In total, the AJP proposes $2.7 trillion in new federal spending over the next 8 years, 2022 to 2029. The AJP does not specify any spending plans beyond 2029; PWBM therefore assumes that the proposal would not increase federal outlays in 2030 and beyond.

The AJP is funded by proposed increases in business taxes, including:

• Increasing the corporate tax rate to 28 percent,

• Establishing a minimum tax on corporate book income,

• Raising the tax rate on foreign profits,

• Eliminating the deduction for Foreign Derived Intangible Income (FDII),

• Eliminating tax preferences for fossil fuels.

The revenue effects of these provisions are shown in Table 1.

Over the 10-year budget window, 2022 to 2031, the AJP raises $2.1 trillion in new tax revenues. Due to a lack of detail, we do not model the AJP’s other tax proposals which would increase tax enforcement against corporations, deny expensing for offshoring jobs, establish a tax credit for onshoring jobs, and encourage other countries to increase their taxation of corporations. The estimates below therefore likely represent a lower bound on revenue raised by the AJP. These revenue effects are estimated under the assumption that phase 2 of the plan will include individual tax changes proposed as part of the Biden campaign.

Projected Economic Effects

Spending

PWBM analyzes the macroeconomic effects of the AJP using our Dynamic OLG Model. Our model treats individual components of the proposal’s $2.7 trillion in new spending either as public investments or as transfers. These spending types have different direct effects on the economy:

Public investments include new spending on transit infrastructure, research and development, and domestic manufacturing supply chains—which make up about $2.1 trillion of the AJP. These are considered investments in “public capital” which enhance the productivity of private capital and labor. Given the similarities between the AJP and the Biden campaign platform, we use the public investment framework described in our Biden platform analysis, assuming spending and building rates in line with a 2016 Congressional Budget Office report.

Transfers include spending on affordable housing access and on home- and community-based care—the other $600 billion of new spending in the AJP. We assume that the affordable housing spending in the AJP generally benefits households with below-median incomes, while caregiving provisions in the AJP—mainly implemented through Medicaid—generally benefit older and Medicaid-eligible households. While they are in effect, transfers to working-age households let individuals work less without consuming less, reducing overall labor supply.

New spending on either public investments or transfers, if financed through increased federal deficits, has the indirect effect of crowding out private investment. That crowding out effect reduces growth in the capital stock and thus GDP.

Table 2 shows the economic effects of only the new spending in the AJP, including both transfers and public investments, considered without the proposal’s tax increases.

Although the plan’s public investments increase the productivity of capital and labor, that productivity boost is not enough to overcome additional crowding out of capital due to increased government deficits. By 2031, the AJP’s spending provisions would increase public debt by 8.16 percent, decrease the capital stock by 1.17 percent, and decrease GDP by 0.25 percent. Over time, more public capital is built and becomes productive, but the resulting increases in productivity are still not enough to overcome the crowding out effects of higher deficits. By 2050, the AJP’s spending provisions increase government debt by 4.72 percent, decrease the capital stock by 1.46 percent, and decrease GDP by 0.33 percent.

Taxes

The tax provisions in the AJP have two direct economic effects: decreasing firms’ incentives to invest and disincentivizing saving by households. The revenue raised by these tax provisions has the indirect effect of decreasing government deficits and thus crowding in private investment.

In isolation, raising the statutory corporate tax rate is expected to increase corporate investment in the near-term, as shown in PWBM’s recent corporate tax estimate. That is because, under the current-law regime of accelerated depreciation, marginal effective tax rates on corporate investment are low regardless of the headline rate. As a result, raising the corporate tax rate does not meaningfully affect the normal return on investment, instead taxing rents and returns from existing capital. However, that positive effect is reversed when an increase to the corporate rate is combined with the AJP’s proposed minimum tax on book income, which reduces the value of depreciation deductions—in turn increasing the tax wedge on investment. The plan’s international tax provisions also increase the overall tax burden on corporate income.

Moreover, the increase in corporate tax rates lowers the after-tax return on equity investment. Households, facing lower after-tax returns, save less which in turn decreases investment and the capital stock.

Table 3 shows the economic effects of the AJP’s tax provisions, considered without the proposal’s spending increases.

Though the revenues raised by the AJP’s tax provisions decrease government debt by 11.16 percent in 2050, the resulting crowding in of capital is outweighed by the direct investment disincentives described above. On net, by 2050 the capital stock ends up 1.52 percent smaller, and GDP is 0.49 percent lower, than under the current law baseline.

The Full AJP

The overall macroeconomic effects of enacting the AJP, including both its spending and tax provisions, are shown in Table 4.

Initially, federal debt increases by 1.7 percent by 2031, as new spending in the AJP outpaces new revenues raised. After the AJP’s new spending ends in 2029, however, its tax increases persist—as a result, federal debt ends up 6.4 percent lower by 2050, relative to the current law baseline. Despite the decline in government debt, the investment-disincentivizing effects of the AJP’s business tax provisions decrease the capital stock by 3 percent in 2031 and 2050. The decline in capital makes workers less productive despite the increase in productivity due to more infrastructure, dragging hourly wages down by 0.7 percent in 2031 and 0.8 percent in 2050. Overall, GDP is 0.9 percent lower in 2031 and 0.8 percent lower in 2050.