CBO: Federal deficit to hit $960 billion in fiscal 2019. The nonpartisan Congressional Budget Office increased its forecast for this year’s deficit by $63 billion given the latest spending deal on defense and domestic programs. It expects the average deficit to hit $1.2 trillion in each of the next ten years. Said CBO director Phillip Swagel: “The nation's fiscal outlook is challenging. To put it on a sustainable course, lawmakers will have to make significant changes to tax and spending policies.”
But are Americans overtaxed? TPC’s Howard Gleckman and Aravind Boddupalli explain why the answer is no: “Americans are taxed less than residents of almost any other major developed country. And in 2017, the US ran a budget deficit that was bigger, as a share of its economy, than all other developed countries.”
Speaking of taxing… Last week, in response to early indications of a slowing economy, President Trump suggested indexing capital gains and cutting payroll taxes but then reversed course (paywall) and said that neither option was necessary.
And trade warring… Tariffs on over $100 billion in Chinese goods go into effect on September 1. JP Morgan estimates that the newest tariffs will increase costs for the average American household by $400 per year. In combination with earlier tariffs, the total increase in cost would be $1,000 year. By comparison, TPC estimates that the middle fifth of earners got a $780 cut in their individual income taxes in 2018. China has retaliated with new tariffs ranging from 5 percent to 10 percent on $75 billion US goods in two batches, effective September 1 and December 15. China will also impose a 5 percent tariff on auto parts and components starting December 15. President Trump responded by increasing existing tariffs on $250 billion worth of Chinese goods to 30 percent from 25 percent on October 1. At the Group of Seven summit meeting on Sunday, he said he has no concerns about the market's reactions to the move.
And shifting… France was attempting to level the playing field between large tech companies and smaller businesses by enacting a 3 percent digital tax on large tech companies. But Amazon is raising its fees on sellers by 3 percent to offset the new digital tax. Thousands of small and medium-sized businesses in France will pay the higher fee.
Don’t bank on marijuana tax revenue in an unstable marijuana market. A new report from the Pew Charitable Trusts warns that states should be cautious in how they spend cannabis revenue: “[S]tates should adopt prudent policies for budgeting collections. Treating [cannabis tax revenue] like other volatile or nonrecurring sources will reduce the chance of a budget imbalance if reality does not meet expectations.”
States beware: Big federal tax changes can make big changes in state revenue. A year and a half after passage of the Tax Cuts and Jobs Act, states continue to deal with the way the TCJA automatically changed their tax systems, due to state tax codes’ conformity provisions. TPC’s Erin Huffer explains that while conformity has real benefits, “states need to be aware that major changes to federal law like the TCJA can have big implications for state coffers and constituents.”
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