Trillion dollar deficits could return sooner thanks to the recent budget deal. After passage of the Tax Cuts and Jobs Act, the Committee for a Responsible Federal Budget projected that the budget deficit would reach $983 billion in FY 2019 and $1.05 trillion in FY 2020. Now under the continuing resolution that delays Affordable Care Act-related taxes, CRFB projects deficits will increase to $1 trillion in 2019 and $1.06 trillion in 2020.
Three states sue the federal government over the SALT cap. The Democratic governors of New Jersey, Connecticut and New York are suing the federal government over the TCJA’s $10,000 limit on state and local tax deductions. They plan to argue that the cap amounts to double taxation and will seek evidence that it was designed to target 12 “blue” states that tend to vote Democratic.
There’s a bigger question any state with an income tax will need to answer. TPC’s Richard Auxier reviews last week’s TPC conference on the TCJA and state governments. States with income taxes have tied their systems—more or less-- to the federal tax code. Now, following TCJA changes to the standard deduction, personal exemptions, and itemized deductions, state lawmakers are questioning how much they want their tax systems to conform to the federal system. “But, as the panelists agreed, it will probably take states three to five years to adjust to the new federal law. Just in time for Congress to make the next round of changes.”
FedEx increases wages and awards bonuses, cites TCJA. “FedEx believes the Tax Cuts and Jobs Act will likely increase [gross domestic product] and investment in the United States,” says the FedEx website. The firm says it will add $1.5 billion to its pension plan and invest another $1.5 billion to expand its hub in Indianapolis. The shipping company also announced it will raise wages and salaries by $200 million, with two-thirds going to hourly workers and the rest to incentive plans for salaried employees. Of course, FedEx is also benefitting from a boom in online sales.
But will the new law encourage business to shift overall investment to the US? The TCJA includes some provisions, such as lower corporate tax rates, that should encourage domestic investment by US firms. And it includes provisions that appear to create incentives for businesses to boost manufacturing capacity overseas. What is the net effect? Tax Notes economics columnist Marty Sullivan crunches the numbers (paywall) and concludes that—on average--foreign investment still will be tax advantaged under the TCJA, through it will benefit somewhat less than under the pre-TCJA law. But, he warns, different firms may be treated very differently under the new law.
President Trump’s State of Union address is tomorrow night. Expect him to take a victory lap for the TCJA and promote his coming infrastructure plan, though details of that proposal remain inconsistent and sketchy. He may also talk trade, including his continued to use of tariffs to punish what he sees as unfair trade practices by other countries.
Save February 13 for a TPC event on the new tax law and changing business landscape. TPC will convene economists, practitioners, and other experts to examine the business provisions of the new tax law. The morning event at the Brookings Institution will include panels to examine the implications for pass-through and multinationals businesses. Panelists include Lilian Faulhaber of Georgetown Law, Brian Reardon of the S Corporation Association, Rosanne Altshuler of Rutgers University, Pam Olson of PricewaterhouseCoopers, and Richard Rubin of The Wall Street Journal. The event will be webcast, or you can register to attend in person.
Ed Lorenzen dies. Ed Lorenzen and his son Michael died in a house fire in Rhode Island on Friday night. Ed was a senior adviser to the Committee for a Responsible Federal Budget and a long-time fiscal policy aide on Capitol Hill, where he worked for moderate House Democrats Steny Hoyer and Charlie Stenholm. Ed was a generous, open-hearted guy who cared deeply about budget policy.
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