Politics

Why the global inflation problem is bigger than US politics – The Hill

Published

1 month ago

June 29, 2022

Harry Miller

Inflation may be the focus of a midterm cycle political blame game, but economists caution the problem — and the most effective solutions — are global.

Rising prices were a focus of this week’s meeting of the Group of Seven (G-7) major economies.

The White House said Tuesday it is investing $760 million to combat the effects of high food, fuel and fertilizer prices, and the European Council said the war in Ukraine is leading to steep price increases and that the G-7 needs to “assist the global economy.”

“We are united and determined to strongly support Ukraine in producing and exporting grain, oil, and other agricultural products and we will foster coordinated initiatives that promote global food security and address the causes of the evolving global food crisis,” the council said.

In the U.S., inflation stands at a 40-year high of 8.6 percent, weighing on personal expenses and effectively making people poorer.

Around the world, it is sparking protest movements, driven by a soaring cost of living felt in the price of goods like food and gasoline.

In the United Kingdom, where inflation is higher than it is in the U.S. — above 9 percent — the biggest rail strike in 30 years has disrupted travel around the country and seen tens of thousands of workers walk off the job demanding more pay. There are also concerns that the rail strike could be the first of many in the country.

U.K. rail union members “are leading the way for all workers in this country who are sick and tired of having their pay and conditions slashed by a mixture of big business profits and government policy,” union head Mick Lynch said in a statement last week, adding that his group was seeking a “decent pay rise.”

In South Korea, where inflation surpassed 5 percent for the first time in more than a decade, truckers reached a deal with the government earlier this month after a weeklong strike to get a minimum pay guarantee. This led to production cuts by South Korean steel producer POSCO as well as automaker Hyundai, which said sales are facing “unfavorable external environments.”

Inflation has also hit a decades-high 5.2 percent in France, where there are concerns over whether there will be a resurgence of the Gilets Jaunes, or Yellow Vest, grassroots protest movement this fall.

Over the past few months, economic- and inflation-related protests have been reported in India, Ecuador, Indonesia, Ireland, Tunisia, Sri Lanka and Peru, where the government imposed a curfew and enacted various emergency measures after demonstrations turned violent earlier this year.

“Inflation is not just in the U.S. or in Europe, but it’s also in developing countries — it’s almost everywhere,” Hamid Rashid, head of the global economic monitoring branch of the United Nations Department of Economic and Social Affairs, said in an interview.

This ubiquity means that workers in numerous countries with varying political systems and social dynamics are pushing in the same direction, putting pressure on global labor markets that many central banks are hoping to see loosen.

In the U.S., having a looser labor market, or slightly higher unemployment, would take some of the pressure off companies to keep raising their prices in order to turn a profit for their investors, some economists argue.

But with more than 11 million open jobs and unemployment levels in the U.S. at 3.6 percent — which is still not as low as the pre-pandemic level of 3.5 percent — a looser labor market may just not be in the cards.

This means that the “supply-side interventions” — measures aimed at specific industries and pipeline bottlenecks, such as those in the shipping industry — that some economists are recommending to fight inflation may not be as effective as policymakers in the U.S. or around the world hope.

“When we think of the supply side, we tend to focus on supply chains. Supply chains are part of the supply side, but the most important element of the supply side is the labor supply,” Rashid said. “There are a lot of uncertainties in the labor supply, and that compounds a lot of supply chain issues, from packaging to transportation to warehouses to port clearance. Don’t underestimate the role that labor supply plays in most economies.”

With the tight job market in the U.S. and workers able to demand higher pay both here and in other countries, the global supply side of the economy may take a while to sync up.

That’s why economists are seeing increased international cooperation as an important additional measure in the fight against inflation. This cooperation can take many forms, including coordinated central bank policies, conforming regulatory frameworks and supply chain improvements.

One unexpected source of cooperation, at least among Western powers, has been the war in Ukraine, which economists note has brought the G-7 much closer together.

“Why do we have this cooperation happening right now? First, recognize really it’s Western cooperation. The G-7 is really leading this,” Abraham Newman, a professor in the Walsh School of Foreign Service at Georgetown University, said during an online event on economic globalization hosted by the Brookings Institution. “Within the G-7, you just see this complete belief that this is a legitimate exercise.”

Despite the global nature of inflation, the war of words between Democrats and Republicans over who is to blame for the high cost of living rages on.

“The White House and congressional Democrats are in denial about how their policies fueled inflation,” House Republicans on the tax-writing Ways and Means Committee said in a statement Monday, referring to the Biden administration’s $1.9 trillion stimulus package.

A study from the San Francisco Federal Reserve found in March that direct fiscal stimulus related to the pandemic — which went out under both the Trump and Biden administrations — “may have contributed to about 3 percentage points of the rise in U.S. inflation through the end of 2021.”

Democrats, meanwhile, have been focusing on corporate price gouging and market concentration in the private sector as drivers of inflation. President Biden earlier this month railed against oil companies for profiting while gas prices soared.

And Sen. Bernie Sanders (I-Vt.) introduced a bill in March that would tax windfall profits of corporations, a similar measure to ones enacted during the 20th century in times of war.

“The American people are sick and tired of the unprecedented corporate greed that exists all over this country. They are sick and tired of being ripped-off by corporations making record-breaking profits while working families are forced to pay outrageously high prices for gas, rent, food, and prescription drugs,” Sanders said.

Regardless of whether inflation is a global issue, Americans expect action on the inflation front and are likely to express that expectation at the polls in November.

A NewsNation-DDHQ poll released last week found 97 percent of U.S. voters are very or somewhat concerned about inflation and inflation ranks as the top issue for 72 percent.

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Politics

Pakistan politics based on element of vindictiveness; Imran latest victim – Business Standard

Published

7 hours ago

August 8, 2022

Harry Miller

Politics in Pakistan is based on an element of vindictiveness which often tends to make the creator or supporter of a particular law, victim of his own doing. This vicious political cycle has affected the lives and careers of several prominent politicians in the country and would now come to haunt former Prime Minister Imran Khan.

The accusations against Khan in the Toshakhana case is far more complex than it appears and is a matter of serious concern for the former premier. While on the face of it, the case might not appear as part of a major corruption scandal involving embezzlement of crores of state funds, it nevertheless hinges on a principle stand adopted by the Supreme Court on need for earnings to be declared by politicians, including Prime Ministers.

In the case of Nawaz Sharif, the Supreme Court had disqualified him from participating in national politics for life, which also became the basis for his removal from the post of Prime Minister. In the Sharif case, the accusation against him was for having not declared a certain amount which he was to have received (but had not yet received) from certain sources. The initial part of the Supreme Court declaration in the case had mentioned: “It is hereby declared that having failed to disclose his unwithdrawn receivables constituting assets from XYZ sources in his nomination papers filed for general elections held in 2013, Sharif remains disqualified from being member of Parliament as per Article 62(1)F of the Constitution.”

It is worth noting that in the Nawaz Sharif case, even though he had not received the said amount, the fact that he was due to receive the amount, and had consciously avoided declaring the same in the statement of returns before the Election Commission, led the Supreme Court to come up with, what many members of the Pakistani legal fraternity considered as, a ‘controversial’ and ‘harsh’ decision. However, the fact remains that the decision was implemented and Nawaz Sharif was removed from position. Members of the PTI and PML-Q celebrated the occasion appreciating the decision of the Supreme Court.

According to reports, Khan had earned around 36 million PKR by illegally selling three watches gifted to him by foreign dignitaries to a local watch dealer. Apparently, Khan during his tenure as prime minister earned millions of rupees from these jewel-class watches collectively worth over 154 million PKR. The watches were gifted to him by foreign leaders. The most expensive watch, of more than 101 million PKR value, was apparently retained by Khan at 20 per cent of its value after his government amended the Toshakhana rules and settled the gift retention price at 50 per cent (not 20 per cent) of its original value. Moreover, he did so without ever declaring the gifts to the Election Commission and getting them evaluated.

If Nawaz Sharif was considered ‘dishonest’ by the Supreme Court for not declaring an amount he had not received, in the case of Khan his having received a certain amount from the sale of gifts received by him during his foreign tours and not declaring the same, poses an ever more serious threat to Khan. The precedence thus set by the Supreme Court would be a challenge to Khan to deal with. The more sinister aspect of the Khan case is that on receiving the costly gifts, he failed to declare them to the Toshakhana and retained them with him before disposing them.

Khan had received most of the gifts in 2018 during his foreign travels and should have ideally declared these in the 2019 statement of returns. Likewise, he did not declare the gifts received in 2019 in the 2020 statement of returns, thus committing a serious act of “dishonesty” towards the nation and the people of Pakistan.

Even though the Supreme Court decision against Nawaz Sharif was considered ‘drastic’ and ‘unusual’ and was criticised by the legal fraternity and political analysts, the fact remains that the Supreme Court decision has become a precedence and remains in place. Moreover, considering Nawaz Sharif had to give up the post of Prime Minister and has been banned for life from participating in elections, based on this decision of the Supreme Court, there is no reason why the same norms would not apply in the case of Khan.

The Sharif brothers would ensure that Khan is not spared on this count even though Khan would try to exploit his support base in the public domain to create strong opposition against the decision. The situation undoubtedly looks bleak for Khan as his fate now remains in the hands of the judiciary and the establishment.

–IANS

ksk/

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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Politics

Politics Trump Policy – AAF – American Action Forum

Published

8 hours ago

August 8, 2022

Harry Miller

It is done. The Senate has passed the Inflation Reduction Act (IRA) using reconciliation procedures. Outside of the political imperative to “get something done,” there is little in the IRA to commend. It won’t reduce inflation. As a stand-alone, the health provisions are incoherent. And “historic” investment in combatting climate change is part of a larger strategy that never made sense, is chump change compared to the cost of the problem, and has been badly warped by the administration’s fealty to unionization efforts. It’s all bad enough.

That includes the tax policy – especially the book minimum tax. The basic idea was that a large firm ($1 billion in financial income) would pay the greater of 21 percent of its taxable income or 15 percent of the income reported in financial statements (book income). This was never a good idea.

It was tried in 1986 and eliminated in 1989. It was too complex to administer and comply with – nothing has improved on either front with the passage of time. It provided an incentive to distort the financial reporting for tax purposes; why would the United States want to do a U-turn on the progress made on this front in the aftermath of the Enron and Worldcom scandals? It also punished the wrong firms. The only legal way to get the effective rate down is to take advantage of things that Congress itself wrote into the tax code – accelerated depreciation and expensing, research and development tax credits, and so forth. Even advocates of the IRA acknowledged this was not good policy. It was softened to acknowledge depreciation deductions to reduce the hit on manufacturers and defended on the grounds that it would affect only 100 to 200 firms.

The Senate even tried to make it worse. On Saturday when the legislative text for the tax provisions was finally, and for the first time, made public, it contained a huge “gotcha.” Suppose that there were four firms, each with $300 million in book income, each of which had as a common majority investor an investment fund like a private equity. Under the IRA, these four firms would be deemed a $1.2 billion single firm, and subject to the 15 percent book tax.

This would have increased the number of affected firms dramatically, perhaps by as many as 15,000 to 20,000. But more important, it would have distorted much more economic activity and raised the headwinds to growth considerably. Fortunately, the provision was dropped during the debate, limiting the impact of the book tax.

In sum, the IRA won’t reduce inflation, is anti-growth, assaults innovation in the biopharma sector of the economy, and its climate provisions are poorly designed and puny relative to problem. As years pass, the IRA will appear less and less appealing. There may be political celebrating, but it is not a policy win.

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Senate passes Democrats' sweeping health care and climate bill – CNN

Published

21 hours ago

August 7, 2022

Harry Miller

(CNN)The Senate on Sunday afternoon passed Democrats’ $750 billion health care, tax and climate bill, in a significant victory for President Joe Biden and his party.

The final, party-line vote was 51-50, with Vice President Kamala Harris breaking the tie. The package is the product of painstaking negotiations, and its final passage would give Democrats a chance to achieve major policy objectives ahead of the upcoming midterm elections.

The Democrat-controlled House, which is expected to take up the legislation on Friday, August 12, must approve the bill before Biden can sign it into law.

The sweeping bill — named the Inflation Reduction Act — would represent the largest climate investment in US history and make major changes to health policy by giving Medicare the power for the first time to negotiate the prices of certain prescription drugs and extending expiring health care subsidies for three years. The legislation would reduce the deficit, be paid for through new taxes — including a 15% minimum tax on large corporations and a 1% tax on stock buybacks — and boost the Internal Revenue Service’s ability to collect.

It would raise over $700 billion in government revenue over 10 years and spend over $430 billion to reduce carbon emissions and extend subsidies for health insurance under the Affordable Care Act and use the rest of the new revenue to reduce the deficit.

Senate Democrats, with a narrow 50-seat majority, stayed unified to pass the legislation, using a special, filibuster-proof process to approve the measure without Republican votes. Final passage came after a marathon series of contentious amendment votes known as a “vote-a-rama” that stretched nearly 16 hours from late Saturday night until Sunday afternoon.

West Virginia Democratic Sen. Joe Manchin told CNN that the legislation he helped write is “a good balanced bill.”

“I think we’ll all benefit from it; the country will,” Manchin told CNN. “We have energy security, that’s what we were looking for. And we have the ability to invest in the energy of the future.”

Biden praised the Senate for passing the bill in a statement Sunday, thanking Democrats in the chamber and touting the legislation’s climate investments and health care provisions.

“Today, Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share,” Biden said.

How Senate Democrats passed the bill on a party-line vote

Senate Democrats have long hoped to pass a signature legislative package that would incorporate major agenda items for the party, but struggled for months to reach a deal that gained full support of their caucus.

Manchin played a key role in shaping the legislation — which only moved forward after the West Virginia Democrat and Senate Majority Leader Chuck Schumer announced a deal at the end of July, a major breakthrough for Democrats after earlier negotiations had stalled out.

Arizona Sen. Kyrsten Sinema on Thursday night offered critical support after party leaders agreed to change new tax proposals, indicating she would “move forward” on the sweeping economic package.

But Sinema, Manchin and other senators worked through the weekend making crucial alterations on the bill.

To avoid a last-minute collapse of the bill on Sunday, Democrats created a plan to win over Sinema, who was concerned over the 15% corporate minimum tax’s impact on subsidiaries owned by private equity. Senate Democrats accepted a narrower tax proposal, but instead of paying for it through a change to the state and local tax (SALT) deduction, as Senate GOP Whip John Thune of South Dakota suggested, they instead extended the limitation on the amount of losses that businesses can deduct for another two years.

The change was intended to prevent House Democrats primarily from coastal districts, who have campaigned on repealing limits on the SALT deduction, from breaking from the bill, when they vote on it later this week.

After the bill’s passage in the Senate, Sinema said in a statement it would “help Arizonans build better lives for themselves and their families by lowering prices, making health care more affordable and accessible, and securing Arizona’s water and energy future,” while also “boosting innovation and spurring job creation.”

In a good sign for the bill becoming law, key House Democrats signaled later Sunday that they’ll vote for it despite previous demands over SALT.

Rep. Josh Gottheimer of New Jersey had been part of the “No SALT, no deal” caucus. But he said the bill passes his test because it doesn’t raise individual income tax rates.

Rep. Mikie Sherrill of New Jersey, another member of that caucus, echoed his sentiment: “I will also remain steadfast in my commitment to ensuring that any discussion of reforms to the 2017 tax law begins with addressing SALT. Because this legislation does not raise taxes on families in my district, but in fact significantly lowers their costs, I will be voting for it.”

Republicans used the weekend “vote-a-rama” to put Democrats on the spot and force politically tough votes. They were also successful in removing a key insulin provision to cap the price of insulin to $35 per month on the private insurance market, which the Senate parliamentarian ruled was not compliant with the Senate’s reconciliation rules. The $35 insulin cap for Medicare beneficiaries remains in place.

Senate Minority Leader Mitch McConnell said in a statement that the bill included “giant job-killing tax hikes” and amounted to “a war on American fossil fuel.” The Kentucky Republican said Democrats “do not care about middle-class families’ priorities.”

“And their response to the runaway inflation they’ve created is a bill that experts say will not meaningfully cut inflation at all,” said McConnell. “The American people are clear about their priorities. Environmental regulation is a 3% issue. Americans want solutions for inflation, crime, and the border.”

How the bill addresses the climate crisis

While economists disagree over whether the package would, in fact, live up to its name and reduce inflation, particularly in the short term, the bill would have a crucial impact on reducing carbon emissions.

The nearly $370 billion clean energy and climate package is the largest climate investment in US history, and the biggest victory for the environmental movement since the landmark Clean Air Act. It also comes at a critical time; this summer has seen punishing heat waves and deadly floods across the country, which scientists say are both linked to a warming planet.

Analysis from Senate Majority Leader Chuck Schumer’s office — as well as multiple independent analyses — suggests the measure would reduce US carbon emissions by up to 40% by 2030. Strong climate regulations from the Biden administration and action from states would be needed to get to President Joe Biden’s goal of cutting emissions 50% by 2030.

The bill also contains many tax incentives meant to bring down the cost of electricity with more renewables, and spur more American consumers to switch to electricity to power their homes and vehicles.

Lawmakers said the bill represents a monumental victory and is also just the start of what’s needed to combat the climate crisis.

“This isn’t about the laws of politics, this is about the laws of physics,” Democratic Sen. Brian Schatz of Hawaii told CNN. “We all knew coming into this effort that we had to do what the science tells us what we need to do.”

Key health care and tax policy in the bill

The bill would empower Medicare to negotiate prices of certain costly medications administered in doctors’ offices or purchased at the pharmacy. The Health and Human Services secretary would negotiate the prices of 10 drugs in 2026, and another 15 drugs in 2027 and again in 2028. The number would rise to 20 drugs a year for 2029 and beyond.

This controversial provision is far more limited than the one House Democratic leaders have backed in the past. But it would open the door to fulfilling a longstanding party goal of allowing Medicare to use its heft to lower drug costs.

Democrats are also planning to extend the enhanced federal premium subsidies for Obamacare coverage through 2025, a year later than lawmakers recently discussed. That way, they wouldn’t expire just after the 2024 presidential election.

To boost revenue, the bill would impose a 15% minimum tax on the income large corporations report to shareholders, known as book income, as opposed to the Internal Revenue Service. The measure, which would raise $258 billion over a decade, would apply to companies with profits over $1 billion.

Concerned about how this provision would affect certain businesses, particularly manufacturers, Sinema has suggested that she won changes to the Democrats’ plan to pare back how companies can deduct depreciated assets from their taxes. The details remain unclear.

However, Sinema nixed her party’s effort to tighten the carried interest loophole, which allows investment managers to treat much of their compensation as capital gains and pay a 20% long-term capital gains tax rate instead of income tax rates of up to 37%.

The provision would have lengthened the amount of time investment managers’ profit interest must be held from three years to five years to take advantage of the lower tax rate. Addressing this loophole, which would have raised $14 billion over a decade, had been a longtime goal of congressional Democrats.

In its place, a 1% excise tax on companies’ stock buybacks was added, raising another $74 billion, according to a Democratic aide.

This story and headline have been updated with additional developments.

CNN’s Ella Nilsen, Tami Luhby, Katie Lobosco, Matt Egan and Kristin Wilson contributed to this report.

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