US feared federal spending, but Biden knows the mood has changed | american economy



FFrom a European perspective, Joe Biden’s plans for a $ 2 trillion increase in infrastructure spending is not a radical declaration of intent. The money will be spread over eight years and will increase the federal budget for capital projects by about 1 percentage point per year.

And the United States is starting from a very weak base. Congress levies federal taxes which were just over 16% as a proportion of national income (GDP) in 2019 and the total level of taxes, including state and local charges, is 24.5% of GDP . By way of comparison, the share of taxes collected in the UK as a percentage of GDP is around 37% and in France it is 46%.

One of the reasons for the disparity is exposed in the White House document – the american employment plan – which hammers home how “domestic public investment as a share of the economy has fallen by more than 40% since the 1960s”.

And some of the projects are so basic, so fundamental to the functioning of a modern economy, that it’s hard to see why anyone would protest a little more money to turn something that doesn’t work into something that doesn’t work. works.

One example is the modernization of the United States’ water and electricity systems, removing lead from the water supply and reducing power outages, which recently crippled Texas during a winter frost.

But according to business pressure groups, this is radical off-scale, although their objections are not so much to Biden’s “Mission Upgrade” as to how he plans to pay for it – via a corporate tax increase.

Indeed, Biden will unravel much of Donald Trump’s legacy by increasing this tax from 21% to 28%. This is still below the 35% levied under Barack Obama, but will be more painful than it seems because Trump, in return for companies, has also removed some tax breaks that will not be reinstated.

Biden officials want the legislation to go to Congress in the fall, and by then are willing to hear how the infrastructure plan – which will also upgrade broadband networks and increase research spending and development – can be funded.

Some business leaders said they expected a larger tax levy and some of the costs to be passed on to consumers. Companies damaged by the pandemic are also worried about how they will repay debt accumulated over the past year.

Most likely, there will be trade-offs involving an increase in some of the reliefs which, for example, will allow manufacturers to offset investment costs.

Yet the link between more modern infrastructure and the benefits for businesses is clear. While businesses may complain about the added burden on them, the White House may point out that only profitable businesses will pay a higher levy and that debt repayments can, as always, be deducted from income.

And Biden is planning a tax hike on wealthier Americans, perhaps as part of a side-by-side bill to the jobs plan, which will tackle inequalities in health and well-being.

It all adds up to a stark shock to a conservative country that has spent the past 40 years in the grip of a neoliberal agenda that places its trust in private sector companies to spur growth while the government remains on the fence. hit.

Climate change and the pandemic have tipped the scales in favor of the government, and the public has recognized it. Polls show broad support for major and consistent government action, especially among those who have personally suffered, lost a loved one, or know someone who has died during the pandemic.

Biden seizes his moment. Democrats have the votes in Congress. The United States, for the first time in many years, is lighting up the world.

Relaxation of overseas travel rules will also give airlines and airports a break

The last time the British were allowed to take an Easter holiday abroad, some 2 million people fled the country. This year, the drawbridge is raised. The return of colder weather for the Easter weekend may focus the minds of politicians. Boris Johnson said there would be an update to international travel rules on Monday, a week earlier than expected.

The reassessment cannot come quickly enough for UK airlines and airports: most are half-put on the back burner, but still incur costs and uncertain about their future. Heathrow has urged the government to review quarantine rules to make safer destinations accessible. Others question the science behind repeated testing – which seems simply designed to deter travel rather than prevent transmission.

Many are hoping the early announcement heralds a change in the rules, with the government this time deciding to give sufficient notice. As scientists have reported, the battle against Covid may never end: it is a virus that can now only be kept at bay, rather than defeated. Better to manage the risks in a Mediterranean tavern, or a sunny beach, than to hide in the British cold.

Granting the right to go on vacation can certainly only play well with the public, and will also allow the government to get out of an uncomfortable hook. Rishi Sunak’s ambiguity over special financial aid is bitterly recalled in the aviation industry, a sector whose Covid slowdown was, according to the Office for National Statistics, worse than any other. Yet the ministers had good reason to hesitate.

Discussions of a green aviation recovery are little studied and it is difficult to advocate for taxpayer subsidies, given the viability and ownership of some companies. Most have been hit hard, but survive. Once travel has been authorized, they can once again rely on holidaymakers.

Shyness of risk lenders drives the poorest borrowers adrift

The financial watchdog has rightly been criticized by campaign groups for its approach to the regulation of risky loans since it took over the supervision of consumer credit in 2014.

Officials at the Financial Conduct Authority (FCA) spent two years considering whether to integrate consumer credit into the financial compensation scheme – which is funded by a sector tax – before opposing it by 2016.

The fact that the likes of Wonga are outside the indemnity scheme, meaning that the companies themselves – their shareholders and bondholders – and not the financial services industry as a whole, would be liable for abuse claims.

This conclusion was accepted by Andrew Bailey, who served as FCA Managing Director between 2016 and March 2020, before becoming Governor of the Bank of England.

It was feared at the time that the major banks and insurers – viewing risky lenders as loan sharks, doomed to be constantly found selling dishonest loans – had relied on the FCA to deny these lenders access to loans. program funds.

Bailey introduced a 50% cap on interest rates which was supposed to put lenders at risk. The financial services industry can be blamed for many things, but not for lacking entrepreneurial innovation. A company called Amigo Loans slipped under this interest rate cap with guarantee products who share the risk with friends and family of the borrower. Soon, however, Amigo was overwhelmed by thousands of complaints, and told a court last week that he would file an administration request unless he was allowed to escape about 90% of complaints against it.

If the compensation scheme had been put in place as a safety net, the FCA could have stepped in at the first flush of claims against Amigo for abuse. As it stands, there are potentially thousands of them, coming from almost a million Amigo customers. Many of them are among the poorest households in the UK and could be denied meaningful compensation.


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