A Smaller Contraction, A Slowing Recovery, A Change of Heart?

OECD says the global economy won’t be quite so bad. The Organization for Economic Cooperation and Development projects that the global economy will contract by 4.5 percent in 2020, a modest improvement from its June projection of a 6 percent decline. “The forecasts are less negative…due primarily to better than expected outcomes for China and the United States in the first half of this year and a response by governments on a massive scale,” the report said.

Fed’s FOMC: Interest rates to remain near zero. The Federal Reserve’s policymaking Federal Open Market Committee says it will leave the baseline interest rate range at 0 to 0.25 percent. It set that level in March as the pandemic wreaked havoc on the economy. None of the 17 Fed governors and reserve bank presidents expect the Fed to raise interest rates through the end of 2021. 

Few employers are buying President Trump’s payroll tax deferral. The latest employer to reject the idea: the GOP-controlled Senate. The House turned thumbs down as have many private employers. The president’s August executive action allowed employers to delay remitting the employee share of payroll taxes until 2021. But absent congressional action, they’d still have to pay the tax next year. That, and administrative complexity, made it a deal-breaker for most employers.   

Trump now wants more money for coronavirus relief. In a tweet yesterday he falsely accused Congressional Democrats of denying Americans stimulus payments and surprised Republicans by telling them to “Go for the much higher numbers.” The Senate GOP failed to pass a $650 billion bill last week, and Speaker Pelosi says Democrats have set a $2.2 trillion negotiating floor. Will Trump push the GOP to accept a bigger stimulus before the election?  Democrats say they are encouraged by the President’s change of heart. But top Senate Republicans say their caucus won’t go for a big bill. PoliticoPro (paywall) quotes Senator Ron Johnson saying, “The president has his opinion, we have ours.”

Increase capital gains tax rates to raise revenue? Maybe… not. TPC’s Robert McClelland reviews a new analysis by Princeton economists Ole Agersnap and Owen Zidar. Their research suggests that government could maximize revenues by taxing long-term capital gains income at rates as high as 47 percent– even higher than Democratic presidential candidate Joe Biden has proposed. But Rob explains that the Princeton estimates come with a lot of uncertainty, and raising tax rates that much on long-term capital gains could end up reducing, rather than raising, federal revenues.

Will New Jersey establish a financial transaction tax? The idea may be gaining support, reports Tax Notes (paywall). New Jersey Senate Bill S. 2902 would impose a $0.0025-per-transaction tax on persons or entities that process 10,000 or more electronic financial transactions annually. Governor Phil Murphy supports the bill, but many Wall Street firms with trading infrastructure in New Jersey are threatening to pull up stakes is the tax is enacted.

Europe may go it alone on digital tax reform. European Union president Ursula von der Leyen announced this week that the EU “will spare no effort to reach agreement in the framework of OECD and G20. But let there be no doubt: should an agreement fall short of a fair tax system that provides long-term sustainable revenues, Europe will come forward with a proposal early next year.”

Today’s guest on The Prescription: Irena Asmundson, chief economist for the California Department of Finance. She’ll talk today at Noon (EDT) with TPC senior fellow Howard Gleckman about how California’s economy is coping with the concurrent challenges of the pandemic and wildfires. Register for today’s program here.  

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