Stock Market Drop, Euro vs. Dollar, and Novavax Vaccine

Tax Policy/News:

July 13: Democrats put IRS in the spotlight after audits

Democrats are putting pressure on the IRS to explain why two foes of the Trump administration were selected for a rare and intensive type of audit after being fired from their government posts. The chief tax-writing House Ways and Means Committee will question Trump-appointed IRS Commissioner Charles Rettig on Thursday afternoon, three House sources said, about how these seemingly punitive audits were performed by an agency that's not supposed to be used for political purposes.

Former FBI Director James Comey and Deputy Director Andrew McCabe were audited following their dismissals as part of the National Research Program, an IRS program in which taxpayers receive line-by-line scrutiny of their tax returns and have to engage in intensive back-and-forth with the IRS. Speculation is growing on Capitol Hill that these audits were administered as punishment for disloyalty to former President Trump.

The IRS describes NRP audits as helping the agency "Identify where compliance problems occur," while tax attorneys describe them as extraordinarily intrusive.

"The DIF score used by the IRS computer? These are algorithms that are secret," Goldburd said, referring to a computer program used by the IRS that assigns each tax return a probability that it has left some income undeclared.

The IRS keeps the algorithms it uses to pick taxpayers out for audits secret to discourage tax cheats and make sure people can't game the system. While individuals can be targeted for audits based on their returns, a former senior IRS official pooh-poohed the notion that the NRP could be used as a political weapon.

Build Back Better/Reconciliation Bill:

July 15: Manchin rejects adding climate spending, tax hikes on wealthy, striking blow to Biden agenda

Sen. Joe Manchin told Senate Majority Leader Charles Schumer "Unequivocally" on Thursday that he will only support a narrow budget reconciliation package before Labor Day if it does not include new spending to fight climate change or taxes on wealthy individuals or corporations, according to a Democrat briefed on the talks. Manchin has informed Schumer that if Democrats move the reconciliation bill in August, he will only support a provision to lower prescription drug prices and a two-year extension of expiring health insurance subsidies under the Affordable Care Act, according to the source.

Manchin has backed away from a commitment he made privately to Schumer last week to close a tax loophole on wealthy individuals and couples who earn more than $400,000 and $500,000 annually in pass-through income.

Senate Democrats now face a choice of either moving forward on a slimmed-down reconciliation bill to lower the costs of up to 20 prescription drugs and avoid a spike in Affordable Care Act-subsidized health care premiums before the November midterm elections or to keep trying to negotiate with Manchin over proposals to fight climate change.

Manchin's explicit statement that he will not support a bill in August with any provisions addressing energy or the climate or raising taxes on wealthy individuals and corporations comes after he had previously indicated his openness to supporting such proposals throughout negotiations with Schumer. The Democratic leader committed to using half of all revenue gained from the bill's tax increases and tax loophole closures to reduce the deficit, a major Manchin priority.

Despite weeks of cajoling and concessions, Manchin told Schumer flatly on Thursday that he will not support a bill that included the negotiated climate provisions, a major disappointment for progressives such as Sens. Sheldon Whitehouse (D-R.I.), Ed Markey (D-Mass.), and Jeff Merkley (D-Ore.).

July 14: Manchin Says He Won't Support New Climate Spending, Tax Hikes On Wealthy

Sen. Joe Manchin III told Democratic leaders Thursday he would not support an economic package this month that contains new spending on climate change or new tax increases targeting wealthy individuals and corporations, marking a massive setback for party lawmakers who had hoped to advance a central element of their agenda before the midterm elections this fall.

On Friday morning, Manchin said on West Virginia local radio that he could support climate spending and tax increases, but only if economic indicators improve in the next month.

To win over Manchin, Democrats already had agreed to surrender their most prized spending proposals, from offering paid family and medical leave to providing child care, free prekindergarten, and tax benefits to low-income Americans.

This week, new data showed that inflation rose at its highest rate in roughly 40 years, prompting Manchin to tell reporters Wednesday that he would be "Cautious" about any new federal spending.

Manchin's new opposition leaves Democrats in a difficult political bind: They must decide between pressing him after months of false starts or accepting what would still be significant changes to the law lowering health care costs.

Manchin long had called for significant changes to the tax code. Manchin told business executives this week in a closed-door meeting that he would support a package focused on a combination of lowering health-care costs and raising money toward deficit reduction.

July 13: Democrats push reconciliation as a tool to fight inflation

Some Democrats are arguing that a revival of President Biden's legislative agenda, parts of which aim to raise taxes on some high-income individuals and cut prescription drug costs, could help address the highest inflation in decades.

A number of Democrats say they think passing a reconciliation bill that increases taxes on some high earners would help reduce inflation.

Republicans have been quick to push back against Democratic claims that a reconciliation package could help curb soaring inflation. Sen. John Cornyn also cited the latest inflation data to knock down the Democratic-led reconciliation effort, saying, "It's not a great time to be spending a lot more money and raising taxes."

Schumer has set his sights on passing a reconciliation bill in the coming weeks as Democrats stare down what election forecasters expect to be a tough midterm cycle.

While many Democrats are prepared to accept a much narrower reconciliation bill than what passed the House last year, there is still an appetite for tackling additional party priorities, including child care, in the same vehicle.

Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, said reports signaling Democrats are progressing toward a reconciliation bill that could reduce the deficit and provide prescription drug cost reform wouldn't "Solve inflation" but called it "a positive for inflation."

Economic News/Policy: 

July 17: Economy Week Ahead: Housing Market and Central Bank Policy in Focus

Monday: Economists surveyed by The Wall Street Journal expect to see the National Association of Home Builders report that confidence among home builders in the U.S. decreased in July for the seventh consecutive month in the midst of rising mortgage rates.

Wednesday: The National Association of Realtors is expected to report that sales of previously owned homes slowed in June.

Figures to be released by the U.K.’s statistics agency are expected to show that the country’s annual rate of consumer-price inflation hit a new, four-decade high in June.

Thursday: Initial U.S. jobless claims are forecast to have edged lower in the week ended July 16, after reaching their highest level since November 2021 during the previous week.

The European Central Bank said it would raise its key interest rate for the first time in 11 years at its meeting Thursday. The ECB said it would raise the rate by a quarter-percentage point this month, to minus 0.25%, and increase it again in September, possibly by a larger amount.

The Bank of Japan is expected to keep ultralow interest rates unchanged at its two-day policy board meeting ending Thursday. The bank is also scheduled to release forecasts for growth and inflation.

Friday: Surveys of purchasing managers in the U.S. are expected to point to a slight pickup in activity in early July after high inflation sharply slowed activity earlier in the year.

July 17: Biden's economic adviser says it ‘very hard to conclude’ if the US is in recession

A top White House economic adviser on Sunday said it was "Very hard" to conclude whether the U.S. had entered a recession because the economy is experiencing both positive and negative trends. Jared Bernstein told "Fox News Sunday" anchor Shannon Bream that while inflation has remained at a 40-year high, there was still strong job growth and strong consumer spending factors.

"It is very hard to conclude we are in a recession when you look at the payroll and the job gains that we've seen," he said. "Right now you got inflation headwinds - big time in this economy, not taking anything away from that - but you also have some very strong tailwinds that are boosting consumers."

Recession fears spread after the stock market plunged into the bear market territory and the nation's gross domestic product recorded a decrease in the first quarter of the year, with the second quarter also expected to remain negative. The economic adviser said the revenue increase signals the economy was still in decent shape, along with low unemployment rates and continued high consumer spending.

"No denial at all about the unacceptability of these elevated prices," Bernstein added, "But underlying that is an economy with the strongest labor market in a generation."

July 17: As Fed Tightens, Economists Worry It Will Go Too Far

Economists increasingly expect the Federal Reserve, in its efforts to push down inflation, to raise rates enough to trigger a recession, with many worrying the central bank will go too far.

Economists surveyed by The Wall Street Journal now put the chance of a recession sometime in the next 12 months at 49% in July, on average, up from 44% a month ago and just 18% in January.

July 15: Stock Market Drop Accelerated as Recession Seemed More Likely

Investors had an awful start to the year as stocks twice entered the bear market territory, falling more than 20 percent. The S&P 500 lost 16.4 percent in the second quarter, leaving it 20.6 percent below its level at the end of 2021. Where to now? While a bounce in stocks certainly seems due, investment advisers say a lasting recovery is unlikely for now.

Just as investors may not be sufficiently factoring in a recession, Mr. Temple said that earnings expectations might need to come down further before stocks hit bottom.

The most likely outcome, in his view, is a further 10 percent decline in stocks, and his "Bear case," which might come into play with another bad inflation report, is for stocks to fall as much as 25 percent more as the yield on the 10-year Treasury rises to 4 percent from just under 3 percent on June 30. Owners of domestic stock funds know all about bear cases.

The average international stock fund fell 13.3 percent in the quarter, with Europe and Latin America portfolios doing slightly worse than average. A Citi Research report said a 20 percent decline in stocks on average coincides with a 12 percent gain in 10-year Treasury prices. S&P 500 SPDR, an E.T.F. that tracks that stock index, fell 20.6 percent.

July 15: Retail sales rose 1 percent in June after the May dip

U.S. retailers, restaurants, and bars made $680.6 billion in sales last month, up 1 percent from a May total of $673.9 billion. Retail sales beat economists' expectations for June after falling 0.1 percent in May. While inflation has remained high and rising for more than a year, consumers have powered through price hikes and their own deepening concern about the future of the economy to keep spending more money.

Spending on retail and food services is up 8.4 percent, the Census Bureau said, over the past 12 months as consumer prices rose 9.1 percent in the same time, according to Labor Department data.

Sales at gasoline stations were up 3.6 percent in June and a staggering 49.1 percent over the past year due largely to the steep rise in oil prices that began late last year.

Spending at restaurants and bars rose 1 percent last month and is up 13.4 percent on the year as Americans gravitate slightly more toward experiences they missed during the depths of the COVID-19 pandemic.

Sales at clothing and clothing accessory stores dropped 0.4 percent in June and are down 0.2 percent on the year. Building material and garden store sales fell 0.4 percent last month, and department store spending fell 2.6 percent.

July 13: Recession Risks Rise As Surging Inflation Adds To Fed's Daunting Task

Inflation actually got much worse in June across the economy making it even harder - and more unlikely - that the Federal Reserve can bring down prices without triggering a recession. The Fed has already raised interest rates three times this year - most recently in June by three-quarters of a percentage point - to try to control inflation.

Financial markets recoiled following the release of the new inflation data, as investors grappled with figures suggesting that peak inflation has yet to arrive, which could prompt the Federal Reserve to push the brakes on the economy even harder.

Although inflation hasn't budged - and has in fact gotten worse - some economists point to promising signs of cooling in other parts of the economy signaling that a recession isn't imminent or inevitable.

The federal funds rate - the overnight lending rate controlled by the central bank - is currently 1.5 to 1.75 percent, although it may have to go as high as 6 percent before it can make a dent in inflation, said Jeffrey Lacker, an economics professor at Virginia Commonwealth University and former president of the Richmond Fed."This is another terrible inflation report and just the latest sign that the Fed still has a long way to go," he said.

Fed Chair Jerome H. Powell has maintained that the central bank will be able to engineer a "soft landing" - slowing the economy enough to muffle inflation without causing a full-blown downturn with massive job losses - although he has acknowledged growing concerns that it will be difficult to pull off. The inflation data released Wednesday reinforced how challenging Powell's task has become.

July 12: The Euro Has Reached Parity With The U.S. Dollar

The euro and the U.S. dollar are exchanging at a 1-to-1 rate for the first time in nearly two decades when the European currency was in its infancy. The euro has been losing ground against the dollar since the start of the year, when it hovered near $1.13, amid an aggressive inflation-fighting campaign by the U.S. Federal Reserve, along with broader global disruptions set off by the Russian invasion of Ukraine.

They reached parity on Wednesday morning, according to Bloomberg data.

The stronger dollar is good news for Americans considering a European vacation or buying goods abroad. It could lower the price of commodities, such as grain, and potentially ease the relentless inflation that has sent household and business expenses surging.

Experts say the euro's retreat also hints at the slower pace of global trade, adding to recession worries.

Innovation and Competition Act/Bill: 

July 14: Biden officials pitch pared-down China competition bill to House

To grease the skids, they're urging lawmakers to focus on just a portion of the larger bills - a piece called the Creating Helpful Incentives to Produce Semiconductors for America Act - which features emergency funding to help domestic semiconductor manufacturers and wean the U.S. from its dependence on Chinese-made chips. The push comes a day after Raimondo and Defense Secretary Lloyd Austin delivered a letter to congressional leaders in both chambers urging quick passage of the CHIPs legislation.

Senate Majority Leader Charles Schumer appears ready to respond, eyeing a vote on a version of CHIPs as early as next week, according to Senate sources familiar with the plan. 

Speaker Nancy Pelosi on Thursday said House Democrats are still pushing for a larger package, but she did not rule out the possibility of taking up the CHIPs bill on its own. "We have been working constantly on the CHIPs bill, and we need to have the transformative nature of research and education and the rest, to make us continue to be preeminent in the world," she continued.

Still, after Thursday's briefing, even liberals in the caucus said they're ready to support the CHIPs bill as a standalone vote for the sake of speed.

Rep. Dean Phillips (D-Minn.) offered a similar assessment, saying some Democrats will likely insist on safeguards to ensure that the tens of billions of dollars in new funding doesn’t go to support semiconductor production in China. "The sense of the House seems to be if it's only CHIPs, it's got to have guardrails - significant," he said. “I think the Senate isn’t as convinced.”

Global Trade:

July 12: Biden closes in on China tariffs decision while midterms loom

President Biden is contending with competing political and policy pressures as he closes in on a decision on whether to lift Trump-era tariffs on Chinese imports. Axing tariffs would have a minimal impact on inflation, experts say, and doing so could alienate Biden's labor union backers, some of his own Cabinet members, and voters while causing him to look weak on China - all while heading into the midterm elections.

The U.S. is conducting its four-year review of the Section 301 tariffs placed on the furniture, footwear, sunscreen, appliances, bicycles, and other consumer goods, and officials have indicated the White House will announce its decision soon. Experts expect Biden to lift or reduce tariffs on a relatively tiny fraction of imports: as little as $10 billion worth of Chinese products out of the roughly $350 billion in goods slapped with tariffs by former President Trump.

"You have some Cabinet officials who don't want to do anything that's seen as helping China in any way, and you've got others concerned more with the economy, saying that tariffs haven't really achieved any strategic objective," said David Dollar, a senior fellow at the Brookings Institution.

A recent Morning Consult poll found that 44 percent of Democrats preferred to keep China tariffs in place while 28 percent favored tariff reduction as of May, a sharp reversal from February when 47 percent of Democrats wanted Biden to reduce the import levies to fight inflation.

"We should be clear about what lifting tariffs would and wouldn't do. Lifting tariffs isn't going to bring down top-line inflation in a very significant way. What it will do is help consumers on certain household goods," Commerce Secretary Gina Raimondo said on NBC's "Meet the Press" Sunday.

Energy and Environmental Policy/News:

July 18: U.S. Plan To Avoid Extreme Climate Change Is Running Out Of Time

At the center of the Biden administration's climate policy is a promise, made in 2021, to slash U.S. emissions by 50 to 52 percent by the end of 2030 - 101 months from this August - against what they were in 2005. Moving fast is necessary to maintain consistency with 2015's Paris climate agreement, in which nations agreed to take significant measures to avoid the levels of global warming associated with severe climate impact.

Scientists broadly agree that emissions need to be cut approximately in half by 2030 to avoid those outcomes.

In many ways thinking we have until 2030 to cut emissions to the target dramatically overstates how much time there actually is. As more time elapses, the amount of emissions that need to be cut grows greater in the remaining months. In 101 months, U.S. emissions are certainly going to be lower, but the issue was always the speed of change.

July 18: How Joe Manchin Left a Global Tax Deal in Limbo

Late last week, Senator Joe Manchin III, Democrat of West Virginia, effectively scuttled the Biden administration's tax agenda in Congress - at least for now - by saying he could not immediately support a climate, energy, and tax package he had spent months negotiating with the Democratic leadership.

A Senate Finance Committee report this month found that the company made three-quarters of its sales to American customers in 2020, yet reported only 1 percent of its income in the United States for tax purposes - a move that allowed it to slash its effective tax rate to about half of the 21 percent American corporate income tax rate.

To comply with the agreement, the United States would need to raise the tax rate that companies pay on their foreign earnings to 15 percent from 10.5 percent.

Congress would also need to change how the tax was applied, imposing it on a country-by-country basis so that companies could not lower their tax bills simply by seeking out tax havens and "Blending" their tax rates.

"If Congress doesn't adopt, that doesn't prevent the European Union and Japan and others from moving forward in this area, at which point, I think, Congress would see it's in the U.S. interest to adopt because otherwise our companies will also get hit by this enforcement principle," Kimberly Clausing, who recently left her job as Treasury's deputy assistant secretary for tax analysis, said at a Tax Policy Center event last month.

The Treasury Department could not provide an estimate for how much additional tax American companies would have to pay to foreign governments if the United States was left out of the global agreement.

“The world should know that despite what the Biden administration is pushing, the U.S. is not going to surrender economically to our foreign competitors by raising our global minimum tax rate based on an agreement that is neither enforceable nor complete nor in our interest,” said Representative Kevin Brady of Texas, the top Republican on the Ways and Means Committee. "Congress will not ratify an O.E.C.D. deal that cedes our constitutional authority to set tax rules or fails to protect key U.S. tax incentives."

July 15: Biden to Senate: Pass health bill and I’ll tackle climate through executive action

President Biden on Friday told senators to move forward with a slimmed-down, health care-only reconciliation package before their August recess after Sen. Joe Manchin struck a blow to his agenda over its tax and climate provisions, which Biden said he will address through executive action.

"After decades of fierce opposition from powerful special interests, Democrats have come together, beaten back the pharmaceutical industry, and are prepared to give Medicare the power to negotiate lower drug prices and to prevent an increase in health insurance premiums for millions of families with coverage under the Affordable Care Act," Biden said in a statement.

Manchin told Senate Majority Leader Charles Schumer on Thursday that if Democrats move the budget reconciliation bill in August, he will only support a provision to lower prescription drug prices and a two-year extension of expiring health insurance subsidies under the Affordable Care Act.

In response, Biden said he will move on his climate agenda through executive action. "So let me be clear: if the Senate will not move to tackle the climate crisis and strengthen our domestic clean energy industry, I will take strong executive action to meet this moment."

Biden said his actions to address climate change would "Protect us from oil and gas price hikes in the future."

Manchin cited this week's latest inflation report, which showed inflation jumping 9.1 percent in June compared to a year ago, as the reason the chances of him supporting a bill with climate provisions and tax reform anytime soon evaporated.

July 14: Manchin Pulls Plug on Climate and Tax Talks, Shrinking Domestic Plan

Senator Joe Manchin III, Democrat of West Virginia, pulled the plug on Thursday on negotiations to salvage key pieces of President Biden's agenda, informing his party's leaders that he would not support funding for climate or energy programs or raising taxes on wealthy Americans and corporations. In recent months, Democrats had slashed their ambitions for such a plan to win over Mr. Manchin, hoping that he would agree to support even a fraction of the sweeping initiative they once envisioned.

The shift capped off weeks of painstaking negotiations to cobble together a package that could win Mr. Manchin's support. As of Thursday morning, Democrats had remained cautiously optimistic that a deal could be reached, provided that they followed Mr. Manchin's repeated calls to address the national debt, tax reform, and drug prices.

Because Democrats hold the Senate by a bare 50-50 majority, Mr. Manchin has been able to effectively exercise veto power over the domestic policy package, which the party had planned to move under a special fast-track budget process that would allow it to bypass a filibuster and pass with a simple majority.

In rejecting any climate and energy provisions, Mr. Manchin appeared to have single-handedly shattered Mr. Biden's ambitious climate agenda and what would have been the largest single federal investment in American history toward addressing the toll of climate change. In the final days of talks, the clean energy tax breaks had been slashed and Mr. Manchin had been working to include approval for offshore oil and gas leasing and permitting for a fossil fuel project in his state, congressional aides said.

ICYMI: 

July 13: FDA Authorizes Novavax Coronavirus Vaccine, Adding To Pandemic Arsenal

U.S. regulators Wednesday authorized the nation's fourth coronavirus vaccine, a shot developed by Novavax, a Maryland biotechnology company that has been a straggler in the vaccine race. Some people are allergic to any ingredient in messenger RNA vaccines or simply prefer the more traditional technology at the core of Novavax's shot, which is the United States' first protein-based vaccine. Still, the late addition of Novavax's vaccine to the medical arsenal is not expected to have a major impact on the trajectory of the coronavirus.

Wednesday's FDA decision "Underscores the critical need to offer another vaccine option for the U.S. population while the pandemic continues," Stanley C. Erck, Novavax's chief executive, said in a statement. Novavax executives recently presented data that intrigued some FDA advisers, suggesting that the original formulation of the vaccine may hold up well to challenging variants in circulation.

The Novavax vaccine is being manufactured by the Serum Institute of India, and a Novavax spokeswoman confirmed that doses had been shipped to the United States, arriving July 6. Novavax's slower rollout reflects the technology at the core of its vaccine - which is more time-consuming to produce - and the stumbles of a small company working furiously to launch its first vaccine at a massive scale and meet rigorous U.S. regulatory standards. Novavax also faced significant delays because of manufacturing issues throughout the development of the vaccine.

July 13: Senate Dems divided over expanding Supreme Court

Senate Democrats say discussions about reforming the Supreme Court are picking up steam in the wake of decisions striking down Roe v. Wade and limiting the EPA's ability to regulate climate-warming emissions. The proposals under discussion include expanding the Supreme Court, imposing term limits on justices, and requiring the high court to adopt a code of ethics to shed more light on special interest groups trying to influence its rulings.

Democrats acknowledge they don't have the votes to expand the Supreme Court or place term limits on justices, though they say the recent rulings by the court are fueling support for those ideas.

"Definitely better disclosure of guests and hospitality has momentum because, although the Supreme Court tried to duck it, the Judicial Conference is looking into it," said Sen. Sheldon Whitehouse, a member of the Senate Judiciary Committee, referring to the national policy-making body for the federal courts.

"We need to repeal the filibuster so that we can expand the Supreme Court to reclaim the two stolen seats on a now illegitimate court, which are stealing the rights of the American people," Senator Markey said at an event in Boston after the court struck down Roe v. Wade, the landmark abortion rights case, last month.

Senate Rules Committee Chairwoman Amy Klobuchar said Tuesday she has always been open to expanding the court and imposing term limits on justices, adding she "Continue[s] to think we should look at those" reforms. Senate Judiciary Committee Chairman Dick Durbin on Tuesday said proposals to expand the court aren't going anywhere as long as the Senate's filibuster rule remains in place, but he thinks an ethics bill could gain traction.

For Fun: 

July 14: New Van Gogh Self-Portrait Discovered Via X-Ray In Scotland

The Van Gogh Museum in Amsterdam has examined the X-ray of the newly uncovered painting, which is "Almost certainly" a Van Gogh self-portrait, the National Galleries of Scotland said in a news release. 

Van Gogh was known to reuse canvases because of a lack of money, and Scottish conservators believe that was the case here. Several other self-portraits from the Nuenen period - between 1883 and 1885, when Van Gogh lived in the southern Dutch town - have been discovered on the backs of his paintings and now hang in museums in the Netherlands and the United States.

"This is a routine type of investigation that conservators have been using for quite some time," Stevenson said in an interview released by the National Galleries to promote the exhibition - and the possible new Van Gogh self-portrait.

The National Galleries of Scotland already own three works by Van Gogh, painted between 1885 and 1889 - "And then suddenly, we have potentially another, which is probably the most exciting one of all," Fowle said in the series of interviews released Thursday by the public art body.

A previously unknown self-portrait by Vincent Van Gogh has been found in our collection.

They may be disappointed: According to the Guardian, in a typical year, the Van Gogh Museum in Amsterdam "Gets up to 300 inquiries from people believing they own a lost Van Gogh. Very few of those make it to the museum, and even fewer are found to be the real deal."