The R&D Credit, Small Business Revenues, and Judge Ketanji Brown Jackson

Tax Policy:

July 5: Republican States Are Trying To Use Federal Covid Aid To Cut Taxes

Republican states are trying to use federal covid aid to cut taxes - The Washington Post. Since then GOP leaders have challenged the tax cut prohibition in federal courtrooms and state capitals.

Attorneys general in 21 states have fought to overturn the Biden administration's policy, federal court filings show, backed at times by powerful groups like the U.S. Chamber of Commerce, whose corporate members have lobbied conservative-leaning states to reduce their tax bills. The Treasury Department soon clarified that nothing stopped states from using their own funds for tax cuts, provided they could afford them, no matter what they did with federal relief money.

In a flurry of court filings, many of the states argued for the ability to move money around freely - plugging federal dollars into various parts of their budgets, for example, then using the savings to pay for state tax cuts.

None of the cuts appear to rely directly on federal pandemic aid, though some states paid for the rate reductions out of broader savings achieved thanks to federal coronavirus funds - or, at least, the economic improvements that Washington-led investments helped bring about. Normally, that might prompt states to raise taxes on businesses to replenish the funds - but the Chamber has instead encouraged states to fill the gaps using federal relief money.

June 29: GOP lawmaker proposes to double R&D tax credit

Rep. Jackie Walorski, R-Indiana, a senior member of the tax-writing House Ways and Means Committee, has introduced legislation to double the size of the research and development tax credit and enable more small-business startups to claim it. Under H.R. 8253, the Fostering Innovation and Research to Strengthen Tomorrow Act, the existing traditional credit rate - which uses a complicated formula - would double from 20% to 40% of the increase in R&D spending for more established companies.

The existing Alternative Simplified Credit rate - which uses a simpler formula - would double from 14% to 28% of the increase in R&D spending. For companies with no history of U.S. research in the past three years, the credit would more than double from 6% to 14% of R&D spending.

Companies with relatively low income in the past five years are able to claim one of the above credits as a credit against Social Security payroll taxes, and under the FIRST Act, the limit on the amount they could claim would double from $250,000 to $500,000.

"Doubling the R&D tax credit will encourage American companies - especially small businesses and startups - to invest in innovation that will unleash economic growth and prosperity. The FIRST Act will take a strategic step toward ensuring that America will lead the world in scientific discoveries, technological breakthroughs, and cutting-edge manufacturing for the 21st century." A Deep Dive into the Strategic Goals of Today's Accounting Firms Research makes it clear - improving client experience is key to achieving your firm's strategic goals and growth PARTNER INSIGHTS FROM WOLTERS KLUWER The legislation has won support from the influential National Association of Manufacturers.

"The manufacturing industry is the backbone of American research and development and this bill would support jobs, boost innovation and help ensure America's future competitiveness," said David Eiselberg, senior director of tax policy at NAM, in a statement.

Economic News/Policy: 

July 5: How Wall Street Escaped the Crypto Meltdown

The bank then spun those stocks into a product that essentially gave its biggest clients - pension funds, hedge funds, the managers of multibillion-dollar family fortunes, and other sophisticated investors - an opportunity to bet that the assets would eventually crash. Last year, the Basel Committee on Banking Supervision, which helps set capital requirements for big banks around the world, proposed giving digital tokens like Bitcoin and Ether the highest possible risk weighting.

U.S. bank regulators have also warned banks to stay away from activities that would land cryptocurrencies on their balance sheets. Only then were they allowed to put money into "Third-party funds" that the bank had examined first.

Morgan Stanley clients couldn't put more than 2.5 percent of their total net worth into such investments, and investors could invest in only two crypto funds - including the Galaxy Bitcoin Fund - run by outside managers with traditional banking backgrounds.

Mike Novogratz, the chief executive of Galaxy Digital and a former Goldman banker and investor, told New York magazine last month that he had taken on too much risk. While Mr. Novogratz, a billionaire, and the wealthy bank clients can easily survive their losses or were saved by strict regulations, retail investors had no such safeguards.

July 3: Economy Week Ahead: Focus on Hiring, Fed Minutes, and Trade

Tuesday: New orders for manufactured goods have continuously increased since last September amid persistent supply-chain disruptions and a robust demand for goods. Economists expect new data from the Commerce Department to show manufacturing orders in the U.S. rose in May at a faster clip than in April.

Wednesday: The Federal Reserve releases minutes from its June monetary-policy meeting, at which officials approved a 0.75-percentage-point increase in its benchmark federal-funds rate, its biggest rate rise since 1994. The minutes should provide more details on the internal discussions over the decision.

The Institute for Supply Management and S&P Global is expected to release new purchasing managers’ indexes showing that economic activity among services providers slowed in June.

The Labor Department is to release the Job Openings and Labor Turnover Survey for May. Economists expect to see a slight decline in job openings in May, after a notable decrease in April. There were nearly two job openings for every unemployed person seeking work in April.

Thursday: The U.S. trade deficit, reported by the Commerce Department, is expected to have narrowed again in May. The trade deficit shrank to a seasonally adjusted $87.1 billion in April, reflecting a moderating U.S. appetite for foreign goods and materials.

New applications for unemployment benefits have remained near historically low levels in recent weeks, hovering near the 2019 prepandemic weekly average of 218,000, as the broader economy shows signs of losing steam. Economists expect the Labor Department to report a slight increase for the week ended July 2.

Friday: Economists estimate that U.S. employers added jobs at a robust pace in June, but fewer than in May, adding to signs of slowing U.S. economic growth. Analysts expect the Labor Department report to show a gain of 250,000 jobs in June, with the unemployment rate holding steady at 3.6%, close to the half-century low reached right before the pandemic hit the U.S. in 2020. The labor-force participation rate will be closely scrutinized as a gauge of whether workers are coming off the sidelines and rejoining the labor force.

July 2: Skyrocketing Global Fuel Prices Threaten Livelihoods and Social Stability

Last Tuesday, police in Ghana fired tear gas and rubber bullets at demonstrators protesting against the economic hardship caused by gas price increases, inflation and a new tax on electronic payments. The invasion of Ukraine by Russia, the largest exporter of oil and gas to global markets, and the retaliatory sanctions that followed have caused gas and oil prices to gallop with an astounding ferocity.

In Europe, an over-dependence on Russian oil and natural gas has made the continent particularly vulnerable to high prices and shortages. Leaders of three French energy companies have called for an "Immediate, collective and massive" effort to reduce the country's energy consumption, saying that the combination of shortages and spiking prices could threaten "Social cohesion" next winter.

The government spends roughly $3 billion a year to freeze the price of regular gas at $2.55 and the price of diesel at $1.90 per gallon.

Mexico's president, Andrés Manuel López Obrador, is using money the country makes from the crude oil it produces to help subsidize domestic gas prices. The dizzying spiral in gas and oil prices has spurred more investment in renewable energy sources like wind, solar and low-emission hydrogen.

July 1: Lawmakers fear growing power of cartel-like blocs amid high inflation

A recurring theme is the power held by a few big companies in many different industries. Democrats tend to be the party more focused on market concentration in a handful of industries, but Republicans also are increasingly sounding alarms as inflation becomes the number one issue for voters.

Republicans in the wake of the pandemic have also sought to regulate blocs in the domestic meatpacking industry, most of which are controlled by only four companies - Tyson Foods, Cargill, JBS USA, and National Beef Packing Company.

The packing industry is located in the middle of the beef industry's supply chain, just as the shipping industry lies in the middle of many consumer goods pipelines.

During a House hearing on the meatpacking industry in April, Rep. Randy Feenstra took direct aim at market concentration as a driver of inflation while questioning Cargill CEO David MacLennan.

"Concentration is a market outcome, and is one of great interest - how many firms control what share of the market," University of Chicago Booth School of Business economist Chad Syverson said in an interview, "But it's not the best measure of how competitive an industry is. It is caused by competition as well as causing competition."

Stephen R. Koontz, a professor of agricultural economics at Colorado State University, made a similar point testifying before the Senate Agriculture Committee on cartel power in the meatpacking industry in April.

June 30: Income and Spending Lag Behind Inflation, a Sign of Economic Fragility

Americans' income and spending failed to keep pace with rising prices in May, the latest sign that the fastest inflation in a generation is chipping away at the bedrock of the economic recovery.

The Personal Consumption Expenditures price index, which the Fed officially targets when it aims for 2 percent inflation on average over time, climbed 6.3 percent from a year earlier, matching the April increase.

Inflation is taking a toll on consumers' finances, and their economic outlook.

Ninety-two percent say they are concerned about inflation, including 70 percent who say they are "Very concerned."

What causes inflation? It can be the result of rising consumer demand.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks.

June 30: Stocks close out brutal June with losses as S&P suffers worst first half since 1970

The stock market closed out the final day of June with losses, capping off a tumultuous month for investors and the S&P 500 index's worst first half since 1970. 

The Dow ended June down 7.2 percent on the month and 15.3 percent since the start of 2022. The Nasdaq closed with a loss of 1.3 percent Thursday, bringing its total monthly decline to 7.7 percent and its plunge since the start of the year to 29.5 percent.

The S&P ended June with a loss of 0.9 percent, falling 8.9 percent on the month and 21 percent from an all-time record reached on Jan. 2. The S&P fell more over the past six months than any first half of a year since 1970, but did not begin that decline from an all-time high as it did this year.

Stocks had fallen steadily since the start of 2022 after almost 18 consecutive months of rapid gains. While stocks were expected to come back to earth in 2022, Wall Street has taken relentless and escalating losses as high inflation, the war in Ukraine and the Federal Reserve's efforts to mitigate both boost concerns about a recession.

June 29: Powell: Global economy is in a ‘new world

Federal Reserve Chairman Jerome Powell in a Wednesday speech said the global economy has entered a "New world" when it comes to inflation, while insisting the Fed would stick to its goal of keeping inflation at a 2 percent annual hike. Powell said the low inflation era after the 2008 financial crisis is over and that new economic forces have led to higher inflation, creating challenges for the world's central banks.

"The last 10 years were, so far, the height of the disinflationary forces that we've faced, and really it goes back to before the global financial crisis, but since the global financial crisis, we've had very low inflation in the United States," Powell said at a central banking forum in Portugal. "So I think if you want to know the lessons to be learned over the last 10 years, look at our framework - those were all based on the low-inflation environment that we had, and now we're in this new world where it's quite different with higher inflation, many supply shocks and strong inflationary forces around the world. It's quite a different environment."

Inflation around the world is surging to decades-long highs in many countries. Consumer inflation is at 8.6 percent in the U.S., 5.2 percent in France, 7.6 percent in Germany and 10 percent in Spain - nearly all high-water marks. Powell said the Fed is not reconsidering what a neutral inflation rate should be despite all the changes.

June 29: Two-thirds of small business owners expecting higher revenue despite inflation concerns

Two-thirds of small businesses expect to increase their revenue over the next year and 43 percent plan to hire more staff, the highest figures in two years, according to a survey from the U.S. Chamber of Commerce and MetLife. The report found that small businesses are the most optimistic they've been since the start of the pandemic, despite growing concerns about the impact of red-hot inflation.

Forty-four percent of small businesses cite inflation as the biggest challenge, up from 33 percent last quarter, according to the survey, which was conducted April 29-May 17.

"Historic inflation is top-of-mind and deeply troubling to small businesses right now," U.S. Chamber of Commerce vice president of small business policy Tom Sullivan said in a statement, noting that consumer demand remains strong despite rising costs.

The Federal Reserve's decision to raise interest rates to fight inflation is already slowing down the U.S. economy, which shrank 1.6 percent in the first quarter and raising borrowing costs for businesses. The Chamber survey found that 28 percent of small businesses cited supply chain snags as their top challenge, while 15 percent pointed to rising interest rates, up from 7 percent in the first quarter. Nearly seven in 10 small business owners said they had to raise consumer prices to cope with higher costs, while 46 percent responded to inflation by taking out a loan and 35 percent decreased staff.

Environmental and Energy Policy and News:

July 5: Nuclear Power Gets New Push in U.S., Winning Converts

Critics of the nuclear industry argue that a veneer of clean energy has not changed the concerns about the technology, including aging facilities in need of potentially costly improvements, the challenge of nuclear waste disposal, and steep cost overruns for new projects that are years late - if they reach completion.

"The Biden administration has been very clear that we will get to the net-zero goals," Kathryn Huff, assistant secretary for nuclear energy at the Department of Energy, said at a recent conference of the American Nuclear Society.

"Ultimately, you get to a point where you need something that's not weather dependent, something like nuclear to make the grid reliable," said John Kotek, who ran the Office of Nuclear Energy during the Obama administration and is now vice president for policy at the Nuclear Energy Institute, a trade association.

The rising costs of other sources of power have made nuclear energy more competitive around the world, including in the United States, which has the largest fleet of nuclear plants of any country.

“To keep uneconomical nukes running will use much more than the $6 billion that Biden has proposed,” Mr. Gundersen said. "That's chump change for nuclear to remain competitive. I think he's got some really smart people in his brain trust, yet he's reaching out for political fig leaves to get the nuclear industry off his back."

Coupled with solar, wind, and hydroelectric power, they say, nuclear power would make 100 percent clean energy possible. None of the smaller reactors have been certified by the Nuclear Regulatory Commission, which approves licenses and operations of the nation's nuclear power plants.

July 1: Ahead of July 4th, Democrats frustrated with Biden’s gas-tax holiday push

House Democrats are grumbling their way into the July 4th holiday, dubious that President Biden's proposed gas-tax moratorium would help consumers and frustrated that it's highlighted internal party divisions heading into the final months of the midterm campaign. Last week, with July 4th looming, Biden used his bully pulpit to champion one such strategy, urging Congress to suspend the federal gas tax for three months to help ease the financial burden on drivers through the busy summer travel season.

The trend prompted Biden last week to urge Congress to suspend the federal gas tax - currently at 18.4 cents per gallon - and for states to do the same with their local levies.

"I fully understand that a gas tax holiday alone is not going to fix the problem," he said, "But it will provide families some immediate relief - just a little bit of breathing room - as we continue working to bring down prices for the long haul."

The idea has won support from some moderate Democrats facing tough reelection contests in November, particularly in the Senate, where a number of vulnerable lawmakers are endorsing legislation to suspend the gas tax until January.

If the reaction from party leaders is any indication, the gas tax holiday is going nowhere fast.

"The challenge on the gas tax is: Is the savings really going to flow to the consumer? Or is it going to be pocketed by the oil companies?" echoed Rep. Richard Neal, chairman of the tax-writing Ways and Means Committee.

July 1: SCOTUS ruling ups pressure on Schumer to strike climate deal with Manchin

The Supreme Court's decision Thursday to dramatically limit the Environmental Protection Agency's authority to regulate the greenhouse gas emissions of power plants puts new pressure on Senate Majority Leader Charles Schumer to strike a climate deal with Sen. Joe Manchin. Many Democratic lawmakers have become pessimistic about getting Manchin to agree to any budget reconciliation deal that would include provisions to significantly reduce carbon emissions. This development puts Schumer and Manchin ina position to negotiate the other pillars of the reconciliation package: tax reform and climate provisions.

Schumer told reporters last week that he's making progress with Manchin but that they still have significant differences that need to be resolved.

Democrats are desperate to secure an accomplishment after the Supreme Court's decisions to strike down Roe v. Wade's abortion protections, repeal a longstanding New York law limiting conceal-carry handgun permits, and now Thursday's decision curbing the EPA. Manchin may be close to signing off on legislation to lower the prices of some prescription drugs, but getting him to agree to a package of climate provisions will be more difficult, given Manchin's advocacy for the domestic fossil fuel industry.

Josh Freed, who heads the climate and energy program at Third Way, a centrist Democratic think tank, said the court's decision in West Virginia v. EPA may give Manchin more incentive to agree to a budget reconciliation package with climate provisions because such a bill would include 45Q, a tax credit for carbon sequestration.

June 30: Supreme Court’s EPA ruling could put other regs in danger

The Supreme Court's Thursday decision curtailing Environmental Protection Agency authority could hamper regulations far beyond climate. The high court's ruling invoked a legal philosophy called the "Major questions doctrine," which posits that regulations of substantial national significance need to have clear authorization from Congress.

This is not the first time the idea has popped up — it recently made an appearance in the court’s decision to block the Biden administration’s coronavirus vaccines-or-testing mandate for large employers.

But William Buzbee, a law professor at Georgetown, said that on Thursday, the Supreme Court took a new approach.

John Yoo, a Bush administration Justice Department official who is now a nonresident senior fellow at the American Enterprise Institute, said that the major questions doctrine would now be a "Permanent feature and restriction on regulation" following the ruling.

“This makes it more difficult for agencies to regulate, unquestionably,” Mendelson said, adding that rules on water protections, product safety and vehicle safety are among those that Thursday’s decision may jeopardize. "EPA has the authority to address water pollution, but that statute, like the Clean Air Act, is written in broad terms. A future court could decide that a particular EPA regulation to protect water quality is simply too major and invalidate it as illegal," she said.

The court found that Congress did not authorize the EPA to induce a shift to cleaner energy sources using the approach sought by the Obama-era clean power plan. While the court's ruling limits how the EPA can tackle climate change from the country's fleet of power plants, a number of other tools remain at its disposal.

ICYMI: 

June 30: Five takeaways from Biden’s trip to attend G-7, NATO meetings

President Biden on Thursday wrapped his fourth trip to Europe as president, capping a chaotic six days largely focused on further responding to Russia's war in Ukraine and its ripple effects. Biden participated in a Group of Seven meeting in Germany and a NATO summit in Spain, where he and other world leaders rolled out new plans to punish Russia, support Ukraine and bolster defenses on NATO's eastern flank.

Biden departed for Europe a day after the Supreme Court overturned Roe v. Wade, and the fight at home over abortion rights in many ways eclipsed the president's overseas trip.

The NATO summit yielded a significant, and surprising, breakthrough as Turkey relented in paving the way for Sweden and Finland to join NATO. Biden was eager to play up the development on Thursday as he declared the alliance united and strengthened in the face of Russia's war in Ukraine.

The historic development involved a flurry of last-minute diplomacy, with Biden placing a call to Turkish President Recep Tayyip Erdoğan on Tuesday on his way to the NATO summit.

Biden argued the price cap, if paired with his push for a gas tax holiday in the U.S., could help lower the prices of gasoline in the U.S. Ultimately Biden and other world leaders have been consistent that Russia's actions are responsible for a number of challenges facing the global economy.

June 29: Biden announces plans to bolster US force presence in Europe

President Biden on Wednesday announced plans to bolster U.S. forces in Europe amid a persistent threat from Russia, saying the moves would help NATO fend off threats "From all directions, across every domain." 

Biden vowed to increase the number of troops stationed in Europe on the second day of a NATO summit in Madrid during a meeting with NATO Secretary-General Jens Stoltenberg. Specifically, the president announced plans to permanently headquarter U.S. Army V Corps in Poland, add a rotational brigade in Europe stationed in Romania and increase rotational deployments to the Baltic states - moves that will bolster forces on NATO's eastern flank.

"We're sending an unmistakable message, in my view," Biden said, "That NATO is strong and united and the steps we're taking during this summit are going to further augment our collective strength." 

"Together with our allies, we are going to make sure that NATO is ready to meet threats from all directions, across every domain," Biden continued. Biden said during his remarks that the U.S. had surged 20,000 forces to Europe earlier this year as Russia threatened Ukraine, estimating the total of U.S. forces currently in Europe at 100,000. Stoltenberg said during the meeting with Biden that Putin's attack on Ukraine had failed to weaken NATO, citing the bids by the two Nordic countries to join the alliance.

June 29: Ketanji Brown Jackson To Take Supreme Court Oath As Breyer Retires

Judge Ketanji Brown Jackson will be sworn in as the Supreme Court's first Black female justice at noon Thursday, just minutes after her mentor Justice Stephen G. Breyer makes his retirement official. Jackson, 51, was chosen for the court by President Biden after Breyer this year announced his plans to retire.

Jackson will be sworn in at a private ceremony at the Supreme Court that will be live-streamed on The Washington Post's homepage.

Justice Breyer sent a letter to Biden on Wednesday that said he planned to end his service on the high court at noon. "You have nominated and the United States Senate has confirmed the Honorable Ketanji Brown Jackson to succeed me in the office, and I understand that she is prepared to take the prescribed oaths to begin her service as the 116th member of this court," wrote Breyer, who hired Jackson as a clerk for the 1999-2000 term.

Jackson will become the first Black woman to serve on the high court, and her elevation from the U.S. Court of Appeals for the D.C. Circuit will mean the Supreme Court for the first time will have four female justices among its nine members. Although the court will not hear oral arguments again until a new term starts in October, Jackson will immediately become eligible to hear the emergency petitions that have become an increasingly large part of the court's work.

For Fun: 

July 5:  CAPSTONE Leaves Earth Orbit, Headed to the Moon

The Cislunar Autonomous Positioning System Technology Operations and Navigation Experiment, a small CubeSat, about the size of a microwave oven and weighing just 55 pounds, has left low-Earth orbit and started its solo journey to the Moon. Following its launch on June 28, CAPSTONE orbited Earth attached to Rocket Lab's Photon upper stage, which maneuvered CAPSTONE into position for its voyage to the Moon.

Photon's engines fired seven times over the past six days at key moments to raise the orbit's highest point to around 810,000 miles from Earth before releasing the CAPSTONE CubeSat on its ballistic lunar transfer trajectory to the Moon.

Now, CAPSTONE will use its own propulsion and the Sun's gravity to navigate the rest of the way to the Moon, a four-month journey that will have CAPSTONE inserting into its near rectilinear halo orbit around the Moon on November 13, 2022. The gravity-driven track will dramatically reduce the amount of fuel the CubeSat requires to get to its target orbit around the Moon.

NRHO is a significantly elongated obit, located at a precise balance point in the gravitational pulls of Earth and the Moon. The orbit will bring CAPSTONE within 1,000 miles of one lunar pole on its near pass and 43,500 miles from the other pole at its peak every seven days, requiring less propulsion capability for spacecraft flying to and from the Moon's surface than other circular orbits.