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Westlake Legal Group > Federal Taxes (US)

Budget Deficit on Path to Surpass $1 Trillion Under Trump

Westlake Legal Group 21DC-DEFICIT-01-facebookJumbo Budget Deficit on Path to Surpass $1 Trillion Under Trump United States Politics and Government Trump, Donald J National Debt (US) Federal Taxes (US) Federal Budget (US) Congressional Budget Office

WASHINGTON — The federal budget deficit is growing faster than expected as President Trump’s spending and tax cut policies force the United States to borrow increasing sums of money.

The deficit — the gap between what the government takes in through taxes and other sources of revenue and what it spends — will reach $960 billion for the 2019 fiscal year, which ends Sept. 30. That gap will widen to $1 trillion for the 2020 fiscal year, the Congressional Budget Office said in updated forecasts released on Wednesday.

The updated projections show deficits rising — and damage from Mr. Trump’s tariffs mounting — faster than the office had previously predicted. In May, the budget office said it expected a deficit of $896 billion for 2019 and $892 billion for 2020.

That damage would be even higher if not for lower-than-expected interest rates, which are reducing the amount of money the government has to pay to its borrowers. Still, the 2019 deficit is projected to be 25 percent larger than it was in 2018, and the budget office predicts it will continue to rise every year through 2023.

By 2029, the national debt will reach its highest level as a share of the economy since the immediate aftermath of World War II.

The increasing levels of red ink stem from a steep falloff in federal revenue after Mr. Trump’s 2017 tax cuts, which lowered individual and corporate tax rates, resulting in far fewer tax dollars flowing to the Treasury Department. Tax revenues for 2018 and 2019 have fallen more than $430 billion short of what the budget office predicted they would be in June 2017, before the tax law was approved that December.

The need to borrow more money has been aggravated by several bipartisan budget agreements to raise military and nondefense domestic discretionary spending.

And it could increase if the trade war further chills business investment and consumer spending, resulting in slower economic growth and fewer tax dollars flowing to the Treasury Department.

“One likely reason for the lower-than-expected receipts is that some parts of the economy have been weaker than C.B.O. projected in April 2018,” the budget office said. “A number of developments other than the tax act appear to have contributed to that weakness, including increases in tariffs, greater uncertainty about trade policy and slower economic growth in the rest of the world.”

The ballooning defies a historic trend: Typically, the budget deficit shrinks when unemployment is low. But it is increasing despite the longest economic expansion on record and the lowest jobless rate in 50 years.

It also underscores the degree to which Republicans in Washington — who championed fiscal responsibility under President Barack Obama, a Democrat — have largely abandoned that goal. While lawmakers continue to talk about the need to reduce the deficit, it is no longer the kind of animating issue that ushered the Tea Party into power.

Mr. Trump has shown little inclination to prioritize deficit reduction, and has instead considered policies that would add to the debt. The president has mused in recent days about reducing the taxes that investors pay on capital gains, a move that is estimated to add $100 billion to deficits over the next decade. He has also talked about cutting payroll taxes, which could reduce revenues by $75 billion a year for every percentage point cut in payroll tax rates.

Mr. Trump backed away from both ideas in comments to reporters on Wednesday, though it is unclear if the new deficit figures played any role in that reversal.

The president also wants to make permanent many of the temporary individual tax cuts contained in the 2017 law, which are scheduled to expire in 2025. The budget office forecast assumes those cuts expire and tax revenues rise; if they do not, future deficit projections would be even larger.

Mr. Trump’s indifference to deficits has shattered his campaign promise not only to balance the budget, but also to pay off the entire national debt. And it has left his fellow Republicans, who pushed through deficit-reduction measures under Mr. Obama when the economy was still fragile, in a bind. Congressional Republicans have largely gone along with Mr. Trump’s moves to add more debt, even as they insist they will return to shrinking the deficit if Mr. Trump wins a second term in office.

The deficit has now risen four consecutive years, and is on track to rise for the next four. Such a streak would break the record for longest run of deficit increases in recorded American history — five years, from 1939 to 1943 — according to the Peter G. Peterson Foundation, an organization that advocates deficit reduction.

Congress could vote in the coming weeks to send Mr. Trump additional deficit-increasing legislation, like the permanent repeal of a health care tax known as the Cadillac tax, which has already cleared the Democratic-controlled House. Members of both chambers are preparing for a potentially bruising debate over how to allocate the money needed to fund the government before Oct. 1.

Conservative groups — which largely supported Mr. Trump’s tax cuts — have pushed Congress to cut future deficits by reducing benefits for federal health care and retirement programs, like Medicare and Social Security. “Something must be done soon,” the conservative advocacy group FreedomWorks said in a news release on Wednesday, “and that means taking a hard look at mandatory spending, the root cause of the United States’ fiscal woes.”

Republicans do not believe Mr. Trump is likely to push for cuts to a pair of popular retirement programs — and risk exposing himself to attacks in a re-election campaign — before a second term. But they acknowledged that efforts to curb the projected growth in so-called mandatory federal spending were warranted.

“We’ve got to fix that,” said Senator John Thune of South Dakota, the No. 2 Republican in the Senate. “It’s going to take presidential leadership to do that, and it’s going to take courage by the Congress to make some hard votes. We can’t keep kicking the can down the road.”

“I hope in a second term, he is interested,” Mr. Thune said of Mr. Trump. “With his leadership, I think we could start dealing with that crisis. And it is a crisis.”

Other Republicans say pushing through any changes to safety-net programs will require a compromise that draws in both political parties.

Reducing the costs of Social Security, Medicare and other contributors to the debt is “usually best done during divided government,” said Senator John Barrasso, Republican of Wyoming. “We’ve brought it up with President Trump, who has talked about it being a second-term project.”

Senator David Perdue, Republican of Georgia, said that “it probably takes a second-term president” to prioritize the issue. “It’s politically difficult to say you’re going to save Social Security, because most people think, well that means cutting benefits,” he added.

Other lawmakers in both chambers said that Congress had abandoned all appearance of caring about the national deficit.

“I don’t know, maybe they should be honest with the American people and say that they don’t care about reducing spending,” said Representative Justin Amash of Michigan, a fiscal hawk who recently broke ties with the Republican Party. “There’s no incentive within Congress to keep the debt down. That’s just not something they’re interested in. They believe they can keep spending forever. They never feel they’re going to be held accountable for it.”

Congressional Democrats have walked a line on the deficit, criticizing Republicans for the tax law but providing the bulk of the votes to pass the most recent spending increases, including one that ended the threat of sequestration, the process of sweeping cuts across all government agencies and programs.

“It’s just not financially sustainable at all,” said Senator Jon Tester, Democrat of Montana. “Even though I hated sequestration with a passion, I don’t think that gives you the right to just go out and spend money and put the whole economy on a sugar high. And that’s going on right now.”

Many of the party’s leading candidates for president have proposed large increases in government spending, like Medicare for All, that would need to be financed by tax increases or additional government borrowing. Candidates have proposed rolling back the Trump administration’s tax cuts and imposing new taxes on the wealthy and high earners, while some in the party have pushed their leaders to effectively mimic Mr. Trump’s approach to the deficit — spending more without simultaneously raising taxes.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Deficit Will Reach $1 Trillion Next Year, Budget Office Predicts

Westlake Legal Group 21DC-DEFICIT-01-facebookJumbo Deficit Will Reach $1 Trillion Next Year, Budget Office Predicts United States Politics and Government Trump, Donald J National Debt (US) Federal Taxes (US) Federal Budget (US) Congressional Budget Office

WASHINGTON — The federal budget deficit is growing faster than expected, even as President Trump openly considers more tax cuts and other ideas that would add to government debt.

The deficit will reach $960 billion for the 2019 fiscal year, which ends Sept. 30, and $1 trillion for the 2020 fiscal year, the Congressional Budget Office said in updated forecasts released on Wednesday. Previously, it had projected an $896 billion deficit for 2019 and $892 billion for 2020. Those numbers would be even higher, if not for lower-than-expected interest rates, which are reducing the cost of servicing the national debt.

Rising deficit projections are the result of sluggish growth in federal revenue after Mr. Trump’s 2017 tax cuts went into effect, and several bipartisan agreements to raise military and nondefense domestic discretionary spending, which Mr. Trump signed into law.

Typically, the budget deficit shrinks when unemployment is low. Mr. Trump’s administration has defied that trend.

He has not pushed Congress to enact any of the major cuts to federal spending that he lays out each year in his official budget proposal. His tax cuts have not come close to paying for themselves via faster economic growth, as Republicans promised they would. The budget office said on Wednesday that it expects growth of 2.6 percent this year and 2.1 percent in 2020, well below the more than 3 percent growth the Trump administration has promised for those years.

Mr. Trump’s indifference to deficits has shattered his campaign promise to not only balance the budget, but to pay off the entire national debt. And it has left his fellow Republicans, who won deficit-reduction measures under President Barack Obama at a cost to what was still a fragile economic recovery, in a bind. Congressional Republicans have largely gone along with Mr. Trump’s moves to add more debt, even as they insist they will return to shrinking the deficit if Mr. Trump wins a second term in office.

The president has mused in recent days about moving to unilaterally reduce capital gains taxes, a move that is estimated to add $100 billion to deficits over the next decade, and to cut payroll taxes, which could reduce revenues by $75 billion a year for every percentage point cut in payroll tax rates.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Administration Considers Moves to Bolster Economy

Westlake Legal Group 19dc-econ1-facebookJumbo Trump Administration Considers Moves to Bolster Economy Wages and Salaries United States Economy Taxation Recession and Depression Quantitative Easing Payroll Tax Federal Taxes (US)

White House officials have begun preparing options to help boost the American economy and prevent it from falling into a recession, including mulling a potential payroll tax cut and possibly reversing some of President Trump’s tariffs, according to people familiar with the discussions.

Mr. Trump continues to insist the economy is “doing tremendously well” and he and his advisers publicly dismiss any notion of an impending recession. But behind the scenes, Mr. Trump’s top economic advisers are pulling together contingency plans in the event the economy weakens further.

Economists inside the administration have drafted a white paper exploring a payroll tax reduction, which would seek to boost the economy by immediately injecting more money into workers’ paychecks. The Obama administration employed a two-year payroll tax cut in 2011 and 2012, in an effort to stimulate what was a sluggish recovery from the recession that ended in 2009.

Mr. Trump has not been briefed on the idea and it is unclear whether he would push such a plan, which would require congressional approval.

A White House official said while the administration is open to more tax cuts “cutting payroll taxes is not something that is under consideration at this time.”

The discussion of a payroll tax cut was first reported by The Washington Post.

This is a developing story. Check back for updates.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Campaign Sues Over California’s Requirement to Release Tax Returns

Westlake Legal Group 06dc-lawsuits-facebookJumbo Trump Campaign Sues Over California’s Requirement to Release Tax Returns Trump, Donald J Republican National Committee Newsom, Gavin Federal Taxes (US) California

WASHINGTON — President Trump and the Republican National Committee filed a pair of lawsuits on Tuesday against officials in California challenging a new law requiring presidential candidates to release five years of tax returns in order to be placed on the state primary ballot in 2020.

The R.N.C. suit, which was filed in the Eastern District of California and included the California Republican Party and several California Republican voters as plaintiffs, called the law a “naked political attack against the sitting president of the United States.” It was filed against Gov. Gavin Newsom and the California secretary of state.

Mr. Trump and his campaign filed a second suit challenging the constitutionality of the new law, and it named the California secretary of state and the state attorney general. In that suit, they argue that states do not have the power to “supplement” the qualifications for the president, set forth by the Constitution.

The law, known as the “California Presidential Tax Transparency and Accountability Act,” was signed by Mr. Newsom last week, and was the latest flash point between the White House and the State of California, which is involved in more than 40 lawsuits against the Trump administration, on issues including environmental regulation and immigration.

The California State Legislature approved a similar measure in 2017, but the governor at the time, Jerry Brown, vetoed it, raising questions about whether it was constitutional.

The suits filed Tuesday claim that the law would suppress the votes of millions of Californians who want to vote for Mr. Trump by adding a new requirement for a presidential candidate. The R.N.C. suit asserts that Mr. Newsom was creating an “extra-constitutional qualification for the office of president.” The suit argues that Democratic-controlled state legislatures were challenging Mr. Trump because they were “enraged” by his 2016 victory, when he did not disclose his federal tax returns.

The two lawsuits followed a complaint filed in Sacramento on Monday by Judicial Watch, a conservative group, on behalf of four California voters, seeking to block the law on constitutional grounds.

“There’s an easy fix for the president,” Mr. Newsom said in a statement. “He should release his tax returns as he promised during the campaign and follow the precedent of every president since 1973.”

The vast majority of presidential nominees over decades have released their tax returns, with the exception of President Gerald Ford in 1976. Mr. Trump’s decision not to release his tax returns was one of the early traditions he shattered. But Mr. Newsom’s attempt to codify the tradition of disclosure into a law has raised serious constitutional issues, according to legal scholars.

“The complaint includes more political rhetoric than is common, but it raises the correct legal issues that certainly pose serious challenges to this law,” said Richard M. Pildes, a professor of constitutional law at New York University.

In a statement, Ronna McDaniel, chairwoman of the R.N.C., said that “it certainly doesn’t bode well for Democrats heading into 2020 that their best bet for beating President Trump is to deny millions of Californians the ability to vote for him.”

She called it a “stunt” that was “unconstitutional and, simply put, desperate.”

Jay Sekulow, counsel to Mr. Trump and to the campaign, called the campaign’s lawsuit a “decisive action in federal court challenging California’s attempt to circumvent the U.S. Constitution.” He said “the issue of whether the president should release his federal tax returns was litigated in the 2016 election and the American people spoke.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Campaign Sues Over California’s Requirement to Release Tax Returns

Westlake Legal Group 06dc-lawsuits-facebookJumbo Trump Campaign Sues Over California’s Requirement to Release Tax Returns Trump, Donald J Republican National Committee Newsom, Gavin Federal Taxes (US) California

WASHINGTON — President Trump and the Republican National Committee filed a pair of lawsuits on Tuesday against officials in California challenging a new law requiring presidential candidates to release five years of tax returns in order to be placed on the state primary ballot in 2020.

The R.N.C. suit, which was filed in the Eastern District of California and included the California Republican Party and several California Republican voters as plaintiffs, called the law a “naked political attack against the sitting president of the United States.” It was filed against Gov. Gavin Newsom and the California secretary of state.

Mr. Trump and his campaign filed a second suit challenging the constitutionality of the new law, and it named the California secretary of state and the state attorney general. In that suit, they argue that states do not have the power to “supplement” the qualifications for the president, set forth by the Constitution.

The law, known as the “California Presidential Tax Transparency and Accountability Act,” was signed by Mr. Newsom last week, and was the latest flash point between the White House and the State of California, which is involved in more than 40 lawsuits against the Trump administration, on issues including environmental regulation and immigration.

The California State Legislature approved a similar measure in 2017, but the governor at the time, Jerry Brown, vetoed it, raising questions about whether it was constitutional.

The suits filed Tuesday claim that the law would suppress the votes of millions of Californians who want to vote for Mr. Trump by adding a new requirement for a presidential candidate. The R.N.C. suit asserts that Mr. Newsom was creating an “extra-constitutional qualification for the office of president.” The suit argues that Democratic-controlled state legislatures were challenging Mr. Trump because they were “enraged” by his 2016 victory, when he did not disclose his federal tax returns.

The two lawsuits followed a complaint filed in Sacramento on Monday by Judicial Watch, a conservative group, on behalf of four California voters, seeking to block the law on constitutional grounds.

“There’s an easy fix for the president,” Mr. Newsom said in a statement. “He should release his tax returns as he promised during the campaign and follow the precedent of every president since 1973.”

The vast majority of presidential nominees over decades have released their tax returns, with the exception of President Gerald Ford in 1976. Mr. Trump’s decision not to release his tax returns was one of the early traditions he shattered. But Mr. Newsom’s attempt to codify the tradition of disclosure into a law has raised serious constitutional issues, according to legal scholars.

“The complaint includes more political rhetoric than is common, but it raises the correct legal issues that certainly pose serious challenges to this law,” said Richard M. Pildes, a professor of constitutional law at New York University.

In a statement, Ronna McDaniel, chairwoman of the R.N.C., said that “it certainly doesn’t bode well for Democrats heading into 2020 that their best bet for beating President Trump is to deny millions of Californians the ability to vote for him.”

She called it a “stunt” that was “unconstitutional and, simply put, desperate.”

Jay Sekulow, counsel to Mr. Trump and to the campaign, called the campaign’s lawsuit a “decisive action in federal court challenging California’s attempt to circumvent the U.S. Constitution.” He said “the issue of whether the president should release his federal tax returns was litigated in the 2016 election and the American people spoke.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Campaign Sues Over California’s Law to Release Tax Returns

Westlake Legal Group 06dc-lawsuits-facebookJumbo Trump Campaign Sues Over California’s Law to Release Tax Returns Trump, Donald J Republican National Committee Newsom, Gavin Federal Taxes (US) California

WASHINGTON — President Trump and the Republican National Committee filed a pair of lawsuits on Tuesday against officials in California challenging a new law requiring presidential candidates to release five years of tax returns in order to be placed on the state primary ballot in 2020.

The R.N.C. suit, which was filed in the Eastern District of California and included the California Republican Party and several California Republican voters as plaintiffs, called the law a “naked political attack against the sitting president of the United States.” It was filed against Gov. Gavin Newsom and the California secretary of state. Mr. Trump and his campaign filed a second suit challenging the constitutionality of the new law, and it named the California secretary of state and the state attorney general.

The law, known as the “California Presidential Tax Transparency and Accountability Act,” was signed by Mr. Newsom last week, and was the latest flash point between the White House and the State of California, which is involved in more than 40 lawsuits against the Trump administration, on issues including environmental regulation and immigration.

The California State Legislature approved a similar measure in 2017, but the governor at the time, Jerry Brown, vetoed it, raising questions about whether it was constitutional.

The suits filed Tuesday claim that the law would suppress the votes of millions of Californians who want to vote for Mr. Trump by adding a new requirement for a presidential candidate. The R.N.C. suit asserts that Mr. Newsom was creating an “extra-constitutional qualification for the office of president.” The suit argues that Democratic-controlled state legislatures were challenging Mr. Trump because they were “enraged” by his 2016 victory, when he did not disclose his federal tax returns.

The two lawsuits followed a complaint filed in Sacramento on Monday by Judicial Watch, a conservative group, on behalf of four California voters, seeking to block the law on constitutional grounds.

“There’s an easy fix for the president,” Mr. Newsom said in a statement. “He should release his tax returns as he promised during the campaign and follow the precedent of every president since 1973.”

The vast majority of presidential nominees over decades have released their tax returns, with the exception of President Gerald Ford in 1976. Mr. Trump’s decision not to release his tax returns was one of the early traditions he shattered. But Mr. Newsom’s attempt to codify the tradition of disclosure into a law has raised serious constitutional issues, according to legal scholars.

“What other kinds of regulations can one imagine that states might impose on presidential candidates to get onto the ballot?” said Richard M. Pildes, a professor of constitutional law at New York University.

In a statement, Ronna McDaniel, chairwoman of the R.N.C., said that “it certainly doesn’t bode well for Democrats heading into 2020 that their best bet for beating President Trump is to deny millions of Californians the ability to vote for him.”

She called it a “stunt” that was “unconstitutional and, simply put, desperate.”

Jay Sekulow, counsel to Mr. Trump and to the campaign, called the campaign’s lawsuit a “decisive action in federal court challenging California’s attempt to circumvent the U.S. Constitution.” He said “the issue of whether the president should release his federal tax returns was litigated in the 2016 election and the American people spoke.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug

PLAINFIELD, Ill. — The mortgage-interest deduction, a beloved tax break bound tightly to the American dream of homeownership, once seemed politically invincible. Then it nearly vanished in middle-class neighborhoods across the country, and it appears that hardly anyone noticed.

In places like Plainfield, a southwestern outpost in the area known locally as Chicagoland, the housing market is humming. The people selling and buying homes do not seem to care much that President Trump’s signature tax overhaul effectively, although indirectly, vaporized a longtime source of government support for homeowners and housing prices.

The 2017 law nearly doubled the standard deduction — to $24,000 for a couple filing jointly — on federal income taxes, giving millions of households an incentive to stop claiming itemized deductions.

As a result, far fewer families — and, in particular, far fewer middle-class families — are claiming the itemized deduction for mortgage interest. In 2018, about one in five taxpayers claimed the deduction, Internal Revenue Service statistics show. This year, that number fell to less than one in 10. For families earning less than $100,000, the decline was even more stark.

The benefit, as it remains, is largely for high earners, and more limited than it once was: The 2017 law capped the maximum value of new mortgage debt eligible for the deduction at $750,000, down from $1 million. There has been no audible public outcry, prompting some people in Washington to propose scrapping the tax break entirely.

If the deduction’s decline should be causing a stir anywhere, it is in towns like Plainfield, where the typical family earns about $100,000 a year and the typical home sells for around $300,000. But housing professionals, home buyers and sellers — and detailed statistics about the housing market — show no signs that the drop in the use of the tax break is weighing on prices or activity.

“From the perspective of selling and trying to buy, I don’t see any evidence of that,” said Paul Forsythe, who teaches physical education and coaches football at a high school.

Mr. Forsythe and his wife, Kylie, are selling their four-bedroom, two-bath home on a quarter-acre lot in one of Plainfield’s older developments, which dates to 1997. They are moving with their two daughters to a nearby suburb, closer to the schools where they work. They have owned homes through the ups and downs of the local housing market, which boomed in the early 2000s and crashed in the midst of the financial crisis.

“Right now,” said Ms. Forsythe, a fourth-grade teacher, “people are excited that the market is finally good again.”

Such reactions challenge a longstanding American political consensus. For decades, the mortgage-interest deduction has been alternately hailed as a linchpin of support for homeownership (by the real estate industry) and reviled as a symbol of tax policy gone awry (by economists). What pretty much everyone agreed on, though, was that it was politically untouchable.

Nearly 30 million tax filers wrote off a collective $273 billion in mortgage interest in 2018. Repealing the deduction, the conventional wisdom presumed, would effectively mean raising taxes on millions of middle-class families spread across every congressional district. And if anyone were tempted to try, an army of real estate brokers, home builders and developers — and their lobbyists — were ready to rush to the deduction’s defense.

Now, critics of the deduction feel emboldened.

“The rejoinder was always, ‘Oh, but you’d never be able to get rid of the mortgage-interest deduction,’ but I certainly wouldn’t say never now,” said William G. Gale, an economist at the Brookings Institution and a former adviser to President George H.W. Bush. “It used to be that this was a middle-class birthright or something like that, but it’s kind of hard to argue that when only 8 percent of households are taking the deduction.”

ImageWestlake Legal Group merlin_158542101_bac26ef3-9297-4cc3-b878-b7313e5a53e4-articleLarge As Mortgage-Interest Deduction Vanishes, Housing Market Offers a Shrug United States Politics and Government United States Economy Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Real Estate and Housing (Residential) Mortgages Illinois Federal Taxes (US)

Kylie and Paul Forsythe outside the Plainfield home they are selling. “People are excited that the market is finally good again,” Ms. Forsythe said. CreditAlyssa Schukar for The New York Times

Mr. Gale, like most economists on the left and the right, has long argued that the mortgage-interest deduction violated every rule of good policymaking. It was regressive, benefiting wealthy families — who are more likely to own homes, and to have bigger mortgages — more than poorer ones. It distorted the housing market, encouraging Americans to buy the biggest home possible to take maximum advantage of the deduction. Studies repeatedly found that the deduction actually reduced ownership rates by helping to inflate home prices, making homes less affordable to first-time buyers.

But the real estate industry said that scrapping the deduction could undermine the value of what is, for most American families, their most important asset. In the debate over the tax law in 2017, the industry warned that the legislation could cause house prices to fall 10 percent or more in some parts of the country.

Price growth has cooled in many markets, including New York and Seattle, but not nearly as much as the most alarming estimates suggested, and not in a pattern that suggests the loss of the deduction was a primary factor. Places where a large share of middle-class taxpayers took the mortgage-interest deduction, for example, have not seen any meaningful difference in price increases from less-affected areas, according to a New York Times analysis of data from the real estate site Zillow.

Skylar Olsen, an economist at Zillow, said that the slowdown in the housing market probably had little to do with the tax law. Home prices have risen much faster than wages in recent years, creating an affordability crisis in many cities that probably made slower growth in prices inevitable.

“Housing markets were burning so hot at an unsustainable pace and they had to come down,” Ms. Olsen said.

The tax law may have had another impact: It capped deductions for state and local taxes at $10,000, which had a particularly large effect in coastal cities and other places where property taxes and real estate values are both high. Those places did see a slowdown in the growth of home prices after the law took effect, although it is not clear whether the two were linked.

The national real estate industry argues that the two tax changes have together played a role in weakening the housing market.

“Clearly the housing market is underperforming in relation to economic fundamentals of job growth, wage growth and mortgage rates,” said Lawrence Yun, chief economist for the National Association of Realtors.

Economists like Mr. Yun and Ms. Olsen will probably debate the law’s impact for years. It is possible, and even likely, that sophisticated analyses will eventually conclude that limiting the mortgage-interest deduction did lead to somewhat slower price growth.

But for most home buyers and sellers, those subtle effects will be washed away by forces that have a much bigger impact: changes to mortgage rates, construction costs and supply and demand trends that vary from city to city and from neighborhood to neighborhood.

The tax law also rolled back the mortgage-interest deduction in a way that minimized the chance that taxpayers would notice its absence. Congress did not take away the tax break; it just changed the law in a way that meant fewer people would benefit from it — and buried the change in a much broader overhaul to the tax code.

But while Washington think tanks plot the deduction’s demise, the real estate industry is still hoping to restore it in some form. Mr. Yun of the National Association for Realtors said that as the housing market weakened, pressure would mount for Congress to restore some of the tax advantages that homeownership has historically enjoyed, although not necessarily in the same form.

For now, though, real estate agents and developers do not see the erosion of the mortgage deduction playing much of a role.

Plainfield’s housing market has been shaped by abrupt changes over the past 30 years. In 1990, a tornado leveled parts of town, killing more than two dozen people and forcing a huge rebuilding effort. At the turn of the millennium, the town had fewer than 10,000 residents. It has since quadrupled, with more growth on the way.

During the housing craze of the mid-2000s, developers leveled corn fields and sod farms to make way for cul-de-sacs. When the crisis hit, activity in many of the new subdivisions froze, said Ellen Williams, a real estate agent with Coldwell Banker in Plainfield who has sold homes in the area for nearly two decades. Only in the past few years has construction restarted in earnest.

Ellen Williams, a local real estate agent, said buyers and sellers in the Plainfield area appeared to be more concerned about state taxes than the mortgage-interest deduction.CreditAlyssa Schukar for The New York Times

Ms. Williams helped the Forsythes buy their home several years ago, when the housing crash still weighed on the market and the couple was underwater on a townhouse that had become too small for their growing family. They rent the townhouse out now, which means that they still itemize their deductions, including for mortgage interest. They said the deduction was not a factor in the sale of their home this summer or in their purchase of a new one.

Ms. Williams said that has been the case across the market. “I don’t know that it’s been a huge enough change yet,” she said. “People worry about Illinois taxes more.”

In the Forsythes’ ZIP code, housing prices are up 2 percent from the last year, according to data from the online real estate brokerage Redfin. Homes are selling quickly, Ms. Williams said, as she gave a quick tour of a recently listed four-bedroom house backing up to a pond in a nearby community. The hardwood floors were well kept, the kitchen hardware dated to the mid-1990s and the home was listed for $267,000.

“There’s not a lot available in this subdivision,” Ms. Williams said, “so I anticipate it selling quickly.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Trump Says U.S. Will Hit China With More Tariffs

Westlake Legal Group merlin_157181235_1abcf7ff-ff13-413a-95b7-1d9f1b263876-facebookJumbo Trump Says U.S. Will Hit China With More Tariffs United States Politics and Government Taxation Politics and Government International Trade and World Market Federal Taxes (US) Customs (Tariff)

WASHINGTON — President Trump escalated his trade war with China on Thursday, saying that the United States would impose a 10 percent tariff on an additional $300 billion worth of Chinese imports after China failed to keep its promise to buy more American agricultural products.

Mr. Trump, who had agreed in June not to impose more tariffs while the two sides tried to reach a trade deal, said on Twitter that the new tariffs would go into effect on Sept. 1. Those new levies would be in addition to the 25 percent tariff that has already been imposed on $250 billion of imports and would essentially tax all Chinese products sent into the United States.

The latest round of tariffs, which will likely be met with reciprocal punishment by China, increases the likelihood that the world’s two largest economies will be locked in a protracted trade dispute for months, if not years. While both sides continue to negotiate, the United States has insisted that China agree to trade terms that it rejected in May, including cementing certain changes into Chinese law. Beijing has made clear that is unlikely to happen and has increasingly insisted it can wait out the trade war indefinitely. Mr. Trump, meanwhile, seems content to rattle the American economy, despite the economic and political consequences.

“We thought we had a deal with China three months ago, but sadly, China decided to renegotiate the deal prior to signing,” Mr. Trump said. “More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so.”

Mr. Trump said that China also did not fulfill its commitment to stop the sale of fentanyl into the United States.

The president’s comments hammered the stock market. The S&P 500 had been up 1 percent shortly before 1 p.m., with strong gains seen among technology companies such as semiconductor makers. But the market tumbled sharply after the threat to impose the new tariffs appeared on Twitter. The drop erased all the day’s gains and more, sending the benchmark stock index into the red. Shortly before 3 p.m. the S&P 500 was down slightly more than 1 percent.

Despite the additional tariffs, Mr. Trump said that the trade talks between the United States and China in Shanghai this week were “constructive” and that he looked forward to more “positive dialogue” between the countries.

Mr. Trump’s announcement comes just a day after the Fed lowered interest rates in part because of the ongoing spat with China. The quarter-point cut, the Fed’s first since the depths of the 2008 financial crisis, was meant to combat risks from weak global growth and trade policy uncertainty, Chair Jerome H. Powell said at a news conference following the decision.

“After simmering early in the year, trade policy tensions nearly boiled over in May and June, but now appear to have returned to a simmer,” he said Wednesday, explaining that the Fed was watching how things evolved as it considered whether and when future rate cuts are would be appropriate. “With trade policy we’re just going to be watching and trying to assess the implications for the U.S. outlook.”

Markets, which had pulled back their expectations for future rate cuts following Mr. Powell’s remarks, moved toward pricing in two more reductions by year-end following Mr. Trump’s tweets.

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Why Rate Cuts Don’t Help Much Anymore

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Now that it has finally happened, don’t expect the Federal Reserve’s long-awaited rate cut to make all that much of a difference for the economy.

In the weeks leading up to Wednesday’s decision to cut the benchmark Fed funds rate by 0.25 points to 2.25 percent, the stock market seemed to leap whenever Jerome H. Powell, the Federal Reserve chair, hinted that a cut was coming.

On Wednesday, apparently disappointed by the modest size of the first rate cut since 2008, the stock market fell: The S&P 500 declined 1.1 percent.

President Trump certainly wanted the Fed to take action. He said so numerous times on Twitter and on Tuesday morning demanded “a large cut”— larger, presumably, than the Fed delivered.

More rate cuts may be coming. Yet a rather important problem is lurking for anyone relying on Fed cuts to accomplish something substantial, like preventing a slowdown or even staving off a recession.

It’s not just that the Fed has a “short runway” — that rates are already so low that it is impossible to cut them four or five percentage points in the face of a recession, as the Fed has done in the past. The real problem is that recent experience and new economic research suggest that rate cuts in general may have a more modest impact on the economy now than they usually do.

You can understand Mr. Trump’s concern about the economy. It has been the one bright spot in his approval ratings, and now it seems to be slowing.

Under President Barack Obama, growth of the gross domestic product averaged about 2.2 percent after the recession ended in 2009. Under Mr. Trump, with an assist from a large, deficit-financed tax cut, G.D.P. ticked up.

But with that stimulus mostly behind us, G.D.P. growth has slowed. The latest data shows it fell back to 2.1 percent in the three months through June, and the forecasts for the current quarter are even lower. Beyond the United States, the International Monetary Fund has downgraded its forecast for world economic growth yet again.

The worry, arising from some important new research, is that the benefits of Fed rate cuts in today’s environment may be substantially overrated.

Typically, when rates drop, consumers buy more durable goods like washing machines and cars, homeowners refinance their mortgages and effectively get a tax cut, and businesses invest more because the cost of borrowing goes down. But lower rates may have much less impact on these behaviors now. In the language of economics, the economy is suffering from a “weakened monetary transmission mechanism.”

Take spending on consumer durables. A recent study by economists at the Federal Reserve Bank of Minneapolis and the University of California, San Diego, notes that these purchases occur in lumpy spurts. People tend to spend nothing on such items for long periods, then spend a lot all at once, when money is cheap and prices are enticing.

The problem now is that once-in-a-lifetime offers don’t generate the same excitement if they are repeated every week. And, the study suggests, after 10 years of extremely low interest rates, there probably aren’t many consumers with pent-up demand, waiting for rates to fall. Because so many people have already made their big purchases, the economic kick from a rate cut is smaller than it would be at a “normal” time.

Economists at Northwestern, Copenhagen University and the University of Chicago’s Booth School of Business have shown the same thing about mortgages. Because most mortgages have fixed rates, a Fed rate cut will affect these homeowners only if they refinance.

Typically there’s a large group of people with a pent-up demand for a cheaper mortgage, and once they get one, the benefit is roughly equivalent to receiving a big tax cut: They have a lot more money to spend on other things. But if rates have already been low for a long time, most of those people will have already refinanced along the way. A cut in rates will not deliver the same punch it usually would.

A similar dynamic probably helps explain why the 2017 corporate tax cut has had such an underwhelming impact on companies’ capital investment. Fundamentally, there wasn’t much pent-up demand for investment after years of low rates, accelerated depreciation, “temporary” investment expensing and other stimulus. That lack of pent-up demand also means that cutting interest rates now is unlikely to entice businesses to invest much more.

So it’s a twofold problem: The Fed has less room to cut rates, and the benefit from cutting them is smaller than usual. We should be wary of vesting too much importance on Fed moves.

In a world of weakened monetary policy, some might view the recent federal budget deal as a major fiscal boost. But it’s worth remembering that the budget compromise increases spending only compared with long-since-abandoned limits set back in 2011.

Compared with last year (which is what matters for G.D.P. growth), federal spending is essentially just growing with inflation. And with the deficit already at troublingly highly levels for an economy not fighting a major war or recession, it’s not clear there would be space for new fiscal stimulus at all.

The good news is that consumers remain confident, unemployment is low, and growth of 2 percent is a lot better than a recession. The bad news is that if it things worsen, there might not be a whole lot out there to save us.

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Foreign-Owned Banks’ Results Could Sweeten Further Under Tax Law

WASHINGTON — President Trump’s tax cuts have been very good to big banks. For foreign-owned banks, they could get even better.

The cuts allowed America’s largest banks to save an estimated $16 billion collectively in taxes last year, a windfall that helped those firms reward shareholders through stock buybacks and dividend payments.

The savings flowed largely from changes to the corporate rates, which fell to 21 percent from 35 percent under the new law. For years, domestic banks’ effective tax rates had been higher than those of many other companies’, so when they fell, those institutions enjoyed outsize benefits.

Foreign-owned banks reaped benefits as well, though the structure and reporting of their global financial operations make them more difficult to quantify. Late last year, they won a potentially lucrative victory in a proposed Treasury Department regulation that puts into effect a part of the 2017 tax law that established a global minimum tax on multinational corporations. Analysts say the proposed regulation, which companies must apply even though it has not been made final, could allow foreign banks to largely avoid the minimum tax.

[Earnings reports this week showed that the five biggest banks in the United States continue to benefit from the tax cuts.]

The regulation effectively provided a carve-out that would allow foreign banks to reduce or avoid a new tax, known as the base erosion and anti-abuse tax or the BEAT. Treasury’s rule would allow foreign banks to minimize their tax liability by sending large payments back to their headquarters in the form of interest payments, which would not be counted toward the minimum tax.

Many foreign banks, and an industry lobbying group, welcomed the proposal — and quickly pushed Treasury to expand it further, by exempting even more transactions between banks and their overseas affiliates from the tax. The final regulations will be decided this summer.

“There’s a lot of uncertainty” about the anti-abuse tax, said Andrew J. Silverman, a tax analyst at Bloomberg Intelligence. “But a lot of companies are taking comfort from the fact there are a lot of big exceptions to it.”

Financial filings, corporate earnings call transcripts, and industry and company letters to Treasury officials underscore the degree to which the tax cuts have helped banks financially. Some of the ways appear to go against the intention of the Republicans in Congress who drafted and approved the law in a two-month flurry at the end of 2017.

The favorable treatment for banks is contributing to a steep decline in corporate tax revenues, which has helped sharply increase the federal budget deficit. Corporate receipts were down more than 25 percent, or nearly $60 billion, through June for the 2019 fiscal year, compared with the 2017 fiscal year, before the tax cuts took effect. The budget deficit is on track to top $1 trillion in 2019, a 28 percent increase from 2018.

The 10 largest United States banks — a group that includes JPMorgan Chase, Wells Fargo and Goldman Sachs — had a combined income tax expense of $35 billion last year, equivalent to 20 percent of their pretax earnings. Their average effective rate in the five years through 2016 was 29 percent. If last year’s pretax income had been taxed at that rate instead of the post-tax-cuts rate, the banks’ income tax expense would have been $51 billion, or $16 billion more.

Money saved from having a lower tax rate helped pay for a surge in stock buybacks and dividend payments to shareholders. Last year, the 10 largest American banks distributed over $104 billion to their shareholders in these two ways, an increase of 25 percent from nearly $84 billion in 2017.

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Proposed rules from the Treasury Department could allow foreign banks to reduce what they owe under a global minimum tax included in the 2017 tax law.CreditPatrick Semansky/Associated Press

Some banks are reporting tax rates well below the 21 percent statutory rate. Wells Fargo said this week that its effective tax rate — the rate reported on financial statements — was just over 17 percent in the second quarter. JPMorgan’s rate for the period was just shy of 15 percent, in part because the bank enjoyed a tax benefit after tax audits were resolved.

Those savings continued to pad bank profits in the second quarter, according to financial filings released this week, and helped to offset weakness in trading revenue. Citigroup’s larger-than-expected earnings per share, for example, were almost entirely the result of the corporate rate cut and its stock repurchases.

Large foreign banks doing business in the United States disclose income tax expenses for their American subsidiaries, but it is not clear how useful they are for assessing whether the United States tax bill has had an effect on their tax rates. That’s partly because they don’t have to break out, in public disclosures, their liability under the BEAT.

Those banks received what many analysts saw as a break from Treasury in December, when it issued preliminary regulations governing the BEAT., which is part of the tax law’s overhaul of how the United States taxes companies that operate in more than one country. That overhaul has taken a political and public-opinion back seat to the corporate rate cut and changes in individual taxes, but it has drawn intense activity from business lobbyists seeking to shape the new rules to minimize their tax bills.

The BEAT is meant to curb a practice known as “earnings stripping,” in which multinationals avoid American taxes by shifting profits to other branches of the company operating in lower-tax countries overseas — often in the form of interest payments.

It is a sort of minimum tax, forcing companies that send their profits offshore to pay at least some American tax on them.

But in its December regulations, which provided nearly 46,000 words of details on how the provision applies to companies, Treasury essentially said certain interest payments made by foreign-owned banks are not subject to the calculations that determine that minimum tax. The move alarmed some former congressional aides who were involved in the tax effort. They said the exemption ran afoul of lawmakers’ intent in passing the tax overhaul.

The law’s authors tried to balance the international provisions to favor neither American-based companies nor foreign-owned ones. Throughout its drafting, they repeatedly asked the congressional Joint Tax Committee to run tax models to simulate the effects on both types of companies, eventually finding a near-50-50 balance. The Treasury regulations, which included the exemption that foreign banks had pushed for, could upset that balance.

Foreign banks received the regulations warmly but asked Treasury to go even further, in the name of fairness. The Institute of International Bankers, an industry lobbying group, told Treasury officials in a letter that it “wishes to express its appreciation for the strides made by the proposed regulations.”

The institute went on in the letter to push Treasury for further tweaks, in final regulations, that would reduce potential bank liability under the tax even more. Those highly technical changes would, if adopted, essentially exclude an even broader set of payments between banks and their foreign affiliates from the minimum tax calculations.

Bank reactions to the December regulations have been mixed, in part because some foreign banks are structured in ways that expose them to more BEAT issues than others. UBS officials reported that they expected not to incur any liability under the minimum tax, in light of the regulations. Credit Suisse said in February that it expected to still have to pay the tax, which it expected would add about 2 percentage points to its effective tax rate.

Treasury is expected to issue final regulations this summer, and the banks are still trying to win favorable changes to the preliminary rules.

“We continue to have discussions with Treasury about the unique nature of foreign banks operating in the U.S. and how various aspects of the proposal impact our U.S. operations,” said Chris Rosello, United States head of public affairs for HSBC.

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