On The Hill

Federal Deficit Projections

The Congressional Budget Office (CBO) projects the federal deficit will reach $12.2 trillion, an average of 4.7 percent of gross domestic product (GDP), through 2029. This estimate represents an $809 billion increase from CBO’s deficit projection in May. The increase reflects the bipartisan deal to raise spending caps, which passed both chambers and was signed by President Trump in early August. The spending deal, which raised caps on discretionary appropriations meant to cut spending for the next two years, indicates the majority of the increase in the deficit is not related to new spending. However, new spending on disaster relief, border security, and a number of other economic and technical changes account for $300 billion of the increase. Additionally, CBO projects economic growth will remain around 2.3 percent throughout the year, will continue to slow down, and will average 1.8 percent over the next decade.^[1] In the report, the budget office noted that the nation’s fiscal outlook is “challenging” and that federal debt is “on an unsustainable course”. It said that “significant” changes to tax policy and spending trends are essential.^[2] 

Trump Walks Back on Tax Cuts

The White House pushed back Monday (Aug 19) after The Washington Post released a report stating that senior officials were in preliminary discussions over a temporary payroll tax cut due to growing concerns about an economic slowdown.^[3] Despite this, President Trump said on Tuesday that “payroll tax is something that we think about and a lot of people would like to see”.^[4] The president added that he was also considering unilaterally indexing capital gains. Twenty-four hours after his call for tax reforms, Trump walked back his previous statements, saying the economy is strong and does not think the U.S. is heading towards a recession. ^[5] 

GILTI Regulations

On Thursday (Aug 22), Notice 2019-46 announced “that the Department of the Treasury and the Internal Revenue Service intend to issue regulations that will permit a domestic partnership or S corporation that is a US shareholder of a controlled foreign corporation to apply proposed §1.951A-5, related to the treatment of domestic partnerships and S corporations for determining the amount of the global intangible low-taxed income (GILTI) inclusion, for taxable years ending before June 22, 2019. The notice also addresses the applicability of penalties for a domestic partnership or S corporation that acted consistently with proposed §1.951A-5 on or before June 21, 2019, but files a tax return consistent with the final regulations under §1.951A-1(e).” ^[6] 

References

^[1] Niv Elis “Deficits to exceed $12 trillion through 2029: CBO” The Hill, 21 August 2019. https://thehill.com/policy/finance/458232-deficits-to-exceed-12-trillion-through-2029-cbo

^[2] Jennifer Scholtes “‘Gradual economic slowdown predicted through 2023” Politico Pro, 21 August 2019 https://subscriber.politicopro.com/article/2019/08/21/global-economy-slowdown-1673819

^[3] Paleta, Damian, “White House Officials Eyeing Payroll Tax Cut in Effort to Reverse Weakening Economy” The Washington Post, 19 August 2019. https://www.washingtonpost.com/business/economy/white-house-officials-eyeing-payroll-tax-cut-in-effort-to-reverse-weakening-economy/2019/08/19/4cab28ec-c2bd-11e9-b72f-b31dfaa77212_story.html

^[4] Bernie Becker “Trump says he’s looking at payroll tax cuts, indexing capital gains” Politico Pro, 20 August 2019 https://subscriber.politicopro.com/article/2019/08/trump-says-hes-looking-at-payroll-tax-cut-indexing-capital-gains-1673421

^[5] Shawna Chen, “Trump reverses himself on tax cut ideas” Politico Pro  https://subscriber.politicopro.com/article/2019/08/trump-reverses-himself-on-tax-cut-ideas-1674721

^[6] “Notice 2019-46” Internal Revenue Service, 22 August 2019 https://www.irs.gov/pub/irs-drop/n-19-46.pdf