Latest news with #TaxPolicy
Bloomberg
05-06-2025
- Business
- Bloomberg
Summers Says Debt Surge From Trump Plan Will Undermine US Power
Former Treasury Secretary Lawrence Summers said that President Donald Trump's signature tax and spending plan will add to the US debt load in a way that will end up undermining the nation's status as the preeminent global power. 'This makes us vulnerable,' Summers said on Bloomberg Television's Wall Street Week with David Westin. 'The world's greatest debtor accumulating debt faster than any other country ever has in dollar volume is putting at risk its status as the world's greatest power.'
Telegraph
05-06-2025
- Business
- Telegraph
It will take more than Donald Trump to kill off US exceptionalism
Are we witnessing the end of American exceptionalism? Last week I asked whether the 60/40 portfolio had enjoyed its best days and suggested that investment success would now demand broader diversification than this simple equity/bond split. A related question facing asset allocators today is whether a bias towards US shares within the equity portion of such a balanced portfolio has also run out of road. The list of reasons to reduce your exposure to the world's biggest stock market is getting longer. The latest addition was well hidden in the 1,116 pages of Donald Trump's 'one big, beautiful' budget bill. Clause 899 enables the US treasury secretary to levy a surcharge on US investments held in countries that are considered to have imposed 'unfair' taxes on US companies. It is this clause that could turn a war on trade into one focused on capital. It's not hard to see why it should have been drafted. It is a lot easier to tax capital than trade in goods. Doing so is less susceptible to legal challenge once approved by Congress. America alone gets to decide, every three months, which countries are captured by its definition of 'discriminatory' taxes. And we're talking big numbers. Thirty years of US market outperformance, and a strong dollar, have resulted in overseas investors holding $26 trillion (£19 trillion) more in America than US investors hold overseas. That's a big pool of assets to tax. There are good reasons that the US would want to levy this kind of tax, especially if it is confident that the appetite of overseas investors for US assets will hold up. In addition to the cash that might be raised by a levy of up to 20pc, reducing global demand for American assets would, all other things being equal, reduce the value of the dollar – another aim of the administration. One downside is that the 'exorbitant privilege' given to America by the dollar's reserve status would diminish. When you owe $35 trillion, having to pay a few basis points more to finance your debts is not a trivial consideration. The other obvious negative is that it would reduce the value of US assets as investors stop seeing America as a safe haven and refocus their portfolios towards friendlier jurisdictions. Clause 899 builds on two other reasons to consider reducing our exposure to the US. The first is the $3 trillion or so that the rest of the bill is expected to add to America's national debt over the next 10 years. The price of funding those borrowings (adding to interest payments that already exceed the cost of the US military) is one of the reasons that investors are demanding ever more compensation for holding US government bonds out into a potentially inflationary future. When bond yields rise above 5pc, it is not just bad news for holders of those bonds but also for investors in shares, which offer an increasingly uncompetitive income. This leads to a third reason to be cautious on the relative outlook for US investments – valuation. History suggests that when bond yields rise above 5pc, investors baulk at paying more than 20 times expected earnings for shares. Why would they, when they can earn a relatively risk-free income without the ups and downs of the stock market? Were the price-earnings ratio to fall back to the 17 or 18 times multiple at which shares become more obviously attractive, that would imply a 15-20pc correction, back from the top to the bottom of the Trump 2.0 trading range for the S&P 500. This is the easy-to-digest narrative that investors are accepting at the moment. It is why the euphoric post-election flows into US equities abruptly stopped at the time of Trump's April 2 tariff announcements and why Germany, for example, has reversed in a couple of months all its cumulative outflows since 2023. Investors prefer a simple story – and today's is that US exceptionalism is dead and buried. That might be an overreaction. As investors, we have a tendency to extrapolate and overweight near-term negatives. While I can find plenty to worry about in the Trump policy platform, I wouldn't count on the president undermining the decades of advantages from which America continues to benefit. Here are four highlighted recently by Alliance Bernstein strategist Inigo Fraser Jenkins. First, demographics. Unlike most big economies in the world, the US has a growing workforce. It is no longer expanding at the annualised 1.3pc it registered between 1980 and 2010, but between now and 2050, the US labour market is still expected to grow at 0.2pc a year. That compares with a fall of 0.6pc a year in Europe and 1pc in China. The size of the workforce, alongside productivity, is a key driver of GDP. Second, corporate profitability. Higher profits flow from a number of sources. These include better use of technology, more favourable regulation and taxes, and a more dynamic risk culture. Profit margins have doubled in the US since the financial crisis. Third, energy security. America drilled over 13m barrels of oil a day in 2024, making it the world's largest producer. It was a net energy exporter by 2019 thanks to shale. Fourth, the size of America's homogenous domestic market. Although Europe is potentially a bigger and richer market, it suffers from a patchwork of national cultures, banking systems, rules and languages. The US financial markets are vast, too, providing unrivalled depth and liquidity. So while I worry about America's withdrawal from global institutions, its willingness to make enemies of its friends, the undermining of its world-class universities and the erosion of its soft, cultural power, I am not ready yet to call the end of America's dominant position in financial markets. US exceptionalism was built over decades; it will not crumble in a matter of months.
Bloomberg
20-05-2025
- Business
- Bloomberg
House Budget Bill Creates Awkward Moment for Markets
President Donald Trump cajoled House Republicans on Tuesday to go along with a budget bill that will not only add to what is already seen as unsustainable debt and deficits but also looks ominous for financial markets that have just recovered from the 'Liberation Day' tariff fiasco. The heart of the plan that came out of the House Budget Committee calls for extending the Tax Cuts and Jobs Act of 2107, the signature act of Trump's first administration that is due to expire later this year. There are lots of additions that go far beyond extending the TCJA, such as eliminating taxes on tips and overtime pay, making the interest expense on car loans tax deductible, and increasing the cap on state and local tax deductions from the current $10,000.
Business Mayor
14-05-2025
- Automotive
- Business Mayor
How EV subsidies are taking the UK back to the 1970s
Stay informed with free updates Simply sign up to the UK tax myFT Digest — delivered directly to your inbox. It's my fault. Last year, the Financial Times introduced a new salary sacrifice scheme, enabling employees to lease and drive an electric vehicle on the cheap. The scheme promises savings of 'up to 40 per cent'. I love a bargain and, although I don't need or really want an EV right now, I was intrigued by the offer. Having registered, I plugged lots of different fake salary levels into the system, changed my age and altered my address to get a sense of the underlying dynamics of the scheme, which also included car insurance. Of course, that activity made me look extremely interested and I have subsequently been plagued by the EV provider trying to get me to sign on the dotted line. Having done the maths, the deal was indeed pretty good, although the examples I looked at were barely worthwhile if you were a normal basic rate or a higher rate taxpayer. The offer saved a lot of money if your salary was in the £100,000 to £125,140 pay bracket, where people in the UK lose their personal tax allowance and pay a combined income tax and employee national insurance rate (the UK's social security tax) of 62 per cent. For someone needing to get their salary below £100,000 to be able to receive more value in free childcare, salary sacrifice schemes such as this are a no brainer. The FT would save 15 per cent in lower employer national insurance contributions and there are also some value added tax benefits. Employees would be charged a 3 per cent benefit in kind tax on the implied value of the benefit they were receiving in lieu of pay. I emailed one much-to-be-pitied representative of the provider, asking why they could not offer lower prices when there were enormous possibilities for tax avoidance. Not surprisingly I didn't get much joy and was told, correctly, that I would still be better off if I signed up rather than leased an EV from my after tax salary. What is going on? Employers save some money in payroll taxes, employees get something of a bargain depending on their circumstances, providers have a potentially profitable business and this complicated web supplying EVs is hugely subsidised by other taxpayers. This is an extremely poor example of public policy. Governments have an absolutely legitimate desire to speed the rollout of EVs, but they should just offer simple discounts, not opaque and massive subsidies to employers exploiting company car taxation rules and extremely high marginal rates in the UK income tax system available only for certain individuals. Although EVs are very much the technology of the future, the UK's subsidy scheme is a throwback to the 1970s. Then, the highest marginal income tax rate was 83 per cent on earned income. This was levied on pay levels as low as £120,000 in today's prices. But almost no one paid these tax rates. In a recent analysis, Dan Neidle of the not-for-profit Tax Policy Associates highlighted the tax avoidance opportunities of the 1970s. There were lax tax rules for benefits in kind. High earners routinely took pay in other forms, whether it was company cars, luncheon vouchers, club memberships or extremely generous pensions. The decades since have seen governments clamp down on loopholes, allowing them to collect more from those on high incomes at much lower tax rates. But in recent years, extreme tax rates have stormed back with the withdrawal of both child benefits and personal allowances at £100,000, as well as a cliff edge on subsidised childcare. It is not environmentalism but tax that is driving the emergence of salary sacrifice EV deals, encouraging a tax avoidance industry that does nothing for Britain's productivity or public finances. There are colleagues of mine with young children who would be better off if they signed up to the electric vehicle scheme, drove the car to their parents' driveway and parked it up for three years. That is nuts.
Telegraph
02-04-2025
- Business
- Telegraph
How tax rules our politics (and lives)
Tax lawyer and journalist Dan Neidle opened his series Untaxing (Radio 4) with two extraordinary statements. One, that he was going to show how tax is one of the most significant and consequential forces in our lives. Two, that Albert Einstein was wrong about tax when he said it was the most difficult thing in the world to understand. Far be it from me to argue about tax with a man who founded a think tank called Tax Policy Associates and who advises the Scottish Government (among others) on tax issues, but his first point hardly needs proving to anyone. Ever since we learnt the story of Robin Hood, we've known tax as a fifth element in our lives. As for Einstein, well, having listened ahead to all five episodes of Untaxing, I am tempted to agree with the physicist. Neidle's series makes our tax systems seem arcane, opaque, fantastical, occasionally deranged, often frustrating and always baffling. Despite that – or perhaps because of it – it's a terrific series, filled with anecdote and insight, that will leave you with the feeling you should pay far more attention to tax beyond your payslip, the Budget and the adventures of Little John et al. Monday's opener was all about a napkin – 'the napkin that changed the world' – and revealed both Neidle's ability to zero in on quirks of history that prove to be seismic and how ideology and politicking give tax a bad name. The napkin was on a restaurant table in Washington DC in 1974, and scribbling on it was a young economist named Arthur Laffer. Watching him doodle a graph, with ever-widening eyes, were White House officials Dick Cheney and Donald Rumsfeld. What the doodle 'proved' was that if you raise taxes too much, revenues will actually go down. Though disputed, the 'Laffer Curve' is still popular today – it is regularly cited by, among others, Liz Truss, while in 2019 Donald Trump awarded Laffer the Presidential Medal of Freedom, referencing the famous napkin. The napkin is a Shroud of Turin for those who seek low taxation, but tax ideology works both ways. Recently, the Scottish Government raised the top rate of income tax to 48 per cent, which some believe will scare off higher earners and lead to less revenue. And what did Neidle and his colleagues at the Scottish Government's Tax Advisory Group have to say about this? 'Nothing,' said Neidle. 'Because they didn't ask us. It was pure politics.' More tax theory drawn up on the back of napkins. Yesterday delved into the murky story of the Beatles ' inventive but ultimately flawed efforts to avoid income tax (surely Eleanor Rigby would have benefited from some of their revenues?), a tale that ultimately ended in Michael Jackson selling the rights to Lennon & McCartney's songs to pay his own tax bill. Today's episode is on Jaffa Cakes, tomorrow's on a porn-star lawyer who played a part in the downfall of Rangers Football Club. Neidle cherrypicks the minutiae expertly. The overall impression is of the British tax system as a towering, teetering, rickety old building, with extension built upon extension, and all sorts of oddities lurking in the basement. Five 15-minute episodes isn't nearly enough – I hope Radio 4 have Neidle back soon. Also managing to be riveting on an ostensibly dry economic subject was Invisible Hands (Radio 4), which is looking at the birth of the free market. That it's so compelling is no surprise, given that the man behind it is David Dimbleby, who shares Neidle's ability to extrapolate world-changing ideas from the smallest of moments. This first episode, for instance, found the origins of the free market in the downing of a Hurricane fighter plane in August 1940, the Egg Marketing Board and a copy of the Reader's Digest. Jo Barratt's production had the swing and sway (and the background music) of a juicy true-crime podcast, with Dimbleby gamely showing he could mix it with the young pups of podcasting. Here, it's all about storytelling. 'It turns out it's a much stranger story than you can imagine,' began Dimbleby, as the music grew more insistent. It's shameless, but I was hooked. And when that Reader's Digest came along, Dimbleby introduced it like this: 'A magazine that would change the course of Antony Fisher's life… and the history of this country – forever.' He even gave us the little details – in that edition, alongside the all-important article The Road to Serfdom by Friedrich Hayek, were pieces on 'strange animal friendships, the beard of Joseph Palmer and shepherds of the underground', a list of subjects that would fit quite pleasingly into Radio 4's schedules.
