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Borrowing Back On The Menu for U.S Politicians

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Borrowing Back On The Menu for U.S Politicians

The amount of borrowing the U.S. economy relies on has always been huge.

Treasury bonds are astronomical in total value, and many have been calling for slashing the cost of borrowing for years.

However, recently the argument has turned from one of cutting to one of accommodating.

Read on for more.  

Reduce spending? Carry on

Whoever wins the election this year, be it, Trump or Clinton, don’t expect either candidate to have an appetite for an agenda of cutting public borrowing.

For several reasons, the agenda is now how American can best take advantage of its increased leverage in the loan.

–    Demand for Treasuries means more borrowing available, thanks to strong U.S. performance

–    Low-interest rates worldwide mean cheap money

–    Deficit has been cut, and recent economic data is propitious

With weak economic growth in Europe, the U.S. stock market is seeing record gains and demand for Treasuries has skyrocketed.

With this, the USA can now borrow more as confidence in its economy is extremely high compared to other OECD nations.

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At certain points, there has been debate over who can best strike a grand bargain, to slash the debt which stands as the highest among those in the developed world.

Right now, it stands at almost $19.5 trillion dollars.

This is the largest gross amount in the world and puts the United States in the top 20 countries regarding debt to GDP ratio (the highest being Japan).

Trump has certainly been advocating more borrowing.

With his proposed tax cuts in the trillions of dollars, his spending promises would necessitate it without a doubt.

Meanwhile, Hilary has made a similar approach, perhaps not to allow Trump to gain the upper hand in the game of spending promises.

Neither has mentioned cutting the debt but have instead talked of a Federal stimulus.

The GOP platform does call for a balanced budget, but this is much easier said than done and the ability to pass a budget resolution in Congress by Republicans this year proved a tall order and a fruitless one at that.

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Clinton and the Democrats

Clinton has proposed tax rises on those in higher income brackets and the finance industry.

This would be used to increase spending on roads and higher education which remains unaffordable to most.

To demonstrate the shift, consider that the Democratic party platform in the 2012 election referred to cutting the deficit a total of seven times.

This year’s platform in Philadelphia?

Not even once.

In fact, it calls for more spending.

In 2012, the economic crisis was still on the tip of everyone’s tongues and at the forefront of everyone’s list of issues.

Now it is a recent memory: not forgotten, but assumed to have been dealt. 

The massive spending deficits are seen during the worst years of around 2009 terrified people about the prospect of uncontrolled inflation that would destroy growth.

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Obama subsequently brought in piecemeal reforms to tackle the issues.

Within the U.S. political system, it is tough to impose wide-ranging reform unless the country is in a crisis such as a war or depression-style meltdown. So he:

–    Raised taxes on the wealthy

–    Loosened automatic curbs, which became known as the “sequester” (though federal budget continued to rise, just at a lesser rate)

The last few years have seen curbs on domestic and military programs that have seen spending increase rather than decrease.

In fall of 2015, Congress agreed to a budget that boosted spending but also implemented tax breaks without accounting for them in other budget areas.

Why the shift?

The U.S. economy has been performing well over the last few years.

In the face of a slowing down Chinese economy, and a stagnant Eurozone due to the Euro crisis, the US is an outlier, and there is global confidence in its ability to weather storms and deliver economic growth.

Thanks to the economic growth and budget agreements in this period, the near-term annual deficits have been reduced to their long-run historical averages, after the huge figures seen during the crisis.

The growth in the cost of health-care has slowed.

This is very often responsible for massive deficits, and Obamacare has not been the disaster that people predicted, even though it is still a sensitive topic for both sides of the debate.

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The world is in a low-interest rate borrowing frenzy, with little, zero or even negative interest rates the norm across much of the developed countries.

This means low costs for borrowing for the foreseeable future, which helps business run.

So to sum up, the shift is due to:

–    High economic growth

–    Lower deficits than during the crisis

–    Health-care cost growth falling

–    Low-interest rates worldwide making borrowing cheap

–    Payments on national debt at lowest level since 1968

There are still long-term deficits.

The budget office of Congress said that national debt in 2033 would exceed the total output of the economy.

Last year the forecast was for this to be the case by 2039.

Last year’s policy changes bear some responsibility for this re-forecast.

More and more of federal spending will be inflexible and on a course of autopilot in the coming years.

This is so because more retirees will qualify for medicare and social security benefits.

These spending figures are not appropriated by Congress in the annual budget.

Interest rates as a basis for long-term growth

Many commentators are wary of the weak economic foundation that low-interest rates provide.

Michael Peterson, president of the Peter Peterson Foundation, says that the low-rate environment offers borrowers and politicians a false sense of security.

His group advocates for deficit reduction.

Strong demand from the world for US treasury bonds, thanks to its strong performance, could work to keep rates lower longer.

Were this to be the case, higher debt levels would be easier tolerated.

Boosts in spending could be used to raise productivity as a more long-term way to deal with economic inefficiency and stagnation.

However, regarding innovation is a world leader, so the U.S. economy is already looking bright in that aspect.

Future outlook

If interest rates are below economic growth rates, the government can borrow while still maintaining a small and manageable debt-to-GDP ratio.

The low rates available may ensure this.

Larry Summers is an economist at Harvard.

He was also U.S. Treasury secretary.

He explains that low levels mean the economics of public spending and investment is substantially and intrinsically different to that of a decade ago when rates were higher.

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Secular stagnation is when there is a deficiency of investment that means a rut of low growth.

This is avoided by low-interest rates.

As populations age in other developing countries demand for Treasuries increase, meaning the United States can maintain a low-rate, high-save program for the foreseeable future.

Spending challenges will come in the future, but for now, the environment looks propitious for the U.S.

 

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American Airlines Seeks $12B in Coronavirus Rescue Funding

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American Airlines seeks $12B in coronavirus rescue funding

American Airlines is seeking $12 billion in loans and grants from the U.S. government, and says it won’t furlough employees for the next six months during the coronavirus health crisis.

In a memo sent to employees from CEO Doug Parker and President Robert Isom, the U.S. carrier said it will seek the funding as part of the $50 billion pot set aside for airline industry bailouts that’s included with the $2.2 trillion economic relief bill passed by Congress and signed by President Donald Trump last week.

Parker and Isom said, with the government help, they’re confident American will “fly through even the worst of potential future scenarios.”

To receive the rescue funding, carriers must not furlough workers or cut their pay rates through Sept. 30. It allows for equity stakes for the federal government and requires carriers to maintain certain air routes.

American is the world’s largest airline by fleet size, passenger traffic and revenue passenger miles. It and other airlines are offering partially paid, voluntary leaves of absence to workers as traveler demand has evaporated due to the pandemic. Three out of every four Americans are presently subject to municipally ordered lockdowns.

Monday, American said it’s extending no-fee travel changes for flyers who bought fares through April 30.

Also Monday, low-cost carrier Spirit Airlines said it’s canceling all flights to and from New York, New Jersey and Connecticut after the Centers for Disease Control and Prevention warned against all non-essential travel in the region.

Spirit said it’s suspending service to New York City’s LaGuardia Airport, Newark, N.J., Hartford, Conn., and Plattsburgh, N.Y., through at least May 4.

Copyright 2020 United Press International, Inc. (UPI). Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI’s prior written consent.

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Federal CARES Act Provides Relief to Businesses Hurt by COVID-19

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Federal CARES Act provides relief to businesses hurt by COVID-19

The federal Coronavirus Aid, Relief and Economic Security Act passed by both Congress and signed into law by President Trump, also known as the CARES Act, offers major financial support for companies impacted by the coronavirus pandemic.

The most vital policy provisions for businesses affected by the coronavirus, according to the U.S. Chamber of Commerce, are:

  • Slowing the payment of payroll taxes to allow businesses to have more cash to keep employees on their payrolls.
  • Loans and grants for small businesses.
  • Creating a bridge loan facility to allow businesses with significantly less or no available revenue to continue to pay employees.

The chamber has published an interactive map for businesses to learn how available aid under the Small Business Paycheck Protection Program can help small businesses in each state. The website lists the amount aid available in each state, the number of small businesses and small business employees. To access the interactive map, click here.

The National Retail Federation, meanwhile, has published a summary of the CARES Act’s key provisions.

  • The “Paycheck Protection Program” provides $S250 billion to support loans for employers with less than 500 employees.
  • The “Loan Program and Credit Facility” provides $500 billion in both direct and indirect lending in Federal Reserve credit.
  • The “Unemployment Insurance Provision” provides assistance for unemployed workers, including those who have exhausted regular state and feral unemployment compensation in addition to short-term compensation programs.
  • The “Business Tax Provisions” includes tax provisions for retailers to offset the cost of retaining employees during the economic downturn.

For the full National Retail Federation summary, click here.

“Securing these funds could make the difference between keeping a business up and running over the coming weeks or being forced to reduce salaries, lay off employees, or shutter businesses entirely,” Thomas Donohue, U.S. Chamber of Commerce CEO, said in a press release.

For the latest updates on how the coronavirus is affecting the kiosk industry, click here.

Copyright © 2020 Networld Media. All rights reserved.

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IRS, Treasury Department and Department of Labor Give Guidance on Small Business Leave and Tax Credit

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IRS, Treasury Department and Department of Labor give guidance on small business leave and tax credit

The U.S. Treasury Department, Internal Revenue Service (IRS) and the U.S. Department of Labor (Labor) have announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees.

This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members.

The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Key Takeaways

* Paid Sick Leave for Workers

* For COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable.

* Complete Coverage

* Employers receive 100% reimbursement for paid leave pursuant to the Act.

* Health insurance costs are also included in the credit.

* Employers face no payroll tax liability.

* Self-employed individuals receive an equivalent credit.

* Fast Funds

* Reimbursement will be quick and easy to obtain.

* An immediate dollar-for-dollar tax offset against payroll taxes will be provided

* Where a refund is owed, the IRS will send the refund as quickly as possible.

* Small Business Protection

* Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.

* Easing Compliance

* Requirements subject to 30-day non-enforcement period for good faith compliance efforts.

To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

Background

The Act provided paid sick leave and expanded family and medical leave for COVID-19 related reasons and created the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

Paid Leave

The Act provides that employees of eligible employers can receive two weeks (up to 80 hours) of paid sick leave at 100% of the employee’s pay where the employee is unable to work because the employee is quarantined, and/or experiencing COVID-19 symptoms, and seeking a medical diagnosis. An employee who is unable to work because of a need to care for an individual subject to quarantine, to care for a child whose school is closed or child care provider is unavailable for reasons related to COVID-19, and/or the employee is experiencing substantially similar conditions as specified by the U.S. Department of Health and Human Services can receive two weeks (up to 80 hours) of paid sick leave at 2/3 the employee’s pay. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional ten weeks of expanded paid family and medical leave at 2/3 the employee’s pay.

Paid Sick Leave Credit

For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days. For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child Care Leave Credit

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Prompt Payment for the Cost of Providing Leave

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released next week, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced next week.

Examples

If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Equivalent child care leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

Small Business Exemption

Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Non-Enforcement Period

Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, Labor will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. Labor will instead focus on compliance assistance during the 30-day period.

For More Information

For more information about these credits and other relief, visit Coronavirus Tax Relief on IRS.gov. Information regarding the process to receive an advance payment of the credit will be posted next week.

© Copyright 2020, The Courier, All Rights Reserved.

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