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Economia

How House Democrats Plan to Raise $2.9 Trillion for a Safety Net

WASHINGTON — Top Democrats on Monday released legislation that would raise as much as $2.9 trillion to finance President Biden’s social safety net package through a series of tax changes, including increasing the amount that the wealthiest Americans and corporations pay in taxes.

The legislation, released by the House Ways and Means Committee, amounts to an opening offer as Democrats in both the House and Senate try to cobble together pieces of Mr. Biden’s $3.5 trillion economic package, which would fund climate provisions, paid family leave and public education.

The House bill proposes tax increases on wealthy corporations as well as individuals. But elements of the proposal are markedly different from what Mr. Biden initially proposed and what Senate Democrats have floated.

Moderate and conservative Democrats have balked at the $3.5 trillion price tag and certain proposed revenue provisions, even as their liberal counterparts warn that they have already compromised on the package’s scope.

Given that the Democrats plan to pass the bill along party lines, those differences will need to be worked out in the coming days. Party leaders have said they hope to reconcile the competing interests in the two chambers as much as possible before the legislation reaches the House floor.

Here is what the House Ways and Means Committee, led by Representative Richard E. Neal of Massachusetts, proposed, and how it compares with other proposals from the White House and the Senate.

House Democrats proposed raising the top tax rate on wealthy individuals to 39.6 percent from the current 37 percent. The new rate would kick in for married couples who have taxable income over $450,000 and single people who make more than $400,000.

The increase, which mirrors what Mr. Biden proposed in May, would take effect at the end of December and revert the top tax rate to what it was before Republicans passed their 2017 tax cuts. The House plan would also increase the top capital gains rate to 25 percent from 20 percent, a far smaller increase than the near doubling Mr. Biden has suggested.

The wealthiest — those with an adjusted gross income of than $5 million — would also face a new surtax of 3 percent under the House plan. While Mr. Biden has not proposed such a levy, Senate Democrats have suggested an even broader wealth tax than the House, proposing a one-time surtax on billionaires’ fortunes, followed by annual levies on the gains in value of billionaires’ assets.

The House plan is less aggressive than those of the White House and the Senate in other ways, including when it comes to taxing inheritances. Some top Senate Democrats want to tax inherited assets based on the gain in value from when those assets were initially acquired, rather than what they are worth at the time of death. Moderate Democrats have complained that would unfairly affect smaller family farms and businesses, and the House bill does not include such a plan.

Mr. Biden has suggested raising the corporate tax rate to 28 percent, a significant increase from its current level of 21 percent but still lower than the 35 percent rate that was in effect before the 2017 tax cuts. House Democrats instead proposed a graduated rate structure, with an increase to 26.5 percent for companies with taxable income of more than $5 million.

The tax rate would remain at 21 percent for companies with income of more than $400,000, and drop to 18 percent for the smallest businesses, those with income of less than $400,000. For vulnerable moderate Democrats facing political backlash for supporting tax increases, that decrease could be a crucial distinction for whom they want to target with those provisions.

The fate of the proposal is unclear in the Senate. Senator Joe Manchin III of West Virginia, a key moderate Democrat, on Sunday reiterated that he supported raising the corporate tax rate to 25 percent, and other Democrats have expressed concerns about hurting American businesses.

“The number would be what’s going to be competitive in our tax code,” Mr. Manchin said, speaking on CNN’s “State of the Union.” Other moderate Democrats have concerns about the increase for businesses.

Senate Democrats, led by Ron Wyden of Oregon, the chairman of the Finance Committee, have championed plans that would impose another set of taxes on big companies, including one on corporations that buy back their stocks to boost share prices.

The Biden administration has led a global effort to crack down on profit shifting by companies that locate their headquarters in countries with low rates to reduce their tax bills. The measure unveiled by House Democrats on Monday waters down some of what the White House has been pushing for, including the rate that companies would pay on their overseas profits.

The legislation calls for a tax rate of 16.6 percent on corporate foreign earnings. That would be an increase from the current rate of about 10.5 percent, which Republicans enacted as part of their 2017 tax legislation, but less than the 21 percent that the Biden administration proposed. The tax would be calculated on a country-by-country basis.

The House proposal also offers more generous exclusions than what the White House envisioned. Companies could exclude 5 percent of their foreign tangible assets, such as property and equipment, from the minimum tax. While that is less than the current 10 percent, the Biden administration wanted to cut that benefit entirely.

Still, the House proposal would put the United States more closely in line with the rest of the world, which has been coalescing around an agreement that would set a global minimum tax rate of at least 15 percent. Critics have argued that a rate of 21 percent in the United States would put American companies at a competitive disadvantage.

The Committee for a Responsible Federal Budget, a fiscal watchdog, called the Ways and Means Committee international tax proposal “less aggressive” than what the White House proposed and projected it would raise about $360 billion in revenue compared with the $1 trillion that the White House plan would raise.

House Democrats included legislative language that would double the existing excise tax on cigarettes, small cigars and roll-your-own tobacco, as well as imposing taxes on any non-tobacco nicotine products, like e-cigarettes.

That proposal could run afoul of Mr. Biden’s pledge to not raise taxes on families making less than $400,000. In negotiations over the $1 trillion bipartisan infrastructure package, Mr. Biden and his main deputies refused to consider raising the gas tax to help pay for the plan, largely because such a tax would affect anyone who buys gas, regardless of income level. That same problem would accompany an increased tax on tobacco and nicotine as well.

A White House official, speaking on condition of anonymity, characterized the provision as a new idea from Capitol Hill and argued that because smoking is not a required cost, as gas or other household items are, it did not violate the pledge.

Democrats from high-tax cities and states have agitated for months to address a limit on how much taxpayers can deduct in state and local taxes, after the 2017 Republican tax changes imposed a cap of $10,000.

None of the tax proposals so far have formally addressed a partial or full repeal of that limit, although it has support in both chambers and Senator Bernie Sanders, the Vermont independent in charge of the Budget Committee, has signaled openness to a partial repeal of the cap.

And while it was left out of the legislation released on Monday, Mr. Neal and two Democratic advocates for the proposal, Representatives Bill Pascrell of New Jersey and Tom Suozzi of New York, issued a statement pledging that “we are committed to enacting a law that will include meaningful SALT relief that is so essential to our middle-class communities.”

Mr. Suozzi, who has stood behind a mantra of “No SALT, no deal,” issued his own statement expressing confidence that a change to the limit would ultimately be included in the package. Some liberal Democrats, however, have pushed back against its inclusion because of its cost and because it could counter some of their tax increases on the wealthy.

House Democrats are prepared to spend billions of dollars to beef up the enforcement capacity of the Internal Revenue Service. The legislation adopts the Biden administration’s plan to spend $80 billion to invest in the agency, allowing it to hire more agents and to overhaul its creaky technology.

The plan would also bulk up the I.R.S. budget to engage in complex and expensive legal disputes with taxpayers who are not paying what they owe.

One big omission from the proposal, however, is the Biden administration’s plan to adopt a new information reporting system that would let the I.R.S. have greater visibility into the finances of taxpayers. Critics have called this an invasion of privacy.

But without that new system, the plan to narrow the so-called tax gap becomes much less bold. The Biden administration estimated that it could raise $700 billion in revenue by empowering the I.R.S., but by merely bolstering enforcement, the plan would raise about $200 billion over that time, the Congressional Budget Office said.

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Economia

Why Washington Worries About Stablecoins

That makes them the type of financial product “macroeconomic disasters usually come from,” said Morgan Ricks, a professor at Vanderbilt University Law School and former policy adviser at the Treasury Department. “The stakes are really, really high here.”

That said, some people — including George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute — argue that because stablecoins are used as a niche currency and not as an investment, they may be less prone to runs in which investors try to withdraw their funds all at once. Even if their backing comes into question, people will not want the potential taxes and paperwork that comes with changing stablecoins into actual dollars.

Given that the technology is so nascent, it is hard to know who is correct. But regulators are worried that they may find out the hard way.

Stablecoins are not all created equal. The largest stablecoin, Tether, says it is roughly half invested in a type of short-term corporate debt called commercial paper, based on its recent disclosures. The commercial paper market melted down in March 2020, forcing the Fed to step in to fix things. If those types of vulnerabilities strike again, it could make it difficult for Tether to quickly convert its holdings into cash to meet withdrawals.

Other stablecoins claim different backing, giving them different risks. But there are big questions about whether stablecoins actually hold the reserves that they claim.

The company Circle had said that its U.S.D. coin, or U.S.D.C., was backed 1:1 by cash-like holdings — but then it disclosed in July that 40 percent of its holdings were actually in U.S. Treasuries, certificates of deposit, commercial paper, corporate bonds and municipal debt. A Circle representative said that U.S.D.C. will, as of this month, hold all reserves in cash and short-term U.S. government treasuries.

The New York attorney general investigated Tether and Bitfinex, a cryptocurrency exchange, charging in part that Tether had at one point obscured what the stablecoins actually had in reserve. The companies’ settlement with the state included a fine and transparency improvements.

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Economia

Retailers Rethink Pandemic-Battered Manhattan

In the heart of Manhattan’s garment district, a once-busy Starbucks on a corner of Eighth Avenue and 39th Street sits empty. Just down the block, a Dos Toros Taqueria that opened just three years ago is now closed. And Wok to Walk, which once served steaming containers of noodles mixed with chicken and vegetables to a bustling lunch crowd, is also shuttered.

While the Delta variant of the coronavirus has again delayed plans by many companies to bring employees back to offices en masse, workers who have been trickling into Midtown are discovering that many of their favorite haunts for a quick cup of coffee and a muffin in the morning or sandwich or salad at lunchtime have disappeared. A number of those that are open are operating at reduced hours or with limited menus.

With the pandemic keeping millions of New York City office employees home for the past year, restaurants, coffee shops, apparel retailers and others struggled to stay afloat.

By the end of 2020, the number of chain stores in Manhattan — everything from drugstores to clothing retailers to restaurants — had fallen by more than 17 percent from 2019, according to the Center for an Urban Future, a nonprofit research and policy organization.

Across Manhattan, the number of available ground-floor stores, normally the domain of busy restaurants and clothing stores, has soared. A quarter of the ground-floor storefronts in Lower Manhattan are available for rent, while about a third are available in Herald Square, according to a report by the real estate firm Cushman & Wakefield.

Starbucks has permanently closed 44 outlets in Manhattan since March of last year. Pret a Manger has reopened only half of the 60 locations it had in New York City before the pandemic. Numerous delicatessens, independent restaurants and smaller local chains have gone dark.

“Midtown clearly has been the hardest hit of any of the areas of Manhattan,” said Jeffrey Roseman, a veteran retail real estate broker with Newmark. “If you think of other office-centric areas, whether all the way downtown or Flatiron or Hudson Yards, there is a lot of residential surrounding those areas that helped sustain those markets. Midtown, for the most part, is a one-trick pony.

“It’s mostly offices and hotels, which also took a hit from the downturn in tourism.”

The turmoil has reached farther downtown, though. Last week, the luxury furniture retailer ABC Carpet & Home — whose flagship store has been a fixture of the Union Square area — filed for bankruptcy protection, in part because of “a mass exodus of current and prospective customers leaving the city.”

But in a city where one person’s downturn is someone else’s opportunity, some restaurant chains are taking advantage of the record-low retail rents to set up shop or expand their presence.

In the second quarter, food and beverage companies signed 23 new leases in Manhattan, leading apparel retailers, which signed 10, according to the commercial real estate services firm CBRE.

Shake Shack and Popeyes Louisiana Kitchen were among those signing new rental agreements this year. So was the burger chain Sonic, which signed a lease for its first Manhattan outpost, replacing a Pax Wholesome Foods location in Midtown. The Philippines-based chicken joint Jollibee, which enjoys a committed following, plans to open a massive flagship restaurant in Times Square.

Still, with so much uncertainty about when employees may fully return to Midtown offices, some companies are proceeding carefully. The coffee shop Bluestone Lane had plans to expand aggressively into Manhattan before the pandemic and is still considering locations in Midtown. But it has now turned its focus to opening in more residential neighborhoods like Battery Park City, Hudson Yards and TriBeCa.

“We intentionally selected urban residential areas for our new cafes so we are not dependent on our locals returning to a physical office space, and are well positioned for the future of hybrid work,” Nick Stone, the founder and chief executive of Bluestone Lane, said in an emailed statement.

And some chain restaurants that already have reopened in Midtown are altering their strategies to address what they believe are the changing needs of customers in a post-Covid world.

On a recent weekday, a handful of customers were nibbling on salads and sandwiches at the Bryant Park location of Le Pain Quotidien. The long, communal tables that once dominated the front of the restaurant are gone for now, while refrigerated cases for a selection of grab-and-go drinks, salads and sandwiches will be expanded next year as part of a remodeling. A new app to preorder and pick up food became available in May.

While the new technologies work for some customers, others long for the past.

“We used QR codes for guests to look at the menu as we tried to limit the contact of surfaces, but the majority of our guests want to hold a real menu,” said Stephen Smittle, the senior vice president of operations for Le Pain Quotidien. “They very much want to feel normal. They want a server. They want to hold a cup of coffee, not a paper cup.”

Struggling before the pandemic, Le Pain Quotidien filed for bankruptcy in May 2020. It was acquired by Aurify Brands, which has since reopened many of the Le Pain Quotidien locations around the city, including several in Midtown.

“Our thinking is that Midtown New York will come back to a level that might not be 100 percent prepandemic, but based upon information we have gathered, I do believe that Midtown is going to come back to a prominent level,” Mr. Smittle said.

For Starbucks, one of the big lessons from the pandemic was that customers liked ordering their drinks online and then quickly picking them up at stores or drive-throughs. Starbucks had started to offer that even before the pandemic, opening a pickup location in Midtown’s Pennsylvania Plaza in late 2019.

Since early 2020, Starbucks has permanently closed 44 of its 235 locations in Manhattan. But it is adding mobile pickup areas in many stores and adding more pickup-only locations. The company says it expects to have net new store growth in Manhattan in the next few years.

Before the pandemic, Starbucks operated three stores around the Columbus Circle area. It closed them and this year opened one large restaurant. Now runners from Central Park pick up their preordered drinks from a mobile counter and head out again, while other customers stand in line to place their orders and can sit at nearby tables.

“We were going to build the concept out and evolve over time,” said John Culver, the president of North America and chief operating officer for Starbucks. “What we’ve done is taken the opportunity that the pandemic has presented and accelerated the transformation of our portfolio of stores. Consumer behaviors during the pandemic have accelerated at levels that no one expected.”

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Economia

The Fed will re-examine ethics rules after trades by two officials drew scrutiny.

The Federal Reserve is poised to overhaul the rules regarding what its officials are allowed to invest in and trade after disclosures last week showed that two of the central bank’s officials were active in markets in 2020, drawing an outcry.

Robert S. Kaplan, the president of the Federal Reserve Bank of Dallas, and Eric Rosengren, the president of the Boston Fed, bought and sold stocks and real estate-tied assets last year.

Those transactions complied with Fed guidelines, but they involved securities that could have been affected by Fed decisions and communications during a year in which it was actively supporting a broad swathe of financial markets amid the pandemic. Policy researchers and even some former Fed employees were upset by the disclosures.

In response to the scrutiny, both regional presidents announced that they would sell their holdings and move them to cash and broad-based funds. Still, the episode highlighted that the Fed’s rules governing its officials’ financial activity — although in line with what much of the government uses, and in some cases stricter — allow for considerable individual discretion. The central bank said on Thursday that it would re-examine those policies at the direction of Jerome H. Powell, the Fed chair.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed representative said in a statement.

“This review will assist in identifying ways to further tighten those rules and standards,” the representative added. “The board will make changes, as appropriate, and any changes will be added to the Reserve Bank Code of Conduct.”

The statement came about an hour after Senator Elizabeth Warren, a Massachusetts Democrat, announced that she had sent letters to the Fed’s 12 regional banks urging them to adopt tougher restrictions.

“The controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest,” Ms. Warren wrote in the letters.

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