Inflation or a price blip? And a red line?

Inflation or a short-term price increase? Consumer prices rose a steep 4.2 percent in April compared to a year earlier, the biggest jump since 2008. Economists and policymakers must now try to understand whether the bump is a sign of inflation or merely a short-term increase that reflects temporary supply shortages and rising consumer demand. Their conclusion is likely to influence how Congress proceeds with President Biden’s ambitious spending plans.

The GOP’s “red line.” Following a White House meeting between Biden and the bipartisan congressional leadership, Senate GOP leader Mitch McConnell said  “We’re not interested in reopening the 2017 tax bill. That’s our red line.” House GOP leader Kevin McCarthy delivered a similar message: “Raising taxes would be the biggest mistake you could make.” House Speaker Nancy Pelosi wants the leaders to agree first on spending, then figure out how to pay for it. Biden says there is “room for compromise” but says the burden of paying for infrastructure should be shared “across the spectrum.”

Wyden: A gas tax increase for infrastructure would be a “big mistake.” Senate Finance Committee Chair Ron Wyden prefers increasing corporate tax revenue to fund an infrastructure package rather than raising the federal gasoline tax. A gas tax increase would affect middle-income households and President Biden has pledged not to raise taxes on those making under $400,000 annually. Senate Republicans want to use unspecified “user fees” to pay for infrastructure.

Federal judge won’t temporarily block ARP’s curbs on state tax cuts. Ohio’s Republican Attorney General sued to block the American Rescue Plan’s limits on states using federal aid to fund  tax cuts. Federal District Court Judge Douglas Cole ruled that while Ohio’s case may succeed in court, a preliminary injunction against the ARP provision would be inappropriate at this stage, since Treasury would be unlikely to take action against Ohio.

Tune in today at noon for TPC’s Prescription with Fred Goldberg. The former IRS commissioner and assistant Treasury secretary for tax policy will talk with TPC’s Howard Gleckman about the challenges the IRS faces and President Biden’s recent initiatives to enhance IRS enforcement efforts. Register and tune in here at noon. 

Will Biden’s tax hikes spark charitable giving? Biden’s proposal to raise taxes on the wealthy could make some charitable giving strategies more attractive. Proposed increases in capital gains taxes, for example, could lead some to donate stock or mutual funds that have gained value. Though, depending on the final law, taxpayers may wait until next year if that’s when tax increases take effect. 

Amazon: 1, European Commission: 0. Yesterday, the online retailer Amazon won its tax case against the European Commission. The Commission had ordered the company to pay $303 million in back taxes to Luxembourg but the EU’s General Court ruled  that Amazon had not benefited from a selective advantage in its tax deal. The court said the “Commission did not prove to the requisite legal standard that there was an undue reduction of the tax burden of a European subsidiary of the Amazon group.”

Missouri lawmakers pass a gas tax increase with a refund option. The  legislature increased the state’s 17-cent-per-gallon tax by 2.5 cents starting in October. Over five years, the rate would increase by a total of 12.5 cents per gallon and raise  up to $514 million a year by 2027 for transportation improvements. But drivers can opt out of the tax by applying for a refund,  though it remains unclear how many drivers try. Missouri’s gas tax is currently the second lowest in the country. Gov. Mike Parson is expected to sign the measure soon. 


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