Inflation Could Top 10% With Ukraine Conflict

By Yuval Rosenberg

A topsy-turvy "Twosday:" While the palindromic
calendar reading of 2-22-22 is seen as a sign of good luck,
producing a wave of weddings, accelerated births and extra-festive
Taco Tuesday meals, the day began on a decidedly down note in
Europe as Russian President Vladimir Putin stepped over the line in
Ukraine, threatening war with potentially severe economic and
humanitarian repercussions. Here’s what you need to know.

US Inflation Could Hit 10% as Ukraine Conflict
Intensifies: Analysis

Russia’s military incursion into Ukraine and the threat of a
wider war are pushing energy prices higher, threatening the U.S.
economic recovery while limiting the options available to the
Federal Reserve as the central bank tries to gain control over a
bout of inflation that has proved to be more severe and more
enduring than expected.

Oil prices approached $100 a barrel Tuesday, hitting levels not
seen since 2014. Analysts at JPMorgan estimate that if the military
conflict between Russia and Ukraine escalates, oil could top $120,
and if the war interferes with Russian energy exports, the price
could move higher still.

Economist Joe Brusuelas of the consulting firm RSM estimates
that if oil prices hit $110 a barrel, inflation in the U.S. could
hit 10% on a year-over-year basis – a level not seen since 1981 –
while economic growth could be reduced by a full percentage
point.

“The U.S. and global economy should prepare for a modest energy
shock,”
told Politico Tuesday. “Growth is going to slow
and inflation is going to increase.”

A problem for the Fed: The U.S. central bank is expected
to start raising interest rates in March as part of its effort to
reduce inflation, but the threat to economic growth could
complicate the situation. Some inflation hawks have been calling
for a half-percentage-point increase in March, with multiple
quarter-point hikes in the months following. But the Ukraine
conflict may reduce the odds of such a big hike next month and
limit the number of increases during the year, as officials seek to
cushion the blow of the energy price spike.

“Basically, now they're positioned to hike into a slowing
economy with higher inflation and significant uncertainty around
the supply of and pricing of energy,” Brusuelas said. “So yeah,
this is a major problem.”

Mohamed A. El-Erian, the former CEO of bond giant Pimco, warned
that the Fed may find itself with few good options in the coming
months as it faces down what could be a stagflationary shock.
“Having missed multiple windows for orderly normalization, it finds
itself in the midst of rising geopolitical strains with already
very low interest rates and a bloated balance sheet,” he
said in an opinion piece Tuesday. “Making things
more challenging, the Fed has eroded its inflation credibility and
lost control of the monetary policy narrative.”

Time to revive the child tax credit? Brusuelas says that
U.S. officials may need to find a way to address the energy shock,
which will likely slow growth and damage households’ balance
sheets. One easy option would be to revive the expanded child tax
credit, which rapidly provided extra income to millions of American
households last year before expiring in December.

“During the pandemic, the federal government tried to mitigate
the loss of income caused by the pandemic,”
Brusuelas says. “As a result, we have a ready-made
program that could be quickly revived to provide direct cash to
stressed households and cushion the adjustment caused by tensions
in Ukraine. … It makes sense for the federal government to provide
direct relief to beleaguered households so they can purchase food,
fuel, clothing and shelter, in addition to defraying child care and
school-related expenses. The child tax credit has been demonstrated
to work and will be needed should another supply-induced energy
shock hit households.”

Quote of the Day

“Once the positive long-run benefits to children are
considered, many safety net programs are cost-effective. However,
the current government practice of limiting the time horizon for
cost-benefit calculations of major policy initiatives reduces the
influence of the most current economic research on the long run
benefits.”
— Economists Anna Aizer, Hilary W. Hoynes and Adriana
Lleras-Muney, from a
paper published this month by the National Bureau
of Economic Research. The authors argue that the 10-year horizon
typically used by government agencies such as the Congressional
Budget Office to evaluate proposed social programs emphasizes
up-front costs while obscuring important long-run benefits.
“Economists are now amassing a mountain of evidence that
supports the notion that spending on kids has huge benefits, not
just for kids themselves, but for society — and taxpayers — as a
whole,” NPR’s Greg Rosalsky says in a
review of the paper. “While many economists in the
past may have helped contribute to the scaling back of social
programs by pointing out their costs, maybe now they will help
contribute to building them back up by illuminating their ample
benefits.”

Rick Scott Unveils an 11-Point Agenda That
Includes Tax Hikes for Millions

Senate Republican leaders have made it clear that they aren’t
interested in detailing their plans if they win control of Congress
in the midterms elections. Asked last month what his party’s agenda
would be, Senate Minority Leader Mitch McConnell (R-KY) dodged:
“That is a very good question,” he said. “And I'll let you know
when we take it back.”

Sen. Rick Scott of Florida, who chairs the National Republican
Senatorial Committee, apparently has a different view. Scott has
released an 11-point, 31-page plan laying out the conservative
agenda he’d want to pursue if Republicans win Senate and House
majorities this year and the White House in 2024.

The plan is heavy on culture war controversies and traditional
right-wing talking points. It starts with the claim that “the
militant left now controls the entire federal government, the news
media, academia, Hollywood, and most corporate boardrooms – but
they want more.” It promises to have kids say the pledge of
allegiance and to finish construction of Trump’s border wall — and
name it after the ex-president. There’s plenty of fodder for Trump
supporters who still falsely claim that the 2020 presidential
election was rigged.

But Scott also proposes dramatic cuts to the federal government
and calls for cutting the government workforce by 25% in five
years. “Many government agencies should be either moved out of
Washington or shuttered entirely,” the plan says.

Washington Post columnist Jennifer Rubin
notes that the plan lacks “any proposal to bring
down inflation (which Republicans have been hollering about for
months); to increase wages or reduce income inequality; to prepare
workers for the 21st-century economy; to provide relief from
tariffs (which are essentially taxes); and to increase school
performance on basic subjects.”

And the proposed cuts, Rubin writes, “will not be popular with
anyone who visits national parks, relies on federal law
enforcement, has an issue with Social Security, needs a tax refund
or thinks we need a strong national defense.”

Scott pairs his call for smaller government with a call for tax
increases on millions of lower-income Americans. “All Americans
should pay some income tax to have skin in the game, even if a
small amount,” the plan says. “Currently over half of Americans pay
no income tax.”

The proposal, as The Washington Post’s Aaron Blake
notes, rekindles the makers-versus-takers divide
that led to Mitt Romney’s 47% gaffe. “The language of the plan
itself effectively acknowledges it’s advocating for an income tax
increase on ‘over half of Americans’ — a group of people that is
overwhelmingly lower-income. And in fact, the number of Americans
to whom this would apply has climbed during the pandemic,” Blake
says.

He adds: “The political ads almost write themselves: The leader
of the effort to elect a Senate majority wants to use that to raise
taxes on as much as half of the country, however modestly. The GOP
has for years defined virtually any new tax as a tax increase, and
this meets that definition.”

The plan also contrasts with how former President Trump
celebrated the idea of not having to pay income taxes and proposed
a 0% income tax rate for individuals making $25,000 a year or
married couples making up to $50,000. “Trump proudly projected his
plan would increase the number of Americans who didn’t pay income
tax to 75 million,” Blake says.

The bottom line: “Taken as a whole,” Rubin says, “the
agenda reveals that the GOP is not a political party with ideas to
improve the lives of Americans. It’s a frightful expression of
White grievance and contempt for the intelligence of voters. And it
confirms what we have long suspected: Republicans don’t lack an
agenda; they’re just shy about revealing how unpopular it is.”

Dems Look to End Tax Break for Pro Sports
Stadiums

Three House Democrats on Tuesday reintroduced legislation to end
a lucrative tax break used by professional sports teams to fund new
stadiums.

Reps. Earl Blumenauer (OR), Don Beyer (VA) and Jackie Speier
(CA) rolled out the “No Tax Subsidies for Stadiums Act of
2022,” which seeks to end the tax-exempt status of municipal
bonds used to finance pro sports stadiums. The lawmakers say that
pro sports leagues and teams are rich enough to finance and build
their stadiums without public money.

“The NFL has proven once again that it can’t play by the rules.
As such, taxpayers-subsidized municipal bonds should no longer be a
reward for the Washington Commanders and other teams that continue
to operate workplaces that are dens of sexual harassment and sexual
abuse,” Speier said in a statement. “There is no reason why these
teams—the average of which went up in value to $3.48 billion in
2021, according to Forbes—should have American taxpayers footing
any of their bills. It doesn’t make economic sense, and it’s
particularly galling given the league’s longstanding failure to
address issues of sexual harassment and sexual assault as well as
on-going racial and gender discrimination and domestic
violence.”

The lawmakers say that subsidies for professional sports
stadiums have cost the federal government $4.3 billion since 2000,
based on a study published in the National Tax Journal.

“Billionaire owners who need cash can borrow from the market
like any other business,” Beyer said. “Arguments that stadiums
boost job creation have been repeatedly discredited. In a time when
there is a debate over whether the country can ‘afford’ investments
in health care, child care, education, or fighting climate change,
it is ridiculous to even contemplate such a radical misuse of
publicly subsidized bonds.”


Read more at The Washington Post.

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