- Tax Plan to Finance Biden’s Infrastructure Package Announced
- Which Countries Will Benefit the Most from the IMF’s SDR Increase?
- The Budget Deficit Climbs to Historic Levels in Germany
Tax Plan to Finance Biden’s Infrastructure Package Announced
US President Joe Biden has called on US companies to pay taxes that would fund most of the $2 trillion infrastructure investment package but signaled that he is open to discussing exactly how much they will have to pay. The plan, if enacted, would raise $2.5 trillion in revenue over 15 years.
“Debate is welcome. Compromise is inevitable. Changes are certain,” Biden said. He added he would soon invite Republican lawmakers to the White House and that the administration is “open to good ideas and good-faith negotiations.”
But, Biden said: “Here’s what we won’t accept: We will not be open to doing nothing. Inaction is not an option.”
On April 1, Biden announced a comprehensive infrastructure plan with a bid of over $2 trillion to reshape the world’s largest economy and prevent China’s rise.
Republicans, big corporations, and even some members of his Democratic party oppose the plan announced by Biden last week. This plan must be approved by Congress to be implemented.
Biden said it would be unacceptable not to move forward, arguing that China threatens the US’s position as a leading global power if the investments outlined are not made.
Under this plan, Biden proposed investing over eight years to build roads and bridges, renovate homes, expand broadband internet access, care for the elderly, fund domestic production, and make high-speed railways.
The White House has announced that Biden’s plan will not increase US debt in the long run. The largest share that will finance this infrastructure plan will be provided by increasing the tax paid by companies from 21% to 28%.
Treasury Secretary Janet L. Yellen said during a briefing with reporters on Wednesday that the plan would end a global “race to the bottom” of corporate taxation.
“Our tax revenues are already at their lowest level in generations,” Ms. Yellen said. “If they continue to drop lower, we will have less money to invest in roads, bridges, broadband, and R&D.”
Which Countries Will Benefit the Most from the IMF’s SDR Increase?
Finance ministers and central bank governors of the world’s largest economies are preparing to raise Special Drawing Rights (SDR), the international reserve currency of the International Monetary Fund (IMF), by new allocation by $650 billion to help fragile countries combat the pandemic.
SDRs are the IMF’s international reserve currency and can be converted into dollars, euros, pounds, yen, and yuan. The approval of 85% of the IMF general assembly shareholders is required for the allocation of SDRs. The Washington administration’s opinion is decisive, as the USA has a voting power of 16.5%. The IMF has allocated 204.2 billion SDRs, equivalent to about $285 billion.
The IMF issues SDRs to member countries’ central banks as reserve assets. Central banks can use this reserve asset to exchange foreign currency with other central banks easily. If many central banks voluntarily make these exchanges but fail to do so, the IMF has the power to judge which country should accept SDRs.
The value of SDR is determined daily by the five major international currencies’ basket exchange rate. These currencies and their rates in the basket rate are as follows: dollar (42%), euro (31%), yuan (11%), yen (8%), and pound (8%).
According to the draft statement of the G20 meeting, finance ministers and central bank governors of the world’s 20 largest economies gave the green light to the allocation of 650 billion SDR. This amount is higher than the previously possible $500 billion.
Since SDRs are allocated directly to the “quotas” of the member states in the IMF, the majority will get prominent and wealthy countries with the least need for assistance. The USA, the European Union (EU), and the UK will get almost half of the liquidity provided.
Analysts estimated that an increase of $650 billion would add roughly $21 billion to low-income countries’ additional reserves. If rich countries, which will earn about $400 billion from the SDR allocation, lend or donate some of their new SDRs, the amount that low-income countries would receive could be higher.
Citi’s analysts calculated that the increase would more than double Zambia’s reserves and Zimbabwe’s reserves more than six times. SDR allocation and Argentina, Turkey, Sri Lanka, South Africa will also be suitable for countries like Pakistan and Nigeria. These countries will see a 10% to 20% increase in their foreign exchange reserves.
The Budget Deficit Climbs to Historic Levels in Germany
In 2020, Germany’s public budget deficit rose to the highest level seen since the two of Germany’s reunification in 1990. While Germany’s budget deficit in 2020 was 189.2 billion Euros, these figures were recorded as the first deficit since 2013.
The pandemic, which has so far claimed more than 77,000 lives in Germany, has devastated Europe’s largest economy, even though it has proven more resilient than many expected, partly because of China’s continuing strong export demand.
Lockdowns, bridging aid, Kurzarbeit and an overburdened healthcare system: the coronavirus pandemic has had a disastrous impact on Germany’s finances. For the first time in seven years, the federal republic is back in the red – and the size of the deficit is record-breaking.
Public spending rose 12.1% to 1.7 trillion euros in 2020 as the government pulled out all the stops to offset the impact of months of lockdown, while tax take fell 3.5% to 1.5 trillion euros, the statistics office said on Wednesday.
The coronavirus epidemic was influential in the increase of budget expenditures in 2020. The federal government sent 17.8 billion euros to the states due to the epidemic. In 2020, tax and parafiscal revenues decreased by 3.8% to 1 trillion 308.4 billion euros. At the federal level, income tax and tax-like charges fell 11.5% to $315.8 billion.
Germany is combating a third wave of the pandemic, and many companies, such as bars and cinemas, are expected to remain closed until at least later this month.
However, according to the Ifo institute, the number of people working shorter hours decreased last month, driven by the industrial sector, benefiting from solid exports.
Companies can reduce employee hours under a government program to prevent mass layoffs during a downturn by providing companies with subsidies to retain employees on the payroll.
According to Ifo, 2.7 million workers worked fewer hours in March, down from 2.9 million in February.