Welcome back! You’ve made it to edition two and we’re delighted you’re still here. This week we’re diving into the wild world of bonds (don’t run!) and checking in on everyone’s favorite tax disaster, the Employee Retention Credit. Whether you're a full-blown fiscal policy geek or just here for quirky trivia, we've got you covered.
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Bond Market Rollercoaster
The U.S. bond market, you may have heard, has been more dramatic than a reality TV reunion lately. Yields on long-term Treasuries, especially the 10-year, have been spiking in the last few months, most recently creeping up to nearly 4.6% in early April. What’s behind the spike? A nasty cocktail of persistent inflation, tariff jitters, and some serious fiscal side-eyeing from investors.
Sure, the recent 90-day tariff reprieve offered some breathing room, but forecasts are still all over the place. Some are anticipating a large-scale global exodus away from U.S. assets (yes, even the almighty dollar), while bond traders are anticipating a rate cut by the U.S. Federal Reserve that would lead to falling Treasury yields.
Curious how fiscal policy fits into all of this? The Bipartisan Policy Center has a great explainer, and Brookings offers a deeper dive into some of the regulatory tweaks that could help calm those markets. TL;DR - The U.S. government already spends a mind-boggling amount to finance its outstanding debt. Bond market troubles risk making those interest payments even worse, at the expense of other important spending.
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The Easiest Decision in D.C.: Kill the Employee Retention Credit Already
We’ve been beating this drum for years (seriously, see here and here and here…) and we’re not putting down the sticks just yet. As Congress looks for ways to extend key parts of the 2017 Tax Cuts and Jobs Act without blowing an even bigger hole in the deficit, there’s one glaringly obvious win staring everyone in the face: pull the plug on the Employee Retention Credit (ERC).
What started as a well-intentioned pandemic-era lifeline for struggling businesses has morphed into a fraud magnet, ballooning from an estimated $55 billion to a potential $550 billion cost to taxpayers. “What was once a targeted support program is now largely a windfall for firms that no longer need it,” writes Andrew Moylan, AV’s vice president of Public Finance.
With the IRS swamped, making the agency’s January 2024 moratorium official isn’t just smart – it’s a no-brainer that could save taxpayers over $70 billion. Fiscal responsibility never looked so good.
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In the News
Do the Math: PolicyEngine has introduced SALTernative, a free, open-source calculator designed to simulate reforms to the State and Local Tax (SALT) deduction and the Alternative Minimum Tax (AMT).
Pass the SALT: Capping C-SALT Is a Smart, Fiscally Responsible Tradeoff
Social Security Reality Check: Writing for Forbes, AV Program Integrity Fellow Doug Criscitello reminds us that improvements to the Social Security Administration’s operations won’t fix the program’s underlying fiscal crisis. It's time for policymakers to look beyond administrative tweaks and tackle the tough structural choices needed to ensure long-term solvency.
Taking Shape: The Niskanen Center highlights a new wave of state-level child tax credit (CTC) proposals aimed at balancing fiscal responsibility with targeted support for low-income families.
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Trivia Corner
The sixth longest filibuster in U.S. history was over the debt. On September 28, 1981, Senator Bill Proxmire (D-WI) held the Senate floor for 16 hours and 12 minutes over the federal debt passing $1 trillion dollars. Today that number stands at $37 trillion.
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