Many economists say suspending federal taxes on gas will not significantly cut prices for consumers.
Pennies off at the pump
This afternoon, President Biden will ask Congress to lift federal taxes on gas through the end of September, just before the midterm elections, The Times’s Zolan Kanno-Youngs and Lydia DePillis report. Oil prices have risen to their highest levels in 14 years, squeezing consumers, and the president is hoping to alleviate some of the economic pain that has been a drag on his popularity.
Experts are skeptical that the move will benefit consumers much. The tax amounts to about 18 cents per gallon of gasoline and 24 cents per gallon of diesel. Biden will demand that companies pass on the benefits of the tax holiday to consumers, senior administration officials said, though it is unclear how he would do that. The administration estimates that if states also suspend their gas taxes and oil companies step up refining, gas prices could fall by at least $1 a gallon. But some experts say the federal tax is now such a small slice of the price at the pump, coming in at less than 5 percent of the total cost, that consumers may not even notice the change.
Suspending the gas tax is ineffective and a waste of public resources, many economists say. Douglas Holtz-Eakin, the president of the think tank American Action Forum and a former chief economist of the Council of Economic Advisers, told DealBook that the economics of the proposal did not add up. “If you have high prices, you need more supply or less demand,” he said. “Cutting the tax doesn’t do either of those things.” Holtz-Eakin said he expected a suspension would just cause gas producers to increase prices to capture the difference. The move could also wipe out $10 billion in funds for highway construction and maintenance.
The measure faces an uphill battle in Congress. Vulnerable Democrats have championed the move ahead of midterms, but Republicans widely oppose it and have accused the administration of undermining the energy industry. Even members of Biden’s own party, including Speaker Nancy Pelosi, have expressed concern that the plan would not benefit consumers.
The proposal comes as the White House struggles to curb surging inflation. Jay Powell, the chair of the Federal Reserve, is testifying before the Senate Banking Committee today, the first of two days of his midyear update to Congress. As The Times’s Jeanna Smialek wrote yesterday, the Fed is facing blame for letting inflation get out of control, and questions about whether it is doing enough about it. Biden has fewer tools at his disposal to tackle the problem, but his gas tax efforts suggest that he is desperate to try.
HERE’S WHAT’S HAPPENING
A bipartisan gun deal clears an initial vote in the Senate. The legislation could become the most significant overhaul of U.S. gun laws in decades. It falls short of the sweeping gun control measures Democrats have long demanded, but its enactment would break a yearslong stalemate over federal legislation to address gun violence.
Warren Buffett’s estate may go to a Buffett family foundation supporting abortion rights. The Wall Street Journal reported that charities are racing to readjust their plans after some signs emerged that his estate may go to the Susan Thompson Buffett Foundation, not the Gates Foundation as was expected.
Europe should brace for a total shutdown of Russian gas exports, the head of the International Energy Agency says. In an interview with The Financial Times, Fatih Birol urged European governments to keep their aging nuclear power stations open and to keep coal-fired power stations ready in case Russia halts gas exports this winter.
Millions of tax returns have not been processed as the I.R.S. tries to clear its backlog. The agency is facing a larger-than-normal pileup of returns, the Treasury Department said, with more than twice as many awaiting processing “compared to historical norms at this point in the calendar year.”
Are sanctions on Russia working?
Nearly four months into Russia’s invasion of Ukraine, the West’s sanctions are looking shaky.
Efforts to curtail purchases of Russian fossil fuels appear to have boomeranged, at least for now, The Times’s Victoria Kim, Clifford Krauss and Anton Troianovski report. Europe’s embargo on Russian oil has yet to take effect. But China and India are buying roughly the same volume of Russian oil that would have gone to the West. Oil prices are so high that Russia is making more money now than it did before the war.
Adding insult to injury, some Indian companies are buying discounted Russian crude, refining it and selling some of the oil products to the United States, Britain, France and Italy at high prices, according to the Finnish-based Center for Research on Energy and Clean Air.
At the same time, some Western companies seem to be finding it difficult to cut financial ties to Russia. The hospitality giants InterContinental Hotels Group, Hyatt and Hilton have been given “D” ratings by a team of researchers who are tracking corporate exits from Russia. “It was disappointing to see that the hospitality group overall was so reluctant to make moves that the casual dining, fast food people were able to ultimately, grudgingly, make,” Jeffrey Sonnenfeld, a Yale University management professor who leads the team, told DealBook. “It’s not impossible for any of them. Marriott, in the hospitality space, was the perfect example.”
Marriott announced this month that it was suspending all hotel operations in Russia. Sonnenfeld’s team gives Marriott a “B” because it is “keeping options open for return.”
InterContinental, which owns 17 brands including Crowne Plaza and Holiday Inn along with its namesake, has suspended new hotel openings and future investments. But its hotels under long-term management or franchise agreements have stayed open.
Hilton has said in a statement that it had taken steps to curtail its business in Russia and halt future development.
Hyatt’s chief executive, Mark Hoplamazian, said at a conference this month that the company wanted to be mindful of local laws when winding down businesses in Russia. “We have to take great care of how you go about organizing that because there’s a lot of scrutiny,” he said, according to The Points Guy. In statements, Hyatt said it was one of the first Western hotel companies to cut ties with the local owners of its hotels in Russia, though it said some may continue to use the Hyatt name.
Some companies have described their exits as “suspensions,” even if they have no intention of returning. “They are concerned that if they walk away, they may be in breach of contracts of various kinds,” Andrew Kenningham, the chief Europe economist at Capital Economics, told DealBook.
“The public is not prepared for what’s going to happen. The impact of this on the global economy, and on the U.S. economy, is measured in the many billions of dollars, not in the millions of dollars.”
— Alan Bersin, a former commissioner of U.S. Customs and Border Protection, on a newly imposed U.S. ban on imports from Xinjiang, the far-western region of China, that is intended to push back against the use of forced labor.
How Susquehanna’s founder dodged $1 billion in taxes
Compared with many other billionaires, Jeff Yass, a founder of the trading giant Susquehanna International Group, has barely made a blip on the radar. In recent years, however, he’s repeatedly drawn audits from the I.R.S., and his knack for gaming systems of all kinds has cost taxpayers a lot of money, according to a new ProPublica investigation.
The Russia-Ukraine War and the Global Economy
Over the past six years, Yass has paid much less in taxes than his peers. From 2013 to 2018, Ken Griffin of Citadel and John Overdeck and David Siegel of Two Sigma paid income taxes at average rates of 29 to 34 percent, while Yass averaged 19 percent. ProPublica estimates he avoided $1 billion in federal income taxes during that period. In 2005, he earned what was for him a relatively modest $66 million and paid no federal income tax.
Yass’s strategy exploits a gap in tax rates. Susquehanna specializes in short-term trading, and capital gains on those transactions are typically taxed at a rate of around 40 percent. But Yass’s firm reports most of its profits as long-term capital gains, applied to investments held for more than 365 days, which are taxed at roughly 20 percent.
Essentially the firm makes offsetting trades, betting on and against the same asset and selling whichever bet is down as the 365-day deadline approaches, while holding the winner until just after it passes. Those trades don’t generate much profit, but they do yield tax savings, creating short-term losses to offset taxable income.
Lowering tax burdens this way is “suggestive of potential abuse,” Gregg Polsky, a University of Georgia law professor and a former corporate tax lawyer, told ProPublica. Over eight years, a partnership called Susquehanna Fundamental Investments registered $5.4 billion in losses against $5 billion in gains and delivered $1.1 billion in tax savings, tax records show. It’s unclear whether the I.R.S. has ever challenged the partnership’s activities, though it said a similar effort by Susquehanna traders in 2020 was illegal.
Those tax savings have helped fund anti-tax advocacy. Some of Yass’s 2020 donations appear to have been intended to curry favor with Donald Trump when the president was considering a U.S. ban on TikTok, which is owned by the Chinese company ByteDance, a major Susquehanna investment. Yass made two $5 million donations to the anti-tax group Club for Growth, which then ran anti-Biden attack ads, and Trump soon backed a deal to allow U.S. companies to take a stake in TikTok — and for it to get a new board with a Susquehanna partner.
THE SPEED READ
British officials are considering using national security legislation to persuade SoftBank to list Arm in London instead of in the U.S. (FT)
Higher Ground, the Obamas’ production company, signed a multiyear deal with Amazon’s Audible after an agreement with Spotify had lapsed. (NYT)
Sam Bankman-Fried and his crypto exchange FTX have been providing credit lines to other crypto companies to keep them afloat. (Bloomberg)
The crypto miner BitFarms is selling off tens of millions of dollars in Bitcoin. (Bloomberg)
The F.D.A. wants tobacco companies to reduce the nicotine level in cigarettes. (NYT)
Meta, Facebook’s parent, agreed to alter its ad technology to settle bias claims. (NYT)
Microsoft removed some facial analysis features as it tightens controls on artificial intelligence products. (NYT)
Best of the rest
Naomi Osaka is starting a media company with help from LeBron James. (NYT)
Broadway will drop its mask mandate as of July 1 and re-evaluate the policy monthly. (NYT)
Beyoncé’s new single “Break My Soul” is an anthem for the Great Resignation. (CNBC)
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