Economic Policy and Regulation in the U.S. Market Insights
Small Business Week Showcase on Capitol Hill
On Small Business Week, manufacturers advocated for tax policies and regulations that would benefit their businesses. Marlin Steel and Madsen Steel President and Owner and NAM board member Drew Greenblatt spoke with lawmakers about the impact of the expired tax provisions and the cost of federal regulations on manufacturers. Greenblatt urged Congress and the president to act quickly to extend the expired tax provisions and to pass a resolution of disapproval regarding the EPA's overly stringent final rule on particulate matter.
Economic Developments in the U.S.
The data from the Federal Reserve shows that Americans are either cutting back on spending or paying down their credit cards, resulting in a dramatic slowdown in the growth of revolving debt. Overall consumer debt also grew by $6.3 billion in March, less than half of the $14.8 billion that economists had anticipated.
The Gallup survey shows that confidence in Federal Reserve Chair Jerome Powell improved slightly in 2024, but it is still near historic lows. Just 39% of respondents said they have confidence that Powell will do the right thing for the economy.
Minneapolis Federal Reserve Bank President Neel Kashkari argued that the Federal Reserve should consider all options to bring down inflation, and the most likely scenario is that interest rates would remain at their current 23-year high levels for an extended period of time.
The Federal Reserve's Kashkari also raised questions about whether interest rates are "restrictive" enough to cool the economy in a post-Covid recovery. He speculated that markets are mispricing the "neutral rate," or where interest rates need to be set to maintain the Federal Reserve target inflation rate of 2%.
The Gallup survey shows that higher prices are worrying Americans, as more than ever cite inflation as the most important financial problem they are facing. Inflation was the top financial concern for 41% of Americans, the survey showed.
Korean Economic Policy
President Yoon Suk Yeol's economic revitalization policies are drawing heated debate over whether they're serving the goal of stabilizing the public livelihood. Yoon's strategy is characterized by ideas of private sector-driven growth and improvement of fiscal soundness, under a belief that relevant policies will create synergies and have a spillover effect on the public.
Lee Seung-suk, a research fellow at Korea Economic Research Institute, says Yoon is on the right track in restoring order against populism, but the government should speed up deregulation. Deregulation includes eased tax rules across a range of sectors, including lowering the maximum corporate tax rate to 24% from 25% and raising the minimum threshold for capital gains tax for large shareholders to 5 billion won from 1 billion won. The comprehensive real estate holding tax, which is disputed because it's regarded as a punitive measure against owners of expensive homes, has also been lowered.
The Yoon administration attributed such worsening debt-to-GDP ratio to the previous Moon Jae-in government's expansionary fiscal policy, which was often criticized as a populist policy. A top economist at a major economic research institute also spoke highly of Yoon's economic drive with reference to the surprising GDP growth in the first quarter of this year. The GDP advanced 1.3% quarter-on-quarter, marking the fastest pace of growth in more than two years despite multiple risks here and abroad, such as the war in Ukraine, Middle East conflicts, ongoing inflation and costly borrowing rates in Korea. The economist acknowledged that it is a "worrisome level," but he viewed the GDP will grow to a sufficient level for the ratio to fall below 50% and "return to normal in the long term."
Members of People's Solidarity for Participatory Democracy, a civic activist group, call on President Yoon Suk Yeol to turn away from his "catastrophic management of state affairs" over the last two years during a rally outside the presidential office in Seoul's Yongsan District, Tuesday. The critics who are against Yoon's economic reform addressed the government's unwanted outcome of a record shortage in tax revenue in the wake of softened tax rules. "I'd say the government only has pleased conglomerates and the rich in return for greater pain suffered by most of the people," said Kwon Oh-in, director of economic policy at Citizens' Coalition for Economic Justice, a civic activist group. "The government must realize the idea of positive spillover arising from large businesses is outdated and therefore enhancing welfare through taxation is key to enliven the people's livelihood." The director referred to the country's tax revenue at 344.1 trillion won in 2023, which was 56.4 trillion won short of the government's budget plan and marked the record tax revenue shortfall. Kwon said the government is negligent in cracking down on collusion and unfair business practices, which he argued are behind the recent surge in the price of apples and other fresh produce. "Climate change certainly was a reason for the price increase, but the government could still control the prices if it carefully monitored how the transportation cost of goods are determined by a handful of logistics companies," he said. In a rally held outside the presidential office in Seoul, Tuesday, another civic group denounced the Yoon administration for "deepening inequality while turning a blind eye to its bungled economic policies." "In the name of a small government, Yoon and his economic policymakers are insisting on deregulation and reckless tax cuts while it has no clue how to make up the 56.4 trillion won shortfall in tax revenue," People's Solidarity for Participatory Democracy said. "We ask the government to prioritize improving the welfare of the people from now on by scrapping tax benefits for the haves."
The Biden administration is rushing to issue regulations in the final months of the presidential term to shield them from potential changes if the November election doesn't go their way. The Congressional Review Act (CRA) provides for expedited Senate procedures after which Congress can send a joint resolution disapproving a regulation to the president's desk. The Biden administration is operating with the May deadline in mind, and OIRA, which reviews all executive branch agency rules before publication, has concluded review of 42 economically significant final rules in April. The Federal Register publication date starts the CRA clock, and OIRA seems to have cleared its decks, as only seven more such rules are currently under review. The Biden administration is likely to issue more rules during the term, but Congress simply won't have time to spend disapproving more than a few dozen rules. The precedent-setting disapproval of 15 rules affected less than one percent of them during the 2016-2017 lookback window. Litigation or revision by a future administration is likely for many of the controversial rules now being issued.
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