Thought of the Week:
I live in Maryland’s 8th congressional district; my condo sits less than 12 miles from the White House, and the district rests almost entirely within Montgomery County. Immediately adjacent to the nation’s capital, Montgomery is not just Maryland’s most populous county, but it also includes a 93,000-acre agricultural preserve. In the 119th Congress, the county is represented in the House by Glenn Ivey (D-MD-4), April McClain Delaney (D-MD-6), and Jamie Raskin (D-MD-8). Before Congressman Raskin represented my district, current Senator Chris Van Hollen (D-MD) was our member in the House. The county is one of the most educated districts in the country with 29.2% of residents over 25 years of age holding post-graduate degrees, and as one might expect from a district with such high socio-economic status and proximity to the federal government, Montgomery County has a long history of robust political activism and civic engagement, including in the forms of lobbying, organizing, and political campaigns. I witnessed that activism up close and personal this week when a new restaurant opened in my neighborhood. The eating establishment’s interior featured a large mural that many found not just unappetizing, but offensive and threatening. The community reacted almost immediately posting across social media, contacting state and local politicians, and organizing a petition. Within days, the mural was removed, and an empty wall has taken its place. For a government affairs professional, the neighborhood’s reaction was instructive, but not from a partisan standpoint nor necessarily from an ideological perspective. By being authentic, credible, and persuasive, the response demonstrated what a successful public policy and lobbying campaign looks like and can accomplish. Using these same ideals—authenticity, credibility, and persuasiveness—the National Association of Manufacturers’ (NAM) International Trade Policy Committee (SCOA is a member of NAM, and the Washington office sits on the trade policy committee) is about to embark on its latest trade campaign—the U.S. Manufacturing Investment Accelerator Program. Recognizing that even if companies were operating at full capacity, with every machine on and every job filled, the U.S. could only produce 84% of the inputs necessary to meet demand, meaning that at least 16% of inputs would need to be imported, the initiative is designed to address one of American industry’s top challenges: tariff uncertainty on critical inputs. Backed by state-level economic data and a national trade impact map, the Accelerator proposes a set of actionable steps the Trump administration could take to give manufacturers predictable access to critical materials and leading technologies from reliable suppliers, while at the same time strengthening domestic manufacturing and global competitiveness. The program’s three components are:
- Utilizing existing authority to issue licenses that would act as tariff speed passes that would allow manufacturers to import must-have inputs without added costs.
- In the event tariffs would need to be paid on essential inputs, offer rebates to offset those costs when manufacturers reinvest in expanding U.S. operations.
- A quarterly manufacturing dialogue between manufacturers and administration officials to ensure the program is maximizing investment outcomes nationwide.
Whether at the local or federal level, advocacy campaigns are more likely to be effective when they’re authentic, credible, and persuasive.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group Says CBO Score is a Positive for the Reconciliation Bill’s Outlook. The Congressional Budget Office (CBO) released a new budget score for the House-passed reconciliation bill, showing an overall $2.4 trillion deficit expansion over the ten-year budget window. The entire deficit expansion can be attributed to the extension of the expiring 2017 tax cuts, which cost roughly $4.6 trillion over ten years relative to the CBO baseline. This is a sign that Congress has found a way to cut more spending than they are providing in new tax relief. The deficit impact is massively front-loaded, with $1.8 trillion coming in the next four years, driven by Trump campaign tax cuts, while the spending cuts grow over the course of the ten-year budget window. The score is consistent with CBO estimates and supports the Republican argument that the bill is a significant reform to federal spending programs that reduces the deficit relative to the current policy baseline. While some senators and outside agitators will push for deeper spending cuts, the score is an overall positive for the bill’s prospects.
National Association of Manufacturers (NAM) Documents Falling Optimism, Says Tax Reform is Needed. NAM’s Q2 Manufacturers’ Outlook Survey shows that manufacturers’ optimism about the future is dropping precipitously. Just 55.4% of respondents report a positive outlook for their companies—a nearly 15% drop from Q1 and the lowest level since the height of the COVID-19 pandemic in Q2 of 2020. Manufacturers do have a prescription for renewed confidence, however, as 85.4% of respondents believe Congress should preserve pro-growth tax policies in response to trade uncertainty. In fact, trade uncertainty remained the top business concern for the second consecutive quarter, cited by 77.0% of respondents. Almost as alarming is the increase in raw material costs, which was cited by 66.1% of respondents. Responding to the survey, NAM President/CEO Timmons said, “These numbers are yet another indicator that manufacturers need increased policy certainty. Congress must act urgently to preserve tax reform and empower manufacturers to make the long-term investments that drive the American economy.” According to Timmons, preserving tax reform in the House-passed reconciliation bill would prevent the loss of 6 million jobs and avoid a $1 trillion hit to the economy.
The Observatory Group Looks at the Impact of Persistent Uncertainty on the Federal Reserve’s Policy Outlook. Persistently unsettled tariff policy is making Fed policymakers more cautious about the monetary policy outlook. Many of them have given up trying to assess the impact of today’s tariff schedule, knowing that tomorrow’s may be materially different. They are now just waiting to observe the effects. If this is the case, then the economic effects, beyond the directional, are unforecastable, which only produces a strong inclination to stay on the sidelines. Fed policymakers are also becoming more concerned about how deep inflation expectations are anchored and whether tried-and-true longer-term expectations indicators are the appropriate measures. In this environment, the scope for policy guidance much beyond the next meeting is constrained. The bottom line: until policymakers begin to opine on the policy outlook in concrete terms, the unconditional outlook for any meeting is a coin flip between no move and a rate cut. If one is confident in the economic forecast, then any conditional outlook may be quite different.
PwC Talks Section 899, International Tax, and Reconciliation. Section 899 of the House’s reconciliation bill, which would increase taxes on individuals and corporations that are residents of countries that impose “unfair foreign taxes” on U.S. companies, is designed as a response to foreign taxes like digital services taxes (DSTs) and the OECD’s under-taxed profits rule (UTPR). Its reach will be broad, affecting nearly all major developed economies with such measures. The provision increases withholding and other taxes on U.S.-source income for affected countries’ companies and sovereigns, does not apply to interest on U.S. Treasuries and most corporate bonds, and grants the Treasury Secretary certain discretion over its scope and application. When Section 899 applies, the applicable rate of tax would be increased by 5% each year that the objectionable tax measure remains in effect, generally topping out at a maximum increase of 20% (assuming the objectionable tax measure remains in place for four years or more). A short implementation delay may be included in the Senate’s version of the bill, providing space for international negotiations and potential law changes.
“Inside Baseball”
House GOP Gets “Big Beautiful Bill’s” Official Price Tag: $2.4 trillion. The nonpartisan Congressional Budget Office (CBO) released its full score of the tax and spending package House Republicans passed last month, predicting that the measure would grow the federal deficit by $2.4 trillion. While the Republican leadership is expected to downplay the significance of the CBO’s price tag, the numbers will influence what lawmakers are able to include in the final package they are trying to send to President Trump’s desk by July 4. The analysis will also be used to determine whether the bill follows the strict rules of the reconciliation process. Because Republicans in the Senate are now making changes to the House passed package, the CBO will need to re-score the cost of each piece of the new version senators are assembling, followed by another full price tag for the whole package. Unlike earlier scores, which included just the separate chunks of the House bill, the most recent analysis does take into account how policies in one part of the package might influence the budget and economic impacts of others.
In Other Words
“I think I probably did spend a bit too much time on politics,” Billionaire Trump adviser Elon Musk.
“Well, we all are going to die,” Sen. Joni Ernst (R-IA) when confronted about cuts to Medicaid and SNAP during a town hall.
Did You Know
President Jimmy Carter was the first president born in a hospital.
Graph of the Week
Business Optimism Slumps in Pivot from Trump Election. Business optimism has moved sharply lower, deepening a trend seen in the first quarter and marking a sharp reversal from the cheerful mood among executives following President Trump’s reelection. Less than a third, or 27%, of executives polled by the Association of International Certified Professional Accountants said they were confident about the economic outlook for the 12 months ahead, down from 47% in the first quarter, and 67% in 2024’s fourth quarter, just after the election. The survey also found that one in five business executives believe the U.S. is already in a recession, while 34% say they expect one by the end of the year. Of those expecting a recession this year or next, 75% predict it will be moderate to severe. The findings indicate a significant deterioration in confidence in the space of a few months, during which Trump upended trade relations, put pressure on American businesses, and pressed Congress for a tax bill that includes a provision to impose significant cost increases on international investors and companies.
