How would a credit card interest rate cap even work?
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How will bigger tax refunds from last year’s law affect consumer spending?
What will people do with a bigger tax refund? I'm David Brancaccio in Los Angeles. Here in January, the tax forms are starting to show up. 1099s and soon the W-2s will really flow. Refunds, which are expected to go up for many given last summer's package of spending and tax changes, this should stimulate the economy initially. Here's Marketplace's Justin Ho.
A lot of the perks from last year's budget law are for businesses, says Ben Ayers, senior economist at Nationwide.
So you have things like full expensing for manufacturing expenses. We have increased deductions for interest and research and development expenses.
Ayers says those tax benefits are encouraging businesses to spend.
Slowly over the course of the year, you're going to be hearing more about many businesses saying, this is a good time to expand and we're going to make some investment and probably add some more workers as well as we look out over 26.
Individual taxpayers are going to see some benefits, too. The average refund will increase by about $800 this year, says David Kelly, chief strategist at JPMorgan Asset Management. He says the bulk of that will go to people with lower incomes who are more likely to spend it.
So I expect that you're going to see more spending on just basics, groceries, clothing, some appliances.
Kelly says he expects all of that consumer spending to push up GDP in the first half of the year. But he doesn't expect a lasting impact on the economy.
Because we're going to find it very hard to sustain that level of consumer spending that we achieved in the first half of the year. So it's going to start out hot, and then I think it's going to cool down a lot.
Meanwhile, Kelly says the Trump administration's immigration restrictions will counteract many of the benefits of last year's tax law. He says those restrictions are shrinking the workforce, and that can put the brakes on business spending.
It means it's hard to find workers, but lots of businesses who might have started up, you know, you might open a restaurant on the other side of town if you thought you could hire staff. But if you don't think you're going to hire staff, maybe just don't do it at all.
Immigration restrictions are going to have an outsized impact on particular sectors of the economy, says Kate Bond, chief economist at the Institute for Women's Policy Research.
Things like health care support, food preparation, construction, child care.
Bond says as the Trump administration forcibly removes workers from the U.S.
Which tax changes are driving business investment and hiring decisions?
and discourages new ones from entering, it's harder for consumers, native or foreign-born, to get the services they need.
The most clear-cut example would be things like child care workers. If you don't have access to child care because there's no child care workers and you're a parent of young children, then you cannot go to your job.
And a shrinking workforce will make it harder for people to spend money on goods and services and for the economy to produce them.
I mean, that's what GDP is. It's how many goods and services have been created. And if you have fewer workers, you're creating fewer goods and services.
JPMorgan Chase expects that GDP growth will slow from a 3% annual rate in the first half of the year to about 1% by the fourth quarter. I'm Justin Ho for Marketplace.
Due today, the Federal Reserve's preferred measure of inflation, the one with the nap time provoking name, the Core Personal Consumption Expenditures Price Index, it's expected to go up two tenths of a percent in a month and 2.8 percent in a year. Now, President Trump said yesterday in Switzerland the U.S. has, quote, virtually no inflation. Today's number will likely indicate otherwise. Trump acknowledged yesterday he'll need help from Congress to cap credit card interest to 10 percent. He also talked about this at the World Economic Forum yesterday. At another Davos venue, the CEO of the biggest bank, Jamie Dimon of JPMorgan Chase, said capping cards would cause, quote, economic disaster. Marketplace's Nancy Marshall-Genzer has more.
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