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As Bond Yields Rise, Stocks Remain Buoyant, for Now

The sharp rise in bond yields is forcing traders to consider that they may be holding two irreconcilable ideas in their heads.

One is that the Federal Reserve has no real control over bond market interest rates. The other is that the Fed can keep the stock market aloft as long as it tries to control interest rates.

The resilience of share prices — the S&P 500 rose 5.8 percent in the first quarter — suggests that those two ideas can coexist. But if yields continue to rise, the impact on companies, consumers and homeowners and the appeal that fatter bond yields may have to investors could produce a reckoning for stocks.

“The bond market is at an inflection point that eventually is going to be recognized by the stock market,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies. “Over the last 30 years, the bond market has only gone one way, but a change is occurring now, and it’s likely to be an abrupt one.”

CRB index, which measures a basket of commodities, rose 52 percent in the 12 months through March. Home prices rose 6 percent last year, according to the Federal Reserve Bank of St. Louis.

$1.9 trillion bill last month to help the economy after the ravages wrought by the pandemic, President Biden proposed spending $2 trillion more on infrastructure projects, albeit over several years.

That $4 trillion, give or take, would be “going into an economy saturated with $6 trillion of stimulus spending from the Trump administration,” Mr. Sri-Kumar said. So much spending is likely to push up inflation and bond yields, he said.

Michael Hartnett, chief investment strategist at Bank of America Global Research, does not expect such concerns to diminish soon.

Because of such factors as “new central bank mandates, excess fiscal stimulus,” as well as “less globalization, fading deflation from disruption, demographics, debt, we believe inflation rises in the 2020s and the 40-year bull market in bonds is over,” Mr. Hartnett said in a report.

Commodities and other hard assets should outperform in the long term, in his view, along with shares of smaller companies, value stocks and foreign stocks. The dollar, shares of big companies and bonds should do worse.

David Giroux, a portfolio manager and head of investment strategy at T. Rowe Price, said he is worried that the bill will come due for much of the government spending.

“There’s a high likelihood we will have higher corporate taxes next year,” Mr. Giroux said. “That will be a headwind for corporate earnings.”

That persuades him to avoid shares of economically sensitive companies for which “a lot of really good news is already priced in.”

He prefers “stocks with really good business models that have been left behind,” including technology giants that are off their highs, such as Amazon and Google, and companies like utilities. Other favorites include regional banks such as PNC and Huntington Bancshares.

Ms. Bitel at William Blair foresees long-term higher returns by big growth stocks. But she throws in an immense caveat: Because rising interest rates tend to force down valuations, especially on the most expensive segments of the market, there could be a sharp decline before the erstwhile Wall Street darlings excel again.

“Retail investors will be able to buy their favorite growth stocks at a 40 percent discount, but that leadership will resume,” she said, emphasizing that the 40 percent was a ballpark figure.

Ms. Bitel also suggested holding foreign stocks, in particular shares of Chinese health care companies and Japanese software companies.

Mr. Paolini recommends banks, energy and real estate, and said he is avoiding carmakers, industrial companies and home builders.

Considering the investment landscape more broadly, he said, “The outlook for the next one to three years is quite good.” Then he seemed to try to talk himself out of that belief.

“The idea that you can simply print money and everything is fine isn’t sustainable,” Mr. Paolini said. “At some point, we will realize too much has been done and the market is too high, and the situation will change quite fast. I don’t know what that level is or how far away we are from it.”

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Beyond Pandemic’s Upheaval, a Racial Wealth Gap Endures

“I want to emphasize that,” he added. “Through no fault of their own.”

The pandemic has hit African-Americans and Latinos hardest on all fronts, with higher infection and death rates, more job losses, and more business closures.

Proposals that confront the wealth gap head on, though, are both expensive and politically charged.

Professor Darity of Duke, a co-author of “From Here to Equality: Reparations for Black Americans in the Twenty-First Century,” has argued that compensating the descendants of Black slaves — who helped build the nation’s wealth but were barred from sharing it — would be the most direct and effective way to reduce the racial wealth gap.

Vice President Harris and Senators Bernie Sanders of Vermont, Elizabeth Warren of Massachusetts and Cory Booker of New Jersey have tended to push for asset-building policies that have more popular support. They have offered programs to increase Black homeownership, reduce student debt, supplement retirement accounts and establish “baby bonds” with government contributions tied to family income.

With these accounts, recipients could build up money over time that could be used to cover college tuition, start a business or help in retirement.

Several states have experimented with small-scale programs meant to encourage children to go to college. Though those programs were not created to close the racial wealth gap, researchers have seen positive side effects. In Oklahoma, child development accounts seeded with $1,000 were created in 2007 for a group of newborns.

“We have very clear evidence that if we create an account of birth for everyone and provide a little more resources to people at the bottom, then all these babies accumulate assets,” said Michael Sherraden, founding director of the Center for Social Development at Washington University in St. Louis, which is running the Oklahoma experiment. “Kids of color accumulate assets as fast as white kids.”

Without dedicated funds — the kind of programs that enabled white families to build assets — it won’t be possible for African-Americans to bridge the wealth gap, said Mehrsa Baradaran, a law professor at the University of California, Irvine, and the author of “The Color of Money: Black Banks and the Racial Wealth Gap.”

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With Warning to Democrats, Manchin Points the Way for Biden’s Agenda

Republican senators, singed by their experience on the pandemic aid bill, responded to Mr. Biden’s gestures to bipartisanship by issuing a chilly statement saying that the last time he made a public plea to work together, “the administration roundly dismissed our effort as wholly inadequate in order to justify its go-it-alone strategy.”

In an appearance on “Fox News Sunday,” Senator Roy Blunt, Republican of Missouri, pushed the administration to negotiate an infrastructure measure that would represent about 30 percent of the $2.25 trillion being proposed, before turning to budget reconciliation for any additional spending increases.

“My advice to the White House has been, take that bipartisan win, do this in a more traditional infrastructure way and then if you want to force the rest of the package on Republicans in the Congress and the country, you can certainly do that,” Mr. Blunt said.

Importantly, Republicans have no interest in the corporate tax increase that would essentially undo their most significant legislative achievement of the Trump era. Neither do business groups, which have helped broker some bipartisan compromises on economic issues in the past but have lost some power in recent years as populist impulses have swept both parties.

Senator Mitch McConnell, the Kentucky Republican and minority leader, called the tax proposal “an effort to rewrite the 2017 tax bill,” which itself passed via budget reconciliation with no Democratic votes.

The Trump tax law “in my view was principally responsible for the fact that in February 2020 we had the best economy of 50 years,” Mr. McConnell said. “But they are going to tear that down.”

Still, business lobbyists and some lawmakers remain hopeful that Mr. Manchin’s appeal could prod Mr. Biden and congressional leaders toward a set of mini-compromises on infrastructure. Such deals could including spending big on research and development for emerging industries, like advanced batteries, in the supply chain bill, which carries bipartisan sponsorship in the Senate. They could also include spending a few hundred billion dollars on highways and other surface transportation projects. That could satisfy at least some of Mr. Manchin’s quest for bipartisanship and give both parties the ability to claim victory.

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As U.S. Prospects Brighten, Fed’s Powell Sees Risk in Global Vaccination Pace

Jerome H. Powell, the Federal Reserve chair, stressed on Thursday that even as economic prospects look brighter in the United States, getting the world vaccinated and controlling the coronavirus pandemic remain critical to the global outlook.

“Viruses are no respecters of borders,” Mr. Powell said while speaking on an International Monetary Fund panel. “Until the world, really, is vaccinated, we’re all going to be at risk of new mutations and we won’t be able to really resume activity with confidence all around the world.”

While some advanced economies, including the United States, are moving quickly toward widespread vaccination, many emerging market countries lag far behind: Some have administered as little as one dose per 1,000 residents.

Mr. Powell joined a chorus of global policy officials in emphasizing how important it is that all nations — not just the richest ones — are able to widely protect against the coronavirus. Kristalina Georgieva, the managing director of the International Monetary Fund, said policymakers needed to remain focused on public health as the key policy priority.

fresh data showed that state jobless claims climbed last week. Mr. Powell pointed out that the burden is falling heavily on those least able to bear it: Lower-income service workers, who are heavily minorities and women, have been hit hard by the job losses.

raising corporate taxes.

“For quite some time, we have been in favor of more investment in infrastructure. It helps to boost productivity here in the United States,” Ms. Georgieva said, calling climate-focused and “social infrastructure” provisions positive. She said they had not had a chance to fully assess the plan, but “broadly speaking, yes, we do support it.”

But the White House’s plan has already run into resistance from Republicans and some moderate Democrats, who are wary of raising taxes or engaging in another big spending package after several large stimulus bills.

Some commentators have warned that besides expanding the nation’s debt load, the government’s virus spending — particularly the recent $1.9 trillion stimulus package — could cause the economy to overheat. Fed officials have been less worried.

“There’s a difference between essentially a one-time increase in prices and persistent inflation,” Mr. Powell said on Thursday. “The nature of a bottleneck is that it will be resolved.”

If price gains and inflation expectations moved up “materially,” he said, the Fed would react.

“We don’t think that’s the most likely outcome,” he said.

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New State Unemployment Claims Rose Again Last Week

The job market remains challenging, with the government reporting Thursday that initial claims for state unemployment benefits rose last week.

A total of 741,000 workers filed first-time claims for state jobless benefits last week, an increase of 18,000, the Labor Department said. It was the second consecutive weekly increase after new claims hit a pandemic low.

At the same time, 152,000 new claims were filed for Pandemic Unemployment Assistance, a federal program covering freelancers, part-timers and others who do not routinely qualify for state benefits. That was a decline of 85,000.

Neither figure is seasonally adjusted.

“It’s surprising and disappointing,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said of the increase in state filings. “But our expectation remains that as large sections of the economy come back online, recovery in the labor market will be ongoing.”

$1,400 stimulus payments for most individuals, which should bolster consumer spending.

Although the rise in regular claims was a setback, the drop in Pandemic Unemployment Assistance claims was encouraging, according to AnnElizabeth Konkel, an economist at Indeed Hiring Lab. “It’s still movement in the right direction,” she said.

Diane Swonk, chief economist at the accounting firm Grant Thornton, said the decline in Pandemic Unemployment Assistance claims could be a sign that the most vulnerable workers were finally benefiting from the uptick in hiring.

“They’ve been living on fumes, but it suggests that some of these gig workers don’t need the unemployment insurance as much as they did before,” she said.

employers added 916,000 jobs in March, twice the gain in February and the most since August. The unemployment rate dipped to 6 percent, the lowest since the pandemic began, with nearly 350,000 people rejoining the labor force.

Still, there is plenty of ground to make up.

Even after the job gains in March, the economy is 8.4 million jobs short of where it was in February 2020. Entire sectors, like travel and leisure, as well as restaurants and bars, are only beginning to recover from the millions of job losses that followed the pandemic’s arrival.

“The claims numbers are a reminder that the labor market recovery, while we still expect it to happen, has a ways to go,” said Nancy Vanden Houten, lead economist at Oxford Economics. “Things are opening up, but not uniformly, and many people are still out of work.”

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What’s in Biden’s Tax Plan?

WASHINGTON — The Biden administration unveiled a tax plan on Wednesday that would increase the corporate tax rate in the U.S. and limit the ability of American firms to avoid taxes by shifting profits overseas.

Much of the plan is aimed at reversing a deep reduction in corporate taxes under President Donald J. Trump. A 2017 tax bill slashed the corporate rate to 21 percent from 35 percent and enacted a series of other provisions that the Biden administration says have encouraged firms to shift profits to lower-tax jurisdictions, like Ireland.

Some of the provisions in President Biden’s plan can be enacted by the Treasury Department, but many will require the approval of Congress. Already, Republicans have panned the proposals as putting the U.S. at a disadvantage, while some moderate Democrats have indicated they may also want to see some adjustments, particularly to the proposed 28 percent corporate tax rate.

Administration officials estimate the proposals will raise a total of $2.5 trillion in new tax revenue over a 15 year span. Analysts at the University of Pennsylvania’s Penn Wharton Budget Model put the estimate even higher, estimating a 10-year increase of $2.1 trillion, with about half the money coming from the plan’s various changes to the taxation of multinational corporations.

Organization for Economic Cooperation and Development.

The administration sees raising the rate as a way to increase corporate tax receipts, which have plunged to match their lowest levels as a share of the economy since World War II.

Many large companies pay far less than the current tax rate of 21 percent — and sometimes nothing. Tax code provisions allow firms to reduce their liability through deductions, exemptions, offshoring and other mechanisms.

The Biden plan seeks to put an end to big companies incurring zero federal tax liability and paying no or negative taxes to the U.S. government.

the so-called global intangible low-taxed income (or GILTI) tax to 21 percent, which would narrow the gap between what companies pay on overseas profits and what they pay on earned income in the U.S.

And it would calculate the GILTI tax on a per-country basis, which would have the effect of subjecting more income earned overseas to the tax than under the current system.

A provision in the plan known as SHIELD (Stopping Harmful Inversions and Ending Low-tax Developments) is an attempt to discourage American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign firm.

Under current law, companies with headquarters in Ireland can “strip” some of the profits earned by subsidiaries in the United States and send them back to the Ireland company as payment for things like the use of intellectual property, then deduct those payments from their American income taxes. The SHIELD plan would disallow those deductions for companies based in low-tax countries.

The Biden administration wants other countries to raise their corporate tax rates, too.

The tax plan emphasizes that the Treasury Department will continue to push for global coordination on an international tax rate that would apply to multinational corporations regardless of where they locate their headquarters. Such a global tax could help prevent the type of “race to the bottom” that has been underway, Treasury Secretary Janet Yellen has said, referring to countries trying to outdo one another by lowering tax rates in order to attract business.

Republican critics of the Biden tax plan have argued that the administration’s focus on a global minimum tax is evidence that it realizes that raising the U.S. corporate tax rate unilaterally would make American businesses less competitive around the world.

The president’s plan would strip away longstanding subsidies for oil, gas and other fossil fuels and replace them with incentives for clean energy. The provisions are part of Mr. Biden’s efforts to transition the U.S. to “100 percent carbon pollution-free electricity” by 2035.

The plan includes a tax incentive for long-distance transmission lines, would expand incentives for electricity storage projects and would extend other existing clean-energy tax credits.

A Treasury Department report estimated that eliminating subsidies for fossil fuel companies would increase government tax receipts by over $35 billion in the coming decade.

“The main impact would be on oil and gas company profits,” the report said. “Research suggests little impact on gasoline or energy prices for U.S. consumers and little impact on our energy security.”

Doing away with fossil fuel subsidies has been tried before, with little success given both industry and congressional opposition.

The Internal Revenue Service has struggled with budget cuts and slim resources for years. The Biden administration believes better funding for the tax collection agency is an investment that will more than pay for itself. The plan released on Wednesday includes proposals to bolster the I.R.S. budget so it can hire experts to pursue large corporations and ensure they are paying what they owe.

The Treasury Department, which oversees the I.R.S., noted in its report that the agency’s enforcement budget has fallen by 25 percent over the last decade and that it is poorly equipped to audit complex corporate filings. The agency is also unable to afford engaging in or sustaining multiyear litigation over complex tax disputes, Treasury said.

As a result of those constraints, the I.R.S. tends to focus on smaller targets while big companies and the wealthiest taxpayers are able to find ways to reduce their tax bills.

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Biden’s Tax Plan Aims to Raise $2.5 Trillion and End Profit-Shifting

WASHINGTON — Large companies like Apple and Bristol Myers Squibb have long employed complicated maneuvers to reduce or eliminate their tax bills by shifting income on paper between countries. The strategy has enriched accountants and shareholders, while driving down corporate tax receipts for the federal government.

President Biden sees ending that practice as central to his $2 trillion infrastructure package, pushing changes to the tax code that his administration says will ensure American companies are contributing tax dollars to help invest in the country’s roads, bridges, water pipes and other parts of his economic agenda.

On Wednesday, the Treasury Department released the details of Mr. Biden’s tax plan, which aims to raise as much as $2.5 trillion over 15 years to help finance the infrastructure proposal. That includes bumping the corporate tax rate to 28 percent from 21 percent, imposing a strict new minimum tax on global profits and levying harsh penalties on companies that try to move profits offshore.

The plan also aims to stop big companies that are profitable but have no federal income tax liability from paying no taxes to the Treasury Department by imposing a 15 percent tax on the profits they report to investors. Such a change would affect about 45 corporations, according to the Biden administration’s estimates, because it would be limited to companies earning $2 billion or more per year.

President Donald J. Trump’s 2017 tax cuts. Biden administration officials say that law increased the incentives for companies to shift profits to lower-tax countries, while reducing corporate tax receipts in the United States to match their lowest levels as a share of the economy since World War II.

Treasury Secretary Janet L. Yellen, in rolling out the plan, said it would end a global “race to the bottom” of corporate taxation that has been destructive for the American economy and its workers.

“Our tax revenues are already at their lowest level in generations,” Ms. Yellen said. “If they continue to drop lower, we will have less money to invest in roads, bridges, broadband and R&D.”

The plan, while ambitious, will not be easy to enact.

Some of the proposals, like certain changes to how a global minimum tax is applied to corporate income, could possibly be put in place by the Treasury Department via regulation. But most will need the approval of Congress, including increasing the corporate tax rate. Given Democrats’ narrow majority in both the Senate and the House, that proposed rate could drop. Already, Senator Joe Manchin III of West Virginia, a crucial swing vote, has said he would prefer a 25 percent corporate rate.

search of the lowest possible tax bill.

Companies also shift jobs and investments between countries, but often for different reasons. In many cases, they are following lower labor costs or seeking customers in new markets to expand their businesses. The Biden plan would create new tax incentives for companies to invest in production and research in the United States.

weakened by subsequent regulations issued by Mr. Trump’s Treasury Department.

Conservative tax experts, including several involved in writing the 2017 law, say they have seen no evidence of the law enticing companies to move jobs overseas. Mr. Biden has assembled a team of tax officials who contend the provisions have given companies new incentives to move investment and profits offshore.

Mr. Biden’s plan would raise the rate of Mr. Trump’s minimum tax and apply it more broadly to income that American companies earn overseas. Those efforts would try to make it less appealing for companies to book profits in lower-tax companies.

The S.H.I.E.L.D. proposal is an attempt to discourage American companies from moving their headquarters abroad for tax purposes, particularly through the practice known as “inversions,” where companies from different countries merge, creating a new foreign-located firm.

Under current law, companies with headquarters in Ireland can “strip” some of their profits earned by subsidiaries in the United States and send them back to the Ireland company as payments for things like the use of intellectual property, then deduct those payments from their American income taxes. The S.H.I.E.L.D. plan would disallow those deductions for companies based in low-tax countries.

Tax professionals say Mr. Biden’s proposed changes to that law could be difficult to administer. Business groups say they could hamper American companies as they compete on a global scale.

Republicans denounced the plan as bad for the United States economy, with lawmakers on the House Ways and Means Committee saying that “their massive tax hikes will be shouldered by American workers and small businesses.”

coupled with an effort through the Organization for Economic Cooperation and Development to broker a global agreement on minimum corporate taxation, will start a worldwide revolution in how and where companies are taxed. That is in part because the Biden plans include measures meant to force other countries to go along with a new global minimum tax that Ms. Yellen announced support for on Monday.

Treasury Department officials estimate in their report that the proposed changes to the minimum tax, and the implementation of the S.H.I.E.L.D. plan, would raise an estimated $700 billion over 10 years on their own.

Business groups warn the administration’s efforts will hamstring American companies, and they have urged Mr. Biden to wait for the international negotiations to play out before following through with any changes.

Members of the Business Roundtable, which represents corporate chief executives in Washington, said this week that Mr. Biden’s minimum tax “threatens to subject the U.S. to a major competitive disadvantage.” They urged the administration to first secure a global agreement, adding that “any U.S. minimum tax should be aligned with that agreed upon global level.”

However, some companies expressed an openness on Wednesday to some of the changes.

John Zimmer, the president and a founder of Lyft, told CNN that he supported Mr. Biden’s proposed 28 percent corporate tax rate.

“I think it’s important to make investments again in the country and the economy,” Mr. Zimmer said. “And as the economy grows, so too does jobs and so too does people’s needs to get around.”

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Jamie Dimon predicts an economic boom that ‘could easily run into 2023.’

The annual letter to shareholders by JPMorgan Chase’s chief executive, Jamie Dimon, was published early Wednesday. The letter, which is widely read on Wall Street, is not just an overview of the bank’s business but also covers Mr. Dimon’s thoughts on everything from leadership lessons to public policy prescriptions.

“The U.S. economy will likely boom.” A combination of excess savings, deficit spending, vaccinations and “euphoria around the end of the pandemic,” Mr. Dimon wrote, may create a boom that “could easily run into 2023.” That could justify high stock valuations, but not the price of U.S. debt, given the “huge supply” soon to hit the market. There is a chance that a rise in inflation will be “more than temporary,” he wrote, forcing the Federal Reserve to raise interest rates aggressively. “Rapidly raising rates to offset an overheating economy is a typical cause of a recession,” he wrote, but he hopes for “the Goldilocks scenario” of fast growth, gently increasing inflation and a measured rise in interest rates.

“Banks are playing an increasingly smaller role in the financial system.” Mr. Dimon cited competition from an already large shadow banking system and fintech companies, as well as “Amazon, Apple, Facebook, Google and now Walmart.” He argued that those nonbank competitors should be more strictly regulated; their growth has “partially been made possible” by avoiding banking rules, he wrote. And when it comes to tougher regulation of big banks, he wrote, “the cost to the economy of having fail-safe banks may not be worth it.”

“China’s leaders believe that America is in decline.” The United States has faced tough times before, but today, “the Chinese see an America that is losing ground in technology, infrastructure and education — a nation torn and crippled by politics, as well as racial and income inequality — and a country unable to coordinate government policies (fiscal, monetary, industrial, regulatory) in any coherent way to accomplish national goals,” he wrote. “Unfortunately, recently, there is a lot of truth to this.”

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President Biden Unveils Plan to Raise Corporate Taxes

The Biden administration unveiled its plan to overhaul the corporate tax code on Wednesday, offering an array of proposals that would require large companies to pay higher taxes to help fund the White House’s economic agenda.

The plan, if enacted, would raise $2.5 trillion in revenue over 15 years. It would do so by ushering in major changes for American companies, which have long embraced quirks in the tax code that allowed them to lower or eliminate their tax liability, often by shifting profits overseas. The plan also includes efforts to help combat climate change, proposing to replace fossil fuel subsidies with tax incentives that promote clean energy production.

Some corporations have expressed a willingness to pay more in taxes, but the overall scope of the proposal is likely to draw backlash from the business community, which has benefited for years from loopholes in the tax code and a relaxed approach to enforcement.

Treasury Secretary Janet L. Yellen said during a briefing with reporters on Wednesday that the plan would end a global “race to the bottom” of corporate taxation that she said has been destructive for the American economy and its workers.

global minimum tax to 21 percent and toughening it, to force companies to pay the tax on a wider span of income across countries.

That, in particular, has raised concerns in the business community, with Joshua Bolten, chief executive of the Business Roundtable, saying in a statement this week that it “threatens to subject the U.S. to a major competitive disadvantage.”

The plan would also repeal provisions put in place during the Trump administration that the Biden administration says have failed to curb profit shifting and corporate inversions, which involve an American company merging with a foreign firm and becoming its subsidiary, effectively moving its headquarters abroad for tax purposes. It would replace them with tougher anti-inversion rules and stronger penalties for so-called profit stripping.

The plan is not entirely focused on the international side of the corporate tax code. It tries to crack down on large, profitable companies that pay little or no income taxes yet signal large profits to companies with their “book value.” To cut down on that disparity, companies would have to pay a minimum tax of 15 percent on book income, which businesses report to investors and which are often used to judge shareholder and executive payouts.

One big beneficiary of the plan would be the Internal Revenue Service, which has seen its budget starved in recent years. The Biden administration’s proposal would beef up the tax collection agency’s budget so that it can step up enforcement and tax collection efforts.

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