Research @ Citi Episode 37: U.S. Economy – Debt, Duty & Dollars
Jun 11, 2025
Veronica Clark, a key member of the U.S. Economics team at Citi, brings her insights on the potential impacts of changing tax policies and tariffs on the U.S. economy. She dives into the projected $2.3 trillion increase in federal deficits due to tax measures, the uncertainty surrounding Section 899’s proposed tax hikes on foreign investment income, and the complex interplay between tariffs and foreign direct investment. Clark also discusses the Fed's considerations for interest rate cuts in light of rising unemployment, illustrating the delicate balance of navigating economic uncertainties.
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Tax Bill Extends Existing Cuts
- The proposed tax bill mainly extends existing tax cuts, making them permanent rather than creating new expansions.
- Expected overall impact on fiscal deficits and economic growth is flat, with little growth impulse from extending existing cuts.
Front-Loaded Deficit Increase Risks
- The tax bill's projected $2.3 trillion deficit increase is mostly front-loaded due to expiring new provisions.
- It will likely be politically difficult to allow these provisions to expire, potentially increasing long-term deficits.
Section 899 as Trade Negotiation Tool
- Section 899 proposes taxing certain foreign investment income as a negotiating tool rather than a direct revenue increase.
- There is uncertainty on which countries and investments will be affected, with possible exemptions to avoid deterring foreign investment.