Business

Opinion: The IRS faces more cuts under Trump. Here are three ways that could hurt the economy

Published

2 days ago

January 2, 2025

Opinion: The IRS faces more cuts under Trump. Here are three ways that could hurt the economy

Donald Trump’s election with Republican House and Senate majorities has put the Internal Revenue Service back in the spotlight. The agency lost $20 billion in funding under the latest deal to avoid a government shutdown, and further cuts to its enforcement budget are likely in the next Congress.

Democrats denounce such moves as harmful to federal revenues and tax fairness; Republicans cheer them for limiting government. Unfortunately, neither side tends to point out that an adequately funded IRS is good for the U.S. economy.

Years of IRS underfunding have led to a massive unpaid tax bill, around half a trillion dollars a year. Beyond lowering revenues, the sheer magnitude of this tax evasion has implications across the economy, providing competitive advantages to those able and willing to avoid their tax obligations. Less enforcement funding will only worsen this problem.

The hundreds of billions of dollars in taxes that haven’t been paid are not spread evenly across taxpayers. They’re disproportionately owed by businesses with the greatest incentive and ability to shirk their tax burdens. These include self-employed entrepreneurs, businesses that deal in cash and large, private companies with complex operations. Companies that have less opportunities to evade taxes, and workers who are paid directly by an employer, are more likely to pay their taxes.

The unpaid taxes therefore work as a substantial subsidy for the businesses and taxpayers who evade them. In economic terms, lower taxes boost returns on investment for the businesses that avoid their obligations but not for others. That in turn distorts the way businesses operate in three primary ways.

First, the tax gap pushes more economic activity toward industries and occupations with opaque sources of income — such as construction businesses that deal mainly in cash. Our economy needs contractors, of course, but we don’t want an inordinate number of capable workers rushing into remodeling for cash simply because it offers an illegal tax break. Similarly, we don’t want people choosing self-employment simply because it gives them better chances of dodging the IRS. Labor and capital markets work best when they’re driven by business considerations rather than tax evasion.

Second, tax-cheating businesses gain an advantage on each dollar of profit. A company that doesn’t pay taxes can take on investments that wouldn’t make financial sense if it were meeting its tax obligations. This means the scofflaw company can profitably expand while the complying company cannot, putting honest taxpayers at a competitive disadvantage.

Third, a portion of the economy is dedicated to the evasion itself. Skirting a tax bill can be a lot of work: It takes time and money to set up shell companies, safely store large amounts of cash and falsify documents. Rather than going to some productive use, this activity amounts to what economists consider a “deadweight loss” that does not help our economy expand in any way. Avoiding half a trillion dollars in taxes requires a lot of work and resources that serve no purpose other than to illegally lower tax bills.

The end result of widespread tax evasion is an economy that is far less efficient than it could be. Too many employees in cash-based industries, too many accountants setting up shell corporations and other distortions ultimately discourage investment by taxpaying businesses and suppress economic growth.

Providing the IRS with enough funds to enforce our nation’s tax code isn’t just about fairness and revenue. It’s also vital to the efficiency and productivity of our economy.

Ben Harris is the vice president and director of economic studies at the Brookings Institution and a former assistant Treasury secretary for economic policy.

Business

What We’re Watching in 2025

Published

2 hours ago

January 4, 2025

Press Room

Andrew here. Happy New Year and happy Saturday. This morning, we’re taking a look at what may — or may not — happen in 2025. This is not an effort to crystal-ball the future so much as it is a rundown of big topics that the DealBook team and I have on our radar screen in the new year.

On this list: Changes to deal-making in the new Trump era, the future (or end) of D.E.I. efforts, the growing momentum of workers returning to the office, the evolving relationship between China and the U.S., new investments in artificial intelligence, and yes, the role of Elon Musk in all of the above. Let us know what you think. And we’ll revisit this list at the end of the year.

Deals will flow. Deal makers pretty much universally expect a flood of deals under President-elect Donald Trump after four years of pent-up activity under President Biden, whose antitrust enforcers challenged a record number of mergers. The more interesting question: Which kinds of companies will make those deals? More M.&A. in the energy sector seems probable, given Trump’s support for the industry. Bank deals could also take off: After the regional banking crisis, Treasury Secretary Janet Yellen said the country could benefit from more mergers. Deals may also pop up to address cybersecurity concerns, the impact of GLP-1 drugs and the fierce A.I race.

Media companies will reshuffle. Media executives and their advisers have been saying for years that the industry needs a drastic overhaul to address its new reality: an overabundance of streaming options and the decline of the legacy cable industry. Deals that were effectively considered a no-go under Biden’s aggressive antitrust enforcers may finally be given a green light under a Trump administration.

Everyone is watching to see what a handful of key players do next: Will Comcast’s move to spin off its cable business inspire others, such as Warner Bros. Discovery, to do the same? Will Paramount use Larry Ellison’s deep pockets to acquire streaming businesses? Will Rupert Murdoch respond to his failed attempt to change his family trust by selling Fox, making it bigger, or trying to buy out some of his children? Will Trump allow a major media company (or his own) to buy TikTok?

Big Tech may not catch a break. While corporate America has been anticipating a longer leash under the Trump administration, Silicon Valley giants may still face a lot of scrutiny. Several of Trump’s picks to lead key regulators — Andrew Ferguson at the Federal Trade Commission, Gail Slater at the Justice Department’s antitrust division and Brendan Carr of the Federal Communications Commission — are expected to keep looking closely at Big Tech.

Unlike Lina Khan, the outgoing F.T.C. chief whose lawsuits fighting tech giants’ market power came from a progressive perspective, many of Trump’s picks have accused companies like Google and Meta of silencing conservative voices.

What will Elon Musk do with his power? The tech billionaire has been one of the most influential and omnipresent voices in Trump’s ear since the election, and his perch as co-head of the Department of Government Efficiency potentially gives him great sway — some critics say too much — over government agencies that fear budget cuts.

But the extent of Musk’s agenda remains unclear. He has already fought longtime Trump allies in defense of the skilled-worker visa program known as H-1B, a battle that he appears to have won for now. He’s also likely to push for further deregulation and more openness when it comes to A.I. and crypto. One unknown: how Musk, who sells a lot of Teslas in China, will weigh in on Beijing policy.

Executives want employees back in the office — and politics out of it. Starting this month, many of Amazon’s corporate staff members were required to work from the office five days a week, up from three days a week previously. The tech company’s return-to-office mandate caused waves and there are signs that office attendance across industries is ticking up.

But remote work remains prevalent, with about 30 million workers in hybrid or fully remote arrangements. Will other big tech companies follow Amazon’s lead in 2025?

Along with office attendance, executives are increasingly cracking down on employee activism. Starbucks sued a union that represents some of its workers after local affiliates posted pro-Palestinian social media posts (the union sued back). After Google fired dozens of employees last year over protests related to the company’s cloud computing contract with the Israeli government, the Google C.E.O., Sundar Pichai, told employees that work was not a place to “fight over disruptive issues or debate politics.” The sentiment seems to be catching on: Big tech companies that saw protests after Trump was elected in 2016 were silent after he was elected in 2024. Will the quiet continue?

D.E.I. will fight for its life. In 2024, the programs were attacked by lawsuits, activists such as Robby Starbuck and conservative lawmakers. As companies prepare for a Trump administration, some, like JetBlue and Molson Coors, have flagged diversity, equity and inclusion policies as a risk factor in their security filings. Walmart, Ford Motor and Toyota have rolled back some programs, and others are rebranding their efforts without advertising it, in hopes of attracting less attention. Fewer have publicly fought back, though Costco last month challenged a proposal by activist shareholders looking to end its D.E.I. efforts.

Infrastructure will become a growing focus of the A.I. race. The fight to dominate artificial intelligence is also spurring investment in infrastructure to generate the huge amount of electricity it requires. The International Energy Agency has forecast data center energy demand could double by 2026.

Some of the tech industry’s highest-profile executives are investing. Sam Altman of OpenAI, Jeff Bezos and Bill Gates are all backing nuclear fusion start-ups. Microsoft and BlackRock launched a $30 billion fund to invest in A.I. infrastructure last year. Silver Lake, the private equity firm, is spending big on data centers.

One name to watch this year: SoftBank. The Japanese tech investor has reportedly talked to Apollo, the private equity firm, about creating a $20 billion A.I. investment fund, and Masa Son, SoftBank’s mercurial C.E.O., is hunting for deals.

Defense tech could be in for a bumper year. Trump has promised to end the war in Ukraine. Whether or not he succeeds, the defense tech industry will benefit either way. It’s already happening: Venture investment in defense start-ups soared last year, and by September had surpassed the total amount invested in 2023. Palantir, a data analytics company, was a star performer. Its market capitalization jumped almost fivefold to $180 billion in 2024, its operating margins have risen sharply and it joined the S&P 500 in September.

Others are also profiting from rising global uncertainty. Anduril Industries, a California-based defense start-up backed by Peter Thiel, the venture capitalist and Palantir co-founder, announced in August that it had raised $1.5 billion in a funding round that valued it at $14 billion. And Helsing, a German start-up that uses A.I. to process live data from the battlefield, is one of Europe’s best-funded companies.

If Trump does manage to end the war, it’s plausible that Western defense companies will find opportunities helping to build Ukraine’s military capability. If he doesn’t, more of their tech may be deployed on the ground there. Smaller, A.I.-powered companies are already testing their equipment in real time in a war where drones and other tech are playing a big role.

How will Trump take on China, and how will Beijing respond? Trump has promised to increase tariffs on goods from China, accusing Beijing and its companies of unfair competition among other things. It’s the same stance he took during his first presidency, when he ratcheted up trade restrictions with the world’s second-biggest economy.

Much uncertainty remains about how Trump’s threats will play out once he’s in office, but Chinese companies have proven adept at finding ways around previous restrictions. Some moved final manufacturing and assembly operations to countries like Mexico, Vietnam and Malaysia so they could export directly to the United States without paying the 25 percent levy Trump imposed during his first term. Other businesses, such as Temu, the e-commerce company, set up operations in the U.S. to appear less Chinese and more American. Even after that facade faded, it’s still thriving: Temu was the most downloaded free app in Apple’s App Store in 2024.

How will Trump’s policies affect the economy? Trump’s plan to cut taxes and red tape is expected to keep G.D.P. growth steady at about 3 percent this year, and bolster American businesses’ bottom line in the short run. But his vow to impose tariffs on some of the country’s biggest trading partners on his first day in office could seriously crimp global growth in 2025.

Another pressing question is whether Trump will dismantle the Inflation Reduction Act, which would put billions of dollars’ worth of tax credits in jeopardy. That prospect has prompted even some Big Oil executives to lobby Trump hard to preserve the law.

A wild-card: inflation. Will Trump’s policies reignite it, spooking both the Fed and the so-called bond vigilantes? Keep an eye on the yield for 10-year Treasury notes, market watchers say. A spike there could force the administration to dial back its most ambitious plans to stimulate growth. Already, inflation fears have prompted the Fed to slash its forecast for 2025 rate cuts.

Thanks for reading! We’ll see you Monday.

We’d like your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.

Business

Apple to pay $95 million to settle privacy lawsuit over Siri recordings

Published

3 hours ago

January 4, 2025

Press Room

Apple to pay million to settle privacy lawsuit over Siri recordings

Apple agreed to pay $95 million in cash to settle a lawsuit that alleges the tech giant recorded private conversations from people who used its voice assistant Siri without their consent.

The iPhone maker was sued in 2019 for allegedly violating users’ privacy after the Guardian reported that contractors hired by the company to review Siri’s responses to prompts heard recordings that included medical information, drug deals and couples having sex.

Apple apologized that year for the privacy breaches following consumer complaints and said it would no longer retain recordings of users’ exchanges with Siri. In court filings, however, the company denied having overstepped users’ rights, writing that “Apple denies all of the allegations made in the lawsuit and denies that Apple did anything improper or unlawful.”

The company didn’t respond to a request for comment about the settlement.

The allegations underscore problems tech companies are facing as people become increasingly reliant on voice assistants to answer questions, set alarms and find directions.

Filed on Tuesday in a federal court in California, the preliminary settlement also requires the iPhone maker to confirm that it permanently deleted Siri audio recordings collected before October 2019 and to publish a webpage that explains how users can opt in to improve Siri and what information Apple collects.

Tens of millions of Apple users could be eligible for money from the settlement by submitting claims for up to five devices that include Siri in which the voice assistant was unintentionally activated from Sept. 17, 2014, to Dec. 31, 2024, during a private or confidential conversation. The money received depends on how many valid claims are filed, according to the settlement.

Plaintiffs in the case estimated total damages to the class exceeded $1.5 billion, but they agreed to settle the lawsuit because obtaining “the total damages at trial would be a challenge, given Apple’s denial of liability,” the settlement said.

The settlement is pending approval from U.S. District Judge Jeffrey White.

Business

With New Amazon Prime Show ‘On Call,’ Dick Wolf Enters Streaming

Published

12 hours ago

January 4, 2025

Press Room

With New Amazon Prime Show ‘On Call,’ Dick Wolf Enters Streaming

Around 2010, Dick Wolf’s vast television empire was suddenly coming undone.

First, NBC abruptly canceled his network mainstay, “Law & Order,” which had been on the air for two decades, a move that stunned Mr. Wolf’s small production company. A year later, two “Law & Order” spinoffs were unceremoniously shown the door. All that was left was “Law & Order: SVU,” a relatively slim slate for a company that prized multiple lines of revenue and that had made Mr. Wolf a very rich man. After all, Mr. Wolf has repeated a mantra for decades: “No show, no business.”

“It was a little tight there for a minute,” said Peter Jankowski, Mr. Wolf’s longtime No. 2.

The TV industry was migrating away from a decades-old staple that had made Mr. Wolf a dominant figure in prime-time viewing: the close-ended “procedural.” That popular genre of programming presented a conflict and a tidy resolution — generally in a courtroom, hospital or police precinct — all within an hour’s time (including commercials).

Instead, streaming outlets like Netflix, Amazon and Hulu were beginning to take flight, prestige TV (“It’s not TV, it’s HBO”) was ascendant, and complex, quirky, serialized programming was all the rage. Farewell, “CSI” and “Law & Order”; hello, “The Crown” and “Big Little Lies.”

Well, that was then.

In recent years, as Hollywood studios have slashed budgets and bid adieu to the Peak TV era, Mr. Wolf’s style of programming is coming back into vogue. The evidence is everywhere: Year after year, repeats of years-old network standbys like “Criminal Minds,” “NCIS” or “Grey’s Anatomy” populate Nielsen’s most-watched streaming shows, even as the studios spend tens of millions on grittier, more cinematic fare. Older series like “Suits,” “Prison Break” or “Young Sheldon” became unexpected hits over the last year when they began streaming on Netflix. Vulture recently declared “Network TV Is Officially Back.”