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Telework's tax mess: A permanent side effect of the pandemic

As teleworkers flit from city to city, they're creating a huge tax mess.

Why it matters: Our tax laws aren't built for telecommuting, and this new way of working could have dire implications for city and state budgets.

  • "There’s gonna be a shakeout of what economic activity looks like and where it’s going to get done, and that’s going to require cities to rethink what their tax base looks like," says Kim Rueben of the Urban-Brookings Tax Policy Center.

The backdrop: By and large, Americans owe income taxes where they work, Rueben notes.

  • Here's a good example: Professional baseball players owe tax money in the states where their away games take place.
  • So if a New Hampshire resident is commuting to a Massachusetts-based company, that person will pay taxes to Massachusetts.
  • If the worker is only commuting four out of five days a week, they'll owe Massachusetts taxes on four-fifths of their income, says Rueben.

The pandemic upended that system. Now, that same New Hampshire resident is following stay-at-home orders and working from home every day. So does that worker owe Massachusetts any tax money?

It's a huge question that has reached the Supreme Court.

  • New Hampshire, which doesn't have an income tax, is suing Massachusetts for asking telecommuters to pay income taxes on work completed outside of Massachusetts.
  • But Massachusetts is saying that work would have been done within its state if not for the pandemic and is asking out-of-state commuters to pay taxes on the days they would have come to the office.

New Jersey and Connecticut have backed New Hampshire's position, as those states are in a similar bind. They each have hundreds of thousands of residents who usually commute to New York City and pay New York state income tax as well as a New York City commuter tax, but have been working remotely this past year.

  • In normal times, states like New Jersey credit their residents who commute to New York City so they don't have to pay income tax to New Jersey as well. Now, New Jersey is saying it shouldn't have to pay out that credit for the pandemic months during which its resident telecommuters didn't set foot in New York City for public safety reasons.

The big picture: The pandemic has exposed our tax laws' inability to handle remote work at scale — which is sure to be a permanent side effect of this time period.

  • Even if people choose not to work from home 100% of the time, many will cut down the number of days in the office. That means they may move out of expensive cities and spend less time at local businesses.
  • So in addition to potential income tax revenue loss, cities may see diminished property and sales tax revenue, too, says Jed Kolko, chief economist at the jobs site Indeed.

"While a lot of cities will be on the losing end of the revenue stick as taxpayers shuffle around the country, the one that's likely to be hit the hardest is San Francisco, where about half the professional workers live outside city limits (and are probably working from home) and lots are moving to cheaper places," Axios cities expert Jennifer Kingson tells me.

  • The city has seen a 43% drop in sales tax revenues, and controller Ben Rosenfield warns that "permanent [job] relocations out of the San Francisco area could have a larger impact on the city’s tax base.'"

Go deeper: The Philly Inquirer has an excellent dive into what remote work could mean for city finances.

Why fears of a SPAC bubble may be overblown

The SPAC surge continues unabated, with 10 new ones formed since Wednesday morning. And that's OK.

Between the lines: There are growing concerns that retail investors are about to get rolled, with smart sponsors taking advantage of dumb money.

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Schumer says Democrats are "delighted" Ron Johnson is forcing relief bill to be read out loud

Senate Majority Leader Chuck Schumer (D-N.Y.) accused Sen. Ron Johnson (R-Wis.) of going to "ridiculous lengths" to show his opposition to a COVID relief package widely supported by the American public, after Johnson demanded that the entire 600-page bill be read on the Senate floor.

The state of play: Johnson's procedural move will likely add 10 hours to the 20 hours already allotted for debate, during which Republicans will propose amendments to force uncomfortable votes for Democrats. Schumer promised that the Senate will stay in session "no matter how long it takes" to finish voting on the $1.7 trillion rescue package.

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Why gas prices are back up

Data: EIA and FactSet; Chart: Axios Visuals

Gas prices are hitting new post-pandemic highs across the country, but this isn't a story of America reopening. It's really just a function of the price of oil going up.

By the numbers: Gasoline cost $2.71 on average as of Monday, per the Energy Information Administration. The highest average price was $3.59 in Los Angeles, while the lowest was $2.33 in Houston.

  • All of these prices represent the highest level seen since 2019.

The big picture: The price of crude oil reflects more than half of the cost of a gallon of gasoline. (The rest is refinery costs, distribution costs, and taxes.)

  • Demand for oil has actually been declining, per the New York Fed, but supply has been falling even faster, with the result that prices have now topped $64 for a barrel of Brent crude.

What central bank digital currencies mean for crypto

Central bank digital currencies, or CBDCs,represent the ultimate ratification of digital finance: Its adoption by the most venerated guardians of the international monetary architecture.

Why it matters: Crypto-evangelists often talk about CBDCs in awed terms. But it's far from clear that the bitcoin-and-ethereum crowd would ultimately benefit from money going digital.

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Capitol Police asks for National Guard to stay on-site for two more months

U.S. Capitol Police on Thursday asked that the National Guard remain on-site for an additional 60 days due to ongoing security concerns surrounding the building, AP reports.

Why it matters: While many lawmakers are eager for security measures surrounding the Capitol — including fencing and an increased law enforcement presence — to be lightened, the request by Capitol Police reflects concerns about ongoing threats.

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Americans increasingly see China as an enemy

One in three Americans, and a majority of Republicans, now view China as an enemy of the United States, according to a new survey from Pew Research Center.

By the numbers: Just 9% of Americans consider China a "partner," while 55% see Beijing as a "competitor" and 34% as an "enemy."

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Leaked government documents spotlight Biden's child migrant dilemma

Fresh internal documents from the Department of Health and Human Services show how quickly the number of child migrants crossing the border is overwhelming the administration's stretched resources.

Driving the news: In the week ending March 1, the Border Patrol referred to HHS custody an average of 321 children per day, according to documents obtained by Axios. That's up from a weekly average of 203 in late January and early February — and just 47 per day during the first week of January.

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Mounting emissions data paints bleak picture on Paris climate goals

Researchers keep finding new ways to reveal that nations are together showing very few signs of getting on track to meet the Paris Agreement's goals.

One big question: That's whether a spate of recent analyses to that effect, and scientific reports coming later this year, will move the needle on meaningful new policies (not just targets).

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