Category Archives: Federal Revenue

Tax Magic and Deficit Spending Battle

As a federal funding deadline nears yet again without a plan on the table, we’re starting to see bits appear. Nothing indicating a coherent strategy in spite of the campaign beginning almost two years ago. One of those bits is a Trump intent to cut corporate tax rates to 15%.

Steven Mnuchin, Secretary of the Treasury, claims this proposal would “pay for itself” through economic growth. He said a growth rate of 3 percent was achievable. Experts throw cold water on that idea, since there is no evidence that tax cuts pay for themselves.

The Tax Policy Center estimated in November that Trump’s 15% proposal, coupled with a repeal of the corporate Alternative Minimum Tax, could reduce revenue by nearly $2.4 trillion in the first decade.

To put that in context, that’s about $240 billion a year — which is almost as much as the $304 billion the government spent last year on income security programs such as food stamps, unemployment benefits and child nutrition.

The Republican chairman of the Senate Finance Committee seems to believe such a deep cut might not be well received by Mr. Trump’s party because of its potential to increase the deficit. So even this Republican’s concerns indicate the likelihood of the tax cuts to pay for themselves is about the same likelihood I expect Mexico to pay for the wall.

Pay attention this week. It will be interesting to watch the debate as the Senate and House majorities (both GOP) wrestle with their own critiques of deficit spending during the past 8 years and their double pronged approach to avoid a government shutdown (self imposed by their refusal to consider any budget put forth by President Obama in his last year) and their desire to give a legislative win of any type to this Administration in its first 100 days.

While we look on consider Mark Thoma’s perspective which I covered here during a debt ceiling debate in September 2013. He breaks the battle out for what it is…and it is not about tax revenue, spending, and the debt in spite of all the jargon:

“Politicians and the press often make it seem as though the long-run debt is the real issue, but if that were true we’d be hearing a lot more about using tax increases to close the budget gap. After all, our tax burden is not all that high relative to other countries, and there are ways to raise taxes that do not harm economic growth.”

This fight is really about folks who have and make a lot of money not wanting to pay tax at the expense of those less fortunate. Let’s face it, those businesses run by multi-million dollar/year CEO’s function off the national infrastructure just like all the rest of America. Thoma’s work, linked in his quote above, is a great read, well supported, and places this attempt to cut tax rates for the big boys in proper perspective.

 

We Just Don’t Understand

…how great the divide really is between the “Haves” and the “Have Nots”. Let’s not even look at the top few percent. Let’s look at someone we all know, teachers.

I saw these figures a while ago, intended to post. Life overtook writing and now Paul Krugman has done it for me….and better.

It’s all very well to talk vaguely about the dignity of work; but the idea that all workers can regard themselves as equal in dignity despite huge disparities in income is just foolish. When you’re in a world where 40 money managers make as much as 300,000 high school teachers, it’s just silly to imagine that there will be any sense, on either side, of equal dignity in work.”

Quite the perspective, good to keep in mind while we listen to the talk leading up to the 2014 elections. Maybe we can sort out who’s for adding to the burden of the poor, yet maintaining capital gains at 15%, subsidies to fossil fuel giants, and tax loopholes large enough to drive whole corporations through.

 

 

 

Income Inequality–Even the Right is in Agreement these Days

After all the writing and all the talking but none of the action required to fix this problem, here are some excerpts from Barry Ritholtz–54% of Republicans Say We’ve Got Too Much Inequality

“In fact, there are at least 5 solid conservative reasons – based upon conservative values – for reducing runaway inequality:

(1) It has now finally become widely accepted by economists that inequality drags down the economy. Conservatives like economic growth;

(2) Inequality increases the nation’s debt Conservatives don’t like debt;

(3) Runaway inequality leads to social unrest and violence. Conservatives like stability and order;

(4) Much of the cause of our soaring inequality is bailouts for the big banks and socialism for the buddies of the high-and-mighty at the Federal Reserve, Treasury, and White House.   The government has consistently picked Wall Street over Main Street, and virtually all of the big banks’ profits come from taxpayer bailouts. The Fed is still throwing many tens of billions a month at the big banks in “the greatest backdoor Wall Street bailout of all time”, which sucks the wealth away from the rest of the economy.  Conservatives don’t like bailouts or socialism; and

(5) One of the biggest causes of runaway inequality is that the big banks are manipulating every market, and committing massive crimes.  These actions artificially redistribute wealth from honest, hard-working people to a handful of crooks.  Conservatives hate redistribution … as well as crooks.  In addition, religious leaders have slammed the criminality of the heads of the big banks; and the Bible teaches – and top economists agree – that their crimes must be punished, or else things will get worse. On the other hand, if the crimes of the bankers are punished, inequality will start to decline, because a more lawful, orderly and even playing field will be reestablished.”

“This is an area of agreement between people of good faith on the left and on the right. As Robert Shiller said in 2009:

And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).”

What we have is once again politicians not representing their constituents, but representing themselves. Time for action.

 

Future Inflation?

In the long-going inflation discussion, I keep hearing the same junk about “currency debasement” and the continual “It’s just around the corner’. I can hardly wait until one of my friends…after being wrong for now five years says “see, I told you so” at the first inkling of a rising, however small,  inflation index.

Like a Stu Glazer quote about playing the blues “if you hit a wrong note, just hold it till it gets right”. Fine idea when it’s fun and entertainment, not so at all when setting policy. Dangerous in fact, bad for economic growth, bad for jobs, and clearly we now have proved austerity policies have deepened and prolonged the recession.

Here is a piece from yesterday specifically on the future of inflation. Well done by EconoMonitors’ James Picerno.

“Let’s begin by recognizing the US dollar has strengthened over the last two years. The idea that the currency was headed for the ash heap of forex history looks foolish at the moment. The trade-weighted measure of the greenback against the major currencies has been trending higher since 2011 and is roughly unchanged from the months preceding the start of the Great Recession. So much for debasement.”

dollar_23dec2013

 

 

Devaluing the Dollar

Since yesterdays video about how the Fed makes (literally) money I’ve seen a few questions. On top of recent discussion of how and why we are not seeing inflation…thought I’d bring this recent piece from Barry Ritholtz to the tank. In 2010 Reminder: QE = Currency Debasement and Inflation he points to the long and (then) distinguished list of “experts” who wrote to the Fed Charman claiming how Quantative Easing (QE)  would debase the dollar, cause inflation, etc. It is interesting to me how many people I know, smart people to be sure, who believed this…some still do in spite of history proving them wrong.

QE has continued, pumped money into a weak economy creating jobs and keeping the system solvent. Like I said before it is not the best plan, that would have been direct government stimulous out of Congress. But some truely smart people credit QE with keeping us out of a full blown depression in spite of congressional efforts to allow, perhaps even make the economy worse. Yet as Ritholtz makes the point, none of the signitories on this letter, nor the others claiming inflation and currency debasement, have had no concequences in spite of being so wrong for so long. And here’s Krugman’s take, expectedly much more pointed, What to do When You’re Wrong.

Reader comments are interesting. One in particular points to the various signitures  “A Who’s who of the right wing, with a strong whiff of dead Rand…”

Yup, and they are just not learning.

 

 

Shock and Awe

As even MSN Money has jumped on the wagon critiquing the shutdown and summarizing the economic impacts. Yes it is rare that I find agreement with the headliners from MSN but the fact they too are touting the big hit our congress gave to the American economy and Americans tells me it must be obvious.

The shutdown forced hundreds of thousands of federal employees and contractors out of work, put government contracts on hold, shuttered national parks and museums and left businesses with fewer customers and lower sales. It’s too early to know the final cost of those and other effects, but analysts at IHS Global Insight said the hit to gross domestic product from lost government services alone totals $3.1 billion.

There will also be some impact from lost private-sector jobs tied to the shutdown, as well as a loss of consumer and business confidence resulting from the debt-ceiling showdown,” IHS economists wrote in an analysis released to the media. “The exact impact on the rest of the economy will be hard to measure until delayed economic data are released.”

Even before that data becomes available, analysts at Standard & Poor’s estimated that the shutdown cost $24 billion (or $1.5 billion a day) and slowed the country’s economic growth rate by an annualized 0.6 percent for the current quarter.

 “The bottom line is the government shutdown has hurt the U.S. economy,” S&P said in a statement. “In September, we expected 3 percent annualized growth in the fourth quarter because we thought politicians would have learned from 2011 and taken steps to avoid things like a government shutdown and the possibility of a sovereign default. Since our forecast didn’t hold, we now have to lower our fourth-quarter growth estimate to closer to 2 percent.”

 

Debt Ceiling….Really

Mark Thoma breaks out the real reason for the debt ceiling fight, and just in time for the next round of political posturing. Mr. Thoma breaks the battle out for what it is…and it is not about the debt in spite of all the jargon:

“Politicians and the press often make it seem as though the long-run debt is the real issue, but if that were true we’d be hearing a lot more about using tax increases to close the budget gap. After all, our tax burden is not all that high relative to other countries, and there are ways to raise taxes that do not harm economic growth.”

This fight is really about folks who have and make a lot of money not wanting to pay tax at the expense of those less fortunate. Let’s face it, those businesses run by multi-million dollar/year CEO’s function off the national infrastructure just like all the rest of America. This is a great read, well supported.

The Depressed Economy Is All About Austerity-Krugman

This is a direct repost from Paul Krugman. Why? Because he is right; he says it so well; he hits all the points I’ve made this year of the differences in spending between past administrations; and well, I like it. Enjoy:

The Depressed Economy Is All About Austerity–Paul Krugman

Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. On the other hand, there are some reasonable people (like Bob Gordon) arguing that at this point, possibly thanks to long-run damage from the Great Recession, “full employment” is now a number north of 6 percent. So there’s considerable uncertainty about just how depressed we are relative to potential.

But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?

To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.

Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

As you can see, the gap is large and has been growing rapidly; it’s currently at about 400 billion 2009 dollars, or more than 2 1/2 percent of GDP. Given reasonable multipliers, this suggests that real GDP is somewhere between 3 and 3.75 percent lower than it would have been without the austerity. And given the usual Okun’s Law rule of half a point of unemployment per point of GDP, this in turn says that without the austerity we’d have an unemployment rate well under 6 percent, maybe even under 5.5 percent.

I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.

The austerians have a lot to answer for.

Missing Media–Deficit Ignorance

Deficit is shrinking, but after listening to political commentary, Americans think otherwise. A few days ago Paul Krugman mentioned he’d like to see a survey on what Americans knew about the deficit. And now we have just that after Google willingly volunteered.

Lets take a look at the deficit over the recent past. As we covered yesterday, the deficit is and has been going down, nearly to the point it was before the recession and still falling :

Deficit Aug 13

Meanwhile we have politicians on the far right and especially the Tea Party saying we have a Trillion dollar deficit per year, some like Virginia’s Cantor have said it is growing this comment on 5 Aug 13 just a few day ago. Hello? So the question, what does the public believe. Here are the survey results so far when asked: How do you think the US Federal Government’s yearly budget deficit has changed since January 2010?

viewsurvey=qyz5ytgc2grp4&question=1&filter=&rw=1

Results as of 1700 EST 13 Aug 13. (Click on the graph for a link to the most current survey results)

Oh how wrong we can be. I’m not surprised however as I continue to witness the discussion. We are being bombarded with misinformation as so called congressional “leadership” attempts to build support for their party positions before the next debt ceiling  battle–sure to be this fall sometime. The questions I have: Where is the national media? The Cantor interview for example took place on Fox News Sunday. Why were viewers not informed immediately of this misinformation? Why is it even lawful for a politician to misstate facts he/she knows or certainly has a responsibility to know, in what is no less than a deliberate attempt to mislead average citizens?

 

More Janet Yellen

Abut the replacement for the Federal Reserve Chairman, I don’t stand alone. Here’s a take from Economitor’s  James Hamilton:

“Yellen is brilliant and tough. She displays this not by needing to prove to you that she’s the smartest person in the room, but instead by always asking the right questions. If someone disagrees with her, her first instinct is not to try to bully them, but instead to try to understand why they have reached a different conclusion than she has. Because of this attribute, Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation. “

See more at: http://www.economonitor.com