Category Archives: Federal Spending

Solar Credit – Only the Wealthy need Apply

When most of us talk about income inequality we look at the big things, capital gains tax, treatment of carried interest, etc. But sometimes the little things count too. The Renewable Energy Credit is one of them.

We’re doing a solar project right now and a quick look at the tax credit discloses bias for the wealthy. In our case the cost of our 4kw project is roughly $13,000. As a result of

Here is a look at the Return on Investment. This data is from a more expensive vendor (but they had these nice graphics!) with the same 4kw production. Easy to see the benefits, even if financing in many cases.

that investment we’ll receive a federal tax credit of $3,900 making the final cost to us just $9,100. The payback in ridding ourselves of electric bills for the life of the system (25+ years) is substantial. The investment, while not the coolest thing we’re trying to make happen here, has moved up among our priorities because of it’s long-term payback guarantee. In the end it makes other things more affordable as it pays for itself, then pays us with an offset from electrical bills.

But what f we didn’t already have some money? What if our annual tax bill wasn’t large enough to claim the credit? The project would cost us more, perhaps as much as the full price of $13,000 would come from our pocket.  While the credit is intended to subsidize the development of the alternate energy industry and offset fossil fuel consumption, it is also written with a bias toward the wealthy which can also be called a bias against the poor.

Unlike some tax credits (Earned Income Credit for example) which are refundable credits, the Renewable Energy Credit is not. Instinct may be to downplay this since only tax payers can get a tax credit, but not so fast. The Renewable Energy Credit is a subsidy for the industry, it just passes through the consumer on it’s way to that industry. There is no reason it can’t pass through the poor equally as well as it passes trough the wealthy. In the end the federal tax expenditure is the same, the difference is that the wealthy obtain the long-term cost reduction (investment) for electricity and the poor either cannot or must do so at a greater cost i.e. a greater investment cost thus a much lower return on investment. Coupled with the economy of (investment/consumption) scale and the bias is even greater.  Larger home equals (usually)  larger consumption equals a larger investment which equals a greater tax credit.

Our government at work, creating a plan to help the renewable energy industry which is arguably a good thing, but doing so by offering the wealthy a far greater return on investment than the poor. This is a prime case of where at the same cost to the government, both the industry AND the energy affordability for the poor could be accomplished at the same time, with the same dollars…and not one penny more. A FREE opportunity to aid the poor along with the industry with the re-write of just a couple words.

If the Renewable Energy Credit remains, it should be made a “refundable” credit.

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.

 

Debt?

Nice to see congress finally raise the debt ceiling without the usual “strings” attached. Meanwhile there is more on the fictional impacts of the debt ratio done by Reinhart and Rogof. Could the hysteria finally be over?

“I’m pretty sure that the Reinhart and Rogoff “study” is the worst empirical research ever undertaken. They simply lumped together data of questionable verity taken across 800 years and 66 countries to get ratios of debt to GDP and growth rates. They summed across debt types, taking almost no notice of the exchange rate regime or the denomination of the debt. In other words, to R&R it makes no difference if a country pegs to gold or dollarizes, or if it issues debt in foreign currency. Further, at least in their public presentations, they habitually assumed that correlation is causation—ignoring the possibility that slow growth raises debt ratios. Their work was ideologically-driven: they wanted to stoke the deficit hysteria used as a justification for austerity”. – See more at: http://www.economonitor.com/lrwray/2014/02/14/new-imf-paper-shows-yet-again-that-reinhart-and-rogoff-results-are-erroneous/#sthash.NqSjC7K1.dpuf

 

 

 

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.

 

A Litttle More Non-Inflation

Two links to posts here today. First by Ed Dolan: Falling Gasoline Prices bring Inflation to a Four Year Low.  See this chart.

Inflation per BLS

Well compare that to what I’ve said here. We see again (and again and again…) the folks yelling inflation have been wrong for years, are still wrong,and I surmise will be wrong over the next few more. It’s really OK to be wrong, after all it’s economics and sometimes things become a bit different than we expect. But truely smart people can usually learn from the mistakes and data. Not everyone.

Todays second winner is a takedown of the inflation hawks claiming the dollar has lost huge value in the past couple years. We know differently. Barry Ritholtz hammers them with facts: Has the Dollar Really Lost 97 Percent of Its Value? in this Bloomberg winner.

 “One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).

The problem is, nearly all of these arguments are wrong.

As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.”

But why can’t the wrong at least be quiet for a bit…maybe allow Congress to govern on the data, not the hope of a few.

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.”

 

The Battle isn’t over Yet

So we have a temporary break in the DC deadlock. Still a lot of name calling, slightly less loud, and I’m betting it’s short lived. Today I ran across this article from EconoMonitor’s Robert Reich, What to Expect During the Cease Fire.

“The war isn’t over. It’s only a cease-fire. Republicans have agreed to fund the federal government through January 15 and extend the government’s ability to borrow (raise the debt ceiling) through Feb. 7. The two sides have committed themselves to negotiate a long-term budget plan by mid-December. Regardless of what happens in the upcoming budget”

Some good thoughts from the debt ceiling to Social Security. Well worth a read.

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.