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Thursday, February 16, 2012

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Economic Events of the Week

Thursday – Housing Starts, Producer Price Index
Friday – Consumer Price Index

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Story of the Day
Panel Concludes Last Details of Payroll Tax Extension (New York Times)

Washington Update
How Would the Buffett Rule Affect Marginal Tax Rates? (DMarron.com)
Congress Said to Pack It In for the Year (Politico)

Market Talk
Growth Slow, But Fed Says More Easing Not Likely (New York Times)
January Container Volume Down 3.9% (Port of Long Beach)
Measuring the Consequences of the Zero Lower Bound Constraint (Econbrowser)

Editorials & Opinions
Making the Volker Rule Better for Markets (Bloomberg Editorial)
ObamaCare’s Non-Tax Tax (Wall Street Journal Editorial)

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Story of the Day

Panel Concludes Last Details of Payroll Tax Extension (New York Times

Members of a House-Senate committee charged with writing a measure to extend a payroll tax reduction said Wednesday that their work was done, just shy of an hour before their deadline to get a bill ready for a Friday vote. After fighting until the very final hour over how to pay for parts of a $150 billion plan that would also extend unemployment benefits and prevent a pay cut for doctors who accept Medicare, leaders of both parties put together a bill that the majority of the committee could support. While the substance of most issues had largely been worked out this week, Democrats from Maryland — home to many federal workers — held up an agreement at the last minute debating whether a pay freeze for federal workers or a reduction in scheduled raises would be more acceptable  than changes to pensions for some employees as a way to pay for continuing jobless benefits for the long-term unemployed.


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Washington Update

How Would the Buffett Rule Affect Marginal Tax Rates? (DMarron.com)

President Obama’s latest budget endorses a “Buffett rule” – a new floor on taxes paid by folks with very high incomes. His rule would require that “those making over $1 million should pay no less than 30 percent of their income in taxes.” The president didn’t offer many specifics about how the rule would actually work. Up on Capitol Hill, however, Senator Sheldon Whitehouse and Representative Tammy Baldwin have  introduced legislation that would implement a 30% minimum tax. That legislation addresses key technical issues such as which taxes to include, what measure of income to use, and how to phase-in the tax so that there isn’t a giant spike when someone’s income rises from $999,999 to $1 million.

Congress Said to Pack It In for the Year (Politico)

Come January, Americans will face the prospect of seeing their taxes rise substantially. Jobless benefits could expire. And defense programs will be on the chopping block, hitting communities from coast to coast. So what are the chances Congress will deal with these issues of profound consequence between now and November? “Zero,” Sen. Lindsey Graham (R-S.C.) said. “If you’re looking for a positive spin on this, I don’t have one to give you.” It’s only February, but it looks like Congress is ready to pretty much pack it in for the year. Or at least until the November elections, when a lame-duck Congress might be even less able to tackle the nation’s business. After House and Senate negotiators worked until the wee hours of Thursday morning, Congress is expected to soon give its blessing to one of the last pieces of must-pass legislation: a 10-month extension of the payroll tax cut, unemployment insurance and doctors’ reimbursement rates under Medicare.


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Market Talk

Growth Slow, But Fed Says More Easing Not Likely (New York Times)

The Federal Reserve is not inclined to begin a round of asset purchases unless economic conditions deteriorate, according to the minutes of the most recent meeting of its policy-making committee. The Fed’s leaders did not see evidence that growth is accelerating, according to the minutes of the committee’s Jan. 24-25 meeting, released Wednesday. The central bank continued to forecast that the domestic economy would grow only modestly over the next year. But most members of the Fed’s policy-making committee agreed that slow growth was not a sufficient reason to expand the central bank’s economic aid campaign. Only “a few” argued the Fed should try harder to address problems like the persistently high rate of unemployment, the minutes said.

January Container Volume Down 3.9% (Port of Long Beach)

Container trade volume at the Port of Long Beach dropped 3.9 percent overall in January compared to the same period a year ago. Imports were down 5.5 percent, and exports dipped 8.2 percent. Port terminals handled 456,424 twenty-foot equivalent container units last month, compared to 474,960 TEUs in January 2011. Import volumes at the Port typically pick up leading up to the Chinese New Year, as U.S. retailers stock up their shelves in anticipation of the holidays in Asia when most factories close down for a week or more. Conversely, exports of raw materials to China slow down. Chinese New Year was January 23. The decline in imports reflect caution in the retail sector.

Measuring the Consequences of the Zero Lower Bound Constraint (Econbrowser)

In a period of deleveraging such as the U.S. has been going through, it is possible for the natural rate of interest to become negative. Since cash is always an option for earning at least a yield of zero, no asset should ever pay less than zero. This lower bound of zero on nominal interest rates can put a constraint on the ability of the economy to self-correct or the Fed to provide stimulus in such a situation. The Fed still has some tools to try to reduce longer-term yields, namely large-scale asset purchases and signaling the Fed's future intentions. A new research paper by Federal Reserve Bank of San Francisco President John Williams and Senior Research Advisor Eric Swanson proposes a creative new approach to measuring when and to what extent the zero lower bound is a relevant constraint on interest rates of any maturity.


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Editorials & Opinions

Making the Volker Rule Better for Markets (Bloomberg Editorial)

The Volcker rule, a central element of the U.S. financial reform effort, is facing heavy criticism as regulators prepare a final version. We encourage them to stick as close as possible to the rule’s original intent: severing the links between high-stakes securities trading and the banking services crucial to the broader economy. Inspired by former Federal Reserve Chairman Paul Volcker, the rule forbids proprietary trading, or the use of a bank’s own funds to make speculative bets. This has two main aims: prevent losses on such trades from reducing banks’ ability to lend, and cut traders off from the taxpayer subsidies implicit in federal deposit insurance, emergency central-bank credit and government bailouts.

ObamaCare’s Non-Tax Tax (Wall Street Journal Editorial)

The quicksilver qualities of the Affordable Care Act individual mandate penalties—what you pay if you don't buy government approved health coverage—are something to behold. Does the Obama Administration think they're a fine, a tax, or maybe something else? Well, that depends, as revealed in a telling exchange at a House budget hearing Wednesday. New Jersey Republican Scott Garrett asked White House budget director Jeff Zients about his claim that no one earning under $250,000 will see a tax increase under his boss: "So if I am part of a family that does not buy health insurance in violation of the President's health-care program and I got to pay because of that, that is not a tax increase—that is not a tax on me?" Mr. Zients replied, "The Affordable Care Act saves money," which is not merely irrelevant but false. Mr. Garrett tried again and Mr. Zients said "I'm not sure I'm following the question." Mr. Garrett once more: "Is that a tax on me or is that not a tax on me?"


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