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Tuesday, February 28, 2012

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Economic Events of the Week

Tuesday – Michigan and Arizon primaries
Wednesday – House Financial Services Committee Hearing on "Monetary Policy and the State of the Economy" with Ben Bernanke, Q4 GDP
Thursday – Personal Income
Saturday– Washington caucuses

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Story of the Day
Why I Still Think We Should Eliminate the Corporate Income Tax (Megan McArdle’s Blog)

Washington Update
Some Federal Regulators Have Turned Against the Volcker Rule (Washington Post)
Corporate Tax Next Battle for White House (Politico)
FHA Will Raise Premiums (Wall Street Journal)

Market Talk
Durable Goods Orders in US Probably Fell (Bloomberg)
Fed’s Duke to Defend Focus on Housing (Real Time Economics)

Editorials & Opinions
The Freedom to Do God's Will, Economically (Will Wilkinson in The Economist)
The Reason the White House Didn’t Embrace Simpson-Bowles (Ezra Klein in Washington Post)
Housing Is the Rotting Core of the US Recovery (Robert Reich in Financial Times)

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e21 Reaction & Commentary

Why I Still Think We Should Eliminate the Corporate Income Tax (Megan McArdle’s Blog)

One of the first blog posts I ever wrote was on why we should eliminate the corporate income tax.  This is not because I just looooooooove corporations, or wish to put more money into the hands of rich people--on the contrary, I want to pair an elimination of the tax with an end to the special low tax rates for dividends and capital gains, and maybe even an increase in rates for higher brackets if that's necessary to keep the thing revenue neutral.  Which would actually be considerably more progressive than the current system. Rather, I think the thing's horribly inefficient--companies and rich people spend an exorbitant amount of time arranging their affairs to be lower-taxed, rather than more productive.  Taxing capital once, when it hits a person, as ordinary income, would in one fell swoop eliminate most of the tax-avoidance activity that goes on in this country.


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Washington Update

Some Federal Regulators Have Turned Against the Volcker Rule (Washington Post)

It’s not just big banks and industry lobbyists who’ve had harsh words for the Volcker Rule. In a speech this weekend, Troy Paredes, the lone Republican commissioner on the Securities and Exchange Commission, warned that the proposed regulation “could unduly impede the competitiveness and dynamism of our financial markets.” Back in October, Paredes had voted with the other SEC commissioners to support the agency’s proposed draft of the rule, although he said at the time that he had “significant reservations.” What changed between now and then? Paredes doesn’t explain directly, but he does cite “the many comments explaining the harm the proposed rule could cause” — the great majority of which have been submitted to federal regulators by industry stakeholders. In listing his specific concerns, Paredes echoes their principal criticisms of Volcker: Liquidity could dry up, driving up trading costs; securities markets could become more volatile; and states and municipalities could have trouble accessing financing.

Corporate Tax Next Battle for White House (Politico)

President Barack Obama’s top financial wizards face an uphill climb on Capitol Hill in the coming weeks when they pitch the administration’s vision for revamping the corporate Tax Code — particularly on a provision that would tax all foreign earnings. A House GOP memo drafted late last week shows how Republican budget writers plan to poke holes in the president’s blueprint. Topping the list: the proposal to tax overseas earnings by multinational firms at a “minimum rate” regardless of whether they bring that money back home. The GOP memo questions why the administration opted for a “worldwide system of taxation that double-taxes American employers and puts our workers at a competitive disadvantage in the global economy,” according to a copy obtained by POLITICO.

FHA Will Raise Premiums (Wall Street Journal)

The Federal Housing Administration, a U.S. agency that has provided major support to financing home purchases since the housing downturn deepened, will raise in April the premiums that it charges borrowers, the agency said on Monday. The FHA will raise by 0.75 percentage point to 1.75% the upfront insurance premiums that borrowers must pay when they take out a loan backed by the agency. Borrowers also pay annual insurance premiums when they take out loans backed by the agency, and those fees range from 1.1% to 1.15% of their loan amount. Congress last year raised those annual premiums by 0.1 percentage point. The FHA said on Monday it will implement both fee increases on April 1. The FHA offers among the easiest lending terms available, with down payments of just 3.5%.It doesn't make loans but insures lenders against losses on those that conform to its standards.


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Market Talk

Durable Goods Orders in US Probably Fell (Bloomberg)

Orders for U.S. durable goods probably declined in January for the first time in four months as aircraft demand slowed, economists said before a government report today. Bookings for goods meant to last at least three years fell 1 percent after a 3 percent increase the prior month, according to the median forecast of economists surveyed by Bloomberg News. Demand for durable goods excluding transportation equipment was little changed after four consecutive gains, economists projected. Home prices fell and consumer confidence increased, other reports may show. Factories remain at the forefront of the expansion that began in June 2009, spurred by a stronger auto demand and business investment in equipment. At the same time, rising fuel costs and an economic slowdown in Europe may temper the industry that accounts for about 12 percent of the world’s largest economy.

Fed’s Duke to Defend Focus on Housing (Real Time Economics)

A top U.S. Federal Reserve official is expected to defend the central bank’s recent focus on the U.S. housing market on Tuesday in the face of Republican criticism. In testimony prepared for a Senate Banking Committee hearing on Tuesday, Fed governor Elizabeth Duke said that the central bank was right to highlight the housing market in a paper published last month. That paper has come under fire from Republicans in Congress, who argue it was laying out positions that are close to that of the Obama administration and strays from the central bank’s role of policy issues that are the domain of Congress and the White House, rather than the central bank. Duke said housing market issues are “are important factors in the Federal Reserve’s various roles in formulating monetary policy, regulating banks, and protecting consumers of financial services.”


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Editorials & Opinions

The Freedom to Do God's Will, Economically (Will Wilkinson in The Economist)

Mr Santorum promises to "triple the personal deduction for children and eliminate the marriage tax penalty". What does any of this have to do with economic freedom? If paying people to have children makes them more free, why don't the childless deserve equal freedom? Because freedom is the freedom to do God's will and God wants us to have big families? The "pro-family" elements of Mr Santorum's plan are transparent attempts at social engineering through fiscal policy. Mr Santorum says he'll "cut means-tested entitlement programs by 10% across the board, freeze them for four years, and block grant them to states—as I did as the author of welfare reform in 1996." This is unintelligible. If subsidising families through the tax code somehow adds to their freedom, then reducing subsidies to the relatively poor—to those who qualify for means-tested benefits—must logically decrease theirs. This is simply upside down.

The Reason the White House Didn’t Embrace Simpson-Bowles (Ezra Klein in Washington Post)

Perhaps the most common Washington criticism of the White House is that they didn’t embrace the Simpson-Bowles plan. That was, in the eyes of many pundits, the moment when President Obama revealed himself as a typical liberal rather than a postpartisan reformer. But the New York Times today suggests that much of Washington is misreading a tactical decision as an ideological one. It’s a frustration for many White Houses that the best way to get things done is not necessarily to support them. For all that Washington thrills to the spectacle of presidential leadership, the opposition party tends to recoil from proposals that are too closely associated with the White House. The calculus is simple: If a bill belongs to the president, then its passage is a defeat for the opposition. This dynamic is, in part, why both parties spend so much time negotiating behind closed doors. The trick is to agree on a proposal before it can become associated with either party, and thus before its passage can become a loss for one side.

Housing Is the Rotting Core of the US Recovery (Robert Reich in Financial Times)

Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high. Has the American recovery finally entered the sweet, virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident and the confidence creates more spending? On the surface it would appear so. Yet the US economy has been down so long that it needs substantial growth to get back on track – far faster than the 2.2 to 2.7 per cent projected by the Fed for this year (a projection which itself is likely to be far too optimistic). Yet the biggest continuing problem for most Americans is their homes. Purchases of new homes are down 77 per cent from their 2005 peak. They dropped another 0.9 per cent in January.


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