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A Big Push for a Small Credit

e21 Staff Editorial | 09/07/2010

According to news reports, President Obama will use an upcoming speech in Cleveland to announce a proposal to expand and make permanent the R&D tax credit. The tax credit provides businesses with a credit for certain research and experimentation expenditures. These expenditures are generally fully deductible from income, which means that the credit provides a tax offset whose value is greater than full expensing. Read more...

Krugman Makes Key Misstatements

e21 Staff Editorial | 09/04/2010

In Friday’s New York Times, columnist Paul Krugman makes one key misstatement of fact and another misstatement of economic theory. The misstatement of fact relates to the timing of the government spending in the Obama stimulus package and its effect on growth. The second misstatement has to do with basic economic theory when Krugman disregards the effect today of planned cuts to government spending. Read more...

The Misguided Arguments against Social Security Reform, Part II: (The Prequel)

e21 Staff Editorial | 09/02/2010

e21’s last editorial on Social Security reviewed some analytical mistakes commonly committed by opponents of Social Security reform. Such mistakes include both implausible hopes that Social Security’s shortfall might disappear by itself, as well as a failure to appreciate the harm done by further delays in its correction. Our last piece addressed both of these areas of confusion in significant detail. Read more...

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Friday GDP Arithmetic

Keith Hennessey for KeithHennessey.com | August 27, 2010

We have new GDP numbers from the Department of Commerce's Bureau of Economic Analysis.

U.S. real Gross Domestic Product grew at an annual 1.6% rate in the second quarter of this year.
This is the second estimate for Q2 GDP. The first, released at the end of July, was +2.4%. This is therefore a downward revision, but we're still growing, albeit slowly.
The economy is growing more slowly than it did in Q1, when it was growing at a 3.7% annual rate. Read more...

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New Housing Figures Look Dim

e21 team | August 26, 2010

This week has seen dismal new housing numbers – an unwelcome sign to those hoping for glimmers of recovery for the housing market. The bad news began on Tuesday when existing home sales for June were released revealing a drop of 27%from the previous month’s total. Wednesday brought the new home sales numbers, which were down by 12% from last month. Read more...

Responding to Podesta and Greenstein on the Looming Tax Increase

e21 team | August 26, 2010

In today’s Financial Times, co-authors John Podesta and Robert Greenstein add their voices to those calling for higher marginal tax rates for the top two brackets. Unsurprisingly, Podesta and Greenstein claim that a tax increase on the wealthiest 2% won’t significantly slow economic growth and that the new tax revenue should be used for deficit reduction instead. Read more...

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Ben Schulman on the Magic of Failure

Reihan Salam for National Review | August 25, 2010

Richard Florida points us to a wonderful piece at Gapers Block that captures a lot of my own inchoate thoughts. Ben Schulman describes how Pittsburgh’s success reflects a legacy of failure: Read more...

Jim Manzi on the Stimulus and Epistemic Humility

Reihan Salam for National Review | August 24, 2010

I take great pleasure in reading Jim Manzi engage with his critics. When you compare Jim’s writing to that of his interlocutors, you soon realize that he is taking part in a very different kind of intellectual exercise. My impression is that Jim is less interested in political combat than in getting the questions and, to the extent possible the answers, right. Read more...

Obama to Unveil More Stimulus, Tax Breaks for Business

Washington Post

September 8, 2010

President Obama will argue personally Wednesday against extending the Bush-era income tax cuts for the nation's wealthiest families even for a year or two, White House officials said Tuesday - a message aimed at wavering Democrats who have been swayed by arguments that the economy is too weak to raise anyone's taxes.

The Federal Budget Deficit So Far This Year - Nearly $1.3 Trillion

Congressional Budget Office

September 8, 2010

The federal government incurred a deficit of nearly $1.3 trillion in the first 11 months of fiscal year 2010, CBO estimates in its latest Monthly Budget Review—a total that is about $100 billion less than the shortfall recorded through August of last year. Outlays are about 2 percent less than they were in the first 11 months of 2009, whereas revenues have increased by 1 1/2 percent.

Obama to Push Tax Break

Wall Street Journal

September 7, 2010

President Barack Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to more quickly write off 100% of their new investment in plants and equipment through 2011. The proposal, to be laid out Wednesday in a speech in Cleveland, tops a raft of announcements, from a proposed expansion of the research and experimentation tax credit to $50 billion in additional spending on roads, railways and runways.

Obama Proposes $50 Billion Plan for Infrastructure Projects

Washington Post

September 7, 2010

Faced with the twin challenges of boosting the economy and saving Democratic congressional seats in November, President Obama tried to do a little of both on Monday at a Labor Day rally that heralded a prominent role for him in a fiery fall campaign. Under pressure to show that he is doing all he can to deliver jobs, Obama announced a proposal to spend $50 billion in the next year on roads, railroads and airport runways.

White House Considering Major Tax Breaks for Businesses

Washington Post

September 3, 2010

With the recovery faltering less than two months before the November congressional elections, President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses - potentially worth hundreds of billions of dollars. Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit. Permanently extending the research credit would cost roughly $100 billion over the next decade, tax experts said.

Will 'Sunset' Darken the Outlook?

Morgan Stanley

September 8, 2010

Gridlock in Washington over taxes and other policies has created uncertainty for both households and businesses. Most immediately, the expectation that the decade-old tax cuts may ‘sunset' at year-end could create ‘virtual' fiscal drag even before the taxes actually go up. In response, consumers anticipating higher taxes in 2011 may save more and spend less in the next few months. Also, businesses may accelerate compensation and dividends into 2010 at next year's expense, exaggerating the appearance that consumers have turned extremely cautious again in early 2011.

The Muni Bond Crisis is Officially Here

Zero Hedge

September 8, 2010

Last week a municipal bond crisis began in earnest when the capital of Pennsylvania, Harrisburg, dropped $3.3 million worth of municipal bond payments for the month of September. This is just the beginning. Collectively U.S. states continue to face massive budget short-falls in spite of massive Federal Aid. According to the Center on Budget and Policy Priorities, US states are expected to run deficits of $144 billion and $119 billion in FYs 2011 and 2012 respectively, unless they can cut spending further or raise taxes dramatically to close these gaps.

Consumer Finance Rebounds from Crisis

Financial Times

September 7, 2010

Finance companies that lend to consumers and smaller businesses in the US are finding it easier to fund themselves in the wholesale credit markets, marking a comeback from their troubles during the financial crisis. During the credit crunch, the cost of their funds rose to crippling levels, forcing industry leaders like CIT into bankruptcy. However, CIT quickly emerged from bankruptcy protection and leading finance companies are now regaining their access to the credit markets.

IMF Ponders the Improbable: Will U.S. Default

Washington Post

September 3, 2010

Using a concept known as "fiscal space" - basically how much latitude a country has to borrow before markets will shut off the spigot by demanding unsustainable interest rates - the IMF staff drew a bright red line through five nations it considers to be running out of room: Greece, Iceland, Italy, Japan and Portugal. Of the 23 developed nations it analyzed, four others, including the U.S., received a yellow caution flag.

Bernanke Empowered

Steve Matthews in Bloomberg

September 3, 2010

In November 2009, Senate Banking Committee Chairman Christopher Dodd advanced a radical proposal: to create a super-regulator that would take over most of the bank supervision that had been done by the Federal Reserve System, the Federal Deposit Insurance Corp. and other agencies. Six months later, when President Barack Obama signed into law a 2,300-page bill overhauling financial services regulation, the super-regulator had been forgotten.

http://cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

The Long-Term Budget Outlook

Congressional Budget Office | CBO | August 6, 2010

This Congressional Budget Office (CBO) report examines the pressures on the federal budget by presenting the agency’s projections of federal spending and revenues over the coming decades. Under current laws and policies, an aging population and rapidly rising health care costs will sharply increase federal spending for health care programs and Social Security. Unless revenues increase at a similar pace, such spending will cause federal debt to grow to unsustainable levels. If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of gross domestic product, decrease spending significantly from projected levels, or adopt some combination of those two approaches.

How the Great Recession Was Brought to an End

Alan S Blinder and Mark Zandi | Princeton | July 27, 2010

The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed’s consideration of further easing.

http://cbo.gov/ftpdocs/116xx/doc11659/07-27_Debt_FiscalCrisis_Brief.pdf

Federal Debt and the Risk of a Fiscal Crisis

Economic and Budget Issue Brief | CBO | July 27, 2010

Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

http://www.frbsf.org/publications/economics/letter/2010/el2010-20.pdf

Fiscal Crises of the States: Causes and Consequences

Jeremy Gerst and Daniel Wilson | FRBSF | July 6, 2010

The recession that began in late 2007 severely reduced state tax revenue and increased demand for many public services. In the near term, institutional and political factors limit the options states have for cutting spending and raising taxes. Aid to states in the federal economic program is winding down next year and the situation is likely to get worse before it gets better. Painful budgetary choices lie ahead for many states, though the drag on the national economy should be modest.