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Commentary

Small Business Nonsense

e21 Staff Editorial | 09/08/2010

Last Week, President Obama identified a “small business jobs bill” as the first item Congress should act on in September. He suggested “small businesses have put hiring and expanding on hold while waiting for the Senate to act on this bill.” Passage of the legislation has almost been presented as a necessary condition for economic recovery. On Wednesday, the President is expected to propose some new tax breaks for small business that he presumably will want added to this small business measure.

A Guide to Understanding President Obama’s Infrastructure Plan

Jess Sharp | 9/7/10

Nearly one year after the expiration of the latest highway bill, President Obama waded into the transportation funding and reform debate. The plan contains a few ideas that are of interest, but without a detailed draft bill, a coherent funding mechanism, or political support for massive government spending, the President's plan is effectively dead on arrival. Read more...

A Response to Paul Krugman’s Depiction of 1937

Amity Shlaes | 9/7/10

Paul Krugman draws an analogy between United States in 1937-1940 in his Labor Day column. His argument is a strange one, worth retracing year by year. For a systematic review of that period does not suggest that massive spending at the current point in U.S. history makes sense.

The Reagan and Obama Years

e21 team | September 8, 2010

As the economic recovery continues to lag behind expectations, scholars (and some others) have begun to compare this recession and recovery to previous recessions. Notably, Michael Boskin released a piece in the WSJ last week detailing the sluggish growth and comparing the recovery to those during both the Ford and Reagan Administrations. Read more...

Credit Card Hikes

e21 team | September 3, 2010

At e21, we’ve argued that the passage of the CARD Act in early 2008 has led to a number of negative side affects. The bill was designed to curb abuses by credit card companies, and instituted a variety of restrictions on the ability of credit card companies to change rates at will. Read more...

Responding to Klein: Don’t Cross the Revenue Streams!

e21 team | September 1, 2010

The Center on Budget Policy and Priorities has released a chart that is causing a stir among those who want to raise taxes on the top 2% (for a variety of reasons, to pay for an expanding list of programs). In fact, so many have seized on this chart that we have to take exception and respond. Read more...

Volker Panel Offers Lots of Pages, but Nothing New

e21 team | August 30, 2010

Amid no fan fare at all on Friday, the Administration released the report from its Economic Recovery Advisory Board, headed by former Fed Chairman Paul Volker, “The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation”. The 126 page report is primarily comprised of a long list of suggestions to simplify the tax code or improve compliance, most of which we’ve seen before. In the end, the report offers little that is new. Read more...

The U.S. v Germany: David Brooks Weighs In

e21 team | August 27, 2010

Last week, we called attention to Germany’s incredible second quarter growth rate (9.1% on an annualized basis). It was an interesting data point in intense debate between the German and American political establishments about whether the right economic recipe (for today) was more borrowing to stimulate growth or less debt and more action to balance budgets. Today, David Brooks weighed in with some very interesting comments of his own. 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.

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.

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://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.