Bartlett on Revenue Declines from Bush Tax Cuts

This is a brief quote from a recent Bruce Bartlett article on Newt Gingrich. The article is a good read but I found this stat particularly useful:
For example, Republicans frequently assert that tax cuts, especially for the rich, generate so much economic growth that they lose no revenue. This theory has been thoroughly debunked, most recently by the tax cuts of the George W. Bush administration, which, according to C.B.O., reduced revenues by $3 trillion. Nevertheless, conservative groups like the Heritage Foundation (where I worked in the 1980s) still peddle the snake oil that the Bush tax cuts paid for themselves.

http://economix.blogs.nytimes.com/2011/11/29/gingrich-and-the-destruction-of-congressional-expertise/?partner=rss&emc=rss

Robert Dallek Column on Why We Love Certain Presidents

Great column here from Robert Dallek at Bloomberg that discusses why we favor certain Presidents from our history and why our simplistic assumptions contribute to our current political problems.

But America’s current political divide has produced equally ludicrous notions of outsized defects. The contemporary conservative idea that government is the source of all the country’s woes is reductionist and worse. The Tea Party crowd seems incapable of understanding that New Deal and Great Society programs humanized the U.S. industrial system and saved free enterprise from its worst excesses.
On the other side, the Occupiers have decried the greatest concentration of wealth since the 19th-century Gilded Age, but they have been too quick to strike out at symbols of the national malaise without advancing a coherent agenda for righting social and economic wrongs.
The country is unquestionably struggling with large economic problems that jeopardize its domestic tranquility and future prosperity. But anti-government rhetoric and anti-Wall Street complaints hardly provide credible answers. The opposing sides see nothing ahead but doom and gloom unless they win command of the nation’s power centers and enact their programs of change.


http://www.bloomberg.com/news/2011-11-30/kennedy-reagan-loved-for-all-the-wrong-reasons-robert-dallek.html

US Actually Net Fuel Exporter

 This is going to be the first year since 1949 in which America exports more fuel than it imports, thanks to sagging demand at home and booming economies elsewhere.

http://www.newser.com/story/134359/us-becoming-net-fuel-exporter.html?utm_medium=goognews&utm_campaign=chan3_feed

Chart on Deficit

Great chart below from Crandall, Pierce & Co.

Howard Marks on U.S. Taxes

I've put in a link to an interesting memo from Howard Marks, CEO of Oaktree. This is a very comprehensive piece on our current tax policy as well has future alternatives for the tax structure of the US. While I disagree with some of the points he makes in his conclusion, this is still a worthwhile read in order to understand the tax issue at hand.


The top 1% of U.S. taxpayers pay 38% of all individual federal taxes. The top 10% pay 70% of all taxes, the top 25% pay 86%, and the top 50% pay 97%.
That leaves the bottom 50% of all taxpayers paying only 3% of the total.
About half of Americans pay no federal income tax, and almost 25% pay no federal taxes at all.
The average federal income tax rate for the top 1% of Americans is 23% (and for the top half it's 14%), while the average rate for the bottom half is 3%.

Notwithstanding the rhetoric, there's no doubt about the fact that America's top earners are taxed more heavily than the rest. On the other hand, they pay at lower rates than they used to (when I was a boy the top marginal rate was 94%), and it seems progressivity has declined.
". . . the effective federal tax rate, including payroll taxes, for the wealthiest 0.01 percent of earners fell to 31.5 percent in 2005, from 42.9 percent in 1979 [for a decline of 26.6%], according to data from the Congressional Budget Office. Over the same time, effective rates for taxpayers in the center of the range fell to 14.2 percent, a decrease of just 4 percentage points [or 22.0%]." (The New York Times, September 21, 2011)
.....................
One of the outstanding characteristics of the U.S. economy at this time is the rising dispersion between incomes. The percentage of total income going to higher earners has been increasing dramatically, whether because of (a) the rising importance of education and technological literacy or (b) the movement of work offshore, the declining availability of blue-collar jobs and the reduced power of private-sector unions to garner wage gains. And given the pattern of tax cuts and the special treatment given to income on capital, the tax system has magnified the divergence.
A recent report from the Congressional Budget Office provided dramatic evidence of the divergent trends in income. It outlined the percentage gain in average inflation-adjusted after-tax income of various income groups between 1979 and 2007:
Top 1% of the population in terms of income: 275%
Next 19%: 65%
Middle 60%: 40%
Bottom 20%: 18%

http://www.valuewalk.com/2011/11/howard-marks-memo-taxing/

Fact or Fiction: Grover Norquist

This is an interesting fact checker article on Grover Norquist. The Washington Post has several articles on Mr. Norquist on its website today, some that support him and some that deride him. Rather than get caught up in that mess, I suggest you read this article to at least see if his facts are correct. As you can see below, many are not:

Finally, let’s examine Norquist’s claim that “we just wasted $800 billion on stimulus spending that added to debt that killed jobs. There are fewer jobs than before.”
First of all, Norquist appears to have forgotten that, depending on how you do the math, the stimulus bill included between $218 billion and $288 billion in tax cuts. Norquist is a huge fan of marginal rate reductions so perhaps he does not consider items such as the “Making Work Pay” tax credit to be a true tax cut. But it is simply incorrect to refer to “$800 billion of stimulus spending.”
http://www.washingtonpost.com/blogs/fact-checker/post/grover-norquist-a-misleading-accounting-of-recent-history/2011/11/27/gIQAAhER2N_blog.html

Terrific Article on Governance in the US

I have found very few articles that cut to the heart of what's wrong in today's political environment better than this article by Clive Crook of Bloomberg. Please take the time to read it. Some relevant selections:

• Lately the ideological center in Congress has thinned, and the distance between the parties has widened. Compromise has come to be seen as surrender -- and the U.S. government has all but come to a halt.
• One school of thought says that voters only think they want compromise. If they saw it, they wouldn’t like it...... I don’t believe it. I have a higher opinion of voters. Most of them, I think, would support the Simpson-Bowles approach if it were offered to them and properly explained. Somebody ought to try it, at least.
• My own theory of U.S. political paralysis is not that a deeply divided electorate is getting what it asks for, but that the balance of power between party leaders and activists has moved too far in favor of activists. This leaves the center disenfranchised. Activists are not ordinary people......The insurgents have pushed a modern Republican Party that was conservative to begin with much further to the right.

http://www.bloomberg.com/news/2011-11-23/paralyzed-congress-better-than-self-destruction-commentary-by-clive-crook.html

WSJ Video onhiring practices of U.S. Multinational Firms

WSJ CEO Conference- Simpson/Bowles Interview

This is a must read for anyone concerned with recent budget deficit proposals.


http://online.wsj.com/article/SB10001424052970203699404577041774026396602.html

Supercommittee primed to fail

From Bloomberg.com

"A debt-reduction committee with special powers that was supposed to dissolve congressional gridlock in Washington is instead on the brink of failure, setting the stage for $1.2 trillion in automatic spending cuts.
The 12-member bipartisan supercommittee likely will announce today that it can’t reach agreement on deficit savings, according to a Democratic aide. The aide, who wasn’t authorized to discuss internal matters publicly and requested not to be identified, said in an e-mail that it was highly unlikely that the committee’s talks could be salvaged."

While it was easy to see this coming, this is still a very disappointing development. The U.S. government's gridlock is now a major drag on our economic recovery. At this pace, it is only a matter of time before markets punish us for the immature actions of our government.

http://www.bloomberg.com/news/2011-11-21/u-s-debt-supercommittee-is-said-to-be-poised-to-announce-failure-of-talks.html#

Developing Market Growth in 2030

I've included a couple of useful charts from a recent OECD report on the emerging middle class in developing countries, It is amazing to not the projected growth in consumption in Asia over the next 20 years.
http://www.oecd.org/dataoecd/12/52/44457738.pdf

Newt's side jobs

There are a couple of good articles below about the "consulting" work of Newt Gingrich over the past decade or so. Is there any better job in the world than being an ex-congressman? Not only did Newt make $1.6 million for his work with Freddie Mac, he was also paid $840,000 by the U.S. Chamber of Commerce. His task at the chamber: "was to attend dinner or lunch with Chamber officials every few months and serve as a sounding board on various economic issues". $120k a year plus free lunches and dinners? Sign me up.



http://online.wsj.com/article/SB10001424052970204517204577044551356125444.html?mod=googlenews_wsj

http://www.bloomberg.com/news/2011-11-18/gingrich-the-historian-skips-over-his-own-past-jonathan-alter.html

Income Inequality and Economic Growth

Check out this great article in BusinessWeek with two of my favorite sources of information: Barry Ritholz and Raghuram Rajan.

http://www.businessweek.com/magazine/how-inequality-hurts-the-economy-11162011.html

The case for increasing corporate taxes

Please take a look at this chart and follow the link to a great blog post on Felix Salmon. This highlights how low corporate income taxes are as a percentage of total corporate profits. As we head into crunch time on the budget supercommittee, I think its beneficial to realize how low taxes (for corporate and personal) are at this point in time. We currently are receiving tax revenue of roughly 15% of GDP and paying expenditures of 24-25% of GDP, which accounts for our huge deficit.  Long-term averages for both revenue and expenditures are roughly 18.5%.At this point in time, the right only wants to focus on spending cuts. This is ignorant due to the fact that it will be very difficult to keep spending at 19% or below as the baby boom moves to retirement age and cost of retirement and healthcare increase. Like it or not, it is almost impossible to imagine a situation in which the budget is balanced unless taxes are increased.


http://blogs.reuters.com/felix-salmon/

Children's Health Crisis

The National Health and Nutrition Examination Survey released a  troubling report this week on the cardiovascular health of American adolescents. The most troubling statistic of all is the fact that zero of the 5,450 adolescents surveyed had an ideal diet. This obviously play a huge role in the rise of childhood and adolescent obesity in this country over the past several decades.

Within this context, it is equally troubling the Congress has not stepped to the forefront to combat this health issue. Instead they have done the opposite. Please follow this Washington Post link to a blog post the discusses the fact that Congress has recently voted to allow pizza to count as a vegetable on school menu's across the country. http://www.washingtonpost.com/blogs/compost/post/move-over-ketchup-pizza-is-a-vegetable/2011/11/16/gIQAk1okRN_blog.html



http://online.wsj.com/article/SB10001424052970204517204577042412501431378.html?mod=WSJ_WSJ_US_News_5

Washington Insider Trading

Just when it seems like the corruption that exists within the Washington establishment cannot possibly shock you anymore, you get blindsided by a nugget like this  http://www.thedailybeast.com/newsweek/2011/11/13/peter-schweizer-s-new-book-blasts-congressional-corruption.html  .

At first glance it seems amazingly illegal for politicians to profit from insider trading but as Zachary Karabell explains for The Daily Beast:
Yet insider-trading laws do not apply to what many members of Congress have done. Because their privileged information does not come from company insiders and because congressional representatives are not employees of any public company, their trades do not fall under the definition of illegal insider trading. In short, because they trade on material nonpublic information about spending that they acquire as elected representatives, rather than on material nonpublic information provided by companies, they have not broken the law.
\
While this trading may not be illegal, it is incredibly immoral and citizens should expect better from their politicians. I really hope this budding controversy has legs and naively believe that some sort of limiting legislation should come out of this.
http://www.thedailybeast.com/articles/2011/11/15/ethically-challenged-congress-needs-law-or-code-banning-insider-trading.html

Snapshot on European Debt

HT: The Big Picture

http://www.economist.com/node/21536872

The reason the Health Law may not pass the Supreme Court

Over the next nine month we may finally reach a resolution regarding weather the Affordable Care Act is constitutional or not. Rulings have been mixed so far, with most lower courts backing the ACA. With that being said, however, there is still a strong possibility that the law will not pass. This is not necessarily due to the politics of the matter or whether a more substantial healthcare system has the support of the American people. Rather it is regards to how the law was written and the fact that the legislation was not written as a tax, rather as a fine for people who choose not to have healthcare.

President Obama and Congressional Democrats decided to write the law in this manner because they believed that if the ACA was written as a tax it would not gather enough votes in Congress to pass. This creates a problem because it forces the Justice Department to explain how this law still manages to limit Congressional power. If the law were an income tax, than people could "choose" not to pay it by not working and earning income, citizens have no such choice when it comes to a fine.  Because limiting federal powers is one of the bedrock values of the Constitution, this argument may become the core of the upcoming Supreme Court case, as yesterdays NY Times article on the subject explains:
"The case focuses on whether Congress overstepped its constitutional authority in enacting parts of the law. Lower courts have reached divergent conclusions.
Even judges in lower courts who ultimately voted to uphold the law have homed in on the question of the limits of government power, at times flummoxing Justice Department lawyers.
“Let’s go right to what is your most difficult problem,” Judge Laurence H. Silberman, who later voted to uphold the law, told a lawyer at an argument in September before the United States Court of Appeals for the District of Columbia Circuit. “What limiting principle do you articulate?” If Congress may require people to purchase health insurance, he asked, what else can it force them to buy? Where do you draw the line? "
http://www.nytimes.com/2011/11/14/us/politics/health-law-debate-puts-focus-on-limit-of-federal-power.html

There are more similarities than you think between OWS and Tea Party

Please follow the link below to a great WSJ article from Gerald F. Seib. In this article Gerald explains the many similarities between Occupy Wall Street and the Tea Party and what the discontent of both groups represents. Below are some useful passages:

• Almost half of Americans identify themselves as supporters of one movement or the other. Contrary to popular perceptions, the tea-party movement attracts more white-collar support than blue-collar support, and the largest contingent of Occupy Wall Street supporters isn't young but rather middle-aged.
• But a deeper look shows a much more complex web of sympathy. The age group that expresses the strongest support isn't those under 35, but rather those 50 to 64.
  Support is highest not among those who make under $30,000 a year, but rather among those who make $50,000 to $70,000. And 27% of those who make more than $75,000 a year count themselves as backers. Backing is strongest in the West, not the Northeast.
  Professionals and managers are more likely to voice support for Occupy Wall Street than are blue-collar workers. And here, as in the tea-party movement, support is highest among men, and particularly those 50 and over.

http://online.wsj.com/article/SB10001424052970203503204577037980400569026.html

Analysis on the Flat Tax

Please follow the link below to an article from Project Syndicate on the flat tax. It seems as if every Republican nominee is pushing their own version of a flat tax this election cycle which makes understanding the advantages/disadvantages of the structure worthwhile. Personally, I am opposed to such a tax system. My reasoning for this is that if the tax is to be revenue neutral (and some would argue it would have to be revenue positive due to the current budget deficit), and if it thus lowers the top tax rate, it will undoubtedly cause people with lower incomes to pay more in taxes. Not only does this seem like bad policy in light of the trends in income inequality over the past 30 years, it also would most likely reduce aggregate demand in the economy due to the fact that poor people spend almost all of their money on consumption (creating market demand) while wealthy people often save/invest their excess income. 

Here are a couple of useful excerpts from the article:
But, if a flat tax is such a bad idea, why have so many countries embraced it?......A careful study of these countries – mainly post-communist countries in Eastern Europe and a smattering of tiny micro-states worldwide – suggests that there are three main reasons. First, some countries are so relatively poor and lacking in domestic capital that they opt to drop rates in order to attract foreign investors. Other countries are so small and ineffective at collecting revenue that they cannot afford a progressive tax system. Finally, some countries are so corrupt that they have to offer the wealthy a huge rate cut to get them to pay any taxes at all.

For developed countries that already have capital and a track record of inward investment, “the appeal of the flat tax is consequently less,” as a report by the International Monetary Fund concludes. Thus, the flat tax has not been adopted in any developed countries, or in China.

A country’s tax system reflects its institutional capacity, economic circumstances, and distribution of political power. If the US were to become the first developed country to experiment with a flat tax, that shift would tend to confirm what many suspect but hope is not true: that America is broke, desperate for inward investment, incompetently governed, and increasingly ruled by a self-regarding oligarchic elite.


http://www.project-syndicate.org/commentary/orenstein4/English

Climate Change in the next 5 years could be irreversible

From the Guardian referencing a recent report by the International Energy Agency

The world is likely to build so many fossil-fuelled power stations, energy-guzzling factories and inefficient buildings in the next five years that it will become impossible to hold global warming to safe levels, and the last chance of combating dangerous climate change will be "lost for ever", according to the most thorough analysis yet of world energy infrastructure.

http://www.guardian.co.uk/environment/2011/nov/09/fossil-fuel-infrastructure-climate-change?newsfeed=true

Effectiveness of 2009-2010 Government Assistance

This is a great chart from the Center on Budget and Policy Priorities. It highlights the fact that 7 million people were kept above the poverty line because of various recent government initiatives. From Arloc Sherman:

Six temporary federal initiatives enacted in 2009 and 2010 to bolster the economy by lifting consumers’ incomes and purchases kept nearly 7 million Americans out of poverty in 2010, under an alternative measure of poverty that takes into account the impact of government benefit programs and taxes.  These initiatives — three new or expanded tax credits, two enhancements of unemployment insurance, and an expansion of benefits through the Supplemental Nutrition Assistance Program (SNAP, formerly called food stamps) — were part of the 2009 Recovery Act.  Congress subsequently extended or expanded some of them.
http://www.cbpp.org/cms/index.cfm?fa=view&id=3610

GOP and Taxes, the danger of our current tax policy

I have included this table from a great article in this month's Rolling Stone written by Tim Dickinson titled "How the GOP Became the Party of the Rich". Regardless of your political viewpoint, I encourage you to read this. I believe that, in light of upcoming events, the important takeaway is that raising taxes is not inherently a Democratic viewpoint. I think that it is also important to look at what individuals and industries have benefitted from tax cuts over the past ten years and what services and infrastructure we may have sacrificed because of them. Either way, take a look and feel free to fact check the information. The one thing that I will say is that at this point in time no party should be removing defecit reduction possibilities off of the table and comprimise will be needed if we are going to get the country on more sound financial footing.


http://www.rollingstone.com/politics/news/how-the-gop-became-the-party-of-the-rich-20111109

Joe Walsh turning a blind eye to reality

Please take a look at the video below. This is a great example of what Barry Ritholtz labels as cognitive dissonance. I've scene this repeatedly from conservative politicians and analysts over the past few years as they continue to try to blame government for wall street excesses while ignore the fact that the vast majority of housing excess came from the private sector. Is it too much to ask for our politicians to take an interest in learning the facts about the world that surrounds them instead of regurgitating rhetoric?
http://www.huffingtonpost.com/2011/11/08/joe-walsh-screams-at-cons_n_1083014.html

Deficit Reduction Outlook Gloomy

I've included some excerpts from a very good article in today's National Journal, the link to the article is below:

"Rep. Mick Mulvaney, R-S.C., told a National Journal panel on the 2012 election that he fully expected the super committee to fail and expected all of the underlying political and policy issues to be settled, at least in part, by the 2012 election"
-I truly hope that Rep Mulvaney is wrong here. If recent developments in Europe have taught us anything it is that time cannot be taken for granted when it comes to fiscal reform.

"We can all, of course, be comforted by a public review of deficit-reduction proposals that are nearly a year old. Testifying on Tuesday were Bowles; former Sen. Alan Simpson, R-Wyo.; former Clinton budget director Alice Rivlin; and former Sen. Pete Domenici, R-N.M. Simpson and Bowles had theirs ($4 trillion in deficit reduction by 2020). Rivlin and Domenici had theirs ($4.5 trillion in deficit reduction with $877 billion in debt reduction by 2020). Neither is new nor poorly understood. Neither contains a single budgetary insight or revelation any of the 12 super committee members has not heard before. Both commissions, however, made choices.

Choices. Policy choices. Both raised taxes and cut spending. It doesn’t matter how, which is to say it doesn’t matter how unless and until the super committee contemplates deficit reduction of that size. That means $4 trillion over 10 years. But the super committee is clawing around looking for about one-fourth of that. Bottom line: The magnitude of change to tax and spending policy contemplated by both commissions is far larger than anything the super committee is looking at now. Bowles told the super committee $4 trillion is not “the maximum” or the “ideal” figure. It is, he said with a hard glare, “the minimum.”"

The more this negotiation gets bogged down, the more I believe that President Obama made a grave tactical error in largely ignoring the Simpson-Bowles Commission's report last year. He should have had the fortitude to press for massive deficit reduction in 2010 in order to avoid running into election year politics. He also would've benefited from the bipartisan nature of the commission, which could have provided him with some cover from right wing attacks.

http://www.nationaljournal.com/columns/all-powers/the-john-kerry-moment--20111101

Italy Spreads Continue to Widen Out

This is a graph of Italian sovereign CDS spread movements over the past year. Spreads continue to widen out today with Italian 10 year debt trading at spreads north of 550bps versus German bunds. This is another sign that the markets are starting to force Europe's hands right now. Unless the European Union and European Central Bank are able to coordinate quickly and provide concrete details on a bailout agreement, this could continue to get very ugly. There is a lesson in all of this for US lawmakers, the market often does not wait for political cycles or elections. I truly hope that the budget committee realizes this and comes out with a substantial bipartisan proposal (>$3T) in the next week.