9/15/10 Post

BUZZ: Obstacle to Deficit Cutting: A Nation on Entitlements

News
Senate Likely to Pass Small-Business Bill Later This Week
U.S. Senate will likely approve a bill later this week that would spur small-business lending by providing financial incentives to banks that make loans to smaller companies, the Wall Street Journal reported.
Are poll workers being used to inflate jobs totals?
Workers at polling places for today's primary and November's general election are being required to file tax withholding forms for the first time ever in a move that could be aimed at inflating the nation's employment numbers.
Bank of America warns of new fees after financial reforms
Bank of America will charge clients new monthly fees if their accounts do not meet a minimum balance, the bank's CEO Brian Moynihan said on Tuesday.
States cutting benefits for public-sector retirees
Since 2008, New Jersey and at least 19 other states from Wyoming to Rhode Island have rolled back pension benefits or seriously considered doing do — and not just for new hires, but for current employees and people already retired.
Drive-Through Tax Proposed for Road Money
The West Virginia Department of Transportation is floating the idea of charging an additional tax on food purchased at drive-throughs.
Retirement on Hold: American Workers $6 Trillion Short
A new study obtained by CNBC says Americans are $6.6 trillion short of what they need to retire.
Chinese think tank warns US it will emerge as loser in trade war
A State Council think-tank in China has warned Washington that the US will come off worst in a trade war if it imposes sanctions against Beijing over the two nations' currency spat.
Gold prices touch another record high
Gold prices touched a record high Tuesday after disappointing reports on Europe's economy, a weaker dollar and a seasonal increase in demand for gold jewelry.
Obama may face fury over Chinese currency
The Obama administration this week may have to fend off a fight with Democratic allies in Congress who are angry about what they say is China's refusal to end trade-distorting policies and who are threatening reprisals that businesses fear could start a trade war.
Bush tax cuts: What you need to know
There probably aren't enough earbuds to go around to block out the confusing noise emanating from Washington over the expiring Bush tax cuts.
Senate Republicans unveil a plan to make Bush tax cuts permanent
"We have a spending problem. We spend too much. We don't have a taxing problem. We don't tax too little," McConnell told reporters Tuesday. "And if we want to begin to get ourselves out of this economic trough that we're in, the only way to do that is to grow the private sector."
Need a job? Head to Washington, D.C.
Employment in the District of Columbia is up 3% this year, outpacing every other state in the nation. Last month alone, D.C. posted a gain of 17,800 jobs, up 2.5% from July -- the country's biggest gain.
Germany asks US to give up its IMF veto
The US should give up its veto over important decisions in the International Monetary Fund in return for Europe accepting a smaller say, Germany has proposed.
House Dems Deeply Divided over Obama Tax Cut Plan
A group of moderate and conservative House Democrats was collecting signatures on a letter calling for Democratic leaders to offer a bill extending tax cuts for all Americans.
US companies in debt refinancing push
US groups outside the financial sector have refinanced a fifth of their debt that is due to mature over the next two years, securing low interest rates by renewing early, according to Moody’s, the rating agency.
Bankrupt, USA: Why our cities aren't too big to fail
Forty-eight states grappled with fiscal shortfalls in their 2010 fiscal budgets. Totaling $200 billion, or 30% of state budgets, this fiscal shortfall is the largest gap on record, according to the DC-based Center on Budget and Policy Priorities, which sees at least 46 states facing shortfalls this fiscal year.
Japan tries to rein in rising yen
Dollar rebounds against the yen after the Japanese government intervenes to try and weaken the currency.
America's most recession-proof cities
The 20 strongest-performing metro areas received high rankings for keeping their labor and housing markets stable and posting robust economic activity during the past few years.
Small biz bill breaks through Senate
Long-delayed small-business legislation broke through in the Senate Tuesday, even as Democrats signaled they want to add permanent estate tax relief to their draft bill extending middle-class tax breaks due to expire at the end of this year.
TARP: A success none dare mention
The Obama administration this week will mark the second anniversary of the collapse of Lehman Brothers and the ensuing Wall Street meltdown with an ironic bit of bipartisanship: letters of thanks to some of the congressional Republicans who helped fashion the government’s response in fall 2008.

Blogs
Secondary Sources: New Stimulus, Retail Skepticism, Free Trade
A roundup of economic news from around the Web.
On Energetic Government and Unlimited Government
The way that presidents and Congresses see their power to intervene in American life in 2010 is profoundly different from the way they saw it in 1963. In 1963, among mainstream Democrats as well as Republicans, it was accepted that an overarching purpose of the American Constitution was to limit the arenas in which government could act. Now, that recognition of that purpose has all but disappeared—in the executive branch, in the Supreme Court, and in Congresses controlled by Republicans as well as by Democrats.
Tight Labor Market Boosts Employee Tenure
Employees held their current positions for a median of 4.4 years as of January 2010, the Labor Department said in a report on employee tenure Tuesday. That’s up from 4.1 years in January 2008.
Industrial Production, Capacity Utilization increase in August
"Industrial production rose 0.2 percent in August after a downwardly revised increase of 0.6 percent in July [revised down from 1.0 percent]."
Economists React: Consumers Buying ‘When Necessary’
Economists and others weigh in on the jump in U.S. retail sales.
"Cash for Clunkers" failed
The effect of the program on auto purchases was significantly more short-lived than previously suggested. We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.
MBA: Mortgage Purchase Activity decreases slightly
"The Refinance Index decreased 10.8 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.4 percent from one week earlier."
How Much Does It Cost to Employ You?
If you want the bottom line answer, it's because many firms are unwilling to consider adding to their employee rosters because they don't believe their future prospects are bright enough to support the cost of adding additional people to their payroll.
Getting It Right
Even if capital gains taxes were capped at one percent, income subject to those taxes would be taxed at a higher rate than straight compensation. That’s because capital gains taxes (like all other taxes on capital income) are surtaxes, assessed over and above the tax on compensation.
What is to be done?
It would be great to think that the housing market and the financial sector can be repaired without pain. I don’t know how to do it and I don’t think anyone does.
A Trillion Here, A Trillion There
Just when I was getting excited about my new defined benefit retirement plan, I took a look at this depressing report by Courtney Collins of Mercer University and Andrew Rettenmaier of Texas A&M University. The authors claim unfunded liabilities across the US, when health care and other benefits are included, currently amount to some $3 trillion (approximately 20 percent of US GDP). According to the authors, the $3 trillion burden is driven primarily by accounting techniques that employ excessively high discount rates.
A New Handout for Small Business
...this [$50 billion bill] is completely unnecessary--a bit of fine-sounding pork with which to placate small business lobbies in advance of the election.
The romance of government vs. the reality
Deep meaning and true satisfaction comes from working with others on something bigger than ourselves. That comes from building our family. That comes from striving to reach something that exceeds our grasp. That’s what we get more of when government gets smaller.
Small Businesses and the Income Tax
Will this marginal effect bring America to its knees? Hardly. But will it deter productivity and employment enhancing investment? Almost certainly.
How Long is the Long-Run?
Because fiscal stimulus relies on a short-run/long-run tradeoff, many in Washington are trying very hard right now to extol the virtues of short-sightedness.
Why Congress Shouldn't Tax 1099s
For starters, no one is suggesting that this law will do much of anything to close America's "tax gap" (the gap between what the IRS thinks taxpayers should pay, and what they actually do). The tax gap is almost $300 billion; the new law would reduce that by perhaps a half a percent.
TARP and the small banks
Please remember that the cost of the TARP isn’t the cost to taxpayers. Even if banks paid back every single penny, the cost of the TARP is that it reduces current and future prudence.
ObamaCare: a Downward Spiral of Rising Costs and Deteriorating Quality
But until Congress or the courts discard ObamaCare’s mandates, price controls, and new entitlement spending, there is literally nothing that can arrest this downward spiral of rising costs and deteriorating quality.
Cuba Needs A Swift Transition Towards Capitalism
Very soon, hundreds of thousands of Cubans will be looking for a job in the dilapidated private sector. Social unrest could easily erupt if their search for a job or occupation goes unfulfilled. In the end, only a swift transition towards capitalism can rescue the Cuban people.
Cash 4 Clunkers Fails Again
In a new study, economists Atif Mian and Amir Sufi find that the government’s “cash for clunkers” program “had no long run effect on auto purchases.”
Unemployment Up, Crime Down
Violent and property crime fell in America last year, the second full year of the current recession, according to new data from the FBI.
The Obamacare and Obama Tax Hike Double Whammy on Seniors
No demographic was more opposed to Obamacare’s passage and no group wants to see the law repealed more than America’s seniors. They know that Obamacare used Medicare as a piggy bank to transfer half a trillion dollars out of Medicare, not to shore up Medicare’s solvency, but to spend on a new government program.
What’s Scarier Than Cap and Trade? A Renewable Electricity Standard
For the past year, the phrase “cap and trade” was taboo. For those hoping to pass cap and trade, it became “The-Energy-Policy-That-Will-Create-Jobs.”
Tax Hike Prevention: A Good Idea
Senators Mitch McConnell (R–KY) and Chuck Grassley (R–IA) have introduced legislation titled the Tax Hike Prevention Act. According to information provided with the release of the legislation, it provides for a “permanent extension of the provisions of the 2001 and 2003 tax bills, permanently patches the AMT and includes the Lincoln/Kyl death tax provisions for 2011 and beyond.
Obama Tax Hikes Already Hindering Job Growth
“The uncertainty over looming tax increases is starting to affect both investing and corporate decision making. … Small-business owners say unease about tax policy, along with the economy, has led them to hold off on hiring and investment.”
Grain Markets Are Hot, But Is it Too Late?
Shawn Hackett, who focuses on agricultural commodities, says speculators should be bearish, but that another chance to invest is coming.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: Retail Sales Climbed Again in August; Auto Sales Weak
U.S. retail sales in August increased for the second month in a row, rising 0.4 percent. Outside of autos, gas and building materials, sales climbed 0.6 percent.
The Myth of a Return to Clinton-era Taxes
The claim that the president’s plan would only take the top tax rates back to Clinton levels isn’t quite right. Here’s why.
Federal Pay Still Inflated After Accounting for Skills
While federal employees do earn more partially because they are more skilled than the average private sector worker, controlling for skills does not eliminate the federal pay premium.
Reductions in Medicare Advantage Payments: The Impact on Seniors by Region
In this paper, we provide a brief background on the Medicare Advantage program and a description of the changes made by the new legislation. Most important, we provide quantitative estimates of the impacts of these changes on Medicare patients.
Obama Tax Hikes: McConnell–Grassley Tax Hike Prevention Act Would Help Taxpayers and Economy
The 2001 and 2003 tax relief packages are set expire at the end of this year. If these packages are allowed to expire, on January 1, 2011, taxes will go up automatically for American taxpayers—without a single piece of legislation ever crossing the President’s desk.

Economists’ Comments & Opinions
Tax Cuts vs. 'Stimulus': The Evidence Is In
A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth.
Financial regulation: The money moves on
Few are prepared to talk openly about the issue for fear of seeming disloyal to the campaign for concerted action against the banks but in interviews conducted over several months the Financial Times has pieced together a picture of mounting unease that the focused crackdown on banking could just push risk out of the reach of the toughest regulation and into fast-growing “shadow” areas.
Senate Tax Showdown
Five Democrats have already said no.
Rogue States
The revolt against ObamaCare.
The Harrisburg Canary
A muni bond bailout, coming soon to a city near you.
Obama Is Full of...Education Dollars
For every carefully considered dollar distributed to encourage reform, the feds undermined that message in a single stroke last month with two bucks that signal to states that they should hang in there, keep doing what they're doing, and whatever happens don't take the occasion of a budget crunch to rethink the way money is spent on education in this country.
How Tea Party Organizes Without Leaders
By embracing radical decentralization, tea party activists intend to rewrite the rule book for political organizing.
Health-care reform: Why I'm suing to get back my freedom
A small-business owner and former Iraq war combat medic explains why he's challenging the new health-care law's requirement that everyone buy insurance.
Where to Put Your Money in These Uncertain Times
As bonds and stocks may be too risky, these are ways to handle capital as you're heading into retirement.
What the Market Cycles Will Bring This October
The S&P is revisiting the scene of the crime, and all eyes are on 1130.

Graph of the Day
Mercatus Center: Stimulus Job Creation by Agency
See: Obama's Plan to Raise Tax Rates
See: Oil Crisis and Collusion
See: Federal Payments to Individuals
See also: Health Care Bill Still Unpopular & More

Book Excerpts
"...distribution will be shaped by two major activities of the state: its production of public goods (understood, broadly, to include law and order, public health and education, roads and bridges, etc.), and its production of social justice through income redistribution. On some definitions, the production of social justice becomes part of the production of public goods; this gives rise to difficulties we can safely and advantageously leave on the side. (There is a not too far-fetched sense in which the production of any public good at public expense is ipso facto redistributive, if only because there is no unique, "right" way of apportioning the total cost to be borne, among members of the public according to the benefit derived by each from a given public good. Some can always be said to get a bargain, a subsidy, at the expense of others. Thus, the distinction between the production of public goods and explicit redistribution must be a matter of arbitrary convention.) Even the pre-tax pattern of distribution is, however, upset by the feedback effect which the post-tax one exercises upon it. Factors of production will, in general, be more or less readily supplied according to the price they can command and the situation of their owners (technically, the price- and income-elasticities of supply), so that if one or both are changed by taxes, there should be repercussions on output and on marginal products." –Anthony de Jasay, The State (1985)

Did You Know
"The number of chronically hungry people will decline 10 per cent this year, the first fall since 1995, said the UN, while warning the global agreement to cut the percentage of people suffering from hunger by 2015 was in jeopardy... One target of the Millennium Development Goals, agreed by world leaders a decade ago, is to halve the proportion of undernourished people in developing countries by 2015, setting a goal of 10 per cent."