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Edmoney is tracking the allocation and spending of education-related stimulus grants. The map is here. Some states have gotten the funds into circulation better than others. Selected states below (GA was highlighted by them):
by Linda Beale
crossposted with Ataxingmatter
Dealing with the Sunset of the Bush Tax Cuts (Part V in a series)--dividends at capital gains rate
IN this series, i've been discussing the merits of enacting a new series of tax cuts that mimic, at least in part, the Bush temporary tax cut legislation that expires at the end of this year.
The primary arguments for the original Bush temporary tax cuts were either bogus to start with or proven weak over the period of the tax cuts.
1.The Republicans who pushed the cuts claimed first that they were intended to return to taxpayers the surplus. Of course, that argument was laughable from the beginning: Bush deficits started in the first year of the Bush regime and got worse for the long term as the costs of a military budget pumped up by preemptive war and other augmenting of government spending at the same time that tax revenues were cut again and again throughout the regime.
2.Various Republicans also admitted that their goal was to cut the size of government--though they didn't mean the military and they did mean any programs that protect average Americans (such as Social Security, unemployment compensation, environmental programs, OSHA, etc.). But the size of government grew in spite of the reductions in revenue, resulting in expanding deficits.
3.The various expensing provisions; repatriation with almost no taxation (in the 2004 "American Jobs Creation Act"); tax breaks for oil and other natural resource companies; international tax breaks; and other corporate-favorable provisions were supposed to stimulate entrepreneurial activity and job creation. Instead, businesses used the low-tax repatriated income to pay managers more and workers less, and laid off workers at the same time. The expensing provisions allowed corporations tax breaks for equipment they would have bought anyway, but didn't create new jobs--the Bush regime's jobs record was terrible, barely keeping up with inflation and certainly not spurring new job growth. The tax breaks for natural resource companies fed their complacency about everything from jobs to safety to environmental protection--giving companies more for less doesn't create better citizens and doesn't get us cheaper energy either. The record from the tax cuts as far as entrepreneurialism and job creation was dismal--the mainstream neoconservative and neoliberal theories of market fundamentalism didn't work out as claimed.
4.The lowering of capital gains taxation and the taxation of dividend as a net capital gain at the lower rate were also heralded as ways to spur investment in new businesses (entrepreneurialism) and job creation. Bullshit. Most of the result was just more money in the pocket of the richest Americans who own most of the financial assets, and that money in the pocket was as likely to be invested in offshore bank accounts as put to work supporting a new business here in the US. The dividend tax cut didn't even lead to much in the way of dividend payouts--except perhaps for firms whose managers and directors saw a chance to benefit themselves. Even if those expiring tax cuts are not renewed with new tax legislation, it is not likely to have much of an effect on companies' dividend policies. See Higher Taxes May Not Push Firms to Cut Dividends, Wall St. J., Aug. 30, 2010.
This is the title of a post of a diary at another site, one of no particular interest on its own because it just puts people on the wrong road.
A straight out analysis of the economic numbers underlying Social Security 'crisis' shows pretty clearly that there is no 'there' there. To the extent that there is a gap between future projected income and cost it is small, distant, based on pessimistic assumptions, and totally fixable even if we waited years to take the first step. You can show this on paper or in pixels and I have spent much of the last six years doing that here and there and mostly without numeric push-back, the counter-arguments tending to be thematic and not number based at all.
So why do they push this? Well simple, the Right cannot afford to have a Social Security system that is perceived to be working going forward. They can survive people liking Social Security as is, after all they can spin that as people just enjoying a Free Lunch via that ol' Backwards Transfer pushed by the nice folk at AEI, that just helps their overall 'mushy headed liberal' narrative, a modern day Grasshopper and the Ant. What kills them is to find out that the Grasshopper actually has an actuarial sound insurance policy in his back pocket, and one guaranteed by the Federal government, such a realization might lead the rest of the ants to doubt the 'Big Government is not the Solution, Big Government is the Problem' message being spread by the Ant Queen and her Drones.
In 1993 the anti-Social Security narrative revolved around Trust Fund Depletion, which was a real event which would have real consequences, if not as significant as people would have them (see 'Rosser's Equation' at a Google near you), but by the late 90's Trust Fund Depletion had been pushed so far out in time even as the cost to address it steadily dropped that there grew the need for a new crisis narrative. And so 'Phony IOU' was born. But otherwise nothing much had changed, the definition of 'crisis' was malleable but the solution was always the same: we needed to Destroy Social Security in Order to Save It.
Typically people on the Left tend to assign three motives for the desire of the Right to 'reform' Social Security. One is to get their hands on the assets in the Trust Funds. This is a total category mistake, those assets though real as real are not tappable in the way this narrative would require. A second is to get their hands on surpluses going forwards. Well this is the same mistake with a slightly different twist, cash surpluses which were as real as real could be in 1999 are existentially different today. And a third motive advanced was the fees that would be generated on private accounts. Well I don't think this pencils out as well as people would think at least for the accounts of people in the lower 50% of income, if it were a pure scheme for extracting account fees they wouldn't be pushing for universality, but instead for opt-out for higher-income workers.
Nope in my opinion the fundamental motive for opposing Social Security is not driven by greed as such but instead an ideology that depends crucially on the perception that Big Government is always and everywhere a failure, and that the bigger the counter-example the higher the risk to that overall paradigm. If Social Security was just headed for the cliff, its enemies would just stand back and watch it go, arguably this is where they were at in 1993. It is only when they see the coach driver beginning to get the team under control and steer it away from the cliff that they have to jump in and try to spook the horses again.
Which is why people asking why the actions of Social Security opponents don't seem to be particularly helpful in guiding the stage coach away from the cliff are asking the wrong question, looked at in that way their actions don't make sense at all. On the other hand if you flip it around a lot of things become clear, there being more than one definition of 'fixing'.
I though a little different perspective on the impact of trade on the real GDP accounts might be interesting.
The first chart is of imports market share, or imports as a share of what we purchase in the US. In the second quarter of this year imports market share rebounded to about where it was at the pre-recession peak, or about 16% of consumption. Since the early 1980's when the US started borrowing abroad to finance its two structural deficits -- federal and foreign--
trades share of consumption has risen from about 6% to some 16%. Normally this has a small negative impact on the US economy, but sometimes you get quarters like the last quarter. Last quarter real domestic consumption rose at a 4.9% annual rate. That was an increase of $162.6 billion( 2005 $). But real imports also increased $142.2 billion (2005 $).
That mean that the increase in imports was 87.5% of the increase in domestic demand.
To apply a little old fashion Keynesian analysis or terminology, the leakage abroad of the demand growth was 87.5%. It does not take some great new "freshwater" theory to explain why the stimulus is not working as expected, simple old fashioned Keynesian models explain it adequately.
So compare this with exports. Import were 16% of domestic demand, but in sharp contrast
exports were only equal to 3.2% of final sales of domestic production. The peak share for exports was 5.9% in the 4th quarter of 2004. The great recession generated the severe world wide downturn in trade, but US imports are obviously rebounding much more than US exports. If you break down the difference between the US economy and the German economy, that so many people are trying to make so much of, this is the difference -- Germany exported and the US imported. The difference has little or nothing to do with the difference in US and German economic policy in the Great Recession. Rather it reflects the structural changes that have stemmed from the structural twin deficits in the US since 1980.
It is just another example of how the "starve the beast" strategy does not hurt government.
Rather, it does massive damage to the private economy. The advocates of starve the beast expect a major crises to lead to a reduction in the role of government. But what they do not say, is that the crises they are so eagerly looking forward to is a collapse of the private economy. They consider this a good trade-off.
Robert Waldmann
Paul Krugman asks a rhetorical question which I dare to answer. He is still considering Kocherlakota's argument that low interest rates imposed by the monetary authority must cause deflation.
"First of all, if inflation isn’t sticky, how is it that the Fed can set short-term interest rates at all?"
Second of all, there is a short-term nominal interest rate which the Fed can set no matter what -- the discount rate. If the Fed loans at some interest rate, then the Fed loans at that interest rate. Second, I think the Federal funds rate has to be no higher than the discount rate*. Why pay a bank more when you can get a loan for less straight from the Fed.
So what happens if there is high inflation and the the central bankkeeps the discount rate low ? Banks borrow lots and lots of money from the central banks so the money supply increases. This can't be prevented by open market operations. Even if the central bank's only asset were loans to banks, the money supply can still be huge and rapidly growing.
This is not a hypothetical. From 1918 through 1923 the Reichbank's discount rate was low (3.5% IIRC). The result was not deflation.
* update: My thought that the Federal funds rate had to be no higher than the discount rate was incorrect (thanks Ken Houghton). The federal funds rate used to be higher than the discount rate. I don't understand exactly why except that borrowing from the Fed was a sign that a bank was in trouble. My main argument stands, although the Fed might have to both keep the discount rate low and change some aspects of its discount window policy which I don't understand to achieve a hyperinflation.
by Bruce Webb
Dean asks:
1) How much higher are real wages projected to be in 2040 than today? In other words, how much richer do we expect the average worker to be 30 years from now?
2) How did the 2010 Trustees Report change the projections for 2040 wages compared with the 2009 report?
3) If we solve the projected shortfall in Social Security entirely by raising the payroll tax, what percent of the gain in real wages over the next 30 years would have to go to pay the tax?
4) What percent of real wage gains over the last 30 years was absorbed by the increase in Social Security payroll taxes?
5) What percent of the projected long-term budget shortfall is due to the inefficiencies of the US health care system?
6) How much wealth should we expect near retirees to have to support themselves in retirement?
7) What percent of older workers have jobs in which they can reasonably be expected to work at into their late 60s?
by Mike Kimel
Cross posted at the Presimetrics blog
Employment During Recoveries from Recessions - Long Term Trends
The following graph of the employment to population ratio was obtained from the Federal Reserve Economic Database (FRED). The employment to population ratio shows the percentage of American civilians age 16 and over that happen to be employed. Recessions are shaded gray. 
Figure 1.
The graph shows that between about 1960 and 2000, the percentage of civilians that were employed tended to rise over time, though those increases were interrupted with big drops in the ratio during recessions. That increase has a number of explanations, among them that women in the workplace is no longer a scandalous thing, that a single paycheck is often no longer enough to sustain the typical household, and that as manual labor's share of the workforce has fallen retiring later has become more and more feasible.
Since 2000, the picture is more nuanced - there has still been an increase in the percentage of American civilians that are employed during non-recessionary periods, but that increase has not been enough for many people who lost their jobs during recessions find new employment. In fact, the recent drop in the employment to population ratio has brought the percentage of civilians with jobs down to levels last seen in 1983.
So what is going on here?
by Linda Beale
crossposted with Ataxingmatter
Offshore Banking Secrecy--more on the UBS case
The IRS announced today that the Swiss government has completed its processing of the 4450 UBS accounts of U.S. taxpayers that were the subject of the August 2009 agreement for deferred prosecution of UBS and ending of the John Doe summons request. The IRS has already received about 2000 names and expects to receive the rest of the information very soon.
It will be interesting to see the developments this fall as the IRS begins to use the information it has received to prosecute indviduals for tax fraud and to pursue attorneys, accountants or others that have helped Americans hide their assets overseas.
I don't see mentioned how much money is given to each organization nor how that fits into each organization's overall funding sources, but the big names in think tanks and such are well connected. 
By Muckety.com
Busy week, so just a couple of things of note.
"It's a great partnership among a number of researchers from academia, the private sector and national laboratories. It's a great collaboration for a solid project that will help the environment," said Penn State spokeswoman Annemarie Mountz.
Foley said the project "will spur real innovation and job growth for Philadelphia, the region and the nation. We have a world class team of universities, corporations, and economic development entities that made this proposal come to life. There is no better place to do this work than in the Philadelphia Navy Yard."
Op-ed by Rdan
The problem with Simpson's statement about 300 million tits was not that it was sexist.
The problem with Simpson's statement was that it was wrong as to the facts and arrogant as to the needs of most people.
The call for his ouster is another example of liberals shooting themselves in the foot by getting all emotional about hurting people's feelings... even when they leave those feelings on the doorstep where they can be tripped over. So instead of challenging Simpson on the facts, and watching him self destruct in public, they go for the vapors and call for the nasty man to shut up or resign, so the real criminals can go back to pretending they are respectable.
Let's call for a televised debate with the man before elections, or even after.
With the downward revision of second quarter real GDP growth from a 2.4% growth rate reported in the advance report to 1.6% reported in the first revision, real GDP in the first year of recovery now appears to be 3%. As was originally reported this is still stronger than the first year of recovery in the two jobless recoveries of 1991 and 2001. But compared to previous recoveries and the depth of the recession this still looks like an extremely weak recovery.
The major revision was in the trade sector that was reported here when the June trade data was released. Real imports rose at a 32.4% annual rate while real exports jumped at a 9.1% annual rate. As a consequence while real gross domestic purchases grew at a 4.9% rate, an improvement from the 3.9% rate in the first quarter, real final sales of domestic product only grew at a 1.0% rate versus a 1.1% in the first quarter.
Probably the main reason real GDP growth was stronger than most expected was the strength of government which grew at a 9.1% rate versus a 1.8% rate in the first quarter.
This surge was driven by defense spending that rose at a 7.3% rate. Defense procurement is always higly volatile and does not imply anything for future growth.
While those forecasting a double dip will see this report to be supporting their forecast,
it looks to me like an argument against a double dip. The main area of weakness was trade, not domestic demand and there is little reason to expect domestic final demand to swing from a 4.9% growth rate to an actual decline, even if it does slow. But import growth is almost certain to slow from the explosive growth in the second quarter so trade is unlikely to be such a significant negative in the second half. While a swing to negative real GDP growth in the second half is unlikely, continued sub-par growth remains the most likely scenario.
But in an environment of sub-par growth, the economy does not have the momentum to absorb a negative shock.
by Bruce Webb
I am not going to harp on the sexism or ageism in Simpson's '310 million tits' comment generally, if you happen to have just gotten back on the Inter-Spatial Shuttle from Alpha Centauri this evening and don't catch the reference a Google search on that turns up 125,000 hits, and I daresay the first 25,000 of them relevant. I want to examine what it, and some other developments inside and outside the Obama Deficit Commission reveal about a new openness in class warfare.
What Simpson's comments revealed more broadly was a profound contempt for the lower 98%, those who might end up reliant in whole or even in part on Social Security. Because '310 million' takes in everybody, in Simpson's world anyone who ever did, is, or will ever rely on Social Security is just a Randite 'parasite' or at best 'dependent farm animal' and you can bet it is a long time since Simpson read Timothy 1:18: "For the scripture saith, Thou shalt not muzzle the ox that treadeth out the corn. And, The labourer is worthy of his reward." and clearly he glossed over the even more famous admonition "Honor thy Father and they Mother". For Simpson workers are suckling pigs and seniors are 'Greedy Geezers'.
Naturally the Simpson remarks sparked large and heated discussions in the blogosphere including my old, old stomping grounds at dKos including one by commenter bink Time for Obama to Shut Down the SS Commission which sparked a long and ongoing comment thread with some vigorous participation by me. In the course of that conversation some people pushed back in defending Obama by noting that it wasn't formally just a Social Security Commission, instead it was focused on deficit reduction generally and was formally known as the Fiscal Responsibility and Reform Commission, and that moreover both current commissioners and people around Peter G Peterson, who clearly was the inspiration for applying the BRAC Commission model to deficit reduction, were on record supporting defense cuts and tax increases, meaning that nobody was really in the tank, and that everything was on the table. But how does the Commission seem to be defining 'defense cuts' and 'tax increases' and how does that relate to Simpson's open contempt for the 'lesser people' sucking away at those '310 million tits'. Well some discussion under the fold.
Robert Waldmann
Saul Alinsky sure has a lot of followers. Obama is a fan. Hillary Clinton wrote her senior thesis about Alinsky. However the people who follow him to the letter are Republican's who want to privatize social security.
Rule 13 (slightly edited)
13. Pick the target ... personalize it,...
The latest follower of Alinsky is Club of Growth radical Pat Toomey who claims he never advocated privatizing social security. Laura Vecsey notes the clear Alinsky influence
The key to understanding this semantic subterfuge is, well, semantics. The word Toomey uses is "personalized" Social Security
Robert Waldmann
Andrew Harless argues that there was no housing bubble ?!?
Apparently it is now generally accepted that the rise in house prices was an aberrant bubble, justified only in the minds of irrational buyers who ignored the fundamentals and expected house prices to keep rising simply because they were already rising.
But what were the fundamentals? Certainly, if one had foreseen today’s circumstances, it would have been clear that housing was not a good investment. If one had been able to say, “In a few years, the unemployment rate will rise to 10%
Transunion reports:
TransUnion's quarterly analysis of trends in the credit card industry revealed that the national credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) decreased to 0.92 percent in the second quarter of 2010, down 17.1 percent over the previous quarter. Year over year, credit card delinquencies fell by 21.3 percent.
...
Average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) again drifted downward for the fifth consecutive quarter nationally by 4.1 percent to $4,951 from the previous quarter's $5,165, and down 13.4 percent compared to the second quarter of 2009 ($5,719). This represented the first period credit card debt was below $5,000 since the first quarter of 2002.
...
On a year-over-year basis, national credit card originations dropped almost 6.5 percent.
by Linda Beale
crossposted with Ataxingmatter
Dealing with the Sunset of the Bush Tax Cuts (Part IV in a series)--the Tax Relief Coalition
The Tax Relief Coalition--another of the myriad anti-tax groups comprised of Grover Norquist's group and those of similar ideology--is at it again with a letter to Congress (available on BNA) urging the passage of new legislation to pass tax cuts to extend the temporary cuts enacted under the Bush administration. The group is spending millions lobby for its interests with the dubious claim that discontinuing tax cuts for the wealthiest Americans will hit small businesses the hardest. See, e.g., Jensen & Salant, Leader on Bush Tax Cuts Wins Allies to Keep Provisions in Place, Bloomberg.com (Aug. 20, 2010) (noting that the coalition groups have spent $3.8 million since Jan. 1, 2009 on candidates and advertising, and that the Chamber of Commerce plans to spend $75 million influencing elections in its favor).
Note that the coalition--formed of "trade associations, advocacy groups, and corporations"--calls itself favoring "pro-growth tax policies". But what it means is favoring tax cuts. It is arguable that tax cuts support economic growth--at best they are a second-rate stimulus compared to direct government spending on public and human infrastructure that provides long-term support for economic stability-- such as public transportation, public communication networks, development of alternative energy sources, education (K1-university), and basic research.
These claims that the tax cuts help small businesses are at best dubious. (See, e.g., yesterday's post outlining various reasons why the capital gains preference has very little to do with stimulating entreprenuership or helping small businesses.) The coalition tries to cast the Bush tax cuts in terms of job creation. But the fact is, the Bush regime had a lousy record for job creation, and the tax cuts that were especially favorable to corporations probably did almost nothing to contribute to job creation. The "American Job Creation Act of 2004" for example, mainly acted as a tax cut for multinational corporations that used the very low taxation of repatriated money to pay big dividends to shareholders even while they were laying off thousands of workers. Similarly, expensing provisions and other tax cut provisions (especially for oil and gas industry and other targeted industrial provisions) mainly gave more money to managers and owners, not workers. Real wages of workers have fallen, while corporations sit on big kitties of cash--keeping the productivity gains for managers and owners and not sharing them with workers and certainly not creating new jobs for new workers.
I have no words for this e-mail to OWL by Alan Simpson on Social Security:
I’ve made some plenty smart cracks about people on Social Security who milk it to the last degree. You know ‘em too. It’s the same with any system in America. We’ve reached a point now where it’s like a milk cow with 310 million tits! Call when you get honest work!
Al
Hat tip r.j.sigmund for finding this leading to the Philadelphia City Paper:
Philadelphia Demands License Fee and Taxes from Bloggers
Philadelphia bloggers were dispatched letters informing them that they owe $300 for a [lifetime] privilege license [or $50 per year for an annual license], plus taxes on any profits they made. Even if, as with Sean Barry, that profit is $11 over two years.[...] Even though small-time bloggers aren't exactly raking in the dough, the city requires privilege licenses for any business engaged in any "activity for profit," says tax attorney Michael Mandale of Center City law firm Mandale Kaufmann. This applies "whether or not they earned a profit during the preceding year," he adds.
Robert Waldmann
Minneapolis Fed President and famous economist Narayan Kocherlakota made my jaw drop with this argument
Long-run monetary neutrality is an uncontroversial, simple, but nonetheless profound proposition. In particular, it implies that if the FOMC maintains the fed funds rate at its current level of 0-25 basis points for too long, both anticipated and actual inflation have to become negative. Why? It’s simple arithmetic. Let’s say that the real rate of return on safe investments is 1 percent and we need to add an amount of anticipated inflation that will result in a fed funds rate of 0.25 percent. The only way to get that is to add a negative number—in this case, –0.75 percent.
by reader Ilsm
Misspent Tax Dollars for Profits, Not Replacing 1970’s Military Equipment
US outlays for military programs are wasted through mismanagement and neglect: these must not be spared in spending cuts. 20% of US government outlays are for the Defense Department. Something that needs to be to considered while reading the report is that the sum of Research and Procurement appropriations in DoD 2011 proposed budget is $214B ($189B baseline with an additional $25B for overseas contingencies).
According to GAO 09-326SP Assessment of Selected Weapons Programs (8mb pdf!), the largest weapon projects, the "portfolio" of 96 major programs with commitments for spending on revised acquisition “baselines” has grown to $1.6T, averaging a 19% increase since each program started, with 42% (40 programs) of the reviewed programs rising in cost more than 25% since inception. At 25% increase the Sec Def is required to justify to congress why the department will continue with the program.
There not only is room to cut, there is screaming need to cut. It will take 8 to 10 years’ at current 2011 budget levels to work through these commitments assuming cost increases stop, schedules are met, technical performance is delivered, and the US doesn't "go broke" trying. The $1.6T is the tip of the DoD acquisition iceberg, for these are the largest systems mismanaged at reviews by the highest level, an Undersecretary of Defense led panel. There are a lot of other urgent requirements against the research and investment budgets, which were not reviewed in this assessment.
There will be a huge logistics burden for these systems. Acquisition costs are a fraction of DoD’s total weapon system commitments, each system requires two to three times acquisition costs over the planned 20 year life to train and maintain “capability” for fictitious wars and entanglements. This bow wave of future logistics for the major programs is $3 to 5 Trillion in support costs spread over 20 years. (Operations and Maintenance 2011 with OCO $317B, about $200B base budget)
Cutting most of this $7T unfunded liability will encourage national security, and reduce deficits. What good is it to be "bankrupted" for the wrong weapons, whose untested specifications are watered down to limit the obscene cost overruns, years after promised?
These commitments scream to be reviewed and many cancelled. They represent gross mismanagement, waste, nothing but dividends to companies who profit.
GAO released 10-388SP in March 2010, however it does not have “rolled up data” due to “lack of complete Selected Acquisition Report data for 2009”.
http://www.gao.gov/new.items/d10388sp.pdf
Footnote: GAO Acquisition Cost: All cost information is presented in fiscal year 2009 dollars using Office of the Secretary of Defense approved deflators to eliminate the effects of inflation. We have depicted only the program’s main elements of acquisition cost—research and development and procurement. GAO 09-326SP, App I, Pg. 168 (175/190 .pdf)
Lifted from an e-mail from Dale Coberly regarding Social Security and the dangers of increasing 'costs' of helping our old folk live a bit above a level of destitution:
...that while SS will eventually cost 6% of GDP, this is not a lot of money for the basic needs of 25% of the population. Moreover, they will have paid for it themselves.
And that is what it is going to cost "us" in any case, however the money is arranged... that is what the old people will "eat." And the bread will be baked by "us." You can fool yourself with financial transactions, or you can take the money directly via a payroll "tax." At the end of the day...in terms of distribution of goods and services to the elderly vs the "young," it will come out exactly the same.
You would have to show that laundering the money through the financial markets will result in more production or a fairer distribution, and while the first is an article of religious faith with some people, there has been no evidence whatsoever to support it for the past eighty years. I suspect it has something to do with the maturation of capitalism, but I am no economist. Merely an observer of what is.
To put it in terms any might understand: Granny is going to consume 6% of what "we" produce. So what? (She produced a hell of a lot of what we consumed in her prime time.)
by Linda Beale
crossposted with Ataxingmatter
Dealing with the Sunset of the Bush Tax Cuts (Part III in a series)--considering the ill-advisedness of favoring capital income
During the Bush administration a number of significant reductions in revenue were enacted, especially in the 2001 and 2003 tax bills, but with a sunsetting provision that (extended in some cases) generally will mean that the pre-existing provision will be reinstated after 2010. Both individual and corporate taxes were reduced. Many of the corporate and business provisions involved accelerated expensing provisions, allowing businesses to write off purchases much faster than the economic depreciation of the asset would require and thus amount to a significant tax reduction for businesses. Rates on capital gains were reduced, and dividends, which have traditionally been treated just like interest income and taxable at ordinary rates to individuals, were temporarily made subject to the preferential capital gains rates. The estate tax was phased down and then completely eliminated for the 2010 tax year. As a result of these and other changes, capital income is especially favored under the temporary provisions, and the wealthiest 1% who own a substantial portion of the financial assets received significant benefits.
Much of the argument in favor of reducing taxation on the income from capital is spurious. It is a claim that by taxing returns from capital less heavily than returns from labor, those who receive those returns will invest them in new businesses, spurring entrepreneurship. The returns from capital that are favored, however, are not closely correlated with reinvestments in businesses. Most of the returns are those gained merely from secondary market trading and those increases in capital do not go to businesses but to other investors or financial institutions. There is a special provision that taxes initial issuance corporate stock gains more favorably, but that is only a small piece of the capital gains preference.
by Tom aka Rusty Rustbelt
HEALTH CARE: Resident Rights versus Caregiver Rights
In 1987 the federal government passed a comprehensive "bill of rights" for nursing home patients. Most states followed.
The law gives nursing home residents wide protection, including (when mentally able) the ability to refuse care, meals and just about anything else they please.
Resident care preferences regularly create all sorts of difficult issues though, including:
Can white residents refuse care from black nurses and nurse aides? ( a common problem)
Can female residents refuse care from male caregivers? (the courts say yes on privacy grounds)
Can residents request care from specific employees (a latino requesting a latino)?
Can residents request care from specific employees just because they like the employee?
Mrs. Rustbelt has dealt with all of these issues (recently) and many more. Her first comment was "I only have to do 12 hours work in 8 hours, of course I need to referee a unit full of adult children. Grrrrr."
According to a recent federal court in an Indiana case, if a white resident requests "no blacks" and the facility accommodates (according to Indiana law) the facility has discriminated against the employee.
Keeping in mind the average nursing home resident is about 78 years old with multiple physical problems and some level of mental and emotional impairment, this creates just a great big mess, and the facility loses in every scenario.
The unintended consequences of government regulation. Everyone suffers except the bureaucrats, and the lawyer who profit. Anyone got any solutions?
Earlier this week I compared household saving rates across the US, UK, Canada, and Germany. My conclusion was pretty simple:
So generally, this simple analysis would suggest that Menzie Chinn's skepticism of a "status quo" of US consumer imports is worthy. But with the status quo firmly in place in Germany, the household saving data paint a foreboding picture - certainly for the Eurozone, but possibly for the global economy as well.The financial circumstances of US and UK households are very similar despite their diverging saving rates over the last two quarters (see saving rate chart here): leverage is high.
The chart above illustrates the total stock of household loans/debt (including non-profit organizations, which is small relative to the "household") as a share of personal disposable income.Yves Smith, excerpted from her post Boston Fed’s New Excuse for Missing the Housing Bubble: NoneOfUscouddanode. This part caught my eye in addition to the critique:
The problem is that mainstream economics sees prices as a virtuous. Everything can be solved by price. If there is some unbalance in the economy, it merely means prices need to rise or fall, the impediment must be stickiness or some other inefficiency that is preventing the magic price setting mechanism to do its magic work. Mainstream economists also believe that price mechanisms lead to optimal outcomes from a social welfare standpoint. There is a reason that this line of thinking. aka neoclassical economics, became dominant (and Keynsianism is merely a branch; Keynes himself believed economies were fundamentally unstable, while the neoclassical types believe that markets are always and every self correcting). It’s very favorable to the business community. (Note this is a simplification; ECONNED provides a long form treatment of this topic).
Second, some very unfashionable schools of economics, namely the Austrians and the Marxists, both recognized the imbalances in the economy prior to the bust. It wasn’t just housing; the negative personal savings rate and the widening trade deficit with China were red flags.
Third is the through-the-looking glass logic: “Well, it took those (supposed) few who saw the bubble a long time to be proven right!”
Yves here. Now there are other measures that regulators can use to attack bubbles, since the ones that are most damaging involve borrowed funds. They can take measures to restrict the gearing used in the markets that are superheating. But Macfarlane’s comment about the resistance to intervening rings true. Just imagine the howling you would have heard from homebuilders, realtors, bankers, home decorators, land speculators, you name it, had the authorities been able to severely restrict no-doc loans and had required a minimum downpayment, say, of 10% for non FHA loans. It isn’t yet clear we have the political will to take on the people who win short term from borrowing binges.
by Linda Beale
crossposted with Ataxingmatter
Dealing with the Sunset of the Bush Tax Cuts (Part II in a series)
The Congressional Budget Office has published a report with its views on the economic impact of enacting legislation to extent some of the Bush tax cuts. The full report and summary are available here.
The report provides 10-year projections--all with the caveat that forecasting economics is "subject to considerable uncertainty." It projects a relatively slow recovery from the recession, as is typical with financial crises, with unemployment staying relatively high until about 2014. The slow growth means lower revenues, though the CBO expects revenues to begin to recover in 2010--with a total of $2.1 trillion or 14.6% of GDP. But spending will be about $3.5 trillion (24% of GDP). That means a projected deficit for 2010 of $1.3 trillion, second only to 2009's deficit as a percentage of GDP (9.1% compared to 2009's 9.9%). That's using as a benchmark the tax laws as written--i.e., no additional "patch" for the alternative minimum tax (AMT) and no changes to the Bush tax cut sunset provisions, so that the Bush cuts expire as slated at the end of 2010. If those policies were not continued (i.e., if a further tax cut similar to the Bush cuts were enactetd and an AMT patch were put in place, and the discretionary budget remained about the same as in past years as a proportion of overall spending, the deficit in 2020 would be about 8% of GDP and the public debt about 100% of GDP.
That's a significant cost to enact tax cuts. Should we do so? Wouldn't the economy get more of a boost if we allowed the cuts to expire as slated and used the additional revenues in programs that are likely to build jobs?
There is certainly an argument for increasing economic stimulus now, if possible. That might spur some further job creation and permit more of those on the brink of economic disaster to retain their homes. While tax cuts are likely not the best means of providing a stimulus, it might be more possible to attain a Congressional vote compared to direct government programs, such as infrastructure spending.
But the utility of tax cuts as a stimulus likely wanes fairly rapidly as income levels increase. A person with 30 thousand of income will find ready spending needs for a few hundred dollars of tax savings. A person with 30 million of income would not need the extra tax savings and might simply purchase more financial assets with any extra cash. The purchase might add liquidity to the US markets--or it might be equities in China or India and have no useful impact in the US. Purchases in the secondary market, at any rate, will not put new funding in the hands of corporate businesses. So the argument in favor of a new tax cut does not well support an across-the-board cut. Cut taxes for those at the lower income levels, but retain rates for those at the top. Obama's line-drawing is nothing magical, but increasing taxes for individuals making more than $200,000 shouldn't be a big problem.
Prof. Barkley Rosser at Econospeak, lifted from comments here:
We really should pause for a minute or so to appreciate the 75 years of this program, which has been an unqualified success, providing social security for millions of people extremely efficiently and without a single scandal that I am aware of in its entire history. That people of either party are going after it is really the scandal.
by Mike Kimel
Cross-posted at the Presimetrics blog.
Progress Report
Getting a book out when you're a complete unknown is tough. Presimetrics shipped a couple of weeks ago, and we're doing what we can to get the word out but its slow going. We had a lucky break a few weeks ago when Parade Magazine featured a quiz based on the book. A week ago I had an interview with US News & World Report which I understand will appear in their on-line edition in mid-September.
Meanwhile, I've heard that among major bricks & mortar stores, the book is being carried by Borders. According to the publisher, Barnes & Noble ordered copies too, but the local store isn't carrying it and I've heard from people in other locations that they haven't seen it at B&N locations near them either. Online, its easiest to watch the rankings bounce around on Amazon; they've been everywhere between 5,000 (right after the Parade Magazine quiz) and 150,000 in the past couple of weeks. Nobody has put up a review on Amazon yet. (Actually, I don't think I've seen the book reviewed anywhere in the media or in blogs yet.)
The publisher is continuing to try to book us with national media (they were the ones who hooked us up with Parade and USN&WR) but there's a chicken and egg factor; a certain amount of fame/notoriety/recognition is needed to be featured on many media venues, and being picked up by the media is needed for the book's existence to become known.
by Tom aka Rusty Rustbelt
Health Care: Big Business Reacts to Reform
The National Business Group on Health ** has issued the results of a poll on the reaction of larger employers to PPACA (Obamacare or the Act).
A few highlights:
The group expects employer health care costs to increase by 9% in 2011.
Employers are dropping limits on spending limits in compliance with the Act.
Employers are shifting costs to employees to encourage more careful spending.
Sixty-three percent of employers expect to shift more premium costs to employees next year.
Some of the first deadlines for plan changes arrive in September 2010.
Hat tip to MV=PQ (Tim Schilling) for this cartoon:
Options, Choice and Exchange 
This strip would seem to indicate that too many options can create problems when making choices.
Menzie Chinn at Econbrowser breaks down US import data by sector to argue the following (see entire article here):
What is clear is that consumer goods do not vary that much; now, part of auto and auto parts is going to satisfy consumer demand as well, and here we do have some evidence in support of the hypothesis of the consumer going back to his/her old ways of sucking in imports.Another way to look at this is by comparing global household saving rates. Specifically, I look at the household saving rates across the US (the world's largest economy in 2007, as measured in PPP dollars - download the data at the IMF World Economic Outlook database), UK (6th largest economy), Canada, and Germany (5th largest economy). The household saving ratio is calculated as gross household saving divided by personal disposable income, as reported in country National Accounts.
...
Consumption hardly seems resurgent, so attributing the increase in imports to consumers means that one is assuming a very high share of imports to incremental consumption -- something I'm not sure makes sense. So, I think the book is still open on whether the consumer is going to drive the US back into a rapidly expanding trade deficit.
Hat tip Moxyvote for this note:
Quote:
On July 14, the SEC published the linking to the SEC asking for comments on proxy voting Concept Release on the US Proxy System. They occasionally issue these releases, maybe two or three times a year, when they’re considering substantial problems. They want your feedback.
This time around, the SEC describes our current proxy voting system, its consequences on shareholder communication and participation, and the imperfect coupling of voting power and economic interest. From the introduction to this document:
…we are reviewing and seeking public comment as to whether the U.S. proxy system as a whole operates with the accuracy, reliability, transparency, accountability, and integrity that shareholders and issuers should rightfully expect. With over 600 billion shares voted every year at more than 13,000 shareholder meetings, shareholders should be served by a well-functioning proxy system that promotes efficient and accurate voting.
Many are talking about the bond market being the latest bubble. But it looks more like the press is just seeing bubbles everywhere. To me a bubble happens when everyone starts believing something that probably is not true. For example in the 1990's investors started thinking that the long term earnings growth of the S&P 500 was shifting up from its long term 7% growth rate. So they believed that the market was worth more than historic valuations implied and the market PE rose to the 25 to 30 level.
In the 2000's bankers and home owners came to believe that housing prices could never fall so that homeowners could always refinance their mortgages. Consequently, lenders did not have to worry about credit risk.
So for the bond market to be a "bubble" investors would have to start thinking they can make unusually large capital gains in the bond market. But everyone knows that if you buy a 10 year bond that at the end of 10 years all you will get back is your original investment. In the meantime you will get the coupon and what you can earn by reinvesting that coupon. Yes, if rates continue to fall in the short run you will be able to sell the bond for more than you paid, but you total return has to remain limited because in 10 years the possibility of capital gains must converge on zero. As long as this is true the possibility of a bond bubble must remain something reporters and pundits can pontificate on but nothing more than that.
The market reacted strongly to initial unemployment claims jumping from 488,000 to 500,000. But on a not seasonally adjusted basis claims actually fell from 424,504 to 4o1,856. In recent weeks the seasonally adjusted claims have been somewhat distorted because GM did not have its usual seasonal shutdown of plants this year. This was also reflected in the very strong industrial production report. So it would be better to not react so strongly to the rise in initial claims to 500,000. GM operating its plants through the usual summer shutdown does distort the data, but it is also a sign that the economy may not be as weak as people suspect.
I did not report on this yesterday, partially because I had told my paying clients that the market was extremely vulnerable to disappointing economic news so the negative market reaction was in line with what I expected. But Ken suggested I report on this. For example, this was my chart of the month sent to clients a few weeks ago showing that spot inventory problems were emerging in a few sectors like computers, communication equipment, department and hardware stores. Overall, inventories are not a problem, but selected areas are emerging as problem to watch closely.
Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.
crossposted with New deal 2.0
The Myth of the “Credibility of Markets”
It is time to distinguish between the truths and the myths propagated by Wall Street.
A few days ago, I wrote a piece suggesting that President Obama’s attack on the proposed GOP threat to Social Security masked a more fundamental threat posed by members of his own party. Sadly, this analysis appears to be confirmed today in Mike Allen’s politico playbook:
“–ADMINISTRATION MINDMELD: The virtue of action on Social Security is that it demonstrates the ability to begin to affect the long-run deficits. Social Security isn’t the biggest contributor to the problem - that’s still health-care costs. But it could help a little bit, buy time, and strengthens the odds of a political consensus behind other spending cuts or tax increases. Most importantly, it would establish more CREDIBILITY with the MARKETS. The mood of the world at the moment (slightly excessive, from the administration’s point of view) is that if you don’t do anything with spending cuts, it doesn’t get you credibility.” (My emphasis).
During the discussions about the Fannie Mae project I still regret having turned down, one of the topics was which security would be better for a portfolio (assuming their risk-adjusted prices provided the same value): a four-year-old MBS or a seven-year-old MBS?
I noted that the four-year-old MBS provided more potential upside but came gradually to agree that the seven-year-old security was preferable: an MBS that is that "seasoned" is effectively a generic amortizing bond. There shouldn't be any surprises—in either direction—so a portfolio manager would prefer it.
As usual, The Old Firm manges to prove that what should be correct for an MBS isn't necessarily so for a CMBS:
Standard & Poor's Ratings Services today lowered its ratings on
three classes of commercial mortgage pass-through certificates from Bear
Stearns Commercial Mortgage Securities Trust 2002-TOP6, a U.S. commercial
mortgage-backed securities (CMBS) transaction....
The downgrade of class M to 'D' follows a principal loss sustained by the
class, which was detailed in the August 2010 remittance report....
The principal loss and corresponding credit support erosion resulted from the
liquidation of an asset....The Nortel Networks asset is a 281,758-sq.-ft. office
property in Richardson, Texas. The asset had a total exposure of $28.6
million. The asset was transferred to the special servicer in September 2009
and became real estate owned (REO) in March 2010. The trust incurred a $12.0
million realized loss when the asset was liquidated during the August
reporting period...[T]he loss severity for this asset was 44.2%
by Beverly Mann
crossposted with Annarborist
A Curious Choice for a Sunday New York Times Op-Ed
According to Republican pollster Whit Ayres in an op-ed piece, “It’s Still the Year of the Outsider,” published Sunday in the New York Times, it will be extremely difficult for Democrats to use their “failed policies of the George W. Bush administration” strategy against Republican Senate candidates who were nowhere near Washington during the Bush years.
So Mr. Ayres thinks that what matters is that it would be new lawmakers rather than the same old ones who would reinstate failed policies, not that the policies themselves failed.
He also thinks that because his recent poll shows that a majority of independents think that “[h]aving a president and Congress controlled by the Democrats has not worked well for the country because, from the economy to the deficit and the debt, the Democrats have not gotten the job done”—one of two options respondents were asked to choose from—they also think that having a president and Congress controlled by the Republicans worked well for the country because, from the economy to the deficit and the debt, the Republicans brought the country to its current state.
But he has to just guess about this, because his poll didn’t offer it as an option. Maybe next time.
by Linda Beale
Excerpts from Linda's post
Dealing with the Sunset of the Bush Tax Cuts (Part I) at Ataxingmatter:
As the fall rolls in, Congress is expected to focus its attention on the fact that the huge tax cuts enacted under Bush (mostly in the 2001 and 2003 bills, but also in other bills during the Bush regime) were set up with sunsetting provisions.
...
This is a topic that is starting to heat up and is getting lots of media attention. Not surprisingly, there are also lots of groups busy trying to spin the discussion to suit their socio-political objectives, whether or not the spin informs voters accurately about the issues. Therefore, it seems that this is a good time to attempt to cover the debate from various perspectives through a series of articles. I expect to pick up various releases and "reports" from think tanks and groups and dissect them. Are they using more rhetoric than analysis? Are they using language that will tend to bias the reader rather than providing a firm foundation in information? What can we really expect if Congress enacts new tax cuts to "extend" the Bush tax cuts? What can we really expect if Congress does not enact new tax cuts but instead allows the current law to operate as intended?
...
Let's look at an example of the kind of rhetoric that is flying through the blogosphere these days. I received a missive from "Melissa Kay" at a PR firm (Market Builders PR) that has pushed out various press releases about right-wing speakers to me in recent months. It is pushing Alan Olsen, the managing partner at Greenstein Rogoff Olsen & Co. LLP, CPAs and his views of what will happen "if Bush Tax Cuts Are Eliminated". The piece (no link provided) is called "Enjoy Them While They Last: End of Bush Tax cuts Could Throw U.S. into Deeper Recession."
the initial heading is misleading ("Alan's Predictions if Bush Tax Cuts Are Eliminated")--the Bush tax cuts were set up to be temporary and expire by operation of law. Nobody has to do anything to "eliminate" the tax cuts.
The first paragraph is misleading.
here's what it says: "Almost every tax cut implemented by Bush will disappear in 2011. Clinton raised taxes to 39%, Bush dropped the top tax rate to 36%. Obama will take it back to slightly more than 39%."
here's why it is misleading: Bush didn't just drop the top tax rate. Bush dropped the top tax rate to 36% and then also raised the top tax rate up to 39% with an effective date of January 1, 2011.
The first bullet point is misleading.
Here's what it says: "What we have now is a war of free enterprise. The end of the Bush tax cuts in 2010 could throw us into a deeper recession."
Here's why it is misleading.
First, there is no "war of free enterprise."...
Second, there's really very little evidence to support the speculation that the slated expiration of the Bush tax cuts will "throw us into a deeper recession." In fact, the flow of funds to the federal government and use of those funds for unemployment compensation and other state aid as well as public infrastructure projects could save us from entering into a depression. We are a very lightly taxed nation...
Presimetrics has shipped from Amazon.com Monday August 16th.
by reader Ilsm
Heritage Foundation’s Rant against Reductions to the War Machine:
Talking points aired on 14 Aug 2010 AM session of C-SPAN TV.
US warfare spending will decline to 3% of GDP by 2019. As if that is a problem. GDP is meaningless, especially when you see the tiny threats that the large percent of US GDP is supposed to address, and doing it very badly.
The figure that should be explained is what UK and Germany spend as percent of government outlays, aside from real reasons to have a war machine, a better measure than GDP. That they won’t go there reflects the fear that if the US citizen saw how little the Europeans spend the rational question is “what do they see about security challenges differently than the US”? The UK spends about 7% of outlays on “defence” while the US spends nearly 20% (just a bit less than SS outlays). What is wrong with this picture?
'Rise of Peer Competitors' is invoked, the wish (unsubstantiated) that 'some other country would spend as counterpoint to the US' does not make the reality test: double digit increases in China and Russia are on the order of $5-6B US a year, as if that could equate to the $1.6 T backlog (GAO 09-326SP) in the US in the 95 top investments the DoD is spendnding, all running late and 19% over original cost estimates, and not tested. However, if the US does not spend the trillions better it is likely a $50B annual defense increase will keep it at bay. (What is the GDP of the Taliban)?
But the push for austerity is now on the 'cat food for oldsters commission' train, and the drive is to attack human resources costs as too high and/or identify the need to cut retiree and dependent health care and pensions so that more money can be added to the overruns described annually by GAO. A department that cannot afford retiree health benefits must pay for huge fraud, and waste in its weapon procurement. Heritage does not think the US needs to worry about military retirees because only 20% of the force will get to retirement? Nice calculation for the personnel who do the fighting.
That most of equipment is from the 1970’s is an obviously false and cheeky comment and used to justify spending. The reason is twofold: first none of it is needed for the US without military peer competitors, and second the replacements are not needed the money is wasted in an inept welfare system that keeps incompetent ideas from and the money chasing after failures and not terminating in an orderly fashion. See such programs as the MV 22, F 22, B2, C 17 Littoral Combat Ships, San Antonio Class…. The list is long and the failure to actually replace hardware is less about stingy appropriation than ineptitude in the military industrial complex, which is paid well for the second or third failed attempt to build replacements for 1970’s (proposed against the Soviets by the way).
The US DOD should get less than 10% of US budget, and then carefully reduced to less than 5%.
(Rdan here...some editing for readability)
In These Times
Grupo Santander, the global banking giant, last year took control of Sovereign Bank.
The largest bank in the Euro-zone, where it is based, Santander is the world’s eighth largest banking company by market capitalization. While the company is very good at generating profits around the world (it’s the world’s fourth largest bank by profits), this international meeting is focusing on something else: how the bank’s new U.S. branches might become as unionized as branches in Europe and Latin America.
Santander bank branches are on average 75-percent unionized outside the United States, according to UNI Global Union Finance Director Oliver Roethig because most other industrialized nations have unionized banking sectors. In the United States, however, less than 1 percent of all front-office bank workers are organized. In fact, the unionized janitors working for contractors that clean Sovereign Bank’s headquarters in Boston, Mass., often make more than the bank tellers and personal bankers, whose average wage is $10-$12 dollars per hour, despite individually producing millions of dollars in profits for the bank each year.
Spanning the period April 14, 2010 to June 7, 2010, the euro lost 12.5% in value against the $US (this is not a trade-weighted measure of the currency value, but it'll do). As the currency tumbled, Q2 nominal export income grew quickly over the quarter for the top 5 economies in the Eurozone:
Well, Greece actually did quite well in Q2: nominal export income was up 5.8% over the quarter compared to a 0.1% decline in Q1. Perfect - that's the point, right? Nominal depreciation begets external economic support via exports?
This needs to be screamed far and wide from the highest mountain to the deepest sea, at the top of one's lungs:
There is no reason to think that the bulk of current unemployment is any sense "structural": if aggregate demand were higher it would melt away just as unemployment in 1982 melted away.
There is good reason to think that if we do nothing for the next two years and unemployment remains elevated that a good deal of unemployment then will be "structural," not amenable to being cured by aggregate demand.
Robert Waldmann
I'm not sure if I should post this here. I think it might be stimulating. However, I am ignorant and have no intention of learning (except from comments). I feel free to display my ignorance after the jump.
Robert Waldmann
Jonathan FBD Weisman strikes again. I blame Kevin Drum for the fact that I read a grossly dishonest article of his in the Wall Street Journal. The article is about public attitudes on the deficit and on proposed solutions. As a normal journalist, Weisman stresses anecdotes and only briefly mentions polling data.
I list episodes of what I consider journalistic malpractice after the jump.
The headline (not written by Weisman) contrasts with the text (written by Weisman or quotes chosen by Weisman). The headline is “Voters Back Tough Steps to Reduce Budget Deficit.” It isn’t that unusual for headlines to contradict the stories they head, but usually the evidence quoted in the article supports the article and not the headline. Weisman manages the extraordinary accomplishment of presenting a less valid summary of the data he considered and wrote about than someone who just skimmed his article and wrote a few words under extreme time pressure.
by: Daniel Becker
This is just a little something toward the “get to know your blogger” department of AB. It's just in case anyone thinks that we have no real life.
Besides the 2 businesses, dealing with long term care issues for both parents (not even on the list of issues for this nation) and stimulating the economy by building my garage so that I can consolidate and stop paying rent, I've been jamming with some friends for a few years.
The goal was and is to be able to play out about once per month just for fun. All but one of us own a business, so it was decided from the get-go that this would not be as a supplement to our incomes. It was also decided that we were not going to be an Ipod (as in cover band), nor do general business. We like classic rock. Personally, my favorite is the late 60 to early 70's, along with blues and Motown. We're no polished act, but we manage to make a tune sound like music and at times even laugh with joy when we feel we've nailed it. You know, it's that feeling you get when your loaded down and you go to that one thing in your life that you count on when you do it to give you the satisfaction that you can make something come out right and thus maintain a level head and not let anger turn to madness.
Well, we finally had our debut a couple weeks ago. Only took 5 years and 5 different people singing to get to this point. Who knew finding someone who wanted to sing and would stick around would be so difficult. If you're curious, you can hear us playing Alright Now, our way. Caution, it's just a camera with recording ability that captured this, so the sound is not balanced the best.
Federal Register Improved version 2.0 is now available for use, and includes on some items a link to the that particular item that is open to comments at Regulations.gov.
I keep being told that the lower personal tax rates lead to greater business investments, especially by small businessmen that are not incorporated, those that flow their business income into their personal accounts so they are subject to the personal tax rates rather than the corporate tax code. Numerous, sophisticated econometric exist that conclude that lower taxes lead to greater investment. But interestingly, that all seem to use aggregate data on nonresidential fixed investment to support this conclusion. I assumed that they used this data because the data on investment by small "Mom and Pop" firms as compared to investment by large corporations was not available. So imagine my surprise when I found that the BEA published data on investment by legal form of organization. It can be found at BEA.gov., Table 4.7. Investment in Private Nonresidential Fixed Assets by Industry Group and Legal Form of Organization.
This data allows researchers to organize business investment into three groups. First is corporations that are subject to the corporate tax code. The second is sole proprietorship,partnerships and households that are subject to the individual tax code. Third is nonprofits. Since 1980 corporations have accounted for some 81% of nonresidential fixed investments while those subject to the individual tax code accounted for 13% and tax exempts accounted for the remaining 6%. But as this first chart shows the 13% figure is somewhat misleading as the share of investments attributable to those subject to the individual tax code as declining irregularly from almost 3% of GDP in 1950 to some 1% of GDP in 2008.
Yes, the BEA data goes back to 1901 and that creates the first surprise in the data. From 1901 through 1915 their was no income tax as it was introduced in 1916 -- there had been an income tax during the Civil War but that tax was declared unconstitutional. The first surprise was that from 1901 to 1915 business fixed investment accounted for 10.5% of GDP, a smaller sum than the 11.1% of GDP in the 1916-29 era. But of course the 1920s was considered to be an era of very strong capital spending much like the 1990s. But since 1950 business fixed investment has been 10.6% of GDP, almost exactly what it was from 1901 to 1915 when there was no income tax. It may not be valid to compare eras so diverse as the 1901-15 period to the post-1950 period, but it does raise an interesting question of why didn't investment fall after the income tax was introduced. If income taxes dampen investments one would have expected stronger investment in the pre-tax era. This divergence is especially true if you look at the data on investment by organizations subject to the individual income tax.
The lower the fee, the more money raised by the IPO that actually goes to pay back the taxpayer.
Doesn't change that Michael Moore's analysis of GM is likely much more true than not (especially the likely reasons for the abrupt sidelining of Ed Whitacre), but every little bit helps.
In related news, it's Economists (and the NYT) 0, Market 1 (h/t for the latter link, Don Marron).*
*I don't believe Andrew was the only economist gulled by Niedermayer's tripe. For instance, Brad DeLong also linked to it, and was an early detractor of the plan for it. But it should be noted that Niedermayer's ignorant review was thoroughly dissected by "melly mel" long before Andrew discovered that he had "missed" it.
Robert Waldmann
This article by David Hilzenrath in the Washington Post is interesting. The news is that an internal inspection for Transocean use reported that some equipment (two cranes) had to be replaced and could not be used, but the official inspection outsourced to a private firm, concluded that everything was fine (this is the rig which burned and sank causing the huge BP spill). I learned how little I know about regulation of drilling rigs. First, they are considered ships and, therefore, are licensed by the nation where they are registered. The Marshall Islands decided that it was fine for the Deepwater Horizon to drill in the gulf. This is crazy. Drilling rigs are not like freight ships. If a country regulates who can drill somewhere, they should regulate the equipment. This is an obvious reform, which will never happen.
Second, like the Marshall Islands, the USA outsources inspections to firms hired by those they inspect (like ratings agencies). This second bit of insanity is a recent innovation introduced by the Coast Guard in 1995 back when the guy who signed the commodity futures modernization act was President. There is no hint in the article that Congress made the executive branch do this. I think it was part of Reinventing Government TM.
I think it’s past time for a serious reassessment of Clinton. For one thing, I would like to know which other chicken coops are guarded by foxes, before the chickens come home to roost.
by Bruce Webb
House Minority Leader John Boehner said in a statement marking the 75th anniversary that while the law has served the needs of millions of Americans seniors, the Social Security and Medicare Trustees have "repeatedly warned Congress and the American people that reforms are necessary or future benefits will be threatened."Time to take a little closer looks at this framing in light of the numbers. Boehner here is defining 'crisis' explicitly in terms of "threatened" "future benefits" and then commits his party to "protecting" and "preserving" Social Security. But how does his party propose to do this? Well by cutting benefits, either through an increase in retirement age or via a switch to some form of price indexing. Kind of like saving your foot by cutting off your leg.
He added that Republicans are "committed to protecting Social Security and preserving this invaluable program for current and future generations of retirees."
