Written by

Martin Feldstein

CAMBRIDGE –The tax package agreed to by President Barack Obama and his Republican opponents in the United States Congress represents the right mix of an appropriate short-run fiscal policy and a first step toward longer-term fiscal prudence. The key feature of the agreement is to continue the existing 2010 income-tax rates for another two years with no commitment about what will happen to tax rates after that.

Without that agreement, tax rates would have reverted in 2011 to the higher level that prevailed before the Bush tax cuts of 2001. That would mean higher taxes for all taxpayers, raising tax liabilities in 2011 and 2012 by about $450 billion (1.5% of GDP).

Because America’s GDP has recently been growing at an annual rate of only about 2% – and final sales at only about 1% – such a tax increase would probably have pushed the US economy into a new recession. Although the new tax law is generally described as a fiscal stimulus, it is more accurate to say that it avoids a large immediate fiscal contraction.

The long-term implications of the agreement stand in sharp contrast both to Obama’s February 2010 budget proposal and to the Republicans’ counter-proposal. Obama wanted to continue the 2010 tax rates permanently for all taxpayers except those with annual incomes over $250,000. The Republicans proposed continuing the 2010 tax rates permanently for all taxpayers. By agreeing to limit the current tax rates for just two years, the tax package reduces the projected national debt at the end of the decade (relative to what it would have been with the Obama budget) by some $2 trillion or nearly 10% of GDP in 2020.

That reduction in potential deficits and debt can by itself give a boost to the economy in 2011 by calming fears that an exploding national debt would eventually force the Federal Reserve to raise interest rates – perhaps sharply if foreign buyers of US Treasuries suddenly became frightened by the deficit prospects.

The official budget arithmetic will treat the agreement on personal-income tax rates as a $450 billion increase in the deficit, making it seem like a big fiscal stimulus. But the agreement only maintains the existing tax rates, so taxpayers do not see it as a tax cut. It would be a fiscal stimulus only if taxpayers had previously expected that Congress and the administration would allow the tax rates to rise – an unlikely prospect, given the highly adverse effects that doing so would have had on the currently weak economy.

Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending.

It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement. A typical reaction was to raise the forecast for 2011 from 2.5% to 3.5%. While an increase of this magnitude would be plausible if a forecaster had previously expected tax rates to increase in 2011, it would not have been reasonable to forecast 2.5% growth in the first place with that assumption in mind. So, either the initial 2.5% forecast was too high or the increase of one percentage point is too large.

What is true of the agreement is also true of the decision, as part of that agreement, to maintain unemployment insurance benefits for the long-term unemployed. This, too, is essentially just a continuation of the status quo. No new benefit has been created.

The most substantial potential boost to spending comes from a temporary reduction of the payroll tax, lowering the rate paid by employees on income up to about $100,000 from 6.2% to 4.2%. But, while the decline in tax payments will be about 0.8% of GDP, it is not clear how much of this will translate into additional consumer spending and how much into additional saving. Because this tax cut will take the form of lower withholding from weekly or monthly wages, it may seem more permanent than it really is, and therefore have a greater impact on spending than households’ very feeble response to the previous temporary tax changes.

The final component of the agreement is temporary acceleration of tax depreciation, allowing firms in 2011 to write off 100% of capital investment immediately, in contrast to the current rule, which stipulates a 50% immediate write-off, followed by depreciation of the remaining 50% over the statutory life of the equipment. But, at a time when interest rates are very low and large businesses have enormous amounts of cash on their balance sheets, this change in the timing of tax payments is not likely to do much to stimulate investment.

A greater stimulus to business investment may come from the perception that Obama’s agreement to extend the personal-income tax cuts for high-income individuals signals his administration’s reduced antagonism to business and the wealthy. Obama’s recent statement that he favors reforming personal and corporate taxes by lowering rates and broadening the tax base reinforces that impression. Let’s hope that’s true.

Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan’s Council of Economic Advisers, and is former President of the National Bureau for Economic Research.

Copyright: Project Syndicate, 2010.
http://www.project-syndicate.org

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CHRIS KAHN | 11/ 9/10 06:06 PM | AP

What’s Your Reaction?

Earns Exxon Mobil
 

NEW YORK — Pretty soon, Big Oil will be more like Big Gas.

The major oil companies are increasingly betting their futures on natural gas, with older oil fields producing less crude and newer ones either hard to reach or controlled by unfriendly nations.

They are focusing more than ever on natural gas because it burns cleaner than oil and is gaining traction as a fuel for transportation. The latest move came Tuesday, when Chevron made a $4.3 billion deal to buy up natural gas fields in the Northeast.

Earlier this year, Exxon Mobil bought XTO Energy to become America’s largest producer of natural gas. And Royal Dutch Shell expects natural gas to make up half its total global production in two years.

“If you look at most of the big developments now, they’re not about oil, it’s gas,” said Oppenheimer & Co. analyst Fadel Gheit.

The world will continue to run on crude oil for years to come, but even with new discoveries, oil production is expected to flatten out during the next few decades, according to the latest estimates from the International Energy Association.

Far down the road, Gheit believes, Exxon and Shell will lead the energy industry into a new era where oil companies devote most of their efforts to producing natural gas. The Energy Information Administration expects worldwide natural gas production to increase 46 percent from 2007 to 2035, compared with a 30 percent increase in world production of crude and natural gas liquids.

Gas is becoming more attractive to the oil companies because it’s more accessible. While OPEC controls most of the world’s oil reserves, it controls less than half of the natural gas reserves.

In the United States and Europe, natural gas is primarily used to heat homes. About three in five American homes use it for heat. And more and more power plants are using it to generate power. Natural gas is used to generate 23 percent of electricity in the U.S., up from 16 percent a decade ago.

If the country focuses more on reducing greenhouse gas emissions in years to come, the trend should accelerate. Natural gas emits less carbon dioxide than other fossil fuels.

Natural gas is used in small amounts for transportation in the U.S., mostly for city buses and garbage trucks. The oil industry is pressing Congress to add financial incentives for trucking and freight companies to convert their fleets.

Until recently, Big Oil watched the rise of U.S. natural gas from the sidelines, and smaller companies drilled into underground layers of shale. New techniques allowed companies to drill parallel to the ground and hit previously tough-to-reach deposits, helping them tap ever larger bounties of shale gas.

Production costs fell. Drilling rigs started popping up along America’s shale-rich regions in Appalachia, Texas and North Dakota. Experts now say the U.S. is sitting on enough natural gas to last the country for the next century.

This year, Big Oil jumped in. Exxon bought XTO for more than $30 billion, immediately making it America’s largest natural gas producer. XTO so far has helped Exxon increase its natural gas production by 50 percent.

Then Shell agreed to buy East Resources Inc. for $4.7 billion, and China’s state-owned offshore oil and gas company, CNOOC Ltd., invested $2.16 billion in oil and gas fields owned by Chesapeake Energy.

Production jumped to 1.94 trillion cubic feet in August, the highest monthly total since January 1973, according to available government data.

“Production is screaming,” said E. Russell Braziel, managing director of BENTEK Energy, which tracks natural gas prices in the U.S.

The U.S. now holds about 3.82 trillion cubic feet of natural gas in storage, about 10 percent more than the average over the past five years. And the industry keeps pumping more out of the ground.

There are challenges. The same low prices that make the assets affordable have caused some companies, namely ConocoPhillips, to pull back on production. Natural gas has dropped about 24 percent this year.

And people near shale rigs complained that groundwater supplies were contaminated by the industrial chemicals used in the drilling process. The Environmental Protection Agency is studying the possible effects on drinking water and the public health.

Still, most of the big companies continue to press ahead with multibillion-dollar acquisitions.

“When the market is weak, that’s when it’s time to act,” Argus Research analyst Phil Weiss said.

Published: Tuesday, December 14, 2010

By Brian McCullough; Journal Register News Service

The right to choose isn’t much good if it’s not used. That’s the message of Sonny Popowsky, Pennsylvania’s Consumer Advocate, and the state Public Utility Commission, who are urging electric users in the region to make an informed decision on whether they want to continue to receive electricity generated by PECO.

“What I hope is that people decide,” Popowsky said. “My hope is that people across Pennsylvania will know they have a choice and take the time to make it.”

Effective Jan. 1, consumers in southeast Pennsylvania can choose the company that generates their electricity. The choice comes as electric rate caps imposed on PECO are ending.

The caps are coming off four utilities in Pennsylvania, with PECO having the largest number of affected customers. They are the last four electric utilities in the state that had rate caps in effect.

Throughout much of last year, there were dire predictions of electric rates skyrocketing 30, 40 or 50 percent when the rate caps expired.

Now, however, with the recession and an increase in the supply of natural gas used by power generating stations, the increases are much more modest.

PECO is saying its rates for residential customers will increase 5 percent in January while rates for large industrial businesses will go up 7 percent. Small businesses — those that use less than 500 kilowatt hours per month — will actually see a decrease in PECO rates of about 5 percent, spokeswoman Cathy Engel said.

The key number for PECO residential customers to look at when considering a change is 9.92 cents, which is PECO’s price per kilowatt hour heading into the new year.

Residents are urged to visit the website established by the PUC specifically for the switch, www.PaPowerSwitch.com, to see what new suppliers have entered their area. Residents can shop by entering their ZIP codes. Frequently asked questions on picking an electricity supplier/

In the 19067 Yardley-Morrisville ZIP code, for instance, 17 suppliers are registered to sell electricity — all but one of which come in below PECO’s default price.

Generation suppliers registered in the Yardley area, for instance, are: BlueStar Energy, Champion Energy Services, Commerce Energy Inc., Con Ed Solutions, Direct Energy, Dominion Energy Solutions, Energy Cooperative Association of Pennsylvania, Energy Plus Holdings, Gateway Energy Services Corp., North American Power, Palmco Power Pa. LLC, Public Power LLC, Respond Power LLC, Spark Energy LP, Stream Energy Pennsylvania LLC, Verde Energy USA Inc., Viridian Energy and Washington Gas Energy Services.

Three of the providers — Blue Star, Commerce and the Energy Cooperative Association of Pennsylvania — advertise renewable energy.

According to the website, a residential customer using 700 kilowatt hours of electricity a month from PECO pays $69.30 a month. The lowest price listed on the Web site Monday came from Stream Energy, with a variable rate of 7.43 cents per kilowatt hour for a monthly bill of $52.01. The highest came from Commerce Energy, the renewable energy provider, with an average listed monthly bill of $77.35.

No Blacklist

One of the obstacles consumer advocates and regulators face in getting consumers to make the switch is a fear that doing so will mean a drop in service when there are outages or other service issues, said Rob Powelson, the former head of the Chester County Chamber of Business & Industry and now a PUC commissioner.

What consumers are choosing is the company that will generate the electricity. PECO will continue to deliver it and will continue to respond to emergencies with no regard to a customer’s selected generator, he and Engel noted.

PECO also will continue to deliver the bills to all electric customers in the region. The only difference will be on the line that lists the generator.

PECO will be the default provider of electricity to consumers in their region who do not shop.

“PECO does not care where you get your energy generation from,” said Powelson, a Kennett Square-area resident, noting that the Philadelphia-based utility is required to shop on the open market itself for the lowest prices. “PECO will still come out when there’s a storm.

“I hear people say all the time they’re going to be put on a blacklist if they switch,” Powelson said. “I can’t stress this enough: Customers are not going to offend PECO by picking another generation supplier.”

Engel agreed.

“It has no impact on us what supplier they choose,” the spokeswoman said. “We are an energy delivery company.”

She does urge consumers to keep in mind a few things as they shop, however, such as whether the prices being quoted are fixed or variable, and whether there are cancellation fees.

The Numbers

According to the PaPowerSwitch.com Web site, 659,187 electric customers across Pennsylvania have switched generation suppliers in recent years.

Since the rate caps expired in the PPL territory in central Pennsylvania a year ago, 400,000 of the 1.8 million PPL customers have switched, said PUC spokeswoman Denise McCracken. At that time, consumers were looking at rate increases of 30 percent, giving them more motivation to shop, she noted.

The changeover has been much slower in PECO’s territory to date, with a little more than 2,000 residential customers, or 0.2 percent, changing providers. That figure is probably attributable to the smaller increase in prices electric customers face this year, she said.

Overall, 20,860 PECO customers, or 1.3 percent of its total base, have switched, the bulk of which are businesses that use more electricity and are more affected by higher rates.

Powelson believes the pace of switching will pick up in the first quarter of next year, when the PUC “is optimistic” that 20 percent to 25 percent of PECO customers will choose to switch.

“I’d love to see 50 percent to 100 percent,” Powelson said. “Every year you choose your health care plan, you choose your cell phone provider, you choose your cable provider.

“Now, this is another choice you have.”

Whatever provider people choose, Powelson hopes they take advantage of PECO’s Smart Ideas program, which offers incentives to consumers to make their homes more energy efficient. Powelson said he has used it himself to reduce his energy bill.

“Customers now have options to save money on energy usage,” he said.

BEN FELLER | 12/22/10 09:23 PM | AP

WASHINGTON — Buoyant in political victory, President Barack Obama on Wednesday wrapped up a long, rough year in Washington by rejoicing in a rare, bipartisan “season of progress” over tax cuts, national security and civil justice. Halfway through his term, he served notice to his skeptics: “I am persistent.”

The president who strode on stage for a news conference cut a remarkably different figure than the Obama who, just seven weeks ago, held a similar event in which he somberly admitted he had taken a “shellacking” in the midterm elections and needed to re-evaluate. This time, Obama was about to jet off to a Hawaiian holiday vacation knowing he had secured the kind of legislative wins that rarely come so bundled as they just did, particularly in a postelection lawmaking session.

Obama spoke on the same day that he found enough allies in both parties to get Senate ratification of a nuclear arms treaty with Russia, a vote watched around the world as a test of international security and presidential clout. He also signed landmark legislation to allow gays to serve openly in the military, calling himself overwhelmed by the enormity of the moment.

And that was on top of other achievements, including a hard-fought deal to extend tax cuts and unemployment insurance even as it piled on more debt, a broad food security bill, a trade deal with South Korea and declarations of progress in the widening war in Afghanistan.

“If there’s any lesson to draw from these past few weeks, it’s that we are not doomed to endless gridlock,” Obama said. “We’ve shown in the wake of the November elections that we have the capacity not only to make progress, but to make progress together.”

That spirit may be fleeting.

Obama was able to get the votes he needed in a lame-duck session in which his party still controlled the House and Senate, retiring or ousted members could act knowing they would no longer face voters, and the potential of a politically devastating tax hike on Jan. 1 forced lawmakers into action. None of those factors will be in play come January when Republicans take control of the House and have a greater voice in the Senate as well.

To a nation long tired of political gamesmanship, Obama used the moment to try to put himself above it – and to challenge both parties to join him. He said voters wanted this “season of progress,” promising to stick with that mission and hoping “my Democratic and Republican friends will do the same.”

He also did not get all he wanted, losing some fights and swallowing a two-year extension of tax cuts for wealthier people as part of the tax deal.

Obama underscored his agenda ahead, much of it amounting to unfinished promises: deficit reduction, energy innovation, immigration reform, the closing of the Guantanamo Bay prison, education and research investments, and the biggest item of all: finding ways to create more jobs for millions of hurting Americans.

In the course of questioning, Obama revealed that his position on gay marriage is “constantly evolving.” He has opposed such marriages and supported instead civil unions for gay and lesbian couples. The president said such civil unions are his baseline – at this point, as he put it.

“This is something that we’re going to continue to debate, and I personally am going to continue to wrestle with going forward,” he said.

The slow progress on the economy continues to pull down the spirits of the country and threaten to overshadow many of Obama’s other successes. Unemployment was measured at 9.8 percent in November, down only slightly from its double-digit high in 2009. Obama sought to broaden the burden of responsibility to Republicans for a faster economic rebound, saying “people are going to be paying attention to what they’re doing as well as what I’m doing.”

Obama sought to give credit to Congress, and chiefly the Democrats who have been running it, for what he called the most successful post-election period in decades. But he also sought to assert his own role and power, just weeks after his relevancy had been called into question.

“One thing I hope people have seen during this lame duck: I am persistent,” Obama said. “If I believe in something strongly, I stay on it.”

He saved his most emotional appeal for committing anew to the DREAM Act, a measure which would offer a path to legal status for young illegal immigrants who enroll in college or join the military. It died in Congress in the waning days of the session, overwhelmed by Republican opposition. Obama said those young people live in fear of deportation.

“It is heartbreaking,” he said. “That can’t be who we are.”

Obama also promised that deficit reduction would be a major issue in 2011. The midterm elections were seen in part as a reflection of how many Americans are sick of Washington’s spending ways, and promises over the years to rein in deficit spending have fallen short of reality when the choices get tough.

“I guarantee you, as soon as the new Congress is sworn in, we’re going to have to have a conversation about, how do we start balancing our budget or at least getting to a point that’s sustainable when it comes to our deficit and our debt?” he said.

Obama was flying to Hawaii later in the day, joining his wife and the couple’s two children for a year-end holiday. When he returns, it will be a few days before a new Congress convenes, with a House controlled by Republicans and a Senate with a shrunken Democratic majority.

More Savings If You Have Young Children Or Attend College

STEPHEN OHLEMACHER, Associated Press

WASHINGTON — It’s the most significant new tax law in a decade, but what does it mean for you? Big savings for millions of taxpayers, more if you have young children or attend college, a lot more if you’re wealthy.

 The package, signed Friday by President Barack Obama, will save taxpayers, on average, about $3,000 next year.

 But many families will be able to save much more by taking advantage of tax breaks for being married, having children, paying for child care, going to college or investing in securities. There are even tax breaks for paying local sales taxes and using mass transit, and a new Social Security tax cut for nearly every worker who earns a wage.

Most of the tax cuts have been around since early in the decade. The new law will prevent them from expiring Jan. 1. Others are new, such as the decrease in the Social Security payroll tax. Altogether, they provide a thick menu of opportunities for families at every income level.

“The tax code wants to encourage people to invest in their homes, invest in their education, invest in their retirement, and you have to know about all of these in order to take advantage of it,” said Kathy Pickering, executive director of The Tax Institute at H&R Block.

The law extends most of the tax cuts for two years, including lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. A new one-year tax cut will reduce most workers’ Social Security payroll taxes by nearly a third next year, from 6.2 percent to 4.2 percent.

A mishmash of other tax cuts will be extended through next year. They include deductions for student loans and local sales taxes, and a tax break for using mass transit. The alternative minimum tax will be patched, sparing more than 20 million middle-income families from increases averaging $3,900 in 2010 and 2011.

The $858 billion package also includes $57 billion in renewed jobless benefits for the long-term unemployed.

“I am absolutely convinced that this tax cut plan, while not perfect, will help grow our economy and create jobs in the private sector,” Obama has said. “It will help lift up middle-class families, who will no longer need to worry about a New Year’s Day tax hike. … It includes tax cuts to make college more affordable, help parents provide for their children, and help businesses, large and small, expand and hire.”

At the request of The Associated Press, The Tax Institute at H&R Block developed detailed estimates for how the new law will affect families at various income levels next year:

-A single taxpayer making $50,000 a year who rents an apartment and pays $3,500 in college tuition and fees would save $2,280 in income taxes and $1,000 in Social Security taxes – a total of $3,280.

-A married couple with two young children, some modest investments and combined wages of $100,000, would save $6,256 in income taxes and $2,000 in Social Security taxes – a total of more than $8,200.

Income taxes would be lower because of the lower rates, a $1,000 per child tax credit and a $1,200 tax credit for child care expenses. The couple earns $2,000 in dividends but it would be tax-free at their income level. Wealthier investors would pay a top tax rate of 15 percent on dividends. The couple would also be spared from paying the alternative minimum tax, and would pay lower Social Security payroll taxes.

-A married couple with a child in high school and another in college, combined wages of $170,000 and larger investments would save nearly $7,800 in income taxes and $3,400 in Social Security taxes – a combined savings of nearly $11,200.

Income taxes would be lower because of the lower rates and more generous deductions for state and local income taxes, property taxes, mortgage interest and charitable donations.

Assuming the couple earned $4,000 in qualified dividends and $5,000 in capital gains, that income would be taxed at 15 percent, instead of the higher rates that would have taken effect without the new law.

At their income level, the couple wouldn’t qualify for the child tax credit and would get only $125 from the education tax credit. However, they would save more than $3,600 because they would be largely spared from the AMT.

“One thing generally about the higher income taxpayers is that even though they have a lot of opportunities, they also phase out of a lot of benefits that are designed for lower- to middle-income taxpayers,” said Gil Charney, principal tax analyst at The Tax Institute at H&R Block.WASHINGTON — It’s the most significant new tax law in a decade, but what does it mean for you? Big savings for millions of taxpayers, more if you have young children or attend college, a lot more if you’re wealthy.

The package, signed Friday by President Barack Obama, will save taxpayers, on average, about $3,000 next year.

But many families will be able to save much more by taking advantage of tax breaks for being married, having children, paying for child care, going to college or investing in securities. There are even tax breaks for paying local sales taxes and using mass transit, and a new Social Security tax cut for nearly every worker who earns a wage.

Most of the tax cuts have been around since early in the decade. The new law will prevent them from expiring Jan. 1. Others are new, such as the decrease in the Social Security payroll tax. Altogether, they provide a thick menu of opportunities for families at every income level.

“The tax code wants to encourage people to invest in their homes, invest in their education, invest in their retirement, and you have to know about all of these in order to take advantage of it,” said Kathy Pickering, executive director of The Tax Institute at H&R Block.

The law extends most of the tax cuts for two years, including lower rates for the rich, the middle class and the working poor, a $1,000-per-child tax credit, tax breaks for college students and lower taxes on capital gains and dividends. A new one-year tax cut will reduce most workers’ Social Security payroll taxes by nearly a third next year, from 6.2 percent to 4.2 percent.

A mishmash of other tax cuts will be extended through next year. They include deductions for student loans and local sales taxes, and a tax break for using mass transit. The alternative minimum tax will be patched, sparing more than 20 million middle-income families from increases averaging $3,900 in 2010 and 2011.

The $858 billion package also includes $57 billion in renewed jobless benefits for the long-term unemployed.

“I am absolutely convinced that this tax cut plan, while not perfect, will help grow our economy and create jobs in the private sector,” Obama has said. “It will help lift up middle-class families, who will no longer need to worry about a New Year’s Day tax hike. … It includes tax cuts to make college more affordable, help parents provide for their children, and help businesses, large and small, expand and hire.”

At the request of The Associated Press, The Tax Institute at H&R Block developed detailed estimates for how the new law will affect families at various income levels next year:

-A single taxpayer making $50,000 a year who rents an apartment and pays $3,500 in college tuition and fees would save $2,280 in income taxes and $1,000 in Social Security taxes – a total of $3,280.

-A married couple with two young children, some modest investments and combined wages of $100,000, would save $6,256 in income taxes and $2,000 in Social Security taxes – a total of more than $8,200.

Income taxes would be lower because of the lower rates, a $1,000 per child tax credit and a $1,200 tax credit for child care expenses. The couple earns $2,000 in dividends but it would be tax-free at their income level. Wealthier investors would pay a top tax rate of 15 percent on dividends. The couple would also be spared from paying the alternative minimum tax, and would pay lower Social Security payroll taxes.

-A married couple with a child in high school and another in college, combined wages of $170,000 and larger investments would save nearly $7,800 in income taxes and $3,400 in Social Security taxes – a combined savings of nearly $11,200.

Income taxes would be lower because of the lower rates and more generous deductions for state and local income taxes, property taxes, mortgage interest and charitable donations.

Assuming the couple earned $4,000 in qualified dividends and $5,000 in capital gains, that income would be taxed at 15 percent, instead of the higher rates that would have taken effect without the new law.

At their income level, the couple wouldn’t qualify for the child tax credit and would get only $125 from the education tax credit. However, they would save more than $3,600 because they would be largely spared from the AMT.

“One thing generally about the higher income taxpayers is that even though they have a lot of opportunities, they also phase out of a lot of benefits that are designed for lower- to middle-income taxpayers,” said Gil Charney, principal tax analyst at The Tax Institute at H&R Block.

JEANNINE AVERSA | 12/22/10 11:23 AM | AP

WASHINGTON — Expectations for economic growth next year are turning more optimistic now that Americans will have a little more cash in their pockets.

A cut in workers’ Social Security taxes and rising consumer spending have led economists to predict a strong start for 2011.

Still, most people won’t feel much better until employers ramp up hiring and people buy more homes.

Analysts are predicting economic growth next year will come in next year close to 4 percent. It would mark an improvement from the 2.8 percent growth expected for this year and would be the strongest showing since 2000.

“Looking ahead, circumstances are ripe for the economy to develop additional traction,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. He is estimating growth for 2011 to be above 3.5 percent.

The economy grew at a moderate pace last summer, reflecting stronger spending by businesses to replenish stockpiles, the Commerce Department reported Wednesday. Gross domestic product increased at a 2.6 percent annual rate in the July-September quarter. That’s up from the 2.5 percent pace estimated a month ago. While businesses spent more to build inventories, consumers spent a bit less.

Many analysts predict the economy strengthened in the October-December quarter. They think the economy is growing at a 3.5 percent pace or better mainly because consumers are spending more freely again.

Still, the housing market remains a drag on the slowly improving economy.

The National Association of Realtors reported Wednesday that more people bought previously owned homes rose in November. The sales pace rose 5.6 percent to a seasonally adjusted annual rate of 4.68 million units. Even with the gain, sales are still well below what analysts consider a healthy pace.

Even if analysts are right about 2011 being a better year for the economy, growth still wouldn’t be strong enough to dramatically lower the 9.8 percent unemployment rate.

By some estimates, the economy would need to grow by 5 percent for a full year to push down the unemployment rate by a full percentage point. Even with growth at around 4 percent, as many analysts predict, the unemployment rate is still expected to hover around 9 percent.

The third-quarter’s performance marks an improvement from the feeble 1.7 percent growth logged in the April-June quarter. The economy’s growth slowed sharply then. Fears about the European debt crisis roiled Wall Street and prompted businesses to limit their spending.

“It sure looks like the `soft patch’ is over,” said Nariman Behravesh, chief economist at IHS Global Insight.

In the third quarter, greater spending by businesses on replenishing their stocks was the main factor behind the slight upward revision to GDP.

Consumers boosted their spending at a 2.4 percent pace. That was down from a 2.8 percent growth rate previously estimated. Even so, consumers increased their spending at the fastest pace in four years. The slight downward revision reflected less spending on health care and financial services than previously estimated.

More recent reports from retailers, however, show that shoppers are spending at a greater rate in the final months of the year.

Companies are discounting merchandise to lure shoppers. A price gauge tied to the GDP report showed that prices – excluding food and energy – rose at a 0.5 percent pace in the third quarter, the slowest quarterly pace on records going back to 1959.

Americans have more reasons to be confident. Stock prices are rising, helping Americans regain vast losses in wealth suffered during the recession. Job insecurity remains a problem, but the hiring market is slowly improving. And loans aren’t as difficult to obtain for those with solid credit histories.

Even with the improvements, though, consumers are showing some restraint. In the past, lavish spending by consumers propelled the economy to grow at a rapid pace. After the 1981-1982 recession, the economy expanded at a 9.3 percent clip. Consumers increased their spending at an 8.2 percent pace.

Consumers have yet to display that level of confidence in the economy. While hiring is improving, employers still aren’t adding enough jobs to lower the unemployment rate.

Even with stronger economic growth anticipated for next year, analysts predict it will still take until near the end of this decade to drop unemployment back down to a more normal 5.5 percent to 6 percent level.

The government’s estimate of GDP in the July-September quarter was its third and final one. The government makes a total of three estimates for any given quarter. Each new reading is based on more complete information. GDP measures the value of all goods and services – from machinery to manicures – produced within the United States.

As reported in Huffington Post 12/17/10

The Associated Press | 12/17/10 04:03 AM | AP

//

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Highlights of the tax package passed by Congress late Thursday and sent to President Barack Obama. It would cost about $858 billion; most provisions, which were to expire Jan. 1, would be extended for two years, unless noted.

The package extends:

_Lower rates for taxpayers at every income level. The top rate, on taxable income above $379,150, would stay at 35 percent, instead of increasing to 39.6 percent. The bottom rate, on taxable income below $8,500 for individuals and $17,000 for married couples, would stay at 10 percent, instead of increasing to 15 percent. Cost: $186.8 billion.

_More generous itemized deductions for high-income households. Cost: $20.7 billion.

_A more generous $1,000 child tax credit. Cost: $71.7 billion.

_Marriage penalty relief, increasing the standard deduction for married couples. Cost: $18 billion.

_A more generous Earned Income Tax Credit for low-income families. Cost: $15.7 billion.

_A series of tax breaks for students and their families, including interest deduction for student loans and an exemption for employer-provided educational assistance. Cost: $3.3 billion.

_A deduction for tuition and related expenses for higher education, for 2010 and 2011. Cost: $1.2 billion.

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_A tax credit of up to $2,500 for students’ higher education expenses. Cost: $17.6 billion.

_The top capital gains tax rate of 15 percent. Cost: $25.9 billion.

_The top tax rate on dividends of 15 percent. Cost: $27.3 billion.

_Through 2011, enhanced jobless benefits for people who have been unemployed for long stretches. Cost: $56.5 billion.

_A series of incentives for selling, using and producing alternative fuels, including ethanol. Many of the provisions expired at the end of 2009. They would be extended through 2011. Cost: $11.3 billion.

_A $250 deduction for out-of-pocket classroom expenses by teachers, for 2010 and 2011. Cost: $390 million.

_A federal income tax deduction for state and local sales taxes, taken mostly by people who live in the nine states without state income taxes, for 2010 and 2011. Cost: $5.5 billion.

_The ability of older Americans to withdraw up to $100,000 a year from Individual Retirement Accounts, tax-free, to donate to certain public charities, for 2010 and 2011. Cost: $979 million.

_A business tax credit for research and experimentation expenses, for 2010 and 2011. Cost: $13.3 billion.

_Tax breaks for capital improvements to restaurants and other retail buildings, for 2010 and 2011. Cost: $3.6 billion.

_A tax break for active investors in foreign-based banking, securities and insurance firms, for 2010 and 2011. Cost: $9.2 billion.

_Increased depreciation and expensing for capital investments by businesses. Cost: $21.8 billion.

The package also:

_Spares more than 20 million middle-income households from tax increases averaging $3,900 from the Alternative Minimum Tax in 2010 and 2011. Cost: $136.7 billion.

_Imposes a lower estate tax for the next two years, allowing couples to pass estates as large as $10 million to heirs tax-free. The balance would be taxed at 35 percent. Cost: $68.1 billion.

_Provides a one-year Social Security tax cut for all wage earners, from 6.2 percent to 4.2 percent. Cost: $112 billion.

___

Source: Joint Committee on Taxation

As reported by Energy Information Administration (EIA) Logo - Need Help? 202-586-8800

Shale gas refers to natural gas that is trapped within shale formations. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.

Did You Know?

Sedimentary rocks are rocks formed by the accumulation of sediments at the Earth’s surface and within bodies of water. Common sedimentary rocks include sandstone, limestone, and shale.

U.S. Natural Gas Supply, 1990-2035
Chart showing U.S. natural gas supply, 1990-2035. Source, EIA Annual Energy Outlook 2010

Did You Know?

Shale gas in 2009 made up 14% of total U.S. natural gas supply. Production of shale gas is expected to continue to increase, and constitute 45% of U.S. total natural gas supply in 2035, as projected in the EIA Annual Energy Outlook 2011.

Does the U.S. Have Abundant Shale Gas Resources?

Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.

According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.

Where is Shale Gas Found?

Shale gas is found in shale “plays,” which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface-level observation techniques and computer-generated maps of the subsurface.

Map of Shale Gas Plays for the Lower 48 States
Source: U.S. Shale Plays Map, http://www.eia.doe.gov/oil_gas/rpd/shale_gas.pdf

How is Shale Gas Produced?

Two major drilling techniques are used to produce shale gas. Horizontal drilling is used to provide greater access to the gas trapped deep in the producing formation. First, a vertical well is drilled to the targeted rock formation. At the desired depth, the drill bit is turned to bore a well that stretches through the reservoir horizontally, exposing the well to more of the producing shale.

Hydraulic fracturing (commonly called “fracking” or “hydrofracking”) is a technique in which water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well. When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas at reasonable cost. Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale.

Schematic Geology of Natural Gas Resources

Graphic showing the schematic geology of natural gas resources
Source: modified from U.S. Geological Survey Fact Sheet 0113-01.

How is Shale Gas Production Different from Conventional Gas Production?

Conventional gas reservoirs are created when natural gas migrates toward the Earth’s surface from an organic-rich source formation into highly permeable reservoir rock, where it is trapped by an overlying layer of impermeable rock. In contrast, shale gas resources form within the organic-rich shale source rock. The low permeability of the shale greatly inhibits the gas from migrating to more permeable reservoir rocks. Without horizontal drilling and hydraulic fracturing, shale gas production would not be economically feasible because the natural gas would not flow from the formation at high enough rates to justify the cost of drilling.

Diagram of a Typical Hydraulic Fracturing Operation

Diagram of a Typical Hydraulic Fracturing Operation
Source: ProPublica, http://www.propublica.org/special/hydraulic-fracturing-national

What Are the Environmental Issues Associated with Shale Gas?

Natural gas is cleaner-burning than coal or oil. The combustion of natural gas emits significantly lower levels of key pollutants, including carbon dioxide (CO2), nitrogen oxides, and sulfur dioxide, than does the combustion of coal or oil. When used in efficient combined-cycle power plants, natural gas combustion can emit less than half as much CO2 as coal combustion, per unit of energy released.

However, there are some potential environmental issues that are also associated with the production of shale gas. Shale gas drilling has significant water supply issues. The drilling and fracturing of wells requires large amounts of water. In some areas of the country, significant use of water for shale gas production may affect the availability of water for other uses, and can affect aquatic habitats.

Drilling and fracturing also produce large amounts of wastewater, which may contain dissolved chemicals and other contaminants that require treatment before disposal or reuse. Because of the quantities of water used, and the complexities inherent in treating some of the chemicals used, wastewater treatment and disposal is an important and challenging issue. If mismanaged, the hydraulic fracturing fluid can be released by spills, leaks, or various other exposure pathways. The use of potentially hazardous chemicals in the fracturing fluid means that any release of this fluid can result in the contamination of surrounding areas, including sources of drinking water, and can negatively impact natural habitats.

Who Hit the Switch?

December 9, 2010

We have been lucky over the pas t few years. We have been blessed with warmer than usual winter temperatures. I know; last year we had some major snowstorms but overall the winter temperatures have been warmer.

Over the last year we have seen the natural gas market prices react to these warmer temperatures. Storage numbers have been at a 5-year high and prices have continued to drop to their lowest sustaining level in the last 3 to 4 years.

Speaking with many energy analysts, they feel we may have hit the bottom and prices will slowly start inching up.

Inching up may be an understatement? Just in the last week, prices jumped over 10%. Hit with the sudden cold front the market took off.

The cost of buying natural gas on the open market is made up of 2 factors. Nymex (gas out of the ground to the banks of Louisiana) and Basis (the transportation cost for getting natural gas delivered to your local provider). These 2 factors combined give us the Index. This is the total wholesale cost to buy natural gas on the open market.

The last couple of weeks have seen the market in a holding pattern. Nymex prices were under $4.00 a decatherm ($.40 cents a therm) and it was a wait and see scenario. Should we have seen continued mild temperatures the market would have remained stable.

With the sudden switch to cold temperatures and forecast for a continued cold snap; the market did not inch up but leapt. Nymex prices open today, as of this writing, at $4.61 a decatherm. Measure this against the low opening on 10/25/10 of $3.29 a decatherm.

Prices are still low compared to where they were 2 to 3 years ago. In 2008, natural gas prices hit a high of $14 to $16 a decatherm ($1.40 to $1.60 a therm). Just last year (2009) we were looking at the average price to compare of around $10.00 a decathem ($1.00 a therm). We are now seeing fixed price positions in the low to mid $6.00 a decatherm range.

Each account is unique and priced individually, for pricing is based on demand factors. Many clients are seasonal clients and their biggest usage comes from heating their locations during the winter. Their natural gas prices would be higher than a client having a more even demand factor, for they use natural gas throughout the year (a restaurant would be a good example).

Some clients have benefited by floating the market, taking advantage of the falling prices over the last couple of years. Now may be the time to begin a discussion and review your options. There is more upside risk (chance of prices raising higher) than there is downside risk (market prices have been at a 4 year low).

You can lock the price going forward for a 1 or 2-year period, which will provide an overall savings from the average prices you have been paying over the last year or at the minimum, lock the winter month which will provide price certainty.

Should you feel this is only a temporary rise in market prices, you may choose to float the market and look for a continued flatness in pricing.

One other option to consider, should the float scenario be of interest, would be to lock the basis (transportation cost) and continue to float the nymex. Several of our clients have found success with this option in the past. This position is normally taken when they see the Nymex as being too high and feel the market will be dropping over time. In the past, if we saw basis price fall under $2.00 this was considered to be a good deal. The current basis prices are well under $2.00.

Should you like to know more about your deregulated gas options email george@hbsadvantage.com or call 856-857-1230

Visit us on the web www.hutchinsonbusinesssolutions.com

Humbled

December 8, 2010

I hope you don’t have trouble reading this entry. Recently I fell, separated my right shoulder and now I have to write left-handed. 

People who know me say my handwriting is terrible. (I thought you went to Catholic School, didn’t they teach you the Palmer Method)? 

You should see me trying to write and do everything left-handed. 

You never realize just how much we take the everyday things we do for granted until they take your rights (arm) away from you. It might be okay if I was left-handed….. 

But somehow I feel discombobulated. Everything has to be done is slow motion with my left hand. Go ahead try it! 

Try eating with a fork left-handed. 

Comb your hair or brush your teeth. 

I feel like I am going thru rehabilitation. Come on George, I know you can do it. 

How did I hurt my shoulder? Don’t even ask. I wish I could give you a great story. 

You should see what the other guy looked like. 

But no, it was humbling. 

I was actually trying to cross the street at night in front of my office. It is dark and as I was going across the street a car was coming from my right. My first thought was… they seem to be going a little fast. I started to take a couple of quick steps to get to the other side of the street. 

Little did I know that why I am looking to my right at the approaching car and breaking into a jog that a 

“Beware… Pedestrian Crossing” sign was right in front of me. 

What was that? 

Was my first thought, as I was tackled head on… 

glasses flying off my face…. 

I am falling and stumbling to get the first down (across the street and out of the car’s path). 

I throw my right arm out to catch my fall. And as soon as my right hand hit the street….. 

I felt and heard my right shoulder pop out of joint. 

Now I am lying in the middle of the street, (fortunately, the driver stopped and got out of the car) 

The owner of the pizza shop down the street, seeing the whole incident, came running over to help me. 

Are you all right? What happened? Let us help you up? 

I am half in shock…what and the heck hit me?……And in severe pain. 

My first response…… don’t touch me, I just thru out my shoulder

Looking back I can see the sign lying in the middle of the street and my body is locked into crippling position. 

I could not stand up; 

Dragging myself up to my office, (looking like the hunchback of Notre Dame), I yelled to my wife: 

Janet!!!!!! (In extreme pain) 

I threw my shoulder out….. I can’t even stand up…… I need a doctor. 

Seeing me she says, 

What happened?????  Did you get shot?” 

Thinking fast, she ran down the hall. (We happen to have a chiropractor in our building)

Dr Jon comes in, takes one look at me and says: 

Take George to the hospital. 

Did you ever notice that everything takes soooo much longer when you are in pain? 

We headed out to Virtua Hospital in Voorhees and let me tell you they did a great job. 

Kudos to my old classmate, Rich Miller, keep up the good work. 

I have a doctor, a doctor assistant and a nurse all pulling me in 3 different directions. Move a little more to the left, hold still, higher on your end…. but all of a sudden…. 

….Pop….my shoulder went back in. 

How do you feel sir? Are you still in pain? 

Anything has to be better than how I was feeling when I got here. 

What did you give me?  

Am I going to feel more pain later? 

What should I take if it starts to hurt later? 

Are you going to give me anything just in case it starts to hurt? 

So it goes, they put Humpty Dumpty back together again. 

For the next three weeks, I have my right arm in a sling……No Driving.

The doctor says there appears to be no ligament damage and I can start rehab on my right shoulder around the Christmas Holiday. 

Sounds like good news to me…. but how am I suppose to cut down my Christmas tree? 

JANET!!!!!!