Written by Tyler Kingkade from Huffington Post

WASHINGTON — House Majority Leader Eric Cantor praised Vice President Joe Biden Monday for his handling of the debt limit talks, a positive sign for those who hope the government will raise its debt limit before financial markets react negatively to the growing potential of a U.S. default.

“I’ve been very impressed with the way he conducts his meetings — he does like to talk,” Rep. Cantor (R-Va.) said in a meeting with reporters. “I guess we all do, otherwise we wouldn’t be here.”

Discussions between Biden, Cantor and other congressional leaders about legislation to increase in the debt ceiling are expected to intensify this week as both the U.S. Treasury’s Aug. 2 default deadline and Congress’ summer recess grow nearer. Three debt talks are planned for this week.

“He has conducted these meetings in a way that has kept the ball rolling, and we are — I believe — beginning to see the essence of convergence on savings beginning to happen,” Cantor said. “Now, a lot of this will be up to where the speaker and the president end up.”

“The role that I play in these discussions,” the minority leader added, is to “define the playing field and to push as far as we can to come together to maximize savings and increase the amount of reform.”

Both sides have already agreed to over a trillion dollars in cuts, Cantor said. For the GOP’s cooperation in the debt ceiling vote, his Party is pushing for spending cuts in excess the $2 trillion it would be raised by.

Cantor said everything is on the table, but not tax increases.

This place does not have a revenue problem, it has a spending problem,” he said, insisting even considering them would be a disincentive to small businesses. “I don’t know whether it’s good, bad, indifferent — it just is what it is.”

Cantor reiterated his caucus’ belief that corporate tax rates ought to be lowered to make the U.S. more competitive, even though the current tax rate is at a historic low as a percentage of the country’s GDP.

Cantor predicted, if Congress simply “checked the box” and raised the debt ceiling without significant cuts accompanying the vote, interest rates would skyrocket and the federal government would be forced to raise taxes.

“No one wants that,” he said. “We’re not going to going along with that outcome.”

No clues were given about where the cuts were going to come from in legislation to raise the debt limit, but Cantor said the focus is on the initial 10-year budget window.

The majority leader declined to provide a target date to have the debt ceiling increase bill written, other than saying he did not want it to get the point where a negative reaction from the stock market forces Congress to raise it.

Treasury Secretary Timothy Geithner wrote to Congress in May, warning that the country is projected to begin defaulting on debts come Aug. 2, 2011. However, Geithner said that is no reason to wait to vote to increase the debt limit.

“While this updated estimate in theory gives Congress additional time to complete work on increasing the debt limit, I caution strongly against delaying action,” Geithner wrote. “The economy is still in the early stages of recovery, and financial markets here and around the world are watching the United States closely. Delaying action risks a loss of confidence and accompanying negative economic effects.”

The bipartisan Simpson-Bowles fiscal commission previously recommending various tax increases and reforms that Republicans are now opposing. Senior economic advisers to Ronald Reagan have also said tax increases will be needed in some sort to reduce the national debt.

Bruce Bartlett, who was a policy adviser in the Bush Treasury, told The Huffington Post recently that a trillion dollars has been “left on the table” due to the historically low tax levels. Another senior Republican economic adviser, Joel Slemrod, also said a return to Clinton-era tax rates would not necessarily harm the economy, although under current conditions it could be risky.

The original request to raise the debt limit by $2.4 trillion would be projected to last until the end of 2012, past the next elections. An ABC News/Washington Post poll found last week that a slim majority of Americans favor an increase, so long as it’s accompanied by spending cuts.

Advertisements

Deficitly

May 25, 2011

With all the commotion going on around us

Osama…..tornadoes….floods

The public has been spared the talk on the debt ceiling

Did you hear the gang of six talks fell apart?

They were seen as representing the best hope

For a bipartisan deal to reduce the deficit

Senator Tom Coburn dropped out

Citing differences over entitlement spending,

Saying the 3 Republicans and 3 Democrats were

Unable to bridge differences over Medicare and Social Security

The clock is ticking,

We already exceeded the debt limit.

Now we are just shuffling payments

While waiting for a resolve.

How did we get to
this point?

There is some great information on the internet about this
subject.

Stephen Bloch did some extensive research on the deficit

And how it relates to each President

His report is titled:

US Federal Deficits, Presidents and Congress

Below are some of the facts I found interesting

  • First data he found showing
    a deficit was traced back to 1910
  • The single best predictors
    of deficits for most of the century have been war.
  • Starting in the 1970’s, it
    became harder to see a connection between war and deficits:
    • Permanent deficits became
      a way of life, regardless of whether there was a war going on.
  • The Deficit did not break
    the $1 trillion mark until 1981
  • The Deficit did not break
    the $5 trillion mark until 1995
  • During the first seven
    years of G W Bush presidency, the deficit was increased by almost twice
    the dollar amount as it had been for 32 years. (Running from JFK through
    GHW Bush).
  • When GW Bush entered
    office the deficit was $5.807 trillion
    • When GW Bush left office
      the deficit ballooned to $11,909 trillion.
    • The deficit increased
      $6,102 trillion
  • Since Obama entered office
    the deficit has grown to $14,268 trillion
    • That an additional $2,359
      trillion

Some other interesting facts:

  • Military spending has
    increased 81% since the year 2000
  • Fraud constitutes at least
    ten percent ($100 billion) of the nearly one trillion in taxpayer dollars
    that Medicare and Medicaid will spend this year.
  • The current tax system of
    the United States will collect about 18% of the GDP(Gross Domestic
    Product)
  • Spending needs are much
    higher, currently around 24% of GDP.

What makes up the 24%?

I referred to an article by Jeffrey Sachs (Economist and
Director of Earth Institute, Columbia University)

Focusing on best estimates for 2021, a decade from now

  • Social Security outlays
    will total around 5.2% of GDP
    • As Americans age and as
      health care cost have multiplied, The cost of Social Security and
      Medicare have risen from 1.7% of GDP in 1980 to 5.1% of GDP in 2011
  • Medicare will total around
    3.6% of GDP
  • Medicaid, assuming no
    drastic cuts, will total around 2.9% of GDP
  • Other mandatory programs
    for the poor, such as food stamps, will total 2.1% of GDP
  • Total defense spending is
    around 5% of GDP, most agree that defense should be cut and be around 3% of
    GDP
  • Most projections put
    interest cost on debt around 2.7% of GDP
  • Discretionary spending
    (cost used on public goods and services that cannot be provided
    efficiently by the private economy alone) will be around 4.5% of GDP

Now if you go and add up all these categories,

You will see that cost will total around 24% of GDP

In Paul Ryan’s plan, taxes would be kept at 18% of GDP and
spending would be cut to 19% of GDP.
However the deficit is still expected to grow to $16 trillion by 2021.

The Obama plan would have a slightly higher tax collection,
around 19% of GDP (by allowing Bush tax cuts expire for those making over
$250,000), while allowing the deficit to grow to $19 trillion by 2021.

Guess what!!!!!

 

They are still going
the wrong way!!!!!

Many experts feel that both of these current plans, as
presented seem practically impossible.

In several opinion surveys,

The public has spoken clearly about what to do:

  • Do not balance the budget
    by slashing Medicare, Social Security, or programs for the poor;
  • Increase spending on
    education and infrastructure;
  • Tax the rich and giant
    corporations.

This is not a practical solution either…….

It is our responsibility to stop the bleeding

Everyone will have to proportionally share in the sacrifice

Will someone step forward and have the vision and leadership,

To usher in this era……….

Will the public be accepting to the reality of their
resolution….

Or will we continue to allow our excesses to undermine us.

Let us know your thoughts…… email george@hbsadvantage.com

For Our Own Deficit

May 13, 2011

Well……. we did avoid a government shutdown.

Thanks to some last minute wrangling down and DC,

the US economy lives on…..

limping until the end of September 2011.

All eyes now have turned to the vote on raising the debt ceiling.

Officially, the government states we should pass the debt limit sometime in early to mid-May.

What would happen if the Congress votes not to raise the debt ceiling?

Steps can be taken at that time to start shuffling who and what to pay…..

That should buy us another month.

Reports are that if the debt ceiling is not raised by the beginning of July,

The US will go into default.

What would happen should the US go into default?

  • The United States would default on its bond payments and would see its credit rating fall dramatically
  • Bondholders’ would be unable to receive interest payments
  • Investors would have a difficult time trusting the United States to honor its obligations and demand for long term United States debt would fall.
  • Senior citizen would not receive their Social Security checks
    • loss of these dollars would likely further hurt domestic consumption in the United States and place an undue strain on the budgets of senior citizens
  • A default will lead to increased risks for owning U.S. bonds.
    • Increased risks equal higher rates
    • Business loan borrowers and individuals looking for personal loans would see their borrowing costs rise astronomically
    • home or auto loan rates will be drastically higher, since access to credit would be at a premium

           

That’s just a snap shot of what to expect.

We made it thru the Great Recession.

Many experts feel this would throw the US into another Great Depression.

.

Not much time to dawdle!!!

Several weeks ago….

Standard and Poors, for the first time lowered its long term outlook for the federal government’s fiscal health……

From stable

To negative……..

They warned of serious consequences

If the lawmakers fail to reach a deal to control the massive federal deficit

So when is Congress expected to start tackling this issue?

It is reported they will start meeting on this issue sometime in June.

Congress just passed the 2011 budget!!!!

Heck, we still have 5 months left until the 2011 fiscal year is over.

Yet they will resolve the debt issue in 30 days?

America is a great country

No matter what is said

There is no place better to live

Everyone would love to enjoy

The freedoms we take for granted.

The debt ceiling and the deficit…….

Should not be a political issue

It is not going to go away

What are we doing to provide a secure future for the next generation?

We must carefully look at all the programs

Analyze what works

And put a true dollar value on sustainability

We are at a fork in the road

And the decisions we make

Will determine what path we go down

Written by Jon Ward as reported in Huffington Post

WASHINGTON — The big numbers from Paul Ryan’s budget: It will reduce spending by $6.2 trillion over the next decade and reduce the deficit by $4.4 trillion.

It also cuts the top income tax rate by nearly a third, from 35 percent to 25 percent.

A big part of the House Budget Chairman’s plan rests on the assumption that President Barack Obama’s health care law will be repealed. Over the next decade, that would cut $1.4 trillion in spending alone, according to Ryan’s budget. Those savings, however, wouldn’t go directly to deficit reduction, because Ryan would also repeal the elements of health care reform that are aimed at raising revenue or reducing costs.

The Wisconsin Republican’s budget spends less on nearly every major category of the budget. Over the next decade, Ryan (R-Wis.) wants to cut $389 billion from Medicare, the public health insurance program for seniors. Over the same period, Ryan’s budget puts $735 billion less toward Medicaid, which benefits Americans too poor to afford private insurance. Discretionary spending on domestic programs is also reduced by $923 billion.

Two exceptions are security and defense spending and spending on Social Security, the public pension program for the elderly. Both are kept steady and relatively unchanged from Obama’s proposed budget.

A draft proposal from Ryan’s House Budget Committee says that under his plan, the national debt would be $1.1 trillion less than it would be over the next five years under Obama’s budget, and would add $3 trillion less to the debt than Obama’s budget proposal over the next decade. Ryan’s budget proposal would bring the debt held by the public to $13.9 trillion by 2016 and $16 trillion by 2021, compared to $15 trillion in 2016 and $19 trillion in 2021 under the president’s proposal. (The full national debt of just over $14 trillion also includes money owed to the Social Security and Medicare trust funds, but the public figure is the one normally used for budget forecasts.)

Though Ryan’s plan would reduce the size of the national debt as a portion of the economy – which is the key factor when considering the country’s obligations to creditors – the addition of new debt in the short term shows the gap between talk of not raising the debt ceiling by many Republicans and fiscal reality.

Ryan’s plan has $40 trillion in spending over the next 10 years compared to $34.9 trillion in revenues. Obama would spend $46 trillion in the coming decade while bringing in $38.8 trillion in revenues. So Ryan’s plan would still result in the government spending $5.1 trillion more over the next decade than it brings in, but that’s less than the $7.2 trillion in deficit spending that Obama has proposed.

The most fundamental difference between the competing budget proposals is seen in the way they envision the size of government’s imprint in the economy, as measured by spending and revenues as a percentage of gross domestic product.

Obama’s budget plan would take spending as a percentage of gross domestic product (GDP), the total economic output of the American economy, from 25.3 percent this year to the 22 percent range for much of the next decade. But by the end of the 10 year horizon, his plan has spending back at 23 percent. Revenues, meanwhile, which are currently at an anemic 14.4 percent, would creep up to 19 percent by 2015 and then hit 20 percent in 2021.

It would be the highest amount of government spending since World War II. During the 12-year presidency of Franklin Delano Roosevelt, spending went from 8 percent of GDP to 41 percent, driven by FDR’s New Deal but even more so by war spending.

During Harry Truman’s administration, spending was cut in half, from 41 percent of GDP down to 20 percent, and went down further to 18 percent under Dwight Eisenhower. It stayed at 18 percent of GDP through the John F. Kennedy presidency, crept up to 19 percent under Lyndon Johnson, and then went up to 20 percent while Richard Nixon was in the White House. Gerald Ford brought spending back down to 19 percent of GDP, it then went up to 22 percent during Jimmy Carter’s term, down to 21 percent under Ronald Reagan’s two terms and George H.W. Bush’s four years as commander in chief. Bill Clinton brought spending back down to 18 percent of the U.S. economy.

No president since FDR has increased spending as a percentage of GDP by more than George W. Bush, taking it from 18.4 percent of GDP to 22.8 percent.

Obama’s budget does not show what happens beyond the 10-year window. So, compared to George W. Bush’s spending, he seems to be about on par. However, projections from the Congressional Budget Office (CBO) show spending growing at its current pace will grow to more than 26 percent of GDP in 2022, over 32 percent of GDP in 2030, 38 percent of GDP in 2040, and 45 percent of GDP by 2050, with the bulk of that spending driven by ever-rising health care costs.

Revenues under CBO projections would not move above 19 percent of GDP, leading to a gap between spending and revenues that would be difficult to sustain.

Ryan said a computer simulation program of what would happen in the future “crashes in 2037, because it can’t conceive of any way in which the U.S. economy can continue because of this massive burden of debt.”

Ryan’s plan would move spending back to historic levels, keeping it at 20 percent of GDP through 2030, and actually reducing it to under 19 percent by 2040. Ryan’s plan predicts revenues growing to 19 percent of GDP by 2040, allowing the national debt to be reduced over time.

The proposal landed in the middle of a busy news cycle where Washington is consumed with a spending fight over the current fiscal year budget, a much smaller portion of government spending that nonetheless will shut down the federal government if it is not resolved by Friday.

“Right now we’ve got some business in front of us that needs to be done,” Obama told reporters Tuesday afternoon, declining to respond to Ryan’s budget.

The reaction to Ryan’s plan was predictably split along ideological lines, though even those who supported the broad contours of Ryan’s plan did not embrace it in all its detail.

Robert Borosage, co-director of the liberal Campaign for America’s Future, delivered the harshest rebuke of the day to Ryan’s plan.

“This is being hailed as courageous. It isn’t courageous; it is corrupt,” Borosage said in a statement.

“Rep. Paul Ryan’s budget plan will push rising health care costs onto those least able to afford them – the elderly, the disabled and the poor,” Borosage said. “It will do nothing to curb the rising costs imposed by the powerful complexes – insurance and drug companies, private hospitals – that now force Americans to pay twice per capita of any other industrial nation for worst results.”

Rep. Chris Van Hollen, the Maryland Democrat who is Ryan’s foil as the Budget Committee’s ranking member, said the plan was a “lopsided approach” to deficit reduction that took too much from the disadvantaged and elderly in order to benefit wealthy Americans and big business.

“Behind the sunny rhetoric of reform, the Republican Budget represents the rigid ideological agenda that extends tax cuts to the rich and powerful at the expense of the rest of America – except this time on steroids,” Van Hollen said in a statement.

However, David Walker, the former U.S. comptroller general and founder of the Comeback America Initiative who is generally a fiscal hawk, said Ryan “should be commended for having the courage to lead in connection with our nation’s huge deficit and debt challenges.”

“His budget proposal recognizes that restoring fiscal sustainability will require tough transformational changes in many areas, including spending programs and tax policies,” Walker said.

Among the 2012 Republican presidential hopefuls, only former Minnesota Gov. Tim Pawlenty was quick to comment on Ryan’s plan.

“Thanks to Paul Ryan in Congress, the American people finally have someone offering real leadership in Washington,” Pawlenty said, but he otherwise steered clear of the details and focused on the coming fight over the debt ceiling.

“President Obama has failed to lead and make tough choices his entire time in the White House. While the budget is going to be debated for several months to come, the more immediate issue we face is President Obama’s plans to raise the debt ceiling next month. That’s a really bad idea,” Pawlenty said in a statement.

“With over $14 trillion debt already, we should not allow Washington’s big spenders to put us further in the hole. We must get our fiscal house in order with real spending cuts and with real structural reforms that stop the spending spree before it bankrupts our country,” he said.

Even the conservative Heritage Foundation, which heralded Ryan’s plan as “a monumental budget proposal for monumental times,” dinged it for insufficient levels of defense spending and for not addressing Social Security.

By

Robert Reich

Why aren’t Americans being told the truth about the economy? We’re heading in the direction of a double dip — but you’d never know it if you listened to the upbeat messages coming out of Wall Street and Washington.

Consumers are 70 percent of the American economy, and consumer confidence is plummeting. It’s weaker today on average than at the lowest point of the Great Recession.

The Reuters/University of Michigan survey shows a 10 point decline in March — the tenth largest drop on record. Part of that drop is attributable to rising fuel and food prices. A separate Conference Board’s index of consumer confidence, just released, shows consumer confidence at a five-month low — and a large part is due to expectations of fewer jobs and lower wages in the months ahead.

Pessimistic consumers buy less. And fewer sales spells economic trouble ahead.

What about the 192,000 jobs added in February? (We’ll know more Friday about how many jobs were added in March.) It’s peanuts compared to what’s needed. Remember, 125,000 new jobs are necessary just to keep up with a growing number of Americans eligible for employment. And the nation has lost so many jobs over the last three years that even at a rate of 200,000 a month we wouldn’t get back to 6 percent unemployment until 2016.

But isn’t the economy growing again — by an estimated 2.5 to 2.9 percent this year? Yes, but that’s even less than peanuts. The deeper the economic hole, the faster the growth needed to get back on track. By this point in the so-called recovery we’d expect growth of 4 to 6 percent.

Consider that back in 1934, when it was emerging from the deepest hole of the Great Depression, the economy grew 7.7 percent. The next year it grew over 8 percent. In 1936 it grew a whopping 14.1 percent.

Add two other ominous signs: Real hourly wages continue to fall, and housing prices continue to drop. Hourly wages are falling because with unemployment so high, most people have no bargaining power and will take whatever they can get. Housing is dropping because of the ever-larger number of homes people have walked away from because they can’t pay their mortgages. But because homes the biggest asset most Americans own, as home prices drop most Americans feel even poorer.

There’s no possibility government will make up for the coming shortfall in consumer spending. To the contrary, government is worsening the situation. State and local governments are slashing their budgets by roughly $110 billion this year. The federal stimulus is ending, and the federal government will end up cutting some $30 billion from this year’s budget.

In other words: Watch out. We may avoid a double dip but the economy is slowing ominously, and the booster rockets are disappearing.

So why aren’t we getting the truth about the economy? For one thing, Wall Street is buoyant — and most financial news you hear comes from the Street. Wall Street profits soared to $426.5 billion last quarter, according to the Commerce Department. (That gain more than offset a drop in the profits of non-financial domestic companies.) Anyone who believes the Dodd-Frank financial reform bill put a stop to the Street’s creativity hasn’t been watching.

To the extent non-financial companies are doing well, they’re making most of their money abroad. Since 1992, for example, G.E.’s offshore profits have risen $92 billion, from $15 billion (which is one reason it pays no U.S. taxes). In fact, the only group that’s optimistic about the future are CEOs of big American companies. The Business Roundtable’s economic outlook index, which surveys 142 CEOs, is now at its highest point since it began in 2002.

Washington, meanwhile, doesn’t want to sound the economic alarm. The White House and most Democrats want Americans to believe the economy is on an upswing.

Republicans, for their part, worry that if they tell it like it is Americans will want government to do more rather than less. They’d rather not talk about jobs and wages, and put the focus instead on deficit reduction (or spread the lie that by reducing the deficit we’ll get more jobs and higher wages).

I’m sorry to have to deliver the bad news, but it’s better you know.

 

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

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.

 

By Neil Irwin

Friday, August 27, 2010; 11:06 AM

JACKSON HOLE, WYO. – Federal Reserve Chairman Ben S. Bernanke acknowledged in a much-awaited speech Friday that the pace of economic growth “recently appears somewhat less vigorous” than expected, and said that the central bank would take new steps to bolster the economy if conditions worsen.

“The pace of recovery in output and employment has slowed somewhat in recent months,” Bernanke said at the Federal Reserve Bank of Kansas City’s annual economic symposium. “Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years.”

Just this morning, the Commerce Department reported that gross domestic product rose at only a 1.6 percent annual rate in the April-through-June quarter, much worse than the 2.4 percent earlier estimated.

Bernanke said that the Fed’s policy committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

“The issue at this stage” Bernanke said, “is not whether we have the tools to help support economic activity and guard against disinflation. We do. . . . The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.”

In other words, the economy has not deteriorated enough, nor the outlook changed enough, to warrant pulling out some big new monetary policy guns, but the Fed would be willing to do so if its forecast of continued slow-but-steady growth proves to be overly optimistic.

Bernanke enumerated the policy options on the table. At recent Fed policy meetings, he said, participants have discussed renewed large-scale purchases of Treasury bonds and other securities; pledging to keep the Fed’s short-term interest rate target near zero for even longer than analysts now expect; or cutting the rate paid on money that banks park at the Fed.

However, Bernanke explicitly rejected a notion, advanced by some economists outside the Fed, that the central bank temporarily increase its target for inflation. “I see no support for this option” on the Federal Open Market Committee, he said.

In discussing the trade-offs involved in undertaking a major new program to buy securities and thus expand the Fed’s balance sheet to try to boost growth, which is the most powerful of the tools under consideration, Bernanke noted various risks: that the central bank lacks precise knowledge of what effect the action would have; that the action would have the most impact in a time of financial market distress; and that the bigger balance sheet “could reduce public confidence in the Fed’s ability” to unwind the policies.

The speech is one of the most hotly anticipated of Bernanke’s tenure as Fed chairman, especially on Wall Street. In recent weeks, the economic situation has deteriorated markedly, and many forecasters now expect that the U.S. economy will grow much too slowly to bring down the unemployment rate in the second half of the year. Fed watchers were eager for Bernanke to offer clarity on what the approach of Fed policy is over the months ahead, particularly following an action at its Aug. 10 meeting to reinvest proceeds from maturing mortgage securities on its balance sheet.

In discussing the economy, Bernanke adopted a mixed tone, expressing confidence in growth over the medium term while acknowledging that the situation is disappointing at the moment. “In many countries, including the United States and most other industrial nations, growth during the past year has been too slow and joblessness remains too high,” he said.

“Incoming data on the labor market has been disappointing,” Bernanke added, while business investment in equipment and software “should continue to advance at a solid pace.”

The major drain on second-quarter gross domestic product was from trade. “Like others,” Bernanke said, we were surprised by the sharp deterioration in the U.S. trade balance in the second quarter. However, that deterioration seems to have reflected a number of temporary and special factors.”

The revision to gross domestic product data Friday is only the latest reminder of how far the economic outlook has fallen. Just in the past week, new data have indicated that the housing sector was in near free-fall in July, that business orders for big-ticket equipment contracted that month, and that new claims for unemployment insurance benefits remained at recessionary levels last week.

Bernanke takes a measure of optimism from recent reports that Americans are saving more. Although a higher savings rate – about 6 percent, compared with the 4 percent earlier estimated – has helped depress consumption in recent months, in the longer term, he said, it “implies greater progress in the repair of household balance sheets,” which should in turn allow Americans to increase their spending more rapidly in the future.

In the speech, Bernanke made an effort to try to dissuade listeners from the idea that the Fed, or any central bank, can create a return to prosperity on its own. “A return to strong and stable economic growth will require appropriate and effective response from economic policymakers across a wide spectrum, as well as from leaders in the private sector,” he said. “Central bankers alone cannot solve the world’s economic problems.”