The Debt Limit Is the Real Fiscal Cliff

December 3, 2012, 6:00 am

Washington is all abuzz over the impending tax increases and spending cuts referred to as the fiscal cliff, an absurdly inaccurate term that both Democrats and Republicans have unfortunately adopted in order to pursue their own agendas. In truth, it is a nonproblem unless every impending tax increase and spending cut takes effect permanently – something so unlikely as to be effectively impossible.

Fiscal Cliff Talks Turn Into a Game of Chicken

By ERIC PIANIN, The Fiscal Times

November 30, 2012

 

 

The critical negotiations over a way to avoid the fiscal cliff are fast turning into a game of chicken.

Shedding his optimistic disposition, House Speaker John Boehner, R-Ohio, summoned reporters Thursday afternoon to declare it was time that President Obama and the Democrats revealed how they intended to cut spending and slow the rate of growth of Medicare and other costly entitlements as part of a Grand Bargain of deficit reduction.

“I’ve got to tell you, I’m disappointed in where we are and what has happened in the last couple of weeks,” Boehner said.

US Birth Rate at Lowest Level Since 1920

By TARA BAHRAMPOUR, The Washington Post

November 30, 2012

The U.S. birth rate plunged last year to a record low, with the decline being led by immigrant women hit hard by the recession, according to a study released Thursday by the Pew Research Center.

The overall birth rate declined by 8 percent between 2007 and 2010, with a decrease of 6 percent among U.S.-born women and 14 percent among foreign-born women. The decline for Mexican immigrant women was more extreme, at 23 percent. The overall birth rate is now at its lowest since 1920, the earliest year with reliable records.

Shocking Chart on Tuition vs. Earnings for College Grads

By BLAIRE BRIODY, The Fiscal Times

November 30, 2012

 

Student debt levels have reached a new high – rising $42 billion in the last quarter to $956 billion, according to a report this week from the New York Fed. At the same time, tuition rates have seen a staggering 72 percent increase since 2000.

Obama’s economic philosophy, in 8 charts

Posted by Zachary A. Goldfarb on November 28, 2012 at 5:27 pm

If you look at President Obama’s biography and policies, you see one unifying theme more than any other: Obama wants to reduce income inequality.

His policies seem designed to achieve other objectives. The 2009 stimulus sought to end the recession. The 2010 Affordable Care Act strove to expand health-care coverage as widely as possible. And in the upcoming tax policy debate, Obama is seeking to shrink the nation’s deficits over time. But in each case, Obama is also trying to reverse three decades of growing income disparity in the United States.

Want to tax capital and income equally? Try the Buffett rule

Posted by Dylan Matthews on November 27, 2012 at 10:09 am

Warren Buffett (Daniel Acker — Bloomberg)

Enthusiasm is building for a “minimum tax” for the wealthy, in which millionaires would have to pay, say, 30 percent of their income in taxes, no ifs or buts. Republicans in Congress have floated taxing the entire income of high-earners at 35 percent, while Warren Buffett has renewed his call for a minimum tax of 30 percent for millionaires.

How U.S. can once again define the future

By Patrick Doherty, Special to CNN

November 27, 2012 -- Updated 1859 GMT (0259 HKT)

 

Editor's note: Patrick Doherty is the deputy director of the National Security Studies Program at the New America Foundation and author of the forthcoming report, "Grand Strategy of the United States of America."

(CNN) -- Washington is all about the fiscal cliff these days. In Doha, Qatar, world leaders are negotiating over climate change. Federal debt and carbon emissions are indeed two big problems on the nation's front burner. But they are just the beginning.

Fiscal Cliff War Games: Who Plays, Who Wins?

By STAFF, Reuters

November 21, 2012

 

President Barack Obama and the U.S. Congress hope to start serious negotiations after this week's Thanksgiving holiday on Thursday on how to avoid the "fiscal cliff," which has politicians and economists worried about the direction of the world's largest economy.

A ‘Cliff’ Deal Could Still Cost Consumers $218B

By YUVAL ROSENBERG, The Fiscal Times

November 21, 2012

 

Even if the country doesn’t slide over the fiscal cliff, any deal to blunt the impact of the scheduled tax hikes and spending cuts is likely to create at least some drag on an economy that is still growing only modestly. The full package of changes set to take effect in January would suck more than $600 billion out of the economy, according to the Congressional Budget Office. And while the outlines of any deal are still sketchy to say the least, Goldman Sachs economists are modeling a $233 billion economic hit as their “base case scenario.”

Why is housing such a popular investment? A new psychological explanation

Thomas Alexander Stephens, Jean-Robert Tyran, 23 November 2012

Despite its meagre real returns in the long run, many people still think that investing in housing is a good idea. This column argues that a major reason for the tendency to buy houses is that it’s rare to lose money. Recent research shows people’s perceptions of housing transactions to be shaped by whether they gain or lose money – above and beyond the real returns.

In the wake of the economic crisis that began in 2007, homeowners in many countries have faced substantial losses. Prices have fallen in both nominal and real terms. In the US, for example, house prices in the first quarter of 2012 were down more than 40% in real terms from their peak (Shiller 2012).Nevertheless, housing remains a popular investment¹. This popularity is surprising because, over the post-war period, US house prices have been essentially flat in real terms while the US stock markets have risen more than fourfold in real terms over the same period².

Why rich guys want to raise the retirement age

Posted by Ezra Klein on November 21, 2012 at 2:14 pm

If you’re the CEO of Goldman Sachs – if you have a job that you love, a job that makes you so much money you can literally build a Scrooge McDuck room where you can swim through a pile of gold coins wearing only a topcoat – then you should perhaps think twice before saying this:

You can look at the history of these things, and Social Security wasn’t devised to be a system that supported you for a 30-year retirement after a 25-year career. … So there will be things that, you know, the retirement age has to be changed. Maybe some of the benefits have to be affected, maybe some of the inflation adjustments have to be revised. But in general, entitlements have to be slowed down and contained.

Fed Watch: Industrial Production Stalls

Industrial Production Stalls, by Tim Duy: Sober Look is questioning just how temporary will be the impact of Hurricane Sandy on the data. I tend to think about this in somewhat different terms. I am fairly confident that the impact of Sandy on the national data will be almost entirely transient. I am less confident that we are identifying underlying trends in the data as we dismiss any weaker than expected numbers as artifacts of Sandy. At the moment, however, I think this issue is largely confined to manufacturing data.

Obama’s Road to Myanmar Is Paved With New Asia Intentions

American flags were being sewn at a roadside shop in Yangon, Myanmar, on Friday before President Obama’s arrival. 

By PETER BAKER and JANE PERLEZ

Published: November 17, 2012 

WASHINGTON — On the stump this fall, President Obama boasted that he had “brought more trade cases against China” than his predecessor had. In an ad, he asserted that his challenger “never stood up to China.” During a debate, Mr. Obama said he expanded trade with other Asian nations “so that China starts feeling more pressure” to play by the rules.

6 ways President Obama and Congress can avoid the 'fiscal cliff'

Republican congressional leaders and President Obama sharply disagree over how to deal with the impending “fiscal cliff.” Negotiations among Democratic and GOP lawmakers will be tough. But averting the cliff and putting the nation on a sustainable fiscal course shouldn’t be that hard.
A reasonable framework could be agreed to now, with the details worked out in 2013. Such a scenario includes a balance of spending cuts and new revenues, most of which are consistent with the recommendations of a variety of bipartisan groups and priorities articulated in the recent election.
Here are six ways Washington can avoid the “fiscal cliff.”

- Isabel Sawhill, November 16, 2012

James Dresch, of MND Partners Inc., works on the floor of the New York Stock Exchange Nov. 7. Renewed efforts are under way in Washington to resolve the impending 'fiscal cliff.' (Henny Ray Abrams/AP)

Fiscal cliff: Will the states tumble, too?

Fiscal cliff talk has been mostly focused on what would happen to the federal budget and the national economy. But what impact would the fiscal cliff have on individual states?

By Norton Francis, Guest blogger / November 17, 2012 

Senate Minority Leader Mitch McConnell of Ky., right, accompanied by House Minority Leader Nancy Pelosi of Calif., left, and House Speaker John Boehner of Ohio, gestures as he speaks to reporters outside the White House in Washington, Friday, Nov. 16, 2012, following their meeting with President Barack Obama to discuss the economy and the deficit. Most of the talk surrounding the fiscal cliff concerns what its impact would be on the national budget, but the states need to be considered as well, Francis argues.

Jacquelyn Martin/AP/File

As Congress and President Obama continue to spar over how to avoid the looming fiscal cliff, most public attention has been focused on what tumbling over the edge would mean for the federal budget and the national economy. But the tremendous uncertainty over the threat of tax increases and cuts in federal spending could cause big problems for state budgets as well.

Two new studies, one by The Pew Center on the States and another by the Tax Policy Center, show what falling over the cliff would mean for states. There is a sliver of good news: If all of the last decade’s tax cuts are allowed to expire, states might see a short-term boost in revenues. They might, that is, if the economy isn’t thrown back into recession.

RELATED: Six ways to avoid the 'fIscal cliff.' 

The Pew report, The Impact of the Fiscal Cliff on the States, takes a comprehensive look at how the states will be affected by gridlock. State revenue is dependent on the feds, with $1 in every $3 coming from federal grants in 2010. While Medicaid, one big source of federal dollars, is exempt from the automatic across-the-board spending reduction due to take effect in January, eighteen percent of federal grants to states will be subject to those cuts in FY 2013.

On the tax side, the picture is murkier. Because many states link their tax codes to the federal law, if all of the tax cuts expire and revert to pre-2001 law, states could benefit when some elements are restored. For instance, the old limitation on itemized deductions for high-income taxpayers would increase taxable income and some states could enjoy new income tax revenue.

For example, take the estate tax. I looked at what would happen to that levy in a new TPC paper called Back from the Dead: State Estate Taxes after the Fiscal Cliff.

In 2001, in what Congress hoped would be the first steps on the road to full repeal of the estate tax, lawmakers temporarily phased out a credit for state estate and inheritance taxes, In 2005, the credit was replaced with a less-generous deduction. Some states responded to these changes by simply repealing their estate taxes. Others decoupled from the federal law, either establishing a stand-alone tax or explicitly linking their taxes to the old 2001 law. But many states did nothing, which left their estate tax tied to the repealed federal credit.

Now, if Congress goes over the cliff and the estate tax reverts to the 2001 law, 30 states will once again benefit from the resurrected credit, and their revenues will rise by about $3 billion.

That’s potentially good news, of course, for states still struggling to recover from the recession. But the promise of higher estate tax revenues could easily be swamped by those across-the-board cuts in federal spending or, worse, another recession. On the other hand, if Congress kicks the proverbial can down the road and delays efforts to address its fiscal challenges until next year, states (like businesses) must try to budget in a period of ongoing uncertainty. Both of these new reports highlight the links between states and the federal government and underline the need for clarity and permanence in federal fiscal policy.

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EU dips into recession. Is the US next?

The EU is in a recession, according to new data from EuroStat. Will the US follow suit or buck the trend?

By SoldAtTheTop, Guest blogger / November 16, 2012  

This graph compares EU and US quarterly GDP change since 1996. The graph illustrates the similar trends between the two economic areas.

SoldAtTheTop

Yesterday, EuroStat, the European Union’s statistics office, released their Q3 2012 read on the 17-nation combine GDP showing a quarter-to-quarter decline of 0.1%, tipping the group squarely (though possibly temporarily due to future revisions) into recession, as economic conditions worsened and continued from the prior quarter’s -0.2% reading.

While recession for Europe is no surprise, given all the attention that has been directed to the crisis economies of Greece, Spain, Italy, and Portugal and the broader weakness elsewhere in the European Union, it should also be clear that the U.S. faces nearly identical prospects as the burdens of government overreach take their toll on macroeconomic conditions.

Further, while the U.S. generally prides itself on having more robust economic conditions than Europe, comparing the quarterly growth rates, one can easily see that for over a decade now, our economic conditions have, more or less, trended together.

So this begs the question, how long can the U.S. expect to buck the trend?

Unless you expect notable improvement in future quarters, it would appear that the European Union’s poor conditions are just another harbinger of larger global underperformance that could crush the U.S.’s tepid recovery.

Source

US Postal Service in $16bn loss

The US Postal Service has seen declining mail volume but increases in shipping services

The US Postal Service has reported an annual loss of a $15.9bn (£10bn), ending a year in which it defaulted on payments twice to avert bankruptcy.

Its financial losses were more than triple the previous year's.

Most of the mail agency's financial woes come from mounting mandatory costs for future retiree health benefits.

Postmaster General Patrick Donahoe said the Postal Service's hands are tied by congressional inaction on a bill that would allow it to reduce the payments.

"It's critical that Congress do its part and pass comprehensive legislation before they adjourn this year to move the Postal Service further down the path toward financial health," Mr Donahoe said, calling the situation "our own postal fiscal cliff".

One version of the bill would cut down on the required $5bn annual health-benefit payment and allow it to eliminate Saturday mail delivery.

Earlier in 2012, the Postal Service defaulted for the first time in its history on two of the health payments.

The Senate passed a postal bill in April that would have reduced the mandatory advances and refunded overpayments to a federal pension fund.

But legislation proposing an end to Saturday delivery has stalled in the House of Representatives.

The mail agency has seen other structural problems in declining mail volume, but has seen growth in it shipping services, up 9% in 2012.

Fredric Rolando, president of the National Association of Letter Carriers, blamed Congress for mandating the annual health pre-payments in 2006, but suggested lawmakers should wait to act on legislation until next year.

His union is opposed to the current version of the House bill, which gives the Postal Service wide leeway to close post office branches and make employee cuts to balance its budget.

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The Wrong Man for the Job

President Obama may ask John Kerry to lead the Pentagon. If he does, the senator should politely decline.

Sen. John Kerry sits with Ambassador Susan Rice and the woman they are candidates to replace, Secretary of State Hillary Clinton

By Fred Kaplan|Posted Thursday, Nov. 15, 2012, at 4:53 PM ET

Hillary Clinton and Leon Panetta haven’t left the building, but senators and pundits are already decrying their potential successors. The big rumor is that U.N. Ambassador Susan Rice will replace Clinton as secretary of state, while Sen. John Kerry, who has long wanted that job, will get Panetta’s Pentagon post as a consolation prize.

It’s a strange scenario, and it’s probably a bad idea, but that doesn’t mean it won’t happen.

No question: Kerry deserves to be the next secretary of state. (Clinton, who looks exhausted, has said repeatedly she won’t stay for a second term.) First, as longtime chairman of the Senate Foreign Relations Committee, Kerry knows the issues cold. Second, in his first term, Obama called on Kerry many times to serve as de facto envoy to Afghanistan and Pakistan, and he did well, persuading Afghan president Hamid Karzai to hold elections and smoothing over tensions with Pakistani officials (in the days when there was still something to smooth). Third, Obama owes Kerry something. It was Kerry who chose Obama to give the keynote address at the 2004 Democratic Convention, the address that catapulted him from Illinois state senator to superstar. Kerry asked for the job of chief diplomat after Obama was elected in 2008; when Clinton was picked instead (a move that stunned him), he settled back into his job and, among other things, did yeoman’s work steering Obama’s New START nuclear arms treaty through the Senate—no easy task, since ratification required a two-thirds majority.

Still, the sense among some in the White House is that Obama will choose Susan Rice. Even admirers have mixed feelings about her. On the one hand, she’s amassed a string of accomplishments at the U.N. Security Council, most notably the resolutions—which she pushed through and stiffened—on taking action in Libya and on sanctions against Iran. On the other hand, she can be a loose cannon. Her public fit against the Russians for vetoing the resolution against Syria—declaring that the United States was “disgusted” at their “shameful” behavior—was, to say the least, undiplomatic. (Russia is hardly the only superpower to block condemnation of horrible allies.) She doesn’t get along much with allies either. When the Europeans were pushing for action on Libya and Obama was still deciding what to do, Rice snapped at the French ambassador, “You’re not going to drag us into your shitty war.”

The decisive factor, however, may be that she’s a central player in President Obama’s inner circle. She was an active supporter and a close adviser in the earliest days of his campaign. Top aides say that she and the president think about issues, and view the world, in the same way. That’s always important to a president, but particularly so to this president. Obama governs in a remarkably top-down fashion. No administration in modern times has been less riddled with bureaucratic bickering between the Departments of State and Defense; that’s because the tone and substance are set at the top. Hillary Clinton has been a very competent secretary of state and one of Obama’s most trusted advisers, but she has left almost no signature of her own because there has been no blank space to do so. Early on, she tried to impose her priorities on foreign policy, emphasizing people-to-people relations and women’s rights, and Obama picked up some of those themes in his own speeches—but they gained little traction in real policy. The same will likely be true in the second term, and while Kerry is hardly the type to go freelance, Rice may have the edge in depth of loyalty.

Her prospects are probably heightened by the attacks from big-gun Republicans. Sens. John McCain and Lindsey Graham have led the assault, threatening to filibuster her nomination, citing her role in defending the administration over the deaths of four Americans in Benghazi. The charge is flimsy. Rice did mischaracterize the source of the violence in her first TV appearances on the subject, but, as is now clear, she was only reciting the intelligence community’s talking points; she had no actual role in, or responsibility for, the consulate’s security. At his press conference Wednesday, Obama fired back at McCain and Graham with double barrels, calling their accusations “outrageous” and partisan (“We’re after an election now”) and daring them to come after him, not her.

Few Republicans are likely to follow the McCain-Graham lead. Besides the facts of the matter (not always the prime consideration), there’s no percentage in it: Benghazi proved to have no traction as an issue in the recent election. And given the popular support of Obama’s foreign policy and the Republicans’ horrendous ratings with blacks and women, does the party really want to go after a senior diplomat who is also a black woman?

If Rice does get the job, is it a good idea to send Kerry to the Pentagon instead? Probably not. Some of his former aides, who otherwise admire him, complain of his incompetence at running a Senate committee staff, much less a gigantic executive-branch department. He has never been known for crisp decisiveness. A secretary of state can get away with these shortcomings and still do well, as the main job is to serve as the president’s adviser and envoy to the world. A secretary of defense has to do that while also shaping a half-trillion-dollar budget and imposing coherent civilian authority on the Joint Chiefs of Staff and a far flung military bureaucracy.

Then again, I could be mistaken. The Pentagon’s current second- tier leadership is ripe with top-notch managers, especially Deputy Secretary of Defense Ashton Carter and the comptroller, Robert Hale. (They have been mentioned as possible replacements for Panetta as well.) If Obama can persuade people like that to stay on, they could run a lot of interference for a Secretary Kerry. It’s also worth noting that, in recent years, the secretary’s job has come with a lot of diplomatic responsibilities. Robert Gates, who was also a top-notch manager and disciplinarian, made many trips not just to the warzones but also all over Europe and Asia to deal with treaty issues, base rights, and joint exercises: a fairly broad lane of policy matters. Kerry would be good at this part of the job.

Some right-wingers, especially on Fox News, have invoked Kerry’s past as an anti-war activist during the Vietnam era and even dredged up the long-discredited Swift Boat accusations from George W. Bush’s campaign against him in 2004. I asked a half-dozen general officers whether this record would affect his relations with the chiefs and the rank-and-file. To my surprise, only one thought it might. The others noted that today’s generals were either too young to fight in Vietnam (the current JCS chairman, Gen. Martin Dempsey, graduated West Point in 1974 as the war was ending) or were grunts in the rice paddies, just like Kerry; they don’t look back on the war as much worth defending.

Still, the whole prospect reminds me of Les Aspin’s tragic tenure as President Bill Clinton’s first secretary of defense. Aspin was one of the smartest defense specialists on Capitol Hill; he was a master of the legislative process; he loved his job as chairman of the House Armed Services Committee. But he was a terrible defense secretary. He had no executive chops. He was completely undisciplined. He’d schedule a meeting with the Joint Chiefs, then forget about it and go off to play tennis. The official cause for his dismissal—the ambush of U.S. troops in Somalia—was a bad rap; the chiefs had drawn up the battle plan that left the troops without armor. But the real reason was that President Clinton no longer trusted him. When a cabinet officer loses the president’s trust, for whatever reason, he has no choice but to go. Aspin held the job for barely a year, and it killed him, literally. He died a year later, of heart failure, at the age of 56.

The tragedy of Aspin’s tale is that he knew he wasn’t cut out to run the Pentagon. I know this because I worked for him, as his foreign- and defense-policy adviser, back in 1978-80, when he was still a sort of maverick, before he became committee chairman. We stayed in touch for years after, and when rumors first arose that he might be nominated for the job, I asked him if he was really interested in it. He replied, “Of course not. What would I do afterward—go work at the Brookings Institution?”

But few politicians can resist the allure of the president’s call, the chance to be a real player. Aspin let down his guard, and ignored his instincts and long-term interests. If President Obama calls Sen. Kerry, I hope he politely declines.

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