“If you’re seeking good news that might help boost the economy from President Obama’s proposed budget, you will not find any. To the contrary, this budget plan is jammed with anti-growth and anti-small business measures.
“For example, under the President’s plan, taxes on the earnings of successful entrepreneurs and investors would jump dramatically. The top income tax rate would increase from 37.9 percent (personal income and Medicare taxes) to 43.4 percent in 2013. The capital gains tax would jump from 15 percent to 23.8 percent (actually 30 percent, with Mr. Obama’s proposed ‘Buffett’ tax), and the dividends tax would climb from 15 percent to 43.4 percent. For good measure, the death tax would increase, pushing the rate up from 35 percent to 45 percent. Raising taxes on risk taking is a surefire way to get less risk taking.
“Meanwhile, on the spending side, nothing is done to actually reduce total federal outlays. After massive increases in federal spending in recent years, the Obama budget does not seriously try to pull spending back to historical norms. Instead, federal outlays would persist at unprecedented levels.
“This combination of higher taxes on entrepreneurship and investment, and persistently high levels of government spending is a recipe for putting the U.S. on a long-term track of slow growth and poor job creation. If the idea is to transform the U.S. into an economy whereby the private sector is constrained by high taxes and big government, then the President has the right plan.”
Showing posts with label federal spending. Show all posts
Showing posts with label federal spending. Show all posts
Tuesday, February 14, 2012
SBE Council Chief Economist on Obama Budget Plan
Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement on President Barack Obama’s proposed budget:
Wednesday, September 28, 2011
Obama's Plan for the Economy and Deficit
President Barack Obama has been talking a lot about reigniting economic growth and reining in the federal budget deficit. Unfortunately, he has not been saying much that's substantive or helpful on these matters.
Consider his "Plan for Economic Growth and Deficit Reduction." It is claimed in the plan: "Overall, it pays for the President's jobs bill and produces net savings of more than $3 trillion over the next decade, on top of the roughly $1 trillion in spending cuts that the President already signed into law in the Budget Control Act - for a total savings of more than $4 trillion over the next decade."
At first, this might sound impressive. But then the details come into focus...
Consider his "Plan for Economic Growth and Deficit Reduction." It is claimed in the plan: "Overall, it pays for the President's jobs bill and produces net savings of more than $3 trillion over the next decade, on top of the roughly $1 trillion in spending cuts that the President already signed into law in the Budget Control Act - for a total savings of more than $4 trillion over the next decade."
At first, this might sound impressive. But then the details come into focus...
Monday, August 01, 2011
A Look at the Debt Rating and Default
Although you might not get the impression by some of the things being said in our nation's capital and by television talking heads, but Republicans in the U.S. House of Representatives have already achieved a tremendous victory in the ongoing battle over federal spending and debt levels.
What would that victory be? First, the President and congressional Democrats have, effectively, accepted that any deal to raise the debt ceiling will not involve tax increases. Of course, that does not mean that President Obama will stop pushing for tax hikes, but for now, in terms of a debt ceiling agreement, tax hikes are off the table.
Second, House Republicans have won the debate over linking an increase in the debt ceiling to some kind of spending cuts or restraint. Of course, how substantive any spending restraint might be, especially in the out years, is nothing more than guess work. Still, the link has now been established between spending and the level of debt.
These are significant achievements, given where the debt ceiling debate stood not that long ago.
Do we need more? Of course. In particular, federal spending needs to be capped as a share of GDP to make sure that spending is truly reduced. In the current fiscal year, federal outlays are expected to top 25% -- the highest level since World War II. To avoid further major increases in federal debt and large tax increases, spending needs to be capped at a much lower level. The level at the end of the Clinton years seems ideal at 18.2% of GDP.
But, alas, with the current Senate majority and White House committed to big government, that simply is not going to happen. It is a debate that will have to be taken into the 2012 elections. No tax increases, some spending restraint, and future, dubious cuts in spending will be where the current debt-ceiling negotiations wind up.
But what happens if this debate drags on, approaching the Treasury Department's declared drop-dead date of August 2, or the mid-August timeframe that many analysts now talk about?
Let's be clear: The notion that the U.S. will default on its debt obligations is not realistic. Revenues would still be coming in the door, and interest payments made. Could a partial government shutdown be needed under the worst-case scenario? Sure. But that's different from default.
Possibility of a U.S. debt rating downgrade by credit rating agencies, however, does lurk. One can debate the merit of such a downgrade, if it occurred. But what would be the effect?
One of the most dismal assessments was served up in a New York Post article that quoted various analysts pointing to increased mortgage rates, higher gas prices, and a stock market decline.
It's hard, however, to make the leap from a downgrade by rating agencies on federal debt due to continuing political disputes to the market then deciding that gas prices suddenly need to rise, and stock prices need to fall. After all, nothing substantively would have changed - even in government policies - before or after such an opinion is issued by credit agencies.
On mortgage and other interest rates rising, the conventional notion is that a credit rating downgrade will lead to higher interest rates on Treasury debt, and in turn, rates in the market tied to Treasuries would rise. But the ultimate question is: how will market participants react to a slight downgrade in U.S. credit rating? Again, since nothing will have substantively changed in terms of policy and the economy, it is doubtful that there would be any significant change in interest rates.
Meanwhile, the only way a credit downgrade could affect the price of gas is if the value of the dollar declined, thereby pushing up the price of oil. However, the value of the dollar has been falling for some time, and that is overwhelmingly tied to Federal Reserve monetary policy.
Finally, given this minimal, if any, impact that a credit downgrade would have on interest rates and the dollar, there's little reason to see any significant impact on stock prices.
In the end, the debt ceiling debate is about federal spending. To the degree that spending is reined in, then there would be a positive impact on the economy in terms of fewer resources being drained away from the private sector in the short term, via borrowing or taxes, and a reduced threat of higher taxes in the future.
_______
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council
What would that victory be? First, the President and congressional Democrats have, effectively, accepted that any deal to raise the debt ceiling will not involve tax increases. Of course, that does not mean that President Obama will stop pushing for tax hikes, but for now, in terms of a debt ceiling agreement, tax hikes are off the table.
Second, House Republicans have won the debate over linking an increase in the debt ceiling to some kind of spending cuts or restraint. Of course, how substantive any spending restraint might be, especially in the out years, is nothing more than guess work. Still, the link has now been established between spending and the level of debt.
These are significant achievements, given where the debt ceiling debate stood not that long ago.
Do we need more? Of course. In particular, federal spending needs to be capped as a share of GDP to make sure that spending is truly reduced. In the current fiscal year, federal outlays are expected to top 25% -- the highest level since World War II. To avoid further major increases in federal debt and large tax increases, spending needs to be capped at a much lower level. The level at the end of the Clinton years seems ideal at 18.2% of GDP.
But, alas, with the current Senate majority and White House committed to big government, that simply is not going to happen. It is a debate that will have to be taken into the 2012 elections. No tax increases, some spending restraint, and future, dubious cuts in spending will be where the current debt-ceiling negotiations wind up.
But what happens if this debate drags on, approaching the Treasury Department's declared drop-dead date of August 2, or the mid-August timeframe that many analysts now talk about?
Let's be clear: The notion that the U.S. will default on its debt obligations is not realistic. Revenues would still be coming in the door, and interest payments made. Could a partial government shutdown be needed under the worst-case scenario? Sure. But that's different from default.
Possibility of a U.S. debt rating downgrade by credit rating agencies, however, does lurk. One can debate the merit of such a downgrade, if it occurred. But what would be the effect?
One of the most dismal assessments was served up in a New York Post article that quoted various analysts pointing to increased mortgage rates, higher gas prices, and a stock market decline.
It's hard, however, to make the leap from a downgrade by rating agencies on federal debt due to continuing political disputes to the market then deciding that gas prices suddenly need to rise, and stock prices need to fall. After all, nothing substantively would have changed - even in government policies - before or after such an opinion is issued by credit agencies.
On mortgage and other interest rates rising, the conventional notion is that a credit rating downgrade will lead to higher interest rates on Treasury debt, and in turn, rates in the market tied to Treasuries would rise. But the ultimate question is: how will market participants react to a slight downgrade in U.S. credit rating? Again, since nothing will have substantively changed in terms of policy and the economy, it is doubtful that there would be any significant change in interest rates.
Meanwhile, the only way a credit downgrade could affect the price of gas is if the value of the dollar declined, thereby pushing up the price of oil. However, the value of the dollar has been falling for some time, and that is overwhelmingly tied to Federal Reserve monetary policy.
Finally, given this minimal, if any, impact that a credit downgrade would have on interest rates and the dollar, there's little reason to see any significant impact on stock prices.
In the end, the debt ceiling debate is about federal spending. To the degree that spending is reined in, then there would be a positive impact on the economy in terms of fewer resources being drained away from the private sector in the short term, via borrowing or taxes, and a reduced threat of higher taxes in the future.
_______
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council
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