Archive for the ‘Economy’ Category

CNBC: The U.S. jobs market remained stuck in neutral during October, with the economy creating just 80,000 new jobs as the stubbornly high unemployment rate nudged lower.

Amid few expectations that the employment picture has improved, government numbers Friday confirmed the obvious: The unemployment rate is stuck at 9.0 percent where it likely will be for many months to come.

The report comes just days after the Federal Reserve delivered its own body blow, saying the unemployment rate will go no lower than 8.5 percent to 8.7 percent by the end of 2012 and will remain in the 6.8 percent to 7.7 percent through 2014.

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WALL STREET JOURNAL: Nearly 15% of the U.S. population relied on food stamps in August, as the number of recipients hit 45.8 million.

Food stamp rolls have risen 8.1% in the past year, the Department of Agriculture reported, though the pace of growth has slowed from the depths of the recession.

The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), may continue to rise in coming months as families continue to struggle with high unemployment and September’s data will likely include disaster assistance tied to the destruction and flooding caused by Hurricane Irene.

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Here’s what China’s GDP growth rate looks like

2.5% growth is the first slightly-less-than-horrific economic news Obama has had since the start of “Recovery Summer” 2009

THE QUESTION IS: Will this prove to be fools gold, just like “Recovery Summer” 2009, or will we continue to see modest improvement?

NEW YORK TIMES: Economic growth in the United States picked up in the third quarter, the Commerce Department said Thursday, in an encouraging sign that the recovery, while still painfully slow, has not stalled.

Total output grew at an estimated annual rate of 2.5 percent from July to September, still modest but almost double the 1.3 percent rate in the second quarter, the department reported.

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STEVE FORBES: The nightmare on Main Street — the federal income tax code — is ending, which is fantastic news for our beleaguered economy. Dramatically simplifying this monstrosity would unleash a powerful wave of prosperity and job creation.

Thankfully in 2012 we will get a mandate to make this happen. Presidential contender Herman Cain vaulted to the head of the Republican pack when he proposed his 9-9-9 plan — a flat 9% income tax, corporate tax and national sales tax. Even better, Texas Gov. Rick Perry will, in a few days, unveil his version of a flat tax, a concept that I have long advocated.

To put things in perspective: Lincoln’s Gettysburg Address, which defined the character of the American nation, is only 272 words; the Declaration of Independence, 1,500 words; the Constitution with all its amendments, 7,200 words; and the Bible, which took centuries to put together, 773,000.
The federal income tax code and all its attendant rules and regulations — almost 10 million words and rising.

The code has been changed 14,000 times since 1986; last year alone there were 500 changes. The cost of compliance is horrific. The IRS itself calculates that we spend more than 6 billion hours a year filling out tax forms, the equivalent of almost 3 million full-time jobs. The Tax Foundation calculates that by 2015 annual compliance will be costing the American people some $483 billion a year.

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Jobs (a liberal who supported Obama, but who was also a serious man) says Obama was not interested in his advice and they stopped talking. Says Obama more interested in fancy dinners with a chocolate truffle dessert than solving problems. So Jobs opted out of Obama’s fatuous dinner.

HUFFINGTON POST: Jobs, who was known for his prickly, stubborn personality, almost missed meeting President Obama in the fall of 2010 because he insisted that the president personally ask him for a meeting. Though his wife told him that Obama “was really psyched to meet with you,” Jobs insisted on the personal invitation, and the standoff lasted for five days. When he finally relented and they met at the Westin San Francisco Airport, Jobs was characteristically blunt. He seemed to have transformed from a liberal into a conservative.

“You’re headed for a one-term presidency,” he told Obama at the start of their meeting, insisting that the administration needed to be more business-friendly. As an example, Jobs described the ease with which companies can build factories in China compared to the United States, where “regulations and unnecessary costs” make it difficult for them.

Jobs also criticized America’s education system, saying it was “crippled by union work rules,” noted Isaacson. “Until the teachers’ unions were broken, there was almost no hope for education reform.” Jobs proposed allowing principals to hire and fire teachers based on merit, that schools stay open until 6 p.m. and that they be open 11 months a year.

Jobs suggested that Obama meet six or seven other CEOs who could express the needs of innovative businesses — but when White House aides added more names to the list, Jobs insisted that it was growing too big and that “he had no intention of coming.” In preparation for the dinner, Jobs exhibited his notorious attention to detail, telling venture capitalist John Doerr that the menu of shrimp, cod and lentil salad was “far too fancy” and objecting to a chocolate truffle dessert. But he was overruled by the White House, which cited the president’s fondness for cream pie.

[QUICKIE OBSERVATION: Clearly, Jobs wanted a serious working dinner that would put the country back on track. He had no interest in a chocolate truffle dessert or a cream pie. A basic brown bag lunch where real work gets done would have been fine with Jobs.]

Though Jobs was not that impressed by Obama, later telling Isaacson that his focus on the reasons that things can’t get done “infuriates” him, they kept in touch and talked by phone a few more times.

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Here’s Alex Baldwin actually making quite a bit of sense

CNS NEWS: While mingling with protestors at the Occupy Wall Street demonstration in lower Manhattan, actor and outspoken liberal Alec Baldwin explained the importance to consumers of entrepreneur Steve Jobs and added, “I think capitalism is worthwhile.”

At the event, Baldwin was approached by people with “Wearechange,” who asked him about abolishing the Federal Reserve. Baldwin said he did not know whether that would be a negative or a positive but said, “You have to have capital markets in this country.”

“You cannot not have strong capital markets in this country or the country is going to go down the tubes,” he said. “I think most people want change in this country but they don’t want the country to go down the tubes. They don’t want the country to become England.”

Baldwin then gave the example of Apple computer founder Steve Jobs, who studied the large IBM computers and decided to work on making a computer much smaller and that would fit on a person’s lap.

“I think that’s important,” said Baldwin. “I think capitalism is worthwhile. And capitalism demands the flow of money. So, I think we need to have that. … I do not want capital markets dismantled.”

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This is the most thorough piece I’ve seen so far on Herman Cain’s 999 plan

AXEL D WHITEMAN: Former Pizza CEO, Ex Radio Host, Tea Party favorite; that’s the introduction one usually hears for current GOP Presidential front runner; Herman Cain. The palpable lack of respect Mr. Cain receives is a constant source of irritation for his supporters, but it is also likely to be the undoing of his detractors.

Not even George Bush was this “Mis-Underestimated.”

Herman Cain’s signature tax reform plan 999 has likewise been called; a pizza price, a catchy phrase, and an inversion of the sign of the beast. And that’s all in one debate. We’ve searched the internet for a serious objective analysis of 999; and quite frankly found none. Several publications have written faux analysis pieces which do NO real critical analysis, but quote from other misinformed sources and draw pre-ordained conclusions.

We make no pretense that we’ve supported Mr. Cain’s Presidency, and have done so since our February analysis of a potential field of 25 GOP hopefuls. We decided on our support for Cain based on our objective review of the strengths and weaknesses of the field, and we link to Cain’s web site as a kind of full disclosure. We do however strive to be objective in analysis, and believe that our “objectivity” is infinitely more sincere than the plethora of supposeedly objective news sources that have written brazenly idiotic analysis of 999 – before proclaiming their prejudicial conclusion that; it’s regressive, it kills service business, it can’t pass, or it’s not revenue nuetral.

In our original 999 analysis; we were skeptical of the claim of revenue nuetrality. When we ran some basic “acid test” calculations, we discovered that it was much closer to “revenue nuetral” than we expected. In our original analysis, we applied the 999 plan as follows:

In that piece we were using mostly 2008 data, and hypothesized that one would have to assume a significant rate of growth to reach revenue neutrality. In general however, we were surprised that these rather low rates could get within 400B of revenue neutrality.

To our surprise, we were contacted by the Cain economic staff, who pointed out that we’d made some critical errors in our assumptions and suggested that we “re-run” our acid test calcs changing our assumptions to more closely match the plan’s intent. The logic of the plan’s authors was to define the base in terms of known % of GDP. We found this to be a valid method, rathor than our method of accumulating reported earning and consumption data. The fundamental difference in our differing results were not however, due to the differing means of calculation, but mostly to the different definition of the “Corporate Tax Base.” More on that later, but bringing our assumptions in line we would see the comparative tax yield as follows:

The Personal Income Tax basis changes largely due to reducing the definition to “payroll wages” rather than the more broad “total personal income.” The Gross Consumer Purchases vary largely because it includes business purchases done at a retail level. For example, an accounting firm buys a computer and printer – rather than just personal consumer spending.

By far, the largest conflicting assumption is in the definition of the “Corporate Tax Base.” There has been significant speculation about how this value is defined, and we will admit that we’ve gone through the available literature, and statements from the campaign, and come to different conclusions at different times. However, with a bit of guidance from the Cain camp, I think we’re on the right track. So lets take a look at the “Business Tax.”

The Corporate Tax Base, is defined as a production tax. Corporations will pay taxes on their gross receipts, less the cost of purchases required to produce the good, or perfrom the service. It would NOT exempt the cost of labor. Many have sited this as a fatal flaw which unduly burdens service entities. That seems to be a legitimate issue, so lets compare some examples. Again using “acid test” numbers:

Example 1. The Manufacturing / Construction Company Model

Let’s assume a manufacturer or contractor wins a contract to build or produce a specific amount product for $100,000.00. The Comparitive Tax impact of the current versus the 999 plan is as follows:

The above analysis indicates that the tax burden in a manufacturing or construction firm would be significantly less than the current system. At least on a product by product basis. The current system would allow further deductions for Depreciation expense, but that would largely be offset by the fact that 999 allows capital purchases to be treated as first year expenses. The current system would also allow for general overhead deductions which would bring the two figures closer. It is however, a positive feature of the 999 plan, that it rewards efficiency by disallowing deduction for bloated overhead costs. (We do understand that if one’s salary comes out of “overhead” one wouldn’t use the term bloated!) All in all though, we would have to conclude that the encouragement for efficiency is a positive.

Example 2. The Service / Janitorial Company Model

Let’s now assume that a company is in a primarily service based industry, in which its primary cost of revenue earned is labor. Many have theorized that 999 is devestating to such firms. Let’s look:

Indeed, it would seem that the tax burden on service industries will go up. Not nearly as much as some have predicted, but we can’t see how this wouldn’t create a slight marginal tax increase for service industries.

So manufacturers get a windfall, and service industries get screwed?

No, not really….

At this point it is necessarry to discuss this tax system in terms of “Impact and Incidence.” That’s the term we used down at the School of Economics when I received my degreee in Economics. It defines the difference of where a tax is levied, and where, or who, is actually paying the tax. One must remember that the price of a good or service in a competitive environment is set by the market. In recognizing this, a manufacturing firm that suddenly found itself with a larger than expected marginal revenue on sales; would tend to lower its price to achieve greater market share and maximize total profit. Competitors would respond in kind, and the eventual cost of the manufactured good would decrease.

Similarly, in the service sector, where contracts for service are largely awarded on a competitive basis, competing service industries would recapture as much of the marginal tax cost as possible and the cost of the service would tend to increase proportionately.

Bottom line, net income to businesses that are currently competing in a fair market scenario, will largely remain unchanged in the long term.

However, those businesses that are tailored around current favorable tax policies by manufacturing Government subsidized products such as wind mills, solar panels, electric cars, and ethanol, would see their taxes rather dramatically increased in the short term. For example, GE would pay around $2 Billion in taxes, rather than $0.00 as it does under our current “progressive” tax system. Perhaps more importantly, GE would be forced to re-channel its investment into productive endeavors that are market supported. These are the endeavors that drive productivity, create wealth, and increase employment – even if they don’t lower the seas or plug the ozone hole.

In conclusion, while much additional detail and accounting practices will have to be hashed out to finalize this “Corporate Tax” we can’t see any significant downside to competitve businesses, and a large potential upside to re-focusing the productive sector of our economy.

Lastly, many have objected to the “Sales Tax” provision; stating that the additional 9% on top of existing sales tax would become a drag on consumption, and would be regressive. To address those particular points, the cost of manufactured goods would tend to decrease, making the “final cost” to consumers less than a pure additive 9%.; and the elimination of the current payroll tax of over 15% combined with the exemption of “used goods” from the 9% tax would seem to more than compensate for the additional sales tax.

More importantly, it seems that the goal of 999 is to define the broadest equitable tax base, and apply the lowest possible rate to fund the Government. This is ultimately what the goal of Public Finance should be. Some have argued that the introduction of a Sales Tax without the elimination of Income Tax just opens the door for greater Government expansion. One must remember though, that part of the goal of the Sales Tax is to capture revene from those who currently survive via the “underground” economy. Without the retail sales tax, there doesn’t seem to be a way of doing that.

To eliminate the income tax entirely, and fund everything with a retail sales tax (Fair Tax) would create a much higher retail sales tax rate, and therefore make the incentive to evade that single point of taxation quite high. That would be the creation of black markets, and yet another underground economy.

Much of the goal of Public Finance, is to create a system that is broad, fair, and predicatble; with rates low enough to make voluntary compliance preferable to evasion. To that extent, it seems 999 represents the LOWEST, and BROADEST, plan of Public Finance yet proposed. It also is illustrative that Government spending is simply too high. Even with this vast and broad tax base, and rates that are in most cases effectively similar to current tax rates (although far more predictable and evenly distributed) there would remain a budget deficit well over $1 Trillion annually.

999 is clearly no “Magic Bullet.” It is would represent a dramatic improvement over current Tax Policy, but at best is “Half a Solution,” as it doesn’t address spending. Undoubtedly, if the plan gains serious consideration, it will be pulled in several directions, and my end up something like 9, 12, 5. Even then, passage will be a steep climb. If nothing else, Mr. Cain has succeeded in refocusing the debate about how we fund Government, and hopefully it will lead to an improvement to the atrocious system under which we now labor.

See more of what Axel has to say here >>>

See also . . .

Reaganomics Architect Art Laffer Calls Herman Cain’s 999 Plan Wonderful >>>

Why 999 is good for poor and middle class:

• It eliminates Social Security FICA taxes (the toughest, most regressive tax of all on lower income working Americans)
• It eliminates all federal taxes for those below poverty line
• It will trigger explosive economic growth by dramatically reducing taxes on business and investment
• It cuts the top income tax rate from 35 percent to 9 percent.
• It eliminates the onerous Alternative Minimum Tax
• It drastically simplifies the tax code

ART LAFFER: Republican presidential candidate Herman Cain’s now famous “9-9-9″ plan is his explicit proposal to right the wrongs of our federal tax code. He proposes a 9% flat-rate personal income tax with no deductions except for donations to charity; a 9% flat-rate tax on net business profits; and a new 9% national tax on retail sales.

Mr. Cain’s 9-9-9 plan was designed to be what economists call “static revenue neutral,” which means that if people didn’t change what they do under his plan, total tax revenues would be the same as they are under our current tax code. I believe his plan would indeed be static revenue neutral, and with the boost it would give to economic growth it would bring in even more revenue than expected.

In the recent past, federal tax revenues from the personal and business income taxes, all payroll taxes, and the capital gains, gift and estate taxes have averaged $2.3 trillion, while gross domestic product has averaged about $14.5 trillion. The total revenue from these taxes as a share of gross domestic product averages around 16%. Sometimes it’s a good deal higher, as in the boom of the late 1990s, and sometimes its lower, as in today’s “Great Recession.” But a number in the 16%-19% range is as good as you’ll get under our current tax code.

By contrast, the three tax bases for Mr. Cain’s 9-9-9 plan add up to about $33 trillion. But the plan exempts from any tax people below the poverty line. Using poverty tables, this exemption reduces each tax base by roughly $2.5 trillion. Thus, Mr. Cain’s 9-9-9 tax base for his business tax is $9.5 trillion, for his income tax $7.7 trillion, and for his sales tax $8.3 trillion. And there you have it! Three federal taxes at 9% that would raise roughly $2.3 trillion and replace the current income tax, corporate tax, payroll tax (employer and employee), capital gains tax and estate tax.

The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased.

By making the tax codes a lot simpler, we’d allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year (“The 30-Cent Tax Premium,” April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It’s a win-win.

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Art Laffer explains 999: Calls it a “wonderful plan”

Here’s the famed “Laffer Curve” that shows why the government actually gets more money when tax rates are lower

BEN SAYS: Remember, when Reagan cuts tax rates from a top rate of 70 down to 28 percent, the federal government ended up collecting a lot more money because of explosive economic growth.  In fact, the federal government was collecting an incredible 80 percent more money in 1988 than it was in 1980. If you adjust for inflation, the federal government was collecting 50 percent more money in 1988 than it was in 1980. And if you adjust for both inflation and population growth, the federal government was collecting 19 percent more revenue per capita in 1988 than in 1980.

So, however you slice it, the federal government was collecting much more money after the top tax rate was cut from 70 to 28 percent. And this explosive economic growth continued through the Clinton years, even through 7 of the W years.  So, under Reaganomics, we had steady, non-stop economic growth from 1983 through 2007 — a quarter century.  Not bad.

The principle is this:

Would you rather have 1 percent of a successful company like Apple or Microsoft, or 100 percent of what you have now? That’s the idea here. If the government taxes 100 percent of what you earn, the government gets nothing because no one’s going to work for zero.

Laffer believes there’s an ideal tax rate that produces the most revenue for the government by creating the most explosive economic growth.  We don’t know exactly what the ideal tax system and rates are. He favors a low top rate and a simple tax code that rewards people for being industrious and productive instead of spending their time trying to figure out ways around the tax code.

Laffer believes it’s better to tax consumption than production and investment.  The government needs revenue to operate and do the things we think government should do. The most efficient, least punitive tax system taxes consumption. This also makes taxes more voluntary.  If you want to pay less taxes, just buy less and live more modestly. So taxing consumption encourages savings and investment — all good for the economy and your own fiscal health.

Keep in mind also that Cain views his 999 plan as a transition to the “Fair Tax” — where the income tax is eliminated entirely and replaced with a national sales tax.  So the sales tax would be high if we insist on revenue neutrality (rather than cut spending); but all income taxes, FICA taxes, and capital gains taxes would be gone. The IRS would then be out of our lives — at least in the sense of tracking or incomes and monitoring our bank accounts.

Cain does not suggest his 999 plan is a magic bullet that solves all problems.  It rights some of the wrongs with the byzantine, anti-business, anti-production tax code we now have. Cain’s 999 plan is a good start.

What we also need to focus on is slashing government spending. That’s the only real way to reduce the overall tax burden. Every dollar the government borrows is, in reality, a tax increase . . . because we pay interest on borrowed money and have to pay it back. Right now, the federal government borrows 43 cents of every dollar it spends.  That’s clearly unsustainable. So we also need to radically cut spending and stop the borrowing.

Then we need to cut the size of the federal government all the way back down to Constitutional size — which is about one-third the size it is now.

TONY LEE-HUMAN EVENTS: As businessman Herman Cain surges atop state and national polls and becomes a top-tier presidential contender, his signature “9-9-9″ plan, which calls for a nine percent tax on income, a nine percent national sales tax, and a nine percent corporate income tax, has come under scrutiny from the right and the left.

Famed supply-side economist Art Laffer told HUMAN EVENTS that Cain’s “9-9-9″ plan was a pro-growth plan that would create the proper conditions for America’s economy to grow and thrive again.

“Herman Cain’s 9-9-9 plan would be a vast improvement over the current tax system and a boon to the U.S. economy,” Laffer told HUMAN EVENTS in a statement. “The goal of supply-side tax reform is always a broadening of the tax base and lowering of marginal tax rates.”

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NEW YORK TIMES: Are we heading into another recession now? Again, the consensus says we’re not.

But at least one organization with an exceptionally good track record says another recession may already be here. That is the Economic Cycle Research Institute, a private forecasting firm based in Manhattan. It was founded by Geoffrey H. Moore, an economist who helped originate the practice of using leading indicators to predict business cycles. Mr. Moore died in 2000, but the team he trained is still at work.

Relying on a series of proprietary indexes, the institute correctly predicted the beginning and the end of the last recession. Over the last 15 years, it has gotten all of its recession calls right, while issuing no false alarms.

That’s why it’s worth paying attention to its current forecast. It’s chilling: as bad as the economy has been, it’s about to get worse.

In the institute’s view, the United States, which is struggling to recover from the last downturn, is lurching into a new one. “If the United States isn’t already in a recession now it’s about to enter one,” says Lakshman Achuthan, the institute’s chief operations officer.

It’s just a forecast. But if it’s borne out, the timing will be brutal, and not just for portfolio managers and incumbent politicians. Millions of people who lost their jobs in the 2008-9 recession are still out of work. And the unemployment rate in the United States remained at 9.1 percent in September.

More pain is coming, says Mr. Achuthan. He thinks the unemployment rate will certainly go higher. “I wouldn’t be surprised if it goes back up into double digits,” he says.

At the moment, the institute is sticking its collective neck out.

Compare the institute’s forecast with the latest Blue Chip survey, which was released on Friday. In it, the consensus is that the economy is slowing, but still growing modestly, and that it will continue to do so. On average, the economists included in the tally foresaw a growth rate of 2 percent in 2012. In January, the consensus prediction for 2012 was a growth rate of 3.1 percent.

Economists have been ratcheting down their projections, recognizing that the recovery has been so weak that it won’t take much to set the economy back.

A dark cloud hovers over the euro zone. Greece is increasingly perceived as likely to default on its debt, causing as-yet-unknown problems for the global financial system. Spain, Portugal and Ireland are already in downturns. Last week, Jan Hatzius and Dominic Wilson, two Goldman Sachs economists, predicted that France and Germany would soon fall into a “mild recession,” contributing to a slowdown in the United States, where they put the odds of a new recession at 40 percent.

In Congressional testimony last week, Ben S. Bernanke, the Federal Reserve chairman, was also downbeat. He said that the economy was “close to faltering” and that the Fed had lowered its own forecast, adding that the Fed is prepared to intervene as needed. He did not predict a recession, however.

Mr. Achuthan, on the other hand, says that the gross domestic product rate is likely to go negative by the first quarter of 2012, if not sooner.

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