April 20, 2019

You’re the Boss Blog: This Week in Small Business: Free Furniture!

Dashboard

A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.

The Budget: Nothing Yet

The White House’s budget is late, and the president requests a delay in the sequestration cuts. The Congressional Budget Office predicts decreasing deficits but also growing debt even as the economy recovers. Rebecca Thiess explains why there is such a large change in the office’s projections. Neil Irwin says this is the most depressing graph from the C.B.O. report.

The Economy: Manufacturing Surges

Factory orders expanded in December and manufacturing surged in January. But the service sector expanded at a slower pace. Home prices rose last year by the most in six and a half years and the Financial Stress Index falls to pre-recession levels. Here are 100 startling facts about the economy. A gauge of business investment plans dropped in December. The Postal Service decides to end Saturday deliveries, and a report from the National Small Business Association indicates that small-business owners are feeling less optimistic than they did this time last year.

Your People: It’s O.K. to Steal

Markos Kaminis says that unemployment is 11.8 percent, not 7.9 percent, and yet a small-business employment index shows seasonal strength. A study finds retail workers feel least connected to their employers, and another report reveals that many employees are O.K. with stealing corporate data. Claire LaBrunerie suggests that treating employees with respect is one of four simple (and free) ways to improve workplace morale. Here are seven e-mail tips to maximize your relationships. This is why everyone wants to work at a big tech company. A 2-year-old makes shot after shot.

The Super Bowl: A Boon for Baltimore

The Ravens’ Super Bowl victory is a boon for many local businesses — but a furniture store has to cough up $600,000 in free merchandise. Oreo improvised a great ad. Here are the commercials from the night. Patrick Coffee lists the top 10 social media moments, and Debra Donston-Miller shares five social lessons she learned. Funny or Die reveals the cause of the blackout.

Your Productivity: Workflowy

John Jantsch explains how a tool called Workflowy keeps him organized. James Chartrand says the best kept secret for keeping clients happy is to pad your time. Laura Spencer explains how much time you should devote to freelancing.  David Siteman Garland says you need to stop obsessing over making your Web site, brand or product “perfect.” A first-grader earns a day off for the entire student body.

Managing Your Business: Lessons From Mark Zuckerberg

Juergen Kneifel explains how one small business does things right. Here are a few entrepreneurial lessons from Mark Zuckerberg. Natalie Sisson has created the ultimate guide to finding laser-like focus in your online business. Lyve Alexis Pleshette shares six secrets of a successful home-based business. Giuseppe Colombi has a detailed analysis of how to set the right price for what you sell. Joseph and JoAnn Callaway wonder if George Washington and Honest Abe would make it in today’s business world. Isabelle Mercier Turcotte explains why women make better business leaders. Geoffrey James says these are the most influential business books of all time, and a bunch of young entrepreneurs share their favorite YouTube channels. Here is why self-help articles can be bad for entrepreneurs.

Starting Up: Avoid Silicon Valley

The health care giant Geisinger introduces a $40 million start-up. An angel investor explains his strange approach to investing. TechCrunch plans its first pitch-off party in New York. Meghan Casserly says the start-up economy is creating $1 billion in freelance paychecks. Mark Suster explains how to configure your start-up team. A venture investor-turned-entrepreneur shares the start-up lessons he’s learned. In this podcast, an economist, Matt Yglesias, talks about the difficulty of starting a small business. Peter Cohan says that “insufficient mentoring” is one of five reasons to avoid Silicon Valley.

Marketing: Face to Face

Companies say they expect spending on Web-related promotion to rise this year. A new report says most business-to-business marketing professionals plan to increase their budgets, with digital marketing a major focus. Another report finds that social media drives less than 2 percent of business-to-business Web traffic. This is how to optimize your social media profiles. Brian Clark says to get over yourself and get on Google Plus. Joel Libava explains Applebee’s social media fiasco. Olga Ionel takes a look at online marketing methods that really work. Brad VanAuken shares the importance of targeting customers carefully. Joe Griffin says there’s a three-point process for getting buy-in for content marketing. Here are a few tips for using postcards as direct-mail coupons. A study concludes that independent businesses benefit from “buy local first” campaigns but still face challenges. Here is how to build your brand with iOS, and here are five ways to make face-to-face networking pay off.

Finance: Revolutionizing Banking

Karen Mills, the Small Business Administration administrator, joins the president of the Kauffman Foundation to present solutions for financing entrepreneurship and strengthening the nation’s economy. She tells small businesses in “middle America”: “We need to expand the entrepreneurial playing field.” Small-business borrowing barely rises in December. Zachary Karabell says that amid the banking dry spell, some small businesses kick-start themselves: “This democratization of finance could in time have as revolutionary an effect on traditional lending and banking as digital music has had on the traditional recording industry.” A new lending engine tries to solve the small-business liquidity crisis.

Cash Flow: Penny Pinching

Rohit Arora says that if you operate a seasonal business, it’s crucial to make cash flow projections. Jon Stow warns that penny-pinching can be expensive: “If we are inexperienced or simply do not have the time to do something to support, promote or oil the wheels of our business, it will cost us a lot more in sales than if we pay a specialist to help us.” Visa and Square award $200,000 to small-business owners but nobody knows what the digital wallet companies are.

Taxes: Overlooked Breaks

These are five overlooked tax breaks for small businesses. The Internal Revenue Service is making home-office deductions easier and offers 10 tips to help you choose a tax preparer. The Center on Budget and Policy Priorities explains the important improvements to two crucial tax credits. Catherine Clifford says that entrepreneurs could benefit from the new research and development tax credit.

Red Tape Update: S.P. Is Sued

The government sues Standard Poor’s over its rating of risky mortgage bonds before the financial crisis. The Commission on Civil Rights announces a briefing on the impact of regulatory, licensing and market-entry barriers on emerging small businesses. The House Small Business Committee chairman weighs in on small-business owner concerns. Jan Fletcher has eight tips for dealing with road construction near your business.

Around the Country: Larry King Is Hooked

A California payroll company wants your business to be its valentine. Ernst Young begins its search for innovative entrepreneurs in Florida and around the nation. This is where not to die in 2013, and these are the 10 states where the most people live on the edge of financial ruin. Amazon creates its own virtual currency, and Virginia plans to look into minting its own money (but Canada stops making pennies). An island community in the Pacific Northwest mobilizes to take control of a dump. A Michigan suspenders company hooks Larry King to be its spokesman. Office Depot and Fran Tarkenton form a partnership to empower small businesses. The National Federation of Independent Business joins with Grow America to educate entrepreneurs. Is this the last video store?

Around the World: India’s Rural Olympics

General Motors announces its best sales month in China ever, but the country’s looming worker shortage threatens its economy. India holds its rural Olympics. Argentina freezes food prices. Worldwide soccer may be run by organized crime. Italy’s builders fear slower global demand. Markets in Hong Kong hit their highest levels in 18 months. A former king of England is found under a parking lot, but the Blackberry 10 is the new king of smartphone sales in Britain.

Technology: Best Small-Business Apps

Dell is going private. Bryan Glick is feeling sorry for Microsoft. Here’s a comparison of the Microsoft Surface RT and the Surface Pro. Brad Chacos and Chris Hoffman help you decide which version of Windows 8 is right for your business. Paul Mah says these tech upgrades will make your business run faster, and Daniel Saks has five tips for choosing the best small-business apps. Walter Cronkite predicts the rise of home offices (in 1967). The government is not creating a free nationwide Wi-Fi network. Tracey Schelmetic welcomes you to wearable computing. This is how energy optimization software can reduce industrial power consumption. According to a new report, the cloud market for small and midsize businesses in the United States is now $18.9 billion and is expected to grow 19 percent through 2015. But Charles Babcock says that cloud implementation costs and complexity are surprising many companies.

Tweet of the Week

@StephenAtHome: Without the Canadian penny, what will we Americans occasionally get mixed up with our change? OUR pennies?

The Week’s Best

Brian Barrett says that five days of mail a week is still too much: “In an ideal world, mail delivered every day of the week would be totally feasible. In fact, why stop there? If mail once a day is good, mail twice a day would be even better. Or three times a day. Or, wait a minute, while we’re dreaming, what about correspondence delivered to you personally 24 hours a day, without limit or interruption, at no expense to you or the sender? Oh, wait. We have that.”

This Week’s Question: Will it affect your business when the Postal Service stops delivering on Saturdays?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2013/02/11/this-week-in-small-business-free-furniture/?partner=rss&emc=rss

Today’s Economist: Casey B. Mulligan: The Health Care Law and Retirement Savings

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Because of its definition of affordability, beginning next year the Affordable Care Act may affect retirement savings.

Today’s Economist

Perspectives from expert contributors.

Employer contributions to employee pension plans are exempt from payroll and personal income taxes at the time that they are made, because the employer contributions are not officially considered part of the employee’s wages or salary (employer health insurance contributions are treated much the same way). The contributions are taxed when withdrawn (typically when the worker has retired), at a rate determined by the retiree’s personal income tax situation.

Employees are sometimes advised to save for retirement in this way in part because the interest, dividends and capital gains accrue without repeated taxation. In addition, people sometimes expect their tax brackets to be lower when retired than they are when they are working.

These well-understood tax benefits of pension plans will change a year from now if the act is implemented as planned. Under the act, wages and salaries of people receiving health insurance in the law’s new “insurance exchanges” will be subject to an additional implicit tax, because wages and salaries will determine how much a person has to pay for health insurance.

While much about the Affordable Care Act is still being digested by economists, they have long recognized that high marginal tax rates lead to fringe benefit creation. And the Congressional Budget Office has concluded that the act will raise marginal tax rates.

Were an employer to reduce wages and salaries (or fail to increase them) and compensate employees by introducing an employer-matching pension plan, the employee is likely to benefit by receiving additional government assistance with his health-insurance costs. The pension contributions will add to the worker’s income during retirement, except that the income of elderly people does not determine health-insurance eligibility to the same degree, because the elderly participate in Medicare, most of which is not means-tested.

Take, for example, a person whose four-member household would earn $95,000 a year if his employer were not making contributions to a pension plan or did not offer one. He would be ineligible for any premium assistance under the Affordable Care Act because his family income would be considered to be about 400 percent of the poverty line.

If instead the employer made a $4,000 contribution to a pension plan and reduced the employee’s salary so that household income was $91,000, the employee would save the personal income and payroll tax on the $4,000 and would become eligible for about $2,600 worth of health-insurance premium assistance under the act. (The employer would come out ahead here, too, by reducing its payroll tax obligations).

Even though the Affordable Care Act is known as a health-insurance law, in effect it could be paying for a large portion of employer contributions to pension plans. This has the potential of changing retirement savings and the relative living standards of older and working-age people.

Article source: http://economix.blogs.nytimes.com/2013/01/30/the-health-care-law-and-retirement-savings/?partner=rss&emc=rss

Economix Blog: Casey B. Mulligan: The Health-Care Law and Retirement Savings

DESCRIPTION

Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

Because of its definition of affordability, beginning next year the Affordable Care Act may affect retirement savings.

Today’s Economist

Perspectives from expert contributors.

Employer contributions to employee pension plans are exempt from payroll and personal income taxes at the time that they are made, because the employer contributions are not officially considered part of the employee’s wages or salary (employer health insurance contributions are treated much the same way). The contributions are taxed when withdrawn (typically when the worker has retired), at a rate determined by the retiree’s personal income tax situation.

Employees are sometimes advised to save for retirement in this way in part because the interest, dividends and capital gains accrue without repeated taxation. In addition, people sometimes expect their tax brackets to be lower when retired than they are when they are working.

These well-understood tax benefits of pension plans will change a year from now if the act is implemented as planned. Under the act, wages and salaries of people receiving health insurance in the law’s new “insurance exchanges” will be subject to an additional implicit tax, because wages and salaries will determine how much a person has to pay for health insurance.

While much about the Affordable Care Act is still being digested by economists, they have long recognized that high marginal tax rates lead to fringe benefit creation. And the Congressional Budget Office has concluded that the act will raise marginal tax rates.

Were an employer to reduce wages and salaries (or fail to increase them) and compensate employees by introducing an employer-matching pension plan, the employee is likely to benefit by receiving additional government assistance with his health-insurance costs. The pension contributions will add to the worker’s income during retirement, except that the income of elderly people does not determine health-insurance eligibility to the same degree, because the elderly participate in Medicare, most of which is not means-tested.

Take, for example, a person whose four-member household would earn $95,000 a year if his employer were not making contributions to a pension plan or did not offer one. He would be ineligible for any premium assistance under the Affordable Care Act because his family income would be considered to be about 400 percent of the poverty line.

If instead the employer made a $4,000 contribution to a pension plan and reduced the employee’s salary so that household income was $91,000, the employee would save the personal income and payroll tax on the $4,000 and would become eligible for about $2,600 worth of health-insurance premium assistance under the act. (The employer would come out ahead here, too, by reducing its payroll tax obligations).

Even though the Affordable Care Act is known as a health-insurance law, in effect it could be paying for a large portion of employer contributions to pension plans. This has the potential of changing retirement savings and the relative living standards of older and working-age people.

Article source: http://economix.blogs.nytimes.com/2013/01/30/the-health-care-law-and-retirement-savings/?partner=rss&emc=rss

Economix Blog: Laura D’Andrea Tyson: The Tradeoff Between Economic Growth and Deficit Reduction

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Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Bill Clinton.

The economy is continuing to recover from its deepest recession since the Great Depression, but the pace of recovery is frustratingly slow. The question is why, and the answer has profound implications for fiscal policy and for the debate over deficit reduction and economic growth that has transfixed Washington.

Today’s Economist

Perspectives from expert contributors.

Since 2010, annual growth of gross domestic product has averaged about 2.1 percent. This is less than half the average pace of recoveries from previous recessions in the United States since the end of World War II, according to a recent study by the Congressional Budget Office. Both potential G.D.P., a measure of the economy’s underlying capacity, and actual G.D.P. have grown unusually slowly compared with previous recovery periods.

Slow G.D.P. growth has meant slow growth in employment. Payroll employment has been expanding at a rate of about 150,000 jobs per month during the last two years, only slightly above the growth of the labor force. Employment growth has been largely consistent with overall G.D.P. growth and with the “jobless” pattern of the 1990-91 and 2001 recoveries.

In both this recovery and the previous two, the rebound in employment growth has been weaker and later than the rebound in G.D.P. growth. But G.D.P. growth in the current, jobless recovery has been slower. Another salient difference is that the loss of jobs in the most recent recession was more than twice as large as in previous recessions, so a slow recovery has also meant a much higher unemployment rate.

Why has G.D.P. growth been so tepid compared with previous recoveries? Most economists believe that weak aggregate demand is the primary culprit. The 2008 recession resulted from a systemic financial crisis rooted in an asset bubble that gripped the housing market with particular ferocity. Private sector demand contracts sharply and recovers slowly after such crises.
The large and persistent decline in private-sector demand that began the 2008 recession and that explains the painfully slow recovery is apparent in the private-sector financial balance — net private saving, the difference between private saving and private investment.

The private-sector financial balance swung from a deficit of −3.7 percent of G.D.P. in 2006, at the height of the boom, to a surplus of about 6.8 percent in 2010 and about 5 percent today. This represents the sharpest contraction and weakest recovery in private-sector demand in the post-World War II period.

Growth in two components of private demand — consumption and residential investment — has been especially slow in this recovery compared with the average for previous recoveries. This is not surprising.

Residential investment is still depressed as a result of overbuilding during the 2004-8 housing boom and the tsunami of foreclosures that followed. Large losses in household wealth, deleveraging from excessive debt, weak growth in wages and household income, and a decline in labor’s share of national income to a historic low have combined to constrain consumption growth. Wobbly consumer confidence and the concentration of most income gains at the top of the income distribution have also contributed.

The recovery of business investment demand has followed a different pattern. Indeed, the growth of business investment has been slightly stronger during the current recovery than the average for previous ones. But after plummeting to new lows during the recession, the ratio of net business investment to G.D.P. remains depressed by historical standards. Lower net investment compared with the economy’s capital stock is a major reason that the growth rate of potential G.D.P. has been so slow.

Throughout the recovery, business surveys have identified lackluster customer demand and weak sales prospects as the primary factors holding down business investment. Business confidence has remained subdued as a result of uncertainty about the future growth of markets both at home and abroad and more recently about the future course of United States fiscal policy.

Limits on credit availability were also significant deterrents to investment, especially by small and medium-size firms at least through 2010, when banks began to ease their commercial loan terms.

Weak investment demand cannot be explained by low profits and high taxes: the profit share of national income has hit a historic peak and taxes on investment income are at historic lows.

Another factor contributing to the slow pace of the current recovery relative to previous recoveries has been the relatively weak growth of government spending on goods and services by both state and local governments and by the federal government.

Indeed, the contraction in state and local government spending and the associated decline in public-sector employment have been major headwinds restraining G.D.P. growth.

The increase in federal government purchases of goods and services in the 2009 stimulus bill mitigated but did not offset the effects of weak private-sector demand through 2010. But since then, the slowdown in such purchases has been a drag on G.D.P. and employment growth.

After three years of recovery, the economy is still operating far below its potential and long-term interest rates are hovering near historic lows. Under these circumstances, the case for expansionary fiscal measures, even if they increase the deficit temporarily, is compelling.

A recent study by the International Monetary Fund finds large positive multiplier effects of expansionary fiscal policy on output and employment under such circumstances.

And more output and employment now would mean higher levels in the future, because stronger demand now would encourage more private investment and stem the loss of skills and productivity resulting from long-term unemployment and the drop in the labor force participation rate.

The rationale for expansionary fiscal policy is particularly compelling for federal investment spending in areas like education and infrastructure that have large multiplier effects on the current level of output and employment and strong returns over time.

By the same logic, the $600 billion of revenue increases and spending cuts scheduled for next year — the so-called fiscal cliff — would have large negative effects on demand, output and employment and would reduce future potential output as well.

The fiscal cliff packs a powerful punch: there will be 3.4 million fewer jobs by the end of 2013 if Congress allows these policies to take effect.

The economy does not need an outsize dose of fiscal austerity now; it does need a credible deficit-reduction plan to stabilize the debt-to-G.D.P. ratio gradually as the economy recovers. As I contended in an earlier Economix post, the plan should have an unemployment-rate target or trigger that would postpone deficit-reduction measures until the target is achieved. (In a move that signals its abiding concern about the recovery’s strength and resilience, the Federal Reserve has just announced an unemployment-rate target for monetary policy, committing to keep short-term interest rates near zero until the unemployment rate falls to 6.5 percent.)

The goal of deficit reduction is to ensure the economy’s long-term growth and stability.

It would be the height of fiscal folly to kill the economy’s painful recovery from the Great Recession in pursuit of this goal.

Article source: http://economix.blogs.nytimes.com/2012/12/14/the-trade-off-between-economic-growth-and-deficit-reduction/?partner=rss&emc=rss

Today’s Economist: Laura D’Andrea Tyson: The ‘Go Fast’ and ‘Go Big’ Fiscal Challenges

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Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

Washington faces two urgent fiscal challenges in the next few months. Before the end of the year, the lame duck Congress, the most polarized in recent history, must negotiate an agreement with President Obama to protect the still fragile economic recovery from the so-called fiscal cliff — the $600 billion in spending cuts and tax increases scheduled to begin to take effect on Jan. 1. Then, early next year, a newly elected but still divided Congress must approve an increase in the federal debt limit. Failure to do so in a timely way would damage confidence, posing yet another threat to the economy’s continued healing.

Today’s Economist

Perspectives from expert contributors.

These two challenges are manifestations of the long-running fiscal challenge confronting the country: the fact that the federal debt is rising at an unsustainable rate. That’s why a political deal to address the fiscal cliff and the debt limit in the near term should be linked to a credible framework to put fiscal policy on a sustainable path in the long term.

By the end of this year, policy makers need to “go fast” to address the fiscal cliff and debt limit and to “go big” to establish the broad outlines of a significant multiyear deficit-reduction plan.

The economy continues to operate far below its capacity. The unemployment rate is at least two percentage points higher than what most economists consider consistent with a full recovery. Other measures, such as the high rate of long-term unemployment and the low labor-force participation rate, reflect an impaired labor market.

According to the Congressional Budget Office, gross domestic product is still about 6 percent, or about $973 billion, below the potential level the economy is capable of producing at full capacity. This is the largest gap between actual and potential output following a recession in modern American history.

The weakness of government spending at the state and local level and more recently at the federal level has been a significant factor behind the slow recovery. The phasing out of earlier federal stimulus measures, the expiration of temporary payroll-tax relief and extended unemployment benefits scheduled at the end of the year, and the tight caps on discretionary federal spending already in force mean more federal fiscal drag on the economy’s growth next year even if the fiscal cliff is averted.

Ideally, given the shortfall in aggregate demand that is keeping the economy stuck below potential, a deal on the cliff should include an extension of both payroll tax relief and unemployment benefits, as well as other temporary policies to support job creation, such as the employment tax credit for small business and the increase in infrastructure spending proposed last year by President Obama as part of the American Jobs Act.

Alas, it seems unlikely that a deal will contain these measures. At best, if a deal is reached it will probably be limited to tabling the deep spending cuts automatically scheduled to take effect early next year, extending the 2001-3 tax cuts for the bottom 98 percent of taxpayers and raising taxes on the top 2 percent of taxpayers, especially those with incomes over $1 million, through some combination of higher marginal tax rates and caps on deductions.

To improve the economy’s near-term growth prospects, the deal should also contain a promise that Congress will approve the debt limit when necessary without a destabilizing delay.

So far, negotiations about a go-big framework for deficit reduction have focused on cutting at least $4 trillion from the federal budget over the next decade, with the goal of stabilizing and then reducing the debt-to-G.D.P. ratio. The election and recent Gallup polls settled the debate about whether an increase in revenues will be part of the plan. The answer is yes.

The debate has shifted to how revenues should be increased and who should bear the burden. The proposition that revenues should be raised through tax changes that limit deductions, credits and loopholes, in lieu of or in addition to rate increases, is gaining momentum.

Economists believe that raising revenues for deficit reduction through base-broadening tax reforms is probably better for economic growth than raising marginal tax rates.

Although it may prove politically necessary for a bipartisan deal, however, there is no convincing economic justification for using some of the revenues saved from tax reforms to lower marginal income tax rates for high-income taxpayers. These rates are already at historic lows.

And there is no convincing evidence that real economic activity responds materially to changes in these rates, at least within the range of rates experienced in the United States during the last half-century. The tax code should be reformed to make it simpler, fairer and less distortionary and to raise revenues for deficit reduction, not to reduce tax rates on high-income taxpayers.

Over the last 30 years, income inequality in the United States has increased sharply. During the same period, the federal tax system has become less progressive and has contributed to the trend of rising income inequality and widening opportunity gaps between children born into different income groups.

A more progressive tax code, achieved through some combination of higher tax rates and capping deductions for high-income taxpayers, would be a powerful tool both to counteract these trends and to achieve long-term fiscal sustainability.

On the spending side, “go big” bipartisan proposals for deficit reduction, such as the Simpson-Bowles and Domenici-Rivlin plans, focus on curbing the growth of Medicare, Medicaid and Social Security. This is understandable as these programs already account for about 40 percent of federal spending and that share is projected to rise as a result of the aging of the population and the growth of health care costs.

But lumping Medicare, Medicaid and Social Security together is misleading and, given strong partisan passions on Social Security, could weaken the chances of reaching a bipartisan deal on deficit reduction.

Spending on Social Security is rising primarily because of demographics, not because of growing benefits per eligible person. Indeed, the Social Security Trust Fund has adequate resources to cover benefits until at least 2033, and the program’s revenue shortfall is less than 1 percent of G.D.P. over the next 75 years.

In contrast, the argument for including Medicare and Medicaid in a framework for long-run deficit containment is compelling. The single most important factor behind the projected growth in federal spending is the growth in health care spending, driven primarily by the growth in Medicare spending per beneficiary.

The outlook has already improved as a result of significant changes in the delivery and payment of health care services in the Affordable Care Act. As a result of these changes, growth in Medicare spending per enrollee is projected to slow to 3.1 percent a year during the next decade, about the same as the annual growth of nominal G.D.P. per capita and about two percentage points slower than the annual growth of private insurance premiums per beneficiary.

Speeding up the pace of the Affordable Care Act changes along with others, such as reducing subsidies for high-income beneficiaries and drug benefits and introducing small co-pays on home health-care services, would mean even larger Medicare savings.

A “structural reform” popular among Republican deficit hawks like Representative Paul Ryan of Wisconsin to convert Medicare to a premium-support or voucher system would be counterproductive and would drive up both spending per beneficiary and overall costs in the health care system.

The goal of a “go big” plan for deficit reduction should be to ensure the economy’s long-term growth and competitiveness. Yet the debate over spending in Washington is fixated on cutting entitlement spending. Very little is heard about the need to increase federal spending in education and training, research and development and infrastructure, three areas with proven track records in rate of return, job creation, opportunity and growth.

Spending in these areas accounts for less than 10 percent of the federal budget; this share has been declining for several decades and is slated to fall to dangerous new lows as a result of the caps on nonmilitary discretionary spending already in place.

A pro-growth framework for deficit reduction must reverse these trends. More government investment in the foundations of economic growth should be recognized as a core principle of deficit reduction.

Article source: http://economix.blogs.nytimes.com/2012/11/30/the-go-fast-and-go-big-fiscal-challenges/?partner=rss&emc=rss

Economix Blog: More on Mitt Romney’s Tax Rate

There are any number ways to calculate a household’s tax rate. You can look at just the federal income tax and conclude that almost half of Americans don’t pay taxes, or look at all taxes and conclude that a vast majority of Americans do pay taxes.

DAVID LEONHARDT

DAVID LEONHARDT

Thoughts on the economic scene.

To my news analysis explaining that most households actually pay a lower federal tax rate than 15 percent — the rate Mitt Romney, the Republican presidential candidate, says that he pays — there are two postscripts worth adding:

First, I focused on direct taxes. If you also include indirect taxes — mainly corporate taxes, effectively paid by stockholders — Mr. Romney’s rate rises higher. On average, the top 1 percent of earners pay about 10 percent of their income in corporate taxes, according to the Congressional Budget Office.

Companies officially pay these taxes. But by reducing the after-tax earnings of the company, the taxes ultimately come out of the pockets of the company’s owners. Economists, with good reason, like to apportion all taxes to people, rather than to an entity like a corporation.

Second, most of the article focused on federal taxes, not state or local taxes (for which the data is thinner). Because Mr. Romney’s income is so high, he pays relatively little of it in state and local taxes. A middle-class or poor family would pay a greater proportion.

These two factors obviously point in different directions. So if you widened the lens beyond direct federal taxes — to all taxes, including indirect, state and local taxes — the conclusion would likely be similar. Mr. Romney does not pay a lower tax rate than most Americans. He also doesn’t pay a much higher tax rate, despite being much more affluent.

Article source: http://feeds.nytimes.com/click.phdo?i=f3da1aa10e8b7e3e462ef5e19232256a

Economix Blog: New Leader for Urban Institute

Sarah Rosen WartellCenter for American ProgressSarah Rosen Wartell

Sarah Rosen Wartell, a housing expert and economic policy analyst, will become the president of the Urban Institute in February, the Washington-based research organization said Tuesday.

Ms. Wartell is the co-founder of the Center for American Progress, the progressive policy research organization and advocacy group, and currently heads its housing finance program. She will succeed Robert D. Reischauer, the former head of the Congressional Budget Office, at the helm of the 43-year-old nonpartisan institute.

In an interview, Ms. Wartell said that she hoped to bolster the institute’s profile and make its research more relevant to policy debates. “Urban has this really remarkable collection of scholars and analytical tools and models,” she said. “My goal is to protect what Urban is – a place of tremendous and renowned scholarship and research – while trying to make its studies more accessible and visible, so that policy makers of all political stripes can use them.”

She cited the influential Tax Policy Center, a project of the Urban Institute and the Brookings Institution, as an example. “It has done a very good job of doing relatively quick turnaround analysis of tax policy,” she said. “They’re a go-to site, and people, whether proponents or opponents of a proposal, rely on it.”

Before helping to found the Center for American Progress in 2003, Ms. Wartell served in the Clinton administration as deputy assistant to the president for economic policy and as deputy director of the National Economic Council. She also worked in the Department of Housing and Urban Development.

Ms. Wartell said she hoped to continue working on housing finance issues while managing the Urban Institute, which has 10 centers on policy topics including health care costs, poverty, criminal justice, immigration and unemployment. “How we rebuild housing finance in the wake of the conservatorship of Fannie Mae and Freddie Mac,” she said. “That’s obviously not going away as a problem.”

Article source: http://feeds.nytimes.com/click.phdo?i=311daee3eee1cad55476929f624cd80b

Disagreement Over Payroll Tax Cut’s Impact on Social Security

The Obama administration, many budget experts (but not all) and the chief actuary for the Social Security Administration say the proposal will do no such thing. But some conservative Republicans and liberal Democrats who agree on little else are just as adamant that it will.

Both parties predict the payroll tax cut will be extended beyond its Dec. 31 expiration, though the question of how — or whether — to pay for it and some other unrelated issues in the year-end legislation continued to hold it up on Wednesday. Still, the disagreement over the tax cut lingers. It is less over money than philosophy, and reflects a debate as old as the 75-year-old program about Social Security’s fundamental structure.

Critics predict that one extension will lead to another as politicians balk at raising taxes to their former level, especially if unemployment remains high.

“Imagine that next December the unemployment rate is 8 percent and a year later it’s 7.4 percent,” said Robert Reischauer, a former director of the Congressional Budget Office, who is one of two public trustees for Social Security. “We’ll still be trying to stimulate employment and terminating the payroll tax holiday will be a big hit on most families, one that will hurt job growth.”

Democrats fear that repeated extensions would disrupt the link that President Franklin Delano Roosevelt forged to lock in support for Social Security: with workers taxed for their benefits, politicians would not cut them. And Republicans object that transferring general revenues to Social Security to offset the tax cut makes the program more like welfare, and worsens the federal budget deficit.

Politics aside, the bottom line is that a temporary tax cut is inconsequential to Social Security’s long-term health, from an accounting perspective. The threat remains the financial pressure of an aging population.

Social Security is essentially a pay-as-you-go system, with payroll taxes from workers flowing back out to retirees, survivors and the disabled. Last year, before the tax cut, the system for the first time since 1983 collected less in taxes than it paid out to 55 million beneficiaries — $49 billion less.

The program’s operating deficits will grow as more of the 78 million baby boomers become eligible. But trust fund reserves built up over years of annual surpluses will not run out until 2036, when tax revenues will cover three-quarters of benefits, trustees project.

That projection would be unchanged by Mr. Obama’s proposal to extend and expand the payroll tax relief that he and Congressional Republicans agreed to a year ago to spur the economy, because they also agreed to transfer general revenues to Social Security to make up the difference.

The trust fund “would be unaffected by enactment of this provision,” Stephen C. Goss, the chief actuary for Social Security Administration, wrote to administration officials — just as he had about the tax bill a year ago.

The 12.4 percent payroll tax is split between employees and employers, and the current break reduces workers’ share by 2 percentage points, to 4.2 percent. Because that reduces Social Security revenues this year by about $105 billion, the program is credited with that amount from general revenues. And workers get credit for the full tax for purposes of calculating their future benefits.

This fall, with the economy still fragile, Mr. Obama proposed as part of his $447 billion job-creation plan to extend the tax cut for 2012, increase it to 3.1 percentage points and expand it to employers for their first $5 million of payroll — in effect cutting the tax in half for employees and most employers.

His proposal, which was more popular with Mr. Obama’s political advisers than with Treasury officials, would have reduced Social Security revenues by $240 billion next year. Democrats recently limited their proposal to employees and the self-employed, cutting its cost to $185 billion given complaints from liberals and conservatives.

Last December liberal lawmakers, conservatives and advocates for the elderly mostly went along with the tax cut since it was intended for a year only. But when the White House began talking of an extension months ago, after economists predicted that economic growth would slow half a percentage point without the tax cut, opponents in both parties mobilized.

Article source: http://feeds.nytimes.com/click.phdo?i=a182d0e2e83b01f241b4c69c157886f2

Economix Blog: Simon Johnson: Where Is the Volcker Rule?

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Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Three years ago, a financial crisis threatened to bring down the United States economy and to spread economic disaster around the world. How far have we come in preventing any kind of recurrence? And will the much-discussed Volcker Rule – attempting to limit the risks that big banks can take – play a positive role as we move forward?

Today’s Economist

Perspectives from expert contributors.

Bad loans were the primary cause of the 2007-8 financial debacle. When the full extent of the problems with those loans became apparent, there was a sharp fall in the values of all securities that had been constructed based on the underlying mortgages – and a collapse in the value of related bets that had been made using derivatives.

The damage to the economy became huge because these losses were not dispersed throughout the economy or around the world. Rather, many of the so-called toxic assets were held by the country’s largest banks. Financial institutions that used to lend to consumers and businesses had instead become drawn into various forms of gambling on the booming mortgage market (as well as on commodities, equities and all kinds of derivatives). “Wall Street gets the upside and society gets the downside” was the operating principle.

And what a downside that proved to be.

Henry M. Paulson Jr., Treasury secretary at the time, said the Troubled Asset Relief Program, or TARP, was needed to buy those troubled assets from the banks. But this quickly proved unwieldy, so TARP pumped roughly half a trillion dollars into bank equity. The Federal Reserve backed this up with an enormous amount of liquidity through more than 21,000 transactions.

The additional government debt as a direct result of this finance-induced deep recession is estimated by the Congressional Budget Office at around 50 percent of gross domestic product, roughly $7 trillion.

These are staggering numbers. And this system of big banks taking outsize risks, failing and imposing huge damage on the rest of us has to stop. This ball is now firmly in the regulators’ court.

Whatever your broader issues with the Dodd-Frank Act of 2010, one point about legislative intent in this law is clear: The regulators have the authority to cut banks down to size and return them to their historical role of intermediary between savers and borrowers.

As for size, the regulators have long ignored the existing guidelines and allowed the biggest banks to get bigger. We need to go in the opposite direction, and that includes cutting down to size the private megabanks, as well as Fannie Mae and Freddie Mac. It also means taking advantage of the resolution authority and all associated provisions that Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation, worked so hard to put into the Dodd-Frank Act.

As Jon Huntsman is arguing on the Republican campaign trail, too-big-to-fail banks simply need to be forced to break themselves up.

But we also need to make the megabanks less likely to fail. The easiest way to do that would be to require banks to have enough common equity to absorb losses.

But the bankers have pushed back hard, with Jamie Dimon, head of JPMorgan Chase, leading the way with statements like this on capital requirements, which are known loosely as the Basel Accords: “I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-American.”

Dan Tarullo, responsible for this issue on the Federal Reserve Board, seems to support the idea of requiring significantly more equity in big banks, perhaps moving in the direction recommended by Anat Admati and her colleagues. But Mr. Tarullo appears to have lost that battle for now.

If we are not breaking up banks and if we are not requiring them to have reasonable levels of capital (thus limiting how much they can borrow relative to their equity), we must use all other available tools to stop the too-big-to-fail banks from taking excessive and ill-conceived risks.

This is where the Volcker Rule becomes so important. Named for Paul A. Volcker, former chairman of the Federal Reserve, and adopted as part of Dodd-Frank at the insistence of Senators Jeff Merkley, Democrat of Oregon, and Carl Levin, Democrat of Michigan, the Volcker Rule directs the regulators to get banks out of the business of betting on the markets.

The regulators are now determining how they plan to carry it out. Draft proposals are currently open for comment.

But the latest news on this front is not encouraging, as crucial regulators seem stuck in a “bigger is better, and anything goes for the biggest” mind set.

The Volcker Rule has some good points, including a requirement that trader compensation not be tied to speculative risk-taking, and that firms collect and report some essential data to regulators. But the current draft does too little to actually stop the banks’ risky practices.

The main problem is that the rule as drawn does not set out the clear, bright lines that banks and regulators need, nor does it provide for meaningful enforcement. Instead of drawing the lines, the proposed rule mandates that firms write many of the rules themselves.

There is some good news. At this point, it is only a proposed rule, and the public is able to comment. Organizations like Better Markets that promote the public interest within the regulatory process will be in there fighting to strengthen the proposed rule and make the final rule better.

Everyone who cares about real financial reform should do the same, but the regulators’ draft rule has made it harder to uphold the public interest than should have been the case. For example, the regulators ignored the breadth of the Volcker statute and focused instead on only a narrow slice of the bank’s balance sheet – just what the bank says is for “trading” purposes. Much else of what big banks do seems likely to escape scrutiny.

The regulators also have given very little guidance on conflicts of interest, on what should be considered high-risk assets or on what high-risk trading strategies should be permitted.

During a Senate hearing at which I testified last week, Senator Bob Corker, Republican of Tennessee, focused on another important problem – the lack of any restrictions on trading in the enormous Treasury securities market. The regulators will create a lot more paperwork for the banks, but if the current draft is adopted, the too-big-to-fail banks are not likely to be forced to stop doing much.

Last year Senator Levin said:

We hope that our regulators have learned with Congress that tearing down regulatory walls without erecting new ones undermines our financial stability and threatens our economic growth. We have legislated to the best of our ability. It is now up to our regulators to fully and faithfully implement these strong provisions.

From what we’ve seen so far, our regulators have not yet understood this message. They seem instead more in tune with Mr. Dimon, who insisted this year that regulators should back away from any effective implementation of the Volcker Rule:

The United States has the best, deepest, widest, most transparent capital markets in the world, which give you, the investor, the ability to buy and sell large amounts at very cheap prices. I wish Paul Volcker understood that.

Mr. Dimon — who is on the board of the Federal Reserve Bank of New York — seems to have forgotten the financial crisis, its impact on ordinary Americans and the utter fiscal disaster that ensued. Or perhaps he never noticed.

Article source: http://feeds.nytimes.com/click.phdo?i=550db65e33b09bc4701892f384902cc0

Economix Blog: The Bush Tax Cuts and the Deficit

How much do the Bush tax cuts and the alternative minimum tax patch widen the deficit? Take a look at the lightest blue bars below:

DESCRIPTIONCongressional Budget Office

That chart comes from the Congressional Budget Office’s latest report, released Wednesday, on the budget and the economic outlook.

CATHERINE RAMPELL

CATHERINE RAMPELL

Dollars to doughnuts.

The office is legally required to provide estimates for the budget under current law; this is known as the forecast “baseline.” Every year, though, Congress reliably makes changes to current law — changes that increase the deficit — just in the nick of time. This bar chart is intended to illustrate exactly how big those last-minute changes are, lest onlookers be tempted to ignore them.

The lightest blue bars, labeled “Extend Tax Policies,” represent an estimate of how the deficit will grow if Congress extends the Bush tax cuts and indexes the alternative minimum tax for inflation, as legislators are expected to do once again. As you can see, these moves alone more than double the size of the deficit for most of the years shown.

Just above this are much darker blue bars, labeled “Maintain Medicare’s Payment Rates for Physicians.” These represent the expectation that Congress will continue to nullify their own requirements to cut Medicare payments for doctors. The law says that Medicare’s payment rates for physicians’ services will fall by 30 percent at the end of 2011, but given Washington’s record on this “doc fix,” few expect that cut to be allowed to happen.

“Additional Debt Service” — the aqua strips at the top — refers to the interest payments the government will have to pay because it will need to borrow more money to account for the greater budget shortfall caused by continuing these tax and Medicare policies.

Article source: http://feeds.nytimes.com/click.phdo?i=d2249ad9f5fd8ff965d47ba30c321291