March 29, 2024

Markets Lose Steam as Support Rises for Attack on Syria

Stocks on Wall Street advanced on Tuesday after President Obama decided to seek Congressional authorization before taking military action against Syria, a move that was likely to delay any strike for at least several days.

Indexes pared initial gains, and the Dow Jones industrial average slilpped into negative territory, however, after comments from several Congressional leaders indicated support for Mr. Obama.

In afternoon trading, the Standard Poor’s 500-stock index was up 0.2 percent, the Dow was off 0.1 percent and the Nasdaq composite was 0.5 percent higher.

Mr. Obama, during a meeting with Congressional leaders at the White House, called for a prompt vote on Capitol Hill and reiterated that the United States plan would be limited in scope and not repeat the country’s long wars in Iraq and Afghanistan.

Both John A. Boehner, the Republican speaker of the House, and Eric Cantor, the House Republican majority leader, said they would support the plan, and Mr. Boehner urged his colleagues in Congress to do the same. Nancy Pelosi, Democratic leader in the House, said she believed Congress would support a resolution authorizing the use of military force against Syria.

“It’s going to go up and down based on the expectations of when it is going to happen, but something is going to happen,” said Uri Landesman, President at Platinum Partners in New York. “You will see it trade down into the speculation and then once it actually happens, assuming it’s not too big, you’ll see a rally. Sell into the news, buy on the news, essentially.”

Equities have been pressured by the prospect of a Western strike against Syria after a chemical weapons attack killed hundreds of civilians. The geopolitical uncertainty contributed to steep losses in August, which was the worst month for the S. P. 500 since May 2012.

Verizon Communications agreed on Monday to pay $130 billion to buy the Vodafone Group’s stake in Verizon’s wireless business, bringing an end to an often tense 14-year union.

Shares of Verizon, a Dow component, fell 2.7 percent, while United States-traded shares of Vodafone lost 2.9 percent.

Also in deal news, Nokia agreed to sell its handset business to Microsoft for $7.2 billion, sending its United States-traded shares up 29 percent. Microsoft fell 6.1 percent.

Markets on Wall Street were closed on Monday for Labor Day, and recent light trading volume could continue with many traders away for the holiday.

In the S. P., investors will be watching the 100-day moving average at 1,639.42, which the index has been unable to close above since Aug. 26. Holding over that level would be a positive sign of near-term momentum.

While the uncertainty related to Syria has been the market’s primary driver in recent sessions, investors will also pay close attention to the latest economic data, which could provide some insight into when the Federal Reserve might begin to slow its monetary stimulus program.

In other company news, the CBS Corporation reached an agreement on Monday with Time Warner Cable to end a monthlong blackout of its stations in New York, Los Angeles and Dallas. Financial terms of the deal were not disclosed. Shares of both companies rose: CBS by 4 percent and Time Warner Cable by 1.6 percent.

Wall Street stocks have been coming off an extended period of weakness, with all three major indexes falling more than 1 percent last week and posting steep losses in August.

Asian markets were broadly higher, with the Nikkei index as the region’s standout performer. It surged 3 percent, to a three-week high, helped by a weaker yen, hopes of continued government stimulus and talk that Japan could win the right to host the 2020 Olympic Games.

European shares slumped by the end of the trading session, with the FTSEurofirst 300 down 0.4 percent at the bell.

American crude oil futures, down earlier in the day, rose 70 cents a barrel, to $108.35, in the afternoon. Oil had risen 2.5 percent in August, with the increase largely driven by concerns that military action in the Middle East would affect crude supplies.

Article source: http://www.nytimes.com/2013/09/04/business/daily-stock-market-activity.html?partner=rss&emc=rss

Republicans Balk at Obama’s Short-Term Stimulus

The Obama administration is arguing that the sluggish economy requires a shot in the arm, and it included tens of billions of dollars of little-noticed stimulus measures in its much-noticed proposal to Congressional leaders last week. But Republicans have countered that the country cannot afford to widen the deficit further, and have balked at including the measures in any eventual deal.

The stimulus measures in the White House’s debt proposal stem from President Obama’s long-since-scuttled American Jobs Act proposal, and include a continuation of emergency support for long-term unemployed workers, an extension of the payroll tax cut, billions in infrastructure investment and a mortgage-refinancing proposal.

“We have a very good plan, a very good mix of tax reforms” and savings, said Timothy F. Geithner, the Treasury secretary, on ABC News last weekend. “We can create some room to invest in things that make America stronger, like rebuilding America’s infrastructure.”

But in his counteroffer, made on Monday, House Speaker John A. Boehner of Ohio did not mention any such measures. Republican aides said that securing stimulus was not the main priority given concerns about the country’s fiscal state, and they appeared to be holding back on supporting any stimulus measures to bolster their bargaining position.

“The president is asking for $1.6 trillion worth of new revenue over 10 years, twice as much as he has been asking for in public,” Mr. Boehner said on “Fox News Sunday.” “He has stimulus spending in here that exceeded the amount of new cuts that he was willing to consider. It was not a serious offer.”

As the debate rages in Washington, data has shown the recovery once again sputtering, with the underlying rate of growth too slow to bring down the unemployment rate by much and some of the economic momentum gained in the fall dissipating in the winter.

The weakness comes from the manufacturing and exports slowdown, disruptions from Hurricane Sandy and sluggish underlying wage and spending growth. The storm hit the economic juggernauts of New Jersey and New York hard, pushing down work and wages. On top of that, consumers and businesses might be holding back out of concern for the tax increases and spending cuts scheduled to take place at the first of the year unless Congress and the administration come to some agreement.

In recent weeks, many forecasters have slashed their estimates of growth in the fourth quarter. Macroeconomic Advisers, for instance, estimates the economy is expanding at only a 0.8 percent annual pace, down from 2.8 percent in the third quarter.

“It’s a pretty dramatic slowdown,” said Joel Prakken, the chairman of Macroeconomic Advisers, the St. Louis-based forecasting firm. “There’s weak demand, which just does not portend well for the coming quarters,” he said.

RBC Capital Markets put the current pace of growth at just a 0.2 percent annual rate. The chance of seeing “a negative sign in front of fourth-quarter gross domestic product is nontrivial, to say the least,” Tom Porcelli, chief United States economist at RBC Capital Markets, wrote in a note to clients last week.

If Congress and the Obama administration are able to agree on a budget deal, economists expect that economic growth will pick up in 2013. Stock markets might cheer, businesses might feel more confident about hiring workers and signing contracts and investors might feel more comfortable investing if Congress struck a deal.

The turnaround in the housing market, rising auto sales and higher consumer confidence all bode well, they note. Refinancing — supported by the Federal Reserve’s effort to buy mortgage-backed securities — would also flush more money into households.

Much of the current slowdown might be a result of temporary factors that might fade away, like fluctuations in how factories stock their inventories or the lingering effects of Hurricane Sandy.

Still, recent economic data has come in surprisingly weak. On Monday, the Institute for Supply Management reported that the manufacturing sector contracted in November, with an index of purchasing activity falling to the lowest level since mid-2009.

The report said manufacturers expressed “concern over how and when the fiscal cliff issue will be resolved” as well as a slowdown in demand.

Over all, unemployment remains high, and wage growth weak. Global growth has gone through a slowdown as well. It all adds up to a United States recovery that might remain vulnerable to shocks — like the Midwestern drought that slashed agricultural production this year, or the Japanese tsunami that depressed exports in 2011, or the long-simmering European debt crisis that has spooked financial markets — for years to come.

Economists remain nervous about the combination of the already weak recovery and the prospect of the tax increases and spending cuts — with billions of dollars of fiscal contraction likely to take place even if the White House and Congress reach a deal.

“We are worried about going too fast, too quick on the cuts side,” said former Senator Pete V. Domenici, Republican of New Mexico, on Monday at a meeting with reporters at the Bipartisan Policy Center. He was presenting a plan for a deficit reduction framework along with Alice M. Rivlin, the budget director under President Bill Clinton.

Ms. Rivlin added, “We don’t need an austerity budget.” Indeed, the two budget experts proposed including a one-year income tax rebate to give the recovery some breathing room.

Article source: http://www.nytimes.com/2012/12/05/business/economy/republicans-balk-at-obamas-short-term-stimulus.html?partner=rss&emc=rss

Stock Indexes Fall on Weak Earnings Forecasts

Wal-Mart Stores, Ross Stores and Limited Brands, the owner of Victoria’s Secret, all fell after issuing forecasts that disappointed financial analysts. Wal-Mart dropped $2.59, or 3.6 percent, to $68.72.

The Dow Jones industrial average closed at 12,542.38, down 28.57 points. The Standard Poor’s 500-stock index dropped 2.16 points to 1,353.33, and the Nasdaq composite index finished 9.87 points lower at 2,836.94.

Stocks have fallen steadily since voters returned President Obama and a divided Congress to power. The Dow has lost 5 percent since Election Day, Nov. 6.

Investors are worried that government leaders may not reach a deal before tax increases and government spending cuts take effect on Jan. 1. The impact would total more than $600 billion for 2013 and could send the country back into recession.

E. William Stone, chief investment strategist at the PNC Asset Management Group in Philadelphia, said the bargaining in Washington was likely to drag on until next year, weighing on stocks. “It’s hard to see the market getting a whole ton of traction until that gets settled,” he said.

President Obama will meet with Congressional leaders on Friday to talk about the budget, but he appeared to suggest on Wednesday that he would insist on an increase in tax rates for the wealthy.

T. Dale, a portfolio manager at Security Ballew Wealth Management in Jackson, Miss., said stocks were more likely to fall than to rise, partly because of the budget impasse and slowing global economic growth.

Hurricane Sandy drove the number of people seeking unemployment benefits up to 439,000 last week, the Labor Department reported. Applications for benefits rose 78,000, with a large number of them filed in storm-damaged states.

The European Union’s statistics agency confirmed that the euro zone, the group of 17 countries that use the euro currency, was in recession. The economy in the region shrank 0.1 percent in the third quarter from the previous three-month period.

Among the retailers disappointing Wall Street with lower earnings forecasts was Ross Stores, whose stores include Ross Dress for Less. Its shares fell 69 cents, or 1.3 percent, to $54.44. Limited Brands dropped $1.10, or 2.4 percent, to $45.50.

Interest rates were steady. The Treasury’s benchmark 10-year note fell 2/32, to 100 9/32, and the yield was unchanged at 1.59 percent.

Among stocks making big moves, NetApp, a data storage business, jumped $3.08, or 11.4 percent, to $30.20 after the company reported higher earnings than analysts had expected.

Viacom, the owner of Nickelodeon, MTV and the Paramount movie and television studio, rose $1.24, or 2.6 percent, to $49.23. The media conglomerate did better than investors had expected because of lower costs and higher fees from cable and satellite companies for carrying its cable networks.

PetSmart, a specialty pet retailer, rose $2.63, or 4.1 percent, to $67.48 after raising its full-year outlook.

Target rose $1.06, or 1.7 percent, to $62.44 after reporting that its profit increased more than analysts had forecast. The company also issued a strong outlook heading into the holiday season.

Dollar Tree, a discount retailer that sells items for $1 or less, gained $1.94, or 5.1 percent, to $39.70 after the company said its net income rose 49 percent in the third quarter.

Apple’s market value fell below $500 billion for the first time since May, as its shares dropped $11.26, or 2.1 percent, to $525.62. The company’s market value rose as high as $658 billion on Sept. 19, according to FactSet, a research firm.

Article source: http://www.nytimes.com/2012/11/16/business/daily-stock-market-activity.html?partner=rss&emc=rss

Anger Over Credit Rating Resurfaces in Washington

The frustration in the air was palpable. Officials from the credit ratings agency Standard Poor’s were meeting with Congressional leaders on a stifling late day in late July to discuss the thorniest issue in Washington: the effort to cut the nation’s deficit and raise the borrowing limit to avert a default.

S. P. and two financial industry groups listened to various proposals for debt reduction and warned the lawmakers of the impact a default would have on world markets, according to a Congressional staff member in attendance. The staff member said the agency was providing guidance on what target to hit in budget savings, but lawmakers struggled to understand the agency’s views.  

Since that meeting, several lawmakers have publicly questioned whether the ratings agencies have the competence to evaluate the country’s finances, and whether it was appropriate for them to be so deeply involved in discussions of fiscal politics. The criticism reached a fevered pitch after S. P. announced Friday night that it was downgrading America’s credit rating, a decision that thrust the ratings agencies to the center of the debate over the government’s budget, and prompted renewed scrutiny of an industry that has been harshly criticized since the financial crisis.

The ratings agencies’ purview is traditionally viewed as evaluating data and revenue projections for debt issuers, but they have long taken governance into account for ratings of sovereign nations and corporations. In its announcement Friday night, S. P. cited the political gridlock in Washington during the debt limit debate as a main reason for its decision. “The gulf between the political parties,” S. P. said, had reduced its confidence in the government’s ability to manage its finances.

In an interview Saturday, David Beers, the global head of sovereign ratings for the agency, said “we have to look at the process under which government policy is made.”

But some politicians questioned whether governance issues should play such a large role in the country’s debt rating.

Randy Neugebauer, a Texas Republican who heads the House Financial Services’ Subcommittee on Oversight and Investigations, said it was appropriate for S. P. to consider the political situation in its analysis. But he said that it was speculative for the agency to use predictions of what Congress would do in the future as a rationale for a downgrade.

“One thing that puts them out in uncharted waters is trying to predict what the political environment is going to be,” Mr. Neugebauer said in an interview.  “They’re not predicting an overly cooperative environment in Congress and that’s a very subjective call.” 

The tension between Congress and the ratings agencies could have tangible results on the companies’ futures if it speeds up new rules that lessen their roles in the market. As part of the financial reform bill passed last summer, regulators are supposed to write rules designed to reduce the heavy reliance on credit ratings by banks and other buyers of debt securities, a policy that has its roots in the 1930s.

Federal bank regulators have not yet created these rules and a Congressional committee held a hearing on July 27 on the slow pace of regulators’ implementation of this part of the law. Fierce debate broke out at the hearing about whether it was appropriate for the ratings agencies — companies regulated by the federal government — to be rating United States debt at all.

The pushback against S. P. echoes the complaints of other governments that have had their debt downgraded and responded with cries of unfairness.

Much of the enmity dates to the financial crisis. All three ratings agencies failed to see the credit crisis coming, and for years they bestowed AAA ratings on bundles of mortgage bonds, even though many of the loans inside those securities were highly questionable. Scores of investors purchased the securities based on the positive ratings; when the mortgages inside those deals went south, investors lost billions of dollars, kicking off the panic that drove the financial crisis.

Nelson Schwartz contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=17b186c089c24982100e0a814a8c68a9

Reid Says Deal Has Been Reached to Reopen F.A.A.

The agreement signals an end, at least for a few weeks, to an impasse over policy issues that had left 4,000 agency employees out of work, idled tens of thousands of workers at hundreds of airport construction projects around the country and cost the federal government more than $300 million in lost taxes on airline tickets.

Congressional officials said the deal arranges rubber-stamp passage by the Senate, meeting on Friday under unanimous consent so that only a few members need attend, of a bill that was approved by the House last month. The House bill extends the aviation agency’s operations, but only through Sept. 16.

“This agreement does not resolve the important differences that still remain,” Mr. Reid said in a statement. “But I believe we should keep Americans working while Congress settles its differences, and this agreement will do exactly that.”

Senate Democrats previously refused to pass the House bill because it contained cuts in the Essential Air Service, a subsidy program that helps to pay for commercial airline service to rural airports.

The breakthrough came on Thursday when the transportation secretary, Ray LaHood, told Congressional leaders that he has the authority to issue waivers for the communities affected by the cuts in rural air service contained in the House bill.

Congressional officials said Mr. LaHood had indicated that he would review the affected rural communities for waivers that would postpone the cuts, but said he had not promised any specific action.

In a statement, Mr. LaHood said: “This is a tremendous victory for American workers everywhere. From construction workers to our F.A.A. employees, they will have the security of knowing they are going to go back to work and get a paycheck — and that’s what we’ve been fighting for. We have the best aviation system in the world, and we intend to keep it that way.”

The agreement does not address differences over labor issues that Senate Democrats said were the real reason that Republicans were trying to press for changes to transportation law in long-term F.A.A. reauthorization.

Article source: http://feeds.nytimes.com/click.phdo?i=ce8cbbfff5108a0c92d02b18cf51d2a7

Bucks: Most Students Spared Big Cuts in Bill

It could have been worse.

Just a few days ago, it looked as if any bill to raise the debt ceiling would get rid of subsidized federal student loans. This is the feature that allows undergraduates and graduate students who qualify to pay no interest on their student loans while they are still enrolled more than half-time in their studies.

The undergraduates were spared in the package worked out by the White House and Congressional leaders. But graduate students would no longer have access to the subsidy. See the last couple of pages of the debt ceiling agreement for the official language.

Also, people with federal student loans would no longer receive the incentive bonuses that some now get for making on-time payments. (The 0.25 percent interest rate reduction for paying through direct debit from a banking account would remain, though.)

Both changes are set to begin July 1, 2012, according to Mark Kantrowitz, publisher of the financial aid Web site finaid.org.

The upside here, and it’s a big one, according to the Institute for College Access and Success, is that the $22 billion in savings from these two changes help the Pell Grant program survive without any cuts for now.

If you are a student, or a parent of a student, tell us below how these changes could affect you.

Article source: http://feeds.nytimes.com/click.phdo?i=09211811efe8bacc23e3c7d57aabd123

Boehner and Obama Close to Deal, Leaders Are Told

With the government staring at a potential default in less than two weeks, the officials said the administration on Wednesday night notified top members of Congress that an agreement between the president and Mr. Boehner could be imminent. The Congressional leaders, whose help Mr. Obama would need to bring a compromise forward, were told that the new revenue tied to the looming agreement to increase the debt limit by Aug. 2 would be produced in 2012 through a tax code rewrite that would lower individual and corporate rates, close loopholes, end tax breaks and make other adjustments to produce revenue gains.

Officials knowledgeable about the conversations between the administration and Congressional leaders said the details of the potential package remained unknown but they presumed it would include cuts and adjustments in most federal programs, including Medicare.

However, officials on all sides of the tense negotiations warned that no firm deal was in hand yet, and tried to play down the progress — if only to stave off attempts to block it or influence its shape by hardliners on both sides of the debate on taxes and spending.

“While we are keeping the lines of communication open, there is no ‘deal’ and no progress to report,” said Kevin Smith, a spokesman for Mr. Boehner.

The White House denied that any deal is imminent. Jay Carney, the White House press secretary, said that “there is no deal. We are not close to a deal.”

The same fiscal and political issues that stymied earlier negotiations between Mr. Obama and Mr. Boehner remain, including how much a deal would raise in new revenues over all. Democratic and Republican leaders in both chambers were resistant to an Obama-Boehner deal for separate political reasons — the Republicans because of party opposition to new taxes and Democrats because many want to campaign in 2012 against Republicans’ proposed deep cuts in Medicare and Medicaid and a compromise, they believe, would make that harder.

An agreement along the lines of the one being discussed would likely rile Democrats, who could view it as more tilted toward Republican priorities than a bipartisan plan issued by the so-called Gang of Six senators this week; its prospects with conservative House Republicans were uncertain as well. Though it would initially appear to meet Republican demands for less reliance on new revenues as part of what Democrats have called a “balanced” approach, Republicans could be uneasy about accepting a plan tied to a higher future revenues through tax changes.

“The trick on this has always been the tax issue,” one Republican said.

While no meetings at the White House were scheduled, aides expected the president and the speaker to begin to inform other lawmakers of the framework they were discussing as they continued to try to strike a major deficit reduction agreement and avoid a federal default.

Other alternative solutions in Congress appeared to be faltering as the Senate on Thursday took up and prepared to defeat a conservative House Republican plan to cut spending and a backup plan being prepared in the Senate was meeting stiff resistance from the House.

The Senate majority leader, Harry Reid, began the morning on the Senate floor Thursday by ridiculing the House for taking the weekend off, as the Senate prepares for a weekend of work, including a vote on the deficit-reduction plan passed this week across the Rotunda. House members had been told earlier in the week to plan for a potential weekend stay in the capital, but their majority Leader, Eric Cantor, said Wednesday night that was not happening.

The return of House members to their home states is “just untoward,” Mr. Reid said, “and that’s the kindest words I can say. For the House of Representatives to be out this weekend, what a bad picture that shows the country.”

 As President Obama and Congressional leaders continued to scramble to put together some form of broad deficit-reduction plan that would allow the nation’s debt ceiling to be lifted next month, the Senate began to debate the House bill, known as Cut Cap and Balance, in preparation for a vote on Saturday.

Over the weekend, that chamber is also expected to move toward a vote on a plan proposed by Senator Mitch McConnell of Kentucky that would allow the president to lift the debt ceiling without the members of Congress officially concurring with the move. That measure could be voted on early next week.

 “The House has passed the Cut, Cap and Balance plan with bipartisan support,” Mr. Smith said. “We’re waiting for the Senate, which is run by Senator Reid, to act on it.” (It is a sign of the times on the Hill these days that five Democrats joining 229 Republicans to pass legislation, counts as “bipartisan support.”)

That House bill, which, among other measures, would require a balanced-budget amendment to the Constitution be sent to the states before the debt limit can go up, “doesn’t have one chance in a million of passing the Senate,” Mr. Reid, of Nevada, said.

Senator Kent Conrad, a Democrat from North Dakota, who served on Mr. Obama’s fiscal commission, was first out of the box, calling the bill on the floor “some of the most ill considered legislation that I’ve ever seen come over from the other body,” and “super partisan,” and “truly radical.”

Senator Kay Bailey Hutchison, a Republican of Texas, came second, countering that the House legislation was a “good start.”

As the capital markets continued to assess the possibility of American default on its debt, R. Bruce Josten, the executive vice president for government affairs the United States Chamber of Commerce, wrote a blog post warning that such a potential default “has real, immediate, and potentially catastrophic consequences.”

Warning of the possibility of heightened interest rates, and blaming no party, Mr. Josten wrote, “Now, makes no mistake; too much spending and the need for real entitlement reform has led to the debt crisis we’re in today. But jeopardizing our country’s credit rating and fiscal security by refusing to compromise isn’t the answer.”

At a news conference Thursday morning, Mr. Boehner said that the ball was now in Mr. Obama’s court, “”and has been there for some time.”

Article source: http://feeds.nytimes.com/click.phdo?i=9969d92843a58567cd77dff03f05ec5f

Obama Signals Openness to Short-Term Debt Extension

WASHINGTON (AP) — Running out of time, President Barack Obama called Democratic and Republican leaders back to the White House on Wednesday for separate, bottom-line negotiations on how to prevent a disastrous government default — and perhaps cut staggering federal deficits as well.

The talks center on a single but complex question: What will it take to muster enough votes from both parties to muscle legislation through the House and Senate and raise the national debt limit by the Aug. 2 deadline. Obama was meeting first at the White House with the top four Democrats in the House and Senate, then with House Speaker John Boehner and his deputy, Eric Cantor.

Intensity was rising as the country lurched toward an unprecedented default. Congressional leaders say they want to prevent that, but they are far from agreed on how.

The government will exhaust its ability to borrow money and pay its bills come Aug. 2, and economists say that could sink the country back into recession. All sides are also pushing competing plans to cut the nation’s deficit in tandem with the politically unpopular step of raising the debt limit, although deep divisions remain over tax hikes and entitlement cuts that could be part of the attack on future deficits.

In a sign of the closing window for action, the White House said for the first time that Obama would accept a short-term extension of the debt limit, but only if a broader deal was already in place and required more time — perhaps a few days — to get through Congress. Obama had previously threatened to veto any stopgap measure.

“There is still time to do something significant if all parties are willing to compromise,” Obama spokesman Jay Carney urged.

Realistically, Congress probably must come to terms with the White House on a deal this week.

The Obama administration and Congress are also working on a backup plan to increase the debt limit if no big plan can be reached. It would allow Obama to raise the ceiling on his own unless overridden by Congress. Yet many House Republicans loathe that idea and have pledged to vote against it, raising doubts about how tenable even the fallback choice is.

That plan is the result of work by the Democratic and Republican leaders of the Senate, Harry Reid of Nevada and Mitch McConnell of Kentucky.

Obama is trying to seize on momentum from a proposal from a bipartisan “Gang of Six” senators that would cut the deficit by almost $4 trillion but lacks many specifics.

The separate nature of Obama’s negotiations Wednesday underscored his need to get a bottom line from both his own party and the leaders of the Republican-run House.

He keeps pushing for a mixed approach of higher taxes on the wealthy and spending cuts that would be spread across the government.

His challenge with fellow Democrats is to persuade them to accept changes to the popular entitlement programs of Medicare and Social Security. House Minority Leader Nancy Pelosi has said simply, “We do not support cuts in benefits for Social Security and Medicare.”

With Republicans, Obama is slamming into opposition from conservatives who refuse to consider tax increases.

“We need to meet, talk, consult and narrow down in fairly short order what train we’re riding into the station,” Carney said ahead of the meetings.

The plan by the Gang of Six is probably far too complicated and contentious to win passage before the Aug. 2 deadline. But the plan’s authors hope it could serve as a template for a “grand bargain” later in the year that could erase perhaps $4 trillion from the deficit over the coming decade.

Even among Democrats, Rep. Chris Van Hollen, senior Democrat on the House Budget Committee, said lawmakers had too few details about the Gang of Six plan.

Pelosi, the top Democrat in the House, reacted positively Wednesday to the new plan, saying it “has some good principles in it.”

However, Republican Rep. Howard “Buck” McKeon of California, chairman of the Armed Services Committee, blasted the plan in a missive to his panel members, saying it would cut the Pentagon much too deeply and would unfairly curb military health and retirement benefits.

On the Senate floor Wednesday morning, Democratic leader Reid said he was confident Obama and congressional negotiators could avoid a government default, but he also said the Senate still needed to hear from the House.

“We have a plan to go forward over here so I await word from the speaker,” said the Nevada lawmaker. He was referring to the plan he’s working on with GOP leader McConnell to give Obama new powers to obtain an increase in the borrowing cap unless overridden by Congress.

In the House, majority Republicans won a 234-190 vote Tuesday on a “cut, cap and balance” plan conditioning any increase in the government’s borrowing authority on congressional passage of a balanced budget constitutional amendment and a fresh wave of spending cuts. That reflected the strength of tea party forces elected in last year’s midterm election. GOP conservatives reveled in their victory, but it was temporary. That plan faces a White House veto threat and is a dead letter in the Senate anyway.

The Gang of Six plan, meanwhile, promises almost $4 trillion in deficit cuts, including an immediate 10-year, $500 billion down payment that would come as Congress sets caps on the agency budgets it passes each year. It also requires an additional $500 billion in cost curbs on federal health care programs, cuts to federal employee pensions, curbs in the growth of military health care and retirement costs and modest cuts to farm subsidies.

___

Associated Press writers David Espo, Andrew Taylor, Erica Werner, Jim Kuhnhenn and Julie Pace contributed to this report.

Article source: http://feeds.nytimes.com/click.phdo?i=9716b2f95992a9789bfd396ad7189f9e

Economic Scene: Cutting the Deficit, Adding Jobs

When Joe Biden convened debt ceiling negotiations with Congressional leaders on May 5, the experts were saying that the economy was on an upswing. They’re not saying that anymore.

Consumer spending has weakened. Hiring has slowed. Stocks have slid. As tends to be the case in the long aftermath of a financial crisis, the economy once again needs help.

And the debt talks have become the best opportunity for Washington to provide that help.

Doing so will require some political maturity, because the negotiators will have to hold on to two thoughts simultaneously. They will need to increase the deficit in some modest, targeted ways that could increase hiring, like tax cuts for businesses and spending on scientific research. At the same time, negotiators will have to find enough medium-term spending cuts and tax increases to bring down the deficit soon.

Economically, this mix is not all that complicated. Ben Bernanke, the Federal Reserve chairman, has called for a version of it, in his own cautious way. Coming up with a plan to reduce the deficit was urgent, he said, but making cuts now “could be self-defeating if it were to undercut the still-fragile recovery.”

Politically, the mix is clearly trickier. Yet both parties have reason to compromise. Democrats are worried — or at least they should be, deeply — that the weak economy will cost them the White House and Senate next year.

Republicans are worried that their plan to replace Medicare with a system of private insurance will let Democrats win even if the economy remains weak. A deal that commits both parties to further cuts in Medicare’s growth while also helping the economy seems to have a chance of passing.

For the economy’s sake, the best such deal would include two kinds of help. The first would be immediate: further tax cuts for households and businesses, as well as an extension of jobless benefits. On Tuesday, the White House signaled that it was open to new cuts in the payroll tax. These moves could help lift spending and re-establish the confidence that the economy would indeed recover, as it always has before.

The second kind of help might be even more important: policies that would eventually shift the country away from its debt-fueled reliance on consumption and toward more investment, production and high-end service industries.

I understand that some of these steps, especially in the first category, smack of stimulus. Many people are understandably skeptical of stimulus, given that the economy remains in bad shape despite everything the government has tried over the last four years.

But the earlier stimulus made a big difference, even if it couldn’t erase the impact of the worst financial crisis in decades. The tax rebates signed by President George W. Bush and President Obama both lifted spending. So did the cash-for-clunkers vehicle rebate program. The billions of dollars of state aid prevented layoffs of teachers, police officers and sanitation workers.

It is no coincidence that this downturn has been far less severe than the Great Depression, even though the initial deterioration this time was worse. It’s no coincidence that the only quarter of economic growth in 2008 was the quarter when the Bush rebate checks went out. It’s no coincidence that the economy’s most rapid improvement and fastest growth under Mr. Obama came as his stimulus plan and the Fed’s actions were peaking.

A new plan — sure to be called a jobs plan, not a stimulus — would start by extending the payroll tax cut for households through the end of next year.

Late last year, Congress and the White House extended the Bush income tax cuts through the end of 2012 but cut the payroll tax only through 2011. This makes little sense, substantively. The payroll tax (which finances Social Security and Medicare) has become the main tax that most middle- and lower-income households pay, according to the Tax Policy Center. So cutting the payroll tax delivers more economic bang than the Bush tax cuts, at a far lower cost to the deficit.

Absent an extension, almost everybody’s taxes will rise on Jan. 1. “When the economy is not doing well,” says Ike Brannon of the conservative American Action Forum, “you hate to see any tax increase.”

Employers also pay a portion of the payroll tax, and several people — including Lawrence Summers and the members of the Bipartisan Policy Center’s debt panel — have called for the employer portion to be cut, too. That would certainly help. But I think the strongest argument is for a targeted cut.

Any business that increased its net employment could be exempted from payroll taxes on new workers for a few years, creating a big incentive to hire instead of, say, buying new machines. The exemption could be retroactive to June 1, so that companies would not wait to hire until after the bill passed.

Corporate lobbyists defeated this idea last time — because executives wanted federal money even if they were not hiring — but that’s just self-interest.

And what about policies to begin restructuring the economy?

Economists can give you a long list. High-skill immigrants, often the entrepreneurs of tomorrow, could be encouraged to stay here, rather than shown the door. The permit process for businesses could become simpler, as executives urged Mr. Obama in North Carolina on Monday. Perhaps most important, Washington could make more high-return investments in science and education.

Only the federal government can afford the large-scale basic science that has often led to breakthrough innovations, like the semiconductor, the Internet and many new drugs. Yet federal spending on basic research, as a share of the economy, has fallen 5 percent in the last five years. Talk about a self-defeating cut.

All told, a growth agenda like this one would cost a few hundred billion dollars over the next couple of years. It’s small change relative to any number of ways to reduce the deficit: squeezing wasteful Medicare and military spending, reforming the Social Security disability program, forcing social programs to become more accountable for results, closing corporate tax loopholes, returning tax rates on the rich to Clinton-era levels.

Obviously, any package that survives the debt ceiling talks will not be the ideal one. But there is a whole lot of room between neutral and ideal. Washington really can put people back to work while cutting the deficit. And, of course, moving people back into paying jobs will ultimately help reduce the deficit, too.

E-mail: leonhardt@nytimes.com; twitter.com/DLeonhardt

Article source: http://feeds.nytimes.com/click.phdo?i=1dfba2ac92205c2157cc5bbbff623b8b

Parties Seeking to Blame Each Other’s Policies for Gas Prices

President Obama touched off the latest flurry with a letter to Congressional leaders last week calling for the repeal of $4 billion a year in tax incentives for domestic oil and gas production, saying the industry was doing very well, thank you, and needed no help from the government. Republicans responded that the president’s proposal would only raise the cost of production and the price of gasoline, which now tops $4 a gallon in many parts of the country.

Both parties are planning legislative maneuvers this week to try to caricature their opponents as either in the pockets of the oil companies or hostile to domestic energy production.

The debate may generate a fair amount of noise that provides one side or the other with a temporary political advantage but is unlikely in the end to have an appreciable impact on gasoline prices.

“Every time Americans have to shell out $60 or $80 to fill their tanks, they mutter under their breaths about government and it puts pressure on Congress and the White House to do something,” said Byron L. Dorgan, the former Democratic senator from North Dakota who is now co-chairman of an energy project at the Bipartisan Policy Center in Washington. “But it’s just howling at the moon. The basic laws of supply and demand haven’t changed.”

House Speaker John Boehner unwittingly gave the Democrats a political opening to pile on the oil companies by saying in an interview with ABC News last week that oil companies should “pay their fair share in taxes” and that Congress ought to reconsider some of the tax incentives they enjoy. He has since walked away from those remarks and said that raising any taxes would choke off the economic recovery and lead to higher prices of gasoline and other goods.

His comments came as lawmakers from both parties were home on recess, hearing a torrent of constituent complaints about the high cost of gasoline at the same time major oil companies were reporting near-record quarterly profits. Exxon Mobil, the world’s largest oil company, said it earned $10.7 billion in the first three months of the year, and other companies reported similarly robust earnings.

Mr. Obama seized on the opportunity to try to deflect some of the heat he has been feeling as gas prices have steadily climbed. He noted wryly at a political fund-raiser last weekend that his poll numbers tend to go up and down with pump prices, even as he admitted he had no “silver bullet” to bring those prices down in the short term. But he found ammunition in the tax breaks the oil industry has enjoyed for decades, portraying the industry as undeserving of them at a time when government needs all the revenue it can get.

“As we work together to reduce our deficits,” Mr. Obama said in a letter to Congressional leaders last week, “we simply can’t afford these wasteful subsidies.” Mr. Obama says the money saved should be used to finance more research into clean energy alternatives — a proposal he has made in his last two budget requests that has largely been ignored.

“The odds are low that the tax repeal goes through as a stand-alone measure, but you might see it as part of a broader deal,” said Michael A. Levi, an energy and environment specialist at the Council on Foreign Relations. He said it was in Mr. Obama’s interest to keep the issue alive both to align Republicans with the unpopular oil companies and to use as leverage as new budget negotiations begin.

Harry Reid, the Senate Democratic leader, said he would press for a vote as early as next week on repealing the tax subsidies. Democrats hope to paint Republicans who vote against the plan as tools of the industry.

“Now is not the time to stand idly by while large oil and gas companies get billions of dollars in tax breaks,” said Senator Max Baucus, Democrat of Montana and chairman of the finance committee. “Now is the time to take concrete steps toward cleaner, more affordable, domestically produced energy.”

The measure could well pass in the Democratic Senate, although some Democrats from oil-producing states, like Mary Landrieu of Louisiana and Mark Begich of Alaska, are likely to oppose it.

But it has little chance of even coming to a vote in the Republican-run House, where Speaker Boehner is orchestrating a fresh chorus of “drill, baby, drill” with a series of votes on bills to allow new oil and gas exploration in the Gulf of Mexico and off the coast of Virginia.

“Our goal is to expand the supply of American energy to lower gas prices and create jobs,” said Michael Steel, spokesman for Mr. Boehner. “Raising taxes would have the opposite effect.”

Neither the Senate tax measure nor the House drilling bills is likely to become law because of the fierce partisan calculus of the current Congress. But some Republicans, including Representative Paul Ryan of Wisconsin, the party’s leader on budget matters, have left open the door for rethinking a range of government tax breaks as part of an agreement on the federal budget and deficit ceiling.

Some conservatives oppose energy subsidies of all sorts — including those for ethanol, wind, nuclear and solar power — and would be willing to see them all repealed as part of a reform of the business tax code.

Oil industry tax breaks — some of them dating back a century — have been debated for years but have survived every elimination attempt. According to a breakdown by the nonpartisan Joint Committee on Taxation, oil companies receive about $4 billion a year in federal subsidies and can avail themselves of tax breaks at virtually every stage of the prospecting and drilling process.

One lingering provision from the Tariff Act of 1913 — enacted to encourage exploration at a time when drilling often led to dry holes — allows many small and midsize oil companies to claim deductions for tapped oil fields far beyond the amount the companies actually paid for them.

Another subsidy, devised by the State Department in the 1950s, allows U.S.-based oil companies to reclassify the royalties they are charged by foreign governments as taxes — which can be deducted dollar-for-dollar from their domestic tax bill. That provision alone will cost the federal government $8.2 billion over the next decade, according to the Treasury department.

David Kocieniewski contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=ac7511272d34162af1fd0fb7bcaf1a1a