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Ex-White House Aide to Be Economic Adviser

September 13, 2013 by

The shift, which was confirmed by several administration officials and will be announced on Friday, does not portend change in the president’s economic agenda. But with Mr. Sperling’s exit on Jan. 1 after nearly three years in the White House and two at the Treasury Department, Mr. Obama will lose an adviser who has been known as a perpetual motion machine for progressive domestic policy ideas since the Clinton administration.

As director of the White House National Economic Council — an office that President Bill Clinton created and President George W. Bush retained — Mr. Sperling provided briefings to the president and oversaw the development of economic policies on domestic programs, taxes, and trade with other departments and agencies. He is best known for his work on Mr. Obama’s job-creation initiatives and tax cuts for lower- and middle-income Americans and for small businesses. His nickname in the West Wing was Small Business.

“It’s in no small part due to Gene’s efforts that tax credits for low-income working families now lift more children out of poverty than any other program or policy,” said Robert Greenstein, president of the liberal Center on Budget and Policy Priorities.

If Hillary Rodham Clinton runs for president in 2016, Mr. Sperling, 54, is expected to join her team, a quarter-century after he played a prominent role in her husband’s first presidential campaign.

“There’s probably no one in the country who’s better than Gene Sperling at developing policy and presenting it in a way that is easily understood. He sits at the nexus of policy, politics and communications probably as well as anyone,” said Dan Pfeiffer, Mr. Obama’s senior strategist. “When Gene gets a project, there is no force that can stop him from executing it. He will work all night, call anyone, convene a thousand meetings in order to get it done.”

Mr. Zients, 46, had no government experience when he joined the administration in June 2009 as the deputy director for management at the Office of Management and Budget. He had made his fortune as an executive at corporate management and media companies and at his own private equity firm, Portfolio Logic, and was chosen by the president for his expertise in business and management efficiencies.

He was easily confirmed by the Senate and designated by the president as the government’s “chief performance officer,” a job that Mr. Obama proposed in his presidential campaign. Mr. Zients identified ways to cut federal costs through eliminating, reorganizing or consolidating agencies and introducing more efficient ways of operating.

Mr. Zients quickly impressed Mr. Obama and was long rumored for promotion. But he alienated Senator Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee and was opposed to Mr. Zients’s recommendations that would have removed government functions from the committee’s jurisdiction. That breach has complicated Mr. Zients’s advancement.

He has twice been acting director of the budget office when the top job was open. The first time, in 2010, Mr. Zients was deemed by the White House to have too little budget experience to succeed Peter R. Orszag, and the job went to Jacob J. Lew.

Mr. Zients again became acting director when Mr. Lew, who is now Treasury secretary, left in early 2012 to become White House chief of staff. Mr. Zients was acting director for all of 2012 because the White House did not want to risk a confirmation fight in an election year.

After his re-election, the president was under fire for having too few female advisers, For budget director, he turned to Sylvia Mathews Burwell, who was known among senior Obama officials for her work at the National Economic Council, the Treasury Department and the budget office in the Clinton administration.

When Mr. Obama announced her nomination in March at the White House, with Mr. Zients looking on, the president hinted that Mr. Zients might soon rejoin in the administration. “There’s no question that Jeff’s skill and versatility have served the American people very well,” Mr. Obama said, adding, “I expect it will continue to serve us well in the future.”

The president considered Mr. Zients for United States trade representative, but he would have to be vetted by Mr. Baucus’s committee. The job went to Michael B. Froman, one of Mr. Obama’s close advisers at the White House.

Mr. Zients was also considered for commerce secretary, though Mr. Obama’s favorite candidate was a longtime financial supporter from Chicago, the businesswoman Penny Pritzker, who now holds the post. The new opening for Mr. Zients became available when Mr. Sperling told Mr. Obama months ago that he would be leaving after 2013. The director of the National Economic Council does not have to be confirmed by the Senate.

Mr. Sperling said that he was leaving for personal reasons. He has been commuting in recent months to Los Angeles, where his wife, Allison Abner, a scriptwriter and producer, moved with their son and daughter to help develop a new Fox television show. The two met in 2001 when Ms. Abner was a writer on “The West Wing” and Mr. Sperling, after eight years in the Clinton White House, was a consultant.

He said he will not look for a private sector job until he leaves the White House, but did not rule out working in Washington if he had more flexibility to be with his family. Mr. Sperling will be among those advising the president this fall in the fights with Congressional Republicans over spending and the debt limit. And with Republicans blocking much of Mr. Obama’s legislative agenda, Mr. Sperling will continue looking for ways that the president can use existing programs and executive actions to spur the economy, especially manufacturing. A current focus for Mr. Sperling, a native of Ann Arbor, Mich., is to steer federal assistance to a bankrupt Detroit.

Article source: http://www.nytimes.com/2013/09/13/us/politics/ex-white-house-aide-to-be-economic-adviser.html?partner=rss&emc=rss

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Listening Post: After Congress’s Pinch, Envoys Say, U.S. Trade Suffers for Want of Jet Fare

August 5, 2013 by

Cutting the overseas travel budget of a few dozen trade negotiators hardly seems a comparable threat to America’s national security. Yet it could have as large a ripple effect on the nation’s global competitiveness as the budget cuts squeezing the Pentagon under the austerity program known as sequestration.

The Office of the United States Trade Representative has been waging a lonely battle for its budget, which shrank 7 percent to $47 million this year because of sequestration spending caps. Officials in the office, pointing to the 2014 budget proposal in the Republican-controlled House, fear that they could end up with even less money next year.

This matters, officials say, because trade negotiators fly hundreds of thousands of miles just doing their jobs. Since the trade representative’s office spends the bulk of its budget — $46 million — on fixed costs like salaries, benefits and office supplies, a cut of $5 million or $8 million could effectively ground much of its 250-person work force.

“We are in a situation where we’ve having to choose: Can we send people to a negotiation? Can we bring this enforcement case or another?” the newly appointed trade representative, Michael Froman, said in a recent panel discussion with the president of the U.S. Chamber of Commerce, Thomas J. Donohue.

When Mr. Froman described his operation as nimble, lean and agile, Mr. Donohue helpfully added “poor.”

The office’s financial woes have become a minor scandal in trade circles. Susan C. Schwab, a former trade representative in the George W. Bush administration, noted that even in the best of times, life at the office is not glamorous. Negotiators typically squeeze into economy-class seats for 15-hour flights to Asia, after which they plunge into round-the-clock talks on complex issues.

“All of this is under severe threat by virtue of $5 million, $8 million, $10 million,” Ms. Schwab said. “That’s a real travesty.”

At the beginning of the Obama administration, clipping the wings of the trade representative would not have mattered that much. President Obama’s trade policy initially consisted of rewriting parts of free-trade agreements with Colombia, Panama and South Korea that the Bush administration had negotiated, and then shepherding the agreements through Congress.

In the last two years, though, the administration has embarked on a genuinely ambitious agenda. The United States is deep in negotiations with 12 Pacific Rim countries on a free-trade agreement known as the Trans-Pacific Partnership. And it has begun what are likely to be multiyear talks on a free-trade pact with the European Union.

Mr. Froman is also pursuing trade-promotion efforts in Africa and a wide-ranging enforcement agenda, which includes exploring trade cases against China and other countries, monitoring new bilateral free-trade agreements and compiling a report on 41 countries accused of violating the intellectual property rights of the United States.

With the pressure on travel budgets, Mr. Froman said, he had money to send an official to only one of the 41 countries cited in that annual report, Ukraine. His colleagues like to point out that countries that the United States accuses of violating its rights generally do not put their officials on flights to Washington to explain their behavior.

As anyone who has watched the ritual of the Doha Round of talks between World Trade Organization members can attest, international trade negotiations are grinding, labor-intensive ordeals, requiring teams of lawyers and other specialists who camp out in hotels in foreign capitals for months. Breakthroughs, when they come, are often reached away from the bargaining table.

When the White House was renegotiating a provision of the South Korean free-trade agreement pertaining to market access in South Korea for American cars, Mr. Froman, then the deputy national security adviser for international economic affairs, and South Korea’s trade minister, Kim Jong-hoon, left the hotel for a stroll around a lake.

Their walk produced a critical advance in the negotiations — a fortuitous moment that generally does not happen when negotiators are squinting at fuzzy images of one another on video conference calls.

Given the high priority of the Pacific and European trade negotiations, the Office of the United States Trade Representative is not about to leave either of them inadequately staffed. But to keep a full complement of negotiators on both projects, it has scaled back or canceled visits intended to encourage trade with Brazil, China, India, Russia and Turkey.

Mr. Froman has been making his sales pitch on Capitol Hill and in friendly precincts like the U.S. Chamber of Commerce. Some critics say he ought to save his strongest arguments for his bosses in the White House, who, given the modest amounts involved, could move money around to preserve the trade representative’s travel budget. (Officials say that is harder than it seems because of Congressional restrictions on the financing; the president, they note, has proposed a $56 million budget for the agency.)

“This is not a question of sequester,” Ms. Schwab said. “This is a matter of the nation’s priorities.”

Article source: http://www.nytimes.com/2013/08/06/world/tighter-travel-budget-curtails-trade-talks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Guest Workers Are at Crux of Groups’ Deal on Immigration

March 30, 2013 by Leave a Comment

The progress in the talks, which stalled late last week, had members of a bipartisan group of eight senators that has been working on an immigration bill increasingly optimistic that they would be able to introduce comprehensive legislation in the Senate when Congress returns the second week of April.

“We are very close, closer than we’ve ever been,” said Senator Charles E. Schumer, Democrat of New York and a member of the Senate group. “We are very optimistic, but there are a few issues remaining.”

The intense talks, and the willingness of the U.S. Chamber of Commerce and the A.F.L.-C.I.O. — two groups that have often found themselves deeply divided over the immigration debate — to try to hammer out an agreement, was an indication of how much the climate has changed on overhauling the nation’s immigration laws.

When President George W. Bush pushed to revamp immigration laws in 2007, the inability of business and labor to agree on a plan for temporary guest workers was among the main reasons that effort failed. But now the two groups have weathered leaks to the news media and other setbacks in a sign of how serious both Democrats and Republicans are about getting a bill on President Obama’s desk by the end of the year.

Some involved in the negotiations remained hopeful that a deal would be reached by the weekend, but the Congressional recess, along with the Good Friday observance, made it difficult to lock all the moving pieces in place, those close to the talks said. And, while the members of the bipartisan group were optimistic, aides cautioned that no deal would be final until all the senators had signed off on every piece of the legislation.

The Chamber of Commerce and the A.F.L.-C.I.O., the nation’s main federation of labor unions, have been in discussions parallel to those of the Senate group, and have already reached a tentative agreement about the size and scope of a temporary guest worker program, which would grant up to 200,000 new visas annually for low-skilled workers. The labor-business talks came close to breaking down last Friday, on the eve of a two-week Congressional recess, over the issue of what the pay levels should be for low-skilled immigrants — often employed at restaurants and hotels or on construction projects — who could be brought in when employers said they faced labor shortages.

One of the last sticking points in the business-labor negotiations has been the specific type of jobs that would be excluded from the program. The nation’s construction unions, officials in the talks said, have persuaded the negotiators to exclude certain higher-skilled jobs, including crane operators and electricians, from the guest worker program.

Eliseo Medina, the secretary-treasurer of the Service Employees International Union and one of labor’s most influential voices on immigration issues, said, “We may be very close to a point where the senators will have an announcement soon.”

The tentative agreement seems to satisfy both groups: The business community is likely to see a number of visas that it considers adequate, while the agreement on wages is likely to please labor because it is not expected to affect the labor market adversely.

“The labor movement has been united in making sure aspiring Americans get a road map to citizenship and that any future flow program doesn’t reduce wages for any local workers,” said Tom Snyder, manager of the A.F.L.-C.I.O.’s Citizenship Now campaign. “And we will succeed on both fronts because politicians have heard immigrant communities loud and clear: citizenship now.”

Still, Randy Johnson, the senior vice president for labor, immigration, and employee benefits at the Chamber of Commerce, cautioned that any official agreement would come from the bipartisan Senate group.

“We advise senators on the Hill how to write the bill, and they decide on what bill would make sound legislation,” he said.

According to participants in the conversations, after the business-labor talks came close to breaking down last week, some union officials pressed the labor negotiators to show more flexibility to avoid losing momentum over the guest worker issue. At the same time, some business leaders and Republican lawmakers pressed the Chamber to be more flexible on the guest worker issue so as not to derail the overall immigration overhaul.

Business and labor reached agreement in recent days on the contentious issue of how many guest workers would be admitted each year, several officials said. They said the number would start at 20,000 visas a year and could grow to a maximum of 200,000 annually.

“There is a formula that will allow it to grow and shrink according to economic needs,” said Tamar Jacoby, the president of ImmigrationWorks, a group that represents small businesses on immigration matters.

She said the formula agreed to was not flexible enough to meet the needs of specific industries in specific places.

The number of guest workers allowed in would increase as the nation’s unemployment rate fell and the number of job openings increased. A federal commission would also assess the need for guest workers, with an eye to shortages in specific industries and communities.

In the negotiations, business vigorously objected to labor’s push to have employers pay guest workers more than they pay local workers — an idea labor pushed to encourage employers to increase wages and to discourage them from bringing in guest workers.

To settle that dispute, officials said, the two sides agreed that guest workers would be paid the prevailing industry wage previously used in the guest worker program. These officials said that employers who faced a labor shortage even after the national guest worker quota was filled could request a “safety valve” exemption to bring in workers, but with additional administrative hurdles and at a higher wage rate than the prevailing wage.

“Business and labor leaders both agree that we need a system that responds to the needs of our economy, and we are now in a position where they’re both coming together around key reforms that will fix the broken immigration system and move our economy forward,” said John Feinblatt, the chief policy adviser to Mayor Michael R. Bloomberg of New York and the chairman of the Partnership for a New American Economy.

Article source: http://www.nytimes.com/2013/03/30/us/politics/guest-worker-program-low-skilled-immigrants.html?partner=rss&emc=rss

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Court Challenges Obama’s ‘Recess’ Appointments

January 26, 2013 by Leave a Comment

The ruling was a blow to the administration and a victory for Mr. Obama’s Republican critics — and a handful of liberal ones — who had accused him of improperly asserting that he could make the appointments under his executive powers. The administration had argued that the president could decide that senators were really on a lengthy recess even though the Senate considered itself to be meeting in “pro forma” sessions.

But the court went beyond the narrow dispute over pro forma sessions and issued a far more sweeping ruling than expected. Legal specialists said its reasoning would virtually eliminate the recess appointment power for all future presidents at a time when it has become increasingly difficult to win Senate confirmation for nominees.

“If this opinion stands, I think it will fundamentally alter the balance between the Senate and the president by limiting the president’s ability to keep offices filled,” said John P. Elwood, who handled recess appointment issues for the Justice Department during the administration of President George W. Bush. “This is certainly a red-letter day in presidential appointment power.”

The Constitution, written at a time when it could take weeks for members of Congress to get to the capital, allows presidents to fill vacancies temporarily during recesses for positions that would otherwise require Senate confirmation. In recent years, as senators have frequently balked at consenting to executive appointments, that authority has served as a safety valve for presidents of both parties.

Mr. Obama has made about 32 such appointments, including that of Richard Cordray, as director of the Consumer Financial Protection Bureau. President Bill Clinton made 139, while Mr. Bush made 171, including those of John R. Bolton as ambassador to the United Nations and two appeals court judges, William H. Pryor Jr. and Charles W. Pickering Sr.

Nearly all of those appointments would be unconstitutional under the rationale of the United States Court of Appeals for the District of Columbia Circuit. It ruled that presidents may bypass the confirmation process only during the sort of recess that occurs between formal sessions of Congress, a gap that generally arises just once a year and sometimes is skipped, rather than other breaks throughout the year. Two of the three judges on the panel also ruled that presidents may fill only vacancies that arise during that same recess.

Presidents have used recess appointments to fill vacancies that opened before a recess since the 1820s, and have made recess appointments during Senate breaks in the midst of sessions going back to 1867. But the three judges, all appointed by Republicans, said the original meaning of the words used in the Constitution clashed with subsequent historical practices.

Jay Carney, the White House press secretary, said: “The decision is novel and unprecedented. It contradicts 150 years of practice by Democratic and Republican administrations. So we respectfully but strongly disagree with the ruling.” Mr. Carney did not say whether the Justice Department would appeal it.

The ruling came in a lawsuit brought by a Pepsi-Cola bottler from Washington State that challenged a National Labor Relations Board decision against the company in a labor dispute. The bottler argued, and the court agreed, that the three Obama appointments were invalid and that the five-seat board lacked a quorum to take any action.

While the ruling’s immediate impact was to invalidate the decision in the bottler’s case, it could also paralyze the agency by raising the possibility that all the board’s decisions from the past year, involving about 300 cases, could also be challenged and nullified, as well as any future ones. The decision also casts a cloud over Mr. Cordray’s appointment.

Mark G. Pearce, the N.L.R.B.’s chairman, said the board “respectfully disagrees with today’s decision and believes that the president’s position in the matter will ultimately be upheld.” He noted that similar questions about the recess appointments had been raised in more than a dozen cases pending in other courts of appeals.

Among the decisions that could be vacated are three recent rulings in which the board has assumed a powerful role in telling companies that they cannot issue blanket prohibitions on what their employees can say on Facebook, Twitter and other social media.

Charlie Savage reported from Washington, and Steven Greenhouse from New York.

Article source: http://www.nytimes.com/2013/01/26/business/court-rejects-recess-appointments-to-labor-board.html?partner=rss&emc=rss

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Economix Blog: Four Years Later, 28,000 More Jobs

January 4, 2013 by Leave a Comment

For jobs, the past four years have been a wash.

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

The December jobs figures out today indicate that there were 725,000 more jobs in the private sector than at the end of 2008 — and 697,000 fewer government jobs. That works into a private-sector gain of 0.6 percent, and a government sector decline of 3.1 percent.

In total, the number of people with jobs is up by 28,000, or 0.02 percent.

How does that compare? It is by far the largest four-year decline in government employment since the 1944-48 term. That decline was caused by the end of World War II; this one was caused largely by budget limitations. The only other post-1948 four-year drop was during Ronald Reagan’s first term, when government employment fell 0.6 percent.

Going back to Dwight Eisenhower, there have been only two administrations that turned in a worse performance in private-sector job growth. There were small declines in Eisenhower’s first term and in George W. Bush’s first term. Mr. Bush’s second term posted a scant 1.1 percent gain in private-sector employment — a gain that was wiped out during the first two months of 2009.

Over all, Mr. Obama’s first four years narrowly — and preliminarily — escaped being the second four-year presidential term since World War II to suffer net job losses. The first was George W. Bush’s first term.

The New York Times


A note on methodology. A month from now the Bureau of Labor Statistics will announce the final benchmark revision for the 12 months through March 2012. The preliminary estimate for that revision was that the economy gained 453,000 more private-sector jobs during the period than was previously reported, and lost 67,000 more government jobs. The calculations in this post incorporate those estimates.

The December figure will of course be revised for the next two months, and then will get a final revision in February 2014. Only then will it be clear whether the past four years had a net gain or loss in jobs.

Article source: http://economix.blogs.nytimes.com/2013/01/04/four-years-later-28000-more-jobs/?partner=rss&emc=rss

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News Analysis: Middle Class Malaise Complicates Democrats’ Fiscal Stance

December 13, 2012 by Leave a Comment

Many Democrats have derided the expiring tax cuts as irresponsible since President George W. Bush signed them a decade ago. Yet the party is united in pushing to make the vast majority of them permanent, even though President Obama could ensure their expiration at year’s end with a simple veto.

That decision reflects concern over the wage and income trends of the last decade, when pay stagnated for middle-class families, net worth declined and economic mobility eroded. Democrats who generally would prefer more tax revenue to help pay the growing cost of Medicare and other programs are instead negotiating with Republicans to find a combination of spending cuts and targeted tax increases for higher incomes.

If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011.

The income and wealth trends of the last decade also create a longer-term dilemma for the party. By advocating the continuation of most of the Bush-era tax cuts, Democrats might find themselves confronting deeper-than-comfortable cuts to spending programs that aid the poor and middle class down the road.

“The goal is not just to make the tax code more progressive, but also to obtain adequate revenue to finance progressive spending programs,” said Peter Orszag, a vice chairman at Citigroup and a former White House budget director. “Making the tax code more progressive but locking into a vastly inadequate revenue base is not doing the notion of progressivity overall any favors.”

According to calculations by the independent Tax Policy Center, if Congress did nothing and all tax increases took effect at the end of the year, the hit would be broad but the brunt of it would fall on high-income households. Taxpayers in the bottom quintile of the income distribution would see a $412 bigger tax bill. For the top 0.1 percent, the average increase would be $633,946.

Only a small handful of policy voices on the left are making the case for the tax cuts to fully expire. In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it. But it is also partly because of structural changes in the economy.

“This is about math and values,” Senator Max Baucus, a Montana Democrat and the chairman of the Finance Committee, said in an e-mail. “Our first priority needs to be extending tax cuts for the middle class. At a time when we need to cut our debt and are asking everyone to chip in, we simply can’t afford to continue extending all of the tax cuts for the wealthiest Americans.”

The Congressional Budget Office has found that between 1979 and 2007, the top 1 percent of households saw their inflation-adjusted income grow 275 percent. For the bottom 20 percent, it grew just 18 percent, and federal tax and transfer programs also did less and less to reduce income inequality over that period.

The mounting concentration of wealth is even more dramatic. A recent Economic Policy Institute study found that between 1983 and 2010 about three-quarters of all new wealth accrued to the wealthiest 5 percent of households. Over the same period, the bottom 60 percent actually became poorer.

Such figures are why some Democrats argue that even if the economy were to return to Clinton-era growth rates, its poor and middle class could not stomach a return to Clinton-era tax rates, at least not yet. Moreover, it has led Democrats to expand the “middle class” to encompass the vast majority of taxpayers, with families earning as much as $300,000 a year unlikely to see their taxes go up.

“The causes of the massive rise in inequality that we’ve seen that have caused stagnation for the middle class — stagnation at best — for the past 20 or 30 years are not likely to abate,” said Alan B. Krueger, the chairman of the White House’s Council of Economic Advisers. “If they’re caused by globalization and skill-biased technological change, they’re likely to continue or accelerate.”

Last week, President Obama visited the Virginia home of Tiffany and Richard Santana, a high school teacher and an employee at a car dealership, to make the case. “They’re keeping it together, they’re working hard, they’re meeting their responsibilities,” Mr. Obama said of the Santanas. “For them to be burdened unnecessarily because Democrats and Republicans aren’t coming together to solve those problems gives you a sense of the costs on personal terms.”

Mr. Obama’s argument for raising revenue from high-income households and keeping taxes low on middle-income households long predates the recession or his time in the White House. Aides say the position stems in part from his belief that long-term economic changes have rewarded the rich and punished many others.

But limiting tax increases to just a small fraction of households might mean raising too little revenue over the long term to finance the programs that Democrats also fiercely want to preserve — Social Security, Medicaid and Medicare, education, supports for lower-income working families and infrastructure, among others, some policy experts on the left say.

“It’s perfectly reasonable for the White House to begin collecting more revenue from folks who have done by far the best in pretax terms,” said Jared Bernstein of the Center on Budget and Policy Priorities, a former economist for Vice President Joseph R. Biden Jr. “But ultimately we can’t raise the revenue we need only on the top 2 percent.”

Article source: http://www.nytimes.com/2012/12/13/us/politics/middle-class-malaise-complicates-democrats-fiscal-stance.html?partner=rss&emc=rss

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Today’s Economist: Bruce Bartlett: Our Long-Term Fiscal Future Is Better Than It Looks

November 13, 2012 by Leave a Comment

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Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

Despite Republican propaganda to the contrary, the long-term fiscal problem of the United States is principally that revenues are too low. If fixing this problem required a legislated tax increase, the nation would be in serious trouble, because Republicans will forever block it as long as they have the ability. Fortunately, they handed Barack Obama the power to permanently fix our fiscal problem if he has the courage and skill to use it.

Today’s Economist

Perspectives from expert contributors.

The core problem, from the Republicans’ point of view, is that they stupidly enacted temporary tax cuts during the George W. Bush administration. Their expiration creates a bludgeon that could eventually beat sense into them on the tax issue.

At the time the tax cuts were enacted, I recall arguing with my longtime friend Grover Norquist that temporary tax cuts were a really bad idea. Supply-side theory has always held that permanent tax changes are vastly more powerful than temporary changes, I told him. He didn’t disagree, but said the Bush tax cuts were de facto permanent because Democrats would never have the guts to permit them to expire; they would be renewed forever. People and businesses will know that, Mr. Norquist said.

That was a foolish position for political and economic reasons. People and businesses don’t make the sorts of changes in their behavior that would give the economy a supply-side boost unless they have confidence that today’s tax regime will be in place when the payoff from increased work, saving or investment is realized.

A perfect example is the research and development tax credit. Economic theory is clear that R.D. needs to be subsidized because the social benefits greatly exceed what businesses can capture from it, thus leading to less R.D. than necessary to sustain growth. For this reason, Congress created the R.D. credit in 1981.

But the credit has never been permanent. It has expired every few years and expires again at the end of this year. Academic studies show that even though it may be de facto permanent, the fact that it isn’t actually permanent in law greatly inhibits its effectiveness.

Corporations can’t risk taking it into account when calculating rates of return on planned R..D, for it might have expired when they need it down the road. The credit ends up being a bonus for what they would do anyway without the credit.

For this reason, Republicans and Democrats support making the R.D. credit permanent. Congress always refuses, because renewal of the credit is a great way to shake down corporate lobbyists for campaign contributions. The lobbyists don’t mind, because when the credit is renewed they can demonstrate that they have added to the company’s after-tax bottom line. In Washington, this is called a win-win – except for the economy, which doesn’t get the R.D. that it needs.

A key reason that the tax-rate reductions of the Bush administration failed to have any stimulative effect is because they came with expiration dates from Day 1. Republicans insisted on cutting them on a partisan basis, without negotiating with Democrats. Consequently, they lacked the votes in the Senate to overcome the so-called Byrd Rule, which limits legislation that raises the deficit to a maximum of 10 years when budget reconciliation procedures are used.

Republicans needed to use those procedures to enact their tax cuts, in order to overcome a Senate filibuster by Democrats. Permanent tax changes would have required bipartisanship, which the Republicans rejected.

In 2010, Republicans congratulated themselves that their strategy was working when they refused to negotiate with President Obama because he demanded that tax cuts for the rich be allowed to expire. Faced with an earlier “fiscal cliff” on Jan. 1, 2011, he caved to Republican intransigence and agreed to a two-year extension of all the Bush tax cuts. That extension expires at the end of this year, and President Obama has renewed his demand that taxes on the rich be allowed to rise.

Republicans like the House speaker, John Boehner of Ohio, are talking bravely about holding the line on taxes, and Mr. Boehner has dismissed the demand for higher tax rates for the rich.

But the economic and political dynamics this year are much different than they were two years ago. Then, Republicans were coming off a huge electoral victory; this year they have suffered a huge political defeat.

In December 2010, the economy was too fragile to take risks, even temporarily. President Obama had no choice but to cave. Today, the president’s hand is greatly strengthened, the economy is much stronger, and he is running out of time to get America’s fiscal house in order on his watch. Republicans are chastened by their defeat, and he will never hold a stronger hand against them than he does now. Therefore, taking the risks with the tax cuts, at least temporarily, is now a viable option.

If things go bad because of Republican inflexibility, the political dynamics change completely in January. At that point, Republicans have to accept whatever tax cut Obama is willing to support to replace the Bush tax cuts in whole or part. His veto pen would be enough to force Republicans to negotiate in good faith for a change, even if Democrats didn’t control the Senate.

Any 2013 tax cut that would offset the effect of allowing the Bush tax cuts to expire can easily be made retroactive. The Internal Revenue Service can delay changing withholding tables for average wage earners if it chooses, on the assumption that their tax cuts will be preserved under any possible compromise, thus forestalling any impact from the fiscal cliff on the vast majority of Americans.

And here’s the kicker. All President Obama has to do is insist that whatever retroactive tax cuts are enacted next year be temporary. Not only will this mitigate the impact of higher taxes for the same reason that temporary tax cuts are limited in their impact, but he will have another opportunity in a year or two to bludgeon Republicans back to the negotiating table, where their adamant opposition to higher taxes will again be negated by an automatic tax increase absent Congressional action.

Revenues are just 15.8 percent of gross domestic product, compared with a postwar average of 18.5 percent, which even Mr. Norquist accepts as a long-term goal. The sooner we get there, the sooner we can get the national finances on track toward sustainability.

Because Republicans now lack the power to prevent legislated tax increases, the nation is no longer held hostage to their stubborn opposition to any tax increase whatsoever, which has torpedoed every serious effort to reduce the trajectory of debt since 2010.

That is why I am optimistic about our fiscal future.

Article source: http://economix.blogs.nytimes.com/2012/11/13/our-long-term-fiscal-future-is-better-than-it-looks/?partner=rss&emc=rss

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Today’s Economist: Simon Johnson: Read This Book, Win the Election

October 11, 2012 by Leave a Comment

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Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

With the presidential election looming and both sides looking for a knockout blow in the vice-presidential debate on Thursday evening, now is a good time for both Democrats and Republicans to look for one more defining issue. The new book by Sheila Bair, “Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself,” offers exactly that – to whichever party is smart enough and fast enough to take up the opportunity.

Today’s Economist

Perspectives from expert contributors.

Ms. Bair lays out a compelling vision for financial-sector reform and for dealing with the continuing mess around mortgages. Neither presidential campaign is likely to endorse her ideas in all their specifics. But if a candidate signaled that he had read and understood the main messages in this book, this would have great appeal with undecided centrist votes and – importantly – with their respective bases.

Ms. Bair was chairwoman of the Federal Deposit Insurance Corporation from June 2006 to July 2011. She had a seat at the table for all the big decisions during the financial crisis of 2007-9, and she was also an important player during the financial reform negotiations of 2009-10, leading up to the Dodd-Frank financial reform legislation of 2010.

(Disclosure: I’m a member of the nongovernmental Systemic Risk Council that Ms. Bair created and leads; I was also appointed to the F.D.I.C.’s Systemic Resolution Advisory Committee while Ms. Bair was still chairwoman.)

Ms. Bair, a Republican from Kansas, worked with Bob Dole and was appointed to the F.D.I.C. by President George W. Bush. Her defining positions were against the interests of the very largest financial institutions.

And her biggest confrontations were with Treasury Secretary Timothy Geithner, the former president of the Federal Reserve Bank of New York, and, according to Ms. Bair, someone who continually favored the largest banks and their profitability in the mistaken view that this would serve the broader social interest in financial stability and sustained economic prosperity.

During the height of the financial crisis, Mr. Geithner wanted at various times to commit more taxpayer resources with fewer conditions to support very large banks, including allowing them to pay very large bonuses to executives. Ms. Bair was consistently on the side of wanting more strings attached – the point being that these financial institutions had managed themselves into great trouble. As she notes on Page 363:

An institution that is profitable is not necessarily one that is safe and sound or one that is serving the public interest. All of the large financial institutions were profitable in the years leading up to the crisis, but they were making big profits by taking big risks that ultimately exploded in their – and our – faces.

Ms. Bair’s point was not about any kind of retribution but rather that the long experience of the F.D.I.C. indicated that the best time to clean up any financial sector mess was at the moment and point of intervention. Because it has insured small depositors – the public – since the 1930s, the F.D.I.C. has developed a well-informed approach to failing banks. It works hard to ensure that depositor protection works – and it does – without imposing costs on the taxpayer.

When I worked at the International Monetary Fund during 2004-6 and 2007-8, we regarded the F.D.I.C. as carrying out best practice in the world with regard to how to handle failing banks.

In Ms. Bair’s persuasive account, the George W. Bush and Barack Obama administrations were primarily focused on protecting the large banks. Both administrations consistently ignored the relationship between the need to fix our bloated, free-wheeling financial sector and sustaining our broader economic prosperity. And both administrations paid insufficient attention to the persistent problem of mortgages.

In most financial crises, there is some form of “debt overhang” problem, meaning that the economy cannot fully get back on its feet until loans are written down, typically through some form of bankruptcy or negotiated restructuring process. Some of the most fascinating details in “Bull by the Horns” concern instances when Ms. Bair and her F.D.I.C. colleagues proposed various ways to deal with mortgages, only to be shot down or undermined by Mr. Geithner and his colleagues at Treasury (see, for example, Chapter 21).

Judging from the most recent presidential debate, the candidates are still not drawing the link from stable finance to economic prosperity, and they are offering no ideas on how to restructure mortgages.

As new cases are brought against big banks for their mortgage-lending practices, including JPMorgan Chase (for activities of Bear Stearns, which it acquired in 2008) and, this week, Wells Fargo, policy thinking increasingly must grapple with how to structure a potential “global settlement” on mortgages.

It would be good for Ms. Bair to have a seat at that table; most of the workable ideas are already articulated in her book. More broadly, her policy suggestions are simple and obvious, like putting tougher limits on the ability of large financial institutions to take risks with borrowed money, requiring those who securitize mortgages to retain risk if the mortgages later default and breaking up institutions so large and interconnected that they cannot be resolved in bankruptcy without causing wider damage to our economy.

Ms. Bair’s messages and common sense have appeal across the American political spectrum. The right wants an end to implicit government subsidies for large financial institutions. The left wants to curtail the power of global megabanks. Independents want Wall Street to have less political sway in Washington. These are all reasonable and responsible requests.

Either Mr. Romney or Mr. Obama could seize upon the themes in Ms. Bair’s book, craft these into political language and hammer home the substance in the concluding weeks of the campaign.

Or they could just quote the final paragraph of the book:

Life goes on, as Robert Frost observed. But financial abuse and misconduct don’t have to. Tell the powers in Washington that you want these problems fixed, you want them fixed now and that you will hold all incumbents accountable until the job is done.

Article source: http://economix.blogs.nytimes.com/2012/10/11/read-this-book-win-the-election/?partner=rss&emc=rss

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Today’s Economist: Casey B. Mulligan: Changes in Inequality the 21st Century

September 12, 2012 by Leave a Comment

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Casey B. Mulligan is an economics professor at the University of Chicago.

A couple of important measures of labor-market inequality have played out since 2008 much the way they did previously.

Today’s Economist

Perspectives from expert contributors.

One measure of changing inequality in the labor market, commonly used by economists, is the annualized 90-10 change: the annualized growth rate of wages at the 90th percentile of the distribution of wages for men working full time minus the growth rate of wages at the 10th percentile of the same distribution.

Because the 90th percentile wage is the wage below which 90 percent of working men earn, the annualized 90-10 change can be interpreted as the degree to which the wages of high-earning men grow more, or fall less, than the wages of low-earning men. The measure can in principle be negative, in which case the wages of less-skilled people would be partly catching up with the wages of skilled people.

I measured these changes using the Census Bureau’s Current Population Survey Merged Outgoing Rotation Group sample. (Analysis of wage patterns is often performed with the Census Bureau surveys, although most of them lack information on employee fringe benefits over and above wages and salaries.) The left part of the chart below shows the annualized 90-10 change over three time periods.

The first time period is 2000-8, the years of George W. Bush presidency, and the years before the 2009 depths of the “Great Recession.” Wages grew faster for high-skill people during these years: about 0.5 percentage points a year extra (roughly a cumulative four extra percentage points for the entire period).

Wages also grew faster for high-skill people between 2008 and 2010 (the last year for which I have data). The average growth differential between them and low-skill people was a whopping 2.6 percentage points a year.

One interpretation of these results is that the rewards for accumulating skill have been increasing over time, especially in the last two years. The more common and less euphemistic interpretation is that the rich have been getting richer, especially recently.

Perhaps the Great Recession of 2008-9 and slow recovery is to blame for all of this. For this reason, I looked separately at the recession period 2000-2. That recession (0.6 extra percentage points a year) looks a lot like the longer 2000-8 period (0.5 extra percentage points a year).

Another indicator of inequality is wage equality between the genders. The right part of chart shows changes in gender wage equality. The gender measures are positive if and when wages grow faster for women than for men and negative if and when male wages grow faster. The former is usually viewed as progress, because for centuries women have been earning less than men.

During the George W. Bush presidency (and a number of the presidencies before him), wages grew more for women than for men, about seven-tenths of one percentage a year more on an annual basis. During the first two years of the Obama presidency (or, if you want, during the Great Recession), the gender wage gap closed even more rapidly (1.3 percentage points a year), though less rapidly than it did in during the previous recession (1.6 percentage points a year).

President Obama is sometimes likened to Lyndon B. Johnson or Jimmy Carter, but theirs were not years when high-skill people were gaining ground at a faster pace than low-skill people and not years when women’s wages were catching up to men’s. When it comes to measures of labor-market inequality, the last few years so far look at lot like the years before 2008.

Perhaps that shows how Presidents Bush and Obama are not so different in their economic policies, or that presidents have little impact on important economic trends.

Article source: http://economix.blogs.nytimes.com/2012/09/12/changes-in-inequality-the-21st-century/?partner=rss&emc=rss

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Economic View: Four Keys to a Better Tax System — Economic View

January 22, 2012 by Leave a Comment

There is. Economists who study public finance have long agreed with William E. Simon, the former Treasury secretary, who said that “the nation should have a tax system that looks like someone designed it on purpose.” Here are four principles of tax reform that most of those economists would endorse:

BROADEN THE BASE AND LOWER RATES The United States tax code is filled with deductions and exclusions that shrink the basis of taxation. The smaller base in turn requires higher tax rates to raise the revenue needed to fund government. The starting point of reform is to reverse this process.

This principle was endorsed both by President George W. Bush’s tax reform commission in 2005 and by President Obama’s deficit reduction commission in 2010. Neither report had much impact, because eliminating deductions and exclusions is politically treacherous. Yet each made a good case on the merits.

Consider the deduction for mortgage interest. The policy is politically popular, but economists have long thought it has little justification. Because of this provision, among others, our tax system gives a better treatment to residential capital than it does to corporate capital. As a result, too much of the nation’s saving ends up in the form of housing rather than in business investment, where it could have increased productivity and wages.

This efficiency cost might be worth bearing if the deduction had a benefit from the standpoint of equality, but it fails there as well. Subsidies to homeowners are, in effect, penalties on renters — after all, someone has to pick up the tab. But there is nothing wrong with renting. And once one acknowledges that renters are poorer, on average, than homeowners, the mortgage interest deduction becomes even harder to justify.

TAX CONSUMPTION RATHER THAN INCOME Almost four centuries ago, the philosopher Thomas Hobbes suggested that taxes should be based on consumption, not income. Income measures a person’s contribution of labor and capital to society’s production of goods and services. Consumption measures the quantity of those goods and services he gets to enjoy. Hobbes reasoned that because consumption better reflects the benefits a person receives as a member of society, it is the proper basis of taxation.

Much modern economic theory confirms that conclusion. In standard models, a consumption tax allows the economy to achieve the best allocation of resources over time, whereas an income tax needlessly discourages saving, investment and economic growth.

Moving to a consumption tax might seem to require wholesale reform of our current system. But such a politically difficult step isn’t necessary. In fact, as our tax system has evolved over many years, legislators have come to appreciate the logic of taxing consumption, if only implicitly.

The United States now has an income tax, or at least that is what it is called. But because many Americans do most of their saving through tax-preferred accounts, such as I.R.A.’s and 401(k) plans, they in effect pay taxes based on how much they consume. Tax reform could expand and simplify the availability of such tax-preferred savings accounts. In this way, our progressive income tax could further evolve toward a progressive consumption tax.

TAX BADS RATHER THAN GOODS A good rule of thumb is that when you tax something, you get less of it. That means that taxes on hard work, saving and entrepreneurial risk-taking impede these fundamental drivers of economic growth. The alternative is to tax those things we would like to get less of.

Consider the tax on gasoline. Driving your car is associated with various adverse side effects, which economists call externalities. These include traffic congestion, accidents, local pollution and global climate change. If the tax on gasoline were higher, people would alter their behavior to drive less. They would be more likely to take public transportation, use car pools or live closer to work. The incentives they face when deciding how much to drive would more closely match the true social costs and benefits.

Economists who have added up all the externalities associated with driving conclude that a tax exceeding $2 a gallon makes sense. That would provide substantial revenue that could be used to reduce other taxes. By taxing bad things more, we could tax good things less.

KEEP IT SIMPLE, STUPID This engineering aphorism is based on the timeless insight that complex systems are more likely to break down, often in ways the designer failed to anticipate. It applies with force to tax systems.

Indeed, unlike engineering systems, complex tax systems go awry because an army of highly paid accountants and tax lawyers is ready to take advantage of any loophole it can find. Remember when President Obama’s stimulus plan offered tax credits for electric cars? Suddenly, the sale of golf carts took off.

To be sure, any tax system will be subject to gaming, which is why we will always need the Internal Revenue Service. But the more we use narrowly targeted taxes and tax breaks, the more gaming there will be.

Filling out tax returns will never be a delight. But if reform included simplification, the task might become a bit less onerous. And if a few accountants and tax lawyers were induced to become engineers and doctors instead, society will have moved a big step in the right direction.

N. Gregory Mankiw is a professor of economics at Harvard. He is advising Mitt Romney, the former governor of Massachusetts, in the campaign for the Republican presidential nomination.

Article source: http://feeds.nytimes.com/click.phdo?i=a60619b8e1fb3eccc792f0a0cb9c2439

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