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C.B.O. Cuts 2013 Deficit Estimate by 24%

May 14, 2013 by Leave a Comment

That is the thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimating that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago.

The agency forecast that the deficit, which topped 10 percent of gross domestic product in 2009, could shrink to as little as 2.1 percent of gross domestic product by 2015 — a level that most analysts say would be easily sustainable over the long run — before beginning to climb gradually through the rest of the decade.

“The underlying deficit is improving,” said Mark Zandi, chief economist at Moody’s Analytics, citing the strengthening economy as a force in opposition to fiscal tightening. “The economy continues to grow, but the script’s still being written” given how fast the deficit is shrinking.

Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs.

Perhaps too successful. Given that the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent, many economists are cautioning that the deficit is coming down too fast, too soon.

“It’s good news for the budget deficit and bad news for the jobs deficit,” said Jared Bernstein of the Center on Budget and Policy Priorities, a left-of-center research group in Washington. “I’m more worried about the latter.”

Others, however, are warning that the deficit — even if it looks manageable over the next decade — still remains a major long-term challenge, given that rising health care spending on the elderly and debt service payments are projected to eat up a bigger and bigger portion of the budget as the baby boom generation enters retirement.

“It takes a little heat off, and undercuts the sense of fiscal panic that prevailed one or two years ago when the debt-to-G.D.P. ratio was climbing,” said Joel Prakken, a co-founder of the St. Louis-based forecasting firm Macroeconomic Advisers, referring to the growth of the country’s debt relative to the size of the economy. “These revisions probably release some pressure to reach a longer-term deal, which is too bad, because the longer-term problem hasn’t gone away.”

With the government running a hefty $113 billion surplus in the tax payment month of April, according to the Treasury, analysts now do not expect the country to run out of room under its debt ceiling — a statutory borrowing limit Congress needs to raise to avoid default — until sometime in the fall. That has left both Democrats and Republicans hesitant to enter another round of negotiations over painful cuts to entitlement programs like Social Security and Medicare, and tax increases on a broader swath of Americans, despite the still-heated rhetoric on both sides.

For the moment, the deficit is largely repairing itself. Just three months ago, the Congressional Budget Office projected that the current-year deficit would be $845 billion, or about 5.3 percent of economic output.

The $200 billion reduction to the estimated deficit comes not from the $85 billion in mandatory cuts known as sequestration, nor from the package of tax increases that Congress passed this winter to avoid the so-called fiscal cliff. The office had already incorporated those policy changes into its February forecasts.

Rather, it comes from higher-than-expected tax payments from businesses and individuals, as well as an increase in payments from Fannie Mae and Freddie Mac, the mortgage finance companies the government took over as part of the wave of bailouts thrust upon Washington in the darkest days of the financial crisis.

The C.B.O. said it had bumped up its estimates of current-year tax receipts from individuals by about $69 billion and from corporations by about $40 billion. The office said the factors lifting tax payments seemed to be “largely temporary,” due in part, probably, to higher-income households realizing gains from investments before tax rates went up in the 2013 calendar year.

It also reduced its estimated outlays on Fannie and Freddie by about $95 billion. The mortgage giants, which have required more than $180 billion in taxpayer financing since the government rescued them in 2008, have returned to profitability in recent quarters on the back of a stronger housing market and have begun to repay the Treasury for the loans.

But there is a darker side to the brighter outlook for the deficit. The immediate spending cuts and tax increases Congress agreed to for this year are serving as a partial brake on the recovery, cutting government jobs and preventing growth from accelerating to a more robust pace, many economists have warned. The International Monetary Fund has called the country’s pace of deficit reduction “overly strong,” arguing that Washington should delay some of its budget cuts while adopting a longer-term strategy to hold down future deficits.

In revising its estimates for the current year, the budget office also cut its projections of the 10-year cumulative deficit by $618 billion. Those longer-term adjustments are mostly a result of smaller projected outlays for the entitlement programs of Social Security, Medicaid and Medicare, as well as smaller interest payments on the debt.

The report noted that the growth in health care costs seemed to have slowed — a trend that, if it lasted, would eliminate much of the budget pressure and probably help restore a stronger economy as well. The C.B.O. has quietly erased hundreds of billions of dollars in projected government health spending over the last few years.

It did so again on Tuesday. In February, the budget office projected that the United States would spend about $8.1 trillion on Medicare and $4.4 trillion on Medicaid over the next 10 fiscal years. It now projects it will spend $7.9 trillion on Medicare and $4.3 trillion on Medicaid.

This article has been revised to reflect the following correction:

Correction: May 14, 2013

Because of an editing error, an earlier version of this article misspelled the author’s surname. She is Annie Lowrey, not Lowery.

Article source: http://www.nytimes.com/2013/05/15/business/cbo-cuts-2013-deficit-estimate-by-24-percent.html?partner=rss&emc=rss

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Group Pushing Deficit Cuts Has Deep Business Ties

January 9, 2013 by Leave a Comment

Mr. McCrery did not mention his day job: a lobbyist with Capitol Counsel L.L.C. His clients have included the Alliance for Savings and Investment, a group of large companies pushing to maintain low tax rates on dividend income, and the Win America Campaign, a coalition of multinational corporations that lobbied for a one-time “repatriation holiday” allowing them to move offshore profits back home without paying taxes.

In Washington’s running battles over taxes and spending, Mr. McCrery and his colleagues at Fix the Debt have lent a public-spirited, elder-statesman sheen to the cause of deficit reduction. Leading up to the fiscal negotiations, they set up grass-roots chapters around the country, met with President Obama and his aides, and hosted private breakfasts for lawmakers on Capitol Hill. In recent days, Fix the Debt has redoubled its efforts, starting a new national advertising campaign and calling on Mr. Obama and Congress to revise the tax code and reduce long-term spending on entitlement programs.

But in the weeks ahead, many of the campaign’s members will be juggling their private interests with their public goals: they are also lobbyists, board members or executives for corporations that have worked aggressively to shape the contours of federal spending and taxes, including many of the tax breaks that would be at the heart of any broad overhaul. While Fix the Debt criticized the recent fiscal deal between Mr. Obama and lawmakers, saying it did not do enough to cut spending or close tax loopholes, companies and industries linked to the organization emerged with significant victories on taxes and other policies.

“Some of these folks who are trying to be part of the solution have also been part of the problem,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning advocacy group, and a former economic adviser to Vice President Joseph R. Biden Jr. “They’ve often fought hard against the kind of balance that we need on the revenue side. Many of the people we’re talking about are associated with policies that would make it a lot harder to fix the debt.”

Sam Nunn, a former Democratic senator from Georgia who is a member of Fix the Debt’s steering committee, received more than $300,000 in compensation in 2011 as a board member of General Electric. The company is among the most aggressive in the country at minimizing its tax obligations. Mr. McCrery, the Louisiana Republican, is also among G.E.’s lobbyists, according to the most recent federal disclosures, monitoring federal budget negotiations for the company.

Other board members and steering committee members have deep ties to the financial industry, including private equity, whose executives have aggressively fought efforts to alter a tax provision, known as the carried interest exception, that significantly reduces their personal income taxes.

Erskine B. Bowles, a co-founder of Fix the Debt, was paid $345,000 in stock and cash in 2011 as a board member at Morgan Stanley, while Judd Gregg, a former Republican senator from New Hampshire and a co-chairman of Fix the Debt, is a paid adviser to Goldman Sachs. Both companies have engaged in lobbying on international tax rules.

Mr. Gregg also sits on the boards of Honeywell and IntercontinentalExchange, a company that has warned investors that a tax on financial transactions would lower trading volume and curtail its profits. The two companies paid Mr. Gregg almost $750,000 in cash and stock in 2011.

In all, close to half of the members of Fix the Debt’s board and steering committee have ties to companies that have engaged in lobbying on taxes and spending, often to preserve tax breaks and other special treatment.

Fix the Debt does not endorse specific tax proposals. Instead, it advocates broad principles for debt reduction, including “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.” A spokesman, Jon Romano, said that the executives involved with the campaign were committed to tax reform, even if it closed loopholes that benefited their companies.

“All the people involved in this campaign have said from the beginning that everything has to be on the table,” Mr. Romano said. “Our C.E.O.’s, our state chapters, our small-business leaders — they are all willing to give something up for the sake of the country.”

Those involved with the campaign say they have tried to separate their advocacy for Fix the Debt and their private work for clients. Vic Fazio, a former Democratic congressman from California who is on the campaign’s steering committee, is a lobbyist at Akin Gump, a Washington firm whose clients include KKR, a leading private equity shop, and the Private Equity Growth Capital Council, an industry trade group.

Article source: http://www.nytimes.com/2013/01/10/us/politics/behind-debt-campaign-ties-to-corporate-interests.html?partner=rss&emc=rss

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Economix Blog: Charles Duhigg Responds to Readers on Apple and the iEconomy

January 24, 2012 by Leave a Comment

A production line in Foxconn City in Shenzhen, China. The iPhone is assembled in this vast facility, which has 230,000 employees, many at the plant up to 12 hours a day, six days a week.Thomas Lee/Bloomberg NewsA production line in Foxconn City in Shenzhen, China. The iPhone is assembled in this vast facility, which has 230,000 employees.

7:36 p.m. | Updated Charles Duhigg has provided answers to select reader questions. See the comments, below.

On the front page of Sunday’s newspaper, Charles Duhigg and Keith Bradsher published the first of a series of articles on The iEconomy, examining the challenges posed by increasingly globalized high-tech industries. In a deep look inside the economics of Apple’s manufacturing, Mr. Duhigg and Mr. Bradsher described the powerful incentives that first drew Apple’s assembly work overseas, and the subsequent pressure that encouraged related jobs to follow suit:

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the more than 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

The article was accompanied online by an animated graphic detailing the economic pressures underlying the process.

But the problem, the article noted, isn’t unique to the maker of the iPhone and the iPad:

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

The article, which followed months of reporting, also arrived shortly after Apple released a list of its major suppliers for the first time, and weeks after an episode of the public radio program “This American Life” focused intently on labor conditions at an Apple supplier in China.

Twitter users had lots to say, from the admiring:

To the skeptical:

At Slate, Matthew Yglesias took a distinctive view:

The more interesting question, to me, is why we don’t hear more about the possibility of letting the workers come to America. At the same time that a lot of companies seem to want to move certain kinds of production to foreign countries to take advantage of their labor forces, an awful lot of people seem to want to move to the United States.

What questions do you have about the iEconomy and Apple’s role in it? Submit them in the comments field below. Charles Duhigg will respond to a selection later on Monday.

Article source: http://feeds.nytimes.com/click.phdo?i=45522b5334979bc7d07d472b828453cf

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