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Storm Slowed Hiring in November, but Services Sector Grew

December 6, 2012 by Leave a Comment

The ADP National Employment Report, which is closely watched as it comes two days ahead of the government’s monthly national employment report, showed on Wednesday that the private sector added 118,000 jobs during the month, below expectations for a gain of 125,000.

The report largely reinforced economists’ forecast for a weak reading in the Labor Department’s payrolls report on Friday. Economists expect the economy added 93,000 jobs in November, down from 171,000 the month before, according to a Reuters survey.

“It’s close to what the market was expecting. If Friday’s employment report from the U.S. Labor Department comes in similar to this, that would be a good outcome,” said Terry Sheehan, an economic analyst at Stone McCarthy Research Associates.

Wednesday’s data, which also included better-than-expected factory orders and productivity, presented a mixed picture of the American economy. That was partly a reflection of crosscurrents from the storm, as well as difficult budget negotiations in Washington aimed at averting the so-called fiscal cliff, a series of automatic government spending cuts and tax increases at the beginning of next year.

A report on the American services sector showed a similar slowing in hiring during the month. But forward-looking indicators pointed to faster growth as a rise in new orders and business activity helped offset a slowdown in employment and prices.

The Institute for Supply Management said its services index rose to 54.7 last month from 54.2 the month before. The reading topped economists’ forecasts for growth to 53.5, according to a Reuters survey. In the report, 50 marks the divide between growth and contraction.

“The much larger service side of the U.S. economy remains relatively healthy,” said Joseph Trevisani, chief market strategist at Worldwide Markets. “It has so far avoided the contraction in manufacturing, but worse is probably coming in the first quarter of next year as the economy continues to slow.”

Also on Wednesday, a report showed new orders received by factories unexpectedly rose 0.8 percent in October as demand for motor vehicles and a range of other goods offset a slump in defense and civilian aircraft orders. The Commerce Department also revised October’s figures upward on nonmilitary capital goods orders excluding aircraft in a hopeful sign that the slowdown in business investment in recent months might soon draw to a close.

Economists at Barclays said the strong reading, driven by orders and shipments of capital goods, equipment used to make other things, means the economy will grow faster than expected in the fourth quarter. They raised their gross domestic product growth outlook for the quarter to 2.2 percent from 2 percent.

The Labor Department reported that nonfarm productivity increased at an annual rate of 2.9 percent in the third quarter, a faster clip than initially expected, as businesses held the line on hiring even as output surged, with unit labor costs falling at their fastest pace in almost a year.

With the effects of the storm out of the way in the months ahead, hiring is expected to return to its previous trend even if more slowly than most would like to see with the employment rate still hovering near 8 percent.

Mark Zandi, chief economist of Moody’s Analytics, who helps compile the ADP report, said underlying jobs growth was closer to 150,000 in November after discounting the impact of the storm as well as seasonal jobs brought forward at the start of the holiday season.

“Abstracting from the storm, the job market turned in a good performance during the month,” he said. “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls.”

Article source: http://www.nytimes.com/2012/12/06/business/economy/storm-slowed-hiring-in-november-but-services-sector-grew.html?partner=rss&emc=rss

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Special Report: Tax Planning: Few Places to Hide as Taxes Trend Higher Worldwide

December 2, 2012 by Leave a Comment

Taxes on earnings, investment income, sales and a few other things have gone up already in many countries, and further increases are possible, including a huge one in the United States.

Another source of unease and doubt for taxpayers is a trend toward increases of other sorts: in scrutiny by revenue authorities, reporting requirements for individuals and businesses, and legislation to close tax code loopholes.

International taxpayers — expatriates and others whose personal or professional lives extend across borders — may find conditions particularly challenging. Dealing with a changing tax regime is tough; dealing with more than one even more so. Not only that, but some authorities are focusing more keenly on foreigners or on their own citizens living elsewhere. On the bright side, certain countries still treat foreigners better than their own citizens.

Navigating a landscape that may have been familiar but is suddenly a treacherous terra incognita is not easy, tax advisers warn, but it can be done as long as taxpayers are well prepared, take care to avoid mistakes and resign themselves not to go too far.

“There is no magic solution, no one structure that will work,” said Gavin Leckie, a wealth adviser and specialist in expatriate financial issues for J.P. Morgan Private Bank. “A lot of this is a defensive exercise. Make sure to organize yourself so that you’ve anticipated problems and taken steps to protect yourself.”

There is much, existing and potential, to protect yourself from. The biggest tax-related question mark — several hundred billion dollars big — concerns the fiscal cliff. That is the term coined by another famous Ben — Bernanke, the U.S. Federal Reserve chairman — to describe the anticipated destination of the American economy if an extensive mix of tax increases and government spending cuts goes ahead as scheduled next month.

Numerous increases are on the books or heading there in Europe, including on income and/or value-added taxes in Spain, Finland, Italy, the Netherlands and France, where a 75 percent income tax rate on income exceeding €1 million, or $1.28 million, is coming in 2013. Bucking the trend, Britain is about to lower its top income tax rate to 45 percent from 50 percent — after having raised it from 40 percent.

The European Commission has proposed, and 11 euro zone members support, a tax on financial transactions. Ireland introduced a tax on insurance premiums this year, the Dutch plan to raise their tax on premiums in 2013, and France hopes to raise taxes on rental income and capital gains from vacation homes of domestic or foreign owners.

If the expanding tax bite around the region makes you want to cry in your beer, being in France could cost you more on that score, too. The beer tax is due to rise 160 percent.

Conditions in Asia are comparatively placid, but that region has not been immune from the trend. Attempts to raise the value-added tax in Japan have failed in the past, along with governments that made them, but a doubling of the V.A.T., called the Japan Consumption Tax, was approved in August.

“Quite a few countries are trying to increase tax revenue,” said Kevin Cornelius, a partner in Geneva for the Human Capital Practice at Ernst Young. “The question is who’s raising taxes the slowest. I can’t remember as much tax legislation going through as we’ve seen in the last 24 months.”

Americans would welcome at least one more piece of legislation. At press time, negotiations were continuing in Congress on a compromise to avoid going over the fiscal cliff. The consensus among pundits in Washington and on Wall Street is that one will be reached that preserves present rates on middle-class taxpayers and perhaps raises them on high earners.

If no deal emerges, tax rates will increase on income, capital gains and dividends. Employee payroll taxes are also scheduled to rise, and surcharges are due to be introduced on earned income and investment income of well-off individuals to defray the costs of the health care overhaul.

Article source: http://www.nytimes.com/2012/12/03/business/global/03iht-srtaxlede03.html?partner=rss&emc=rss

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Warning by Fed Chief Chills Markets

November 22, 2012 by Leave a Comment

Mr. Bernanke, in comments before the Economic Club of New York, said that the Fed did not have the ability to offset the damage that would result if politicians failed to reach a deal to prevent a series of mandatory tax increases and spending cuts scheduled to go into effect early next year.

His statement caused a downdraft in the market, though the equity market cut most of its losses before the end of the day.

“This is a more realistic and pragmatic picture of where we are, compared to what we’ve been hearing for the past couple of days from politicians,” said James Dailey, portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pa.

Stocks rallied for the last two sessions after Washington politicians sounded an encouraging note that a deal on fiscal issues could be reached. Those two days of gains came after two weeks of sharp losses that pushed the Standard Poor’s 500-stock index down through the 200-day moving average, a crucial benchmark of the market’s long-term trend. The S. P. ended Tuesday near that level, which was 1,382.68.

The Dow Jones industrial average slipped 7.45 points, or 0.06 percent, to close at 12,788.51. But the S. P. 500 and Nasdaq each rose, albeit barely. The S. P. gained 0.07 percent, to 1,387.81. The Nasdaq composite index rose 0.02 percent, to 2,916.68.

The day’s biggest disappointment was Hewlett-Packard, whose stock sank to a 10-year low after the company swung to a fourth-quarter loss and announced a $5 billion charge related to “accounting improprieties.” H.P. stock slid 12 percent to close at $11.71.

H.P., whose stock is one of 30 on the Dow, said it took an $8.8 billion charge in the quarter, with $5 billion related to its acquisition of the software maker Autonomy, citing “serious accounting improprieties.” H.P.’s market value is now $23 billion, compared with $100 billion just two years ago.

Shares of Best Buy fell 13 percent after the company reported a net loss of $13 million for the third quarter on weaker-than-expected sales at its established stores.

Another factor weighing on stocks was the reduction of France’s sovereign rating by Moody’s Investors Service, a move announced after the market’s close on Monday. Moody’s cited an uncertain fiscal outlook as a result of the weakening economy.

“This brings forward a whole new set of problems to the euro zone issue,” Mr. Dailey said. “When the lifeguards — in this case, Germany and France — are in trouble, when they need to save people like Greece and Spain, that could be a big concern.”

Also on Tuesday, data showed that United States housing starts rose to their highest rate in more than four years in October, suggesting that the housing market’s recovery was gaining momentum, even though permits for future construction fell. An index of housing-related shares shot up 2.5 percent.

Advancers outnumbered decliners on the New York Stock Exchange by a ratio of about 4 to 3. On Nasdaq, the opposite trend took hold, with about 13 stocks falling for every 12 that rose.

The Treasury’s benchmark 10-year note fell 16/32, to 99 20/32, and the yield rose to 1.67 percent, from 1.61 percent late Monday.

Article source: http://www.nytimes.com/2012/11/21/business/daily-stock-market-activity.html?partner=rss&emc=rss

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At White House Budget Meeting, Old Hurdles and New Attitude

November 17, 2012 by Leave a Comment

WASHINGTON — President Obama and Congressional leaders on Friday reopened budget negotiations that ended badly in 2011 with surprising bipartisan bonhomie, and even some initial agreements toward a year-end deal. Yet a familiar hurdle remains before any handshakes: resolving the parties’ dispute over whether to extend the Bush-era tax rates for the wealthy.

Both sides indicated after the 70-minute White House meeting that their goal is a two-step compromise, since they have little time to work before the end of the year. That is when more than $500 billion in automatic tax increases and across-the-board spending cuts hit all Americans, and potentially shake the economy, unless Congress enacts an alternative deficit reduction agreement.

As tentatively envisioned, a compromise would provide an immediate down payment of at least $50 billion to reduce this year’s projected deficit, in lieu of the automatic measures that would hurt the economy by their size and suddenness, economists say. Second, it would define a framework for negotiating a long-term “grand bargain” in 2013 to shave annual deficits by perhaps $4 trillion over the first decade.

The framework would have separate goals for raising revenues and cutting the two types of federal spending: so-called discretionary financing that Congress sets annually for most programs, domestic and military; and entitlement spending, chiefly for Medicare and Medicaid, which by their growth in an aging population are driving projections of mounting debt.

The agreement to aim for a framework only in the initial talks is a quick step forward. Some lawmakers, including the Senate Republican leader, Mitch McConnell of Kentucky, had wanted a larger deal before Jan. 1 as the price for shutting off the automatic deficit reduction that would hit then. Representative Nancy Pelosi of California, the House Democratic leader, went so far as to predict that a deal to head off that so-called fiscal cliff would be at hand “well before Christmas.”

While such a two-pronged deal would put off the hardest and most far-reaching policy decisions until next year, no deal is possible unless the negotiators first decide on the deficit down payment. That installment, it is widely believed, must be large enough to satisfy financial markets, which oppose the automatic measures as too large and threatening but still want Washington to show some resolve toward getting the nation’s fiscal house in order.

Mr. Obama, Vice President Joseph R. Biden Jr. and the Democrats — Harry Reid of Nevada, the Senate majority leader, and Ms. Pelosi — made it clear around the negotiating table that the down payment is easily made by letting the Bush tax cuts expire, as scheduled on Dec. 31, for annual income of $250,000 and above for couples and $200,000 for individuals. The Bush rates would be extended for lower incomes, preserving them for 98 percent of taxpayers.

The Republicans — House Speaker John A. Boehner and Mr. McConnell — were just as plain that, while they support raising additional revenues by curbing deductions and through economic growth, they would oppose an increase in marginal tax rates. They want the down payment in spending cuts.

Yet after an election campaign in which Mr. Obama made this a top issue, Republicans have reduced leverage, many acknowledge. That shift in the Washington fiscal dynamic since Mr. Obama’s re-election also explains the rapidity with which the Republican leaders have agreed that higher revenues will be part of the deficit-reduction solution — if not through higher rates.

If the president has his way, the top rates, now 33 percent and 35 percent, would rise to 36 percent and 39.6 percent, the Clinton-era levels, on Jan. 1. But Mr. Obama has suggested he is open to a compromise that would set the rates somewhere in between, in combination with limits on deductions.

With Mr. Obama leaving on Saturday for a four-day diplomatic trip to Asia and Thanksgiving looming, the negotiators directed their staffs to flush out the Republican bottom line on the size and type of savings to get from Medicare and Medicaid in preparation for the leaders’ next meeting in the week after the holiday.

Republicans were heartened that Mr. Obama designated his soon-to-retire Treasury secretary, Timothy F. Geithner, as his lead negotiator, instead of the White House chief of staff, Jacob J. Lew. Mr. Boehner’s relations with Mr. Lew soured during the prolonged and bitter budget talks in 2011.

Article source: http://www.nytimes.com/2012/11/17/us/politics/at-white-house-budget-meeting-old-hurdles-and-new-attitude.html?partner=rss&emc=rss

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Fragile Coalition in Greece Narrowly Backs Austerity

November 8, 2012 by Leave a Comment

After 14 hours of debate, the three-party coalition of Prime Minister Antonis Samaras held together to pass the measures, 153 to 128, after several lawmakers broke ranks. Eighteen members voted present, the equivalent of a blank vote, including 15 from the smallest coalition party, Democratic Left, which opposes the measures. There was one abstention.

After the vote, six lawmakers were expelled from the governing coalition’s Socialist Pasok party and one from the conservative New Democracy party

The measures — including sharp cuts to pensions, salaries and social services, as well as tax increases and increases in the retirement age to 67 from 65 — are expected, but not guaranteed, to persuade Greece’s foreign creditors to unlock 31 billion euros in aid, or about $40 billion, that the country needs to meet expenses.

A vote on the 2013 budget to activate the austerity package is expected late Sunday.

In presenting the austerity measures, which total 17 billion euros, to Parliament, Mr. Samaras acknowledged that the new cuts to pensions and salaries were “unfair,” but added that Greece was bound by the terms of its agreement with creditors.

“A lot of what we’re voting on today are measures we should have taken a long time ago,” he said, adding that they would be “the last, the last” such cuts. Future “adjustments,” he said, would come from a crackdown on tax evasion and public sector waste.

Mr. Samaras, however, is the third prime minister to promise the “last cuts” since Greece asked for a foreign bailout in 2010. The deep cuts, which have helped Greece’s economy shrink 25 percent in recent years, are undermining the country’s social and political stability — and the government’s ability to carry out the structural changes.

“You can’t rebuild institutions when you’ve cut down the salaries of people who work for them,” said Alexis Papahelas, the managing editor of the Kathimerini daily. “That’s the big problem the government and the country are facing.”

On the eve of the vote, nearly 50 employees of Greece’s central bank resigned to protest the deep cuts to public sector salaries, while on Wednesday, Greece’s Supreme Court ruled that cuts of up to 30 percent in judge’s salaries would violate the constitution.

Parliamentary staff also threatened Wednesday to resign over their salary cuts, leading Mr. Samaras to consider invoking executive authority to force them to stay on the job, according to a government official not authorized to speak publicly.

Greece’s troika of foreign lenders — the European Commission, European Central Bank and International Monetary Fund — have demanded that Greece reduce its budget deficit in exchange for more aid.

Yet few believe that the measures will help improve the country’s economic health.

“Telling a whole people that they have to commit collective suicide to save the debt is not a policy,” Zoe Kostantopoulou, a member of Parliament from the leftist Syriza opposition party, said in an interview, expressing a sentiment growing across the political spectrum.

“The reason why we’ve seen the economy implode much more rapidly than thought is that they grossly underestimated the impact that fiscal austerity of this magnitude would have on the Greek economy,” said Simon Tilford, the chief economist at the Center for European Reform in London. “Additional austerity is going to compound that weakness.”

He added that the slump in the economy was also making it harder for Greece to meet the troika’s demands to reduce a mountain of debt. “The whole strategy for Greece has failed,” Mr. Tilford said. “It’s led to collapse in the Greek economy and the ballooning of debt so it’s an abject failure.”.

Stella Dimitrakopolou, a 29-year-old graphic designer who donned a surgical mask to ward off tear gas in Wednesday’s demonstration, agreed.

“These measures are inhumane,” she said. “The young generation has no future, and older people have no money and the measures do not help society economically.”

Niki Kitsantonis contributed reporting

Article source: http://www.nytimes.com/2012/11/08/world/europe/greece-austerity-vote.html?partner=rss&emc=rss

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Economix Blog: The Jobs Picture, as a New Report Awaits

November 2, 2012 by Leave a Comment

Here is what we know about the economy, and in particular the jobs situation.

Employers are adding workers at a fairly sluggish clip, at a pace of about 146,000 jobs a month in the past three months. That’s probably more jobs than is necessary to keep the unemployment rate stable, given the natural growth in the size of the labor market. But it is fewer jobs than is necessary to pull the unemployment rate down from its elevated level of 7.8 percent very quickly.

Of late, consumers have been feeling better. Home prices have bottomed out in many markets, and are picking up in many others. The ranks of the jobless have shrunken, and millions of workers are seeing their wages increase, though not by much. Households have worked their way through the worst of the “deleveraging process.” The campaign seems to be having an effect, too: Democrats are feeling especially good.

But businesses are feeling worse. Executives are very concerned about the “fiscal cliff,” the huge tax increases and spending cuts looming in January. Manufacturing and exports, two of the bright spots in the recovery, have weakened of late. Overall growth in the American economy remains sluggish, and the major emerging-market countries that fueled the global rebound from the recession have cooled off.

Friday’s jobs report for October — the consensus forecast of economists, according to Bloomberg, is a net gain of 125,000 jobs — will be met with a deluge of political spin and hyperbolic analysis. Campaigns and their surrogates are eagerly awaiting the numbers, their narratives pre-written and their talking points sharp.

Surrogates for Mitt Romney’s campaign will argue that the current pace of jobs growth is too slow to bring us anywhere close to full employment any time soon. They will argue that the recovery is anemic in historical terms and that households are still feeling extraordinary pain. They will pick out especially weak numbers, in payrolls or employment in certain sectors.

Administration officials and advisers to President Obama’s campaign will argue that the economy is slowly but surely recovering from the worst recession since the Great Depression. They will argue that the economy is adding jobs steadily, with increases in private-sector payrolls for the past 31 months — probably 32 months, as of Friday’s report. They will pull out especially strong numbers, in payrolls or wages or employment in certain sectors.

But it is highly unlikely that Friday’s jobs report will do much to change our understanding of the current state of the broader economy — even if the numbers come in surprisingly high or surprisingly low, as they often do given the noisiness of the data.

Article source: http://economix.blogs.nytimes.com/2012/11/01/the-jobs-picture-as-a-new-report-awaits/?partner=rss&emc=rss

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Today’s Economist: Casey B. Mulligan: Is the Fiscal Cliff a Big Deal?

August 29, 2012 by Leave a Comment

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

With their Keynesian analysis, the Congressional Budget Office and others have exaggerated the effects of the “fiscal cliff” on the labor market and the economy.

Today’s Economist

Perspectives from expert contributors.

Come January, current law provides for significant cuts in federal spending and for tax increases – and thereby significant federal budget-deficit reduction. These provisions have been collectively described as the “fiscal cliff,” which emerged when Democratic and Republican leaders could not agree on plans on spending and taxes.

The Congressional Budget Office has warned that the fiscal cliff will cause a double-dip recession, but its analysis for 2013 is based on the Keynesian proposition that anything that shrinks the federal budget deficit shrinks the economy, and the more the deficit is reduced the more the economy is reduced.

In many circumstances, the Keynesian proposition reaches the wrong conclusions about economic activity, because deficits do not necessarily expand the economy or prevent it from shrinking. For example, reducing the deficit by cutting unemployment insurance – it’s one of the programs that would be cut in January – would shrink the economy in the C.B.O.’s view.

But in reality, cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs.

Helping people who are out of work may be intrinsically valuable because it’s the right thing to do, but the Congressional Budget Office is incorrect to conclude that it also grows the economy or prevents it from shrinking. Paying people for not working is no way to put them to work.

The Keynesian proposition about budget deficits ignores incentives of all kinds, so its incorrect conclusions about the fiscal cliff are not limited to unemployment insurance. Another example: the fiscal cliff would put millions of Americans on the alternative minimum tax, which Keynesian analysis said would shrink the economy solely because it collected more revenue.

Yet economists who have studied the alternative minimum tax have found that its effects on incentives to work and produce are essentially neutral, compared with the ordinary federal personal income tax.

(The Congressional Budget Office does not use pure Keynesian analysis for its long-term projections, which include labor-supply incentive effects of tax rates, but apparently has decided that incentives’ effects can be safely neglected in the short term.)

None of this implies that the fiscal cliff will expand the economy, because some of its provisions will increase the penalties for working and producing.

The fiscal cliff would cut Medicare payments to doctors by 2 percent, which reduces doctors’ reward for treating Medicare patients. This may cause doctors to work less (or to work more for non-Medicare patients). The fiscal cliff would end the “Bush tax cuts” provisions, some of which have been enhancing the incentive to work (but beware – not all laws labeled “tax cuts” enhance incentives).

Perhaps the incentive-reducing provisions of the fiscal cliff outweigh its incentive-enhancing provisions, in which case the Congressional Budget Office has arrived at approximately the right answer for the wrong reasons.

But even in that lucky case, the C.B.O.’s quantitative estimates of the fiscal cliff’s economic effects are not reliable until they fully incorporate economic incentives.

Article source: http://economix.blogs.nytimes.com/2012/08/29/is-the-fiscal-cliff-a-big-deal/?partner=rss&emc=rss

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World Briefing | Europe: Greece: I.M.F. Official Urges More Austerity

December 14, 2011 by Leave a Comment

Greece has reached its taxation limit and needs to refocus its austerity program on long-term spending cuts, the International Monetary Fund mission chief in Greece, Poul M. Thomsen, left, said Tuesday. Mr. Thomsen also said the structural changes Greece has made in an effort to cope with its huge amount of debt, including slashing salaries and pensions and imposing several rounds of tax increases, have fallen “well short” of expectations, but he did not say what austerity measures would be needed next year.

Article source: http://www.nytimes.com/2011/12/14/world/europe/greece-imf-official-urges-more-austerity.html?partner=rss&emc=rss

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Perry Says He Supports a Simple Flat Tax

October 20, 2011 by Leave a Comment

The proposal by Mr. Perry, the Texas governor, does not yet have details, but it is expected to resemble a version previously advocated by the former presidential candidate Steve Forbes, who has advised Mr. Perry on his plan. Mr. Forbes’s proposal in the late 1990s featured a 17 percent tax rate.

Mr. Romney has previously been critical of a flat-tax system, including in newspaper advertisements he took out in 1996 as a “concerned citizen” in which he argued that the Forbes tax plan was  a “tax cut for fat cats.”

Lately Mr. Romney, the former Massachusetts governor, has been more nuanced, arguing at a town hall meeting that he was concerned that too flat a tax structure would hurt middle class taxpayers and emphasizing that while there are some good attributes to a flat-tax system, he prefers tax breaks for the middle class.

Other candidates have also taken up the mantle for simplifying the tax system and broadening the tax base.

Herman Cain, a businessman from Atlanta, had entered the race as a relative unknown but has vaulted to prominence partly because of his plan resembling a flat tax (plus a national sales tax). Mr. Perry appears to be trying to harness the popular tax frustration that Mr. Cain has tapped into, and simultaneously differentiate himself from Mr. Romney.

A major result of adopting a flat tax would generally make the tax system more regressive, thereby reducing the percentage for high-income earners but increasing burden on lower-income groups.

“It’s just simple basic math,” said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a liberal research group. “To the extent that it is revenue neutral, a flat tax implies large tax increases on middle-class people and, mirroring that, a major tax cut on wealthy people.”

For some conservatives, however, the regressive nature is actually a positive result of the flat tax system. Under current policy, the wealthiest earners are paying a higher tax rate than the poorest, with some Americans paying very little or no taxes.

That fact has angered many Americans who think they are shouldering too much of the country’s tax burden. The “99 Percent” slogan of Occupy Wall Street protests, for example, has been countered with a “53 Percent” movement, referring to the fact that 53 percent of Americans pay federal income taxes (although many more pay payroll taxes).

The effects of these various proposals aside, replacing today’s labyrinthine tax system with a flat tax does have the virtue of simplicity. Americans would spend less time, and endure fewer headaches, figuring out how much they owe the government.

“Simplicity is good, but that’s not all you want,” said Roberton Williams, a senior fellow at the Tax Policy Center. “If all you want is simplicity, you could just tax everybody $10,000. That would be easy and simple. But most people wouldn’t think that’s fair.”

A flat tax would be a major ideological victory for many economic conservatives, akin to how some social conservatives feel about overturning Roe v. Wade. Besides Mr. Forbes’s plan, several other Republican leaders like Phil Gramm (also now advising Mr. Perry, according to Mr. Forbes) and Dick Armey have proposed their own versions over the years but with little traction.

Grover Norquist, the founder of Americans for Tax Reform, an influential conservative group, said all the candidates were moving toward a flatter tax structure. “Now it’s a consensus position in the center-right,” he said, compared with 15 years ago, when Mr. Forbes’s plan was attacked by other Republican candidates.

The presidential candidates advocating some version of a flat tax, however, denied that their proposals were regressive.

Adam Nagourney contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=8f41ccbb567a64e22da178f2dd64b343

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Congressional Memo: Anti-Tax Pledges Lose Their Sheen As Eyes Turn to Reform

October 7, 2011 by Leave a Comment

While some pledges, like marriage vows, may always carry weight, strict anti-tax pledges may be losing some of their sheen.

On Tuesday, Representative Frank R. Wolf, a Republican from Virginia, took to the House floor for a rare excoriation of the anti-tax activist Grover G. Norquist and his strictly worded pledge, which has been signed by almost the entire Republican caucus as well as a few Democrats. A day later, Senator John Thune of North Dakota suggested that anti-tax pledges ought to be revisited, because they can be interpreted too broadly in closing loopholes or eliminating tax deductions. “We shouldn’t be bound by something that could be interpreted different ways if what we’re trying to accomplish is broad-based tax reform,” he said.

These events, and interviews with lawmakers, suggest that anti-tax pledges are beginning to worry lawmakers, fund-raisers and others because of fears that they hamstring efforts to rewrite the nation’s tax code — a task viewed as a necessity by many on both sides of the aisle and the Rotunda.

“There is pledge fatigue,” said Representative Jeff Fortenberry of Nebraska, who signed the Norquist pledge when he first ran for office in 2004 but has since jettisoned his support. “Many Americans are very cynical about the motives of politicians so they want something harder to be able to believe in a person. But the pledge turns the power over to someone else to interpret whether what you did was right or wrong and limits your creativity.”

Mr. Norquist, who heads the group Americans for Tax Reform, uses his pledge, which began in 1986 with the endorsement of President Reagan, as a litmus test for candidates on taxes. Known as the Taxpayer Protection Pledge, it makes candidates and incumbents “bind themselves to oppose any and all tax increases.” Hundreds of Republicans have signed it, including all six on the bipartisan Congressional deficit reduction committee.

Senator Jeff Sessions, Republican of Alabama, who also signed it, said in an interview: “I’ve signed more pledges than I should have over the years. All of us ought to be somewhat reluctant to make these pledges. I think people who have been here longer do fewer.”

To be sure, the majority of Republican lawmakers are not running away from Mr. Norquist. All the Republican presidential candidates other than Jon M. Huntsman Jr., the former governor of Utah, have gotten on board.

Mr. Norquist said that those who raise questions about the pledge often do not understand it. “The pledge specifically says you can eliminate tax deductions if you bring rates down at same time,” he said. “The people who say that the pledge would get in the way of tax reform, well their point is they want a tax increase.”

But confusion over the fine points of tax policy is the subject of hot debate in the Senate cloakroom, said Al Hoffman Jr., a Republican fund-raiser and former finance chairman for the Republican National Committee. “Several members of Congress have told me privately that they are wrestling with how to deal with this,” he said.

“The smart Republicans realize that if we’re ever going to reconcile with the Democrats and come to a compromise, this is their holy grail,” Mr. Hoffman said. “They want loopholes eliminated and we should call their bluff because many Democrats have lobbied for corporate loopholes too.”

He said that changes in tax policy were also needed to make large-scale changes to entitlement programs. “If we don’t, we’ll be dead in the water and we won’t be able to beat Obama.”

Earlier this year, Senator Tom Coburn, a conservative Republican from Oklahoma, sparred with Mr. Norquist over ethanol subsidies and whether ending them would run afoul of the anti-tax pledge.

Another pledge, known as “the cut, cap and balance pledge,” became a thorn in the side of Speaker John A. Boehner this summer. Several House members refused to approve an increase in the federal debt ceiling — to avoid a government default — because they had signed a pledge that prohibited the increase without enforceable spending caps and the passage of a balanced-budget amendment that included a supermajority for raising taxes.

Representative Paul D. Ryan of Wisconsin, who drew up the House budget plan that includes many tax cuts, said that signing the cut, cap and balance pledge “seemed like you were saying you are not ever going to vote to raise the debt ceiling,” and derided it as essentially pointless, even as he voted for supportive legislation.

Mr. Boehner, asked as he left the House floor Wednesday night if the pledges were impeding work on tax policy said, “No.” He took a few brisk steps toward his office. “There is always a way to solve that problem.” he said. Step faster. “Watch. And see.”

Article source: http://feeds.nytimes.com/click.phdo?i=b1b07d39ea578f57113e41d618fe4a89

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