Secondary Sources: Taxes, Government Debt, Regional Fed Banks
A roundup of economic news from around the Web.
Taxes: David Leonhardt looks into the statement that 47% of Americans pay no returns tax. “The 47 percent number is not incorrect. The stimulus programs of the last two years — the first one signed by President George W. Bush, the second and larger one by President Obama — have augmented the number of households that hear sufficient of a tax credit to wipe out their federal returns tax liability. But the modifiers here — federal and returns — are vital. Returns taxes aren?t the only kind of federal taxes that people pay. There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too. Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47. The reason is that poor families generally pay more in payroll taxes than they hear through benefits like the Earned Returns Tax Credit. It?s not just poor families for whom the payroll tax is a huge deal, either. About three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in returns taxes.”
Government Debt: Antonio Stoutás looks at what needs to be done to get government debt under control.”So can we hope for a nice, painless, expansionary monetary consolidation over the next decades? Not obvious. There are several reasons why those experiences might not be easily replicated this time: – In some countries, government spending levels have come down relative to where they were in the 80s or 90s. It is not simple to produce a significant decrease in government spending without distressing some vital services provided by the government. More so in the US where government spending is low relative to other (European) advanced economies. – Some of the expansionary monetary consolidations benefited from diminishing interest rates. As an example, Belgium reduced government debt by close to 40 percentage points in between 1996 and 2006 but most if not all of the decrease was associated to diminishing interest rates on government debt. Currently, there is no room for interest rates to go down. If any, they might go up. – This time, the consolidation needs to take care of the past (the accumulated level of debt) and the future (the fact that projected deficits agreed current policies will be very large). The adjustment is larger than what was needed in some of those previous expansion.”
Regional Fed Banks: Heidi Moore looks at the dangers of marginalizing the regional Fed banks. “In the end, but, the regional presidents are likely to lose their power to the FDIC or the central Fed, which is evolving into a biased entity replete with the savvy maneuverer Ben Bernanke at its helm. ?I feel sorry for the bank presidents,? said Chris Whalen, co-founder of consulting firm Institutional Risk Analytics. “They are in a traditional sense raising the right issues, but we’ve gone so beyond that in the Fed’s capture by both banks and Congress that the whole business’s politicized now.” The only power the regional presidents have is to bang some drums. But even that could make a difference to debate?in an era when secretive bailouts can be designed by a few power brokers with access to the money of millions of taxpayers.”
Compiled by Phil Izzo