The Stafford Voice

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economy

CBO: Extend Bush Tax Cuts to Boost Economy

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by Donald Lambro

A surprising report from the Congressional Budget Office gives new support to permanently extending the tax cuts enacted under President George W. Bush—dealing a major blow to President Obama’s plans to raise taxes at the end of this year.

In a significant story that receive scant attention from the national news media, CBO Director Douglas Elmendorf says that keeping the Bush tax cuts that affect upper-income taxpayers, small businesses and investors will give the weakened economy a “considerable” economic boost over the next several years and create jobs that will drive down unemployment.

Elmendorf’s conclusions were part of a CBO analysis released recently on the government’s record-breaking trillion-dollar deficits.

“Under that … scenario [keeping the tax cuts at their present levels], economic growth would be stronger next year; unemployment would be lower next year,” Elmendorf said.

CBO’s analysis gives the Republicans new ammunition for its midterm election agenda that calls for extending the Bush tax cuts—a position that has virtually full support within the business community, among major economists, and even a growing number of congressional Democrats, who have been hearing from beleaguered small businesses during the August recess.

Economic growth fell to 2.4% in the second quarter and some economists are projecting that the true rate of growth will be closer to the 1% range when the Commerce Department issues its revised estimate in the coming weeks.

CBO strongly reinforced this more bearish outlook.

“In addition, under current law, both the waning of fiscal stimulus and the scheduled increases in taxes will temporarily subtract from [economic] growth, especially in 2011,” CBO warned Congress.

In another sign of the Obama stimulus plan’s economic impotence, CBO is forecasting a mediocre 2% economic rate of growth in 2011, far from the more robust 3%-plus growth rate needed to make a dent in the unemployment rate.

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A “Summer of Recovery”

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by Tad DeHaven

The White House’s misbegotten “Summer of Recovery” continued today with the release of another administration “analysis” that purportedly demonstrates the stimulus’s success in “transforming” the economy.

Vice President Joe Biden unveiled the report alongside Energy secretary Steven Chu and numerous businesses officials willing to serve as political props in return for Uncle Sam’s free candy. Biden bemoaned the nefarious “special interests” that were coddled by the previous administration. What does the vice president think those subsidized business officials attending his speech are called?

The money the White House has lavished on these privileged businesses isn’t free. The money comes from taxpayers—including businesses that do not enjoy the favor of the White House—who consequently have $100 billion (plus interest) less to spend or invest. Therefore, the fundamental question is: Are Joe Biden — an individual who has spent his entire career in government— and the Washington political class better at directing economic activity than the private sector?

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2010 Pig Book: Earmark Central

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With a defecit nearing $1.5 trillion, and earmarks at the cost of $16.5 billion, the Congressional Pig Book shows a decrease in earmarks both in numbers and dollars. The Pig Book is put out by CAGW, Citizens Against Government Waste, and is their annual summary of the pork-barrel projects in the federal budget.

Search the 9,129 pork-barrel projects in the 2010 Congressional Pig Book HERE.

To read the entire 2010 Congressional Pig Book Summary, download the pdf HERE.

America, Here Now and Gone Later?

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Many times in history have people talked about how America could be here today and gone tomorrow. One take on it, Niall Ferguson offers his take.

LATimes – America, The Fragile Empire

If empires are complex systems that sooner or later succumb to sudden and catastrophic malfunctions, what are the implications for the United States today? First, debating the stages of decline may be a waste of time — it is a precipitous and unexpected fall that should most concern policymakers and citizens. Second, most imperial falls are associated with fiscal crises. Alarm bells should therefore be ringing very loudly indeed as the United States contemplates a deficit for 2010 of more than $1.5 trillion — about 11% of GDP, the biggest since World War II.

These numbers are bad, but in the realm of political entities, the role of perception is just as crucial. In imperial crises, it is not the material underpinnings of power that really matter but expectations about future power. The fiscal numbers cited above cannot erode U.S. strength on their own, but they can work to weaken a long-assumed faith in the United States’ ability to weather any crisis.

One day, a seemingly random piece of bad news — perhaps a negative report by a rating agency — will make the headlines during an otherwise quiet news cycle. Suddenly, it will be not just a few policy wonks who worry about the sustainability of U.S. fiscal policy but the public at large, not to mention investors abroad. It is this shift that is crucial: A complex adaptive system is in big trouble when its component parts lose faith in its viability.

Over the last three years, the complex system of the global economy flipped from boom to bust — all because a bunch of Americans started to default on their subprime mortgages, thereby blowing huge holes in the business models of thousands of highly leveraged financial institutions. The next phase of the current crisis may begin when the public begins to reassess the credibility of the radical monetary and fiscal steps that were taken in response.

Neither interest rates at zero nor fiscal stimulus can achieve a sustainable recovery if people in the United States and abroad collectively decide, overnight, that such measures will ultimately lead to much higher inflation rates or outright default. Bond yields can shoot up if expectations change about future government solvency, intensifying an already bad fiscal crisis by driving up the cost of interest payments on new debt. Just ask Greece.

Ask Russia too. Fighting a losing battle in the mountains of the Hindu Kush has long been a harbinger of imperial fall. What happened 20 years ago is a reminder that empires do not in fact appear, rise, reign, decline and fall according to some recurrent and predictable life cycle. It is historians who retrospectively portray the process of imperial dissolution as slow-acting. Rather, empires behave like all complex adaptive systems. They function in apparent equilibrium for some unknowable period. And then, quite abruptly, they collapse.