Posts tagged ‘Taxes’

New Study Shows that Corporate Tax Cuts Won’t Create Jobs

New Study Shows that Corporate Tax Cuts Won’t Create Jobs


There’s no correlation between low taxes and job creation.

That’s the finding in a new report from the Center for Effective Government that refutes corporate CEOs, bankers and tea party members of Congress who engage in some serious magical thinking when it comes to taxes and job creation.

We’ve heard these voodoo economics before: cut taxes and jobs will appear.  Right now,corporate tax rates are at their lowest point in 40 years even as profits soar.  Meanwhile, our economy is still struggling. It’s about time we questioned why these policies have yet to result in the job growth that their proponents predicted. 

In the new study, The Center for Effective Government, a nonprofit group that studies the economic impact of public policy, analyzed the Fortune 500 companies that posted profits between 2008 and 2012. Then it compared the job numbers of the companies that paid the highest tax rates to those of the companies that paid the fewest taxes.  

Of the 30 companies that paid more than a third of their profits in taxes, all but eight added jobs between 2008 and 2010. As a group, these companies reported a net gain of more than 200,000 US jobs.

Compare that to the 30 corporations that paid the lowest rates.  Many of these firms are paying no federal income taxes at all.  Even as this group raked in $159 billion in profits, only half of them added any jobs.  In total, they cut more jobs than they added, for a net result of 51,000 jobs lost. 

These numbers tell a story that many of us already knew.  Corporations don’t seek out lower tax rates because they’re eager to start hiring.  They do it to boost profits, and they don’t intend to share those profits with the rest of us.

What it all means is that billions of dollars that could be spent on education and infrastructure that benefits everyone are instead being hoarded by corporate CEOs.  The Center for Effective Government estimates that we could raise $220 billion simply by closing tax loopholes that allow corporations to hide money overseas.  Raising the federal corporate tax rate by only a few percentage points would be even more effective.

Public opinion is starting to turn against trickle-down economics.  Even Pope Francis has come out against the idea. It’s time to use that momentum to push for a tax system that benefits everyone instead of one that chases after imaginary job growth at the expense of our public programs.

You can read the entire CEG report by clicking here.


Reducing the Deficit: Spending and Revenue Options

Reducing the Deficit: Spending and Revenue Options


march 10, 2011

read complete document  (pdf, 2478 kb)

CBO regularly issues a compendium of budget options to help inform federal lawmakers about the implications of possible policy choices. This volume—one of several reports that CBO produces regularly for the House and Senate Committees on the Budget—presents more than 100 options for altering federal spending and revenues. Nearly all of the options would reduce federal budget deficits. The report begins with an introductory chapter that describes the current budgetary picture and the uses and limitations of this volume. Chapters 2 and 3 present options that would reduce mandatory and discretionary spending, respectively. Chapter 4 contains options that would increase revenues from various kinds of taxes and fees.

Federal budget deficits will total $7 trillion over the next decade if current laws remain unchanged, CBO projects. If certain policies that are scheduled to expire under current law are extended instead, deficits may be much larger. Beyond the coming decade, the aging of the U.S. population and rising health care costs will put increasing pressure on the budget. If federal debt continues to expand faster than the economy—as it has since 2007—the growth of people’s income will slow, the share of federal spending devoted to paying interest on the debt will rise, and the risk of a fiscal crisis will increase.

This report presents 105 illustrative options that would reduce projected budget deficits. As in past reports, the options cover an array of policy areas—from defense to energy to entitlement programs to provisions of the tax code. The budgetary effects shown for most options span the 10 years from 2012 to 2021 (the period covered by CBO’s January 2011 baseline budget projections), although many options would have longer-term effects as well. The options are grouped into three major budget categories: mandatory spending, discretionary spending, and revenues. In most cases, the table accompanying an option shows the option’s estimated budgetary effects in each of the next 10 years, as well as 5- and 10-year totals.

The options in this volume come from legislative proposals, various Administrations’ budget proposals, Congressional staff, other government entities, and private groups, among others. Because the spending options in this volume are intended to help lawmakers review individual programs, they do not include large-scale budget initiatives, such as eliminating entire departments or agencies. The options are intended to reflect a range of possibilities, not a ranking of priorities, and the report does not provide an exhaustive list of policy alternatives. The inclusion or exclusion of a particular policy change does not represent an endorsement or rejection by CBO. In keeping with CBO’s mandate to provide objective, impartial analysis, this report makes no recommendations.

Budget Decisions: The Current Context

Over the past 40 years, federal debt held by the public has averaged 35 percent of the country’s annual economic output (gross domestic product, or GDP). Because of massive deficits during the past few years, that ratio climbed to 62 percent by the end of last year, the highest level since shortly after World War II.

In CBO’s current-law baseline, the deficit is projected to equal 9.8 percent of GDP in 2011, shrink to 4.3 percent of GDP by 2013 (after certain tax provisions are scheduled to expire and the economy has recovered further from the recession), and then range between 2.9 percent and 3.4 percent of GDP through 2021—close to the average of 2.8 percent seen over the past 40 years. Those deficits would push total debt held by the public to 77 percent of GDP by 2021.

Moreover, CBO’s baseline projections are predicated on the assumption that many policies now in place are allowed to expire over the next decade, as scheduled under current law. Those expiring policies include the major reductions in individual income taxes originally enacted in 2001 and 2003 and recently extended through 2012, as well as the higher exemption amounts for the alternative minimum tax. If those policies and others were extended, budget deficits would be much larger than in that baseline.

Over the longer term, the continued aging of the population and growth in health care costs will almost certainly push up federal spending significantly relative to GDP under current law. Without changes in law, spending on Social Security and the government’s major mandatory health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and health insurance subsidies to be provided through insurance exchanges) will increase from roughly 10 percent of GDP today to about 16 percent over the next 25 years. If revenues stay close to their average share of GDP for the past 40 years, that rise in spending will lead to rapidly growing budget deficits and surging federal debt.

To prevent federal debt from becoming unsupportable, lawmakers will have to restrain the growth of spending substantially, raise revenues significantly above their historical share of GDP, or pursue some combination of those two approaches.

Options for Reducing Mandatory Spending

Mandatory spending includes spending for entitlement programs and certain other payments to people, businesses, nonprofit institutions, and state and local governments. For mandatory spending programs, funding levels are generally determined not by annual appropriations but by eligibility rules, benefit formulas, and other parameters set by Congress in authorizing legislation.

The largest programs in this category are Social Security, Medicare, and Medicaid, which together accounted for 74 percent of mandatory spending in 2010 and are projected to account for 81 percent by 2021, under current law.

The options in this section encompass a broad range of mandatory spending programs. Although the options are grouped by program, some of the options for different programs are conceptually similar. For instance, two options address the effects of applying different inflation factors to the benefit formulas for certain programs. Other options would alter the balance of spending between the government and program participants or between the federal government and the states.

Of the 32 options in the mandatory spending chapter:

  • Fifteen deal with spending for health care programs.
  • Seven would make changes to Social Security or other retirement programs.
  • Ten focus on Fannie Mae, Freddie Mac, and programs that deal with education, energy, or agriculture.

Options for Reducing Discretionary Spending

Spending governed by the Congress’s annual appropriation acts—which is labeled discretionary spending—accounts for nearly 40 percent of federal outlays. In 2010, roughly half of discretionary spending went for defense. The other half paid for a wide range of federal activities, including law enforcement, homeland security, transportation, national parks, disaster relief, scientific research, and foreign aid. CBO’s baseline projections reflect the assumption that discretionary spending will grow at the rate of inflation and will thus decline to 28 percent of total spending by 2021.

Of the 38 options in the discretionary spending chapter:

  • Two options, one for defense spending and one for nondefense spending, present broad alternatives for freezing or reducing discretionary spending.
  • Twelve other options deal with defense spending.
  • The other 24 options cover a broad array of nondefense programs.

Most of the options show savings calculated relative to CBO’s baseline projections—that is, the 2011 appropriation annualized, adjusted for projected inflation in later years. The budgetary effects of several options that involve spending for defense procurement were estimated on a different basis—they were measured relative to the Department of Defense’s (DoD’s) 2011 Future Years Defense Program (FYDP). CBO determined that it would be more informative to estimate the effects of procurement options relative to DoD’s published plan because CBO’s baseline for defense procurement is not based on detailed plans for weapon systems. Because the 2011 FYDP extends for only five years, however, CBO’s estimates for procurement options are presented with tables that show just five years of costs or savings. The text of each procurement option discusses the effect of the option on DoD’s long-term acquisition plans.

Options for Increasing Revenues

Federal revenues come from taxes on individual and corporate income, payroll taxes for social insurance programs (such as Social Security and unemployment compensation), excise taxes, estate and gift taxes, remittances from the Federal Reserve System, customs duties, and miscellaneous fees and fines. The two largest sources are individual income taxes and social insurance taxes, which together produce more than 80 percent of the government’s revenues.

The revenue chapter presents 35 options to increase revenues. The options are grouped in a number of broad categories according to the part of the tax system they would target:

  • Individual income tax rates
  • The individual income tax base
  • Individual income tax credits
  • The Social Security tax base
  • Corporate income tax rates
  • Taxation of income from businesses and other entities
  • Taxation of income from worldwide business activity
  • Consumption and excise taxes
  • Health care provisions
  • Other taxes and fees

Nearly all the estimates for the revenue options were prepared by the staff of the Joint Committee on Taxation (JCT). If combined, the options might interact with one another in ways that could alter their revenue effects as well as their impact on households and the economy. For simplicity in presentation, some of the changes in revenues shown in the tables represent the net effects of an option on both revenues and outlays combined.

Caveats About This Report

The estimates shown in this volume could differ from any later cost estimates by CBO or revenue estimates by JCT for legislative proposals that resemble these options. One reason is that the policy proposals on which those later estimates would be based might not precisely match the options presented here. Another reason is that the baseline budget projections against which such proposals would ultimately be measured might have been updated and thus would differ from the projections used for this report.

The estimated budgetary effects of options do not reflect the extent to which a policy change would affect interest payments on federal debt.

CBO’s analyses do not attempt to quantify the impact of options on state spending. Some options that would affect other levels of governments or the private sector might involve federal mandates. The discussions of the options in this volume do not address the costs of potential mandates.

Obama Urging An Immediate Tax Cut For The Middle Class

Obama urges immediate tax cut deal for middle class (via AFP)

US President Barack Obama urged Congress Saturday to immediately extend a tax cut for middle-class Americans, arguing the move will give 98 percent of families and 97 percent of small businesses the certainty that will lead to faster economic growth. "This is something we all agree on," the president…

Read more…

Rising gas prices crimp Americans’ spending – Yahoo! News – The Fed doesnt have an answer

Rising gas prices crimp Americans' spending – Yahoo! News.

WASHINGTON (AP) — Higher gas prices are crimping consumer spending and slowing the already-weak U.S. economy. And they could get worse in the coming months.

The Federal Reserve this week took steps to boost economic growth. But those stimulus measures are also pushing oil prices up. If gas prices follow, consumers will have less money to spend elsewhere.

The impact of the Fed’s actions “is likely to weigh on the value of the U.S. dollar and lift commodity prices,” said Joseph Carson, U.S. economist at AllianceBernstein. “We would not be surprised if (it) fueled more inflation in coming months, squeezing the real income of U.S. workers.”

Americans are already feeling pinched by high unemployment, slow wage growth and higher gas prices.

Consumers increased their spending at retail businesses by 0.9 percent in August, the Commerce Department reported Friday. But that was largely because they paid more for gas. Excluding the impact of gas prices and a sizeable increase in auto sales, retail sales rose just 0.1 percent.

Perhaps more telling is where Americans spent less. Consumers cut back on clothing, electronics and at general merchandise outlets — discretionary purchases that typically signal confidence in the economy.

Gas prices have risen more than 50 cents per gallon in the past two months. The national average was $3.87 a gallon on Friday. Most of the increase took place in August, which drove the biggest one-month increase in overall consumer prices in three years, the Labor Department said Friday in a separate report.

“Consumers were not willing to spend much at the mall since they are feeling the pump price pinch,” said Chris Christopher, an economist at IHS Global Insight.

Weaker retail sales will likely weigh on growth in the July-September quarter. Economists at Bank of America Merrill Lynch slashed their third-quarter growth forecast to an annual rate of only 1.1 percent, down from 1.5 percent. That’s not nearly fast enough to spur more hiring, which has languished since February.

The Fed is hoping to kick-start growth with a series of bold steps announced Thursday that could make borrowing cheaper for years.

It plans to spend $40 billion a month to buy mortgage bonds to make home buying more affordable. It also pledged to keep short-term interest rates near zero through at least mid-2015.

And Fed Chairman Ben Bernanke said the Fed will continue its efforts — and intensify them if necessary — until the job market improves “substantially.”

The announcement ignited a two-day stock market rally that sent the Dow Jones industrial average to its highest level since December 2007, the first month of the Great Recession.

But the Fed’s actions also helped move oil prices briefly above $100 a barrel Friday for the first time since May. They fell back slightly, but were still up 74 cents to $99.04 a barrel in mid-afternoon trading.

Carson noted that the Fed’s previous rounds of bond-buying pushed up commodity prices and fueled greater inflation. That weakened the ability of U.S. consumers to spend and likely slowed growth, he said.

He expects the same thing to happen again.

The Fed’s moves can push up oil prices in several ways. The Fed creates new money to pay for its mortgage bond purchases. That increases the amount of dollars in circulation and can lower their value. Oil is priced in dollars, so the price tends to rise when the dollar falls. That’s because it costs more for overseas investors to purchase dollars to buy oil.

Lower interest rates also push investors out of safer assets, such as bonds, and into riskier investments, such as oil, in hopes of a greater return. And if the Fed’s moves accelerate growth, that would increase demand for oil and gas and also raise their prices.

Higher gas prices are eating up a bigger share of Americans’ incomes than in previous years. Spending at the pump accounts for 8.2 percent of the typical family’s household income, according to Fred Rozell of the Oil Price Information Service. That’s just below last year’s 8.3 percent.

Those represent the biggest slice of household income spent on gas since 1981. The typical household spends about $342 per month on gasoline. Before gasoline prices began rising in 2004, households spent less than $200 per month, Rozell said, under 5 percent of median income.

Average gas prices are higher this year than last year. But Americans are using less by driving more fuel-efficient cars and driving less.

Meanwhile, average wages, adjusted for inflation, have been flat for the past year, the Labor Department said Friday. That adds to the squeeze on consumers.

One silver lining is that weakness should eventually push prices back down, economists note. That’s because people cut back on oil and gas consumption when prices rise.

“Unless the economic data rapidly improve, the gains in oil … prices are unlikely to be sustained,” Julian Jessop, an analyst Capital Economics, said.


AP Energy Writer Jonathan Fahey contributed to this report from New York.