Posts Tagged ‘recession’
By Forrest Jones
President Barack Obama’s punitive tax proposals and other divisive policies are pushing the country into a recession, Fox Business Network Senior Correspondent Charles Gasparino writes in a New York Post column.
The U.S. gross domestic product grew a lethargic 1.5 percent in the second quarter, according to an advance estimate released by the Commerce Department on Friday, down from a lackluster 2 percent growth rate in the first quarter.
“The slowdown announced Friday — on top of another slowdown in the first quarter — is further proof that the president’s class-warfare economic rhetoric and policies are pushing the country perilously close to a double-dip recession,” Gasparino writes.
“The numbers are pretty stark: Growth of 2 percent for the first quarter was already scary, down from around 4 percent at the end of last year. A few years out of a stiff recession like the one we had, the economy’s normally roaring, not sagging back down,” he continues.
In past recessions, economies typically bounced back rather quickly, but that hasn’t been the case this time.
The recession officially ended in 2009, though growth rates remain weak, while unemployment rates remain high at over 8 percent and refusing to budge.
Obama, meanwhile, has proposed hiking taxes on wealthy Americans, as evidenced by his recent call to let the Bush tax cuts expire for those earning over $250,000.
“[T]he drop to a 1.5 percent growth rate for the second quarter is really quite staggering. At this rate, we could be in double-dip territory even by Election Day, as consumers continue to slash their spending and businesses their investments,” Gasparino says.
“Yet the president either doesn’t know or doesn’t care that the country is headed right back into recession territory. He’s too busy bashing Mitt Romney’s record at Bain Capital to address what increasingly looks to be unfolding economic calamity.”
Cooling growth rates do have economists concerned.
Growth rates at or lower than 2 percent won’t make a dent in the unemployment rate, which stood at 8.2 percent in June.
“The main take away from [the GDP] report, the specifics aside, is that the U.S. economy is barely growing,” says Dan Greenhaus, chief economic strategist at BTIG LLC, according to The Associated Press.
“Along with a reduction in the actual amount of money companies were able to make, it’s no wonder the unemployment rate cannot move lower,” Greenhaus adds.
While this quarter’s earnings reports have crossed a substantially lowered profit bar, future expectations through the year indicate a recession could be on the way.
Estimates for the third and fourth quarters have been dropped to levels not seen since the days of the 2008 financial crisis, below even the muted 2 percent expected level of inflation.
That’s an ominous recession sign for an economy that has barely managed to attain positive growth this year even with the strong level of earnings beats, according to an analysis by Nicholas Colas, chief market strategist at ConvergEx in New York.
“Revenue estimates for the back half of 2012 have been slowly working their way lower this year,” Colas said. “This trend, however, has accelerated to the downside over the past 30 days and we are fast approaching levels where these estimates are unambiguously pointing to the risk of a U.S./global recession later into 2012 and 2013.”
For the current quarter, about 69 percent of companies in the Standard & Poor’s 500 [.SPX 1362.66 -13.85 (-1.01%) ] have beaten analyst profit estimates. Only 42 percent, though, have beaten on top-line revenue estimates, indicating that growth is weakening.
That’s evidenced by a rash of downward forward revisions from analysts.
In the broader S&P 1500, analysts have cut outlooks for 792 companies and raised for just 323, with the decreases especially prevalent in technology, which saw half its components down, the highest level since February 2009, according to Bespoke Investment Group.
The Wall Street Journal APRIL 14, 2011 By ALAN REYNOLDS
Income tax revenues have been remarkably stable at 8% of GDP,
regardless of tax rates.
The way to increase revenue is to grow the economy.
President Obama’s response to congressional efforts to curb runaway federal spending is to emphasize, once again, his resolve to greatly increase tax rates on married couples whose joint incomes are above $250,000. This insistent desire to raise taxes—which he repeated in a speech yesterday while complaining about “trillions of dollars in . . . tax cuts that went to every millionaire and billionaire in the country”—is a distraction. It won’t solve our nation’s fiscal problem.
Preliminary estimates from the Congressional Budget Office (CBO) project that federal spending under the president’s 2012 budget plan would average 23.3% over the coming decade—up from 19.7% in 2007 and 18.2% in 2001.
Even if the president could persuade Congress to enact all of his proposed tax increases, in addition to surtaxes already included in ObamaCare, the CBO finds we would still face endless budget deficits averaging 4.8% of GDP.
“Federal debt held by the public would double under the President’s budget,” says the CBO, “growing from $10.4 trillion (69% of GDP) at the end of 2011 to $20.8 trillion (87% of GDP) at the end of 2021, adding $9.5 trillion to the nation’s debt from 2012 to 2021.”
And yet, enormous as they are, these deficit and debt estimates assume that the higher tax rates called for under the president’s 2012 budget plan do no harm to the economy, that interest rates stay unusually low, and that the economy avoids recession for a dozen years. Those assumptions require taxpayers to behave much differently than they ever have before.
The revenue estimates are even more unbelievable. According to the Office of Management and Budget, total revenues would supposedly exceed 19% of GDP after 2015, rising to 20% by 2021—a level briefly reached only at the height of World War II (1944-45) and the pinnacle of the tech-stock boom (2000). Moreover, these unprecedented revenues would supposedly come from the individual income tax, which is even less plausible.
It is not as though we have never tried high tax rates before. From 1951 to 1963, the lowest tax rate was 20% to 22% and the highest was 91% to 92%. The top capital gains tax rate approached 40% in 1976-77. Aside from cyclical swings, however, the ratio of individual income tax receipts to GDP has always remained about 8% of GDP.
The individual income tax brought in 7.8% of GDP from 1952 to 1979 when the top tax rate ranged from 70% to 92%, 8% of GDP from 1993 to 1996 when the top tax rate was 39.6%, and 8.1% from 1988 to 1990 when the highest individual income tax rate was 28%. Mr. Obama’s hope that raising only the highest tax rates could keep individual tax receipts well above 9% of GDP has been repeatedly tested for more than six decades. It has always failed.
Federal revenue from the individual income tax exceeded 9% of GDP only eight times in U.S. history—during World War II (9.4% in 1944), the recessions of 1969-70, 1981-82 and 1991-92, and the tech-stock boom-bust of 1998-2001. Revenues were a high share of GDP during the three recessions because GDP fell.
The situation of 1997-2000 was unique. Individual income tax revenues reached an unprecedented 9.6% of GDP from 1997 to 2000 for reasons quite unlikely to be repeated. An astonishing quintupling of Nasdaq stock prices coincided with an extraordinary proliferation of stock options, which the Federal Reserve’s Survey of Consumer Finances found were granted to 11% of U.S. families by 2001, and with a reduction in the capital gains tax to 20% from 28%, which encouraged much greater realization of taxable gains through stock sales. Revenues from the capital gains tax rose to 10.8% of all individual income tax receipts in 1997 and 13% by 2000. The unexpected revenue windfalls in President Bill Clinton’s second term were largely a consequence of lower tax rates on capital gains.
Using IRS data, Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California at Berkeley have estimated that realized capital gains accounted for just 13%-22% of reported income among the top 1% of taxpayers from 1988 to 2006, when gains were taxed at 28%—but that fraction swiftly reached 29%-32% in 1998-2000, when the capital gains tax fell to 20%.
The average tax rate of such top taxpayers was mechanically diluted by the greatly increased realizations of capital gains after 1997 and 2003, since a larger share of reported income consisted of capital gains. Yet the amount of taxes paid by top taxpayers reached record highs for the same reason—there was more revenue to be had from taxing many gains at a low rate than from taxing fewer gains a high rate. Nobody can be forced to sell assets in taxable accounts. To complain that a low tax on realized capital gains is “unfair” is to suggest it would be fairer for affluent investors to sit on unrealized gains, as though an unpaid tax is morally superior to one that collects billions.
As a result of the conventional confusion between tax rates and revenues, some stories in the media have abetted the delusion that the huge gap between spending and likely revenues could be narrowed by simply increasing the highest tax rates on capital gains and/or dividends.
A recent cover story in Bloomberg Businessweek by Jesse Drucker, “The More You Make, the Less You Pay,” reported that, “For the well-off, this could be the best tax day since the early 1930s. . . . For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate—what they actually pay—fell from almost 30% in 1995 to just under 17% in 2007, according to the IRS.”
Among the top 400 taxpayers (rarely the same people from one year to the next), the average tax rate fell to 22.3% in 2000, when the capital gains tax was 20%, from 29.9% in 1995 when the capital gains tax was 28%. But that same IRS report also shows that real tax revenues from the top 400 more than doubled after the capital gains tax fell, rising to $11.8 billion in 2000 from $5.2 billion in 1995, measured in 1990 dollars.
The same thing happened after 2003, when the capital gains tax was further reduced to 15%. The average tax rate of the top 400 fell to 16.6% in 2007 from 22.9% in 2002. Even though there was no stock market boom as in 1997-2000, real revenues of the top 400 nevertheless doubled again—to $14.5 billion in 2007 from $6.9 billion in 2002. Instead of paying less when the capital gains tax rate went down in 1997 and 2003, the top 400 instead paid much, much more.
The trendy talking point of blaming projected deficits on “tax cuts for the rich” is flatly absurd.
Both individual income taxes and overall federal taxes have long been a surprisingly constant percentage of GDP—8% and 18%, respectively— regardless of top tax rates on salaries, small business and investors. It follows that the only reliable way to raise real federal revenues over time is to raise real GDP.
Mr. Reynolds is a senior fellow with the Cato Institute and the author of “Income and Wealth” (Greenwood Press 2006).
The night before the November election the voters said by a 51% margin they would vote for Republicans. The new poll indicates that 45% would vote for the Republican candidate and 38% for the Democrat candidate, a 6% drop for Republicans and as much as a 10% for Democrats. This does not indicate the political registration of those in the polling pool which is made up of registered voters who voted in the last election from both major parties, independents, and the minor parties. 17% either said they did not know how they might vote, that they wouldn’t vote, or that they would vote for a candidate who does not belong to either party. Whichever of the major parties can win over the largest number of this 17% is likely to win the election.
When asked if they were an economic conservative 47% said they are. Asked if they are social conservatives the number dropped to 42%. So 53% and 58% respectively did not answer, or consider themselves centrist or liberal.
Good news is that 68% said they believe big business and government working together is to the detriment of consumers and investors. This seems to repudiate President Obama’s push for more involvement of government in business.
The percentage of those who feel the Obama healthcare act should be repealed completely is still holding at 51%.
In a different Newsmax online poll of potential presidential candidates, President Obama is holding a fairly solid base of those who voted for him in the last election; only about 4% of that group said they would not vote for him in 2012.
Some interesting statistics from Arizona Voter Registration in January show that independent voters in our state now outnumber Democrats; independent voter registration increased since the November election by over 28,000 to 1,010,725. Democrats also increased their registration by 5,752 to 1,008,689. Republicans retained their lead and have increased since November by 10,803 to 1,142,605. In addition the Libertarians have a registration of 24,880 and the Greens have a registration of 5,040.
So by percent of total voters: Republicans 35.8%, Independents 31.7%, Democrats 31.5%, Libertarians 0.8%, and Greens 0.2%. There is such a slim margin between the top three registrants that in state-wide elections neither group can win without substantial support from independents.
So taking all this information into consideration things are generally looking pretty good for the Republicans and for conservatives in general, but they certainly don’t have any kind of a sure thing in the 2012 elections.
The strengths the conservatives should emphasize are getting government out of the way of business and improving the economy. In the border states, except for California, border security and illegal immigration are still hot buttons with about 70% siding with the Republicans. If the Republican party can do a good job of promoting their position on these they should do well nationwide, and even better in the west.
By Doug Sword
Published: Monday, November 29, 2010 at 1:00 a.m.
Last Modified: Sunday, November 28, 2010 at 10:16 p.m.
If the American Dream is to own a $1 million home, that dream has become far more elusive in Sarasota and Manatee counties. Three years ago, one in 27 homes was worth $1 million or more. Today, after four years of recession and declining home prices, there are less than half as many million-dollar homes — a mere 3,843.
That is a 54 percent drop from the 8,331 before the Great Recession, according to a Herald-Tribune analysis of county property records.
Million-dollar homes have largely disappeared from a number of inland areas, including parts of the interior of Siesta Key and Sarasota County’s so-called “urban enclave,” one of the few areas east of Interstate 75 where denser development is allowed.
While there are still many $1 million homes in the Lakewood Ranch area, dozens have fallen below the mark in the master-planned community straddling Manatee and Sarasota counties.
The same thing has occurred in waterfront areas on northern Longboat Key and along parts of Lemon and Roberts bays.
THE SELLER MEMO
You don’t have to tell Barbara Ackerman that homes on the interior of Siesta Key once worth well over $1 million are now selling for six figures: the high-end residential specialist owns one.
Like the market, Ackerman has adjusted to settling for less.
“We’re entering into the first season where I think all the sellers who are selling right now have gotten the memo,” she said.
What does that memo to sellers say? “It’s adjust and sell or just don’t put your property on the market.”
The Wall Street Journal
NOVEMBER 8, 2010
By JONATHAN WEISMAN
China and Russia Join Germany in Scolding;
Obama Defends Move as Pro-Growth
NEW DELHI—Global controversy mounted over the Federal Reserve’s decision to pump billions of dollars into the U.S. economy, with President Barack Obama defending the move as China, Russia and the euro zone added to a chorus of criticism.
Mr. Obama returned fire in the growing confrontation over trade and currencies Monday in a joint news conference with Indian Prime Minister Manmohan Singh, taking the unusual step of publicly backing the Fed’s decision to buy $600 billion in U.S. Treasury bonds—a move that has come under withering international criticism for weakening the U.S. dollar.
The Fed is independent, and the White House by longstanding tradition has strained to avoid any appearance of collusion or conflict. Mr. Obama said the administration doesn’t comment on particular actions of the U.S. central bank, before adding: “I will say that the Fed’s mandate, my mandate, is to grow our economy. And that’s not just good for the United States, that’s good for the world as a whole.”
The prospects of the Fed flooding the financial system with money helped drive gold above $1,400 an ounce on Monday. The precious metal, which investors often buy as protection against inflation, settled at a record $1,402.80 per troy ounce. Other assets, such as U.S. stocks and oil, drifted back slightly on Monday after getting a big boost from the Fed’s announcement last week. The dollar fell against the yen, while rising against the euro as worries about Europe’s debt problems returned.
The G-20 summit that begins Wednesday night in Seoul is shaping up as a showdown between exporting powers, such as Germany and China, and nations such as the U.S. that are struggling to emerge from recession and high unemployment.
Sarah Palin says she’s deeply concerned about the Federal Reserve’s plan to buy $600 billion of U.S. bonds to boost the economy. Alan Murray, Jerry Seib and Jon Hilsenrath discuss why the Federal Reserve has been drawn into the political fray.
Ahead of the meeting, tensions have flared in particular between German and U.S. officials. U.S. Treasury Secretary Timothy Geithner has been pressing member nations to sign up for a framework that would set limits on countries’ trade balances. Germany, which relies heavily on exports, has lectured Washington about its economic policies, which Berlin sees as profligate and damaging.
Already, expectations are low for the meeting. The G-20 is struggling to agree on specific targets for Mr. Geithner’s trade regime. It’s also likely to leave unresolved other big questions, such as how to unwind failing international financial institutions, a task made urgent by the recent financial crisis.
Mr. Geithner said he is “very confident” world leaders, including those from China, will agree on a new framework that could instead include warning indicators for when a country’s trade balance is out of line.
Germany’s criticism echoes that from other countries, including Brazil and Japan, which have complained about potential spillover from the Fed’s action. Printing more dollars, or cutting U.S. interest rates, tends to weaken the dollar and makes U.S. exports more attractive. The accompanying rise in the value of other countries’ currencies tends to damp their exports and can fuel inflation or asset bubbles, as emerging-market officials note. U.S. officials maintain the Fed’s action is about stimulating domestic demand, and that a weaker dollar is a consequence, not an objective.
On Monday, China’s Vice Finance Minister Zhu Guangyao said the U.S. isn’t living up to its responsibility as an issuer of a global reserve currency. The Fed’s move doesn’t “take into account the effect of this excessive liquidity on emerging-market economies,” he said.
The top economic aide to Russian President Dmitry Medvedev said Russia will insist at the G-20 summit that the Fed consult with other countries ahead of major policy decisions.
Luxembourg Prime Minister Jean-Claude Juncker, who is chairman of the euro-zone finance ministers, also weighed in on the Fed move, saying: “I don’t think it’s a good decision. You’re fighting debt with more debt.”
Dissenting voices emerged in the U.S., too. Federal Reserve governor Ken Warsh, a top lieutenant of Federal Reserve Chairman Ben Bernanke, expressed deep skepticism about the Fed’s action in an opinion piece in this newspaper. On Monday, Sarah Palin took aim at the Fed, calling on Mr. Bernanke to “cease and desist” on the bond-buying program. Ms. Palin said, “It’s far from certain this will even work” and suggested the move would create an inflation problem.
Fallout From Global Currency War Could Impact Crude Oil Prices
Over the weekend, Mr. Bernanke said, “We see an economy which has a very high level of underutilization of resources and a relatively slow growth rate. The standard considerations suggest we should be using expansionary monetary policy, and that was the purpose of the action” taken last week.
Underpinning the debate is a growing sense that the international currency system, which has been based on floating exchange rates for most players for more than 30 years, is wearing out. China’s policy of keeping its currency artificially low has long caused tensions that have increased of late, as other countries try to export their economies back to health. Now critics are lumping the Fed’s policy, known as quantitative easing, into the same category.
German Finance Minister Wolfgang Schäuble lashed out at U.S. pressure on Berlin to rein in the country’s surging exports, telling Der Spiegel magazine, “The American growth model…is stuck in a deep crisis.”
He said, “It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar.”
Observers said the blunt criticism of U.S. policy is in large part payback for a longstanding stance by Washington policy makers that the American economy should serve as a model for others. The heated rhetoric also stems from fears that the U.S. may be looking for a back-door way to set exchange-rate policy in a way that favors the U.S.
In his first public comments since Mr. Schäuble’s outburst, Mr. Obama seemed set to keep the heat on both Germany and China. “We can’t continue to sustain a situation in which some countries are maintaining massive [trade] surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern.”
Germany’s trade surplus shot up to €16.8 billion ($23.37 billion) in September from €9 billion in August, Germany’s federal statistics office reported Monday—larger than the €12 billion economists had expected.
Mr. Obama enlisted an ally in Mr. Singh, an economist whose country is wielding increasing influence at the G-20. Responding to Mr. Schäuble’s criticism of the Fed, the prime minister said, “Anything that stimulates the underlying growth impulses of entrepreneurship in the United States would help the cause of global prosperity.”
European Central Bank President Jean-Claude Trichet, after a regular meeting with other central-bank heads Monday, said: “Absolutely no participants mentioned that they were pursuing any kind of weak-currency policies.” He said the Fed gave the committee a “very precise exposition” of its new policy, but said there was no judgment of, or vote on, its action.
—Deborah Solomon, Geoffrey T. Smith and Ian Talley contributed to this article.