Roberton Williams, senior fellow at the Tax Policy Center, said it’s impossible to calculate the exact effects of all the tax changes, but said the overall result is clear – less philanthropic giving.
“This will lead people to give less to charities if they behave the way they’ve behaved in the past,” he said. “We’ve already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving.”
There are also no green shoots yet to suggest a turning point. There is, for example, very little sign of a recovery in the US housing market ”“ in fact none at all. Inasmuch as you can generalise about such a vast country, US homes are pretty much back to fair value in terms of their affordability. But the uncertainty is such, and the overhang of unsold homes so huge, that prices are still falling. Confidence is lower than it was during the recessions of the 1980s, 1990s and early 2000s, as you can see from the other graph.
The question that arises then is whether the new US budget will change things. The boost is huge. The budget deficit is projected to rise to 12.5 per cent of GDP. That is higher than at any time since the Second World War. It is double the size, relative to GDP, of Franklin D Roosevelt’s New Deal in the 1930s. It is larger than the fiscal deficits run by Japan during the 1990s, which is not an encouraging precedent since they pretty much failed ”“ though arguably Japan’s so-called “lost decade” would have been even more lost without them. Finally, it is even larger than the proposed deficit that our present Government plans to run here.
So what should we make of it? I suppose I fear this administration is making the same mistake with fiscal policy that the previous one made with monetary policy. Remember how the Federal Reserve cut US interest rates way below the rate of inflation to pump up the economy after the collapse of the internet bubble? It succeeded in boosting demand. People borrowed like crazy, savings plunged, the housing boom took off, and the economy recovered. But the growth was artificial and could not be sustained.
What to say to all this?
First, to give him his due, [Michael] Medved does provide an important corrective. In every age there are two extremes: Those who see nothing wrong with the times they live in, and those who see their times as hopeless.
We religious folks tend to fall into the second extreme. We romanticize history and forget that other ages were also marked by grievous sins: Feudalism was a nightmare system of oppression; the Industrial Revolution turned human beings into cogs; the casual racism of the beginning of the 20th century makes us wince when we glimpse it. We have abortion; our forefathers had slavery. We objectify women with pornography; others did it by denying them rights.
But second, the moral crisis we pointed to didn’t depend on rising teen sex rates. What about child sexual abuse? What about pornography? What about suicide rates? We did mention that casual sex is common from a young age, and I think that’s a justifiable thing to point out: The rates may have dropped, but calling their drop “dramatic” doesn’t change the fact that they are still very high.
And third, as Pope John Paul II and others have pointed out, the greatest sin in our day isn’t any particular sin, but the loss of the sense of sin.
President Obama calls his budget outline a guide for the nation’s path back to prosperity. But it looks more like a path to immense debt.
Under the Obama plan, federal spending will rise faster than national income over the next decade. He projects the nation’s debt will rise from $5.8 trillion in 2008 to $15.4 trillion in 2019.
Indeed, his budget plan, which includes a record $3.55 trillion in spending next year, shows no exit from a dependency on debt, despite higher taxes. The plan estimates that federal revenues will grow 76 percent by 2019, while the nation’s gross domestic product grows only 60 percent.
Mr. Obama’s budget offers a clear contradiction of his assertion, in Tuesday night’s speech to Congress, that he doesn’t believe in “bigger government….”
Here’s what is most infuriating: Here we are now, fully aware of how these scams worked. Yet for all practical purposes, the government has to keep them going. Indeed, that may be the single most important reason it can’t let A.I.G. fail. If the company defaulted, hundreds of billions of dollars’ worth of credit-default swaps would “blow up,” and all those European banks whose toxic assets are supposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed. A.I.G. helped create the illusion of regulatory capital with its swaps, and now the government has to actually back up those contracts with taxpayer money to keep the banks from collapsing. It would be funny if it weren’t so awful.
I asked Mr. Arvanitis, the former A.I.G. executive, if the company viewed what it had done during the bubble as a form of gaming the system. “Oh no,” he said, “they never thought of it as abuse. They thought of themselves as satisfying their customers.”
That’s either a remarkable example of the power of rationalization, or they were lying to themselves, figuring that when the house of cards finally fell, somebody else would have to clean it up.
That would be us, the taxpayers.
Most members of Congress and lobbyists are delighted that the White House has surrendered so much authority to Capitol Hill. Everybody is working on a way to push their own particular vision of reform through the muddle.
There are good plans on offer, but it won’t take long for this to get ugly. We’ll either get an irresponsible bill produced by the Old Order or no bill at all. It could be that even with a thousand “conversations,” no consensus will automatically emerge from the hundreds of players who have produced the gridlock of the past 30 years.
Even though the budget is not all one would have hoped, I’d trust the folks in the Obama administration to craft a decent health care plan before I’d trust the Congressional Old Bulls.
Obama blew a mighty trumpet Tuesday night, but after you blow the trumpet, you actually have to charge.
From front to back and on nearly every page, President Obama’s new budget plan delivers a stark message: It’s time for the rich to lighten the load on the middle class.
In education, healthcare and an array of other proposals, the budget focuses more benefits on middle-class and lower-income Americans and looks to the affluent to help pay for them.
The change is meant to reverse a long-running trend in the opposite direction.
Gordon Brown will seek to make common cause with President Obama next week over the best way to take the world out of recession.
The Prime Minister aims to use a two-day trip to Washington to bond with the US President over the issue on which Mr Brown has staked his damaged political reputation: the massive state-funded stimulus packages to the world’s stricken economies.
One Downing Street aide described their White House meeting as an attempt to present a united front against the “forces of global conservatism”.
A single piece of paper may just be one of the most surprising and illuminating documents of the whole banking crisis.
It’s a one-page research note from an economist at Deutsche Bank, and it outlines in the clearest terms the kind of solution many bankers are looking for. The basic message: We should forget trying to get a good deal for taxpayers because even trying will hurt.
“Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line,” the document says.
In other words, the paper says, if the government tries to save taxpayers money, many people will lose their jobs and the whole economy will suffer.
The U.S. government waded deeper into the bailout of one of the nation’s largest banks Friday when it announced a deal that will give it control over as much as 36% of Citigroup’s common stock.
Citigroup shares tumbled 46% in premarket trading.
The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank’s capital base, which in turn will hopefully allow it to increase its lending.
In the economy, a series of financial booms and busts, dating back 20 years, has brought on the worst crisis since the Great Depression. Even defenders of free markets have come to acknowledge that markets can be manipulated or overwhelmed by investors, lenders, consumers and borrowers who act on the basis of emotion or incomplete information or act as part of an irrational herd.
And politics, a process that has come to be dominated by competition among narrow special interests has, for most of the past 15 years, produced stalemates on the country’s most pressing domestic issues. Political markets, we now know, can be easily manipulated by money and legislative redistricting and parliamentary rules that thwart the will of the majority. And these markets have trouble resolving issues in which the benefits of doing something are widely shared but the costs are highly concentrated.
The essential insight of Barack Obama has been to see that these problems are inextricably linked. While his budget incorporates bold proposals to rescue the financial system, stabilize the auto industry, jump-start the economy, reform the health-care system and eventually bring down the federal deficit, he knows he’s unlikely to win any of it if he cannot change the way business is done in Washington.
President Obama’s first budget — with its eye-popping $1.75 trillion deficit, a health-care fund of more than $600 billion, a $150 billion energy package and proposals to tax wealthy Americans even beyond what he talked about during his campaign — underscores the breadth of his aspiration to reverse three decades of conservative governance and use his presidency to rapidly transform the country.
But in adopting a program of such size, cost and complexity, Obama has far exceeded what other politicians might have done. As a result, he is now gambling with his own future and the success of his presidency.
William A. Galston of the Brookings Institution cited three parallels to Obama’s far-reaching program: Franklin D. Roosevelt’s 1932 New Deal blueprint, Lyndon B. Johnson’s 1965 Great Society agenda, and Ronald Reagan’s 1981 call to dramatically limit the size and power of government, which set the framework for public policy debate ever since.
“A consequence of the economic events of the last two years has been to blow up that framework,” Galston said. “It has lost substantial public credibility. President Obama now has his chance to make his case for a fundamentally different approach.”
The fly in the ointment is the “Buy American” clause, which has already drawn protests from other heads of state. It states: “None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.” It is hard to draw any meaningful distinction between this sentiment and that expressed by various groups of British workers in recent weeks. In his wise overview of the economic crisis prepared for the General Synod, Dr Malcolm Brown warned that “recessions can provoke a growth of nationalist sentiments. . . We can expect the far-right, politically, to exacerbate community tensions and probably make electoral gains on the back of the downturn.” Dr Williams returned to this theme on Tuesday, warning of the “very high risk” that financial stringency will lead to political extremism.
Bill Clinton declared more than a decade ago “the era of big government is over.” With his new budget, President Barack Obama has brought it back.
Obama’s $3.55 trillion budget proposal represents a gamble that Americans are ready for the sort of change they embraced by electing him in November, including a tax increase on Americans making more than $250,000 a year.
He proposes expansion of spending on the U.S. healthcare system, on greater energy independence and on education, hoping Americans weary of paying for a raft of expensive bailouts for banks and the car industry will go along.
President Barack Obama forecast the biggest U.S. deficit since World War Two in a budget on Thursday that urges a costly overhaul of the healthcare system and would spend billions to arrest the economy’s freefall.
An eye-popping $1.75 trillion deficit for the 2009 fiscal year is projected in Obama’s first budget. That is equal to 12.3 percent of U.S. gross domestic product — the largest share since 1945 when the country ran a shortfall of 21.5 percent of GDP.
Devoting nearly 20% of his speech to the topic, …[President Obama] acknowledged the public loathing of bank rescue efforts. He explained the role of credit in creating and preserving jobs. And he took some requisite, and wholly justified, swipes at executives for their outrageous pay and perks. But most important, he stated unequivocally what no one in the chamber wanted to hear and what he did not want to have to say ”” that even more money might be necessary to restore the banking system to its former self.
He was right on all scores. Nothing is more important to the livelihood of Americans than getting the credit spigot flowing again. Without it, all other efforts to revive the economy will fail.
And yet, if Congress were asked today for more funds for banks, the likeliest response would be a resounding no….
But there is no valid rationale for opposing a round three if it becomes necessary.
The Denver prelate then provided his critique of President Obama.
“President Obama is a man of intelligence and some remarkable gifts. He has a great ability to inspire, as we saw from his very popular visit to Canada just this past week. But whatever his strengths, there’s no way to reinvent his record on abortion and related issues with rosy marketing about unity, hope and change. Of course, that can change. Some things really do change when a person reaches the White House. Power ennobles some men. It diminishes others. Bad policy ideas can be improved. Good policy ideas can find a way to flourish. But as Catholics, we at least need to be honest with ourselves and each other about the political facts we start with.”
Yet this will be “very hard for Catholics in the United States,” [Charles] Chaput warned.
According to the archbishop, the political situation for Catholics is difficult to discern because a “spirit of adulation bordering on servility already exists among some of the same Democratic-friendly Catholic writers, scholars, editors and activists who once accused pro-lifers of being too cozy with Republicans. It turns out that Caesar is an equal opportunity employer.”
President Barack Obama will propose further tax increases on the affluent to help pay for his promise to make health care more accessible and affordable, calling for stricter limits on the benefits of itemized deductions taken by the wealthiest households, administration officials said Wednesday.
The tax proposal, coming after recent years in which wealth has become more concentrated at the top of the income scale, introduces a politically volatile edge to the congressional debate over Obama’s domestic priorities.
The president will also propose, in the 10-year budget he is to release Thursday, to use revenues from the centerpiece of his environmental policy a plan under which companies must buy permits to exceed pollution emission caps to pay for an extension of a two-year tax credit that benefits low-wage and middle-income people.
The combined effect of the two revenue-raising proposals, on top of Obama’s existing plan to roll back the Bush-era income tax reductions on households with income exceeding $250,000 a year, would be a pronounced move to redistribute wealth by reimposing a larger share of the tax burden on corporations and the most affluent taxpayers.
Facing an economic crisis, a banking crisis, a housing crisis and an auto industry crisis, President Obama used the opportunity of his address to a joint session of Congress Tuesday night to load his plate with even more. Mr. Obama said he would press ahead with plans to overhaul the nation’s health-care system, bolster education and lead the transition to new forms of energy — all while curing cancer and getting the deficit under control.
We understand the president’s instinct not to let short-term demands obscure the need to meet the country’s long-term challenges. His priorities for fundamental reform, the causes that animated his campaign, are admirable ones. Yet we cannot help wondering: Isn’t the most critical task to ensure a swift and effective response to the stomach-churning downturn? Does a new, understaffed administration have the capacity to try so much so fast? And does the political system have the bandwidth to accommodate all that Mr. Obama is asking from it?
I think about Greensburg, Kansas, a town that was completely destroyed by a tornado, but is being rebuilt by its residents as a global example of how clean energy can power an entire community ”“ how it can bring jobs and businesses to a place where piles of bricks and rubble once lay. “The tragedy was terrible,” said one of the men who helped them rebuild. “But the folks here know that it also provided an incredible opportunity.”
And I think about Ty’Sheoma Bethea, the young girl from that school I visited in Dillon, South Carolina -”“ a place where the ceilings leak, the paint peels off the walls, and they have to stop teaching six times a day because the train barrels by their classroom. She has been told that her school is hopeless, but the other day after class she went to the public library and typed up a letter to the people sitting in this room. She even asked her principal for the money to buy a stamp. The letter asks us for help, and says, “We are just students trying to become lawyers, doctors, congressmen like yourself and one day president, so we can make a change to not just the state of South Carolina but also the world. We are not quitters.” We are not quitters.
These words and these stories tell us something about the spirit of the people who sent us here. They tell us that even in the most trying times, amid the most difficult circumstances, there is a generosity, a resilience, a decency, and a determination that perseveres; a willingness to take responsibility for our future and for posterity.
Their resolve must be our inspiration. Their concerns must be our cause. And we must show them and all our people that we are equal to the task before us.
I know that we haven’t agreed on every issue thus far, and there are surely times in the future when we will part ways. But I also know that every American who is sitting here tonight loves this country and wants it to succeed.
Addressing a nation on an economic precipice, President Barack Obama plans to ask worried Americans to pull together Tuesday night and declare reassuringly that the U.S. “will emerge stronger than before.”
Mr. Obama aims to balance candor with can-do in his first address to a joint session of Congress.
“The weight of this crisis will not determine the destiny of this nation,” Mr. Obama plans to say. “Tonight I want every American to know this: We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
The comments were included in excerpts from the speech that were released early by the White House.
President Obama has concentrated enormous power on a few aides in the West Wing of the White House. These aides are unrolling a rapid string of plans: to create 3 million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools – and to do it all while cutting the deficits in half.
If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. Yet they set off my Burkean alarm bells.
I fear that in trying to do everything at once, they will do nothing well. I fear that we have a group of people who haven’t even learned to use their new phone system trying to redesign half the U.S. economy.
I fear they are going to try to undertake the biggest administrative challenge in American history while refusing to hire the people who can help the most: agency veterans who are registered lobbyists.
I worry that we’re operating far beyond our economic knowledge.
These are difficult times for economic policy makers, especially given what the new Administration inherited. But after five weeks of watching the repeated muffs of the Obama financial team, we’re inclined to recall Casey Stengel’s famous crack about the 1962 New York Mets: “Can’t anyone here play this game?”
The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.
For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.
Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.
Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.
The government faced mounting pressure on Monday to put billions more in some of the nation’s biggest banks, two of the biggest automakers and the biggest insurance company, despite the billions it has already committed to rescuing them.
The government’s boldest rescue to date, its $150 billion commitment for the insurance giant American International Group, is foundering. A.I.G. indicated on Monday it was now negotiating for tens of billions of dollars in additional assistance as losses have mounted.
Separately, the Obama administration confirmed it was in discussions to aid Citigroup, the recipient of $45 billion so far, that could raise the government’s stake in the banking company to as much as 40 percent.
The Treasury Department named a special adviser to work with General Motors and Chrysler, two of Detroit’s biggest automakers, which are seeking $22 billion on top of the $17 billion already granted to them.
Mr. [Nouriel] Roubini tells me that bank nationalization “is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] — i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector — it’s clear that it’s temporary. No one’s in favor of a permanent government takeover of the financial system.”
There’s another reason why the concept should appeal to (fiscal) conservatives, he explains. “The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks.”
In any case, Republicans must now temper their reactions, he says. “The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank — supposed to be the lender of the last resort — became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we’ve already crossed a significant bridge.”
So, will the highest level of government be receptive to the bank-nationalization idea? “I think it will,” Mr. Roubini says, unhesitatingly. “People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover.” And how long will it be before the administration goes in formally for nationalization? “I think that we’re going to see the policy adopted in the next few months . . . in six months or so.”
President Obama is putting the finishing touches on an ambitious first budget that seeks to cut the federal deficit in half over the next four years, primarily by raising taxes on business and the wealthy and by slashing spending on the wars in Iraq and Afghanistan, administration officials said.
In addition to tackling a deficit swollen by the $787 billion stimulus package and other efforts to ease the nation’s economic crisis, the budget blueprint will press aggressively for progress on the domestic agenda Obama outlined during the presidential campaign. This would include key changes to environmental policies and a major expansion of health coverage that Obama hopes to enact later this year.
A summary of Obama’s budget request for the fiscal year that begins in October will be delivered to Congress on Thursday, with the complete, multi-hundred-page document to follow in April. But Obama plans to unveil his goals for scaling back record deficits and rebuilding the nation’s costly and inefficient health care system Monday, when he addresses more than 100 lawmakers and budget experts at a White House summit on restoring “fiscal responsibility” to Washington.
Rick Santelli, the CNBC reporter who went into a certifiable rant against the Obama housing plan Thursday, found himself in the White House bullseye 24-hours later: the object of scorn and humorous derision from the president’s press secretary Robert Gibbs.
“I’m not entirely sure where Mr. Santelli lives or in what house he lives,” Gibbs said during the daily briefing. “But the American people are struggling every day to meet their mortgage, stay in their jobs, pay their bills to send their kids to school, and to hope that they don’t get sick or somebody they care for gets sick that sends them into bankruptcy. I think we left a few months ago the adage that if it was good for a derivatives trader, that it was good for main street. I think the verdict is in on that.”