Federal Reserve's Fiscal Priorities

The Fedearl Reserve by law is required to keep prices stable and maximize employment. Many lawmakers, especially the Republicans, want to strip the Feds regarding the employment mandate. In order to keep the prices stable, the policymakers set inflation targets at the unofficial level of 2 percent or lower. In recent days, there is a variant to inflation-targeting mechanism floating around in fiscal circle. The variant, known as price-level targeting, was espoused by a small, but growing, circle of economists, among them is Chicago Fed President Charles Evans. The price-level targeting mechanism allows inflation to run a bit higher to make up for inflation too low today and policymakers to aim and address the long-term average.

Deficit Reduction Proposals--Recommendations from Two Panels

The presidential panel is called the National Commission on Fiscal Responsibility and Reform, and led by former Republican Sen. Alan Simpson and Democrat Erskine Bowles. The panel released the preliminary report in early November. A second report was issued on November 17, 2010 by the Bipartisan Policy Center, a think tank that includes former leaders from both political parties. This second commission is led by former Sen. Pete Domenici and Alice Rivlin, a former Clinton administration budget director. A comparative analysis shows:

2012-20 Deficit Reduction

* BPC: $5.9 trillion; NCFRR: $3.8 trillion

(I) Spending Cuts

* BPC: $2.7 trillion
-- Freeze discretionary spending at 2011 levels until 2015 (non-defense) or 2016 (defense), and then tie increases to economic growth (non-defense: $1 trillion; defense: $1.1 trillion)
-- A tax on sweetened drinks, an increase in Medicare Part B premiums, smaller payments to drug companies and other health care savings ($0.8 trillion)
-- Slap higher incomes with payroll tax, smaller cost-of-living increases for Social Security ($0.1 trillion)

* NCFRR: $2.2 trillion

-- Freeze discretionary spending at 2010 level in 2012, then cut 1% each year until 2015, when it will be tied to inflation ($1.5 trillion)
-- Pay doctors and providers less, limit Medicare cost increases
-- Strengthen the Social Security by increasing retirement age to 69 from 67 by 2075, subjecting higher incomes with payroll taxes and giving smaller cost-of-living increases

(II) New Revenue and Offsets

* BPC: $0.4 trillion

-- 6.5% national deficit reduction sales tax ($3 trillion)
-- One-year holiday from Social Security payroll taxes (-$0.6 trillion)
-- Income taxed at rates of either 15% or 27% (-$1.3 trillion)
-- Corporate tax rate drops to 27% from 35% (-$0.8 trillion)

* NCFRR: $0.2 trillion

-- Additional 15-cents-a-gallon federal gasoline tax by 2015
-- A change in how inflation is measured for all federal programs, including how taxes are assessed

(III) Other Tax Changes

* BPC: $1.9 trillion

-- Replace deductions for mortgage interest and charitable giving with 15% tax credits; reduce or eliminate most other tax credits ($3.5 trillion)

-- Replace earned income tax credit for low-income families; eliminate standard deduction (-$1.9 trillion)

* NCFRR: $0.8 trillion

-- Limit or eliminate the mortgage interest deduction, the child tax credit and earned income tax credit

(IV) Interest Savings

* BPC: $0.9 trillion; NCFRR: $0.7 trillion


Sources: The New York Times; The Dallas Morning News (November 21, 2010)

A New Journey for New GM

General Motors had its IPO on November 18, 2010 and raised almost $23.1b. The IPO price was set at $33 apiece. The journey GM had undertaken marked a significant turnaround from the time when the hallmark auto company had filed for bankruptcy and needed $50b bailout from the government.

Deficit Reduction Proposals

A presidential commission on deficit reduction as well as a bipartisan panel of lawmakers, led by the former Sen. Pete Domenici of New Mexico, came up with draft plan on how to control the runaway deficit. The bipartisan panel released the draft on November 17, 2010. The recommendations of Domenici and Rivlin (named after former member of Congress and Clinton administration's Budget Director Alice Rivlin) panel included:

* Reduction of deficit by nearly $5.9 trillion from 2012 to 2020 (Domenici-Rivlin Panel plans to save $2 trillion more in savings than offered by the Presidential Commission co-chaired by former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles);

* Exemption of employers and employees from the 12.4% payroll taxes for Social Security for 2011;

* Simplifying individual tax rates into two slabs of 15% or 27% instead of current six slabs with the maximum rate at 35%;

* Reduction of corporate tax rate from the current level of 35% to 27%;

* Replacement of deductions for mortgage interest and chartable giving by 15% tax credits.

G-20 Seoul Summit

The latest two-day Seoul Summit of G-20 nations held on November 11 and November 12 came up short of expectation for the U.S. President Barack Obama with exporting nations such as China, Germany and South Korea staunchly opposing an evolving U.S. proposal of setting trade surplus/defecit numerals for guiding the currency exchange rates.