Sunday, January 16, 2011
Last Meeting of FOMC in 2010
The last meeting of the Federal Open Market Committee on December 14, 2010 didn't alter the long-held position of Feds policymakers, i.e., leaving the federal funds rate close to zero as has been since December 2008 and pursuing the policy of Quantitative Easing round II as has been unveiled during the last meeting of policymakers in November.
Sunday, January 9, 2011
Bush-era Tax Cuts Deal Extended
Over the objections of liberal wing of the Democratic Party, a measure hashed out by Vice President Joe Biden and Senate Minority leader Mitch McConnell, R-Ky. that would extend all Bush-era tax cuts for two years passed the muster in Senate (81-19) on December 15, 2010 and House (277-148) on December 16, 2010. The landmark deal was first unveiled by President Barack Obama on December 6, 2010. The price tag is estimated at $858 billion. In exchange for extending all Bush-era tax cuts for two years, White House exacted Republican nod on quite a few popular components such as an one-year extension of unemployment benefit for long-term unemployed. The salient features of the measure, signed by President Barack Obama on December 17, 2010, include:
* Lower rates for taxpayers at every income level ($186.8 billion)
* More generous itemized deductions for high-income households ($20.7 billion)
* More generous $1,000 child tax credit ($71.7 billion)
* Standard deduction ($18 billion)
* More generous earned income tax credit for low-income families ($ 15.7 billion)
* Tax breaks for students and their families ($3.3 billion)
* Deductions for tuitions and related expenses ($1.2 billion)
* Tax credits of up to $2,500 for higher education expenses ($17.6 billion). The tax credits measure, known as American Opportunity Tax Credit, was passed as part of 2009 stimulus bill and is set to expire this year. The tax credits extend to students who are also enrolled in for-profit institutions. In 2009, 8.3 million people received the credit, averaging $1,700 per applicant.
* Keeping top capital gains tax rate at 15% ($25.9 billion)
* Keeping top tax rate on dividends ($27.3 billion)
* Extension of jobless benefits for long-term unemployed for one year ($56.5 billion)
* Deduction of $250 for out-of-pocket classroom expenses ($390 million)
* Retaining federal deductions on state and local sales taxes in seven states (Texas, Florida, Nevada, South Dakota, Tennessee, Washington and Wyoming) that don't have sales taxes ($5.5 billion). When federal tax code was simplified in 1986, deductions for state sales taxes were eliminated. However, they were again restored in 2004, but Congress never made the measure permanent.
* Tax-free withdrawal of up to $100,000 a year by older Americans from IRA to donate to certain public charities ($979 million)
* Business tax credits for research and experimentation expenses ($13.3 billion)
* Capital improvements to restaurants and other retail buildings ($3.6 billion)
* Tax breaks to active investors in foreign-based banking, securities and insurance firms ($9.2 billion)
* Increase in depreciation and expensing for capital investments by businesses ($21.8 billion)
* Exemption from estate taxes for two years for $5 million for individual and an additional $5 million for spouse, and taxing the balance at 35% tax rate ($68 billion)
* Social Security tax cut for all wage earners from 6.2% to 4.2% for one year ($112 billion)
Source: Joint Committee on Taxation; The Dallas Morning News
* Lower rates for taxpayers at every income level ($186.8 billion)
* More generous itemized deductions for high-income households ($20.7 billion)
* More generous $1,000 child tax credit ($71.7 billion)
* Standard deduction ($18 billion)
* More generous earned income tax credit for low-income families ($ 15.7 billion)
* Tax breaks for students and their families ($3.3 billion)
* Deductions for tuitions and related expenses ($1.2 billion)
* Tax credits of up to $2,500 for higher education expenses ($17.6 billion). The tax credits measure, known as American Opportunity Tax Credit, was passed as part of 2009 stimulus bill and is set to expire this year. The tax credits extend to students who are also enrolled in for-profit institutions. In 2009, 8.3 million people received the credit, averaging $1,700 per applicant.
* Keeping top capital gains tax rate at 15% ($25.9 billion)
* Keeping top tax rate on dividends ($27.3 billion)
* Extension of jobless benefits for long-term unemployed for one year ($56.5 billion)
* Deduction of $250 for out-of-pocket classroom expenses ($390 million)
* Retaining federal deductions on state and local sales taxes in seven states (Texas, Florida, Nevada, South Dakota, Tennessee, Washington and Wyoming) that don't have sales taxes ($5.5 billion). When federal tax code was simplified in 1986, deductions for state sales taxes were eliminated. However, they were again restored in 2004, but Congress never made the measure permanent.
* Tax-free withdrawal of up to $100,000 a year by older Americans from IRA to donate to certain public charities ($979 million)
* Business tax credits for research and experimentation expenses ($13.3 billion)
* Capital improvements to restaurants and other retail buildings ($3.6 billion)
* Tax breaks to active investors in foreign-based banking, securities and insurance firms ($9.2 billion)
* Increase in depreciation and expensing for capital investments by businesses ($21.8 billion)
* Exemption from estate taxes for two years for $5 million for individual and an additional $5 million for spouse, and taxing the balance at 35% tax rate ($68 billion)
* Social Security tax cut for all wage earners from 6.2% to 4.2% for one year ($112 billion)
Source: Joint Committee on Taxation; The Dallas Morning News
Historic Trade Agreement with South Korea
The USTR Ron Kirk on December 3, 2010 clinched a historic trade deal (in a sense, this deal is more of a tweak and refinement to the existing trade agreement already signed by the Bush administration, but not ratified) with South Korea that would have a potential to adversely impact Japan, hamstrung in discussions in trade talks. If Washington-Seoul trade pact is ratified by both nations' legislatures, the measure would:
* Lift tariffs on car imports from South Korea, currently at an average of 2.5%, in the five years after the ratification of the pact.
* Eliminate tariff on all other merchandise tariffs in the same time frame. Current tariff on such imports from South Korea is at 3.2%.
* Eliminate farm product tariffs on the imports from USA from the current average level of 54%, a major market penetration opportunity for USA 's beef, farm and poultry products.
Now, pressure shifts to Tokyo to engage in the multilateral Trans-Pacific Partnership (TPP) trade liberalization talks.
Source: The Dallas Morning News (December 6, 2010 edition)
Congress on October 12, 2011 ratified the free-trade agreements with South Korea, Panama and Colombia.
* Lift tariffs on car imports from South Korea, currently at an average of 2.5%, in the five years after the ratification of the pact.
* Eliminate tariff on all other merchandise tariffs in the same time frame. Current tariff on such imports from South Korea is at 3.2%.
* Eliminate farm product tariffs on the imports from USA from the current average level of 54%, a major market penetration opportunity for USA 's beef, farm and poultry products.
Now, pressure shifts to Tokyo to engage in the multilateral Trans-Pacific Partnership (TPP) trade liberalization talks.
Source: The Dallas Morning News (December 6, 2010 edition)
Congress on October 12, 2011 ratified the free-trade agreements with South Korea, Panama and Colombia.
Presidential Fiscal Commission Report
The 18-member National Commission on Fiscal Responsibilty and Reform (NCFRR), appointed by President Barack Obama to find ways to tackle burgeoning fiscal deficit and debt, issued a formal report on December 1, 2010. The report is a wake-up call for American people and policymakers to deal the issue with utmost urgency. The report includes the following salient features:
* Deficit Reducton
Cut $3.9 trillion from deficits estimated at $8.3 trillion over 2012-20.
Produce a deficit of $421 billion in 2015 and $279 billion in 2020.
Stabilize the national debt at 66% of the the size of the economy, a more sustainable level.
* Social Security
Increase the Social Security retirement age by one month every two years after it reaches 67 under current law. It would reach 68 around 2050 and 69 around 2075. Raise the early retirement age from 62 to 64 in the same timetable. Workers in the manual labor would get exemption.
Lower COLA increases.
Reduce the benefits for high-income retirees.
Gradually raise the upper limit of the income levels (currently $106,800) that is subject to Social Security taxes.
Give the beneficiaries to collect half the benefit early and the half later.
* Taxes
Overhaul both individual and corporate tax structures.
For individual taxfilers, five rate structrures will be simplified to three: 8, 14 and 23 percent.
Corporations will face a top rate of 26%, down from 35%.
Scale back a host of deductions, including mortgage interests, child tax credits and a litany of other deductions.
Increase gas taxes by 15 cents a gallon to fund the transpotation programs.
Devote $80 billion in increased revenue to the deficit in 2015, rising to $180 billion in 2020, capping revenue at 21% of GDP.
* Domestic Spending
Freeze Defense Department salaries and bonuses for three years, and noncombat military pay at 2011 level for three years.
Reduce overseas bases by one-third, cut spending for base support and integrate children in military families in local schools.
Reduce Congressional and White House budgets by 15%, freeze federal compensation at nondefense agencies for three years, cut federal work force by 10%, eliminate 250,000 nondefense contractors and end money for commercial space flights.
End grants to large- and medium-sized hub airports; require airports to fund a larger share of security costs.
Cut funding for public broadcasting.
*Health Care
Phase out by 2038 the tax free status of employer-provided health benefits, providing incentives for people to enroll into cost-conscious insurance plans.
Limit annual rate of increase of Medicare and Medicaid spending by no more than 1% over the rate of growth of economy. This would be accomplished by rewarding quality instead of sheer volume, demanding rebates from drug companies that want to partcipate in the two legacy plans and raising cost-sharing for Medicare recipients.
Replace the federal employees' health insurance benefits with a voucher plan in which they would receive slowly growing subsidies to buy insurance.
Source: The Associated Press and The Dallas Morning News
* Deficit Reducton
Cut $3.9 trillion from deficits estimated at $8.3 trillion over 2012-20.
Produce a deficit of $421 billion in 2015 and $279 billion in 2020.
Stabilize the national debt at 66% of the the size of the economy, a more sustainable level.
* Social Security
Increase the Social Security retirement age by one month every two years after it reaches 67 under current law. It would reach 68 around 2050 and 69 around 2075. Raise the early retirement age from 62 to 64 in the same timetable. Workers in the manual labor would get exemption.
Lower COLA increases.
Reduce the benefits for high-income retirees.
Gradually raise the upper limit of the income levels (currently $106,800) that is subject to Social Security taxes.
Give the beneficiaries to collect half the benefit early and the half later.
* Taxes
Overhaul both individual and corporate tax structures.
For individual taxfilers, five rate structrures will be simplified to three: 8, 14 and 23 percent.
Corporations will face a top rate of 26%, down from 35%.
Scale back a host of deductions, including mortgage interests, child tax credits and a litany of other deductions.
Increase gas taxes by 15 cents a gallon to fund the transpotation programs.
Devote $80 billion in increased revenue to the deficit in 2015, rising to $180 billion in 2020, capping revenue at 21% of GDP.
* Domestic Spending
Freeze Defense Department salaries and bonuses for three years, and noncombat military pay at 2011 level for three years.
Reduce overseas bases by one-third, cut spending for base support and integrate children in military families in local schools.
Reduce Congressional and White House budgets by 15%, freeze federal compensation at nondefense agencies for three years, cut federal work force by 10%, eliminate 250,000 nondefense contractors and end money for commercial space flights.
End grants to large- and medium-sized hub airports; require airports to fund a larger share of security costs.
Cut funding for public broadcasting.
*Health Care
Phase out by 2038 the tax free status of employer-provided health benefits, providing incentives for people to enroll into cost-conscious insurance plans.
Limit annual rate of increase of Medicare and Medicaid spending by no more than 1% over the rate of growth of economy. This would be accomplished by rewarding quality instead of sheer volume, demanding rebates from drug companies that want to partcipate in the two legacy plans and raising cost-sharing for Medicare recipients.
Replace the federal employees' health insurance benefits with a voucher plan in which they would receive slowly growing subsidies to buy insurance.
Source: The Associated Press and The Dallas Morning News
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