Yesterday the Office of Management and Budget (OMB) released the president’s fiscal 2017 budget proposals. As discussed yesterday, the budget was dead on arrival, but is of interest as a “vision statement” of a progressive president no longer bound by any pretense of legislative viability. Given that, what do we learn by looking at the budget? (Gordon Gray has a nice summary here.)
Taxes: Compared to current-law estimates prepared by the Congressional Budget Office (CBO), The President’s Budget proposes increasing tax revenue by $4.5 trillion over the next 10 years, raising tax revenues as a share of the economy by over two percentage points above historic norms by the end of the budget window.
The refugee crisis emanating from the Middle East into Europe and surrounding areas has garnered national and global media attention. The U.N. Refugee Agency reports that more people were displaced by war and persecution in 2014 than in any other year on record, in large part due to the Syrian Civil War. In the United States, refugee policy has the focus of many policymakers. President Obama gave a nod to the Syrian Refugee Crisis during his final State of the Union when he declared “we’re partnering with local forces and leading international efforts to help that broken society pursue lasting peace.” He made a bolder statement, however, by inviting a well-known Syrian Refugee to sit with the First Lady during his address.
Today the Department of Labor provides the first read of 2016 on the state of the U.S. labor market. Recall that in December, payroll employment rose by 292,000, while the unemployment rate remained unchanged at 5.0 percent. What can one expect in the January report?
The nation has experienced a disappointing recovery from the most recent recession and confronts a projected future defined by weak economic growth. Left unaddressed, this trajectory will result in failing to bequeath to the next generation a more secure and more prosperous nation.
DC area meteorologists are predicting epic snowfall, legendary winds, historic cold, Capitol-leveling thundersnow, the dead rising, ….. you get the idea. It might snow. Economists and weathermen are viewed with comparable scorn as forecasters, a sentiment I understand. (Remember the old saying: predicting the future isn’t hard; being right is.) In the spirit of pre-forgiveness in case it turns out to be sunny and mild on Saturday, here’s a personal list of some of the worst moments in policy and economic predictions:
Equity markets rallied somewhat yesterday, but prior to that global losses totaled $3.2 trillion thus far this year. What’s going on, and is this 2008 all over again?
The question Ronald Reagan made central to politics lies at the heart of the evaluation of President Obama’s legacy. Stripped to its essentials, the Obama record has two components: (a) “emergency” responses to the financial crisis and Great Recession, and (b) the passage and or executive imposition of his domestic policy agenda. It’s not easy to draw bright lines, but the former basically consists of the stimulus bill, auto bailouts, “cash for clunkers”, a variety of mortgage relief programs, and (arguably) the Dodd-Frank financial reforms. The latter consists of a pro-union agenda at the National Labor Relations Board (overtime rules, minimum wages, joint employer rules, “quickie elections”, etc.), a clean energy/anti-carbon agenda (CAFE standards, the Clean Power Plan, DOE subsidies, anti-fracking rules), a social welfare agenda (Obamacare, enhanced child credits, enhanced EITC), an education agenda (Race to the Top, gainful employment rules, reducing student loan repayment, American Opportunity tax credit) and more.
Today the Department of Labor releases the final employment report for 2015. Global equity markets and core economic growth are tanking, the U.S. manufacturing sector has contracted for two consecutive months, the Fed is negotiating the path to normalized monetary policy and U.S. trade data are softening. That bodes ill for the December jobs report, right?
According to the Hill newspaper former Obama Administration Secretary of State and current presidential hopeful Hillary Clinton made the case about the damaging impact of the Affordable Care Act (ACA) on incentives for full-time employment: “Well that’s why they’re going to part-time, that and also the Affordable Care Act (ACA)…” This concern emanates from an unlikely source, but reflects the incentives created by the employer mandate to provide affordable health insurance and the ACA’s choice of 30 hours as the definition of full-time work. (These are concerns above and beyond the Congressional Budget Office’s (CBO’s) conclusion that the ACA has cost the U.S. economy 2 million jobs or, more generally, the CBO conclusion that "Repeal of the ACA would raise economic output, mainly by boosting the supply of labor; the resulting increase in GDP is projected to average about 0.7 percent over the 2021–2025 period.”)
The Fed has fully convinced market participants, other policy makers, and the public that it will raise the target federal fund rate by one-quarter of a percent at the conclusion of today’s meeting. If, somehow, it chooses to not do so, its credibility will be shot. Because the hike is widely anticipated, expect it to be a non-event in financial markets.
The latest call for an “exit tax” for US businesses was articulated today. Fierce populist rhetoric at campaign time is perhaps expected, but this proposal doesn’t address the actual problem (an unfriendly business environment), doesn’t work in practice (jobs still leave), and continues the incentives for U.S. businesses to be bought by larger foreign competitors. In other words, despite the rhetoric, an exit tax actually helps send US headquarter jobs overseas.
China scares people, and it should. It has a threatening combination of undisguised ambition and indifference to human freedom. The announcement that the International Monetary Fund (IMF) has designated the remnimbi (the general term for Chinese money, or yuan which is a specific denomination) to join the dollar, euro, pound, and yen in the fund’s Special Drawing Rights (SDRs) reserve-currency basket raised the specter of Chinese economic domination, displacement of the dollar as the dominant global currency, and other fears.
Presidential candidate Hillary Clinton unveiled her proposal to spend $250 billion on infrastructure and $25 billion to create an infrastructure bank. I’m no reflexive opponent of infrastructure proposals (and have written in favor of getting them evaluated on a level budgetary playing field), but these ideas are a shoddy foundation for infrastructure policy.
Before the Iran deal, before the Highway funding bill, before Senate Democrats refused to allow the appropriations process to proceed, and before Congress killed the Export-Import Bank, Washington was aflutter over dynamic scoring. For the blissfully uninitiated, “scores” are the estimates of the impact of legislation on the federal budget produced by the Congressional Budget Office (CBO), the Joint Committee on Taxation (JCT), or both. The dividing line between “static” and “dynamic” scoring is not whether you take into account behavioral responses — you always do that — but whether you permit the overall size of the economy to change. Thus, dynamic scoring is really about the impact of legislation on overall economic growth.