StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



The Pete Davis Archives

Posted by Pete Davis

That's a lot of spending through the Tax Code as described by Urban-Brookings Tax Policy Center Director Donald Marron at lunch today before the National Economists Club -- between $600 billion and $700 billion annually, and that's counting both individual income and corporate tax preferences, but corporate preferences are small in comparison. In the last normal year, in 2007 before the recession and the stimulus bill, federal spending was 19.6% of GDP according to Treasury, but "spending-like tax preferences" raised that to 23.7% of GDP. 

Posted by Pete Davis

This morning, a bipartisan group of 50 or more senators endorsed a revived version of the "Gang of Six" plan.  The Atlanta Constitution's Jamie Dupree seems to be the first to put the details on the web here.  President Obama endorsed the plan in principle in a press room appearance at 1:35 p.m. today.  The transcript will be posted here.  This stole the thunder from the House's vote later today for "Cut, Cap, and Balance," H.R.2560.  When the Senate votes down H.R.2560 later this week, the key question will be whether 120 House Republicans will support the "Gang of Six" plan.  I've already had one top House GOP staff director express doubt, but we shall see.

Posted by Pete Davis

President Obama just said, "So what I've said to the leaders is, bring back to me some ideas that you think can get the necessary number of votes in the House and in the Senate. I'm happy to consider all options, all alternatives that they're looking at. The things that I will not consider are a 30-day or a 60-day or a 90-day or a 180-day temporary stopgap resolution to this problem."  That's music to the ears of those of us who want serious deficit reduction after 2012, but, unfortunately, it flies in the face of recent history.

This Congressional Research Service report lists 11 short-term continuing resolutions to fund the government that President Obama has signed since taking office on January 20, 2009.

Posted by Pete Davis

If we could just come up with $400 billion of revenue increases that Grover Nordquist wouldn't classify as a tax increase, a debt limit deal could be cut within days. This is hardly the first time that Washington has raised revenue while avoiding calling it a tax "increase."

Posted by Pete Davis

The Committee for A Responsible Federal Budget has just posted a very handy side-by-side comparison of 32 deficit reduction plans.  You can use this tool to compare any three at a time.  This is Budget Wonk Heaven.

Of course, our problem is not a lack of plans; it's finding one plan that can pass both houses of Congress and can get President Obama's signature by August 2, which Treasury just reaffirmed today.

At Cheri Reidy's retirement reception at the Senate Budget Committee Wednesday -- She has put in 29 years of top-notch service to our country, starting at the desk next to mine -- I heard staff and members from both parties talking down: President Obama; leaders of the other party; leaders of their own party; and the futile 3:30 p.m. sequester briefing that interfered with final arrangements for Cheri's party.  She was given a very warm and heartfelt sendoff in any event, but the gloom over the budget talks hung heavy.

Posted by Pete Davis

Wednesday, Rep. Kevin Brady (R-TX) announced his Maximizing America's Prosperity (MAP) Act, H.R.2319, at the American Enterprise Institute. It has several practical budget features that could help get federal spending under control. He would: 1) set a cap on all federal spending minus interest expense as a percentage of potential GDP; 2) back it up with an across-the-board sequester, including foregoing Social Security and other entitlement COLAs; 3) give the president a item reduction veto; 4) require the President to prioritize spending; 5) set up a sunset commission; and 6) establish a permanent continuing resolution at 90% of last year's level to eliminate the threat of government shutdowns.

Posted by Pete Davis

Yesterday morning, House Majority Leader Eric Cantor (R-VA) bolted the Biden Group deficit talks in frustration over repeated insistence by Democrats that some revenue raisers be included in the deal to raise the debt limit.  There were conflicting accounts over whether Cantor's move was made on his own, but it did appear to catch Senator Jon Kyl (R-AZ) by surprise.  A few hours later Kyl announced he would boycott the talks as well. 

Speaker John Boehner (R-OH) rushed to the White House Wednesday night for a hastily arranged meeting with President Obama, presumably to reassure him that a deal would eventually be reached. 

Posted by Pete Davis

Patent reform has been on the congressional agenda for years.   A compromise, S.23, passed the Senate on March 8 by an overwhelming 95-5 vote, and the House is about to pass H.R.1249 late this week.  However, a battle over whether all patent fees must be used to fund the Patent Office may derail the effort.  

House Appropriations Chair Hal Rogers (R-KY) and Budget Chair Paul Ryan (R-WI) insisted that patent fees remain within the purview of the Appropriations Committees.  They cut a deal with the Judiciary Committee to keep patent fees as appropriations, but would reserve excess funds, beyond what is needed for the Patent Office, in a new account that could be used by appropriators as they see fit.  The compromise may not sit well with the Senate, which wants all patent fees devoted to the Patent Office. 

Posted by Pete Davis
Yesterday afternoon, an overflow audience at the Center for a Responsible Federal Budget conference heard:
 
Ben Bernanke say "...maintaining the status quo is not an option...I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job. Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation." His full remarks are here. He didn't take any questions.
 
Rep. Paul Ryan (R-OH) call for $6.2 trillion of spending cuts over the next 10 years versus the President's FY12 Budget ($5 trillion from the CBO baseline).
Posted by Pete Davis

The media are already making a bid deal out of today's special election in New York's 26th congressional district as a referendum on Rep. Paul Ryan's Medicare plan -- not!  There's a lot more going on in this race that has absolutely nothing to do with Medicare.

Posted by Pete Davis

That's a lot of money even in Washington.  At 10:30 a.m. tomorrow, the House Ways and Means Oversight Subcommittee will hear from IRS, Treasury, and GAO witnesses.  It will be webcast live here

Posted by Pete Davis

 Moody's Analytics Chief Economist Mark Zandi offered four reasons for optimism on the economy and three for "nervousness" at lunch today before the National Economists Club. He expects 3% real GDP growth this year, like last year, and 4% next year. "There won't be a lot of progress on the unemployment rate this year [currently 9.0%] because of labor force growth from people returning to the job market."

Posted by Pete Davis

House Speaker John Boehner (R-OH) will address the Economic Club of New York over dinner next Monday.  His remarks come at a crucial time as world money managers assess whether the U.S. will get its fiscal house in order.  Here's what I expect to hear.

Posted by Pete Davis

Today,  Jim Carter and I wrote this op-ed in Investor's Business Daily.  Until recently, Jim was Chief Economist at  the Senate Budget Committee Minority and Deputy Assistant Secretary of Treasury.


House Speaker John Boehner has a problem. With the federal government rapidly approaching its debt limit of $14.294 trillion, more than a few members of the House have said they won't vote to increase it. 

Some oppose raising it as a matter of principle. Others are willing to raise it, but only if the increase is accompanied by spending cuts and budget reforms. And then there are those who simply want to make the most of this opportunity to score political points.

Posted by Pete Davis

That's according to a Business Roundtable commissioned study by PricewaterhouseCoopers LLC of 2006 through 2009 financial data from the S&P Global Vantage database for the 2,000 largest world companies listed by Forbes. That's quite a gap for U.S. headquartered firms to make up versus their competitors in 58 countries, but it ranks 6th in effective tax rates behind Japan, Morocco, Italy, Indonesia, and Germany.

There are all sorts of problems in calculating comparable tax rates across countries, but the tax economists at PWC, many of whom I have worked with, are very qualified to do so. They aggregated total income tax provision plus change in deferred taxes at all levels of government divided by worldwide net income before taxes, minority interest, and extraordinary items. Companies reporting zero or negative tax rates in any year were excluded in that year, and companies with substantial oil and gas operations were excluded because those operations are usually subject to higher rates in countries where oil and gas is a large share of GDP.

Posted by Pete Davis

Repeatedly over the last few weeks, Wall Street clients have asked me to give odds on a big budget deal this year, one that would knock a trillion dollars or more off of the deficit over the next 10 years and would allow Republicans to support a debt limit increase.  I've said I didn't see much chance of a big deficit reduction, but I may have to revise that. President Obama will address the nation Wednesday night to back such a deficit reduction effort.  I still wouldn't put more than 33% odds on enactment yet, but that's a big jump from 5%.  Starting last fall, I've told my Wall Street clients to expect disruptions to the Treasury markets this spring and a series of short-term debt limit increases as we nibble at the deficit.

This morning, White House Senior Adviser David Plouffe said this on ABC's "This Week With Christiane Amanpour:"

Posted by Pete Davis

Those of you who follow the market closely noticed it didn't react to last week's government shutdown soap opera.  Take a look at this S&P500 chart.  Once it recovered from the March 11 Tsunami, it was essentially flat for the last two weeks.  There were a number of reasons for this:

Posted by Pete Davis

Visitors to House and Senate Budget Committee mark-ups are often surprised by how debates over baselines consume more time than debates over policy.  That's because agreeing to a baseline forces certain policy decisions.  If you assume tax cuts will be extended in the baseline, it doesn't cost anything to extend them.  If you assume the President's spending proposals in the baseline, you can show large spending cuts when you remove them, even if they had little chance of enactment anyway.  That's the game being played now.  This morning, the Congressional Budget Office will release its baseline as required by the Budget Act in its annual Analysis of the President's Budget.  CBO is constrained to take into account "present law," except that any expiring trust fund taxes are assumed to continue.  That means that last December's tax cuts will be assumed to expire at the end of 2012, even though most, if not all, of them will be extended at a 10-year cost of $3.2 tr.  President Obama wants to allow the tax cu

What Budget Deal?

10 Mar 2011
Posted by Pete Davis
This morning, some top Wall Street investors called around to check on whether a big budget deal might emerge from the "Gang of Six" talks after the Wall Street Journal published this article, claiming "tentative backing of 31 senators: 16 Republicans and 15 Democrats." Woaa! Wait a minute!
 
Before you start buying long Treasuries, read further down:
 
"Lawmakers appear split over how quickly to propose the package. Some believe they could try and attach it to a coming vote in a few weeks on whether to raise the government's borrowing limit above $14.3 trillion. But Messrs. Chambliss and Warner have said they don't know if their effort will be completed in time."
 
Once the debt limit is raised for the rest of the year, this year's budget battles will be over. "Tentative backing" and 50 cents used to get you a cup of coffee.
Posted by Pete Davis

No! We're not there yet. We're not even sure where there is yet.  The NFL talks are going better.

So far, for the whopping price of $4.1 billion of easy pickings, $2.7 billion of Administration proposals that had no chance of enactment anyway plus $1.7 billion of earmarks, we funded two more weeks of FY11.  Wait a minute.  That's last year's budget.

Right.  We still don't have a budget for FY11, which we are more than five months into.  No budget resolution passed Congress last year, and no regular appropriations did either.  The only FY11 appropriations have been continuing resolutions and a supplemental.



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