Talk Back

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

America’s finances are headed for a train wreck.

By Nov. 23, the Supercommittee in Congress must come up with a package to cut the federal deficit by $1.2 trillion over ten years or draconian cuts in defense and discretionary spending follow.

Something still may be cobbled together but the federal deficit would remain too large, and could easily fly out of control. Genuine progress is not possible, because the principals won’t even accept the facts.

Democrats harp that Bush tax cuts, wars and the prescription-drug plan for seniors caused the deficit to swell to $1.3 trillion in 2011. Yet, with all those at play, the deficit was only $161 billion in 2007.

Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest of the increased deficit. Only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Most economists agree GDP growth is likely to be in the range of 2% over the next several years, and such slow growth and high unemployment will accelerate spending on entitlements, while retarding the growth of tax revenues. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Whether the Joint Select Committee on Deficit Reduction reaches a deal to reduce the federal deficit by at least $1.2 trillion or stalemates on Nov. 23, Democrats appear intent on handicapping the national economy with higher taxes and imperiling national security by cutting defense. Those are the wrong places to solve the nation’s budget woes.

In 2007, just prior to the financial crisis and when Democrats took control of Congress, the deficit was a manageable $161 billion. Wars in Iraq and Afghanistan were ongoing, and Bush tax cuts and prescription benefits for seniors were in place.

In 2011, two years after the recession ended, the deficit is $1.3 trillion. Spending is up $847 billion, and additional temporary tax cuts–such as the payroll tax holiday–account for the rest. Of the $847 billion, only $62 billion was necessary to accommodate inflation, and social security, health care and other entitlements account for 78% of the rest.

Repeatedly, Democrats President Barack Obama and Majority Leader Harry Reid have exhorted Social Security is not contributing to the deficit, but the program began paying out more than its receipts in 2009, and the Trust Fund will be entirely depleted by 2036. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Seeking to jump-start his flagging campaign and establish his pro-growth and fiscal responsibility credentials, Governor Rick Perry is unveiling a tax plan that will not jump-start the economy and is fiscally irresponsible.

In a nutshell, Perry would give taxpayers a choice between filing under the current income tax system–with all its flaws–and an alternative flat tax 20% system. Under the latter, families could maintain their mortgage deductions if they earn less than $500,000, which is about 99% of taxpayers, and could declare exemptions of $12,500 for each family member.

It seems appealing–a simplified tax system, fewer IRS agents, and so forth. But the plan falls short in two important respects–it won’t encourage many better investment decisions and foster growth, and it will spin the federal deficit permanently into the stratosphere.

The whole purpose of a flat tax is to encourage individuals and corporations to invest more in sound business opportunities, instead of prospecting for tax breaks by buying homes bigger than they need or spending on government hobbyhorse projects like solar panels. However, the Perry plan, by giving tax payers the option of filing under the old system, will encourage the wealthy and near-wealthy to continue prospecting for loopholes and credits. Most of those folks don’t pay 20% now, so don’t count on them to volunteer for Perry’s plan. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

Herman Cain’s proposal to replace all federal taxes with a 9% income tax, 9% national sales tax, and 9% corporate tax makes good economic sense.

This plan would impose the least administrative costs for raising the money needed to finance the federal government, better promote growth than the current tax system, and be a darn sight fairer than the current burdensome and complex personal and corporate taxes structures.

Administrative Costs

The current tax code imposes enormous compliance costs on private individuals and businesses. The vast array of complex deductions and credits intended to encourage private citizens to do more of some things and less of others have made accounting and tax law two of the most stable and recession-proof professions on the planet.

Simply wiping away all those loopholes not only permits a much lower and more certain average rate of taxation for all individuals and businesses, but it would also eliminate the costs of millions of hours of private tax professionals’ time from annual filings, and require fewer employers monitoring and auditing the returns of honest taxpayers. IRS agents could spend more time chasing tax evaders and get along with fewer employees in the bargain. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

The China currency bill is the most significant jobs bill Congress could pass. It enjoys the bipartisan support of nearly 80 Republican and Democratic senators, yet President Obama and Speaker Boehner oppose it, illustrating both are out of touch with the problems besetting the American economy.

The nearly $600 billion trade deficit is destroying more American jobs than the mortgage crisis, too much business regulation, and high health-care costs combined.

Americans haven’t forgotten how to make things or compete. Unlike what President Obama would have us believe, Americans are not undereducated dolts, unenlightened in the ways of global competition. Rather, through a failure to act on issues the president has identified–Chinese mercantilism–and on issues where his ideology prevents action–the development of abundant U.S. energy–Americans are being denied their fair opportunity to compete.

Simply, the U.S. economy suffers from too little demand for what Americans make. Americans are spending again, but since the first quarter of 2009, the trade deficit is up 55%. In the second quarter, it was nearly $600 billion, or 4% of GDP–thanks almost entirely to surging imports of subsidized imports from China, barriers to U.S. exports into the Middle Kingdom and higher oil prices. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

President Barack Obama faces three daunting challenges–jobs, deficits and re-election. His actions reveal he places a second term ahead of fixing the economy and federal finances.

If Obama runs on the economy, he loses. Too many voters are unemployed, underemployed, standing discouraged on the sidelines, or watching their paychecks dwindle for Obama to win. And most voters recognize, had President Obama’s economic policies permitted the economy to grow as it should, deficits in Washington and state capitals would be much more manageable.

If he runs on handling the financial crisis, he loses. He inherited a mess, but trillions in bailouts for Wall Street, Chrysler and GM rewarded the best-paid white collar and blue collar workers for lousy management and worse, while the other 98% watch their paychecks shrink in value. Now charges of fraud in his solar energy program and revelations about White House management dysfunction cast a president lacking judgment and leadership qualities.

On both jobs and the deficit, the president seeks to present a sharp contrast with his eventual GOP rival premised on “fairness”–presenting himself as guardian of the working family, and his prospective Republican opponents as champions of privilege.

An additional $447 million in stimulus and tax cuts, over two years, if spent smartly, could create about 2.5 million jobs for that period. However, he proposes paying for teachers by cutting aid to states for health-care workers and that won’t create many jobs. Extending the payroll tax holiday for the middle class by taxing those who earn over $200,000 only adds marginally to new spending and few jobs. Continue reading…

These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:

As President Obama campaigns for more government spending–a.k.a. his jobs plan–new unemployment claims provide fresh evidence the economy is stalling and in danger of slipping into a second recession. Big government could easily take unemployment above 15% and create a hole too big to ascend.

New jobless claims for the Sept. 10 week rose to 428,000, up from a revised 417,000 the previous week. Having slipped below 400,000 last spring, these are trending upward. Generally, weekly jobless claims below 350,000 are associated with a healthy economy and above 450,000 with recession. Recent data indicates the economy is at the precipice of a second Great Recession–perhaps worse.

Recent data on car sales and broader retail sales, personal consumption and consumer attitudes indicates Americans are scared. Other than high-income folks in the luxury category, a general lack of confidence in the president to adequately get the U.S. economy going is becoming a self-fulfilling prophecy of economic decline.

Bad leadership equals bad outcomes. Continue reading…