• CongressDaily reported ($) yesterday that "House Democratic leaders appear to be moving toward bringing a $100 billion economic stimulus package to the floor during a lame-duck session the week of Nov. 17" and that Democratic leadership might include "federal matching funds for state Medicaid programs, an extension of unemployment benefits, expanded food stamp spending and money for infrastructure projects" in the package.
  
  
• House Minority Leader John Boehner (R-OH), meanwhile, has other plans. Earlier this week, he was touting a Republican stimulus package that would be composed mostly of tax cuts. Noteworthy, however, is that his plan would increase the child tax credit from $1,000 to $2,000. The rest of the measures would cut taxes for businesses and owners of stocks outside of retirement plans.
  
  
• The White House is taking a different approach. Stepping back a bit from being "open" to a second stimulus, the chairman of the president's Council of Economic Advisors does not believe that such a package is "the right way to go." Instead, the administration would prefer to re-brand the Wall Street bailout plan (TARP) as "stimulus," because it's "a huge amount of money, and...it's targeted at exactly the right thing."
  
  

• But it doesn't seem like anybody is listening to the experts. At hearing held by the Joint Economic Committee, NYU economics professor Nouriel Roubini testified that "$300-400 [billion] of public works is more effective and productive than just spending $700 [billion] to buy toxic assets and/or recapitalizing financial institutions." MIT professor Simon Johnson, after articulating the mathematics supporting his suggestion, testified similarly: "Added together, this yields a total stimulus package of around $450 billion, or about 3% of GDP, spread over about 3-4 years. It also implies a way to time the short-term and long-term programs..."

  On hand to provide the standard conservative perspective was American Enterprise Institute Visiting Scholar and Ohio University economics professor Richard Vetter. Vetter fears that the government has already provided too much stimulus and implemented perilous monetary policy. His advice to Congress is to skip economic stimulus altogether and to "[r]elax and recover from [their] labors and allow the healing properties of markets to be asserted again."

Image by Flickr user Thomas Hawk used under a Creative Commons license.

The USA Today reports today that the IRS sent out $1.6 billion in incorrect tax refunds during the 2006 and 2007 tax filing season. The information was released in a recent report from the Treasury Inspector General for Tax Administration (TIGTA). The TIGTA investigation found that the IRS has low-balled their initial estimate of the fraudulent tax refunds in 2006 and 2007 and that the agency has insufficient resources to adequately detect and stop these refunds from being dispersed.

In addition, the IRS made key decisions not to pursue hundreds of thousands of returns they knew to be fraudulent. This is worse than having insufficient resources (or will) to pursue people and corporations who don't pay all the taxes they owe - it's knowingly sending out federal resources to those who don't deserve the money in the first place. From the TIGTA report:

The CI [Criminal Investigations] Division and Examinations functions agreed to limit the number of fraudulent return referrals to ensure that examination resources were available to address other areas that are also critical to compliance enforcement. Therefore, the CI Division focused on identifying those returns with higher dollar values and higher data-mining scores, which precluded more than 500,000 potentially fraudulent returns from entering the Centers' screening process. Had these returns been included, we estimated that the Centers would have identified an additional potential $742 million in fraudulent refunds.

Obviously, more resources at the IRS would help a great deal - something we've argued repeatedly this year. Yet there are a few quotes in the USA Today article from IRS officials which had me scratching my head. This one in particular:

Many suspicious returns involve small sums and would produce a "relatively low dollar return" if the agency pursued deep investigations of each one, said IRS spokesman Terry Lemons, adding that the result would be a "loss for the nation's taxpayers."

So if I'm reading this right, the IRS is okay with sending out refunds to people who don't deserve it so long as those amounts are small, because trying to prevent that would end up costing more money than it saves? Yet the IRS (and many misguided legislators in Congress) are perfectly happy to continue a private tax collection program to pursue people who owe small amounts of back taxes despite overwhelming evidence that this outsourcing program costs more money than it brings in.

Wonder if that could have anything to do with the fact that the private tax collection program benefits private companies? And that those private companies are based in two locations with powerful leaders in Congress who not only originally drafted the program into law, but continue to support it? Hmmm...

At least one company remains untouched by the nation's financial collapse.

Exxon Mobil Corp. smashed its own record for quarterly profits today, ringing up $14.8 billion in net income in the third quarter powered by soaring summertime crude oil prices.

Exxon Mobil's earnings, at $2.86 a share, are up 58 percent from the same period in 2007 and higher than what analysts expected, capping a week of strong profit numbers from the world's biggest oil companies, all of whom benefited from the spike in oil prices in July.

No doubt this will be a handy factoid to keep in mind when certain lawmakers agitate for certain tax cuts in the ensuing stimulus package formulation debate.

Image by Flickr user TheTruthAbout... used under a Creative Commons license.

In a world in which House Minority Leader John Boehner (R-OH) and his follower Republicans (correctly) recognize the need for an economic stimulus package yet control the content of the legislation that gets enacted into law, he would reduce capital gains taxes to zero to "help Americans rebuild their 401(k)s."

In fact, it is only in a parallel universe that this scheme would actually work. In the really real world in which you and I live, 401(k) gains are taxed as ordinary income (i.e. income tax, not capital gains tax, applies)*. Reducing cap gains taxes to zero will do absolutely nothing to boost 401(k)s.

*Unless the plan participant was born before January 2, 1936: In this case he or she can opt to have the taxable part of a lump-sum distribution resulting from participation in the plan before 1974 taxed as a capital gain at rate of 20%

Image by Flickr user Marxchivist used under a Create Commons license.

The Center on Budget and Policy Priorities released a new report on Monday that examines U.S. corporate tax rates in comparison to other countries with developed economies. The report finds that although the statutory tax rate on corporations in the U.S. is high (35 percent), the actual percentage of taxes paid (their effective tax rate) is well below the average of other similar countries.

The U.S. corporate tax burden is smaller than average for developed countries.[1] Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.

This report corrects the widely cited argument made by conservatives, including the Wall Street Journal, that the high statutory corproate tax rate in the U.S. needs to be cut (the WSJ goes so far as to say we should at least consider abolishing the corporate income tax). But as the WSJ itself recognizes, the real problem is the excessive tax loopholes, deductions, and exclusions that have been built into the tax code over time, not the statutory rate.

The CBPP report and the Wall Street Journal both agree that reform of the corporate tax structure would like benefit everyone by reducing complexity and compliance costs for companies, providing for more efficiency in the economy, and bringing in the same amount if not more revenue for the government. From the CBPP report:

Because the average U.S. corporate tax burden is low, many economists believe a revenue-neutral corporate tax reform that reduces statutory corporate tax rates, while broadening the tax base by eliminating costly tax breaks, could improve economic efficiency and likely benefit the U.S. economy.

If CBPP and the Wall Street Journal are proposing the same plan on corporate tax reform of all things, don't you think someone should be listening?

CBPP: PUTTING U.S. CORPORATE TAXES IN PERSPECTIVE
WSJ: America the Uncompetitive

One of the starkest indicators is that the number of people who have been unemployed for 27 weeks or more reached two million in September. That's 21% of the total unemployed, and approaching the prior peaks of about 23% in 2003 and 1992.

[...]

And while the unemployment rate is at a five-year high at 6.1%, a broader measure of weakness that includes people who have stopped looking for work or whose hours have been cut to part-time is 11% -- the highest in 15 years.

The jobs numbers sure look like we're in a recession, but here's the thing:

During the so-called "jobless recovery" following the 2001 recession, jobs continued to be shed after it was officially declared over. But the current weakness comes as the country heads into a recession that is now forecast to be deeper and longer than previously thought.

"No one thinks we are anywhere near the bottom of this, and we're already rivaling these other recessions," says Heidi Shierholz, an economist at the Economic Policy Institute, a left-leaning think tank in Washington.

Yikes!

But with Fed Chair Ben Bernanke supporting a second stimulus measure, President Bush signaling he is "open" to it, and Senate Minority Leader Mitch McConnell (R-KY) climbing onboard (CongressDaily, $), chances of Congress passing something in November are increasing.

In this week's Watcher, we write about how the political landscape for a fiscal stimulus package is shaping up. Essentially, everyone agrees there needs to be some sort of fiscal policy legislation called "a stimulus package," but that's where the agreement stops. At issue is the size and what elements should be included in the package. We get into these issues in the article, but here I wanted to flag what I think will be typical of the ensuing debate.

House Republicans are also calling for purchasers of homes that are not primary residences to be entitled to the same capital gains exclusion as owners who sell their primary residences. Currently, a single homeowner can exclude $250,000 of capital gains on a sale, while couples can exclude $500,000.

The proposal would only apply to people who bought second or third properties over the next 18 months and held their properties for at least five years.

"This could help take foreclosed properties off the market, raising home values," said House minority leader John Boehner, R-Ohio.

This is just crazy talk. Not only is this sort of tax break aimed at those wealthy enough to own second (and third!) homes, but it will do next to nothing to stimulate the economy. Boehner rightfully rails against "pork-barrel spending masquerading as 'stimulus'," yet this is exactly the kind of non-stimulative giveaway that he abhors. Hopefully, when Congress reconvenes in November, this sort of nonsense will be ignored by legislators in favor of passing an economically-sound package that delivers aid to those who need it and those most likely to spend it.

Image by Flicker user Usonian used under a Create Commons license.

Pushing back against Democratic congressional leadership's call for another stimulus package, White House spokesperson Dana Perino told reporters:

A lot of their discussions yesterday, as I understood it, are not necessarily items that we think would stimulate the economy. Additional benefits to individuals who may need support during an economic downturn aren't necessarily stimulative.

And yet, about three weeks ago, the non-partisan Congressional Research Service issued a report on the economic slowdown saying just the opposite.

...different proposals could get modestly more "bang for the buck" than others if they result in more total spending....The primary way to achieve the most bang for the buck is by choosing policies that result in spending, not saving....Presumably, recipients in economic distress, such as those receiving unemployment benefits, would be even more likely to spend a transfer or tax cut than a typical family.

Simple ignorance or blind devotion to ideology or a toxic mixture of the two?

Following a closed-door meeting with economic experts, Speaker of the House Nancy Pelosi (D-CA) said that she is instructing various committee chairs to begin holding hearings on what should be included in an economic stimulus package that could be voted on in November should the House return to Washington for a lame-duck session. No price tag has been placed on a potential, a backtrack from statements made last week an adequate stimulus package would cost $150 billion.

The package would likely include funds for infrastructure projects, an unemployment insurance extension, a boost to the Food Stamp program and Medicaid, and financial aid to states. While Pelosi stated that tax cuts were "in the mix of consideration," she emphasized that other components would be prioritized.

But first we want some of the issues that were not dealt with in the last package, because we want this to truly be a recovery package.

And therefore we have to make the investments in rebuilding America, and in doing so in a green way, with innovation and job creation; and to, again, recognizing the unemployment in our country, have an extension of unemployment benefits and some improvement on that policy, as well; to have emergency food assistance, recognizing the dire straits of many people in our country; and to do, also, in this very strong component of aid to the state to meet the health needs of our children and our seniors, to name a few.

Those would be our priorities. We'll look at what else we might do, in terms of tax cuts.

The Democrats' push for economic stimulus comes days after the president signed the $700 financial rescue plan. But, as we noted in The Watcher last week, the Wall Street bailout would do nothing to mitigate the effects of the impending recession. Quick action on such a stimulus indicates that Congress believes more action is necessary to protect millions of American families.

Photo: REUTERS/Hyungwon Kang
U.S. House Speaker Nancy Pelosi (D-CA) is flanked by former Securities and Exchange Commission Arthur Levitt (L), and Joseph Stiglitz of Columbia University (R) at a forum with economic experts to help Congress develop an economic recovery plan that focuses on creating jobs and strengthening our economy in her office on Capitol Hill in Washington, October 13, 2008.

In a stark reversal of Monday's vote, the House approved the Senate-passed version of a financial market rescue bill. By a vote of 263 to 171, the House passed a $700 billion plan to buy up troubled financial assets, patch the AMT for a year, and extend dozens of expiring tax cuts (some for a year, some for two). While the final cost to taxpayers of the bailout is impossible to estimate, the tax portion of the bill will reduce revenues by $107 billion.

Moments after passage, President Bush signed the bill into law.

President Bush signs the Emergency Economic Stabilization Act of 2008 in the Oval Office after the House passed the $700 billion financial bailout bill at the White House in Washington, Friday, Oct. 3, 2008. (AP Photo/Charles Dharapak)

Citizens for Tax Justice released a timely report yesterday examining the special tax breaks and subsidies that are currently handed out to Wall Street firms (and other companies). One in particular this report dissects is the special low rate on capital gains and dividends.

The report's introduction frames the relationship between current proposals to cut capital gains further as a solution to alleviate the financial turmoil:

Americans are in no mood to subsidize Wall Street. This became clear Monday, when the House of Representatives rejected the financial rescue plan that was supported by leaders from both parties as well as the President. Reasonable people can differ on whether the government should step in to prop up the financial system right now. There are progressives and conservatives on both sides of that issue. But what seems indisputable is that Wall Street has mismanaged its affairs and Americans are in no mood to pay for its mistakes.

...

Oddly, the conservative Republicans who say they oppose the financial rescue plan because they don't want to subsidize Wall Street have simultaneously called for more subsidies for Wall Street in the form of a further reduction in taxes on investment profits! We think these GOP conservatives are seriously confused.

The report concludes by citing a reform proposal that would go a long way to make the tax code more simple, fair, and progressive - a reform that happened to be supported by Ronald Reagan:

If House Republicans are sincere about protecting middle-income taxpayers and not giving away the store to Wall Street, then they should abandon their proposed tax cuts for Wall Street. Instead, they should join us in advocating a return to President Reagan's approach of taxing investment profits at the same income-tax rates as wages and other kinds of income.

Great news from the technology trade pubs today - FedSpending.org has been selected by PC World Magazine as one of the top five sites out there that will raise your political awareness. Woohoo!

Below is the screenshot of the article:

Read the full article: 5 Sites That Will Boost Your Political Awareness

Last night, the Senate approved a financial rescue (or Wall Street bailout) bill, HR 1424, by a 74-25 vote. As we noted yesterday, the package includes not only a provision that grants the Treasury Secretary $700 billion to purchase troubled financial assets, but also a package of tax cuts passed previously by the Senate.

According to the Congressional Budget Office (CBO), the ten-year cost of the tax cuts, which include a fully-offset set of tax incentives for renewable energy production; an extension of dozens of miscellaneous individual and business tax cuts; and a $64 billion patch for the Alternative Minimum tax, would total $107.1 billion. The CBO, however, indicates that the cost of the asset purchase program is "impossible at this point to provide a meaningful estimate of the ultimate impact on the federal budget from enacting this legislation," but would be "substantially smaller than $700 billion." Nor can CBO estimate the cost of increasing FDIC limits on insured deposits.

Congressional Budget Office: Letter to Honorable Christopher J. Dodd (estimated budgetary effects)
Joint Committee on Taxation: Estimated Budget Effects of the Tax Provisions Contained in an Amendment in the Nature of a Substitute to HR 1424

Neil Gordon blogs over at the Project on Government Oversight about a troubling provision in the current debate over a bailout proposal for Wall Street that would give Secretary of the Treasury Hank Paulson the ability to waive provisions and requirements of the Federal Acquisition Register (FAR), the set of regulations that govern how the feds run government contracting. Gordon points out a very disturbing irony of this provision:

This would have enabled the Treasury Secretary to award billions of dollars in sole-source contracts to private asset managers firms and financial consultants, even those with a direct financial interest in the bailout. In addition, the Secretary could waive other FAR provisions that protect taxpayers.

Gordon also points out the fascinating analysis released Monday from the Center for Responsive Politics which showed a relationship between campaign contributions from the finance, insurance, and real estate sectors and the way House members voted on the bailout on Monday. The data might shock you - it shocked me, although I suppose after so many years working in Washington, these things should stop surprising me.

It seems that House members who voted for the bill on Monday have collected about 51 percent more in campaign contributions from the affected industries (finance, insurance and real estate) than those who voted against it. Among Democrats, that discrepancy between bill supporters and opponents is an even more astonishing 88 percent.

I wonder if any of those contributions came from companies who may gain from a government contract to fix this mess? Gulp!