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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Tax policy
February 2, 2010 at 10:00 AM

Cheney’s ‘Deficits don’t matter’ becomes Obama’s hot potato

Top of the News: Much of the media yesterday kept repeating that President Obama’s budget includes the largest federal deficit in American history. This is not true. One must ask whether they are careless and ignorant — the same bunch that said in 2006 housing prices would always keep rising — or are they partisan?

The key measure is the deficit as a percentage of GDP. Washington’s deficit in 1943 was more than 30 percent; the current number is around 10 percent. We’ve now been embroiled in two wars lasting longer than World War II. The top tax rate then was 94 percent vs. today’s 33 percent, a product of years of tax cutting and loopholes. In addition, the worst economic downturn since the Great Depression has severely cut tax revenue and required a robust response.

One first is true: President Obama inherited the largest deficit in history.

Deficit projections are extremely fluid, dependent on such factors as how quickly the economy — and thus tax revenue — recovers, whether taxes are raised on the wealthy, etc. In the late 1980s and early 1990s, experts argued that eliminating the deficit was impossible. Yet it was done quickly thanks to the modest Clinton tax increases and the economic boom of that decade.

The real question is: When does a deficit matter?

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Comments | More in Deficit, Dollar, Politics and the economy, Sustainability, Tax policy

January 12, 2010 at 9:40 AM

Is Tim Eyman the biggest threat to the Washington economy?

Top of the News: How, exactly, does Tim Eyman make his living? Just a question.

I think of him when I see what was once the nation’s finest ferry system struggle, among his other dolorous achievements. He’s back with yet another initiative, which would require a two-thirds majority of the Legislature or a public vote for all tax increases.

Such measures have been disastrous in other states. They also run contrary to American representative democracy. Perhaps worst of all, they keep elected officials afraid of having grown-up conversations with voters about the costs of government in complex, urbanized 21st century societies in a competitive world and how to appropriately fund them.

As conservatives used to say, there’s no free lunch. No wonder tax rates on the rich were 70 percent during the reign of terror of that socialist Dwight Eisenhower.

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Comments | More in Tax policy

June 3, 2009 at 9:50 AM

Bernanke ever so gently raises deficits and taxes

Top of the News: The markets are sifting Fed Chairman Ben Bernanke’s remarks before Congress today. Bottom line: The economy has slowed its rate of collapse; a few signs of bottoming out have emerged; the Fed is now starting to worry about deficits.

Aware of inflation concerns in the Treasury market and in China, Bernanke made it clear the Fed wouldn’t print money to sustain high deficits indefinitely. “Crucially,” he said, “whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run.”

Pimco’s Bill Gross is not convinced. According to Bloomberg, the founder of the big investment management outfit urged diversifying out of the dollar.

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Comments | More in Inflation, Tax policy

April 15, 2009 at 10:20 AM

Let’s hope Helicopter Ben gets it right

Top of the News: If you were alive in the 1970s, you learned to pay attention to the government’s consumer price report because inflation was so nasty. Every week, it seemed, prices were going up. Not now. For the first time in half a century, consumer prices fell in March compared with the same month the year before.

That’s not good news if the trend continues. Not only does it mean that companies will have to lay off even more people because they can’t sell goods at a profit, it also puts at risk the value of everything based on the dollar, from the scratch in your wallet to all those Treasury securities held by our foreign creditors. It’s called deflation, and it was the scourge of the Great Depression.

So far, most experts are discounting the possibility of deflation — but they were also the ones who said not to worry about the housing bubble. Prominent bear Nouriel Roubini has not been so sanguine, warning earlier this year that deflation was a definite possibility…followed by inflation. So far, however, Bernanke’s Fed has rightly focused on avoiding deflation. Let’s hope Helicopter Ben can get it right. (The nickname comes from a pre-Fed chairmanship speech when this Depression scholar was discussing ways to avoid a 1930s deflation — if worse came to worst, he’d drop shrink-wrapped dollars on pallets from a chopper).

Another troubling report: Factory capacity fell to a record low in March. This means a recovery will have to take up a lot of slack before expansion and hiring is felt in this critical sector.

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Comments | More in Inflation, Macro/Big picture, Tax policy

April 10, 2009 at 10:00 AM

Americans more focused on saving and debt than the stock market

Top of the News: With the markets closed for Good Friday, it’s time to take stock (pun intended). It’s important to remember that five of the most recent bear-market rallies fizzled. J. Clinton Hill, chief investment adviser of HM Advisers in Los Angeles writes on RGE Monitor that the current uptick on Wall Street will be difficult to sustain given how much wealth has been destroyed, how many jobs have been cut (5 million) and the resulting consumer pullback.

“A nation whose economic growth is 70% dependent upon consumer spending will find it hard to improve its morale when jobs are scarce,” Hill says. For now, people will focus on paying down debt and rebuilding their savings.

Locally, beneficiaries of the recent rally include Microsoft, Nordstrom, Amazon, Alaska Air, Weyerhaeuser and even Boeing. Failing to get traction: Starbucks and Costco.

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Comments | More in Stock market, Tax policy

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