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Posts Tagged ‘US economy’

Supply-Side Economics | The CERF Blog

www.clucerf.org1/10/12

As early as the 1950s, Mundell proposed an economic policy program of tight monetary policy to stabilize the value of the currency and low tax rates to stimulate economic activity. During the late … The Reagan Scenario included a sharp drop in inflation, a recession in 1982 due to tight monetary policy, passage of the Kemp Roth tax cuts and an economic boom starting in 1983. … Inflation and interest rates are much lower and tax rates are lower as well. While a high …

The hidden dangers of low interest rates | David Cay Johnston

blogs.reuters.com1/10/12

Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and … If rates return to, say, 6.64 percent, the level they were in 2000, one year's interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012. Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other …

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President Obama’s recent claim to homeowners, that refinancing their mortgage loans at a lower rate, equates to a tax cut, doesn’t ring true for many tax experts.

Obama said at a recent press conference that the housing plan his administration had launched, had “already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut. The main message we want to send today is that there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates and that is money in their pocket”.

What Obama failed to mention however is that unlike the housing boom that led to the current financial crisis, this time, only borrowers with strong credit ratings and stable jobs will be able to save money if they refinance.

Obama’s announcement caused many tax analysts, including Gil Charney, who is an analyst for The Tax Institute at H&R Block to shout “foul”;

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid. Also refinancing could extend the period before the mortgage is fully paid off, so this might not be desirable for someone who wants to be mortgage-free. Therefore, someone about to make a financial decision should take their complete financial picture into account, not just their tax situation”.

In fairness to Obama, some analysts like Mark Steber, who is vice president of tax resources at Jackson Hewitt Tax Service did express a more supportive viewpoint, “While generally there is no tax advantage to refinancing at a lower rate, an individual can save on the total out of pocket costs each year over the life of the loan. Though a tax bill will actually increase after refinancing, the increase in taxes may be less than half of the total difference in interest paid, so the taxpayer may save more money than their taxes increase, therefore resulting in net savings”.

Following much debate, Congress has finally completed a cash-for-clunkers deal that will provide vouchers to as many as one million new-car buyers who trade in an old automobile that will be scrapped.

The bill contains no provision requiring the replacement cars to be made in the United States, since import-branded automakers and international groups claimed it would be a violation of the free trade agreements.

Two controversial issues right now, are whether or not the bill will in fact help the environment, and if it will significantly decrease dependence on imported fuels.

Several environmental groups have stated their belief that accelerating the production of new cars, and thereby replacing older models before their time, will actually cause more environmental damage than driving less fuel-efficient older cars would.

Other groups say that far more aggressive mileage figures for new models should have been demanded.

Something which has received little press coverage so far, is that it will be possible to use the vouchers for public transportation.

Under the agreement, a clunker must be getting less than 18 mpg in combined city and highway mileage in order to qualify, and new cars that get 22 mpg or better will qualify for vouchers.

A new car with at least 4 mpg better than the clunker will get you a $3,500 voucher, and if the new car gets 10 mpg higher, it’s good for a $4,500 voucher.

For light-duty pickups and SUVs, the same 18 mpg requirement stands for clunkers, but to receive a $3,500 voucher the new truck or SUV has to get at least 2 mpg more than the clunker, and for a $4,500 voucher, a 5 mpg improvement is required.

New heavy-duty trucks must get at least 15 mpg and have a 1 mpg improvement over the clunker for a $3,500 voucher, and a 2 mpg improvement will qualify it for a $4,500 voucher.

Work trucks and vans won’t have a gas mileage requirement since the majority of them aren’t rated by the EPA, but to qualify for the program the clunker has to be a pre-2002 model year and weigh between 8,500 and 10,000 pounds, and to receive the $3,500 voucher, the new work truck has to be a similar or smaller class of vehicle.
The program was modeled on a similar law in Germany which has been credited with boosting car sales there.