Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘Fiscal policy’ Category

Entitlements in America

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Memo From: Shadow Council of Economic Advisers

To: Barack Obama

Dear Mr President:
Please take a moment to gloat. All through your first term you were accused of presiding over America’s fiscal ruin. In your first year in office the deficit hit a peacetime record of 10.1% of GDP, and went past $1 trillion for four years.

Yet your fiscal mission is far from over. Read the rest of this entry »

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May 25, 2013 at 9:48 pm

Debt and the deficit: Priority report

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Republicans have a plan to force lower spending without risking default

May 18th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] AUSTERITY may be weighing on America’s economy, but it has its consolations. On May 14th, the Congressional Budget Office sharply revised down its estimate of the budget deficit this fiscal year, to $642 billion or just 4% of GDP, from 5.3% in February. That would put it at less than half its recent peak of 10.1% in 2009. Read the rest of this entry »

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May 16, 2013 at 7:00 pm

Kill bill

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Will the deficit finally spur America to replace dollar bills with coins?

Mar 16th 2013 | Washington, DC |From the print edition
[Greg Ip] EARLIER this year the blogosphere was full of calls for America to pay its bills by minting a $1 trillion platinum coin. That idea has mercifully died, but the fiscal pressures that gave birth to it have provided the impetus for a less nutty variant: phasing out the dollar bill in favour of a dollar coin.
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March 14, 2013 at 9:34 am

Budgets and Congress: Opening bids

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Congress finally restarts the budget process but the gaps are daunting

Mar 16th 2013 | WASHINGTON, DC |From the print edition
[Greg Ip] WHEN Congress sought to claw back fiscal authority from Richard Nixon in the early 1970s, it came up with its own budget process. The House of Representatives and the Senate would draw up separate budget resolutions and, through negotiation, turn them into a single budget.

In recent years that process has, more often than not, broken down. In six of the past 11 years, the House and Senate could not agree on a budget, and in the last three, the Democratic-controlled Senate did not even pass its own resolution. Instead, Congress has resorted to stand-alone spending bills, temporary fixes and behind-the-scenes deals with the White House.
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March 14, 2013 at 9:33 am

The economy: Waiting for the chop

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The economy has survived austerity thus far this year thanks to housing, but the “sequester” could change that

Mar 2nd 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WHEN Barack Obama and the Republicans in Congress agreed on January 1st to let a payroll tax cut expire and tax rates rise on the rich, they rolled the dice with the economy. They in effect bet that America’s recovery was solid enough to withstand higher taxes and spending cuts, including a “sequester” due to take effect on March 1st. At 1.9% of gross domestic product, that is a contraction second only to that of Greece among rich countries this year (see chart 1).

At America’s biggest retailer, it looked at first like the gamble had not paid off. “Where are all the customers? And where’s their money?” one executive at Walmart said in an e-mail dated February 1st obtained by Bloomberg News. February sales to date “are a total disaster,” another wrote on February 12th.

But the company painted a less dire picture on February 21st, when it reported its earnings. While sales had indeed flattened out, the culprit was not, it appeared, tax increases, but delayed tax refunds (also a result of the January 1st legislation). Customers last year cashed $4 billion worth of income tax refunds at Walmart’s shops, but so far this year had cashed only about $1.7 billion. Presumably when the refunds come through in March, so will the usual spending they bring. Read the rest of this entry »

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February 28, 2013 at 12:03 pm

The economy: Deficit-reduction disorder

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Austerity and economic recovery are bringing down the deficit, but the long-term problem has not been fixed

Feb 9th 2013 | WASHINGTON, DC |From the print edition

[Greg Ip] WITH the financial crisis over and the recovery gaining momentum, one big piece of unfinished economic business hangs over Barack Obama’s second term: arresting the relentless rise in America’s already sky-high debt. He is turning to the task with what seems an improbable claim: that the job is closer to completion than people appreciate.

There is, however, some truth to it. On February 5th the Congressional Budget Office (CBO) forecast that for the fiscal year ending on September 30th the deficit will clock in at $845 billion, or 5.3% of GDP, the lowest figure since 2008 and down by nearly half from its peak of 10.1% in 2009, Mr Obama’s first year in office.

To be sure, that projection assumes that Mr Obama and Congress do not override planned spending cuts and tax rises, most importantly the “sequester”. The sequester mandates $1.1 trillion of additional spending cuts over the next ten years, including $85 billion-worth this year that are due to begin on March 1st after being put off for two months. Even if those measures are overridden, the CBO still predicts that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015. Thereafter, though, it will start to rise again.

The drop has been caused both by the improving economy, which boosts revenues and reduces the cost of safety-net programmes, and the expiry of the few remaining stimulus measures. It has also occurred, as Mr Obama now often reminds listeners, because in spite of their acrimonious relations he and Congress struck two deals in 2011 that cut spending and one at the start of this year that raised taxes. Cumulatively, these three deals have already cut a projected $2.4 trillion from deficits over the coming decade, or a little over 1% of GDP, according to the Committee for a Responsible Federal Budget (CRFB), a watchdog group (see table).

Read the rest of this entry »

Written by gregip

February 7, 2013 at 9:59 am

The next fiscal fight: From cliff to ceiling

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The debt ceiling in America serves no useful purpose and should be abolished

Jan 12th 2013 | from the print edition

AMERICA sidestepped one fiscal disaster at the turn of the year when Barack Obama and Congress agreed to keep most tax rates from rising. A much bigger one is as little as five weeks away, when the Treasury Department runs out of legal authority to borrow. Failure to raise the “debt ceiling”, Mr Obama has warned, would force the government to default on its obligations. Republicans say they need some sort of leverage to drag a spendthrift president to the negotiating table. They have a point, but the debt ceiling is a dangerous tool with which to make it. Read the rest of this entry »

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January 10, 2013 at 5:19 pm

Cliff talks: Relief in sight

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President and speaker draw near to a deficit deal

Dec 22nd 2012 | WASHINGTON, DC | from the print edition

[By Greg Ip] THE housing market has turned, Europe’s crisis is apparently in remission and the Federal Reserve has pressed its monetary accelerator to the floor. Yet as 2012 draws to a close, America’s economy is still growing at an annualised rate of only around 1%. That figure has been depressed by fears of the self-inflicted “fiscal cliff”: a package of tax increases and spending cuts, worth 5% of GDP in a full year, that is set to kick in on January 2nd.

That constraint may also be finally lifting. Read the rest of this entry »

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December 18, 2012 at 4:29 pm

Five myths about tax reform

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By Greg Ip, Published: December 14

As the nation’s leaders seek to keep the country from heading over the “fiscal cliff” — a set of mammoth year-end tax increases and spending cuts — nothing has proved more contentious than taxes. President Obama wants the rich to pay more; Republicans want to keep tax rates where they are. One popular proposal is to eliminate the tax code’s hundreds of loopholes and use the money to reduce the deficit without raising rates. But while tax reform is wonderful in theory, in practice it might not be as politically palatable — or economically effective — as advertised.

1. Tax reform has bipartisan support.

The night he was reelected, President Obama said “reforming our tax code” was among his second-term priorities. A few days later, House Speaker John Boehner said tax reform could help solve the national debt. Read the rest of this entry »

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December 16, 2012 at 4:26 pm

The fiscal cliff: On the edge

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What the cliff means, and why America’s deficit woes are so intractable

Dec 15th 2012 | WASHINGTON, DC | from the print edition

[Greg Ip]  WHEN the dust from November 6th’s election settled, the re-elected Barack Obama and the re-elected Republican leaders of Congress had less than two months to avert the “fiscal cliff”, a collection of tax increases and spending cuts scheduled for the beginning of the new year. They proceeded to fritter most of it away by disparaging each other’s offers. When John Boehner, the Republican speaker of the House of Representatives, met reporters on December 7th, he moaned, “This isn’t a progress report, because there is no progress to report.”Now, with less than three weeks to go, the pace has at last picked up. Mr Boehner and Mr Obama (pictured above) have talked twice in the past week, and representatives of both have exchanged offers. Publicly they say they are still far apart, but that is to be expected: serious negotiations seldom take place in front of cameras.

The absence of failure, at least so far, is seen by some as good news. That certainly goes for the stockmarket, which has recovered all its post-election losses. The outside world has long assumed that Mr Obama and Congress would strike a deal, because the alternative is too awful. Starting on January 2nd, taxes would jump for almost all taxpayers; a payroll-tax cut and enhanced unemployment benefits would expire; across-the-board cuts to federal spending would begin; and a clutch of other tax and spending measures would take effect. The total fiscal impact equals roughly 5% of GDP over a full year, easily enough to tip America’s economy back into recession.

To the rest of the world, the fiscal cliff seems like a freak of nature, the unintended consequence of America’s adversarial system of government. But that is too simplistic. Read the rest of this entry »

Written by gregip

December 13, 2012 at 4:49 pm

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