e-News November 5, 201011/5/10
1) The Week Just Past and the “Lame Duck” Congress!
2) The High Cost of Government Regulation
3) The Fed “prints money” to boost economy
4) China: The 800-pound Gorilla in the Room
5) Reform Runs out of Steam in DC Schools
The Week Just Past: Here Comes the “Lame Duck” Congress!
“The voters of America decided to ‘turn the page’ on Speaker Pelosi’s control of the House of Representatives this week, electing a majority of Republican members to the 112th Congress that begins in January.
“However, between now and the beginning of the new Congress, the current Congress has a great deal of leftover, unfinished business to complete.
“The House and Senate will meet in ‘lame duck’ session beginning on November 15 and this session bears careful monitoring. After all, every one of the lawmakers who were given ‘pink slips’ by the voters this week will have one more shot at governing and will not have to answer to the voters again.
“The workload is dramatic.
“In 2001 and 2003, then-President Bush enacted a series of tax cuts on individual income, the so-called ‘marriage penalty,’ long-term capital gains and certain dividends. Many portions of these tax cuts are scheduled to expire on December 31 unless Congress acts to extend them.
“I cannot think of a worse time to increase taxes than in the middle of an economic downturn. Our failure to act would trigger much higher taxes! Therefore, the ‘lame duck’ Congress should extend ALL of the tax cuts.
“Likewise, reductions in the federal estate tax, or ‘death tax,’ are scheduled to expire on January 1 and it is inexcusable that the Speaker has yet to act! The tax hits hardest on small, family-owned businesses. Were the tax cuts to expire, such families would face a 55 percent hit when the owner dies.
“Congress should also address the so-called ‘Alternative Minimum Tax,’ (AMT) which will deeply affect middle-income taxpayers with roughly $70 billion in new taxes next year, including at least 140,000 taxpayers in our 11th Congressional District of New Jersey.
“Of course, since Congress failed to finalize ANY of the annual appropriations bills before the October 1 deadline, we must fund the government at current levels for at least a short time, pushing the issue along to the next Congress, when Republicans are in control of the House and will cut spending.
“These are ‘must do’ bills for the ‘lame duck’ session.
“However, there are a host of other bills that Speaker Pelosi may bring to the floor, even as her Majority prepares to relinquish control:
- Medicare payments to doctors and hospitals;
- Extending unemployment payments;
- Child Nutrition programs.
“In my view, this ‘lame duck’ session can only be judged successful if it extends the tax cuts, ‘fixes’ the AMT and keeps the federal government operating and declines to approve other sweeping bills that Speaker Pelosi and her caucus may seek to ram through Congress before January.”
Recommended Reading: Daniel Henninger, writing in the Thursday Wall Street Journal, “GOP: Unlock the American Economy.”
The High Cost of Government Regulation
The annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008, the most recent year data was collected. These regulations cost small businesses with fewer than 20 employees as much as $10,585 per employee.
Since taking office, the Obama Administration has had under consideration 230 “economically significant” regulations from 16 different federal agencies.
The Fed “prints money” to boost economy
In a new effort to boost a “disappointingly slow” economic recovery, the Federal Reserve this week indicated that it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.
The move is controversial. Many outside the Fed, and some inside, see the move as a late-in-the-game, “Hail Mary” pass by Fed Chairman Ben Bernanke as he confronts an economy hobbled by high unemployment and the threat of a period of deflation, or a debilitating fall in consumer prices.
What is the Fed doing? The central bank is embarking on the electronic equivalent of starting up its printing presses to create money to buy assets—in this case, U.S. Treasury securities. The practice is designed to push down the notes' yields, as well as interest rates across debt markets that are closely tied to U.S. Treasury rates.
Lower borrowing costs could help some homeowners refinance their mortgages, even if many others don't qualify because of weak credit scores or diminished home equity. These lower costs should also help businesses, at least those that qualify for loans, access cheaper credit.
How will this affect our economy? No one knows with precision and they certainly cannot anticipate the maneuver’s unintended consequences. However, the Fed’s action is likely to weaken the dollar. Some economists suggest that this will help U.S. exporters, hurt U.S. importers and drive prices for commodities such as oil up.
Recommended Reading: Interesting perspectives on China, even as Congress ‘sticks a hot poker in their eye’:
An interesting read by Joel Millman in the Tuesday Wall Street Journal “Canada’s mills lumber back to life, fueled by the Chinese.”
“Norihiko Shirouzu, writing in the Wednesday Wall Street Journal “Boeing Sees China becoming World’s Number 2 Jet Market.”
Reform Runs out of Steam in DC Schools
An excellent read by Washington, D.C. Mayor Adrian Fenty and Education Chancellor Michelle Rhee in Saturday’s Wall Street Journal about what they learned trying to reform D.C.’s failing schools, “The Education Manifesto.”
For years, Rodney worked on the House Appropriations Committee to establish a “school voucher” program for D.C. students and families and to promote reform in D.C. schools. He is “very disappointed” by Chancellor Rhee’s departure.