Timothy Swift

Will Obama's Proposed $300 Billion Tax Cut Be Enough?

Consumers are in a pickle. Housing is declining, mortgage and credit card debt is a concern of the treasury (consumer lending), retail spending is in a tail spin including and especially the autos.

Add to that job losses are top of mind and unemployment may expand past 10%.

Tax cuts are the best stimulus as it best matches human capital and financial capital. Who cares how tax cut money gets spent? Unfortunately, government spending focuses too far down the income earnings ladder and is likely to push skilled workers into unskilled work. Certainly not a well thought out use of human capital. In fact its a terrible use!

Savings dollars must swell to force investors, individuals, banks, hedge funds, PE whatever, to chase return, i.e. increase risk. Its simply the natural order of things, which explains the often quoted flight to quality to treasuries. Money needs to flow to riskier asset classes to grease the wheels of commerce.

If we really want to see this ship right itself in short order suspend the mandatory withholding of income, payroll and medi taxes. Let's call it "a loan to tax payers."

It'd chase lenders out of the credit card business as savings increases and would do more to stabilize mortgage buyers at the margin of foreclosure than anything else the gov could do to stabilize that market...

On another note and since I believe words mean things... How is an expansion of the child tax credit or the earned income credit a tax cut, and why is it included in the tax cut line item (if $300 bln could be called a line item)? Saying its to offset the payroll tax simply lacks intellectual integrity.

A tax cut decreases revenue while an increase in a credit of any kind is an expense. Two very different sides of the ledger.

The Oil Price Conundrum

Mr. Simmons is using a very short view of the oil market's price actions. Including this year, oil has exceeded $100/bbl on an inflation adjusted basis only three times in the last 150 some odd years. Add to that, oil has averaged around $27 - $28/bbl on an inflation adjusted basis over the same time frame. Its not clear why the market is different today than during other periods of hyper price escalation and collapse.

The area I agree with him most on is the need for sound policy. For much of oil's history the U.S. has been the dominant producer and, as the third largest producer, seems prudent that policy makers need to adjust policy to sufficiently and materially increase U.S. production.

I won't suggest the U.S. can assume the role as the number 1 producer but policy can certainly add spare supply to the system on an as needed basis. The Texas Railroad Commission served a useful purpose once upon a time.

The market mechanisms work fine if there is minimal lead time to market, and if properly applied can smooth the peaks and valleys of price swings instead of being held hostage to the fringe buyers and sellers in a tight market.