Permanent vs. temporary tax cuts

One frequent criticism of the payroll tax cut is that because it is temporary,? it will have little effect on investments. However, depending on its length, it will still have an effect on shorter term investments.

One criticism against the payroll tax cut that has frequently been made from conservative and libertarian economists is that it is temporary, and because people supposedly make decisions on permanent conditions it will have no effect.

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Stefan is an economist currently working in Sweden.

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This argument has a limited degree of truth in it as it is true that if taxation of investments are reduced by say 5 percentage points for one year, it will have less effect on investments that last more than a year than a "permanent" tax rate reduction of 5 percentage points. Just how great the difference is depends on how long the investment will last (the longer, the greater difference it makes).

However, because total after tax return still rises, it will still promote any investments that generates profits within a year.

Furthermore, the payroll tax reduction isn't about investments, at least not directly, it instead has a positive effect in the form of boosting labor supply, something that increases employment in part through a reduction in frictional unemployment and in part by lowering labor costs. Given the limited degree of wage rigidity that exists cutting the employer's share of the payroll tax cut would have been more effective, but

But don't businesses hire people based on long-term factors? Well, they often do, but there is no rational reason for them not take advantage of temporarily lower labor costs by hiring people temporarily given that America's flexible "hire and fire" laws makes it very easy and costless to fire employees.

Furthermore, it should be noted that no tax rate is really permanent (which is why I've put quotation marks around it except here) since they can, and very frequently have historically been change. While a "permanent" change is in the United States somewhat more difficult to change due to the fact that the two chambers of Congress and the President can usually block them if they want, that is as the historical record illustrates a difference of degree, not kind.

The real problem with temporary instead of "permanent" tax cuts isn't therefore so much that the short term effect is smaller. The real problem is that once the tax cuts expire, the positive effects will expire too, meaning that it will lower future growth, largely cancelling out the short term positive effect.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on stefanmikarlsson.blogspot.com.

Source: http://rss.csmonitor.com/~r/feeds/csm/~3/JH3Tth7pTPk/Permanent-vs.-temporary-tax-cuts

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Cadiz, Bengaluru, London, and Darwin are just a few of the surprises Lonely Plan...

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Android-Themed Manga Comic Breaks Down the Drama [Android]

The world of Android is complicated. One company hates another, some are secretly sharing beds... my God, it's just like high school! Well, a Manga arteeest took that concept and ran with it: welcome to Sweet Android High School. More »

Source: http://feeds.gawker.com/~r/gizmodo/full/~3/YYRT_DTePi8/android+themed-manga-comic-breaks-down-the-drama

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Romney criticizes Santorum as career politician (AP)

ATLANTIC, Iowa ? Mitt Romney is criticizing rival Republican presidential candidate Rick Santorum as a career politician and defending his own conservative credentials.

Two days before the Iowa caucuses, Romney told reporters his background is "quite different" from Santorum because the former Pennsylvania senator "spent his career in government in Washington."

At a stop Sunday in western Iowa, Romney also offered his record as governor of Massachusetts as evidence that he is as conservative as Santorum, who has risen quickly in the polls.

Santorum has highlighted his socially conservative credentials as he has campaigned across Iowa. Romney still leads in the polls, but he has struggled to win over conservative evangelicals because of his changed position on abortion.

Source: http://us.rd.yahoo.com/dailynews/rss/politics/*http%3A//news.yahoo.com/s/ap/20120101/ap_on_el_pr/us_romney

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Michigan's unemployment insurance bonds | MuniLand

Michigan called on Citibank to help repay about $3 billion the state owed to the federal government for expenses racked up during the deepest part of the recession. Like many states, Michigan had to manage soaring unemployment insurance costs and borrowed from the feds to help workers who had lost their jobs. Washington had given these loans on very?advantageous terms, but like a teaser rate for a credit card, those are expiring and?interest costs will soon jump for borrowers. So Michigan, like Texas and Idaho, has refinanced these payments.

Michigan?s new UI bonds, underwritten by Citibank, use some of muniland?s favorite structures with a few twists. The bonds are ?variable rate demand revenue? bonds, which are cousin to the the more commonly known ?variable rate demand obligation? bonds (VRDO).

The ?variable rate? part of ??variable rate demand revenue? bonds refers to the interest rate which is reset weekly through a remarketing process. Although these UI bonds are issued for a two-year maturity the weekly resetting allows the borrower to a pay much lower interest rate. The structure also allows the bond?s owner to put the bond back to the ?remarketing agent? at the weekly auction.

VRDO bonds are unsecured obligations of the issuer and rely on the willingness and ability of an issuer to raise sufficient taxes to service the debt. Repayment of VRDO bonds usually comes from the issuer?s general fund, which also pays for the salaries, pensions and other costs of a running a government.

In contrast the cash flow to pay off variable rate demand revenue bonds (the Michigan UI type) comes from a dedicated stream of revenues from a specific municipal operation like a hospital or sewer plant. ?These bonds are secured and?their cash flows cannot be diverted to another purpose. Investors have preferred this flavor of bonds in the past year amidst fiscal and economic?uncertainties. The trading activity for the Michigan UI bonds looks like institutions snapped them up in trades that were bigger than $1 million.

In the case of the Michigan UI bonds the revenue stream is secured by the Michigan Finance Authority, an?autonomous?public body, who in turn will collect unemployment insurance payments from employers in the state. Standing behind the MFA is a letter of credit issued by Citibank insuring repayment to bondholders. This shows the might of Citibank that they can pledge their assets to backstop an agency of the state of Michigan.

Muniland is full of odd bond structures but bonds to repay the federal government for unemployment expenses are uncommon. Michigan has done an interesting and big deal with Citibank. Let?s keep our eye on this one.

Details:

The Official Statement for the offering

S&P rating report

Source: http://blogs.reuters.com/muniland/2012/01/02/michigans-unemployment-insurance-bonds/

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North Korea's new leaders lash out at South Korea and allies (Reuters)

SEOUL (Reuters) ? North Korea sounded a bellicose note in its first communication with the outside world since the death of leader Kim Jong-il, saying its confrontational stance against South Korea would not change and labeling its opponents "foolish."

Since Kim Jong-il died on December 17, the outside world has been watching to see whether his son Kim Jong-un, aged in his 20s, would stick to its hardline "military first" policies that have seen the isolated nation move closer to nuclear weapons capacity.

"On this occasion, we solemnly declare with confidence that foolish politicians around the world, including the puppet forces in South Korea, should not expect any changes from us," a broadcaster on state television said on Friday.

She was reading a statement from the National Defense Commission, the top body in the militarized and impoverished state under Kim Jong-il.

In a break from the black mourning clothing worn since Kim Jong-il's death, the broadcaster wore dark red clothes and almost shouted her defiant message.

North Korea has a long history of using bellicose phrases against the South, especially since the conservative government of Lee Myung-bak took office in 2008 and ended a policy of engagement with the North.

It has threatened to turn the South's capital Seoul into a "sea of fire" on numerous occasions and repeated that rhetoric again on Friday.

"We will never engage with the Lee Myung-bak administration," said the announcer.

"The sea of bloody tears from our military and people will follow the puppet regime until the end. The tears will turn into a sea of revengeful fire that burns everything."

In 2010, the North launched an artillery barrage that killed South Korean civilians for the first time since the end of the Korean War in 1953. It was blamed for sinking a South Korean warship earlier that year, although it denies it did.

Little is known of Kim Jong-un, who had been groomed for government since 2009.

He has been dubbed "Supreme Commander" in North Korea and is expected to rule with the aid of key figures like his uncle Jang Song-thaek, at least in the early stages of the power transition.

"Expecting any change from the North on our part would be foolish," said Chung Young-tae, an analyst at the Korea Institute of National Unification in Seoul, a government think-tank.

South Korea's government did not formally respond to the comments from the North.

NUCLEAR CAPACITY

Under Kim Jong-il, who died earlier this month aged 69, North Korea conducted two nuclear tests and a top observer of its nuclear program said this week the country may only be a few years away from developing a nuclear tipped missile.

Few however expect the North to launch a full scale attack on South Korea. Pyongyang's main backer, China, has repeatedly urged a "peaceful" solution on the Korean peninsula.

Despite the freeze in official relations between North and South, the two sides held talks this year which North Korea leaked, embarrassing the government in Seoul.

North Korea needs food aid from the government in Seoul as up to a third of its population is malnourished, according to the United Nations.

"These forms of messages have led to conversation before," said Chung.

(Reporting by Seoul bureau; Editing by Raju Gopalakrishnan)

Source: http://us.rd.yahoo.com/dailynews/rss/asia/*http%3A//news.yahoo.com/s/nm/20111230/ts_nm/us_korea_north

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Court OKs immunity for telecoms in wiretap case

SAN FRANCISCO (AP) ? A federal appeals court has ruled as constitutional a law giving telecommunications companies legal immunity for helping the government with its email and telephone eavesdropping program.

Thursday's unanimous ruling by a three-judge panel of the 9th U.S. Circuit Court of Appeals affirmed a lower court decision regarding the 2008 law.

The appeal concerned a case that consolidated 33 different lawsuits filed against various telecom companies, including AT&T, Sprint Nextel, Verizon Communications Inc. and BellSouth Corp. on behalf of these companies' customers.

The court noted comments made by the Senate Select Committee on Intelligence regarding the legal immunity's role in helping the government gather intelligence.

"It emphasized that electronic intelligence gathering depends in great part on cooperation from private companies ... and that if litigation were allowed to proceed against persons allegedly assisting in such activities, 'the private sector might be unwilling to cooperate with lawful government requests in the future,'" Judge M. Margaret McKeown said.

The plaintiffs, represented by lawyers including the San Francisco-based Electronic Frontier Foundation and the American Civil Liberties Union, accuse the companies of violating the law and the privacy of its customers through collaboration with National Security Agency on intelligence gathering.

The case stemmed from new surveillance rules passed by Congress in 2008 that included protection from legal liability for telecommunications companies that allegedly helped the U.S. spy on Americans without warrants.

"I'm very disappointed. I think the court reaches to try to put lipstick on a pig here," said Cindy Cohn, legal director of the Electronic Frontier Foundation, who argued the case before the panel. "I think what Congress did was an abdication of its duty to protect people from illegal surveillance."

Thursday did not bring all bad news for plaintiffs challenging the government's surveillance efforts.

In a separate opinion on Thursday, a three-judge panel of the court revived two other lawsuits that seek redress for telecom customers whose information may have been compromised by the warrantless surveillance program.

Two groups of telecom customers sued the NSA for violating their privacy by collecting Internet data from AT&T and other major telecom companies in the surveillance program authorized by President George W. Bush.

Government lawyers have moved to stop such cases, arguing that defending the program in court would jeopardize national security and expose state secrets.

The suits will be sent back to U.S. District Court in San Francisco.

Emails seeking comment from AT&T and the U.S. Department of Justice weren't immediately returned.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-12-30-Warrantless%20Wiretapping/id-1c1ae0fd5fc24268bff199b0513f9b9d

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