EZer taxes

Imagine if you didn’t have to file a tax return. Imagine if, come T-day, the only thing you needed to do to comply with your tax obligations was to sign a form and mail it. And imagine if this could be done without changing a comma of the tax code. This is not a pipe dream—millions of citizens in different parts of the world already do it.

Austan Goolsbee, professor at the University of Chicago Graduate School of Business and head economic adviser to Barack Obama, is proposing to let the Internal Revenue Service, America’s tax man, put together drafts of individual tax returns and mail them to taxpayers. Experts know the system as “Tax Agency Reconciliation” (TAR). Goolsbee has had the good sense to re-baptize as “Simple Return.”

Tax collection agencies receive all the information they need to fill out the returns of many taxpayers. By law, employers and financial institutions send the data to them. The time spent by filers collecting statements, putting the numbers in the right boxes of the tax form, figuring out the standard deductions and exemptions, and calculating the tax bill--not to mention the fees paid to tax prepapers--are thus a waste.

Sweden and Denmark use the system. In Spain, with seven years of TAR experience, some filers can even request and confirm their pre-filled tax returns by sending a text message. Some Spaniards don’t even have to sacrifice precious TV time: they can do their taxes through their interactive, digital TV sets. (I encourage readers who know of other countries in the EZer Club to let me know in the comments or by e-mail. I’d like to make a list. If you respond, please specify whether the country does TAR or exact withholding.)

Nouriel Roubini: "clear by now that a severe U.S. recession is inevitable in next few months."

Nouriel Roubini, a leading economist at New York University, is now saying that a US Recession is almost here:

"It is increasingly clear by now that a severe U.S. recession is inevitable in next few months. Those of us who warned for the last 12 months about a combination of a worsening housing recession, a severe credit crunch and financial meltdown, high oil prices and a saving-less and debt-burdened consumers being on the ropes causing an economy-wide recession were repeatedly rebuffed the consensus view about a soft landing given the presumed resilience of the US consumer."

"But the evidence is now building that an ugly recession is inevitable."

Roubini is a smart economist who often goes against the consensus view.

The Audacity of Greed: How Private Health Insurers Just Blew Their Cover

The health-insurance industry has finally revealed itself for what it is.

Background: The industry hates the idea that's emerged from the Senate Finance Committee of lowering penalties on younger and healthier people who don't buy insurance. Relying on an analysis by PricewaterhouseCoopers, insurers say this means new enrollees will be older and less healthy -- which will drive up costs. And, says the industry, these costs will be passed on to consumers in the form of higher premiums. Proposed taxes on high-priced "Cadillac" policies will also be passed on to consumers. As a result, premiums will rise faster and higher than the government projects.

It's an eleventh-hour bombshell.

But the bomb went off under the insurers. The only reason these costs can be passed on to consumers in the form of higher premiums is because there's not enough competition among private insurers to force them to absorb the costs by becoming more efficient. Get it? Health insurers have just made the best argument yet about why a public insurance option is necessary.

Right now they run their markets and set their prices, and pass on any increased costs directly to consumers. That's what they're threatening to do if the legislation attempts to squeeze, even slightly, the colossal profits they plan to make off of thirty million new paying customers.

They want every penny of those profits. They demand every cent. And if the government dares raise their costs a tad higher than they expected when they first signed on to support the bill, they'll pass those costs on to consumers in the form of higher premiums. They can carry out their threat only because they have unaccountable, untrammeled market power.

But they've now hoisted themselves on their own insured petard. They've exposed themselves. If they had to compete with a public insurance plan, they couldn't get away with this threat. They couldn't pass on the extra costs. They'd have to compete with a public insurance option that forced them to give consumers the best deals possible.

Now's the time for Congress and the White House to say to the insurance industry: You want to play hardball? Okay. We'll play it, too. You didn't want a public insurance option. That was one of your conditions for supporting the bill. You wanted gigantic profits from having thirty million new paying customers and the market to yourself. The Senate Finance Committee and the White House agreed because they wanted your support and were afraid of the negative ads and hurricane of opposition you could finance. But you're even greedier than we imagined. And now you've demonstrated that greed to the American people. They don't want to turn over even more of their hard-earned money to you. So, insurance companies, we've got news for you. We're going to make sure Americans have the freedom to choose a public insurance option that's cheaper and better, and you're going to have to work hard to keep them your customers.

There Was a Reason They Called It... The Casino Economy

by Thomas Croft

02 Jul 03

In the last three years, a 'perfect storm' of rising energy costs, record consumer and corporate debt and massive trade and current account deficits joined with unsustainable investment practices, and resulted in an economic collapse. The first recession since 1929 to be primarily caused by over-investment, these 'collateral damage' investing schemes-in overseas boondoggles and sweatshops, extreme mergers, absurd dot-coms and derivative scams-all came home to roost. Enron used all of these investment tricks and more. The corruption scandals of 2001-2 completed the melt-down. Now, the world is probably in a double-dip recession, thanks partly to the scandal and continuing international disruptions.

The problem with casino bets and Russian Roulette is that somebody always loses. [CounterPunch]

The fiscal stimulus: ineffective or wrong?

The latest economic data show that output growth has weakened and unemployment is creeping up. The government is worried, with good reason, that the economy is going through a pronounced slowdown, perhaps even a recession. To limit the damage, Congress yesterday approved a battery of fiscal measures. By my reckoning, however, the plan will at best provide a short-lived nudge to consumption, but not employment; at worst, it’ll do nothing.

Starting in May, the government will send $600 checks to individuals ($1,200 for couples and an extra $300 for each child). People who earn too little to pay income taxes, but make more than $3,000, will receive a $300 payment. Payments will total $106 billion and will add to the budget deficit.

Cash outlays are supposed to boost private consumption expenditures and accelerate overall growth. $106b may seem a small stimulus for a $14 trillion economy, but the payments are expected to have a “multiplier effect”: higher demand will prompt businesses to hire more workers, and increased employment will further stimulate private consumption, which in turn will induce more hiring. The process continues ad infinitum. The outlays, therefore, can have a final effect on aggregate demand that is many times bigger than the initial stimulus —hence the name “multiplier.”

The effectiveness of the measure hinges on two factors. First, the fraction of the government outlays that will be spent immediately. According to Bruce Bartlett, previous experiences with tax rebates in 1975 and 2001 indicate that it's small. The recent study by Elmendorf and Furman indicates that it's a 50 percent.

The second requirement, which has received less attention, is that businesses will respond to the initial surge in demand by hiring new workers. If they don’t, then the fiscal package will have no second-round impact on demand, and the stimulus to consumption will total just $50b.

Because the first two quarters of 2008 will be marked by considerable uncertainty about the course of the economy in the medium term, the announcement of the fiscal plan will not have an immediate effect on hiring. Manufacturers may ratchet up their inventories, in anticipation of the small jolt of demand in May, but they will do so by using overtime and temp workers, rather than hiring permanent employees. In the services sector, we won’t see any change in employment until the late spring, and even then employers will similarly meet spikes in demand with overtime hours and temp workers, at least initially. If, come June, forecasts have improved, we may see employment pick up over the fall. But by then the effect of the government checks will have played out. In conclusion, the fiscal package won’t provide any significant boost to employment.

A less obvious reason to reject the stimulus is that the slowdown in aggregate demand is necessary, even healthy. Most of the growth experienced between 2002 and 2006 was based on low interest rates, over-valued real estate, and loose lending standards.

Chart 1, from a story by Michael Mandel at BusinessWeek, tells it all. Mandel estimates that, “if consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.” That extra spending was financed with debt. Quite literally, Americans were borrowing their prosperity from the future —not exactly a sustainable growth path.

Chart 1 (left) and 2 (right). Click to enlarge.