There is often a trade-off in practical economics between getting the answer to big questions roughly right and being precise with answers to more limited questions but getting the big picture wrong.
“Roughly right” always wins in my book.
When the Treasury claimed its tax and benefit measures were “progressive”, that result came because it omitted difficult to assess changes such as cuts to housing benefit. Any fool knows that changes to these hit lower income families. By answering a limited but precise question accurately and passing it off as an assessment of the full Budget effects, George Osborne, the chancellor had actually assumed that housing benefit changes have no effect on anything except the exchequer. That was nonsense and soon exposed by a “roughly right” analysis by the Institute for Fiscal Studies.
Today, two news organisations have had a go at answering questions about household income prospects. Read more
In the last few hours I’ve had ten separate emails from the White House announcing that various senators, Congresspeople, governors and mayors are backing its tax deal. I’ve never seen anything like it. They must be seriously worried about whether it will pass (or at least the political backlash from their own side).
Sorry, make that eleven. Read more
$1,000bn: that’s the estimated fiscal stimulus if current US tax deal discussions come to fruition. Economists have upped their 2011 growth forecasts by 50-70bp on the news; traders have brought forward their estimates of a fed funds raise as yields rose significantly. The policy couldn’t be more different from yesterday’s austerity measures in Ireland.
US citizens at both ends of the pay spectrum would be better off under the deal, paying less tax and therefore having more to spend. Under the current deal – which has some way to go before it is passed – the 2 per cent employee payroll tax cut would be kept, saving some families about $2,000 and costing about $200bn. The main, $800bn part of the deal would extend Bush-era tax cuts across all income groups – including the very wealthy, who are more likely to save the additional income.
Robin writes: Read more
I am at the Institute for Fiscal Studies launch of their election analysis. It is a pretty dismal affair; not because the work is bad, but because all three main parties’ plans are woeful compared with the necessary repair job for the public finances and the tax system.
The differences between the parties on the public finances is small, IFS says and, as the FT demonstrated yesterday, all parties’ “public spending plans are particularly vague”. The big row over the speed of fiscal tightening makes “a relatively modest difference to the long term outlook for government borrowing and debt”. Read more
The election campaign has kicked off with another fight about jobs and the economy. Forgive my naivety, but the distortions and liberties taken with economics by both sides over taxes and jobs have already been breathtaking.
David Cameron, the Conservative leader, launched his campaign promising to stop “the job tax which would wreck our economy”, which is even more starkly illustrated in the latest Tory poster campaign. Pity that poor economic green shoot.
All of this hyperbole is nonsense. But showing no greater regard for economics, Gordon Brown, still prime minister until 6 May at least, warned: “Unemployment is falling but a party that does not believe in government action would put jobs at risk”. I have discussed this canard many times in this blog and will not go through it again today.
Instead, let’s just focus on the economics behind jobs and taxation briefly. The subject is deep, not fully settled and complex. But there are three things on which most economists would broadly agree. The fact Britain’s politicians ignore them does them no credit.
First, Read more
China, India and Australia should all consider tightening monetary policy, says the IMF. Emerging economies show healthy signs, as US legislators fight to keep the house market moving, against falling prices, credit warnings and reduced mortgage applications Read more
An international tax on bankers and a Franco-British initiative for poor countries; just two of the most empty gestures at this weekend’s IMF and World Bank annual meetings in Istanbul, writes Chris Giles of the Financial Times Read more
Well-being should be reflected in economic data, a commision will report today. This as the OECD sees positive signs in the world economy but retail data – and an escalating trade war – suggest otherwise Read more