The Fiscal Times has an article on considerations being undertaken by the Commission for Deficit Reduction. (H/t coberly).

The main theme in this article is that the “tax expenditures” home mortgage deduction and health insurance premium deductions are actually government spending (I assume in relation to the deficit) and thereby letting these taxpayers keep their money is bad. (Because these are “tax expenditures” and not “tax cuts”?)

I see a pattern here unfolding in this series of electioneering statements. Maybe politicians can put it altogether for us before the elections so we know who should pay and who should not in a less confusing way.

Quote is below the fold, bolding is mine:

As the 18-member bipartisan panel met in public for the fifth time, it was becoming clear that the tax system is under its microscope and there are many ideas under review for the long term. The commission’s success has always hinged on whether its leaders could muster support among Republicans for changes to the tax system, and agree to major spending cuts and changes in Social Security, Medicare and other entitlement programs that dominate the budget. So far, the GOP members are still at the table.

The most obvious target is recovering the huge amounts of revenue lost to federal tax loopholes known as “tax expenditures,” which include the home mortgage interest deduction and tax-free health premiums for employees. Proponents of rolling back these breaks say they are essentially government spending via the tax code. But health care premiums and mortgage deductions have long histories and are considered untouchable by some.

Erskine Bowles, one of the commission’s co-chairmen, pointed out that these loopholes cost the Treasury as much as $1.3 trillion per year, which is larger than total tax revenue. Bowles, citing an op-ed by Reagan White House economist Martin Feldstein, suggested that tax expenditures must be part of any serious attempt to limit spending.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the commission that the current system of tax expenditures is “one of the most detrimental things to the country.” But she also pointed out that they would be among the more difficult programs to touch.

Senate Budget Committee chairman Kent Conrad, D-N.D., who leads the commission’s working group on taxes, said that he has become convinced that more comprehensive tax reform is necessary to update a system that was built for an era in which the United States did not face global competition. “My own conclusion from this [working group review] is that we really have a tax system that is badly outdated,” he said. “It no longer relates to a world that we are in today.”

In addition to massive lost revenue through tax expenditures, the Treasury loses another $340 billion or so each year in taxes that people owe but simply do not pay, Conrad pointed out. “These are things that require a focus in our work.”

The Fiscal Times has an article on considerations being undertaken by the Commission for Deficit Reduction. (H/t coberly).

The main theme in this article is that the “tax expenditures” home mortgage deduction and health insurance premium deductions are actually government spending (I assume in relation to the deficit) and thereby letting these taxpayers keep their money is bad. (Because these are “tax expenditures” and not “tax cuts”?)

I see a pattern here unfolding in this series of electioneering statements. Maybe politicians can put it altogether for us before the elections so we know who should pay and who should not in a less confusing way.

Quote is below the fold, bolding is mine:

As the 18-member bipartisan panel met in public for the fifth time, it was becoming clear that the tax system is under its microscope and there are many ideas under review for the long term. The commission’s success has always hinged on whether its leaders could muster support among Republicans for changes to the tax system, and agree to major spending cuts and changes in Social Security, Medicare and other entitlement programs that dominate the budget. So far, the GOP members are still at the table.

The most obvious target is recovering the huge amounts of revenue lost to federal tax loopholes known as “tax expenditures,” which include the home mortgage interest deduction and tax-free health premiums for employees. Proponents of rolling back these breaks say they are essentially government spending via the tax code. But health care premiums and mortgage deductions have long histories and are considered untouchable by some.

Erskine Bowles, one of the commission’s co-chairmen, pointed out that these loopholes cost the Treasury as much as $1.3 trillion per year, which is larger than total tax revenue. Bowles, citing an op-ed by Reagan White House economist Martin Feldstein, suggested that tax expenditures must be part of any serious attempt to limit spending.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the commission that the current system of tax expenditures is “one of the most detrimental things to the country.” But she also pointed out that they would be among the more difficult programs to touch.

Senate Budget Committee chairman Kent Conrad, D-N.D., who leads the commission’s working group on taxes, said that he has become convinced that more comprehensive tax reform is necessary to update a system that was built for an era in which the United States did not face global competition. “My own conclusion from this [working group review] is that we really have a tax system that is badly outdated,” he said. “It no longer relates to a world that we are in today.”

In addition to massive lost revenue through tax expenditures, the Treasury loses another $340 billion or so each year in taxes that people owe but simply do not pay, Conrad pointed out. “These are things that require a focus in our work.”

The recession was deeper — and subsequent recovery slower — than the government originally estimated, the Commerce Department said Friday.

I thought the only thing she knew was that she is a libertarian. Now I realize she doesn’t even know what the word “libertarian” means. She wrote

Will the new head of the CFPA crack down on mortgages that offer prepayment options? [skip]

Of course not. There is no constituency for such a thing except for a few crazy libertarians.

So libertarians think that the government should crack down on a product that consenting adults buy from consenting banks ? McArdle has some addled idea that she supports the market, by which she means, she opposes everything Democratic policians do. If one invented a product (the 30 year fixed rate mortgage with a prepayment option) with great success in the market, respect for the market requires banning it.

She thinks banning contracts that parties chose to sign is “libertarianism.” She has learned nothing and forgotten the one thing she learned once.

Amazingly the thorough takedown at the Irvine Housing Blog, didn’t mention this howler (target rich environments and all that). It does note that McMegan makes a plainly false claim about a time series, but that’s birdie for the course.

Two full paragraphs long McMegan quote in case I distorted meaning by removing context after the jump.

As of this writing, are we rethinking any of it? Will the new head of the CFPA crack down on mortgages that offer prepayment options? Will lawmakers finally break up Fannie and Freddie and cut off the flow of cheap capital they glean from the implicit government guarantee? Will it get the FHA out of the business of propping up the conventional loan market?

Of course not. There is no constituency for such a thing except for a few crazy libertarians.

OK so two out of three policies which she described as “libertarian” don’t display more love of regulation for the sake of regulation (or FDR bashing) that I’ve ever had. Is that a good average ?

I find this to be a very misleading article. What he is writing about is what happens in an actual recession when sometimes real GDP does bounce up for one quarter before resuming its fall.

But that is not the impression the article actually presents. Most readers will think he is talking about a recovery — when the economy experiences several quarters of sequential growth and surpasses the prior peak before quickly falling into a second recession.

As he correctly points out this happened once, after the 1980 recession when the economy rebounded strongly and surpassed the prior peak two quarters after the bottom.

But it is the only example of a double dip recession in the post WW II US history –as this table demonstrates. It is a table of real GDP in recoveries with real GDP at the economic trough set equal to 100. the quarters where real GDP is less than the prior quarter are in red. The red quarters in the 1980 column are the 1981-82 recession.

As the table shows the only double dip is the 1980-81 recovery that was only four quarters long before the 1981-82 recession started. Also note that before 1982, when the great moderation emerged, the norm was for a four year business cycle of three years of recovery and one year of recession. The Fed tightened sharply during the 1980-81 recovery because they thought the 1980 recession was too mild and did not generate sufficient economic slack to sharply dampen inflation. This deliberately aborted recovery — when real GDP surpassed the prior peak — is the only example of what I would call a double dip recession. The Feds tightening also generated recessions in other OECD countries that Boskin cited to demonstrate that double dip recessions are more the norm than the exceptions.

I’m still trying to make up my mind if this article was; one, just a rapidly written article that is accidentally misleading; or two, an article designed to justify the NBER recession committee not having ruled that the 2009 recession is over; or three, something else.

If second quarter real GDP comes in as expected it will be about the same as the prior peak so the US economy should surpass the prior peak this year. In my book that qualifies this past year as a recovery and the NBER should declare the 2009 recession to be officially over.

The visual is quite striking: at the peak of the business cycle, December 2007, the difference between the employment-to-population ratio over the unemployment rate was roughly 17.3 percentage points (pps). In June 2010, however, the difference narrowed fully to -0.3 pps.

This is a growing problem for our youngest workers. In April, the OECD issued a press release (featuring related research) calling for government support for “youth” unemployment across the member countries:

The report’s message is that governments need to do much more to help young people. Some have benefitted from broader efforts to help the unemployed. But more policies are needed that target young people, especially those with poor education and skills. These “at-risk” youngsters now account for between three and four out of ten of all young people in the OECD and are at risk of long-term joblessness and reduced earnings.

Back in June, the LA Times argued that young workers in the US, workers aged 16-19, are being displaced by college graduates and other skilled workers; in better times these workers would not take jobs normally filled by teenagers.

The recession has been particularly cruel to those aged 16-19. However, the chart above illustrates that the downward trend is both secular and cyclical, as the employment-to-population ratio has trended down since 2000.

At the turn of the century, the employment to population ratio for teens aged 16-19 years was 45% (average over the year), and just 35% in 2007. There’s a problem here. Workers aged 16-19 generally earn low hourly wages (unless they invented Facebook, of course); and in some cases, even the small monthly sum supports family income. And as the OECD report suggests, often young workers do not qualify for unemployment insurance when displaced.

The Federal Reserve’s latest Survey of Consumer Finance (2004-2007) indicates that much of the mean income growth is accumulating at the top 10% of the income distribution (Table 1). Spanning 2004-2007, the bottom 20% experienced 3.4% income growth, while the top 10% saw near 20% gains. And every bracket in between saw either negative or near-zero income growth.

Here’s the bigger picture: teen income is likely becoming increasingly important to the families at the bottom of the income distribution, while the jobs are becoming increasingly scarce.

Without entry level jobs, aggregate work experience starts to decline, which translates into lower skill overall; and then productivity declines. Bad stuff.

Rebecca wilder

Brad DeLong and Paul Krugman consider the increase in the number of job vacancies to be bad news — to be a sign that long term unemployment has made it hard to increase employment even if there are vacant jobs. The high vacancies are held to be a sign of a problem which is more persistent and less absurdly easy to deal with than low aggregate demand.

I comment after the jump

One might imagine that high unemployment and high vacancy rates are, as you directly state, a bad sign as high unemployment combined with high vacancies lasts longer — that the combination is a sign of hysteresis from a) deteriorated jobs skills, or b)deteriorated work habits, or c) irrational stigma due to employers assuming a or be or d) missmatch.

I recall such a graph. It was the terrifying UK Beveridge curve from 1988-9 (look it up). The word (from among others Layard) was that unemployment had become almost impossible to fight as the long term unemployed were discouraged. Then employment took off.

The Beveridge curve is the lower envelope of a slightly more complicated dynamic with counterclockwise cycles above the curve. That’s a fancy way to say it takes a while after a labor demand trough to get the unemployed into the vacant jobs. You see a smaller shift in the matching function (hires as function of vacancies and unemployed). In the UK very late 80s you saw a shift in the matching function too.

That was just before the UK ceased to be an example of the European unemployment problem and became an example of well functioning labor markets in English speaking countries.

My reading is that when the market crashed in 87, Thatcher panicked and allowed the (not independent) bank of England to stimulate. So the economy took off. It took a while to into work down the huge stock of unemployed, but there was no sign of a bad tradeoff. Just further proof that her insane policies (until she miss-interpreted the crash of 87 as the crash of 29) were the problem.

Krugman shares your view and he does tend to be right, but still, I’m tempted to make a prediction.