DAILY UPDATE: Larry Summers Speaks About Domestic Economic Activity as the Markets Collapse

Posted on February 25, 2023 by Dr. David Edward Marcinko MBA

By Staff Reporters

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According to Bloomberg, former Treasury Secretary Lawrence Summers said worrying signals of a potential sharp drop-off in activity combined with strength in other indicators point toward an uncertain economic outlook.

Here is Why:

Inventories “look to be building up relative to sales.”Companies are “reporting concerns about their order books.”The business sector appears to have a high payroll head-count relative to “the level of output they’re producing.”“Consumer savings are being depleted, with a low savings rate.” And, “there is stuff when you look down the road a bit that has to be substantially concerning about the Wile E. Coyote kind of moment,” reiterating his reference to the cartoon character that falls off a cliff. 

Federal Reserve policymakers will need to “stay nimble and flexible” given the uncertainty, Summers said. The central bank should “resist the pressure to be giving strong signals about what it’s going to do next.”

Finally, the former Treasury chief also reiterated the lack of past examples in which the US managed to avoid a recession when the unemployment rate dropped below 4% and inflation went above 4%. “That’s a powerful historical truth and I think it’s one that’s relevant to our current situation.”

The latest unemployment-rate reading was 3.4%, while the consumer price index climbed 6.4% in January on a year-on-year basis.

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Stocks Fell Following Hot Inflation Report and U.S. equities ended the day and week lower as the markets reacted to a Fed-favored gauge of inflation that came in hotter-than-expected. PCE and Core PCE Price Indexes rose more than anticipated, while personal income increased less than expected, and spending jumped. The moves came as equities have shown some volatility amid festering uncertainty regarding the ultimate economic impact of aggressive global central bank tightening as a result of persistent inflation. In other economic news, new home sales rose, and consumer sentiment was surprisingly revised the upside.

Treasury yields were higher, and the U.S. dollar gained ground, while crude oil prices increased, and gold traded to the downside. Q4 earnings season rounded a corner this week with some second-tier results hitting the tape, as Autodesk disappointed with its guidance and Intuit bested expectations, while Warner Bros. Discovery fell well short of forecasts.

In other equity news, shares of Boeing declined after the company paused delivery of its 787 Dreamliner planes. Asian stocks finished mixed, and markets in Europe fell, with economic data in the respective regions keeping the anxiety over future global monetary policy elevated.

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Why the White House Proposed Corporate Tax Reform

Posted on February 28, 2012 by Dr. David Edward Marcinko MBA

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Twenty-Five Years Since Last Revision

By Children’s Home Society of Florida Foundation

On February 22nd 2012, Treasury Secretary Timothy Geithner spoke to Congress and outlined the White House proposal for corporate tax reform. Geithner noted that there has not been a comprehensive corporate tax reform for 25 years. Since the last major corporate tax reform, there have been many significant events. These include the following changes.

  1. Internet is widely used.
  2. Cell phones are now common place.
  3. China and India have become significant economies.
  4. Global trade has greatly expanded.
  5. Nearly all other industrial societies have lowered their corporate rates.

The Five Elements of Reform

  1. Reduced Rates – The elimination of tax loopholes and subsidies will permit a reduction of the corporate tax rate from 35% to 28%.
  2. Manufacturing Incentives – The effective tax rate for manufacturing companies will be reduced to 25% through incentives.
  3. International Taxation System – Companies could pay penalties for shifting income overseas.
  4. Simplification – Small businesses would benefit from reduced complexity in the Tax Code.
  5. Revenue Neutrality – The reduced rates are achieved through eliminating various tax deductions.

Assessment

Treasury Secretary Geithner indicated that he plans to meet with Senate Finance Chair Max Baucus (D-MT) and House Ways and Means Chair Dave Camp (R-MI). He hopes that it will be possible to build a bipartisan consensus for corporate tax reform.

Editor’s Note: Sen. Baucus and Chairman Camp have been holding hearings and proposing corporate tax reform for the past year. With the White House announcement, that the President, the House and the Senate agree that there should be simplification and a lower corporate top rate. The challenge will come when the government grapples with the question of which major corporate deductions (such as bonus depreciation) will actually be removed in order to lower rates. Because of the magnitude of major tax reform, it is not likely that an actual bill could be passed before 2013.

Conclusion

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