Friday, December 30, 2016
Thursday, December 29, 2016
U.S. President-elect Donald Trump talks with the media at Mar-a-Lago estate where Trump attends meetings, in Palm Beach, Florida, U.S., December 21, 2016. REUTERS/Carlos Barria
President-elect Donald Trump's goal of overhauling the U.S. tax code in 2017 will depend partly on the work of an obscure congressional committee tasked with estimating how much future economic growth will result from tax cuts.
Known as the Joint Committee on Taxation, or JCT, the nonpartisan panel assigns "dynamic scores" to major tax bills in Congress, based on economic models, to forecast a bill's ultimate impact on the federal budget. The higher a tax bill's dynamic score, the more likely it is seen as spurring growth, raising tax revenues and keeping the federal deficit in check.
As Trump and Republicans in Congress plan the biggest tax reform package in a generation, the JCT has come under pressure from corporate lobbyists and other tax cut advocates who worry that too low a dynamic score could show the legislation to add billions, if not trillions of dollars to the federal deficit.
"The problem is that the Joint Committee staff has adopted a whole series of assumptions that truly minimize the effects and underestimate the impact that a properly done tax reform could have," said David Burton, an economic policy fellow at the conservative Heritage Foundation think tank.
A low dynamic score could force Republicans to scale back tax cuts or make the reforms temporary, severely limiting the scope of what was one of Trump's top campaign pledges.
Other analysts warn that pressure for a robust dynamic score raises the danger of a politically expedient number that could help reform pass Congress but lead to higher deficits down the road.
Until last year, JCT used a variety of economic models in its arcane calculations, reflecting the uncertainties in such work. But House of Representatives Republicans changed the rules in 2015 to require that a bill's score reflect only a single estimate of the estimated impact on the wider economy and resulting impact on tax revenues.
Next year's anticipated tax reform package would be the biggest piece of legislation that JCT has scored using this new, narrower approach, presenting the committee with a daunting challenge.
JCT Chief of Staff Thomas Barthold acknowledged the challenge of dynamic scoring in an interview with Reuters.
"The U.S. economy is so darn complex, you really can't have one model that picks up all of the complexity and nuance. So the essence of modeling is to try to slim things down, try to emphasize certain points," he said.
Tax reform is still months away. But the initial legislation expected in 2017 is likely to fall somewhere between two similar but separate plans, one backed by Trump and the other by House Republicans including Speaker Paul Ryan.
The proposals lean heavily for fiscal legitimacy on dynamic scoring. Even the most robust independent scores show both plans adding to the deficit.
But dynamic scoring, like any economic modeling technique, is far from precise and, when it comes to fiscal policy, any theoretical flaws could lead to very real consequences for taxpayers and the U.S. economy.
The JCT has included macroeconomic analyses in its tax bill scores since 2003, providing a range of estimates on economic effects built on a variety of assumptions.
When Dave Camp, as chairman of the House Ways and Means Committee, produced a tax reform bill in 2014, JCT used two models and forecast revenue gains ranging from $50 billion to $700 billion. The committee also provided economic growth forecasts from as low as 0.2 percent to as high as 1.8 percent.
The tax package likely to emerge next year will probably be even more complex than Camp's, prompting some to worry that budgetary and economic forecasts will range even more widely.
Some critics, including lobbyists for major corporations that stand to gain from big tax cuts, want JCT's numbers to look more like the nonpartisan Tax Foundation's, a research group whose work has been embraced by Trump and House Republicans.
The Tax Foundation estimates that the House Republican tax plan would lead to a 9.1 percent higher gross domestic product over the long term, 7.7 percent higher wages and 1.7 million new full-time-equivalent jobs. It predicts the plan would reduce government revenue by $2.4 trillion over a decade, not counting macroeconomic effects, but by only $191 billion once economic growth is taken into account.
By contrast, the centrist Tax Policy Center estimates the House plan would add 1 percent to GDP over 10 years and erase $2.5 trillion of revenue, even with positive macroeconomic feedback, due to higher federal debt interest.
By David Morgan
(Editing by Kevin Drawbaugh and Leslie Adler)
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By Marc Jones | LONDON
The dollar climbed back towards a 14-year high on Tuesday as the yen fell after the Bank of Japan held policy steady and fallout from attacks in Germany and Turkey subdued the euro.
European shares were steady, with unease over the attacks balanced by gains by bank shares and the Milan market .FTMIB after Italy's government said it wanted approval for up to 20 billion euros to rescue troubled lenders.
On currency markets, risk aversion sent the safe-haven Swiss franc to a near a six-month high versus the euro EURCHF= and pushed the common currency firmly back below $1.04. EUR=
But the dollar .DXY and rising bond yields US10YT=RR again dominated, after the head of the Federal Reserve flagged the strength of the U.S. jobs market in a speech to students on Monday.
That sent the greenback bouncing towards last week's 14-year high and it was at 103.40 on the index that measures it against other leading currencies, just short of its recent peak of 103.56. [/FRX]
The gains were strongest against the yen which slid around 1 percent after the Bank of Japan, shrugging off the yen's recent slump, said it would keep monetary policy loose.
"The biggest impact you see from the attacks in Berlin and Istanbul is the Swiss franc/euro," said Societe Generale FX strategist Alvin Tan.
"But apart from that the dollar continues to be strong after we had some rather positive comments from Janet Yellen,"
Benchmark 10-year U.S government bond yields, which set the bar for global borrowing costs and have been rising hand-in-hand with the dollar over the last few months, were back above 2.58 percent. [US/]
The greenback has risen 12 percent versus the yen since Donald Trump's surprise presidential election victory, on his promises of increased fiscal stimulus. The win was made official on Monday after he got the required Electoral College votes.
Modest gains for European shares came after MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had ended down 0.2 percent as emerging markets stocks suffered their fifth straight day of losses.
China's CSI 300 index .CSI300 slid 0.6 percent, on Beijing's move to tighten supervision of shadow banking activities and on liquidity concerns, while Japan's Nikkei .N225 closed up 0.5 percent after the BOJ meeting. [.T]
"There was no particular surprise from the policy meeting, but investors are happy that the economy's fundamentals are finally rising after the BOJ expressed an upbeat view," said Takuya Takahashi, a strategist at Daiwa Securities.
Wall Street was expected to nudge higher later having tailed off slightly on Monday as risk aversion set in following the deaths in Germany, the shooting dead of Russia's ambassador in Turkey, and a gun attack in a mosque in Switzerland.
Berlin police said on Tuesday that investigators suspected a truck that was driven into a Christmas market crowd was a terrorist attack.
The lira rallied on relief that Moscow and Ankara struck a unified tone after the Ankara attack, rising 0.3 percent to 3.5196 per dollar on Tuesday after falling 0.7 percent on Monday. The rouble was steady at 61.8926 per dollar.
Safe haven gold XAU, which rose 0.4 percent on Monday, pulled back 0.3 percent to $1,135.06 an ounce, as the prospect of further U.S. rate hikes outweighed political concerns.
Oil prices also eased as traders began to unwind positions in the run-up to the holiday season. U.S. crude CLc1 slid 0.4 percent to $51.91 per barrel as global benchmark Brent LCOc1 slipped 0.2 percent to $54.81.
(Additional reporting by Nichola Saminather in Singapore; editing by John Stonestreet)