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Principles of Macroeconomics

Principles of Macroeconomics. Economic Crisis. WHAT ARE WE DOING. Fiscal Policy Monetary Policy Legislative Summaries Bush Tax Rebate 2008 Obama Tax Credit TARP (Troubled Asset Relief Program) American Recovery and Reinvestment Act $410B Bill to Fund Federal Government

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Principles of Macroeconomics

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  1. Principles of Macroeconomics Economic Crisis Macroeconomics, March 30, 2009, Martha Stuffler

  2. WHAT ARE WE DOING Fiscal Policy Monetary Policy Legislative Summaries Bush Tax Rebate 2008 Obama Tax Credit TARP (Troubled Asset Relief Program) American Recovery and Reinvestment Act $410B Bill to Fund Federal Government Making Home Affordable Program Keynesian Multiplier Principle Bailouts Macroeconomics, March 30, 2009, Martha Stuffler

  3. WHAT ARE WE DOING FISCAL POLICY Government’s use of its spending and taxing powers Determined by the President and Congress for the national economy and by state legislatures Macroeconomics, March 30, 2009, Martha Stuffler

  4. WHAT ARE WE DOING MONETARY POLICY Fed’s use of its tools to change interest rates and the money supply to influence credit conditions in the economy Macroeconomics, March 30, 2009, Martha Stuffler

  5. WHAT ARE WE DOING MONETARY POLICY Given that interest rates are about as low as they can go, we will focus on the effects of fiscal policy to stabilize the economy Macroeconomics, March 30, 2009, Martha Stuffler

  6. WHAT ARE WE DOING LEGISLATIVE SUMMARIES National Association of Tax Professionals www.natptax.com/tax_act_summaries.html Macroeconomics, March 30, 2009, Martha Stuffler

  7. WHAT ARE WE DOING LEGISLATIVE SUMMARIES Summary of the American Recovery and Reinvestment Act of 2009 [HR 1] Summary of the Worker, Retiree, and Employer Recovery Act of 2008 [HR 7327] Summary of the Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008 and Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (HR 1424) Summary of the Housing Assistance Tax Act of 2008 (H.R. 3221) Summary of the Heroes Earnings Assistance and Relief Tax Act of 2008 (H.R. 6081) Macroeconomics, March 30, 2009, Martha Stuffler

  8. WHAT ARE WE DOING LEGISLATIVE SUMMARIES Summary of the Food, Conservation, and Energy Act of 2008 (AKA The Farm Bill) Summary of the Economic Stimulus Act of 2008 (H.R. 5140) Treasury Department news release with examples of how the Economic Stimulus Act of 2008 will benefit Americans Summary of the Mortgage Forgiveness Relief Act of 2007 (H.R. 3648) Summary of the Small Business Work Opportunity Act of 2007 (H.R. 2206) Macroeconomics, March 30, 2009, Martha Stuffler

  9. WHAT ARE WE DOING Bush Tax Rebate 2008 February 2008, Congress approved a $168B economic stimulus plan to help stave off economic recession Tax rebates for many citizens Citizens must have filed a 2007 tax return to be eligible for a rebate Macroeconomics, March 30, 2009, Martha Stuffler

  10. WHAT ARE WE DOING Bush Tax Rebate 2008 $600 for individuals with incomes of up to $75,000 Partial rebates for those earning $75,000 to $87,000 Couples: $1,200 for those making up to $150,000 Families: additional $300 per child (up to age 17) Partial rebates for couples making between $150,000 and $174,000 $300 for low income people—disabled veterans, veterans' widows, senior citizens Macroeconomics, March 30, 2009, Martha Stuffler

  11. WHAT ARE WE DOING Bush Tax Rebate 2008 “Impact of the 2008 Rebate” – August 15, 2008 article by Christian Broda and Jonathan A. Parker, professors for University of Chicago and Northwestern University, respectively reported: This spring, the US government handed out $100 billion in tax rebates. Twentieth century economic thinking – permanent income hypothesis, Ricardian equivalence, and the like – suggests that most would have been saved, as Martin Feldstein recently argued. Not so. Recent research shows that the typical family increased spending by 3.5% when the rebate arrived, boosting overall nondurable consumption by 2.4% in 2008Q2. The number should be 4.1% in 2008Q3. Macroeconomics, March 30, 2009, Martha Stuffler

  12. WHAT ARE WE DOING Bush Tax Rebate 2008 Early in 2008, in response to slowing economic growth, the US federal government enacted an economic stimulus package consisting mainly of a $100 billion tax rebate program. By 1 July 2008, more than 70 million American households had received tax rebates of $950 on average. The hope of policymakers was that by putting money directly back into the hands of US households, they would increase spending levels and avoid (or at least mitigate) the severity of the slowdown. Macroeconomics, March 30, 2009, Martha Stuffler

  13. WHAT ARE WE DOING OBAMA TAX CREDIT Refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns Phased out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly Macroeconomics, March 30, 2009, Martha Stuffler

  14. WHAT ARE WE DOING OBAMA TAX CREDIT Tax credit will appear April 2010 to offset the decreased tax withholding Cost estimate is $140 billion over the next two years Goal to increase consumer spending Macroeconomics, March 30, 2009, Martha Stuffler

  15. WHAT ARE WE DOING OBAMA TAX CREDIT What is the difference between the Bush Tax Rebate and the Obama Tax Credit? Do you believe the effects will differ or will they be the same? Macroeconomics, March 30, 2009, Martha Stuffler

  16. WHAT ARE WE DOING TARP (October 2008) Troubled Asset Relief Program Division A - Emergency Economic Stabilization Act of 2008 Division B - Energy Improvement and Extension Act of 2008 Division C - Tax Extensions and Alternative Minimum Tax Relief Macroeconomics, March 30, 2009, Martha Stuffler

  17. WHAT ARE WE DOING Division A - Emergency Economic Stabilization Act of 2008 $700B to US Treasury -- purchase or insure (ANY) troubled assets and to cover all administrative expenses of purchasing, insuring, holding, and selling those assets ANY troubled assets includes mortgages,auto loans, credit card loan portfolios, and school loan portfolios Macroeconomics, March 30, 2009, Martha Stuffler

  18. WHAT ARE WE DOING Division A - Emergency Economic Stabilization Act of 2008 US Treasury could bailout foreign commercial and central banks For example, Bank of Shanghai transfers its toxic assets to the Bank of Shanghai in Los Angeles which can then sell them to the US Treasury A provision to say if it wasn't owned by an American entity or even a subsidiary of an American entity, the Treasury could not buy it, provision was rejected Macroeconomics, March 30, 2009, Martha Stuffler

  19. WHAT ARE WE DOING Division B - Energy Improvement and Extension Act of 2008Provided tax incentives related to energy and fuel production and energy conservation CBO estimated that tax revenues would fall by $6.8 billion, outlays would rise by about $0.2 billion, and increase deficits by about $7 billion Macroeconomics, March 30, 2009, Martha Stuffler

  20. WHAT ARE WE DOING Division C - Tax Extensions and Alternative Minimum Tax Relief Extend AMT (alternative minimum tax) relief for 2008 AMT imposed 1969 to ensure the richest 155 Americans paid some income tax of at least 26% or 28% by getting rid of tax deductions that was lowered their tax rates Macroeconomics, March 30, 2009, Martha Stuffler

  21. WHAT ARE WE DOING Macroeconomics, March 30, 2009, Martha Stuffler

  22. WHAT ARE WE DOING Division C - Tax Extensions and Alternative Minimum Tax Relief Extend/modify other expiring tax provisions, provide tax relief for regions of the country affected by severe storms earlier in 2008, and provide payments to state and local governments for support to rural schools and other county programs Division C would reduce revenues by about $105.2B, increase outlays by $7.1B, and increase projected deficits by about $112.3B Macroeconomics, March 30, 2009, Martha Stuffler

  23. WHAT ARE WE DOING Division C - Tax Extensions and Alternative Minimum Tax Relief Division C, section 512 would impose a private-sector mandate on group health plans and issuers of group health insurance by prohibiting them from imposing treatment limitations or financial requirements for mental health benefits that differ from those placed on medical and surgical benefits Macroeconomics, March 30, 2009, Martha Stuffler

  24. WHAT ARE WE DOING Does anyone notice that TARP (Troubled Asset Relief Program of October 2008) contains many provisions that have nothing to do with troubled assets within the banking/mortgage industry ? Macroeconomics, March 30, 2009, Martha Stuffler

  25. WHAT ARE WE DOING Return to Division A:Emergency Economic Stabilization Act of 2008 Created program to allow the government to insure, instead of buying, some troubled assets held by banks Established an oversight board to monitor the Treasury's use of funds Macroeconomics, March 30, 2009, Martha Stuffler

  26. WHAT ARE WE DOING Return to Division A:Emergency Economic Stabilization Act of 2008 Increased FDIC Insurance from $100,000 per account to $250,000 account until Dec. 31, 2009 Macroeconomics, March 30, 2009, Martha Stuffler

  27. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Economic stimulus package that was passed by Congress on Feb. 13, 2009 and signed into law by President Obama on Feb. 17 CBO estimates the cost as $787B over the 2009-2019 period Macroeconomics, March 30, 2009, Martha Stuffler

  28. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Summary Tax Relief and Tax Cuts $288 billion State and Local Aid $142 billion Federal Spending Programs $357 billion Total $787 billion Macroeconomics, March 30, 2009, Martha Stuffler

  29. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $116 billion: New payroll tax credit of $400 per worker and $800 per couple in 2009 and 2010 $70 billion: One year increase in AMT (Alternative Minimum Tax) floor to $70,950 for joint filers for 2009 Macroeconomics, March 30, 2009, Martha Stuffler

  30. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $1.7 billion: Deduction of sales tax from car purchases, not interest payments, phased out for incomes above $250,000. Macroeconomics, March 30, 2009, Martha Stuffler

  31. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $15 billion: Expansion of child tax credit -- A $1,000 tax credit to more families (even those that do not pay income taxes) How could a family not pay any federal income taxes? Macroeconomics, March 30, 2009, Martha Stuffler

  32. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions What is the difference between a tax credit and a tax deduction? Macroeconomics, March 30, 2009, Martha Stuffler

  33. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions What percent of US households pay Federal Income Taxes? What percent of US households do not pay any Federal Income Taxes? Macroeconomics, March 30, 2009, Martha Stuffler

  34. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $14 billion: Expanded college credit to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010--credit is phased out for couples making more than $160,000 Macroeconomics, March 30, 2009, Martha Stuffler

  35. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $4.7 billion: Excluding from taxation the first $2,400 a person receives in unemployment compensation benefits in 2009 $4.7 billion: Expanded earned income tax credit to increase the earned income tax credit — which provides money to low income workers — for families with at least three children. $4.3 billion: Home energy credit to provide an expanded credit to homeowners who make their homes more energy-efficient in 2009 and 2010. Homeowners could recoup 30 percent of the cost up to $1,500 of numerous projects, such as installing energy-efficient windows, doors, furnaces and air conditioners. Macroeconomics, March 30, 2009, Martha Stuffler

  36. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Provisions $6.6 billion: Homebuyer credit of $8,000 refundable credit for all homes bought between 1/1/2009 and 12/1/2009 and repayment provision repealed for homes purchased in 2009 and held more than three years. This applies to first-time homebuyers—those who have not owned a home in the last 3 years. Macroeconomics, March 30, 2009, Martha Stuffler

  37. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Spending Provisions Healthcare $148 billion Education $91 billion Environment $7 billion Energy $61 billion Macroeconomics, March 30, 2009, Martha Stuffler

  38. WHAT ARE WE DOING American Recovery and Reinvestment Act of 2009 Various Spending Provisions Aid to low income workers, unemployed and retirees (including job training) $83 billion Infrastructure Investment $81 billion Investment into government facilities and vehicle fleets $30 billion Macroeconomics, March 30, 2009, Martha Stuffler

  39. WHAT ARE WE DOING $410 Billion to Fund Federal Government Infamous “earmarks” bill signed March 11, 2009 OMB defines earmarks as: Funds provided by the Congress for projects or programs where the congressional direction (in bill or report language) circumvents Executive Branch merit-based or competitive allocation processes, or specifies the location or recipient, or otherwise curtails the ability of the Executive Branch to manage critical aspects of the funds allocation process Macroeconomics, March 30, 2009, Martha Stuffler

  40. WHAT ARE WE DOING $410 Billion to Fund Federal Government OBM reports that earmarks Include: Add-ons, Carve-outs and funding provisions that do not name a recipient, but are so specific that only one recipient can qualify for funding Macroeconomics, March 30, 2009, Martha Stuffler

  41. WHAT ARE WE DOING $410 Billion to Fund Federal Government Supposed to have been completed last fall, but Congress and President Bush could not agree 1,132-page spending bill that combines 9 spending bills to fund foreign aid and the annual operating budgets of every Cabinet department except for Defense, Homeland Security, and Veterans Affairs that were funded last year Macroeconomics, March 30, 2009, Martha Stuffler

  42. WHAT ARE WE DOING $410 Billion to Fund Federal Government Independent watchdog group Taxpayers for Common Sense found 8,570 disclosed earmarks in the bill, worth $7.7 billion Only five senators did not add pet projects to the measure, including Republicans McCain, DeMint and Tom Coburn, and Democrats Feingold and McCaskill Macroeconomics, March 30, 2009, Martha Stuffler

  43. WHAT ARE WE DOING $410 Billion to Fund Federal Government Numerous policy changes, including shutting down a program allowing Mexican trucking companies to operate beyond U.S.-Mexico border zones and easing rules on Cuban-Americans traveling to the island to visit relatives Macroeconomics, March 30, 2009, Martha Stuffler

  44. WHAT ARE WE DOING $410 Billion Bill Provisions Increases many government agencies’ operating budgets 10% or more above fiscal 2008 levels One contentious item was the Washington DC school voucher program provides 1,700 low-income students with the equivalent of a $7,500 grant to attend a private school Macroeconomics, March 30, 2009, Martha Stuffler

  45. WHAT ARE WE DOING $410 Billion Bill Provisions Increases for mass transit, public housing, the National Institutes of Health, Head Start and the Pell grant program The Food and Drug Administration would receive nearly $335 million more than it did in fiscal 2008 The supplemental nutrition program for women, infants and children, known as WIC, would grow by $1.2 billion, a 21 percent jump from the $5.7 billion appropriated last year Macroeconomics, March 30, 2009, Martha Stuffler

  46. WHAT ARE WE DOING $410 Billion Bill Provisions $485,000 for a boarding school for at-risk native students in western Alaska $1.2 million for Helen Keller International so the nonprofit organization can provide eyeglasses to students with poor vision Dozens of state and local government money awards for police equipment and to combat methamphetamine Macroeconomics, March 30, 2009, Martha Stuffler

  47. WHAT ARE WE DOING $410 Billion Bill Provisions $2.4 billion a 13% increase for the Agriculture Department 10% increase for the money-losing Amtrak passenger rail system Macroeconomics, March 30, 2009, Martha Stuffler

  48. WHAT ARE WE DOING $410 Billion Bill Provisions Congress increased its own budget by 10%, bringing it to $4.4 billion Provision denying lawmakers the automatic cost-of-living pay increase they are due January 1, 2010 Macroeconomics, March 30, 2009, Martha Stuffler

  49. WHAT ARE WE DOING How did the recent decrease in household wealth, net exports, and business investment affectaggregate demand? What effects should expect from the Tarp Act, the American Recovery and Reinvestment Act, and the $410B spending bill on aggregate demand? Macroeconomics, March 30, 2009, Martha Stuffler

  50. WHAT ARE WE DOING Keynesian Multiplier Principle Concept: In the short run, for every dollarof increased government spending, real GDP/real Income will increase by a multiplied amount How would this occur? Macroeconomics, March 30, 2009, Martha Stuffler

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