It’s rare that I agree with Geithner on anything, so one and a half out of 4 is rather good. Please consider Geithner Dismisses Tax on Financial Transactions as Unworkable.
Treasury Secretary Timothy Geithner, throwing cold water on a plan by congressional Democrats to tax financial transactions, said banks and other market participants would find ways to circumvent the expense.
“I have not seen the version of that that I think works,” Geithner said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” that airs throughout the weekend. Firms are “going to move in a heartbeat to get around any tax like that.”
The Treasury chief also predicted a “quite high” chance that the U.S. unemployment rate will be lower than 10 percent in a year, and he called yesterday’s Labor Department report showing the smallest monthly job loss in two years “progress but not good enough.”
The prospect of a so-called Tobin tax, floated last month by U.K. Prime Minister Gordon Brown, is already provoking nervous U.S. financial companies to lobby for its defeat. Democrats, including Oregon Representative Pete DeFazio and Iowa Senator Tom Harkin, this week proposed taxing large transactions in stocks and derivatives. House Speaker Nancy Pelosi said the idea has a “great deal of merit.”
In yesterday’s interview, Geithner, echoing some of the banking industry’s reasons for opposing a Tobin tax, said he was concerned it wouldn’t be able to be adopted globally, making it harder to impose. He also noted that the tax may hit less sophisticated investors, instead of the big firms.
“There’s a real risk that retail investors, who’ve got fewer choices, they end up bearing the cost of the tax,” he said.
On another tax issue, Geithner questioned the effectiveness of providing businesses with a $5,000 credit for each new net job they create. Some have predicted the measure could help the economy add as many as 1.5 million new jobs.
“Just to be frank about it, there’s a lot of people in the business community and the academic community who are not confident that that particular proposal would be that powerful,” Geithner said. “But we’re going to keep looking at it.”
On the TARP, Geithner said the administration was in the process of putting the final touches on a major refinement of the effort.
“We’re going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges,” he said.
He didn’t say whether he will seek to extend the program for another nine months, as the law allows, when it expires on Dec. 31.
Geithner also said he was confident that loopholes concerning derivatives, inserted into legislation Congress is crafting to overhaul financial regulation, would be tightened before a law is passed.
Geithner only mentioned one of the problems with the transaction tax: firms moving elsewhere to avoid it. The other very real risk is that it will reduce liquidity in a plunging market, decidedly not a good thing. Nonetheless I will generously award him a full point.
Tax credits for jobs are a horrible idea. Geithner seems to be against them but not strongly, so I will award him half a point.
Businesses are not going to hire extra workers just to get a credit. They are going to hire who they need to hire, when they need to hire. If anything they may delay hiring hoping to get a tax credit. Finally, tax credits will promote churning of employees as it will give an incentive for employers to fire some workers while replacing them with others for a credit. Given Geithner’s statement promise “to keep looking at it” awarding him a half point for his stance is quite generous.
In regards to derivatives, I reserve judgment until we see what passes.
In regards to the economy, the jobs picture presented on Friday was a mirage. One even has to wonder if the BLS is purposely playing games knowing full well a massive revision in the January numbers (coming out in February), will subtract 80,000 jobs a month for a full year.
I doubt the unemployment rate is under 10% a year from now, or even two years from now, unless the BLS numbers show large declines in the labor force (as they did in the November Employment Report on Friday).
Table A explains the drop in the unemployment rate nicely.
Unemployment dropped by .2% even though 11,000 jobs were lost and it should take at least 100,000 jobs just to keep up with demographics. Instead note the drop in the civilian labor force by 98,000.
Moreover, those “not in the labor force”
rose by 291,000 constituting nearly all of the decline in unemployment.
That drop in the labor force is not normal to say the least. It should have risen by 100,000 minimum.
Mike “Mish” Shedlock
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