Posts by Sandy Leeds
Posts about Sandy Leeds
Finance maestro Sandy Leeds explains what goes wrong when a handful of US banks get too big for their britches.
As 2012 ticks down to its final days, it’s not just buffs of the Mayan calendar who fear the end of the world as we know it. Assuming doomsday does not arrive Dec. 21, the nation could face another apocalyptic scenario just 11 days later. Some economists call it Taxmageddon and others the Fiscal Cliff — a half-trillion-dollar smorgasbord of expiring tax cuts, along with benefit and budget cuts, that start kicking in on New Year’s Day. They warn it could topple the U.S. economy back into recession.
Confusion, avoidance, loopholes, manipulation. The current state of American corporate income tax evokes all these words and more. By one measure, U.S. companies pay the highest corporate tax rates in the industrialized world: 39.2 percent, versus an average of 25.4 percent. But by other measures, they pay some of the lowest amounts. In 2009, corporate taxes were 1.7 percent of America’s gross domestic product, compared to an industrialized average of 2.8 percent. The tax contributes a scant 8 percent of Uncle Sam’s revenues. “It’s a small percentage, and we’re spending a lot to avoid it,” says Sandy Leeds, senior lecturer in finance at McCombs.
Six faculty members at The University of Texas at Austin share their thoughts on the politics, procedure, and implications of the Supreme Court's ruling on the Affordable Care Act.
Tax breaks, loopholes, shelters, and subsidies are really government spending by another name, most economists say. Congressional budget rules call them “tax expenditures” and define them as, “Those revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” Whatever you call them, they may be costing the U.S. Treasury billions of dollars each year.
Lingo video: The debt ceiling is a simple economic concept that has brought the nation to its knees. But what is it, and why is it such a contentious issue?
Your doctor sounds the alarm: Your weight has hit the danger zone. You ask for a miracle drug that could slim you down overnight. His matter-of-fact reply: Eat less and exercise more. Like losing weight, the steps needed to deflate the federal deficit are not drastic, say faculty at the McCombs School of Business. The chief obstacle is not economic practicality but political willpower. “We’re a wealthy country with a solid central bank,” says Dean Thomas Gilligan. “We can work through this.” How much should America restrict its fiscal calorie intake? A reasonable target, say many economists, is to maintain publicly-held national debt at its current 62 percent of Gross Domestic Product. With no change in current policies, that number would top 350 percent in 75 years. To bridge that gap, calculates the Treasury Department, will take spending cuts and revenue hikes that add up to 2.4 percent of GDP. That would amount to $360 billion this year, and larger amounts as the economy grows. “That’s what it needs to add up to immediately, and it needs to be lasting,” says McCombs senior lecturer Sandy Leeds. “If we can keep our debt-to-GDP ratio constant over 75 years, it would be an amazing feat.”
When the world’s largest bond fund dumps the world’s safest bonds, the investment world takes notice. That happened over the past year, as the PIMCO Total Return Fund reduced its hoard of U.S. Treasury securities from $147 billion to zero. The culprit, said manager Bill Gross, was the national debt. To date, America’s mounting deficits have been an abstraction, a threat a couple of generations down the line. But there’s evidence, say faculty at the McCombs School of Business, that they’re starting to take a toll on the U.S. economy. “We’re getting close to the tipping point,” says McCombs finance professor Lewis Spellman. One closely watched indicator is the ratio of the nation’s debt to its Gross Domestic Product. Four years ago, it stood at 64 percent. At the end of 2010, it hit 93 percent. That figure sets off alarm bells for some economists.
Sometime this May, America will max out its credit card. That's when the national debt is projected to hit the $14.3 trillion allowed under current law. Unlike you and me, the federal government gets to raise its own credit limit, and Congress has been playing a high-stakes game of chicken over whether to allow it. But to Michael Granof, accounting professor at the McCombs School of Business, that $14.3 trillion is just a drop in a bucket of red ink. “The real debt,” he says, “is that number on the balance sheet — plus $43 trillion.” How big are our federal deficit and our national debt, really? Economists use more than one yardstick to measure them. The federal budget uses the shortest yardstick, but to Granof, it’s not necessarily the most accurate one.