Policy Points

20.11.2009 Policy Points Comments Off on Public Policy Promotes Debt

Public Policy Promotes Debt

Popular discussions about debt often portray the issue in individual terms and make little mention of the economic forces that may lead individuals and firms to incur debt (e.g. flat wages coupled with rising living costs; tight credit) or the the public policies that actually encourage firms and households to borrow.

Writing in The New Yorker, James Surowiecki analyzes how the federal tax code encourages debt by subsiding its costs in various ways. Observes Surowiecki:

The government doesn’t make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments. Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a “tax shield.” Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it’s not surprising that many companies prefer to pile on the leverage.

19.11.2009 Policy Points Comments Off on Around the Dial – Nov. 19

Around the Dial – Nov. 19

Economic policy reports, blog postings, and media stories of interest:

19.11.2009 Policy Points Comments Off on Unemployment Claims in NC: Week of 10/31

Unemployment Claims in NC: Week of 10/31

For the benefit week ending on October 31st, 18,795 North Carolinians filed initial claims for unemployment insurance, and 180,051 individuals applied for continuing insurance benefits. Compared to the prior week, there were more initial and continuing claims. These figures come from data released today by the U.S. Department of Labor.

Averaging new and continuing claims over a four-week period — a process that helps adjust for seasonal fluctuations and better illustrates trends — shows that an average of 17,715 initial claims were filed over the last four weeks, along with an average of 179,943 continuing claims. Compared to the previous four-week period, initial claims were slightly higher and continuing claims were slightly lower.

weekly claims

One year ago, the four-week average for initial claims stood at   18,613 and the four-week average of continuing claims equaled 118,839.

The graph shows the changes in unemployment insurance claims (as a share of covered employment) in North Carolina since the recession’s start in December 2007.

Although new and continuing claims appear to have peaked for this cycle, the claims levels remain elevated and point to a labor market that remains extremely weak.

19.11.2009 Policy Points Comments Off on Bleak Budget Outlook

Bleak Budget Outlook

The newest economic and revenue report prepared by the staff of the NC General Assembly suggests that joblessness and budget shortfalls will trouble North Carolina well into the foreseeable future.

Among the report’s disturbing findings are the following:

  • As of October, state tax collections are running $95 million (or 1.5 percent) below target. After adjusting for changes in the tax code, revenues are down four percent compared to the previous year.
  • Sales tax collections continue to plunge and are down 11.7 percent compared to the prior year.
  • Withholding tax collections also are declining but are moving in line with projections.
  • An employment rebound is essential to any long-term economic and revenue recovery; unfortunately, few signs point to such growth and “a robust expansionary recovery is still a year or two away.”
18.11.2009 Policy Points Comments Off on Around the Dial – Nov. 18

Around the Dial – Nov. 18

Economic policy reports, blog postings, and media stories of interest: