Tuesday, February 14, 2012

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February 13, 2012

Obama’s Budget Takes Aim at Deficit Hawks—and Mitt

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Peter Orszag and other fiscal hawks, eat your heart out: the Obama Administration’s pivot to deficit reduction is well and truly done—until after the election, at least.
And Mitt Romney, take note, too. If the 2013 budget, which the White House released this morning, were to be enacted in full, which is highly unlikely, you would face a big increase in your tax bill.
From late 2009 until 2011, the Obama Administration was intent on reassuring the markets that it would bring the long-term deficit under control. It is now focussing on winning reëlection. Following the President’s populist State of the Union address, which in turn built upon his landmark inequality speech in Osawatomie, Kansas, in December, his new budget seeks to preserve existing stimulus measures, such as the extension of payroll-tax cuts and unemployment benefits. It also seeks to finance long-term investments in manufacturing, alternative energy, and education by raising taxes on the rich.

In particular, the budget proposes that Americans who earn more than $250,000 a year no longer get the benefits of low tax rates on dividends and capital gains. Instead, for these taxpayers, dividends and capital gains would be subject to the ordinary income-tax rate, which for many high-income people is thirty-five per cent.
Let’s take Romney as an example. In 2011, he made $20.9 million, almost all of it from dividends and capital gains on his investments, which are currently taxed at fifteen per cent. Romney’s tax bill in 2011 came to $3.2 million. If the budget proposal had been in effect, almost all of Romney income would have been taxed at thirty-five per cent, and his tax bill would have been $7.3 million. That’s a tax hike of about a hundred and thirty-three per cent.
In a briefing, Gene Sperling, the head of the National Economic Council, said the tax hikes on the rich would raise about $206 billion, much of which would be spent on infrastructure investments, and higher spending on education and research—part of the President’s plan, outlined in the State of the Union, to create “an America built to last.”
As for measures to reduce the deficit, they are rather less in evidence than in past budgets—something that won’t please Orszag, who, before leaving the White House in 2010, pushed for more aggressive fiscal consolidation. Still, the Office of Management and Budget is forecasting that over the next five years the budget deficit will be cut in half: from $1.33 trillion in fiscal 2012, which ends in October, to $612 billion in fiscal 2017. As a percentage of G.D.P., which is what matters, the deficit is predicted to fall from 8.5 per cent in 2011 to three per cent in 2017.
How is this reassuring outcome to be achieved? During a campaign-style appearance at Northern Virginia Community College, Obama said he was “proposing some difficult cuts” but didn’t identify many. Jeffrey Zients, the acting head of the Office of Management and Budget, pointed to cuts in Medicaid, Medicare, farm subsidies, and spending on the wars in Iraq and Afghanistan.
Zients insisted that the new budget contains five trillion dollars in deficit reduction over the next ten years, and he said that more than $3.5 trillion of this total comes from spending cuts. But these are Washington-style spending cuts, not the sort you and I would recognize: i.e., they are cuts relative to a growing baseline, not cuts in absolute dollars. The budget documents show federal spending rising from $3.8 trillion this year to $4.5 trillion in 2017, and to $5.8 trillion in 2022. And to get to those numbers, you have to believe that discretionary spending—on defense and non-defense programs—will fall sharply in inflation-adjusted terms over the next ten years.
As far as I can tell, the bulk of the deficit reduction comes from higher revenues, partly generated by higher taxes on the wealthy but mainly due to more rapid economic growth. Of the thousands of figures in the budget, what stands out most is the assumption that, over the next five years, G.D.P. will expand at an average rate of more than 3.7 per cent. Without making much of a noise about it, the White House is forecasting that the U.S. economy will finally enjoy a vigorous recovery from the housing and Wall Street busts, during which output growth will rise above the long-run trend determined by increases in population and productivity. In short, Obama is putting his faith in that trusty enabler of lower deficits, a figure many of his predecessors also relied on: Rosy Scenario.
This sunny forecast may turn out to be correct. Since last year, I’ve been more upbeat about the outlook than many professional economists, and so far the data has confirmed my view. But it’s only fair to point out that it’s an optimistic take on things: if G.D.P. growth of close to four per cent doesn’t materialize, the deficit won’t fall by nearly as much as the White House is predicting.
Finally (for now): a health warning. This budget, like its predecessors, is essentially a wish list. With the Republicans controlling the House, it has virtually no chance of being enacted as it stands: some Republicans have already declared it dead on arrival. It should be viewed not as a legislative blueprint but as a statement of the Administration’s priorities and of its thinking about the economy—and, in an election year, as a very political document.
Photograph by Win McNamee/Getty.
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Liverpool deny sponsor pressure over Suarez

Liverpool denied Tuesday reports they'd apologised for Luis Suarez's conduct at Old Trafford as a result of pressure from shirt sponsors Standered Chartered bank.
Uruguay striker Suarez sparked fresh uproar last weekend when he refused to shake the hand of Manchester United's Patrice Evra, having only recently returned from an eight-game ban for racially abusing the French defender.
Liverpool subsequently apologised for Suarez's conduct but, having steadfastly supported their forward up until that point, there were suspicions they had been pressured into taking action by Standard Chartered, who are currently half-way through a four-year deal worth £81 million ($128 million).
However, Liverpool insisted Tuesday that managing director Ian Ayre and manager Kenny Dalglish had not been prompted by anyone from outside Anfield.
"Ian Ayre kept Standard Chartered fully informed of developments over the course of the weekend," said a Liverpool statement. "The actions the club decided to take on Sunday were supported by Standard Chartered."
A Standard Chartered statement Sunday said: "We were very disappointed by Saturday's incident and have discussed our concerns with the club."
It has been suggested the club's American-based owners, Fenway Sports Group, only became fully aware of the severity of the Suarez situation when reports appeared in the US press.
United manager Sir Alex Ferguson branded Suarez's conduct ahead of Liverpool's 2-1 defeat on Saturday a disgrace, while Professional Footballers' Association chief Gordon Taylor called the Liverpool star's actions "disrespectful, inappropriate and embarrassing".
Suarez finally showed some contrition in a statement expressing his regret for his actions.
"I have spoken with the manager (Kenny Dalglish) since the game at Old Trafford and I realise I got things wrong," Suarez said Sunday on Liverpool's official website.
"I've not only let him down, but also the club and what it stands for and I'm sorry. I made a mistake and I regret what happened.
"I should have shaken Patrice Evra's hand before the game and I want to apologise for my actions.
Ayre added: "We are extremely disappointed Luis Suarez did not shake hands with Patrice Evra before yesterday's (Saturday's) game. The player had told us beforehand that he would, but then chose not to do so," Ayre said.
"He was wrong to mislead us and wrong not to offer his hand to Patrice Evra.
"He has not only let himself down, but also Kenny Dalglish, his team-mates and the club. It has been made absolutely clear to Luis Suarez that his behaviour was not acceptable."
And, later on Sunday, Dalglish said: "Ian Ayre has made the club's position absolutely clear and it is right that Luis Suarez has now apologised for what happened at Old Trafford.
"To be honest, I was shocked to hear that the player had not shaken hands having been told earlier in the week that he would do."

Prosecutors seek to reinstate Knox conviction

MILAN (AP) — Italian prosecutors have appealed to Italy's highest criminal court against the overturning of the murder convictions of American Amanda Knox and her former boyfriend in the brutal slaying of a British student.
Perugia prosecutors filed the 111-page appeal on Tuesday, more than four months after an appeals court in Perugia threw out the convictions of Knox and Raffaele Sollecito.
The two were convicted in a lower court of murdering Knox's roommate Meredith Kercher in what prosecutors described as a sex-fueled attack. The appeals court said the evidence did not hold up.
Sollecito's lawyer said the high court is expected to issue its decision toward the end of the year.

Israel Accuses Iran as the Culprit Behind Bomb Attacks

The attack sounded all too familiar. An assassin on a motorcycle reportedly slapped a magnetic bomb on a car on Monday afternoon and rode away as the occupants scrambled to escape the vehicle. Nearly half a dozen similar attacks in Tehran have targeted scientists linked with Iran's controversial nuclear program in recent years. And Iranian officials have pointed the finger at Israel and the U.S. as the culprits behind the assassinations. But this time it was different: the target was the wife of an Israeli diplomat in New Delhi, who was injured in the blast along with a driver. Another explosive device attached to an Israeli embassy vehicle in Tblisi, Georgia, was found and defused on Monday afternoon.
So is this the Iranian regime's attempt at payback? Israeli officials certainly seem to think so. "Iran is behind these attacks, and it is the largest terror exporter in the world," Israeli Prime Minister Benjamin Netanyahu told members of the Likud party on Monday afternoon. Iranian officials quickly dismissed the accusation. In a report published on the semiofficial Fars News Agency website, Ramin Mehmanparast, the spokesman for the Ministry of Foreign Affairs, said these charges were leveled at Iran as part of a "psychological war" against the country. "The finger needs to be pointed at those countries who openly support terrorist actions, especially those of the Zionist regime," Mehmanparast said. "These countries have to explain why they defend and support the actions and crimes of terrorist groups in Iran and other countries in the region." An article published by the semiofficial Mehr News Agency about the attacks and Netanyahu's accusation ran with an equally blunt headline: "The Zionist Hype Has Begun." (See photos of Israel's drills for a missile strike.)
If an Iranian link is found to either of the bombs, it would signify a marked escalation in the covert war between Iran and its perceived enemies. And it wouldn't be particularly surprising. Iranian officials were enraged by the attacks against the nuclear scientists and have promised revenge. The assassination of Mostafa Ahmadi-Roshan, a scientist who worked at the Natanz uranium-enrichment plant, in mid-January seems to have been the last straw. "We will not neglect punishing those responsible for this act," Supreme Leader Ayatollah Ali Khamenei said after the killing last month. General Masoud Jazayeri, the spokesman for Iran's Joint Armed Forces Staff, was even more explicit. "The enemies of the Iranian nation, especially the United States, Britain and the Zionist regime, or Israel, have to be held responsible for their activities." The Iranian government has organized a number of events to commemorate Ahmadi-Roshan's assassination and to send the message that his death won't go unanswered. One recent event was an odd BASE jump from Tehran's landmark Milad Tower last week, in which the participants wore T-shirts emblazoned with Ahmadi-Roshan's picture as they parachuted down from the top of the building.
The assassination of Ahmadi-Roshan last month, coupled with a tightening of international sanctions against Iran and persistent rumors of an Israeli attack, has led to a siege mentality in the country. And the government's hard-line supporters have become even more conspiracy-minded. It's worth noting that some members of the Basij militia who attacked the British embassy last November were carrying pictures of another recently assassinated nuclear scientist, Majid Shahriari. (See "Syria's Clashing Armies.")
The Israeli diplomat's wife who was targeted on Monday was reportedly flung from the vehicle by the force of the blast, according to an Indian journalist who arrived on the scene shortly after the attack and posted photos on Twitter. The diplomat's wife was rushed to the hospital, where she is reportedly in critical but stable condition. The attack will no doubt prove to be an embarrassment for the Indian security forces because of its proximity to the residence of Indian Prime Minister Manmohan Singh.
Israeli leaders have accused Iran of involvement in other attacks that were foiled in the past month. One was an alleged plot to attack Israeli tourists in Thailand that was reportedly going to be carried out by a Hizballah agent. Another was an assassination attempt against the Israeli ambassador to Azerbaijan, which borders Iran. Two Azerbaijani nationals were arrested in that plot. The Iranian government struck back on Sunday when they summoned the Azerbaijani ambassador and gave him a protest note claiming that some of the assassins of the Iranian scientists had recently travelled to Azerbaijan before heading to Israel to meet Mossad agents. (See "Can Israel Stop Iran's Nuke Effort?")
Despite the fiery rhetoric coming out of Tehran, there hasn't been any concrete evidence yet tying the Iranian government to the plots in Thailand or Azerbaijan or the attacks on Monday. In fact, the Iranian chief prosecutor, Gholam-Hossein Mohseni-Ejei, said in a press conference on Monday that Iran had submitted a file against the "Zionist regime" to international courts and intended to pursue the cases of the assassinated scientists through legal means. Meanwhile, Iranian nuclear scientists and Israeli diplomats will no doubt be watching their backs.