Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Gross domestic product’

Economy and Budget: Long-Term Outlook

Posted by William Byrnes on March 27, 2011


Why is this Topic Important to Wealth Managers?   A wealth manager should be able to present Advanced Market Intelligence on the long-term economic impact of government spending and its ability to raise revenues with clients.

The United States faces daunting economic and budgetary challenges. The economy has struggled to recover from the recent recession, which was triggered by a large decline in house prices and a financial crisis—events unlike anything this country has seen since the Great Depression.

For the federal government, the sharply lower revenues and elevated spending deriving from the financial turmoil and severe drop in economic activity—combined with the costs of various policies implemented in response to those conditions and an imbalance between revenues and spending that predated the recession—have caused budget deficits to surge in the past two years. The deficits of $1.4 trillion in 2009 and $1.3 trillion in 2010 are, when measured as a share of gross domestic product (GDP), the largest since 1945—representing 10.0 percent and  8.9 percent of the nation’s output, respectively. [1]

Also, the recovery in employment has been slowed not only by the moderate growth in output in the past year and a half but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers, that have hindered the employment of workers who have lost their job. Payroll employment, which declined by 7.3 million during the recent recession, gained a mere 70,000 jobs (or 0.06 percent), on net, between June 2009 and December 2010. [2]

However, under current law, CBO projects, budget deficits will drop markedly over the next few years—to $1.1 trillion in 2012, $704 billion in 2013, and $533 billion in 2014. Relative to the size of the economy, those deficits represent 7.0 percent of GDP in 2012, 4.3 percent in 2013, and 3.1 percent in 2014. From 2015 through 2021, the deficits in the baseline projections range from 2.9 percent to 3.4 percent of GDP. [3]

Nevertheless, the deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP. [4] Read the analysis at AdvisorFYI

 

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The Recession: Over or America’s Lost Decade?

Posted by William Byrnes on January 12, 2011


Some economists are reporting that the recession is officially over.

Others are less optimistic, suggesting that the recession could last into 2012. And with unemployment numbers hovering around 10 percent, median household income falling, and foreclosures mounting, the most important part of any potential recovery, the public, is still cynical.

What if even the most cynical predictions for the world economy are underestimating the length of the path to recovery?

One economist is predicting that the current recession could last until 2018.  Read this complete article at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of the economic downturn in Advisor’s Journal, see Fed to Purchase $600 Billion in Treasuries in Move to Stimulate Economy (CC 10-94).

 

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What’s the Correlation Between Capital Gains Rates and GDP?

Posted by William Byrnes on September 15, 2010


Although, Reagan’s administration saw higher growth in total, and annually, on average, than  that of the previous and post 8 years of his term, his administration’s numbers are still below the 50 year trend, as well as the terms of some other Presidents, notwithstanding the unsupportive data on the short term effects of the tax cuts.  However, there is a lack of conclusive evidence, therefore, to determine that a decrease in capital gains tax rates will have the short or long term affect of increasing total GDP.  Yet, neither will an increase in the rate increase tax revenues.

We invite you to read the study and analysis at AdvisorFYI

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