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Solid U.S. Job Market May Be Undercutting Trump’s Tax-Cut Case



tax relief
  • Solid U.S. Job Market May Be Undercutting Trump’s Tax-Cut Case

President Donald Trump’s economic team says it won’t be satisfied until Americans workers earn more — and aggressive tax cuts are essential for those fatter paychecks.

But with unemployment at its lowest rate since before the financial crisis, the world’s biggest economy may already be nearing top speed. That means a big fiscal boost resulting from tax changes could stoke inflation to levels that would prompt the Federal Reserve to raise borrowing rates faster than anticipated. If that happens, Trump’s ambitious growth goals could be jeopardized.

The unemployment rate now sits at 4.4 percent after U.S. employers hired more workers than expected in April. But wages were a soft spot, climbing just 2.5 percent from a year earlier. In an interview Friday with Bloomberg TV after the figures were released, senior White House adviser Gary Cohn said the administration wants to see wages rise faster.

“We’re doing OK, but you see from the data, we’re doing OK with jobs that don’t pay that much,” said Cohn, director of the National Economic Council. “We need to bring back the manufacturing jobs that pay a lot. We need to bring back the service jobs that pay a lot.”

Cohn along with other administration officials say their plans to revise the tax system, cut regulatory red tape and negotiate better trade deals will convince more companies to stay or return to the U.S., spur more higher paying jobs and ultimately increase consumer spending. They say that will help to lift economic growth to 3 percent within two years, a rate not seen on an annual basis in more than a decade.

“So we’re doing a very big tax cut. We need it,” Trump said during an interview with Bloomberg News on May 1. The U.S. economy’s “not growing, it’s not growing at all. We need something — we need a stimulus.”

Stimulating Demand

The question is whether the U.S. economy is even capable of growing at that level without overheating, economists say. And the scant details included in the Trump administration’s tax plan released last week are creating uncertainty about how much growth the cuts can actually generate.

One way to boost growth through tax reform is by stimulating demand, said Douglas Elmendorf, a former official at the Fed and the Congressional Budget Office, who is now dean of Harvard University’s John F. Kennedy School of Government. But demand isn’t nearly as weak as it was in 2009, when the U.S. government rolled out a $787-billion stimulus package, he said.

The economy was also arguably in deeper trouble in 1986, when Ronald Reagan pulled off what some called the biggest overhaul of the U.S. tax system in history. The economy was coming out of a recession only a few years before, and while the jobless rate was coming down from its peak, it was still about 7 percent.

The situation isn’t nearly as dire now. “Any increase in demand spurred by tax changes will be very much offset by tighter monetary policy,” said Elmendorf.

“The other way to spur economic activity and boost jobs is by creating structural economic changes that boost the potential output of the economy, for example by increasing capital investment,” he said. Whether the administration can do that depends on hundreds of specific features of the tax plan that they have not spelled out.

Individual Cuts

Cohn and Treasury Secretary Steven Mnuchin released an outline of Trump’s tax plan on April 26 that borrowed heavily from the president’s campaign themes. The plan would cut tax rates for all businesses to 15 percent. The current corporate tax rate is 35 percent, though many companies trim their bills via various deductions and credits.

For individuals, Trump wants to consolidate the existing seven tax rates to three, with a top rate of 35 percent, down from the current 39.6 percent.

Former U.S. Federal Reserve Chairman Ben Bernanke said earlier this week in an interview on Bloomberg TV that the Trump administration’s plans to cut personal tax rates appear ill-timed and may do little to spur a higher rate of economic growth.

“Why not think about improving the efficiency of the corporate tax code, or doing infrastructure that I think would have more direct effects on supply and potential output than a personal tax cut?” Bernanke said.

Laffer Curve

The Trump tax plan didn’t specify many pay-fors to balance the cuts, but said it would eliminate individual deductions other than those for home-mortgage interest and charitable giving. It also called for eliminating unspecified “tax breaks for special interests.”

Still, the Committee for a Responsible Federal Budget released a rough estimate that Trump’s plan could cost the government $3 trillion to $7 trillion over a decade — potentially “harming economic growth instead of boosting it.” White House Budget Director Mick Mulvaney has dismissed cost estimates of the plan, saying there’s not enough detail for accurate projections.

Sarah Huckabee Sanders, a White House spokeswoman, said Friday during a press briefing that she wasn’t ready to comment on whether the cuts in a tax package should be offset so they don’t add to the deficit.

Economist Arthur Laffer, who advised the Trump campaign, first popularized the notion that tax cuts spur growth in jobs and the economy — and thus pay for themselves — in a 1974 meeting with Ford administration officials. His simple “Laffer Curve” formula, sketched on a paper napkin, jumpstarted the supply-side and trickle-down economics ethos that underpinned the 1986 Reagan tax cuts. The formula didn’t appear to work, as the federal budget deficit soon ballooned.

The administration may also be prevented from reaching its growth goal by demographic shifts that are holding back labor productivity, according to Peterson Institute for International Economics senior fellow William Cline.

“In the ideal world of the supply side economist, the kind of tax cut you want is the kind that would create its own demand immediately and would not be inflationary,” said Cline. “The evidence for that kind of tax cut is not very strong.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.


Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd




The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins



Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020




Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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