You asked, and the White House answered
President Obama's top economist fields questions from MSN Money readers.
On Thursday, MSN Money readers' questions about President Barack Obama's plans to strengthen the economy were answered by the administration's top economist, Austan Goolsbee, the chairman of the Council of Economic Advisers.
Hundreds of questions had been submitted in the two days after Obama's State of the Union address, which focused on how to create jobs, spur innovation and create more efficiency in the federal government. I got to ask Goolsbee three reader questions during the 40-minute round-table discussion (see video below).
- What are the president's plans for tax reform?
This question combines two from readers about tax reform. Matthew from Reading, PA, wrote: "Mr. Goolsbee, during the State of the Union speech, President Obama spoke of reforming our tax code to both simplify it and close loopholes. What kind of reform is he looking at and would he entertain a serious investigation of a flat tax arrangement?"
Post continues after video:
I also read a related question from William: "Is there, or is there not, any possible way to establish a fair tax system that does not require a master's in economics or a CPA for us poor taxpayers to handle?"
Goolsbee joked in response, "I have a Ph.D. in economics, and I have a hard time enough time with it." Then he divided his answer into two parts. First he said Obama's proposals for corporate tax reform have some similarities with a flat-tax philosophy, since the goal is "Let's broaden the base and lower the rate." He explained that the U.S. now has the highest corporate tax rate of any wealthy country in the world (Japan formerly held that title, but it just lowered its rate). Yet the U.S. doesn't collect more revenue than the average wealthy country.
The reason is the complex series of tax credits, deductions and loopholes in the corporate tax structure. "If you eliminate a bunch of those and broaden the base, you could lower the rate without losing revenue," Goolsbee said. Another benefit is it would simplify the code for business owners.
As far as taxation of individuals, Goolsbee said, the president made it clear in his speech that he wants a system that is fairer and easier to understand. He added that Obama thinks the Bush-era tax cuts granted to high-income people that were recently extended for two more years by Congress should eventually expire. The president is skeptical that the benefits of tax cuts for the wealthy will trickle down to help the poor, he said.
- People feel banks aren't lending. Can the government make them?
This question came from Lew from Jerome, Idaho. A contractor with 40 years of experience, he has been out of work for the past three years and has started drawing on his retirement accounts and Social Security for income.
Despite having plenty of assets and an excellent credit rating, he writes, "We have tried for the past two years to refinance our home to help sustain our mortgage payments during this difficult time, only to be told that we did not 'make enough income' to qualify for a lower-interest-rate loan! Something's wrong with the current lending policies when people like ourselves, who are trying to 'do the right thing' and fulfill our financial obligations, can't refinance."
Goolsbee is well aware that a credit crunch is still affecting many areas of lending, including auto loans, credit cards and small-business financing. "This has been a tough area," he says. Tied to this, he said, is that "one of the differences about this end of this recession compared to previous ones is that normally small business is one of first to come back. This time it hasn't."
More specifically to mortgage refinancing, he said the Obama administration has tried several programs to facilitate consumer lending and to help banks get out of credit-crisis mode. He doesn't think new regulation is the answer. However, he said, the newly created Consumer Financial Protection Bureau should make sure that lending isn't biased and that people understand terms of loans they take out.
- Can you give us an update on the bank and auto bailouts? Have repaid funds helped reduce the deficit?
This question, voted by readers as one of the more popular, came from James: "While appalled at the enormity of the bailouts for the banking and auto industries during the recession, my understanding is that most of that money is being repaid. Have those repayments gone to reduce the deficit, and to what extent have they improved the Treasury's balance sheet?"
Goolsbee acknowledged that many Americans were upset about the $700 billion bailouts, which were passed in 2008. He said he used some "colorful language" concerning them at the time. However, "the money has been getting repaid vastly in excess of what was initially thought," he said. "It's not going to cost $700 billion. It will cost more like $30 billion. Some people say it might not cost anything."
Depending on how you look at it, the repayments are helping to reduce the deficit (since the money paid out contributed to the deficit).
"It is improving the balance sheet in that sense of the word," Goolsbee said. But that doesn't mean that the government has recouped all the funds provided for the bailouts.
"We have yet to get to it being a positive number. It is simply a dramatically smaller negative number than they thought it was going to be."
There were several questions asked by editors of other participating websites that were similar to questions of MSN Money readers. Watch the video to see more of Goolsbee's answers to Americans' most serious economic questions.
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