The nonpartisan Congressional Budget Office released its latest projections for economic growth, unemployment, and the federal budget yesterday. Given these, it looks like we are in for some rough times ahead.
The group says the budget deficit could balloon by $2.1 trillion in fiscal 2020 and $600 billion in 2021. This increase may come primarily due to the stimulus packages the government has rolled out. The government released these checks in an effort to combat the coronavirus pandemic. The deficit increases equate to about 11% of nominal GDP in fiscal 2020 and 3% in 2021
The CBO expects the unemployment rate to trend higher in the coming months. This may get an average of 15.1% in the second quarter before peaking at 15.8% in the third quarter. They see the unemployment rate tapering down to 11.5% in the fourth quarter, which sounds encouraging. However, it’s still a double-digit unemployment rate.
They also warn that even as states reopen and businesses start to bring back workers, we shouldn’t expect businesses to go on an immediate hiring spree. According to the CBO, “persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.”
The CBO’s projections for the second-quarter GDP is an astonishing 38% decline on an annualized basis. This, then, would be the single-largest GDP drop in our nation’s history. The CBO’s projections are consistent with what many on Wall Street are expecting. However, it’s still not as bad as the projection by the Atlanta Federal Reserve, which sees a 42% decline.
A quick GDP recovery should occur according to the CBO. This may happen with the GDP growing 21.5% in the third quarter and 10.4% in the fourth quarter.
On The Brighter Side
There is a silver lining to the report. The CBO sees a recovery in the second half of the year. This may come as the coronavirus pandemic subsides. Additionally, the report says the stimulus money that was spent was worth it. It mentions that it may help in keeping up the GDP and employment rates higher than they would have been otherwise.
“The economy is expected to begin recovering during the second half of 2020 as concerns about the pandemic diminish and as state and local governments ease restrictions,” the CBO said before adding, “In CBO’s assessment, that legislation will partially mitigate the deterioration in economic conditions. In particular, greater federal spending and lower revenues will cause real GDP and employment to be higher over the next few years than they would be otherwise. The effects of the legislation on economic activity will be largest in the second and third quarters of 2020 and smaller thereafter, CBO projects.”
The massive caveat to the CBO’s report is that they acknowledge that everything has happened so quickly. Because of this, they are unsure of what could really happen next.
“For example, if the disease spreads less widely than CBO expects—because of testing and contact tracing, a vaccine, or for some other reason—the degree of social distancing could be lower and the economic recovery faster than what CBO currently projects. The opposite could also be the case,” the agency said. They also added that, “the extension, reversal, or reimplementation of different types of social distancing policies (such as stay-at-home orders, bans on large public gatherings, closures of specific kinds of businesses, and closures of schools) might have different effects on the economy.”
5 Little-Known Ways To Lower Your Taxes
Everyone loves to pay lower taxes, but very few people understand or take advantage of all the tax breaks that are available to them. Here’s a list of 5 little-known tax breaks that you can use to help lower your tax bill.
1. Pay No Capital Gains Tax
If you sell an asset you’ve owned for more than a year, you pay long-term capital gains tax of either 0%, 15% or 20%. This is a favorable tax treatment when compared to selling assets you’ve owned for less than a year, which are taxed at the same rate as your ordinary income.
But, it’s possible to pay no capital gains tax when selling your long-held assets like stocks and bonds or mutual funds. In order to pay no capital gains tax, your taxable income needs to be less than $39,375 if you are single or $78,750 if you are married when filing your 2019 taxes. For the 2020 tax year, those numbers jump slightly to $40,000 and $80,000.
2. Earned Income Tax Credit
This program directly benefits those with low-to-moderate incomes, and particularly those with children. A single filer would need an adjusted gross income of $15,570 or less to benefit, but for a married individual with three children, the adjusted gross income limit is as high as $55,952. In certain situations where your EITC benefit exceeds the amount of taxes you owe, you would receive a tax refund.
3. Deduct Your Retirement Account Contributions
If you are putting money aside in a traditional IRA as part of your retirement plan, you can contribute up to $6000 per year. If you aren’t part of a retirement plan through work – like a 401(k) – you can deduct all of your contributions no matter what tax bracket you are in. Non-working spouses (or spouses making very little income) can contribute up to $6,000 ($7,000 if 50 or older) into their own IRA account as long as the working spouse has enough earned income to cover both contributions. There are limits to the deductions as income increases, so check with a tax adviser.
4. Saver’s Tax Credit
If you are a single filer with adjusted gross income less than $32,000 (or $64,000 if married) you claim a tax credit (a credit, not deduction – more on this in a moment) of 10%, 20% or 50% of the first $2,000 you put into a retirement account ($4,000 for married filers). The lower your income, the higher the credit amount. Unlike a deduction that lowers your taxable income, a credit reduces the amount of taxes you owe on a dollar-for-dollar ratio. So a $2,000 tax credit reduces your taxes by $2,000.
5. Lifetime Learning Credit
If you are interested in continuing your education, you can utilize the Lifetime Learning Credit. This allows you to go back and study nearly any topic, at any school, you can get back 20% of up to $10,000 in expenses per year. The income limits are $68,000 for single filers and $136,000 for married filers. Now go back and enroll in that art class you always wished you had taken!
Trump Says Economy ‘Roaring Back’ in June As 4.8 Million Jobs Added
The economy added back 4.8 million jobs last month, according to the government’s June jobs report released yesterday. That handily beat the 3.7 million jobs forecasted by economists and dropped the unemployment rate down to 11.1%.
After the report was released, President Trump said the economy was “extremely strong” and “roaring back” after the country has regained more than 7.5 million jobs in the last two months. Trump added that the economy will keep growing unless voters elected Democrat Joe Biden in November. He said Biden would raise taxes and hurt the economy and the stock market would “drop down to nothing.”
Of the jobs added back in June, bars and restaurants hired – or rehired – 1.48 million workers. This comes as many reopened for outdoor dining in the early phases of the reopening. They brought back a similar number of workers in May. It happened after shedding more than 6 million jobs due to the pandemic.
The retail sector regained 740,000 jobs, healthcare added back 358,000 workers, and manufacturing saw 356,000 jobs added.
The energy sector continues to be battered by low oil prices amidst the economic slowdown. Additionally, that industry shed an additional 10,000 jobs last month.
The return of lower-paying jobs like those found in the restaurant and hospitality industry dragged down the average hourly wages for the second straight month.
Many are cautioning against reading too much into reports like average hourly wages while the economy is in such turmoil.
Stephen Stanley, chief economist of Amherst Pierpont Securities, says, “The wage figures will be pretty much useless for a long while until the labor market gets back to some semblance of normality.”
Andrew Chamberlain, chief economist of the job site Glassdoor, also gave an explanation. He added, “Today’s positive jobs report does provide a powerful signal of how swiftly U.S. job growth can bounce back and how rapidly businesses can reopen once the nation finally brings the coronavirus under control — a reason for optimism in coming months.”
Unfortunately for many of the workers recently rehired to work in bars and restaurants, the recent spike in new coronavirus cases could lead to those jobs quickly being lost for a second time. Bars in many states are being shut down again in an effort to curb the growing number of cases.
The unemployment rate fell for the second straight month. However, the Bureau of Labor Statistics is trying to fix a reporting error that, if corrected, would increase the unemployment rate by 1%.
The problem is how households respond to the monthly survey that is used to calculate the unemployment rate. The jobless rate would have been 1 point higher if not for continued problems in how respondents answer the question about their employment status.
What many consider the “real” unemployment rate, which is the U6 rate, includes workers who can only find part-time jobs. It also includes those who’ve become too discouraged to look for jobs because so few are available. Using that measurement, the unemployment rate stands at 18% in June, down from 21.2% in May.
Trump Favors Larger Stimulus Checks, Says ‘Tremendous’ Market Crash if Biden Wins
In a wide-ranging interview with Fox Business News, President Trump mentioned his support for another round of stimulus checks and says should Joe Biden win the election in November, we should expect the stock market to crash “a tremendous amount.”
On Stimulus Checks
Speaking with Blake Burman, the president says he is in favor of another round of stimulus checks, but wants to make sure that there is a financial incentive for Americans to return to work.
“I support it, but it has to be done properly. I support actually larger numbers than the Democrats, but it’s got to be done properly. We had something where it gave you a disincentive to work last time. And it was still money going to people, and helping people, so I was all for that. But we want to create a very great incentive to work.”
Trump also mentioned he wants the checks to arrive quickly and spent quickly, without the Democrats adding complications.
“I want the money getting to people to be larger so they can spend it, I want the money to get there quickly and in a non-complicated fashion. And they wanted to make it too complicated, also it was an incentive not to go to work,” said Trump.
Returning to work is what hard-working Americans are looking forward to, says Trump, and he wants there to be a financial incentive to do so.
“You’d make more money if you don’t go to work. That’s not what the country is all about. And people didn’t want that. They wanted to go to work but it didn’t make sense because they make more money if they didn’t… we want people to get out and we want to create a tremendous incentive for people to want to go back to work.”
On Biden and Taxes
When asked about Joe Biden’s recently announced plans to raise corporate taxes if he becomes President, Trump said “You’re going to crash the market. 401(k)s will be down the tubes, the wealth of the country will be down.”
He added “That will kill the market. It will kill everything we are doing, it will kill jobs, and it will be very bad. Frankly, the stock market is doing well, but it’s an overhang. If he got elected, and they say this, that’s an overhang over the market, because the market would crash. Would absolutely crash.”
When asked what he means by crash, Trump responded, “Markets would go down by tremendous amounts. He’d raise taxes, he’d raise regulations. Look, one of the biggest things I’ve done is I’ve cut regulations more than any President in history. We still have regulations, but they’re much less. His people, the people around him (Biden) are radical left. They’re going to raise taxes, they’re going to raise regulations, and they’re going to put everyone out of business. It would be a disaster.”
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