EDITORIAL: Views from the nation's press

Nov. 11—The Free Press on how Johnson's strike at CBO misses the mark:

GOP House Speaker Mike Johnson mocked the Congressional Budget Office when it estimated his plan to cut IRS funding as part of the Israeli aid bill would increase the federal deficit by $26 billion over the next 10 years.

Johnson proposed spending $14.3 billion to provide Israel with needed aid in its fight against Hamas. He excluded aid to Ukraine, which has bipartisan support, but it also called for cutting $14.3 billion from the IRS budget.

"Only in Washington when you cut spending do they call it an increase in the deficit," Johnson said last week.

For many years, economists and others have agreed with the premise that a $1 cut to the IRS increases the deficit by $2. The IRS generally brings in $2 for every $1 it spends.

Sounds like an efficient operation to us.

The CBO has a long history of credibility and economists overwhelmingly agree it is nonpartisan and nonbiased in its economic calculations. That's why it continues to have support from House and Senate budget committee, no matter which party is in charge.

If Johnson's first fight is with the CBO, he's chosen a rock solid opponent.

We hope this is not another attempt to delegitimize a well-functioning, critical part of U.S. government and U.S. democracy. It sounds eerily familiar to plans ex-President Donald Trump and his followers are making to dismantle objective and professional government departments and turn them political if he wins the election.

Of course, Johnson has long been a supporter of Trump. He was a significant figure in Trump's effort to overturn the election.

According to the Brookings Institution, the CBO has supplanted the executive Office of Management and Budget "as the authoritative source of information on the economy and the budget in the eyes of Congress, the press, and the public."

Moreover, the director of the CBO is jointly selected by the speaker of the House and the president pro tempore of the Senate — again, no matter which party they represent.

A March 2017 survey of leading economists shows a consensus behind the notion that "adjusting for legal restrictions on what the CBO can assume about future legislation and events, the CBO has historically issued credible forecasts of the effects of both Democratic and Republican legislative proposals."

So Johnson may believe cutting the IRS won't restrict the flow of money coming in, but the facts don't back that up. We shouldn't be delegitimizing institution like the Congressional Budget Office, which has for decades served taxpayers with objective information on policies regardless of party.

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The Chicago Tribune on how even with higher interest rates and cost increases, inflation still proves hard to vanquish:

McDonald's Corp. calls them "strategic menu price increases," and their impact is visible on menu boards across the chain, where a Big Mac, medium fries and soft drink now sells for as much as $18. Surprisingly, people are paying up, at least for now, as the Chicago-based restaurant company dutifully noted in its most recent earnings report last week.

So it goes across much of the economy, which has shown surprising strength despite the U.S. Federal Reserve's historic effort to tamp it down. Consumers continue to spend, spend, spend, prompting Fed Chair Jerome Powell to ruefully cite an ongoing "surge" of consumer spending in his latest public remarks.

While the Fed last week decided to leave short-term interest rates unchanged, at a range of 5.25% to 5.5%, Powell stressed that inflation is still too high and more rate hikes may be needed to achieve the central bank's 2% goal. (Overall prices rose 3.4% in the 12 months ending in September.) The financial markets took Powell's relatively dovish tone as a signal that an additional hike may not come at the Fed's Dec. 12-13 policy meeting, as some previously expected.

Higher interest rates are causing real pain and we think the Fed was right to leave them alone this time. Nonetheless, we've long cheered on Powell's efforts to whip inflation for a simple reason: Runaway price increases are much worse in the long run than the painful and disruptive effects of higher interest rates.

The Fed has succeeded in sending rates considerably higher, making it much more expensive to borrow. Those higher rates already have chilled the hot residential real estate market by raising the cost of mortgage loans. Keeping those higher rates in place will eventually put a lid on wage hikes and reduce demand for everything from clothing to restaurant meals, eventually tamping down inflation.

When can the Fed finally relax? Soon, we hope, but when is still difficult to predict. Plenty of economists have looked foolish doing so, given how the COVID-19 pandemic scrambled well-understood economic relationships, making forecasting an even bigger guessing game than usual.

Along with the difficulty of predicting how a pandemic would affect commerce and consumer behavior, fiscal policy complicated the outlook. The Trump and Biden administrations pumped an excessive $4.6 trillion into the economy in pandemic-related stimulus, while Biden then added more spending for clean energy and infrastructure projects. That was a ton of taxpayer money goosing the economy, with some of it still to be paid out.

With the pandemic shutting down travel in early 2020 and supply disruptions creating shortages of sought-after goods, Americans piled up savings. Around the middle of 2021, consumers launched a spending spree that mostly continues today, despite higher prices and interest rates. In recent earnings reports, corporate leaders have noted the resilience of U.S. consumers in the face of price increases.

Finally, stresses are beginning to show up in household balance sheets, which could signal that all those Fed rate increases are starting to have the intended effect.

The savings rate has fallen, as consumers shopped their way through their bank accounts. Nearly one-third say they have less money saved for an emergency than they did at the start of the year, according to a recent Bankrate survey, and fewer than 1 in 5 respondents have added anything to their rainy-day funds in 2023.

And while pay increases have outpaced inflation for much of the year, income growth is starting to slow. Those with lower credit scores especially are feeling the pressure, as reflected in a rising number of people at least 60 days late on car payments.

Recent data show that the prices of goods such as cars, furniture and appliances are starting to fall, but the prices of services remain exceptionally high.

The Fed needs to watch those prices closely, as services are labor-intensive and therefore more sensitive to businesses passing on their higher labor costs by raising prices. One prominent example: The prices of restaurant meals rose 0.4% from August to September and are now 5.8% more expensive than a year ago.

In Chicago, those prices are likely to keep going up. The city just raised the minimum wage for tipped workers, and it is considering imposing on businesses onerous and costly new requirements for paid leave, not to mention a huge increase in real estate transfer taxes. Does no one at City Hall recognize that businesses will not be able to simply absorb the higher costs imposed by a mayoral administration determined to soak its most productive citizens?

As Powell said, the process of getting inflation down to a manageable rate on a sustainable basis has "a long way to go." The Fed needs to stay with it, even as less responsible public officials make the job harder.