Pimco Raises Economic Outlook Based on Tax Cut Compromise Deal

Pimco Raises Economic Outlook on Obama Tax Cut Compromise DealIf the tax deal reached between congressional Republicans and President Barack Obama is ratified, it most certainly will add to the ballooning budget deficit, but according to Pimco, the stimulative measure will contribute much to economic growth.

On Monday, President Obama unveiled a compromise deal that would extend all Bush-era tax cuts for two years, as well as extend unemployment compensation for the long-term jobless, and reduce social security payroll taxes for 2011 by 2 percentage points. The plan, still to be approved by the House and the Senate, also resets the estate tax at the lowest rate in 80 years -- with the exception of 2010, when it was zero.

Following the measure, Pacific Investment Management Co., manager of the world's largest bond fund, raised its growth forecast for the U.S. economy to between 3% and 3.5% for 2011 from an earlier estimate of 2% to 2.5%, CEO Mohamed El-Erian told CNBC late Thursday. El-Erian also shares the title of co-chief investment officer with Bill Gross.

However, El-Erian added that to keep the growth going beyond 2011, the U.S. will have to do more. In a commentary for Bloomberg News he wrote:
The impact of the measures on economic growth will erode over time if not accompanied by two additional policy efforts. Officials must explain how further short-term deterioration in America's budget deficit will eventually give way to medium-term fiscal responsibility. In addition, we need a more meaningful push to improve America's long-term competitiveness, which has been compromised by our lagging behind in infrastructure improvements and education, as well as resource misallocations.
Pimco, a subsidiary of financial services giant Allianz (AZ), is not alone in raising its U.S. gross domestic product forecasts based on the tax deal: Many economists did the same. Goldman Sachs (GS), which raised its 2011 GDP forecast to 2.7% from 2% even before the deal was struck, said on Tuesday the tax package could add 0.5 to 1 percentage points of growth on top of that.


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19 Comments

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stock1197

We already have Bushes tax cuts and the economy is still going in the hole
how will it help the economy in 2011 ? It wont and them pile on 6,600 earmarks
on top of our problems. We need a civil war

January 02 2011 at 8:59 PM Report abuse rate up rate down Reply
GEORGE

Now this tax plan most likely will pass even if it creates more government debt.. Nothing was said about the many tax loopholes business and investors use that should be ended. Democrats would gain back some respect if they brought these tax loopholes to the publics attention and ended them.

See full article from DailyFinance: http://srph.it/f1GhuL

December 14 2010 at 8:26 AM Report abuse rate up rate down Reply
bill

THE RICH GET LOOPHOLES,THE JOHN Q CIT. GETS IT UP YOU KNOW WERE.ALWAYS HAS BEEN AND ALWAYS WILL BE UNTILL WE GET SMART AND BUY POL'S LIKE THE RICH DO.BUT WE CAN"T BECAUSE WE ARE TO BUSY WORKING FOR A LIVING.

December 11 2010 at 4:53 PM Report abuse +1 rate up rate down Reply
1 reply to bill's comment
warrenbent

Of course high income earners are able to take advantage of certain tax breaks that are unavailable to low income earners. Then again, there are certain other tax breaks available only to low or middle income earners. For example, in some cases the Earned Income Tax Credit provides a tax rebate to low income earners who aren't even subject to an income tax. ALL of these are vulgar instances of failed social engineering with government seeking to use the tax code to pit one American against another American. Getting rid of ALL of these tax breaks would not only produce a far more efficient system, but it would have the added benefit of ending the government sponsored bigotry such as that displayed in your post.

December 11 2010 at 5:23 PM Report abuse +1 rate up rate down Reply
scottee

JUST STOP WITH THE TAX DEALS. we need to take away the power from both parties in Congress to punish or favor via the tax code. we need a fair or flat tax so there is a correlation between minimal federal taxes collected from EVERYONE and money spent in Washington. this economic free for all has to stop! there has to be accountability in revenue collection and revenue spent...so how do we do it????

December 11 2010 at 10:05 AM Report abuse +2 rate up rate down Reply
1 reply to scottee's comment
warrenbent

This is indeed the answer, although I'd even be willing to accept a personal/dependent deduction. While the precise deduction amount would be debatable, let's say there was a deduction of $10K for every wage earner, and $5K fo evey non-earning dependent (just an example). A family of 4 would pay no taxes on their first $25K or $30K of earnings depending on whether both spouses or just one was a wage earner. Then everything above the personal/dependent deduction was taxed at 15% with no other exemptions, but also no other federal taxes (ie, eliminate the corporate tax, etc.). Of course, this would also entail cutting spending as the federal government currently consumes 24% of GDP. Beyond the benefits of leaving more resources to be allocated by the productive private sector through a reduction in the size and scope of government, and discontinuing the vile act of pitting one American against another by using the tax code to punish or favor certain groups, this would also eliminate the massive tax compliance costs (expenses associated with record keeping, preparation fees, etc. necessary to comply with an absurdly complicated tax code) that are currently estimated at $370 billion/year.

December 11 2010 at 12:01 PM Report abuse +1 rate up rate down Reply
ELLEN

That condition described by Pimco will not happen with the repubs in charge. They will not authorize another dime for that type of spending. They are not invested in the future and welfare of this country as their investments are with large global corporations and in offshore accounts. The corporations are not loyalists and patriots -- we are a piece of land without boundaries for them. They seek the best conditions for profitability everywhere -- cheap labor, emerging markets, R & D from countries that will provide it, and resources from around the world. It is amazing to me how Americans rail against getting government out of their lives, but they are perfectly OK with the intrusion of corporate America into every aspect of their lives. ONE FINAL QUESTION: Please tell me how many middle-class Americans participate in those bond funds that Pimco manages??

December 10 2010 at 6:35 PM Report abuse +4 rate up rate down Reply
1 reply to ELLEN's comment
warrenbent

"It is amazing to me how Americans rail against getting government out of their lives, but they are perfectly OK with the intrusion of corporate America into every aspect of their lives." "Intrusion" refers to an act of force. Only government relies on force and coercion. Businesses are in the private sector, and must rely upon voluntary agreements with their consinstuents (employees, customers, and shareholders) "ONE FINAL QUESTION: Please tell me how many middle-class Americans participate in those bond funds that Pimco manages??" Nearly all middle class Americans at least have the opportunity to particpate in a fund PIMCO manages, or a similar fund offered by a PIMCO competitor. Surely you've heard of 401(k) plans? They are among PIMCO's largest distribution channels. How did you possibly become so uninformed, Ellen?

December 11 2010 at 9:49 AM Report abuse +1 rate up rate down Reply
Gumby

The rich can hold out as long as they can to a point.. Even if it means a depression . The rich cant last a depression. The next depression will be much shorter and sweeter than in the 1930's because of technolgoy and communications. We can ride circles around the rich ... easily with Internet.

December 10 2010 at 4:37 PM Report abuse -1 rate up rate down Reply
1 reply to Gumby's comment
indisposed9999

Of course the "rich" can last a depression. They will simply leave this country and go elsewhere. Thats the nice thing about being "rich"....you have options poorer people don't. MOreover, they may not even have to leave, considering the deflation would actually increase their purchasing power.

December 10 2010 at 4:43 PM Report abuse +7 rate up rate down Reply
Gumby

We are not outgrowing our national debt at all. Giving tax cuts to everyone without any concrete plans of growing our economy bigger than national debt is foolish at its best. It is OK to deflate until the rich gets the message smack in the face!! Everyone is supposed to be bonded with Social Security and Medicare.. VEry important basic government entitlements above all others including defense and pork barrells. etc... Social Security is Number One! Dont laugh at me... You know better than to think that you can get ahead with tax cuts.. Chances will be that you will find yourselves suckered and sorry!

December 10 2010 at 4:36 PM Report abuse +1 rate up rate down Reply
1 reply to Gumby's comment
warrenbent

Gumby, if you don't want me to laugh at you, you could also consider not making a fool of yourself.

December 11 2010 at 12:05 PM Report abuse rate up rate down Reply
Gumby

If liberals dont support tax cuts , that is OK as long as liberals do not support tax cuts for EVERYONE!! Liberals can argue that we must keep debt down for future Social Security and Medicare outlays in the future. This will be very good fiscal responsibility that can be championed by liberals to protect the masses from onslaught upon Social Security and Medicare. The third rail is still here but someone forgot to turn it back on 1000 volts again. Dont let anybody degrade Social Security and Medicare no matter what the commission says about deficit cuttings. Social Security is the bastion of liberal voters. Dont trust your pensions and 401K plans ever! Never trust it.. Social Security is your safety net. so is Medicare! Very important to remember that..... Liberals can fight for Social Security shamelessly. This is their ultimate political tool! Social SEcurity First!!!!!!!!!

December 10 2010 at 4:32 PM Report abuse -1 rate up rate down Reply
1 reply to Gumby's comment
warrenbent

Gumby, what is fiscally responsible about forced particpation in a ponzi scheme? If the current Socialist Insecurity plan were offered even on a voluntary basis by a private sector firm, it wold immediately be shut down and its proprietors shipped off to prison for fraud. Yet, you somehow imagine forcing citizens into such a plan is fiscally responsible?

December 11 2010 at 12:13 PM Report abuse rate up rate down Reply
Gumby

Raised economic outlooks will go in hand with hand with soaring oil prices. Who want to be slaves of Big OIl anymore? This is the real trouble with our economy. We give tax cuts to the rich and the rich creates jobs to drive up oil prices and cash in.

December 10 2010 at 4:27 PM Report abuse -1 rate up rate down Reply
1 reply to Gumby's comment
warrenbent

So let's instead adopt policies designed to decrease economic growth and job creation because doing so might decrease oil prices? That's like saying you bumped your head getting into a car so you're going to just chop it off so that doesn't ever happen again (which in your case might be an excellent plan).

December 11 2010 at 12:16 PM Report abuse rate up rate down Reply
jksecarlson

With the money printing press running 24/7 our currency is in the process of being destroyed right before out eyes! Your so-called 401K nest egg won't be worth much before this is all over....sigh.

December 10 2010 at 1:06 PM Report abuse +5 rate up rate down Reply
1 reply to jksecarlson's comment
scottee

The Fed needs to be audited and ended...and but they need to put the dollar back on the gold standard first. to stop the printing and dilution of our dollar and stop this economic free for all!

December 11 2010 at 10:10 AM Report abuse rate up rate down Reply