What ever happened to tax reform?

President Obama and Speaker Boehner tried to strike a "Grand Bargain" that included tax reform, but talks fell apart. NEW YORK (CNNMoney) -- Legislators finally approved an eleventh-hour plan to raise the debt ceiling on Tuesday, but one part of the debate was left out of the final draft -- tax reform. Deficit reduction of up to $2.4 trillion was the centerpiece of the deal to raise the nation's borrowing limit, which passed Congress this week after months of debate. But the deal accomplishes that only through spending cuts, not an increase in tax revenue, as Democrats had pushed for. Print According to a CNNMoney survey, most economists wanted some kind of tax reform to be included in the deal -- fewer deductions and loopholes for both individuals and businesses which would allow for lower rates but increase collected revenues.

"Tax policy is absurd on its face, keeping accountants and lawyers and especially lobbyists in gravy," said Gary Rosenberger of research firm EconoPlay. "What people forget is that if oil companies and hedge fund managers continue to get the breaks that nobody else gets, it ultimately forces property taxes to rise for everyone," he said. The economists surveyed widely agreed that current tax code is a drag on economic growth, because it gives advantages to certain portions of the economy, rather than letting market forces determine winners and losers. And eliminating or limiting deductions and credits and would also allow for a lower tax rate which could boost business activity. "A flatter tax system with fewer special tax incentives or subsidies for various interests and a lower overall rate structure would enhance economic efficiency and potentially growth," said Lynn Reaser, economics professor at Point Loma Nazarene University. Most conservatives in Congress agree that lowering tax rates could spur economic growth. And the idea is also popular among Democrats, because it would eliminate the loopholes that allow some companies to pay effective tax rates near zero. Tax reform was a large part of a plan unveiled last year by the President's bi-partisan debt reduction commission headed by Erskin Bowles and Alan Simpson. Fed Chairman Ben Bernanke has also spoken in favor of tax reform in general terms. And it was discussed by President Obama and Speaker John Boehner last month as part of a so-called "Grand Bargain" that would have also made changes in entitlement spending such as Social Security and Medicare. When those talks fell apart, President Obama continued to push for some limited changes in the tax code to eliminate some breaks, such as those for corporate jet owners, oil companies and hedge fund managers. In the end, Republicans refused to support any increase in tax revenue or change in the tax system as part of the debt reduction plan. 0:00 / 3:20 'Obama folded like a lawn chair' But economists doubt that spending cuts alone can produce the savings needed to trim long-term deficits. "I don't think there can be enough cuts in the major programs to give the cuts in the deficit we need on the coming years," said David Wyss of Brown University. According to the survey, economists believe the ongoing debt ceiling debate was a drag on economic growth. About a third of those surveyed said they were worried about the economy falling into a double-dip recession without an increase in the government's authority to borrow. 

Inflation (CPI)

Gas prices fell sharply in June. NEW YORK (CNNMoney) -- Falling prices at the pump pushed inflation lower in June, but consumers are still paying significantly more than they were last summer. The Consumer Price Index, the government's key inflation measure, fell 0.2% in the month, led by a 6.8% drop in gasoline prices over the same period. It was the first time in a year the monthly CPI reading decreased. Print Economists surveyed by Briefing.com were expecting the rate to fall by 0.1% in June.

"The decline in overall inflation is a positive for consumer spending," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank. "In general, lower gasoline prices are hugely stimulative to households - every one cent decline in gasoline prices frees up $1 billion in aggregate cash flow." Recovery at risk But consumers were still paying 3.6% more for goods and services than in June 2010. Gas prices are a major factor there as well. Even with two months of declining prices at the pump, gas costs consumers 36% more than it did a year ago. Economists are worried that lower gas prices are masking signs of growing price pressures elsewhere in the economy. Prices for such staples as food, clothing and cars continue to climb. "All in all, there is increasing evidence that price pressures are building across a broad range of goods and services," said Peter Newland, economist with Barclays Capital. 0:00 / 2:21 Fewer cars, higher prices So-called core CPI, which strips out volatile food and energy prices, rose 1.6% over the last 12 months, and 0.3% in June. Economists had expected only a 0.2% increase in the monthly rate. The Federal Reserve's comfort zone is for a core inflation rate of between 1% and 2% a year. While the Fed has raised its forecasts for overall inflation through 2012, it still expects core inflation to remain in check, making interest rate hikes less likely this year. 

Boehner vs. Reid bills: Where they meet

Something's gotta give to get the debt ceiling raised in time. And there is some common ground between the proposals Senate Majority Leader Harry Reid and House Speaker John Boehner. NEW YORK (CNNMoney) -- There certainly are some big differences between the debt-ceiling bill proposed by House Speaker John Boehner and the one proposed by Senate Majority Leader Harry Reid. But there is also more than $900 billion's worth of compromise between the two. Print Both bills call for caps on discretionary spending -- that's the money Washington uses to pay for defense and all manner of government agencies and programs.

Excluding spending on the wars in Iraq and Afghanistan, the Boehner bill would reduce overall spending by $917 billion over 10 years, according to Congressional Budget Office estimates. Similarly, Reid's bill would cut spending by $927 billion. Breaking those estimates down further, Boehner's bill would cut discretionary spending by $756 billion and save $156 billion in interest costs on the debt. The comparable numbers for Reid's bill are $752 billion and $153 billion. Both bills also ignore the hot-potato issues of tax and entitlement reform. So why can't these two bills get along? There are some major sticking points. Boehner's plan: The House bill would call for a two-stage increase in the debt ceiling. The first would be worth $900 billion, which might cover the Treasury Department's borrowing needs into early 2012. But the House bill would set two high hurdles that would have to be cleared before increasing the debt ceiling by another $1.6 trillion -- which could cover borrowing needs past the presidential elections into 2013. Spending cuts to whack economy? First, Congress would have to approve $1.8 trillion worth of debt-reduction proposals by the end of this year. Those proposals would be made by a joint committee the bill would create and no amendments would be permitted. In addition, to secure the second debt ceiling increase Congress would have to enact a balanced budget amendment by a two-thirds vote in the House and Senate, which is very difficult to secure. Overall, Boehner's bill would increase the debt ceiling by a total of $2.5 trillion in exchange for $2.7 trillion in debt reduction. Reid's plan: By contrast, Reid's bill as amended would set a procedure to raise the debt ceiling by $416 right away and two more times after that for a total debt ceiling increase of $2.4 trillion, in exchange for $2.2 trillion in debt reduction. Reid's cuts count roughly $1.3 trillion in war savings in Iraq and Afghanistan, including debt service costs. But those savings can only be claimed if one assumes that U.S. engagement in Iraq and Afghanistan will continue at full throttle for the next decade, which is not realistic. Like Boehner's bill, Reid's legislation would create a joint committee but it would be charged with proposing ways to reduce annual deficits to 3% or less of gross domestic product. And while the Senate would have to vote on those proposals without amendment, there is no requirement the proposals be enacted. 0:00 / 3:21 Debt ceiling made easy The House approved the Boehner bill on Friday evening in a 218-210 vote; 22 Republicans voted against it and no Democrats voted for it. But the Senate then promptly voted to table it. That was expected, since 53 senators on Thursday said that if presented with the Boehner bill they would vote against it. It's also not at all clear that Reid's plan will pass the Senate, which is scheduled to vote on it at 1 am Sunday. Presuming both measures fail to generate sufficient support in one or both chambers, lawmakers will have to get serious about striking a real compromise between the parties and the two chambers. At the rate they're going they may have mere hours to do so before the government's borrowing authority is fully exhausted on Tuesday. - CNN's Lisa Desjardins and Kate Bolduan contributed to this report.  

Inflation pressures grow on Main Street

"They've been squeezed so badly for the last two years, any uptick in demand means they're going to try to raise prices a bit," said William Dennis, senior research fellow with the National Federation of Independent Business.

Q Kindness Cafй is one of those businesses. With the cost of everything from coffee to linen service to meat steadily rising, the St. Paul, Minn., diner was forced to raise prices on its menu.

"Business is definitely still soft. But we've gotten the screws turned on us from our suppliers," said owner Lisa Metwaly. "We had no other choice. I just hope we don't chase any more customers away."

Metwaly said so far she hasn't had any complaints or seen any drop off in business from the hikes, which raised the price of a typical entrйe by 50 cents to about $6.50.

Restaurants aren't the only businesses being affected.

Danforth Pewter, a small Vermont manufacturer of jewelry, ornaments and oil lamps made of pewter, just announced higher prices for its wholesale customers after the price of tin -- its key raw material -- doubled over the last six months, thanks to rising demand in China. (Tin is used in many electronic devices.)

"China is absorbing more and more of the global tin market, driving up prices," said Bram Kleppner, the company's CEO.

Kleppner said the company has seen some improvement in sales recently, but demand is still not back to pre-recession levels.

"Higher-end gifts are one of the first discretionary purchases to disappear in a recession," he said.

The company's price increase averages out to about 6%.

"With every single category that we increase prices on, there is a painful debate about what the consumer reaction will be, what it will feel like on the shelf," he said.

Will consumers pay?

A survey of small businesses by PNC Financial found that 37% expect to raise prices over the next six months, while only 7% said they would reduce prices. That's the widest disparity since the early months of the recession.

"Every time their costs go up, they think about raising prices," said Stuart Hoffman, PNC's chief economist. "The question is how much of this will be able to stick."

Stronger consumer spending in recent months might help businesses pass along their costs, Hoffman said. But it's not strong demand that's driving prices higher. Only 16% of those raising prices pointed to demand as the reason for the increase, while 82% blamed rising input costs.

0:00/02:08Gas prices smash the heartland

Small businesses expect far more inflation ahead than the typical economist. The survey found a majority believe prices to be up between 4% to 6% this year, far above the forecast from the Federal Reserve of inflation in the 1.3% and 1.7% range.

The typical small business has trouble with price hikes, and closely watches their competition when trying to decide on what their customers will accept, according to Mark Stiving, CEO of Pragmatic Pricing, a pricing consultant with many small business clients.

"Small companies tend to have a very hard time raising prices because big companies won't follow them," he said. (8 great cities to start a business)

Losing business is a risk for Lesley Hall, a hairstylist in Westwood, Calif., who just raised her prices for the first time since 2008 because of her own personal budget squeeze. To cover her living expenses, she's had to raise the price of a typical session to $68 from $60.

"I have a lot of anxiety about doing it," she said. "There's a tension between the need to raise your prices to survive and not chasing customers away." 

JPMorgan's Dimon: No mortgage writedowns

Regulators and state attorneys general have been trying to get the banks to include mortgage principal writedowns as part of a proposed settlement of allegations that banks wrongly foreclosed on thousands of homeowners. The writedown proposal has been a key sticking point in the negotiations.

In addition to JPMorgan Chase, the other servicers are Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM).

Dimon spoke to the U.S. Chamber about a wide range of topics from monetary policy to struggling municipalities.

Dimon had little sympathy for municipalities and suggested that investors should expect that some of them will go bankrupt. But he suggested it won't "shatter America" and it's "part of the credit cycle."

Elizabeth Warren's olive branch to Big Business

"The states have the wherewithal to fix their problems," Dimon said. "It's not going to stop the United States from starting to grow."

Dimon spent most of his discussion with Chamber president Tom Donohue blasting regulators' efforts to enact new rules on derivatives, or complex financial contracts that financial firms and companies use to hedge risk.

0:00/1:33Dimon: Let the big dumb banks fail

He specifically opposes requiring companies such as airlines and other companies to post cash up front before they enter into a deriviatives contract.

"If we're required to have Caterpillar to post margin requirements, they're simply going to do business in Singapore, where they don't have to," Dimon said.

-- An earlier version of this story incorrectly reported that Dimon had said no principal writedowns for those who couldn't pay their mortgages.

Jobless claims edge lower

Economists surveyed by Briefing.com had expected initial claims to total 383,000 in the latest report.

The Labor Department said the latest report reflects the annual revision to the weekly unemployment claims for seasonal factors. Last week's total, for example, was revised up by 12,000.

"The revised data show a slightly less steep drop in claims over the past few months but the key point here is that the trend is still clearly downwards," said Ian Shepherdson, an economist at High Frequency Economics.

The 4-week moving average of initial claims, which smoothes out volatility in the measure, was 394,250. That was up 3,250 from the previous week's revised average of 391,000.

0:00/3:55Want jobs? Fix the patent system

In addition to the decline in initial claims, the number of Americans filing for ongoing claims for unemployment benefits dropped 51,000 to 3,714,000 in the week ended March 19, the most recent week available.

The 4-week moving average of continuing claims was 3,765,250, down 32,750 from the week before.

On Wednesday, payroll processor ADP reported that private sector employment rose by 201,000 in March, while an outplacement firm said planned layoffs declined in the month.

More summer jobs - and they'll pay better

Thursday's initial claims report comes one day before the government's monthly payrolls report, one of the most closely watched economic indicators on Wall Street.

A CNNMoney survey of 18 economists forecast an 180,000 jump in payrolls. They also expect the unemployment rate to hold steady at 8.9%.

Shepherdson said he expects the decline in initial claims to continue as access to credit becomes easier for businesses.

"The drop in claims has already been reflected in a clear acceleration in private payrolls in recent months, and we think there is more to come," he said. "The labor market recovery is gathering momentum."

Job Growth

Economists surveyed by CNNMoney were expecting the unemployment rate to edge up to 9.2%.

The economy gained 192,000 jobs in the month, roughly in line with economists' forecast of 190,000 jobs. Businesses added 222,000 jobs -- their best hiring month since last April -- while state and local governments cut 30,000 jobs.

Another good sign: More jobs were added in the previous two months than originally thought. Readings for December and January were revised upward by a combined 58,000 jobs.

The report could mean that the labor market has finally turned the corner and should start to help overall economic growth going forward, said Sung Won Sohn, economics professor at Cal State University Channel Islands.

"The last piston in the economic engine has begun to fire," he said.

Despite the recent improvement, unemployment remains significantly higher than before the Great Recession hit. Austan Goolsbee, the chairman of the White House Council of Economic Advisors, acknowledge more needs to be done to replace the 8 million jobs lost during the worst of the recession, despite the signs of improvement.

"The overall trajectory of the economy has improved dramatically over the past two years, but there will surely be bumps in the road ahead," he said. "It is important not to read too much into any one monthly report."

Why unemployment is falling

Still, businesses are clearly becoming far more confident about adding workers. Private businesses gained a total of 457,000 jobs over the last three months, even as state and local governments continued to lose jobs.

The gains have been widespread, with 68% of industries tracked by the Labor Department adding jobs in the month -- the most broad-based gain in employment across the business world since 1998.

And more job seekers are finding work. The unemployment survey -- which is compiled from a separate survey of households -- showed that 664,000 additional workers reported having a job compared to three months ago.

Lakshman Achuthan, managing director of Economic Cycle Research Institute, said this is likely a sign of a pickup in new businesses opening up, though new employers can be difficult for the government to track.

"These are things that fall under the radar," he said. "All of us probably know, anecdotally, stories of our friends and family who lost a job at a big place and took the opportunity to strike out on their own."

Another factor helping unemployment is a sharp decline in job losses. The number of people losing their jobs fell by 1.1 million since November, the biggest three-month decline since the Labor Department began tracking that number in 1967.

That improvement has also shown up in readings on jobless claims -- the number of people filing for first-time unemployment benefits hit a three-year low last week.

"We're not firing like we were and there is new business formation," said Achuthan. But he cautioned that the market is still difficult for the long-term unemployed.

Nearly 6 million Americans have been out of work for more than six months and the average duration of unemployment climbed to 37 weeks in February, a post-World War II record.

And the unemployment rate is likely to rise as the labor market continues to improve and job seekers sitting on the sidelines return to the work force, said Tig Gilliam, president of the North American unit of job placement firm Adecco.

The number of jobless people who are no longer counted as unemployed because they're not actively seeking work remained little changed at about 2.7 million.

"There are enough people who are discouraged about the job market that they just haven't actively looked," he said.