Cutting the US deficit...

Here's a link to an interactive calculator from the Washington Post that lets you see the impact of different changes to the tax code. The calculator is a fun, easy way to see where the savings might be found to offset the US$480 billion in lost revenue from the tax cuts Mr. Romney proposes.

Don't be put off by the title ("Make Mitt Romney's tax plan add up!"). We're promised a similar calculator for the Obama proposals tomorrow.

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/31/interactive-make-mitt-romneys-tax-plan-add-up/?wpisrc=nl_pmpolitics

Mexican Reference Rate stays at 4.50%

but the odds have just increased that the next time the Board of Governors moves the rate, it will raise it. In the concluding paragraph of today's monetary policy communique, Banco de Mexico's Board explicitly stated that they will raise the rate, if necessary, to anchor inflationary expectations and stay on track to achieving 3% inflation.

The trigger for a rate increase: if "los choques a la inflacion" (like the ones we've experienced in recent months from agricultural prices) persist, even if they are temporary, and the downward trend in inflation isn't solid.

The Fed stands still and so will Mexico...

At the conclusion of its meeting today, the Fed kept policy where it was before the Open Market Committee sat down on Tuesday.

What does it mean for Mexico? Don't look for any change in interest rate policy soon. Banco de Mexico should keep the Mexican Reference Rate at 4.50% when it meets this Friday.

The Mexican Reference Rate made its debut on January 21, 2008. It's stood at 4.50% since July 17, 2009. 

How do Mexicans rate the quality of government services?

INEGI, the autonomous government entity charged with compiling statistics on Mexico, published the results of a new survey today. The survey asked Mexicans 18 or older living in cities with more than 100,000 inhabitants to rate the quality of 31 tramites (procedures) and government services on a scale of 1 (least satisfied) to 10 (most satisfied). There were some interesting results.

--Nearly half (49.2%) of respondents faced some sort of problem when doing a tramite. In over three-quarters (77.1%) of the cases, respondents cited "barriers to effecting the tramite" as their most frequent problem. Such barriers included "excessive requisites", long lines, being sent from one place to another, and being required to go to places that were far away.

--Three-quarters of respondents said they were "satisfied" with the time it took to comply with the tramite or the service. Four out of five thought they were treated "adequately". Interesting to try squaring those findings with the conclusion above, isn't it?

--Only one in four respondents used the "electronic government" (banks, supermarkets, internet or modulos automaticos). Three out of four went to a government office or the Treasury.

--Respondents were happy with the quality of public services provided by the states, municipalities and delegations: 67.2% thought state-provided services were "good"; 67.0% said the same of services provided by municipalities and delegations. Fewer respondents -- 58.7% -- felt that way about public services provided by the federal government.

--Judging by the average rating of 8.1, respondents are reasonably happy with the quality of tramites and public service. That is more true of some tramites and services than others: signing up for university and the public schools and paying light and water bills received grades of 8.4 - 8.5. Respondents felt differently about tramites in the judicial system (6.1) and ministerio publico (5.9 for the public prosecutor's office) and requesting public services like lighting or paving streets (6.0).

--Respondents were happiest with the quality of such public services as electricity (85.2% described it as good or very good) and water (76.3%). The quality of streets and of police were at the other end of the scale -- 61.6% of respondents rated them bad or very bad.

Small businesses in the US...

Here are some statistics on small businesses in the US from the Joint Committee on Taxation (JCT), a nonpartisan congressional entity.

The conclusion: The Obama proposal to let the Bush-era tax cuts on wealthy individuals (families and individuals making, respectively, more than $250,000 and $200,000/year) would affect only 3% of all small businesses paying taxes -- about 750,000 taxpayers. The 3% accounted for half the estimated $1 trillion in business income reported in 2011.

In testimony to the House of Representatives, the Director of the Urban-Brookings Tax Policy Center stated that 0.3% of S corporations had receipts of $50 million or more. That 0.3% of S corporations accounted for 34.0% of receipts and 26.8% of S corporations' net income. Another 1.7% of S corporations have receipts of $10-50 million. They accounted for a total of S corporations' receipts and 34.0% of net income. In short, 2.0% of S corporations account for 59% of receipts and 60.8% of net income. Only 0.4% of returns filed by S corporations, partnerships and non-farm sole proprietorships were filed by entities that made at least $10 million. They accounted for 59.8% of receipts and 42.0% of net income.

Background: Small companies often take the legal form of a "S corporation", which does not pay taxes. Instead, profits or losses are passed on to the S corporation's shareholders. The tax rate levied on those profits is the individual tax rate rather than the corporate tax rate. Sole proprietorships, partnerships and some limited liability companies are also incorporated as S corporations.

The JCT says that, as of 2005, about 1 in 9 S corporations (11%) were in retail trade, a category that encompasses the "mom and pop" stores. They held 12% of the total assets of S corporations and represented for 5% of partnerships. Those partnerships held less than 1% of assets. About 1 out of 7 (14%) of S corporations were in construction. The largest category of S corporations were in professional, scientific and technical services. The number of tax returns filed by "flow-through entities" has climbed in recent years. 

Wondering what a dollar will cost?

News coming out of Europe has had the peso on a roller coaster. If the ups and downs of the efforts to resolve the European crisis continue to impact the exchange rate, there are several events coming up in Europe this month that could derail the peso's appreciation.

The Euro Group meeting on October 8-9 will be followed by the EU Summit on October 18-19. Bad news coming out of either of these meetings could hurt the peso. Spanish regional elections will be held in Galicia and the Basque country on the 21st. Will they endorse or repudiate Prime Minister Rajoy's economic strategy? Will Spain be forced into a conditionality program to activate the ECB's bond purchase program (OMT) to hold down its borrowing costs?

The underlying economic fundamentals will determine the cost of a dollar over the long-term. In the short-term, what's happening in Europe will too.