The US' out of whack economy

  • Posted by a hidden member.
    Log in to view his profile

    Dec 25, 2010 4:44 PM GMT
    "...In September, new Census figures showed the income gap between America's richest and poorest was the widest on record: "The top-earning 20 percent of Americans -- those making more than $100,000 each year -- received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line [15 percent]." It's one example of what Senator Bernie Sanders called "ExternalLink:a war against the working families of America."

    This is not a covert action. Every day there's a headline that some giant corporation had record profits and their executives got enormous bonuses; often on the same page there's another story about record unemployment or middle-class folks who lost their homes to foreclosure. The question is why nobody but Bernie Sanders, and a few brave progressives, are willing to talk about our class war.

    This is not a covert action. Every day there's a headline that some giant corporation had record profits and their executives got enormous bonuses; often on the same page there's another story about record unemployment or middle-class folks who lost their homes to foreclosure. The question is why nobody but Bernie Sanders, and a few brave progressives, are willing to talk about our class war.

    But the third and most troubling explanation is that our fellow citizens suffer from a collective psychosis: Americans think the US can't operate without the rich and so they are, in effect, protecting them.

    Groucho Marx told a joke about a man who complains to a psychiatrist, "My brother thinks he's a chicken." The shrink responds, "That's terrible! Why don't you tell him the truth?" The man answers, "I would, but we need the eggs."

    Americans don't tell the truth about the class war because we believe we need the "eggs." As a nation we've developed Stockholm syndrome and fallen under the spell of our captors. We've succumbed to the Republican message machine. ..."

    http://www.huffingtonpost.com/bob-burnett/2010-america-held-hostage_b_801075.html
  • Posted by a hidden member.
    Log in to view his profile

    Dec 25, 2010 8:22 PM GMT
    I think the estate tax should applied only to the rich who do not pass 95 on the IQ test.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 25, 2010 8:41 PM GMT
    I'm curious - what do you see as the problem? (a) the income disparity or (b) the level of poverty?

    On the issue of poverty, you need to define poverty - because on an absolute basis the US and much of the Western world has substantially wiped out poverty. The metrics on the poor in the US are remarkable if you look at what they own - e.g. cell phones, microwaves, televisions. On a relative basis, obviously you're going to always have poor people relative to others - but does the distribution matter?

    You point to bonuses and foreclosures as if the two are linked. There are a lot of investment bankers who won't get bonuses at all - and that's a good thing. But as for foreclosures, there are many who should not have owned homes in the first place. There's a bias in the US system and in policy towards home ownership by some who don't have the financial strength to borrow (e.g. mortgage interest deductions, fannie mae, freddie mac).

    The the question is what do you see as the solution? Tax them? From the WSJ:

    http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html?mod=wsj_share_twitter

    In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers.

    A 2008 study of 24 leading economies by the Organization of Economic Cooperation and Development (OECD) concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."

    The OECD study—titled "Growing Unequal?"—also found that the ratio of taxes paid to income received by the top 10% was by far the highest in the U.S., at 1.35, compared to 1.1 for France, 1.07 for Germany, 1.01 for Japan and 1.0 for Sweden (i.e., the top decile's share of Swedish taxes is the same as their share of income).


    Which is to say that, the US taxes its rich far more disproportionately already than other countries including places like Sweden, France and Switzerland. You could make the argument that this is reasonable given that they also account for a disproportionate amount of income - which is true, but they also pay a lot more than that proportion in taxes. Besides which, taxing more, legislating more, would hardly have the desired effect of equalizing income.

    Tax the wealthy more? What happens? They leave:
    http://taxprof.typepad.com/taxprof_blog/2010/12/oregons-millionaires-tax-drives-millionaires-out-of-state.html

    Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. ...

    In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

    Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million. ...


    It's also useful to differentiate between income and capital gains - there are some who are uber wealthy like like Warren Buffet argue for higher income taxes even though he wouldn't be paying them because most of his income comes from capital gains and dividends. Those who have wealth already are in a far better position to move their wealth offshore - legally and efficiently by investing it elsewhere.

    In fact, that's why you have such a large corporate cash build up offshore:
    http://online.wsj.com/article/SB10001424052748704469004575533880328930598.html?mod=WSJ_Opinion_LEADTop

    One trillion dollars is roughly the amount of earnings that American companies have in their foreign operations—and that they could repatriate to the United States. That money, in turn, could be invested in U.S. jobs, capital assets, research and development, and more.

    But for U.S companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world—except here.

    The U.S. government's treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few. Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That's because those countries realize that choking off foreign capital from their economies is decidedly against their national interests.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 5:47 AM GMT
    riddler78 saidI'm curious - what do you see as the problem? (a) the income disparity or (b) the level of poverty?

    On the issue of poverty, you need to define poverty - because on an absolute basis the US and much of the Western world has substantially wiped out poverty. The metrics on the poor in the US are remarkable if you look at what they own - e.g. cell phones, microwaves, televisions. On a relative basis, obviously you're going to always have poor people relative to others - but does the distribution matter?

    You point to bonuses and foreclosures as if the two are linked. There are a lot of investment bankers who won't get bonuses at all - and that's a good thing. But as for foreclosures, there are many who should not have owned homes in the first place. There's a bias in the US system and in policy towards home ownership by some who don't have the financial strength to borrow (e.g. mortgage interest deductions, fannie mae, freddie mac).

    The the question is what do you see as the solution? Tax them? From the WSJ:

    http://online.wsj.com/article/SB10001424052748703581204576033861522959234.html?mod=wsj_share_twitter

    In The Journal of Economic Perspectives (Winter 2007), Messrs. Piketty and Saez estimated that "the upper 1% of the income distribution earned 19.6% of total income before tax [in 2004], and paid 41% of the individual federal income tax." No other major country is so dependent on so few taxpayers.

    A 2008 study of 24 leading economies by the Organization of Economic Cooperation and Development (OECD) concludes that, "Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. . . . Taxes tend to be least progressive in the Nordic countries (notably, Sweden), France and Switzerland."

    The OECD study—titled "Growing Unequal?"—also found that the ratio of taxes paid to income received by the top 10% was by far the highest in the U.S., at 1.35, compared to 1.1 for France, 1.07 for Germany, 1.01 for Japan and 1.0 for Sweden (i.e., the top decile's share of Swedish taxes is the same as their share of income).


    Which is to say that, the US taxes its rich far more disproportionately already than other countries including places like Sweden, France and Switzerland. You could make the argument that this is reasonable given that they also account for a disproportionate amount of income - which is true, but they also pay a lot more than that proportion in taxes. Besides which, taxing more, legislating more, would hardly have the desired effect of equalizing income.

    Tax the wealthy more? What happens? They leave:
    http://taxprof.typepad.com/taxprof_blog/2010/12/oregons-millionaires-tax-drives-millionaires-out-of-state.html

    Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. ...

    In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

    Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million. ...


    It's also useful to differentiate between income and capital gains - there are some who are uber wealthy like like Warren Buffet argue for higher income taxes even though he wouldn't be paying them because most of his income comes from capital gains and dividends. Those who have wealth already are in a far better position to move their wealth offshore - legally and efficiently by investing it elsewhere.

    In fact, that's why you have such a large corporate cash build up offshore:
    http://online.wsj.com/article/SB10001424052748704469004575533880328930598.html?mod=WSJ_Opinion_LEADTop

    One trillion dollars is roughly the amount of earnings that American companies have in their foreign operations—and that they could repatriate to the United States. That money, in turn, could be invested in U.S. jobs, capital assets, research and development, and more.

    But for U.S companies such repatriation of earnings carries a significant penalty: a federal tax of up to 35%. This means that U.S. companies can, without significant consequence, use their foreign earnings to invest in any country in the world—except here.

    The U.S. government's treatment of repatriated foreign earnings stands in marked contrast to the tax practices of almost every major developed economy, including Germany, Japan, the United Kingdom, France, Spain, Italy, Russia, Australia and Canada, to name a few. Companies headquartered in any of these countries can repatriate foreign earnings to their home countries at a tax rate of 0%-2%. That's because those countries realize that choking off foreign capital from their economies is decidedly against their national interests.


    It's the income disparity. Money increasingly aggregates at the top and working and middle class inflation-adjusted wages have remained stagnant. It's why the economy isn't recovering as rapidly as in past recessions. No one has much money to spend. It's bad for the economy overall and is immoral frankly.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 6:02 AM GMT
    riddler78 said

    Tax the wealthy more? What happens? They leave:
    http://taxprof.typepad.com/taxprof_blog/2010/12/oregons-millionaires-tax-drives-millionaires-out-of-state.html

    Oregon raised its income tax on the richest 2% of its residents last year to fix its budget hole, but now the state treasury admits it collected nearly one-third less revenue than the bean counters projected. ...

    In 2009 the state legislature raised the tax rate to 10.8% on joint-filer income of between $250,000 and $500,000, and to 11% on income above $500,000. Only New York City's rate is higher. Oregon's liberal voters ratified the tax increase on individuals and another on businesses in January of this year, no doubt feeling good about their "shared sacrifice."

    Congratulations. Instead of $180 million collected last year from the new tax, the state received $130 million. ...




    http://www.blueoregon.com/2010/12/facts-and-logic-go-missing-again-wall-street-journal-editorial/
    First, although Measure 66 applied to 2009 income, voters didn’t approve them until January 2010. For The Wall Street Journal’s claim to be true, 10,000 wealthy Oregonians would have had to master time travel and leave the state retroactively to avoid the 2009 tax.

    Second, the total number of tax returns filed in 2009 is greater — not less — than what the state had predicted in May of 2009. That doesn’t suggest out migration.

    The explanation for why in 2009 there were actually 10,000 fewer tax returns subject to the new rates than had been projected in mid-2009 is obvious: the Great Recession was worse than the state economists had thought in mid-2009...
    Yes, there were “fewer filers affected” by the measure than originally expected, but that just means that the income decline caused by the Great Recession took some people below the new tax thresholds. It says nothing about migration of taxpayers out of state.

    http://www.itepnet.org/pdf/or_wsjmigration_1210.pdf
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 6:08 AM GMT
    No matter how progressive your tax codes are, we still tax the least in terms of GDP among OECD nations:
    taxes-share-gdp-oecd-countries-2006.gif
  • Webster666

    Posts: 9217

    Dec 26, 2010 10:40 AM GMT


    Now that we're stuck in the George W. Bush Republican Great Depression,

    -Many millions of people are unemployed
    -Companies aren't hiring because not enough people are buying their products
    -People aren't buying their products because they're unemployed

    The only way to get people spending again, is for them to have jobs.

    1) The Federal government stimulus plan is leaving out the most crucial part of the FDR plan that got us through the last Republican Great Depression of the 1930's. Put many millions of people on the Federal payroll.

    2) Another problem is that too many American corporations have moved their manufacturing facilities overseas, thereby elimination many millions of jobs for unskilled American labor. The solution is for the Federal government to charge a huge tariff on all goods that those corporations want to bring back into the United States to sell. Make it more financially advantageous to have their factories here in America.

    3) Union wages

  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 2:35 PM GMT
    q1w2e3 saidNo matter how progressive your tax codes are, we still tax the least in terms of GDP among OECD nations


    Are you saying that the solution then is to tax everyone more as a percentage? That we should be even more punitive to those who earn more and that this will therefore make for a more supposedly balanced and productive economy? The US is of course also more productive than most of those economies listed - so would you accept a potential tradeoff that incomes broadly would be lower?

    As noted, the wealthy are already taxed far more than rest of the population in the US and disproportionate to the income they make relative to the economy.

    Further, I can't recall any policy where new taxes or modified taxes resulted in more income than expected unless you count when they cut capital gains. As a side note, oddly, in the US, no matter the tax policy, US tax revenues have stabilized around 19% since the 1940s (which may also provide a starting point for where the size of government ought to be):
    http://taxprof.typepad.com/taxprof_blog/2010/11/wsj-hausers-law.html

    6a00d8341c4eab53ef01348992e7dd970c-500wi

    As for Christian - are you saying that the income disparity means that the wealthy are taking from the poor? What do you see as the appropriate solution? I assume you disagree with Webster insofar as raising tariffs goes given that's one of the reasons for the great depression. Do you also believe that we should raise minimum wages in line with union wages or that wages in some degree reflect economic productivity?
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 2:37 PM GMT
    Webster666 said

    Now that we're stuck in the George W. Bush Republican Great Depression,

    -Many millions of people are unemployed
    -Companies aren't hiring because not enough people are buying their products
    -People aren't buying their products because they're unemployed

    The only way to get people spending again, is for them to have jobs.

    1) The Federal government stimulus plan is leaving out the most crucial part of the FDR plan that got us through the last Republican Great Depression of the 1930's. Put many millions of people on the Federal payroll.

    2) Another problem is that too many American corporations have moved their manufacturing facilities overseas, thereby elimination many millions of jobs for unskilled American labor. The solution is for the Federal government to charge a huge tariff on all goods that those corporations want to bring back into the United States to sell. Make it more financially advantageous to have their factories here in America.

    3) Union wages


    QFT
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 3:55 PM GMT
    riddler78 said
    q1w2e3 saidNo matter how progressive your tax codes are, we still tax the least in terms of GDP among OECD nations


    Are you saying that the solution then is to tax everyone more as a percentage? That we should be even more punitive to those who earn more and that this will therefore make for a more supposedly balanced and productive economy? The US is of course also more productive than most of those economies listed - so would you accept a potential tradeoff that incomes broadly would be lower?


    I'm saying that more progressive tax increases do not necessarily worsen GDP growth, and it does promote more equality as well as help reduce deficits. GDP growth comes from lots of other things and lower taxes have little to do with anything in the long run (as seen for the last decade by Bush's tax cuts), EXCEPT promote income disparity (since those tax cuts benefit the rich more).

    http://www.fructivore.com/2010/08/how-badly-do-taxes-stifle-gdp-growth/
    6a0134874ca454970c0148c6a5e686970c-500wi

    http://www.nytimes.com/2007/01/08/washington/08tax.htmlFamilies in the middle fifth of annual earnings, who had average incomes of $56,200 in 2004, saw their average effective tax rate edge down to 2.9 percent in 2004 from 5 percent in 2000. That translated to an average tax cut of $1,180 per household, but the tax rate actually increased slightly from 2003.

    Tax cuts were much deeper, and affected far more money, for families in the highest income categories. Households in the top 1 percent of earnings, which had an average income of $1.25 million, saw their effective individual tax rates drop to 19.6 percent in 2004 from 24.2 percent in 2000. The rate cut was twice as deep as for middle-income families, and it translated to an average tax cut of almost $58,000.


    http://www.kentwillard.com/5-ducats/2010/12/lower-taxes-and-higher-economic-growth.htmlThe US generally prefers smaller government, less centralized planning, and lower taxes than Northern Europe. There is nothing wrong with that. But we shouldn't assume that just because we lower taxes, that businesses and wealthy people will use that money to hire more people and make larger investments. They could just as easily direct that money to speculative ventures, investments in foreign nations, and the purchase of foreign luxury goods. In fact, they are likely to do so with poor incentives.


    In fact, I'm going to bet you that continuing those Bush tax cuts will not mean more hiring this coming year.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 26, 2010 4:57 PM GMT
    riddler78 saidAs for Christian - are you saying that the income disparity means that the wealthy are taking from the poor? What do you see as the appropriate solution? I assume you disagree with Webster insofar as raising tariffs goes given that's one of the reasons for the great depression. Do you also believe that we should raise minimum wages in line with union wages or that wages in some degree reflect economic productivity?


    I'm saying corporations and their executives are squeezing wages from the majority of their employees (of course, this varies in severity depending on the sector/company) and rewarding themselves and their investors/stockholders disproportionately. In essence, the value workers' labor is being artificially supressed in service of the ownership class.

    The solution I prefer is that public pressure (or some group enlightenment) forces the executives/owners to realize that their outsized rewards, while beneficial to them in the short-term, is actually bad for their market, company, and themselves in the long-term, as they cannibalize the purchasing power of the consumers that they rely on to buy their products and services.

    I think tariffs have a role to play where other countries are manipulating their currency (though the US is doing that, too) or artificially driving down the costs of their exports, but I think that should be very carefully applied.

    I think the minimum wage should be matched to inflation, but I much prefer unionization as a driving force for wages and benefits among workers. The erosion of the middle class and its wages tracks nearly exactly with the decline of unionization. Union wages and benefits also set a standard for the workforce as a whole as even white collar companies are forced to compete with unionized industries for labor.

    Frankly, I think a lot of the bluster around teachers' unions isn't really driven by student achievement gaps - though I wish they were - but, rather, are drive by the desire on the part of anti-union forces to bust the strongest remaining union in the country.