Saturday, September 18, 2010

The Tax Cut, a Carrot on a Stick

Obama wants to raise taxes on the rich but not the middle class. Is it really a bright idea, to piss off the rich by singling them out? It is kind of like a pick-pocket walking up to you and telling you he is going to steal your wallet; at that point he has little chance of success. It sounds like a great statement to the masses, but when you look at the Health care bill that just passed, whose going to get the bill for that (I give you one guess)? So if you are rich, what do you do? Hop on your jet and move to the Bahamas where tax laws are nonexistent? Hmmm Of course I will have to admit, people who get rich quick assume it’s because they are more intelligent than those around them. That mistake can cost a lot if you buy the multi-million dollar homes and the toys that go with it. There is high tax maintenance on all of that stuff. The “Look at me, I’m Rich,” game cost money to play--- I’m just glad there are people out there that enjoy playing that game.

Obama’s idea that we are coddling millionaires is ludicrous. When I was a kid, the average wage earner might earn a quarter of a million dollars in a life time. Millionaires today are a dime a dozen now. Many people I have bumped into have matter a factly mentioned that they are millionaires. I don’t know who they are trying to impress, but when my dad earned 5K a year and our home cost 25K, a million dollars was something. In today’s world, the “air” part of millionaire is the only real part. Not too long ago a million dollars in the bank would earn 100K in interest a year and there were taxes to pay; but at 2 percent interest, your return from the bank is a paltry 20K. Many a person saving for retirement needs to consider the fact that a million dollar nest egg isn’t much if you end up in a rest home at 70k per year ( that goes double in spades if you are married). It will only last about 8 to 12 years. The concept of being a millionaire hasn’t lost its luster in the mind’s eye; everyone overlooks the reality that the bar has been moved up to billionaire, and that of course has nothing at all to do with inflation (cough cough).

If these George W Bush tax cuts expire, the rich escape,  the middle class gets hit and the poor get a free ride. And the funny thing is, it happens without Congress doing a damn thing; everyone’s taxes return to pre-Bush rates (Is "pre-Bush," "Democrat" spelled backwards?). The concept of making a tax cut permanent, runs against the grain of Congressional job security; it would be the last tax cut we would ever hear about. This way the tax cut expires and Congress can vote again to cut taxes.  It's a little like a furniture store holding their annual "Going out of Business sale," only in this case, Obama wants the rich people to pay full price. I guess millionaires don't shop at Walmart, do they?

Copyright 2010 All rights reserved

32 comments:

Anonymous said...

the tea party and other independents and conservatives are moving in. many dems aren't even surviving their primaries now for the coming nov elections. obamacare will be repealed. taxes will go down and gov will get smaller. the socialists are going to be beaten back.

Anonymous said...

The good life and rapid growth that started in the early 1980s was fueled by massive financial leveraging and excessive debt, first in the global financial sector, starting in the 1970s and in the early 1980s among U.S. consumers. That leverage propelled the dot com stock bubble in the late 1990s and then the housing bubble. But now those two sectors are being forced to delever and in the process are transferring their debts to governments and central banks.

This deleveraging will probably take a decade or more - and that's the good news. The ground to cover is so great that if it were traversed in a year or two, major economies would experience depressions worse than in the 1930s. This deleveraging and other forces will result in slow economic growth and probably deflation for many years. And as Japan has shown, these are difficult conditions to offset with monetary and fiscal policies.

The deleveragings of the global financial sector and U.S. consumer arena are substantial and ongoing. Household debt is down $374 billion since the second quarter of 2008. The credit card and other revolving components as well as the non-revolving piece that includes auto and student loans are both declining. Total business debt is down, as witnessed by falling commercial and industrial loans.

Meanwhile, federal debt has exploded from $5.8 trillion on Sept. 30, 2008 to $8.8 trillion in late August. Many worry about the inflationary implications of this surge, but the reality is that public debt has simply replaced private debt. The federal deficit has leaped as consumers and business retrenched, which curtailed federal tax revenues, while fiscal stimulus, aimed at replacing private sector weakness, has mushroomed.

What pushes us out of recession is employment gains, consumer spending growth and a revival in residential construction. None of these are going to happen for a long time.

Consumers are on strike, jobs have been lost forever, government can't keep on stimulating and increasing their deficits, the Fed is out of ammo.

We'll be following Japan's lead (almost 20 years of deflation despite every government intervention action under the sun, moon and stars) at least for a few more years--possibly for a decade or two?

The wealthy are already heading for offshore points. More and more businesses will leave as desperate State and Fed government try to increase their tax revenues to stay afloat.

The wealthy never take the hit. It will always be the middle class--which is shrinking in size now more than ever.

Are we heading towards a population of 80% HaveNots and 20% Haves?

Tyrone said...

Right on the money about millionaire "status", Jim.

These punks figured it out...
I Wanna Be a Billionaire

However, we have become sadly misdirected on what is important in life.

Anonymous said...

The difference between the US government and a pickpoket is obvious. The government has the law and law enforcement on its side. They can require you to pay higher taxes on all your new income (telling whomever provides you with the income to report it to them - or even requiring witholding taxes and direct remittence to the government. It can stop you from transfering your assets out of its jurisdiction.

Jim in San Marcos said...

Hi Anon 8:52

My point with the analogy was to point out that if people know what is likely to happen, they take preventive measures.

If the government changes the rules like health care, the employer can move the business to Mexico and import the items to the US as a wholesale distributor.

On every other Sunday I iron about 14 shirts. Not one of them is made in the US. When I iron my shirts, I tour the world; Panama, Honduras, Costa Rica, Taiwan, Bangladesh, India, Viet Nam, China to name a few.

A man running a business is no different than a laborer. Everyone wants to make more money. You make your shirts in Mexico for $2 a piece, sell them back to yourself in the US at $9.50 and wholesale them to stores at $10. If you sold a million shirts, you would pay tax on a half million. The $7.50 you got on the Mexican side per shirt is invisible, but very spendable.

California has an inventory tax every year on all retail businesses in the state, where do you thing the major retail supermarkets keep their inventory? Nevada.

I worked for a loan collection agency a long time ago and learned one very good lesson; never tell people what you are going to do in advance, You warn them that if they miss another payment, you're going to repo their TV, I guarantee you'll discover that it has been stolen, when you go to pick it up.

Jim in San Marcos said...

Hi Tyrone

Here is another little tidbit about these paper millionaires in California. If you bought a million dollar home and the bank owns most of it, probate upon your death could be a real killer. Probate costs are determined by the value of total assets not what is owed against them. So the minimum probate lawyers charge for a million dollar estate in California is $23,000 plus the executor is entitled to the same amount. Dead people don't complain much, so I guess it's no big deal.

SPECTRE of Deflation said...

This taxing of the so called rich should work out as well as the Luxury Tax of the Late 1980s - early 1990s. It did nothing but cause unemployment in all industries affected by the new tax. The idiots in Washington have not a clue regarding unintended consequences.

The small business owner making over $250,000 per year will get ass whipped while the real money bags of this country will pay jack shit, as is always the case. They give their money to foundations which concentrate on screwing the little guy over and over again.

Ohio Loan Officer said...

Jim,
Actually, millionaires are a major share of Walmart business.

My nephew is in management for Goodwill Charities. A couple of years ago they did a study on their clientel. The results are very interesting---
About 50% of their shoppers are people that are considered "lower income". But what was interesting was about 20% of their customers have net worths of more than a million dollars. They found that few Yuppie "Middle Class" people shop Goodwill. They are the ones that frequent the fancy shops in the malls.

My nephew tells me he regularly has women in mink shopping in his Goodwill store.

JMS said...

I don't know what you guys are talking about. The recession is over. The gravy train is coming back!

http://money.cnn.com/2010/09/20/news/economy/recession_over/index.htm?hpt=T1&iref=BN1

Anonymous said...

Yay! The recession is over! We can all go back to a normal life now. Jim you can dismantle this website now and shut it down. Let the good times roll again!

Jim in San Marcos said...

Hi JMS and Anon 9:31

Thanks for the heads up. We can relax now and enjoy life.

I'll just grab a snow cone off this passing iceberg, and move my deck chair closer so I can hear the band.

Jeffrey said...

I'm stunned at the historical ignorance displayed here. Eisenhower rates were 90% on the upper bracket and income disparity was the lowest in our history. Millionaires never once considered leaving because the rest of the world was in shambles or chains.

The reason that we cannot go back to such a tax structure is not because it is "socialist" or "bad economic policy". If it were, how come the 1950s were so good despite the high income brackets? No, the reason we cannot go back is because the very rich in this country and other developed countries successfully "opened" China and the USSR and created entirely new markets for corporate profits. The result was entirely predictable and, indeed, WAS PREDICTED in the early 1990's book "Blook in the Streets". The author, Lord Reese-Moggs, predicted decades of falling real wages in the west and political turmoil as capital moved to higher return deveoping countries and living standards in the west fell in unison with rising living standards in the east.

As for the suggestion that "taxes will go down and government will get smaller" if the Tea Parties are successful in November, what naivete. The west is destined to implode regardless of who is in power. If the TP "wins", the implosion will just happen more suddenly as all stimulus efforts will be stopped, tax revenues will collapse and Congress will be called on "to do something". As real conservatives correctly note, spending is the same thing as taxing because the government has and never will "default". So when Bush increased spending and reduced taxes he merely increased taxes on the next generation, which is now us.

Jim in San Marcos said...

Hi Jeffrey

It is true that the income tax reached 91% It was progressive and reached 91% on earnings over 400K. The net effect was that successful businessmen kept the money in the business and only took out expenses to live on. A million dollars back then would generate 30K a year which was 6 times what a middle class worker was pulling in. And you would have been in the 30 to 35% tax bracket.


"Blood in the Streets" is still a good read.

As for the government getting smaller, I tend to agree with you for other reasons. If you get a chance to pick up any of the writings of Alexis Tocqueville "Democracy in the United States," (translated) This Frenchman discusses the future of the US back in the 1850's. He comes to the same conclusion as you, but for different reasons. As countries grow and government gets bigger, they get more inefficient. He forsaw the future we are now experencing. Just his quotes in Wikiquote are very insightful and are well worth the read.

Jeffrey said...

Jim, I agree that de Tocqueville is one Frenchman we should listen to.

I think that both political parties have become characatures who dance the Kabuki for an ignorant audience that is now beginning to awaken. The Dems keep thinking Americans should want to be part of some sub-group, i.e., ethnic, class, environmental, soccer moms-- while the Repubs think Americans should to melt into a single pot of NASCAR-loving, ass-kicking free market consumers. I started life as a Democrat, migrated during mid-life to the Libertarians, but now I think we all need just need to get local. If Kansas wants to outlaw evolution, let them --- so long as we in California get to outlaw corporate usury and predatory lending. Let Americans be Americans --- independent, quirky, unpredictable, creative and thoroughly uncontrollable.

Jim in San Marcos said...

Hi Jeffrey

I agree.

I do think that if voters expected less from government, they wouldn't be disappointed. Government is a tool, not a solution to all of our problems.

Anonymous said...

Expecting "leaders" or politicians to solve our problems IS the problem. The resolution of our social and economic problems depends on the resolution of the human mind (human behaviour). Our problems all stem from: immorality; self serving agendas; attention on the greatest good for oneself in stead of the greatest good for the country; inability to predict consequences; inability to differentiate false data from true data; lack of industriousness; inability to recognize, isolate and rehabilitate the destructive personality (responsible for so much of our social chaos); drug and alcohol abuse; promiscuity; etc. These are the elements behind empires collapsing. Technology has moved forward but man's understanding of himself is still back in the dark ages. We are destined to repeat the cycle of rising and collapsing empires until the day comes when man understands himself and can trust his fellow man. That is the advance we need -- the rehabilitation of the human spirit -- knowing who we really are, having a high ethics level and applying TRUE data (instead of false) in all areas of society (business, economics, education, criminality, parenting, etc. etc.)

The resolution of the social sciences depends on the resolution of the human mind. THIS IS THE BASIC OF BASICS.

Anon on a Calif Mountain said...

I agree. A spiritual revolution is what is needed. Or should I say a spiritual evolution. None of these existent organized religions on this planet have the actual true data. Inroads must be made on the human mind and human behavior if we have any hope of countries with stability and staying power. Now that we have high technology (nuclear) we are at the most risk ever due to the fact that man has not progressed mentally, emotionally or ethically over the last 2000 years. When man conquers his mind and gets his hands on the true laws and principles of life... that will be when the rampant, high statistics of crime, drug abuse, government corruption, etc. begin to drop off and we can start to build a real civilization.

We're in trouble unless we have a new Age of Reason and Spirituality.

Jim in San Marcos said...

Hi Anon 11:35

You touched on part of the problem. There are two classes, those that can afford to examine the philosophy of life and those that live from day to day. If you are dead broke, you can't afford to contemplate the ideals of Democracy, you're looking for food sex and shelter. Kids are something that happen.


The poor person has a very exhausting life whereas the well to do can contemplate how many angels can dance on a pin.

It is far more likely if the people in power screw up we will be brought down to the, proletariat level like France in 1789 not vice versa.

I think we have to put our discussions on philosophy and life on the shelf and deal with the realities of people being broke and starving to death.

It could come down to one thing; "Who gets to eat this food, you or me?" At that point, the higher moral standards drop out of the equation. One of you is going to stop breathing for a reason.

Joseph Oppenheim said...

Obama wants to raise taxes on the rich but not the middle class.<<<

More Tea Party gibberish and lies.

The way the law exists as is, is that the Bush tax cuts will expire at the end of this year. So, if Obama doesn't extend them, he just keeps those taxes just as they were to be - NO TAX INCREASE for anyone. But, by extending them for incomes of $250K or below, Obama is reducing income taxes for EVERYBODY, including the rich for their first $250K of income.

Anonymous said...

Jim in SM. I disagree. This isn't the luxury of philosophy we're talking about. This is the causality of man's ills. There is a reason why man's empires, societies, organizations and businesses don't last long. Man is part animal and part spirit. The animal has been running the show and that is obvious. If our leaders don't have a spiritual and ethical point of view we will continue to fail and there is no way around it. You talk about the broke guy who is reduced to fighting for food, etc. and must forsake "philosophy". If he doesn't ensure there are leaders with spiritual/ethical values then he and his progeny and their progeny will continue to live the lives of mere creatures, scrapping for food and bare essentials and being continually bludgeoned by the effects of immoral and unintelligent leaders who should not be in head of state positions.

Currently it is the Obamas, Summers, Rubins, Geithners, Greenspans, Bernankes, Goldman Sachs executives and other power elite, rich, politically connected insiders (Buffet, etc.) that are paving the road to disaster and the end of our society as we know it in their goal for power and net worth.

It ain't philosophy as a luxury-- philosophy and the correct technology for living is the basic of all basics and woe to him that doesn't understand and utilize it.
Anon 11:35

Jim in San Marcos said...

Hi Joeseph

I don't see any Tea party involvement with this. Obama wants to continue the Bush tax cut but delete the part that has to do with those earning more than 250K

The prospect of a bill of this sort hitting Obama's desk before the election is about nil. You don't piss off the rich before an election.

I am still hoping that we will get a bill signed that keeps our taxes in line with last year.

Jim in San Marcos said...

Hi Anon on a California Mt and 11:35

I have no disagreement with your solution, but I see no method to bring it to fruition.

What I was trying to point out, is that being well off gives one the chance to go out and save the whales or the world. If you are living in a cardboard box on main street, you don't care about anything except where the money is going to come from for that next bottle of wine and cigarettes.

I see no practial way for what you suggest to come about, and from there, as you suggest, there isn't much hope for mankind.

Joseph Oppenheim said...

You don't piss off the rich before an election.<<<<<

Sorry, but the moral rich are pro Obama's tax agenda, like Bill Gates and Warren Buffett.

The Dow is up about 32% since Obama took office. Only fools don't understand that the stock market generally does better with a Dem president. Tell me what you prefer - low cap gain taxes with a down stock market or pretty low ones with a strong stock market.

Obama is governing from the center. Restoring tax rates to what they were in the 90's when the US had the greatest economic boom in the history of the planet is certainly reasonable.

I really wonder if the US is a moral nation with so many greedy and morally bankrupt people. The greatness of a society can be measured by how it treats its most vulnerable. Even Reagan was a pragmatist, not a wacko ideologue, as he signed into law the largest tax increase in US history at the time, to extend the solvency of Social Security. Also, Milton Freedman was not heartless as he advocated a negative income tax to replace Welfare.

Today's GOP is dominated by the worst America has to offer. Bush, Jr. was a disaster, but these guys are even worse.

Anonymous said...

Warren Buffet... moral rich. You've got to be joking.

Jim in San Marcos said...

Hi Joseph

I take issue with three of your quotes:

More Tea Party gibberish and lies.

Only fools don't understand that the stock market generally does better with a Dem president

Today's GOP is dominated by the worst America has to offer. Bush, Jr. was a disaster, but these guys are even worse

I think it a fair assumption to assume that you are not a Republican. Your matter of fact statements tend to alienate people. Future replies with political opinions expressed as facts will be deleted. You have been forewarned.

Joseph Oppenheim said...

I think it a fair assumption to assume that you are not a Republican.<<<

I am registered as non-affiliated, an independent.

Tolstoy: "The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded he knows already."

Have you still made up your mind that we are in a "Great Depression?" Obviously, facts refute that. Maybe we will be, but not so far. The economy is now growing from a deep, but short, recession, albeit slowly.

The private economy is still deleveraging, so high unemployment, nowhere as bad as the 30's, is understandable.

I don't rule out a Depression, especially if the GOP gets control. IMO, they have already made matters worse so far, and made a double-dip recession or Depression a possibility. Heck, they aren't even logical.

rob in ns said...

The only reason that things don't seem as bad as the 1930's is that many underemployed/unemployed are forced to nibble in government cheese to get by now. Back in 30's if you didn't have a job you either had to go back to farm or head for nearest soup kitchen. The optics looked much worse back then but looking at it from a macro level we have essentially the same thing going on today.

Anonymous said...

The NBER's announcement that recession ended in June '09 is useless information and further shows how the infrastructure we have is a joke.

There is more unemployment now since June 2009, more defaults and BKs, home prices have sunk further, there are more people on unemployment and food stamps, commercial real estate is tanking, there is more public debt and deficit increases, etc. etc.

And now Bernanke has announced that he will print more money.

Anyone who doesn't realize that the government is obfuscating the facts and hiding that we are in a depression and real growth is a distant hope is out of touch with reality. This is all Dem PR to try and improve their situation for the Nov elections.

Keep reading Time, Newsweek and watching TV and taking all this main stream media data as fact and you'll continue to live in delusion.

Jim in San Marcos said...

Hi Rob

You hit the nail on the head.

From reading many magazine articles of the 1930's, you come to the conclusion that the government line was always "The economy is turning around, things are getting better." After 5 or 6 years of that, you tune it out. I can't recall any government ever declaring that we are in a recession or depression.

People who lived through the 1930's actually defined The Great Depression, it was a fight for survival. Surprisingly, cocaine addiction was probably more of a problem back then, than it is today. Congress had to take a pay cut. And as you mentioned, there was no unemployment insurance back then.

The thing that worries me is that the 1930's had a lot going for it. Small government, no big government programs like SS and health care, little debt, and virtually no income taxes.

This time it's going to be different. How different, is what we are about to find out.

Jim in San Marcos said...

Hi Joseph

I still think we have a long way to go before the reality of the Depression sets in. We will tire of hearing that prosperity is just around the corner just as they did in the 1930's.

I wouldn't give politicians much credit or blame. The qualifications for running for public office do not require experience or an IQ test.

Your right that I could be wrong, there is more than one way to connect the dots.

rob in ns said...

Jim

My dad told me something tonight that I thought was funny and somewhat relevant to what is going on right now. There is an old saying around here if you want a helping hand you can look down and find it at end of your arm. I say this as many people are still hoping for a politician to ride into town and save the day.

We all know that only happens in the movies.

frakrak said...

Jim I see the point with either being a Democrat or a Republican, unfortunately we may be facing the prospect of another reality, where the majority have drastically reduced choices for their political affiliations! Where there are two classes, the servile, brought to heel by debt peonage, imposed by the very, very rich and powerful. They’re own target twenty five percent and counting …

In the Mel Brooks movie "History of the World, Part 1" Count De Money is telling the King..."Your highness, the peasants are revolting." and the King says..."You said it. They stink on ice!"

As a potential future peasant, I don’t want to piss-off my fellow peasants with too much blame for getting us here! Although Jim between you and I, I did write a letter to Alan Greenspan back in 1996 advising him that I thought it would be a great idea to hold interest rates at an artificial low for a decade or so! And then there were a few other letters to presidents, bankers, industrialists, asking them to move all there manufacturing base off shore, because it would be infinitely better for the American people to move from a manufacturing to a service, debt based, economy.

Oops :-)