The Grand Delusion: Higher Taxes “Soak” The Rich
Squeezing, gouging, soaking, it’s all the same, and it’s all wrong. The richest Americans, we hear it said, pay most of the federal income taxes. That’s true. But since 1980 their AFTER-TAX SHARE of America’s income has TRIPLED. That’s a trillion dollars a year in extra income for the wealthiest 1%.
A trillion dollars is seven times more than the budget deficits of all 50 states combined.
A trillion dollars, if it hadn’t been redistributed to the rich, would provide an extra $10,000 a year for every family that has contributed to American productivity since 1980.
The defenders of unlimited wealth insist that the very rich have earned their money. But what does EARN mean? Does it mean that the million richest families worked harder than the other 99 million families for thirty years? Does it mean that one man can bet against the mortgage industry and make enough money to pay the salaries of 100,000 health care workers? Does it mean using American research and infrastructure and national security to build a corporation that pays zero federal income taxes?
Most of the fortunate 1% benefited from tax cuts, financial system de-regulation, ownership of 50% of the stock market, and a 15% capital gains tax. According to a study by the University of California, in 2008 only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries.
The very rich claim that their income growth stimulates the economy. But it hasn’t happened. Low-income earners spend a greater percentage of their overall income on consumption, but they have less purchasing power than they had thirty years ago.
What the very rich won’t admit is that they benefit the most from government-funded research, national security, infrastructure, property rights, and a financial industry tailored to their pleasure and profit.
Instead, they claim that anyone can be rich if only they work hard. Much of America wouldn’t know if this is true. They haven’t had a chance to work lately.
By: Paul Buchheit, CommonDreams.org, May 10, 2011
Debt Ceiling Warning: Inaction Would Double Interest Rates, Crash Market
Public efforts by both House Speaker John Boehner and President Obama to convince skeptical new Republican House members to add $2 trillion to the nation’s burdensome $14 trillion debt ceiling are being reinforced by dire warnings from business leaders that failing to OK the increase will lead to inflation, an immediate doubling of interest rates and a killer Wall Street crash.
“If they don’t increase the debt, there will be a huge impact on the economy,” a Wall Street executive told Whispers on background. “Interest rates would spike. S&P and Moody’s would downgrade U.S. debt, raising the price of borrowing, there would be a market sell-off, it would be a disaster.”
While Boehner, who yesterday called for a deal that would OK the debt ceiling increase in return for trillions of dollars in spending cuts, Wall Street lobbyists and banking and business leaders are meeting with several of the new Tea Party-backed House members who pledged to stop raising the ceiling to explain the impact of standing pat.
“A lot of freshmen are new to the issue,” said one of those meeting with the new members, some of whom signed pledges not to raise the debt ceiling no matter what.
Among the specifics the sources say they are telling the new members:
— Inflation could jump, though they aren’t giving any percentage growth.
— Interest rates could double if U.S. debt is downgraded. House loans, for example, that are now below 5 percent, could surge to 9-10 percent, killing any chance of fixing the housing slump or cutting the unemployment rate, now at 9 percent.
— The stock market could suffer a 10 percent drop, far more significant than the 778 point thrashing Wall Street took when the House rejected the government’s $700 billion bank bailout plan in September 2008.
“That market sell-off will look small compared to what we’ll see,” said a Wall Street executive.
So far, the campaign to turn the naysayers around is starting to work, say those involved. Helping is the expectations that the debt ceiling won’t actually be breached until August.
While there have been warnings that the vote must come sooner due to expectations that the cap will be breached this month, officials explained that Treasury can make several moves to postpone that until about August 2.
By: Paul Bedard, U. S. News and World Report, May 10, 2011
Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling
Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.
House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.
Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.
Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.
Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.
Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.
“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”
The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.
“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.
Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.
By: Ben White, Politico, April 13, 2011
What A Government Shutdown Could Cost Us
I don’t want to start a market panic here. I’ve no desire to be known for “The Klein Crash of 2011.” But it’s safe to say that much of Washington finds the low, low yields on Treasurys — which represent the market’s serene confidence that the U.S. can handle its debts — a little baffling. Senior government officials have told me they think Treasurys are probably a bit overpriced, which is a bit like the executives of GE privately wondering why investors are so sure they won’t go bankrupt. The investors might be right, but it’s not comforting to hear.
The market isn’t totally wrong, of course. The federal government probably won’t default on its debt. But it’s actually pretty hard to explain how we get the spending line and the revenues line to match each other. And we have a really dysfunctional political system. We’ll figure it out somehow. We always do. But our low borrowing costs are an advantage we want to preserve for as long as possible. That means keeping the market from realizing that partisan polarization mixed with our weird legislative system makes insane outcomes easily imaginable.
This is why a shutdown would be so dangerous. A last-minute deal tells the market that America is a country that dithers and procrastinates and anguishes but eventually makes the necessary decisions to avert terrible consequences. We can be trusted to follow through, even if only at the last minute. A shutdown tells the market that our political system has become so dysfunctional that we actually can’t be trusted.
Asger Lau Andersen, David Dreyer Lassen and Lasse Holbøll Westh Nielsen — remember them? — have looked into how the market treats late budgets in the states — and late budgets in the states, it should be noted, are considerably less public and psychologically disruptive than a shutdown of the federal government during a weak economy. The answer is: not kindly (pdf). “We estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points,” they conclude. To put that in context, economists estimated that if the Federal Reserve pumped $400 billion into the economy, it’d lower yield spreads by about 20 basis points, or two-tenths of a percent. And it actually gets worse than that: “Markets also punish late budgets much more harshly if they occur during times of fiscal stress.”
I think it’d be fair to characterize this as a time of fiscal stress, don’t you?
There are some reasons for optimism here. Markets seem to punish fiscal mismanagement more lightly if the state has access to lots of money, which usually means reserves. The federal government has access to lots of money — though through borrowing, not reserves — so it’s possible we’d get off lightly, too. If you look back to Treasury yields in 1995, you don’t see an obvious change, but (a) perhaps yields would have been lower without the shutdown and (b) the economy is a lot weaker today than it was in 1995. At any rate, do we really want to test this? And if so, how many times? The tea party types are already promising to oppose an increase in the debt ceiling in the absence of massive entitlement cuts. Sen. Marco Rubio says he’ll oppose lifting the debt ceiling unless it’s accompanied by “a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.” That’s quite a list of demands in order to avoid economic catastrophe.
The irony of all this comes clear if you consider why we’re afraid of deficits in the first place. If the market comes to believe our debt is too large for our political system to pay back, they’ll become more skittish about buying government debt, and that’ll send interest rates higher and the economy lower. But if we have a series of shutdowns while we argue over how much to cut and how fast, our paralysis will convince the market we can’t get our act together in time to pay off our debts and they’ll send interest rates skyrocketing anyway. We’ll have caused exactly what we sought to prevent, and done it now, when the economy is weak, rather than later, when the economy is stronger. As I said at the beginning of this piece, I’d sure hate to be known for causing an economic crash. How about you, Congress?
By: Ezra Klein, The Washington Post, March 30, 2011
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