No Longer Possible To Pretend

[ERD50]

Actually, none of the tax changes proposed by Obama (assuming they are approved by Congress) would go into effect until 2011.

OK, but I guess we won't really know that until they finish with the tax code for 2009, which probably won't be until late in 2009 if history is any indication.

I believe he purposely decided to let the Bush tax cuts expire, rather than changing them immediately, for the very reason you state - making changes right now, in the middle of a crisis, would be counter to the goal of stimulating the economy.

Isn't this a tacit admission that increasing taxes stunts economic growth??

And I'll add that, even if the tax increases don't occur until 2011, they will still have a dampening effect in 2009. Picture small businesses that are considering making investments in their business - investments that may not start to pay off for several years. Oppps, "several years" and we are in 2011.

Remember, I'm not saying that this will cause businesses to just stop, close up shop, quit, or any of those extreme things. I'm saying it will have a dampening effect on average, and that seems to be the opposite of what we should be striving for. No, I don't want to give policies like that a "chance".

-ERD50

 

[armor99]

You would tax the rainmakers into the ground just so retirees aren't in jeopardy? I'll never make $250K, but I can see that's a very narrow point of view. You know I've had my shot, and I wasn't bright enough or talented enough or whatever enough to make that kind of money, but the folks that took the risks and invested/studied/got lucky/whatever damn sure don't owe me a thing.

Excellent post.... it made my day reading it. At the very least I wish people would just be honest about their real motivations here. The real translation for most folks is.... "Tax whoever you want as long as it is NOT me... and I get some of their stuff".

 

[Hal3]

SS and SSI

Thanks Martha - It was LONG but interesting. The most impressive thing comes at the end showing the extremely high cost of both SS and SSI. Couple that with MEDICARE and one can hardly expect this to continue unmodified in some way.

That was great reading!

It also helps to put the bailout packages in some sort of perspective.

Each 800 Billion bailout is equal to all of the SS and SSI for the entire country for a year and then some.

 

[Rustic23]

Babe,
I would agree with most of your comments if you would put 'Early' before 'Retirees'. Defining early as before age 65 or 62. For those of us that are 62 or over, there is stable cola'd retirement cash, and for those over 65, medicare.

According to today's Scott Burns article it is income that determines standard of living, not wealth. For most seniors (62+) a chunk of their income remains the same. If deflation occurs, and their income remains the same, they will actually see an increased standard of living.

Now as this is an 'Early Retirement' forum, your comments are reasonable. Those that live on their investments 'ARE' not 'will be' in jeopardy. Dow down another 161 now 6,902!

 

[Rustic23]

Rae,
You can not compare previous tax rates with current tax rates without looking at previous deductions and current deductions.

While the tax rate use to be as high as 70% +/- a few, few paid this rate. While I am not a tax expert, I do know that there have been changes in what you can deduct and what you can not.

Politicians love to quote the rates the rich use to pay, however, they use statistics that tells the story they want to and not the whole story as it exist.

 

[ziggy29]

According to today's Scott Burns article it is income that determines standard of living, not wealth. For most seniors (62+) a chunk of their income remains the same. If deflation occurs, and their income remains the same, they will actually see an increased standard of living.

Just talked to my mom yesterday. She's doing great, personally -- with a paid-off home, low expenses, "cheap" lifestyle, SS and two pensions (hers and my late father's), there's personally no financial concern she has. Actually, this makes her money go farther and she has no need to worry about ever needing a job.

The problem is, she sees what's going on and still worries like hell about what all this crap is doing (or likely will do) to her kids and grandkids. So it's not like she's just sitting around comfortably despite her fortunate personal economic situation. She's starting to seriously look at gifting some of her estate in the months/years to come, figuring she has considerably more cash in the bank than she'll ever need, and her kids may be faced with needing it more than ever.

So it's not like all the seniors in this boat are sitting around thinking about their good fortune to have deflationary pressures when they have a secure income stream that doesn't require a job. They know their kids and grandkids still do.

 

[OAG]

Amen.

 

[FIREd]

Just talked to my mom yesterday. She's doing great, personally -- with a paid-off home, low expenses, "cheap" lifestyle, SS and two pensions (hers and my late father's), there's personally no financial concern she has. Actually, this makes her money go farther and she has no need to worry about ever needing a job.

The problem is, she sees what's going on and still worries like hell about what all this crap is doing (or likely will do) to her kids and grandkids. So it's not like she's just sitting around comfortably despite her fortunate personal economic situation. She's starting to seriously look at gifting some of her estate in the months/years to come, figuring she has considerably more cash in the bank than she'll ever need, and her kids may be faced with needing it more than ever.

So it's not like all the seniors in this boat are sitting around thinking about their good fortune to have deflationary pressures when they have a secure income stream that doesn't require a job. They know their kids and grandkids still do.

My mom is the same way. She retired in 2007 and last week, when I called her, she was freaking out about the economy. I had to explain to her that, on a personal level, she really had nothing to worry about. She depends only on SS and a small, government-secured pension to pay the bills and therefore her income is completely secure (plus she had a huge COLA increase last year and we are now facing deflation, so she really had a real pay increase this year). Sure, the value of her condo has come down a bit, but since she doesn't plan on ever selling it, who cares? Apparently she had never thought of it that way. She was still in "work" mode...

 

[Westernskies]

Why does it "have to work"? Wishing can't make it work.

What we need is a plan that will work, not "hope" that the plan that we have will work.

That is miss-placed hope, IMO (and the markets). This plan does not instill confidence that it will work, and confidence is a big factor here.

-ERD50

But it has to...because so many folks voted for hope ...

 

[Purron]

But it has to...because so many folks voted for hope ...

Westernskies, this thread is making me miss the soapbox too! We had good time poking fun at each other's politics. The funny thing about the whole soapbox experience was I actually made friends with those whose opinions were opposite from mine. But then, I'm the kind of person who loves a good argument. It challenges my thinking and often causes me to reconsider my positions or at least understand why others see things differently.

 

[BunsGettingFirm]

Exactly. And who will pay the majority of that tax/user fee? Business, which accounts for a majority of airline travel, will just pass the increased cost on to the consumer because they can. So, your tax bill will go down, but the cost of stuff you buy goes up.

What was it the Wizard of Oz said? Pay no attention to the man behind the curtain! It's all just a game of sleight of hand designed to confuse people.

I'm not an economist, but I did stay at a Holiday Inn Express, so what makes you say that most businesses can pass all of the additional costs to consumers? I believe that the point of the legislation is to pass the cost to businesses because most businesses can't pass 100% of the additional cost to consumers because of competition.

 

[ERD50]

I'm not an economist, but I did stay at a Holiday Inn Express, so what makes you say that most businesses can pass all of the additional costs to consumers? I believe that the point of the legislation is to pass the cost to businesses because most businesses can't pass 100% of the additional cost to consumers because of competition.

Sure they will. Their competitors get the same increase in taxes, so they both raise their price the same amount to compensate.

It's an expense, whether a tax, a raw material, shipping, salary, FICA it all adds to product cost. To make a profit, they have to charge some % above that. If they can't make a profit at that price, they will invest their time, talent and money in some other enterprise (maybe in another country, like Hong Kong).

Sometimes a company will try to absorb a short term price hike, kind of "playing chicken" with their competition to see who can hold out longer versus losing a customer. But if it is a known increase and "baked in the cake" it will go right to the retail price.

Furthermore, if there was something that was just keeping the price down, well that means the company would need to take a smaller profit, smaller profits mean lower stock prices, and the market stays down. Or the company fails and asks for a bail-out (standard bailout application forms are now available at your local office supply store).

See why this "stimulus plan" isn't getting a lot of love?

-ERD50

 

[Rustic23]

To the extent that the businesses are similar they will incur similar cost and will pass as much as possible on to consumers, or cut cost in other areas. As people is normally the major cost of any business then jobs are the way cost are cut. Outsourcing, mover over seas or just fire people. At any rate, it will be one of the unintended consequences of this plan.

If you are in the camp that believes business makes too much and have lots of excess cost to cut, then by all means tax businesses. Also keep in mind to the extent that foreign business are not taxed in a similar manor it puts U.S. business as an additional disadvantage.

There is no free lunch! And, government does not pay for anything, you, I and others do.

 

[ERD50]

At any rate, it will be one of the unintended consequences of this plan.

unintended perhaps. Unpredictable - absolutely not.

-ERD50

 

[Rustic23]

agreed!

 

[FinanceDude]

I read we will create 600,000 new govt jobs, still wondering HOW we will create PRIVATE SECTOR jobs...so far all we are doing is losing them at 500,000+a month............

 

[Abreutime]

I've heard some "talking heads" mention recently that the FDR programs extended the depression rather than help.

http://www.econ.yale.edu/seminars/echist/eh02/ohanian-021008.pdf

FDR essentially encouraged collusion among businesses, propping up consumer prices, and in return, the companies were forced to pay higher than market clearing wages in return. At the higher prices, it made business sense to reduce production, because fewer people were buying the products at the high prices. If FDR had allowed prices and wages to fall, the recovery would have happened much sooner.

Quick summary

The most damaging policies were those at the heart of the recovery plan, including The National Industrial Recovery Act (NIRA), which tossed aside the nation's antitrust acts and permitted industries to collusively raise prices provided that they shared their newfound monopoly rents with workers by substantially raising wages well above underlying productivity growth. The NIRA covered over 500 industries, ranging from autos and steel, to ladies hosiery and poultry production. Each industry created a code of "fair competition" which spelled out what producers could and could not do, and which were designed to eliminate "excessive competition" that FDR believed to be the source of the Depression.
These codes distorted the economy by artificially raising wages and prices, restricting output, and reducing productive capacity by placing quotas on industry investment in new plants and equipment. Following government approval of each industry code, industry prices and wages increased substantially, while prices and wages in sectors that weren't covered by the NIRA, such as agriculture, did not. We have calculated that manufacturing wages were as much as 25% above the level that would have prevailed without the New Deal. And while the artificially high wages created by the NIRA benefited the few that were fortunate to have a job in those industries, they significantly depressed production and employment, as the growth in wage costs far exceeded productivity growth.

 

[Abreutime]

I think you know the conventional answer. If you are pulling WAY back just in case, and other individuals are doing the same, and businesses are hoarding cash rather than investing, then the number of dollars that people want to save exceeds the number of dollars that businesses want to invest.

The first thing that gov't tries is to force down the interest rate even faster than the market would do it, to reduce the benefits of saving and increase the benefit of investing.

If that's not enough, the gov't soaks up the extra saving by borrowing it, and directly "creates jobs" with various spending programs.

That's the conventional wisdom, and Obama is going the conventional route. The problem is that we're not really sure that it works, and we certainly aren't sure exactly which type of spending is most effective. We've only had one other really big case like this, we think it worked to end the Depression in the 30's, but one case and some theory isn't a proof.

In the short-run, deficit spending in recession improves GDP. But the government interference has a nefarious long-term effect, and may prolong recoveries. I find it rather amusing that the most severe recession in US history is seen as evidence of successful government policy. I would look toward "easy" recessions in 1921 and 1946 for evidence of good policy.

Malinvestment takes years to manifest itself in national growth rates. If the US spent $1T on pyramid building, jobs would be created instantly. But in the long-term, these pyramid builders would have otherwise found other, more productive jobs. The taxes used to finance the pyramids would have been used to make other investments. And in 20 years, we're left with
1) pyramids,
2) $1T in extra debt
3) Larger reserves of dollars overseas, since foreigners won't want to import pyramids
4) Worst of all, we'll have millions of pyramid builders with entrenched interest who will petition the government to keep building pyramids. These people will be experts at pyramid building, a skill not highly valued in the marketplace.

I'm exaggerating, because not all government spending is a complete waste like a pyramid. The decisions made by Congress are just relatively poor investments, or distortions in markets (subsidies) designed to create a favored outcome. Some of the government actions are defendable (eg. gas taxes may offset some of the externalities that drivers place on others), while others are designed to benefit one group at the expense of everyone else (eg. farm subsidies benefit farmers at the expense of consumers).

To tie everything back to ER, we should all be alarmed at the growing demonization of the wealthy. Very few of us on this board were involved in a giant Ponzi scheme (I hope), but the political climate is very tumultuous for ALL those that have built up wealth. I worry about the long-term institutionalization of further grabs of our savings. Right now, we have proposals for capital gains tax increases. We must stay vigilant.

To quote Rahm Emanuel, Obama's chief of staff:

You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before.

 

[Abreutime]

Exactly. The pain will be spread around, it's just that it will be off the books as far as the federal government is concerned.

Prime example, starting 2012 the airlines will pay most of the cost for passenger and baggage screening. While the airlines are arguing that security is a government function and Uncle Sam should pay for it, there is no disputing that the tax will still be collected, only now it will be called a "user fee". And who will pay the majority of that tax/user fee? Business, which accounts for a majority of airline travel, will just pass the increased cost on to the consumer because they can. So, your tax bill will go down, but the cost of stuff you buy goes up.

What was it the Wizard of Oz said? Pay no attention to the man behind the curtain! It's all just a game of sleight of hand designed to confuse people.

This is great news! So the costs of airline security will be paid by... people that ride the airlines! Sounds great. I think it's a much better idea for individuals to pay for the things they use and value. And those that choose not to fly will no longer subsidize those that choose to fly.

 

[Leonidas]

This is great news! So the costs of airline security will be paid by... people that ride the airlines! Sounds great. I think it's a much better idea for individuals to pay for the things they use and value. And those that choose not to fly will no longer subsidize those that choose to fly.

I'll say it again...

And who will pay the majority of that tax/user fee? Business, which accounts for a majority of airline travel, will just pass the increased cost on to the consumer because they can. So, your tax bill will go down, but the cost of stuff you buy goes up.

Do you think that all of the businesses that are forced to pay the extra fees will not pass it on to their customers? Taxes, in whatever form, are just another cost of doing business for them. They'll minimize, dodge, or pass on whatever they can.

The tidy towns and mountain vistas of Switzerland are an unlikely setting for an oil boom. Yet a wave of energy companies has in the last few months announced plans to move to Switzerland -- mainly for its appeal as a low-tax corporate domicile that looks relatively likely to stay out of reach of Barack Obama's tax-seeking administration.

http://www.reuters.com/article/rbss...2?feedType=RSS&feedName=rbssEnergyNews&rpc=22

 

[haha]

I'll say it again...Do you think that all of the businesses that are forced to pay the extra fees will not pass it on to their customers? Taxes, in whatever for, are just another cost of doing business for them. They'll minimize, dodge, or pass on whatever they can.RPT-FEATURE-Corporate oil booms in low-tax Switzerland | Industries | Energy | Reuters

Intersting article. Here is another company moving, though it is not completely clear whether they can move their tax home as well. HAL has a lot of onshore US business, including a rapidly expanding gas shale business. (At least it was rapidly growing prior to recent gas price drops.)

Ha