i want to follow-up....

I want to follow-up on my last post dealing with our economic prospects in the coming year, exacerbated by Sequestration, or mandatory across-the-board budget cuts, beginning in January, 2013.

Things to ponder:

Whatever one's politics, the Obama administration, in its doubtless sincere efforts to stimulate the economy, may have actually done it harm by adding $4 trillion to our national debt, now over a staggering $15 trillion. Nearly a trillion was spent on bailing out the banks, largely responsible for our economic meltdown.

These increases average a trillion dollars per year since this administration has been in office, with little to show for it. In fact, our stagnant economy may well plunge again. Last month's economic figures, while showing a 180,000 job increase, did not alter the grim unemployment fallout, which remains at 8.2 percent. With more than 5 million unemployed, we have to do much better to make this sorry mess go away.

Certainly, this present recession, perhaps a euphemism, invites comparison with the Great Depression of the 1930s. While the latter was the mother of all depressions, with unemployment reaching a 26% level, making our present crisis seem puny, it does resemble our situation in its stubbornness, despite the Roosevelt's fervent efforts, to yield results. What most people don't know is that unemployment had actually increased under Roosevelt when he ran for reelection in 1936. It would take a world war to purge our economic woes.

I must confess I don't think anyone has a definitive solution to what ails us, despite the heated rhetoric in an election year. Simple answers won't do more than sugar coat a complex problem.

What's more, our fate in a global economy isn't entirely within our hands.

What if Israel attacks Iran?

Or if the economic malaise in Europe has no bottom and nations like Greece, Italy, Spain and Portugal default? Like the tsunami debris from Japan now washing-up on our West coast shores, we can't escape the tidal impact of a European collapse resulting in reduced imports of American goods.

Back to our own shores again, if automatic cuts affecting defense go into effect next year it's estimated that a million jobs will be lost. That's more than all the projected jobs created in the American economy this year!

It seems a given that without confidence in the private sector, which is our primary catalyst for job creation, we're doomed to a tortoise pace in achieving remedy.

And there are yet other mitigating factors that may compromise economic recovery. Although the health care reform measure has several desirable features, it may be the wrong time for it in a down economy. A recent survey indicates many employers anticipate costs increases with its implementation, so add this to the mix. If I were an employer, I'd certainly opt for caution when it comes to hiring or expanding inventory.

To be sure, economics has rightly been called "the dismal science," except I'd underscore "dismal," and eliminate "science," since that implies probability corroborated by empirical data. Again, no one has the definitive answer, so be wary of snake oil formulas in this election year.

It's all like some devastating disease that, despite our best efforts, defies our remedies. Much as we'd like, there's no quick fix.

rj

The Obama administration prides itself...

The Obama administration prides itself on having saved Detroit's auto industry with its proviso of bailout money.  Of course, this wasn't the case for prosperous Ford Motor company, which enjoyed substantial profits despite the downturn in the economy with the onset of the 2008 recession.  Clearly, the demise of Chrysler and GM had its source elsewhere, or in mismanagement.  While GM and Chrysler have largely repaid the government, the fact remains that such bailouts have resulted in a trillion dollars of new debt.  Sooner or later, we will have to pay the piper as we approach the Eurozone's  present dilemma.  

Both Republicans and Democrats have made matters worse by approving the Obama sponsored payroll tax cut, resulting in a diversion of 2% from Social Security funding, a vital program already in serious trouble.  Republicans have further contributed to our economic malaise by holding out for no new income tax revenues.  What is needed is a balance of stimulus money in programs that can work along with cuts in pork barrel spending and a provision for adequate tax revenue to pay for programs that do matter.  Germany is today's model in this regard, to the envy of its neighbors.  

Ironically, Obama's economic policies with their lavish spending, exacerbated by Republican intransigence on new tax revenue, threaten all of us.  Unfortunately, this administration seems bent on rewarding incompetence, and frequently, even with regard to malfeasance on the part of banks, the auto industry, and even home owners.

I strongly believe that government does better when it encourages the private sector, reducing deficit spending, limiting tax subsidies, reforming tax laws to broaden the tax base, etc.

To our peril, in our rush to ever increasing Federal encroachment on the private sector, we have retreated from those principles set in motion by the founding fathers, rewarding diligence and industry, that has distinguished the American experiment from Europe's welfare state and propelled its prosperity.  

I would offer one final caution:  implementing new tax revenue without corresponding spending discipline only encourages government to spend even more.

What I have written is encapsulated in Benjamin Franklin's observation on the new American republic:  "The expense of our civil government we have always borne, and can easily bear, because it is small.  A virtuous and laborious people may be cheaply governed" (Letter to William Strahan, February 16, 1784).

A view from the precipice: the American economy

In the last several weeks we've seen signs, small, yet significant because of their consistency, of an upturn in the American economy, with unemployment dropping to 8.6% after spiking to 9.9% in April, 2010. Nonetheless, we're still facing a bumpy ride and it may take another three years to right ourselves in even the best scenario. Just yesterday, Boeing announced it will close its plant in Wichita in 2013, resulting in the loss of 2160 jobs. Boeing faults upcoming defense cuts.

This is a case in point. On the one hand, there is a need to stimulate the economy; on the other, a need to cut spending. As I see it, the priority should be on getting people back to work and preserving the jobs that remain. Yet I see the President will announce today a $500 billion reduction in defense spending. The fallout in job losses is incalculable, and I'm puzzled as to how this squares with his near daily appearances in several states, giving pep talks on what he's done and wants to do to create jobs. The one hand gives, and the other hand takes away.

Here are some sobering facts you're not getting from the Washington power-brokers:

As of July, 2011, only 63% of men were working.

Unemployment stood at 7.6% when Obama took office. Three years later, it hovers just below 9%. If you're Black or Spanish, the numbers are staggering.

In the 1950s, manufacturing was 28% of our GEP. By 2010, it had dropped to 11.7%. In contrast, it stands at 25% in China. So much for free trade!

Forty percent of our jobs are low-paying, compared with 30% in the 1980s.

Median household income has fallen three years in a row.

Student loan indebtedness has soared to an average $25000 on graduation.

Consumer debt is rising again, as Americans turn to their credit cards to make ends meet.

The federal government now has ownership of more than 250,000 foreclosed homes.

Millions of Americans currently pay mortgages on homes no longer worth their purchase price.

The total debt of Fannie May, Freddie Mack, and Sallie Mae now stands at 6.4 trillion. It was 3.1 trillion in 2008.

Fifty million Americans lack health insurance. Meanwhile, companies are continuing to drop health care coverage for their employees or asking them to pay more.

Poverty is growing in the U. S., with one in five Americans now dirt poor, the highest figure since 1959 when the government began calculating poverty.

I haven't ventured into state indebtedness, a whole subject in itself. Most of the states are in hock for millions, if not billions, especially in funding pensions for their public employees. In virtually all the states, costs are being passed on to cities and counties. Meanwhile, infrastructure, education, safety, health and environment are being compromised with spending reductions. Some states are selling off assets like tollways to foreign investors.

While all this is going on, Sears is closing, yet again, a number of its stores, Barnes and Noble just announced a steep drop in profits, and Bank of America will eliminate 600 branch banks.

Add to this the danger of a Europe meltdown: Greece, Ireland, Spain, Portugal, Italy going into default. Our economies are interlocked in today's global village. Should it happen, it means an even deeper recession.

Meanwhile our politicians seem more interested in power than solutions. Worse, they have been lying to us. Maybe they need to join the unemployed.

There they go again!

As I write, the Republican dominated House is about to vote its pleasure on continuing the payroll tax cut, that is, the downsizing of paycheck contributions to Social Security formerly set at 6.2 on the initial $106,800 of income. This percentage had been in play since 1990 until it was cut this year to 4.2 as a move to stimulate consumer spending and help rekindle the economy.

The President would like to see it cut still more, or to 3.1 in 2012. The Republicans, bent on reducing deficit spending, have also included a measure to reduce federal unemployment insurance benefits from the current 73 weeks to 33 weeks. (Federal benefits begin when workers have exhausted state unemployment compensation, which usually runs 26-weeks.) They are also proposing a means test for Medicare recipients who have income exceeding $80,000. Income includes Social Security benefits, which is already subject to taxation. It's a curious kind of legislation: one hand gives; the other takes away.

Since Republicans have made much of their opposition to increasing taxes, you would think it would be a no-brainer to agree to continue the payroll tax cut, but this isn’t the way this increasingly irascible party of ideologues thinks these days and it’s here they’ve revealed their hand, making a proviso in the bill that the controversial, now delayed, Keystone XL Project be implemented speedily, all of this in the face of a promised veto by the President. Seems they’re more interested once again in corporate profits than the welfare of the American people, many of whom cannot find work in an economy spun on its heels by a Wall Street/Banking axis.

The Republicans amaze me. If ever there were a political entity bent on self-destruction, you have it now in this current goon squad defiantly bent on disrupting the political process, callous to the middle class and the growing poor.
Just look at the pack of loonies seeking to run against the President in 2012. This is the cast of characters who’ve accused Obama of not being American born; deny global warming; want to cut back the EPA’s budget, if not abolish the agency; support a cut-off in aid to nations allowing abortion; and have vociferously opposed gays. One candidate denies evolution. One candidate, a former front runner, withdrew amid multiple accusations of harassing women, while the current front runner seems to prefer serial polygamy, though touting family values. GAWD, this is more fun than the circus!

I'm looking forward to November 2012 and Americans throwing these architects of gridlock out of office in what increasingly promises to be a landslide of their own making.

Mr. President, teach us to believe again

A century ago, or in 1911, Teddy Roosevelt traveled to Osawatomie, Kansas, delivering a message of progressive populism that stirred a nation and has become known as the “New Nationalism” speech. In that speech he championed a new America founded upon genuine democracy and social justice: an 8-hour work day; minimum wage guarantee; insurance for the elderly, unemployed, and disabled; political reform; and a progressive income tax. Teddy just happened to be a Republican.

Yesterday, President Obama gave the greatest speech in his political career--not only with his inveterate eloquence, but more importantly, in his compassion for our millions in economic stress, largely through no fault of their own, victims of an oligarchy of the wealthy, the conspiracy of corporate and banking interests, the callousness and cowardice of our political leadership. I’ve heard or read many great speeches over a lifetime. This one, delivered in obscure Osawatomie, Kansas, where Teddy Roosevelt spoke long before, may herald a new Obama in a likely second term, no longer under partisan pressure, enabled and willing to implement the dream he articulated so ably in 2008, only to retreat repeatedly from that vision of peace, prosperity, and social equality. We would like to believe. Teach us how. (See my end comments.)

Excerpt:

Now, just as there was in Teddy Roosevelt’s time, there’s been a certain crowd in Washington for the last few decades who respond to this economic challenge with the same old tune.  “The market will take care of everything,” they tell us.  If only we cut more regulations and cut more taxes – especially for the wealthy – our economy will grow stronger.  Sure, there will be winners and losers.  But if the winners do really well, jobs and prosperity will eventually trickle down to everyone else.  And even if prosperity doesn’t trickle down, they argue, that’s the price of liberty.

It’s a simple theory – one that speaks to our rugged individualism and healthy skepticism of too much government.  It fits well on a bumper sticker.  Here’s the problem:  It doesn’t work.  It’s never worked.  It didn’t work when it was tried in the decade before the Great Depression.  It’s not what led to the incredible post-war boom of the 50s and 60s.  And it didn’t work when we tried it during the last decade. 

Remember that in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history, and what did they get us?  The slowest job growth in half a century.  Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class – things like education and infrastructure; science and technology; Medicare and Social Security. 

Remember that in those years, thanks to some of the same folks who are running Congress now, we had weak regulation and little oversight, and what did that get us? Insurance companies that jacked up people’s premiums with impunity, and denied care to the patients who were sick.  Mortgage lenders that tricked families into buying homes they couldn’t afford.  A financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy. 
We simply cannot return to this brand of your-on-your-own economics if we’re serious about rebuilding the middle class in this country.  We know that it doesn’t result in a strong economy.  It results in an economy that invests too little in its people and its future.  It doesn’t result in a prosperity that trickles down.  It results in a prosperity that’s enjoyed by fewer and fewer of our citizens.  

Look at the statistics.  In the last few decades, the average income of the top one percent has gone up by more than 250%, to $1.2 million per year.  For the top one hundredth of one percent, the average income is now $27 million per year.  The typical CEO who used to earn about 30 times more than his or her workers now earns 110 times more.  And yet, over the last decade, the incomes of most Americans have actually fallen by about six percent.

This kind of inequality – a level we haven’t seen since the Great Depression – hurts us all.  When middle-class families can no longer afford to buy the goods and services that businesses are selling, it drags down the entire economy, from top to bottom.  America was built on the idea of broad-based prosperity – that’s why a CEO like Henry Ford made it his mission to pay his workers enough so that they could buy the cars they made.  It’s also why a recent study showed that countries with less inequality tend to have stronger and steadier economic growth over the long run.

Inequality also distorts our democracy.  It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and runs the risk of selling out our democracy to the highest bidder.  And it leaves everyone else rightly suspicious that the system in Washington is rigged against them – that our elected representatives aren’t looking out for the interests of most Americans. 

More fundamentally, this kind of gaping inequality gives lie to the promise at the very heart of America:  that this is the place where you can make it if you try.  We tell people that in this country, even if you’re born with nothing, hard work can get you into the middle class; and that your children will have the chance to do even better than you.  That’s why immigrants from around the world flocked to our shores. 

And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk.  A few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult.  By 1980, that chance fell to around 40%.  And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a 1 in 3 chance of making it to the middle class. 

It’s heartbreaking enough that there are millions of working families in this country who are now forced to take their children to food banks for a decent meal.  But the idea that those children might not have a chance to climb out of that situation and back into the middle class, no matter how hard they work?  That’s inexcusable.  It’s wrong.  It flies in the face of everything we stand for.

Postscript:

Mr. President,

We would like to believe you, but works are more convincing than words. The Occupy Wall Street movement with its many unemployed, debt-ridden students, disenfranchised homeowners, disillusioned returning veterans is just as much about the failure of government as it is about the egregious wrongs of an unfair distribution of wealth. We’re tired of politicians and their manipulations,their evasions and opportunism.

Mr. President, teach us how to believe again.

Sincerely,

The American people

How banks war on you and me

According to Wikipedia, "Bank robbery is the crime of stealing from a bank during opening hours." Let me try a new definition: "Robbery is theft from the people during opening and closing hours." Yes, banks are quite capable of committing crimes, and often do, as bullies motivated by greed. Banks, in case you missed it, were the primary culprits in fomenting our economic downturn in 2008, the worst America has faced since the Great Depression and likely to continue for several years. In the process, they've been able to pull off nearly a trillion dollars in bail out money to cover their profligate scheming and spending, passing their debts on to the citizenry; another two trillion has been spent in trying to re-right the economy. What is more, along with behemoth corporations, banks are kingpins in a concerted effort to dismantle government regulation, giving them a freer hand in accumulating profit.

The banking sector is grateful for our help, screwing us at every turn in efforts to extract still more from the masses they've victimized, moving with alacrity in foreclosing on money that shouldn't have been loaned, often for houses no longer worth their original loan amounts, and doing so without properly reviewing delinquent mortgages (i.e., robo signings). With regard to bank issued credit cards, despite government efforts to safeguard consumers from excessive interest escalation, the banks have found other ways to accumulate capital, imposing charges, for example, on using tellers rather than ATMs and fees on checking accounts below a designated amount. Take Bank of America, for example. It had originally opted to charge debit card users $5 monthly. Public outrage, however, curtailed its implementation. Look for the banks to move more quietly to introduce other charges. You name it, they've got a gimmick, proving it's easier to catch a greased pig than a banker in his Mercedes.

Although our government rightly views consumer spending as a key catalyst to stimulating the economy, banks have made it difficult for many to borrow money, especially for mortgage loans, requiring up to 20% down payment. Obviously, this leaves out many young people and middle class wage earners. Home construction, along with the auto and aircraft industry, is a key component of the American economy. Currently, banks are sitting on a mound of money while looking for better investment returns elsewhere. You and I don't figure into the equation.

Make no mistake about it: both Wall Street and the banks created the bubbles that got us here, resulting in millions without work and depleted federal and state coffers. It's gotten so bad that many cash-strapped states are now resorting to selling off their infrastructure such as highways to raise revenue and avoid upkeep outlays. Ultimately this represents an impetus yet again in the dismantling of government, transferring the people's assets to the private domain. It's among a speculator's greatest dreams, and don't think for a moment that Wall Street and the banks don't have their eyes on it.

Bank manipulation, or fraud, isn't anything new. Take for instance, the banking scandals of the 1980s involving many savings and loan institutions. Insiders would falsify the books, making a failing bank appear healthy. Ultimately, the failing bank burdened the federal treasury with making good on consumer deposits up to $100,000 under USFDC guarantees. That means you and I paid the bill for their malfeasance. Hey! Sounds a lot like those recent bailouts. It continues to be difficult, however, for the courts to prosecute since the statutes require proof of intent to deceive.

Fortunately, we have a few watchdogs looking out for our interests, though scarcely enough, given the systemic problem of banking kleptomaniacs. Last week, Massachusetts Attorney General Martha Coakley sued five of the nation's largest banks, alleging illegal foreclosures and deceptive mortgage servicing.

This suit seeks accountability against the banks for both cutting corners and also rushing to foreclose on homeowners without following the rule of law. There is no question that the deceptive and unlawful behavior by Wall Street and the large banks played a central role in causing this economic crisis. We believe they are not too big to have to obey the law.

The suit names Well Fargo, Bank of America, J. P. Morgan Chase, Citigroup, and GMAC.

The Tea Party has it all wrong. We don't need less government. We need more.

Only the rich get to see Europe

I had promised my sister-in-law, ailing in Germany, that my wife and I would be visiting her next June. That may not be possible.

I couldn’t believe my eyes when I checked into Orbitz this morning and discovered the cheapest fare was $902 with United/Continental. Wait! It gets better. That’s just the airfare. Add taxes, $617.19, and you’re looking at $1,519.19 per person. In other words, the taxes are two thirds the actual fare. I think that’s outrageous.

I decided to find out why the high taxes. It’s the EU countries that are doing this. Scrapped for cash to finance their deficit welfare-state budgets, they’re looking everywhere. Tourists don’t vote. Voila! Well, and I think I’m not alone, I’ll vote with my feet.

Have they no clue they're busting their own economies? No more flotillas of Americans and Canadians. Already, you can hear the screams of the European travel industry, not to mention airlines. So far, to no avail.

It’s amazing. I can book a trip from Lexington, KY, all the way to gorgeous Hawaii for just 754 rt, taxes included.

What a mess Europe's gotten itself into. For decades since WWII, they’ve pretty much thought they had a free lunch, given their generous government outlays. Did they really think Disney World would go on forever? As is, they’ve got this heavy value added tax on virtually everything you buy, their touted free medical care is escalating in cost, and all of this while cutting their defense spending, already meager, by 50% in some countries. What a milk toast ally!

They don’t work as hard as Americans. Most retire 30 years and out. Vacations average 6 weeks, versus two for Americans, many of them not taking any vacation.

What’s awful is that their sorry mess could plunge all of us on this side of the pond into recession again. But what do you do about people who riot in the streets whenever austerity measures are adopted?

And there’s a warning in all of this for America to get its own financial house in order to avoid becoming a version of Greece, Italy, Portugal, Spain, and Ireland. My own state of Ky is nearly 8 billion dollars delinquent in funding pensions for its public employees, including teachers.

Republicans, cutting spending without revenue increases through higher taxation won’t get the job done.

Democrats, increasing taxes without meaningful cuts in spending only delays our day of reckoning.

Better book that trip to Hawaii--don’t I wish--before Congress fancies imitating our European brethren and we all go down the tubes.

Right-on, Elizabeth!

Elizabeth Warren, Democratic aspirant to the Senate seat held by Republican Scott Brown in Massachusetts, recently came out with what’s now become a widely publicized comment, subsequently picked-up by YouTube and Move On websites:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Her comment rests on the assumption that the rich aren’t paying their fare share in taxes. In a previous post I’ve shown that the top 1 percent do pay 38 percent of the federal tax; however, this isn’t the bottom line. It’s what they don’t pay in taxes, given limitations on payroll taxes on social security, or sharply reduced tax brackets, once 70% before the Reagan era, now 35% max, etc. And then there are the investment loopholes and off shore tuck-a-ways a la places like the Cayman Islands and Swiss banks.

Concurrently, many of the middle class at substantially lower income levels pay at a high 28% clip. That includes my wife and me.  The unpleasant truth is that the rich have exponentially  increased their economic disparity with the middle and working classes to the point where the future threatens something resembling the two class set-up common to many South American countries of some rich and many poor.

We now learn that 20 million of our fellow Americans live in poverty. Forty-three percent of our unemployed, those age 50 and above, have been out of work more than a year. Unemployment among minorities, the fastest growing segment of our population, approximates the squalor of the Great Depression. The average indebtedness of a college graduate, a good many unable to find meaningful work, stands at $25,000, all of this at a time when corporate profits have soared 12% over the last decade, despite the 2008 down turn.

Sounds like Jacques Rousseau, but in the fine print of Warren’s spirited quote lies the idea of the social contract, that those with means have a responsibility for those who lack. The perquisites of the wealthy rest on the labor of the working poor and middle classes, as Warren points out.

Here in Lexington, KY, local government, facing severe budget limitations, is impinging on health care benefits for its employees, who are being asked to pay a larger share; for families, that’s some $600 monthly. Get real! As prolific social commentator Barbara Ehrenreich astutely observes in her 2001 classic, Nickel and Dimed, “Something is wrong, very wrong, when a single person in good health, a person who in addition possesses a working car, can barely support herself by the sweat of her brow. You don’t need a degree in economics to see that wages are too low and rents too high.”

Ehrenreich writes of employees in the minimal paying service industries, or of the working-poor, but her observations are no less valid for the vast majority of middle class families, too.

It was essayist John Ralston Saul who famously observed, “Everyone has an equal right to inequality.” Let the rich, the banks, the corporations try on the other fellow’s shoes, and I can promise you bellowing howls and light-year speed in concocting remedy.

Right-on, Elizabeth!

Do the wealthy pay their fair share in taxes?

I was rummaging through the local county paper yesterday, sent to me free as a subscription  enticement, when I came across a guest editorial arguing that the “wealthy deserve to keep more than a hunk of their profits.”  This, of course, goes against the grain for the Obama folks and the occupy movement, who feel that the 1.1 percent, as they put it, isn't paying its fair share in taxes.

 

The columnist argued that the IRS’ own figures show that the top 10 percent actually paid $721 billion of  the more than $1 trillion the government collected in federal income taxes in 2008.  In short, the rich really do pay taxes, or about two dollars out of every three collected. More than $392 billion of this came from the top 1 percent.  In fact, just 0.2 percent of the population pays 21 percent of the taxes.  As for the rest of us, some 47 percent pay no tax, while collecting many social benefits.

Do the poor pay taxes?

Is there any truth to the writer’s claim?  If you’re talking about federal taxes, the answer is, yes.  But this doesn’t get to the bottom line.  Virtually everybody pays taxes.  For example, there’s the payroll tax of 6.1 percent on the initial $106, 800 of wages (temporally reduced) for Social Security and 1.45 percent on all wages for Medicare. Then there are state and local taxes, e. g., sales, income, property, gasoline, utilities, etc.  Everybody, including the poor, the disabled, and the retired pays taxes.  According to the Tax Foundation, the 2008 earnings average for the bottom 50 percent, was just $15,300.  In short, these wage earners didn’t earn enough to pay federal taxes, though they paid other taxes at the same tax rates.  Broken down proportionally,  the poor pay more per capita than the rich, with the one exception of Vermont.  At this point, I’d urge everybody to read Barbara Ehrenreich’s monumental expose,  Nickel and Dimed: On (not) Getting By in America.

Do the rich pay their fair share?

Initially it would appear they do.  One percent of  the top wage earners paid 38% of  the total income tax in 2008, the last year figures were available (published at the IRS online site).  Left out is the fact that federal tax revenues aren’t solely collected from income taxes.  Payroll taxes for Social Security, Medicare, and even unemployment insurance, are paid by the bottom 90 percent of taxpayers.  This is because the payroll tax for Social Security is restricted to a maximum $106,800, after which there’s no tax.  Bill Gates and Steve Forbes pay the same amount as you and I.  Although they’re subject to paying a means tax on their social security income when they retire, so are you and I.  Don’t even get me started!

Is there a growing tax gap between the top 10 percent and the bottom 90 percent?

Yes!  When Reagan took office in 1980, the marginal tax rate (the tax rate paid on the top earned income)  stood at 70%.  By 1987, he reduced it to 50 percent  Under George Bush, the rate was reduced to 35 percent.  Since 1980, the average income of the bottom 90%, adjusted for inflation, has increased to $303, or 1 percent.  In the meantime, the 1 percent did a considerably better, doubling their income to $1.1 million.

And how goes it for the corporate sector?
 

According to IRS figures, 2008, corporate profits rose 12 percent since 2000, even though corporate taxes show an 8 percent decline.  This discrepancy is occurring  because of increasing loopholes or transferring of profits to offshore hideaways such as the Cayman Islands.  Currently, corporations have stashed an estimated 2 trillion in cash holdings, unwilling to reinvest in a volatile economy.  I’m not saying this is wrong in itself.  The spending of the average American family is down as well and for the same reasons.  Spending is the key catalyst to market regeneration. 

The point is, many of the banks were bailed out in 2008 to a tune of nearly a trillion.  They seem to have a short memory, and it hasn’t decreased either their zeal to close on beleaguered mortgages or award themselves bonuses in the millions while enjoying unparalleled tax breaks.  At the moment, bonus outlays exceed pre-recession levels, this in a down economy that has produced incalculable suffering for many Americans unable to afford their homes, buy health care, or find meaningful work.  JP Morgan's CEO Jamie Dimon recently took home a $19 million dollar bonus, enough to keep food on the table.  While not all CEOs receive this kind of payout, the vast majority of CEOs continue to enjoy perks with the consent of their shareholders.  Forbes reports that investors at only 36 companies out of 2250 voted against pay increases for their CEOs.  Meanwhile, new data shows that nearly 25% of us now lives in poverty. 

Have the occupiers got it wrong?  Not by a long shot!

Business as usual

And so, what else is new? My previous post touched on the Occupy Wall Street phenomenon, the people’s revolt against the wealthy and corporate interests, who don’t pay their fair share in taxes, yet harvest bundles in a listing economy even as millions suffer and others wait for the shoe to drop.

Currently, corporate cash holdings are at an all time high. Did you know, for example, that corporations comprising Standard & Poor’s 500 index have currently stacked up more than $1 trillion in cash and short-term investments?

Now mind you, the figures I gave you don’t even take-in the banks, whom I’ll get to in just a bit.

While our economy hasn’t recovered and there’s the very real possibility of a double-dip recession in your near future, corporations and banks are raking in the bucks. Wall Street jubilantly anticipates per share earnings for stocks in the S&P 500 will reach $100 per share by year’s end; in 2012, slower growth, but $104 per share. True, if the economy dips again--did it ever recover?--we could see these projections tumble. Still, don’t bet against the banks and corps. Like a nimble cat, they tend to land on their feet, come wind or rain.

And so what are the corporations doing with their wealth? Well, they’re doing what you and I would probably do were we in their shoes; namely, shoring up for future contingencies. One thing they’re not doing is hiring workers, given market insecurity. They’re also not desisting from awarding themselves egregious bonuses. Hey, we spent nearly a trillion bailing these guys out. Thanks for the memory!

As for the banks, they’ve proven themselves adept at getting around recent congressional moves to protect consumers by imposing caps on credit cards, overdrafts, and debit card merchant fees. That helps explain the sudden deluge you’re getting in bank mail, announcing new terms for checking accounts, reduced credit card awards, and higher ATM fees. Some banks, like Bank of America, are imposing a monthly charge for deposits or withdrawal using a teller ($8.95 at BOA). Banks like Chase now charge $25 for closing an account within 90 days of opening it. It gets worse at PNC and U. S. Bank, which charge $25 for closing an account within 180 days of opening it.

Want to get your statements in the mail? Think again. BOA again charges $8.95 monthly for the privilege, with other banks now lining up.

You prefer pay-as-you-go, using your debit card. Nice way of keeping your budget tidy and avoiding credit card charges, except that some banks are now charging a $3 fee for the privilege.

The gimmick that galls me above all others, since I was on the recipient list, was learning I’d be charged a monthly fee even if I had a 0 credit card balance. You can be sure I got out of Dodge.

You’d like to buy a home at today’s record interest lows? Fine, if you’ve got the minimal 20% down payment. That eliminates a good many first timers, especially young people.

Want to refinance? Not so fast. What’s your home really worth versus the mortgage presently owed? The banks are going to want to take a close look. And don’t forget the closing costs.

When banks and corporations bleed you and me and refuse to loan or invest in the body politic, they divest in stimulating recovery and should be held accountable.

Watch your step. Corporate and bank IEDs are everywhere.

Hats off to the Occupy movement. I adore you!

Reflections on the Occupy movement

Yesterday marks a month ago that the Occupy Wall Street movement began. Modeled after the protests of what's become known as the Arab spring, it seems to have taken its start from a Twitter post on July13 that slowly gathered interest via other Twitter posts and with numbers, momentum, spreading to other large American cities and, lately, to other parts of the world, particularly Europe. It remains a social media-driven phenomenon. One of its oddities is that it was initially fueled by environmentalists and organic food enthusiasts, among them vegans rather than by the Left. I'm one of those, so from the beginning, I have liked this movement.

As I see it, it's primarily kindled by resentment that the wealthy along with corporations don't pay their fair share of taxes and that the banks continue in their public-be-damned parochialism. As such, the movement claims to represent the 99.1 of us denied a place at the table.

One of its oddities is the lack of defined goals amidst a motley of mindsets ranging from far Left to Libertarians, including Tea Party advocates who share an antipathy towards banks, though not corporations, per se. As a whole, however, the occupiers see government as needing reform rather than dismantling.

This movement reminds me of the protests concurrent with the Vietnam War back in the 60s and early 70s, composed largely of young people. This comes as a surprise, as the present generation has been vastly silent, though not so in Europe and North Africa. But “the times are a changing,” given our economic doldrums, the worst since the Great Depression, with a stagnant 9.1 percent unemployed, a figure much higher among young people and minorities. In supposedly one of the richest nations in the world, growing poverty now engulfs more than 20% of our population. In some of our cities, nearly 40% of Blacks and Hispanic under 24 can’t find jobs. This is social dynamite that could escalate into the race riots we saw in the 60s.

Meanwhile, it’s business as usual on Wall Street. The banks that perpetrated our economic downturn, bursting the bubble their speculative greed had created, were
bailed out with huge cash infusions by the government, beginning with Bush but vastly accelerated under Obama. Our national indebtedness consequently has swelled, threatening to turn America into a Greece, Italy, or Ireland, unable to pay its bills. In an effort to keep the steam engine from derailing, we now see austerity measures, both local and national, exacerbating the job crisis. Meanwhile, there’s the continuing rampage of globalization with its consequence of out-sourced-jobs.

Fighting two questionable wars doesn’t help either, diverting huge sources of capital that are vitally needed to rekindle confidence in the economy, leading to job growth through increased consumer spending. You don't make things better by laying off teachers, police and fire fighters, curtailing libraries, and closing parks.

The banks, of course, haven’t mended their ways. To get around some scrutiny measures recently passed by Congress, the banks have cunningly found ways to circumvent, inventing new income sources through initiating higher interest, fees, and restricted borrowing. Few couples have the 20% down payment required for most mortgage loans, crippling the housing industry which along with car sales, provides key impetus in encouraging a robust economy. The obscenity of huge CEO bonuses continues. Concurrently, they've gotten their paper work together and are now foreclosing on delinquent mortgages at a blitzkrieg pace. In short, it’s business as usual, the public be screwed.

Actually, there’s been this gargantuan transfer of wealth going on for some time, with the middle class its victims. The rich don’t pay their fair share of taxes, yet some 37% of Americans don’t pay any tax whatsoever, buttressed by numerous exemptions. It’s a vast simplicity to put all the blame on the wealthy. In fact, this poses one of the dangers for the Occupy movement: that it simply becomes a self-pitying indulgence in envy, rather than meaningful effort to ameliorate; a dangerous wedge masquerading class warfare.

This, of course, may hint at two other dangers, the offshoot of opportunists:

1. That the movement will become politicized by a political party and/or trade unions. This would dilute the movement’s effectiveness as a voice for the people. If anything, we need a third party, say a Green Party. Appropriately, most interviewed participants are suspicious of both major parties. No party should have us in its hip pocket and commit identity theft to advance its own agenda.

2. That the anarchist and Marxist spectrums will infiltrate and nullify through calculated violence such as we saw in Rome last week as hooded, masked street toughs burned and looted. I still believe in a market economy, with safety nets in place.

I am for this protest, though I wish it had a third party corpus. Romanticism can be a beautiful thing, but it needs boots on the ground. As is, I fear that come winter’s icy wind and falling snow, the movement will lapse into memory.

Obama's assault on Social Security

Although vociferously claiming entitlement programs aren’t on the table in securing deficit reductions, the President’s recent actions prove his rhetoric to be little more than political chicanery in upholding the integrity of Social Security, for an example. In an effort to stimulate the economy by putting more money into our pocketbooks, President Obama has proposed continuing the payroll tax reduction (now 4.1%) for Social Security. In fact, he wants to cut the Social Security payroll tax still further, or to 3.1% of earnings below the traditional maximum of 6.2% on $106,800 income. This amounts to a $240 billion dollar funding hit on Social Security, a program already in trouble due to changing age demographics. In 25-years, it will only be able to pay out $75.00 on every $100.00 owed in benefits.

More specifically, his proposal represents a direct raid on the Social Security Trust Fund, short-changing our young people. As is, his proposal cuts $175 million from the employment payroll contributions and $65 billion in employment contributions. The President’s new, massive stimulus package before Congress, $440 billion, draws 55% of its funding from Social Security funding. You do the math. It’s simply untenable, an indulgence in political opportunism, betraying American workers and their future.

Compounding the demographic and political pressures on Social Security, today’s massive unemployment has ignited a rush in applications for disability income (SSDI). According to the government’s own figures, applications showed a 21% increase just between 2008 and 2009. While the rising number of aging baby boomers may account for some of this increase, it seems more likely this sudden swell has is origin in our down economy. Frankly, one has to suspect Social Security is being used as a ruse for welfare in many instances. Obtaining benefits also qualifies one for Medicare, no matter one’s age.

In its defense, the Social Security administration argues it has strict monitoring procedures in place to assure legitimacy in the application process, with only 30% of applications approved. This is true, however, only at the initial application stage. While denied applications going through the appeal process can take up to 2-years, persistence pays and ultimately most applicants, or 67%, get their benefits approved before an Administrative Law Judge. Meanwhile, legal representation for applicants has turned into a lucrative specialty.

What’s mind-numbing is that this deluge in disability applications is leading some trustees of the Social Security disability program recommending Congress reallocate money from the Social Security Retirement program to offset deficits in disability funding!

As is, the present and proposed cuts in Social Security payroll taxes don’t offer assistance to the many unemployed, retired, disabled or those, like teachers, who are ineligible for SS. More substantially, short-changing Social Security exacerbates its perilous future.

The Constitution option?

As I write, we face an unbelievable, yet possible deadlock scenario in reaching compromise on lifting the debt ceiling as both political parties hunker down, unable to reach compromise on spending cuts. At this point, you're hearing a lot about the Constitution option by which the President would simply raise the debt ceiling on his own. Former President Clinton said this is what he'd do and let the courts sort it out later. Many Democrats now concur. At the moment, the President has said he doesn't think it applicable. Nor do I. Besides, it's a very bad idea.

1. What is the Constitution option?

We're talking about the 14th Amendment, Article 4, adopted in 1868. It says,

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

2. Why it doesn't apply to our present debt crisis:

The Article is part of the 14th Amendment pushed by radical Republicans in the post-Civil War era to extend their political power by ensuring the citizenship and voting rights of Negroes. One might think of the Amendment as the beginning of the Reconstruction era, since it sanctioned the dividing of the South into five military districts. Article 4 ironically disallows Southern, or Confederacy debt (e.g., reimbursement for the loss of slaves, etc.), while allowing for the legitimacy of the Federal debt. The Article became law in 1868 after its ratification by the States. At best, it recognizes the legitimacy of the national debt. The post-war government needed revenue sources after fighting an expensive conflict. It wanted to be paid. The Article doesn't allot the right to increase that debt. I have yet to find any proponents of implementing this Article quoting beyond its first sentence. Reading the Article in its entirety clearly establishes its post-Civil War context and limitations.

3. Why it would be bad policy to invoke Article 4 of the 14th Amendment:

Resorting to this solution would set dangerous precedent, giving future presidents a blank check on spending without Congressional approval. The Constitution is clear on its mandate for a check-and-balance system of the Congressional, Judicial, and Executive branches of government. Besides, we want a solution to our overspending, and not its perpetuation.

In the short run, it would likely incite an impeachment attempt even though it would fail in the Senate, where Democrats hold a slight majority. At the very least, it would add to the fractiousness between the two parties and heat the political temperature still further as we head into an election year.

It's sound policy, whether at the personal or government level, to always weigh the possible consequences of any decision. Decisions are like stones cast into the water. They make ripples.

A letter to Congress

The other night, President Obama asked Americans to contact their reps in Congress and urge them to pass a responsible deficit cutting bill. Many of you did that, resulting in a mammoth switchboard overload. My wife resorted to email, writing the following message:

Senator McConnell,

Please, please, please use your unparalleled power to limit cuts to Social Security, Medicare, Medicaid, etc., in the proposed budget. It is utter nonsense that we of the middle class get trampled on every time there is a financial crisis in this country.

My husband (retired) and I (close to retirement) have worked hard and, as millions of others in our tax bracket, deserve some consideration here. The GOP, mainly that damned Tea Party faction, is more than likely forcing us to look outside this once great nation for more comfortable living. Funny--I love my country; it's getting so I just can't afford it.

Please help put a stop to this foolishness. If our government fails in this crisis, we will have lost all hope.

Keeping the faith

In a recent riveting analysis of decision making by President Obama, Praising the Hostage Takers, liberal Paul Leob painfully laments the President’s overweening zeal for compromise.  

Will Obama ever hold the Republicans accountable for their reckless and destructive actions? No matter how outrageous their demands, he keeps giving them legitimacy, first resisting, then compromising, then praising the result as bipartisanship. He's forgotten the basic lesson of negotiation -- you don't hand everything over before you start, particularly to people who have utter contempt for your values and goals. He's also forgotten the importance of fighting for your principles, so people have a reason to support you.

As I write, top brass from both parties are scrambling to come up with something feasible by Monday morning.  Ultimately, the parties will strike an agreement on easing the deficit crisis, though it’s likely to be bad news for most of us, with options for changing the cost-of living formula for social security, applying a means test to both, and eliminating the mortgage deduction among those on the table.  Meanwhile, no tax increase on incomes above $250, 000.  It’s no secret there’s been a massive transfer of wealth going on to the upper class for some time, ultimately creating something like what you have in South America: you’re basically poor or well off.  The upcoming scenario simply expedites that trend.


In my own case, a retired prof with a still working spouse, my own income from social security and a retirement annuity invested in over the years has been declining even as inflation heats up and Medicare premiums and deductibles soar.  Meanwhile, I’ve not received any cost-of-living payout in social security due to inflation in the last two years. That doesn’t stop the Feds from taxing my social security heavily, as they count my wife’s income as total family income.  It’s worse for others.

The scandal is that fifty percent of Americans pay no tax at all.  Family size, mortgage exemptions, low wages, etc., contribute to this scenario.  Unlike South America, in our country, the poor get attended to and the wealthy get their loopholes.  Wall Street and the banks get their bailouts.  You and I, the middle class, we’re the pack mules

But I want to get back to Obama.  In campaigning for the presidency, he posed as the people’s protector.  On the other hand, he hasn’t walked the talk since getting elected. Loeb, gives us a disturbing litany of what the President has “compromised” away:

Obama's almost pathological devotion to compromise started early in his presidency. Republicans and a handful of corporate-funded Democrats used the Senate filibuster to block action on issue after critical issue. Instead of calling them to account and marshalling public pressure against them, Obama responded as if their intransigence was reasonable, giving them instant political cover. He did this on health care, financial regulation, and attempts to pass a sufficiently large economic stimulus. On climate change, he tried to prove his reasonableness by allowing offshore oil drilling (just before the BP oil disaster) while securing not a single vote in return. Republican Lindsay Graham was planning to offer precisely this enticement to convince borderline Senators to support at least some price on carbon, and said Obama effectively killed the bill by leaving him with nothing to offer people Obama similarly refused to take a firm stand on ending the Bush tax cuts, which he could have simply let expire. He's now retreating on the debt ceiling battle, saying he might have to sign off on a deal that cuts spending now a the vague promise of reforming taxes later.

Anything to get the deficit ceiling raised:  erosion of social security, betrayal of the environment, continuation of the Bush tax cuts, perpetuation of corporate loopholes, et cetera ad infinitem! Obama might take a lesson from Ronald Reagan, who raised the deficit several times during his presidency.  Up against it on several occasions, the Great Communicator would take his case to the American people.  And he always won.

Mr. President, call the Tea Party bluff.  No deficit agreement?  So be it! We’ll get through, but the Tea Party won’t.

Mr. President, if nothing else, exercise your Constitution option.  Raise the deficit!  Pay the bills!

We don’t need a Chamberlain buying peace for now, mindless of tomorrow. You don’t betray the American people to placate the opposition.

You want to be liked?  I tell you this: Keep your promises and to paraphrase Carole King, “they’ll come running.”