12/12/2012 4:15 PM ET|
Smarter ways to tap the rich
Simply letting the Bush tax cuts for the wealthiest Americans expire won't fix the fiscal mess. Two creative ideas: Public-private infrastructure projects and a one-time, 26% wealth tax.
The fiscal cliff negotiations in Washington have hit an impasse with Republicans and Democrats entrenched in familiar positions. Democrats want tax hikes on the rich. Republicans want cuts to entitlement programs.
For many, the debate has boiled down to "Why don't the rich pay their fair share?" Taxes on the wealthy are the one policy tool that the majority of Americans support.
As I discussed last week (see "Why not jump off the fiscal cliff?"), ending the Bush tax cuts for the rich (worth around $80 billion a year) or ending them plus limiting deductions, as President Barack Obama has proposed (around $160 billion), won't solve the country's fiscal woes. It won't even come close. The fiscal cliff adds up to a $720 billion economic hit next year, and most of that comes from the expiration of the Bush tax cuts for the middle class.
But the rich do have an important role in getting us out of this mess. Below, I outline two ways the upper crust can break us out of this funk and return us to the path of prosperity.
We need to put their money to work if American jobs are going to return. But income tax hikes aren't the best way to do it.
2 problems, 2 solutions
In another recent column, (see "Is the economy a lost cause?"), I lamented the slow decline in America's economic vigor, with measures such as labor productivity and per-capita growth of gross domestic product having stalled. U.S. society has become increasingly overburdened by the cost of senior care and old debts, and, as a result, we're now neglecting critical investments in capital, infrastructure and young families.
This is unsustainable. If America's potential growth rate -- its economic speed limit -- continues to drop, the tax base will continue to shrink even as rates rise. Reliance on government welfare programs will grow, and the system will collapse on itself.
It's unacceptable in a country as prosperous as ours to have families killed by falling bridges and failing levees. It's unacceptable for time to be wasted on commuting nightmares on par with those in Romania and Hungary. And it's unacceptable to see America's productive capital base -- its machinery and equipment -- rust away due to a lack of business confidence and a corporate system that encourages companies to hoard profits overseas.
For the sake of discussion, let's focus on infrastructure. What's the scale of the problem? California has the country's worst road congestion and faces a $100 billion project backlog. Nearly three-fourths of the major roads in Massachusetts are in poor or mediocre condition. More than half the bridges in Rhode Island are structurally deficient or functionally obsolete. Overall, the American Society of Civil Engineers gave the country's infrastructure a "D" grade and recommended an investment of $1.6 trillion over the next five years.
That's point one.
Point two is that, for a variety of reasons, economic growth has become more unequal over the past few decades. Part of it is technological change. Part of it is rapid globalization and the downward wage pressure created by an army of cheap foreign labor. The result has seen benefits accrue disproportionately to the top.
According to Federal Reserve data, median household wealth for the middle class (in 2010 dollars) has actually fallen from $70,200 in 1989 to $65,800 in 2010. For the top 10% in terms of income, it has increased from $655,200 to nearly $1.2 million over the same period. It's the same story with income: Median income for the middle class dropped to $43,400 in 2010 from $45,800 in 1989, but it rose to $205,300 from $175,900 for the top 10%.
Research by Marianne Bertrand and Adair Morse, both of the University of Chicago, finds that as the rich spent lavishly with their new wealth, everyone else tried to keep up. Coach (COH) bags for everyone!
That, according to research from the International Monetary Fund, drove people into debt -- mortgages to chase the housing bubble, consumer credit, and now, student loans. Government played a role, too, borrowing to fund social programs as people voted to increase their welfare via the tax code and public spending.
As a result, household and government debts have surged, and they now hinder economic growth. Household debt as a percentage of disposable income went from around 70% in the 1970s to a peak of 134% in 2007 to 113% now. Government debt as a percentage of GDP has increased from around 30% in 1980 to near 100% now.
The reason the Federal Reserve's aggressive efforts to stimulate the economy haven't had a bigger impact is because people are unwilling or unable to increase borrowing. The government is focused on budget cutbacks, not investment. And households are focused on shedding debt to find their way back to a sustainable standard of living.
Moreover, the academic research shows that not only does higher debt limit economic vitality, but it increases the risk of financial crisis as well.
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Point 1 - You can't borrow your way out of debt. How stupid are you?
Point 2 - Stealing from the rich to give to the poor sounds like 'Robin Hood' but is really just Communism. Better dead than red.
A wealth tax?
There is a reason the seven deadly sins are called deadly - they lead to the death of the soul. In secular terms, it means that they degrade the humanity of the sinner and make them substandard creatures leading miserable lives. Those whose envy causes them to reject nearly every value that made America great because of their envy should not be ignored. They should be ridiculed and pilloried.
Let us start with Mirhaydari. Yeah, he has to write a column every day or so, and yeah, his words far outnumber his thoughts, but this is ridiculous. Is there no limit to the depths that MSNBC can sink?
Liberals, how is that massive tax increas on the rich working out for France? With revenues down 30%+ on the rich, did that tax work out? No, the rich voted with the FEET. They are leaving in droves and have the ability to adjust their income. Worse, the French unemployment rate went up as the rich layed off people to compensate.
If we are dumb enough to raise taxes, read Slam on the Economic brakes, why do we think things would turn out different?
I have to conclude, since democrats are trying to SLOW tthe economy with tax increases, that they are complete morons or are they just clueless?
Apparently the author hasn't heard that the rich are already fleeing this country by the thousands already even though it has been reported on MSDNC. When even rich liberals are leaving the sinking ship the last thing you need to do is tell them you are going to bleed them dry if they don't.
Also, if I were rich I wouldn't trust for one minute that the government wouldn't come back for more next year, and the year after that, etc. That is the track record of government.
A one time wealth tax might seem facially appealing until one realizes that there is no such thing as a one time tax. Period. Look at all the "temporary" tax increases that became permanent. It is naive in the extreme to believe that the the Federal Government, given a new source of revenue, won't simply spent more, then come back for more. The limit for "wealth tax" would become progressively lower, until the middle class is is deemed "wealthy" enough to pay the "wealth tax." Remember how Clinton ducked and dodged when the media tried to pin him down on what consitutued "high income." If I remember correctly, it turned out to be 35K.
A better source of additional revenue would be a VAT. At least then, when the politicians start digging deeper into everyone's pocket, they will have to deal with the howls and screams from everyone. And a VAT will hit the upper class harder ... they are the ones that spend the money.
If you really want to see tax reform, get rid of all withholdings and send everyone a bill every month for what they owe - for FICA, income tax, medicare tax, etc.... When people have to write out a check every month, they'll start caring more about how much they are taxed and what their taxes are spent on.
A single sentence lifted from this article says it all… “Government debt as a percentage of GDP has increased from around 30% in 1980 to near 100% now.”
Let’s see if I understand this percentage of GDP thing? – Are we to understand that back in 1980, in order to pay all operating expenses, Uncle Sam needed 30% of all the money earned by American Workers each year? - Wow, that’s bad enough; but today, they need 100% of every dollar earned by American Workers each year? - Am I reading this correctly? – If the annual cost to run our government equals our Gross Domestic Product, then anyone with a modicum of intelligence can see the only 3 solutions available to us…. They are as follows:
– A. Tax everyone at the rate of 100% – Everyone. Permit not a single person to keep a single dime of their own money, because Uncle Sam needs to confiscate 100% of the entire GDP as fuel for its massive engines.
- B. Make Government stop spending so much –Constitutional mandate stipulating that Annual Operational expenses of the US Government cannot exceed X% of GDP. (I suggest 20-25% - done!)
– C. Let there be a protracted Government shut down – a shut down managed like a well structured bankruptcy, designed to get our nation talking about the difference between necessary and unnecessary government services.
Enough partisan bickering about Dems vs Repubs! If the press were doing their job, they would frame the discussion around these 3 solutions only; because there is no other. Political sanity will not return to the United States until journalists push the National debate to hard questions about how much Government do we really need? – How much Control and Care do we really want? - What % of our lives do we want them involved? Do we want 30%, 60%, 100% ? These are the questions that need to be answered. It is a waste of time to quibble about this matter from any other angle. America is at the point where we must either give ourselves completely to the structure of Socialism – and begin PAYING our 100% socialist dues – OR, we need to exorcise ourselves from the Socialist demon altogether.
The only other sensible option would be State secessions.
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