Thursday, August 14, 2014

"Starving to death in the Land of Plenty"



Have you heard that saying before?  It means while some are holding on for dear life, others are doing very well.  And it's a topic that polarizes like no other.

It's more commonly known as "income inequality".  The "have's" say they deserve their privileged position as they went to school, studied hard, and have diligently worked their way up "the ladder".  But over the past 20 or so years the "have not's" haven't seen a pay raise after factoring in inflation, and they are the ones that make up the consumer base that drives 2/3 of our economy.

Here's the problem:  This situation can't go on forever.  Eventually the system will implode, just like it did back in 1929 leading us into the Great Depression.  When we kill the goose that laid the golden egg, we're screwed.

They say we have a HUGE public deficit that requires us to cut spending, and at the same time the well off want their taxes cut, which would leave the deficit essentially unchanged.  The wealthy justify their requested tax cut by saying this tax saving would enable them to create more jobs.

That argument makes sense on paper, but in the real world it just isn't so.  Case in point:  Today I read a piece originally published in INC magazine that states large corporations can't find enough good projects to invest their $1.64 TRILLION cash cushion in that they're currently sitting on.  Even more money in a "job creation" fund won't create any more jobs.  More demand for goods and services will create more jobs, but until consumers have more money, they aren't in any position to buy.  It's a giant Catch 22.

If we're ever going to make a meaningful dent in our massive accumulated debt we're going to have to raise taxes on the wealthy because they are the only ones with any excess money.  Note I'm not saying it's "fair", or "right", just "necessary".  These are just pragmatic facts.  And "raising taxes" doesn't necessarily mean raising the tax rate.  It can also mean eliminating special tax treatment, and that just might be politically possible.

Wonder what the Vegas odds would be on that?

S


6 comments:

  1. Taxes should be at whatever level maximizes revenues to the government (assuming government has worthwhile uses for the revenue) without reducing incentive or production. "Loopholes" should encourage positive behavior or discourage negative behavior and should be amended when they are used in ways not intended by the law.

    The difficult part of taxes is in determining what those levels are. In good times taxes can probably be raised and in bad times reduction is probably a good idea. Taxing who and how much is a delicate equation and needs to be constantly tweaked. Government is not good at tweaking, perhaps there needs to be a formula based on economic data and really smart people who don't have a dog in the fight.

    Good luck with that.

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  3. If we were to raise taxes, we could start fixing our lousy infrastructure (it really scares me how many decrepit bridges are out there). This would give jobs and disposable income to a whole lot of people.

    It's not fair that Warren Buffett's tax rate is lower than that of his secretary.

    But what am I saying? I AGREE with you!

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    1. Just to clarify, not to argue, Buffet is taxed primarily on capitol gains which is 15%, Perhaps capitol gains should be on a graduated scale like income tax, Buffet's secretary earns between
      $200-300 thousand dollars per year, so the "Secretary" comparison is somewhat disingenuous.

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    2. Just to clarify, it was Buffet who made the comparison and he was talking about tax rate, not dollars.

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  4. Well, sure, yeah. We need more revenue, taxes are the only source, so yeah. However, here's the rub, as someone famous said: We have the lowest tax level on the wealthy (>500K/yr) in the country for a reason.

    It's been carefully put into place by the lobby's, various, of the wealthy, and their thankful recipients in both parties, for several years. It's guise was almost believable for some years, e.g. Reagan's "Rising Tide Lifts All Boats" slogan from the late 80's, then, when that didn't seem to be working out, the 90's happened, when dot.com's losing money by the handful made many rich. The bubble burst, as we've witnessed, but, a big but, the tax laws they'd put into place during their ascendency were not firmly in place.
    And here we are.
    The wealthy have hunkered down, or 'bunkered' down. They control lobbies with power that surpasses almost everything except the NRA.
    How to modify this, let alone try to reverse it to increase the tax rate on those that can afford it, is.....probably not available to us.
    We don't have the mindset of the European countries that tax the wealthy heavily: that it is good for the country, and benefits all. That the wealthy are responsible for the country that made them wealthy.
    I have no solutions.
    cheers,
    Mike

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