Political disease among elected leaders: blame the other guy

A 1978 Supreme Court decision, which said banks could charge their home-state rates anywhere in the   country. South Dakota was the first Mecca for the banks; other states followed.  Parrish and Lee, who              is the longest-serving of 467 bankruptcy judges, say the "epidemic" of bankruptcies and defaults that banks cited to win passage of the law was simply a function of the huge expansion of credit allowed by 1978 Supreme court decision.

     

The U.S. economic problems are real and large, but not unsolvable. A reasonably bright economist, unencumbered by politics, could design a solution rather easily. Pain would be involved, but the option for a solution without pain expired years ago. Any solution must involve pain, including the present strategy of  pretend and extend. Addressing the problem forcefully now will result in less pain than continued inaction    which will result in a complete and total economic collapse.


Proposed 2013 cuts to federal expenses for next 10 years will take $7 trillion out of the economy---about $500 billion of which would occur in 2013. Measure would include: (1)Such measures include the expiration of the Bush tax cuts, middle class protection from the Alternative Minimum Tax, and more than 50 "temporary" tax breaks for individuals and businesses that have been on the books for years; (2.)A package that extends some tax cuts and postpones some spending cuts, effectively punting the real debate to the new Congress in 2013; (3)There appears to be an agreement among Capitol Hill party leaders for a temporary package to buy time to establish a              default expectation, which includes $1 trillion of spending cuts from defense and non-defense spending;(3)The debate over raising the debt ceiling ---due to a "handshake agreement between both party leaders---to be off the table.

Inaction only makes matters worse….under current law, on Jan. 1, 2013, tax-cut measures that are set to expire, and automatic spending cuts that were set in motion to force lawmakers to make significant decisions to try softening the the massive fiscal cliff of large spending cuts and tax increases. Today, U.S. taxpayers'  hope common sense Congressional lawmakers will figure ways to achieve the same long-run fiscal   improvement without having it all happen within a constricted time table.


In 2003 President Bush’s 2003 tax cuts on income, capital gains and dividends brought in $785 billion of new federal  tax receipts---the largest four-year revenue increase in U.S. history. In fiscal 2007 federal government took in 6.7% more tax revenues than 2006.

Yet, after 34 years of inaction (1978-2012) America will be facing a financial cliff; i.e., the simultaneous onset of tax increases and spending cuts triggered on Jan. 1,2013 if Congress does not act.  See below:

Combined enhancement of tax resources coupled with federal cut policies would take $7 trillion out of the economy over 10 years -- about 500 billion of which would occur in 2013.          

Such measures include the expiration of the Bush tax cuts, middle class protection from the Alternative Minimum Tax, and more than 50 "temporary"  tax breaks for individuals and businesses on the books for years.

The debate over raising the debt ceiling seems to be off the table due to unofficial agreement among                               both party leaders to raise tax ceiling for six more months.  Yet, former Republican Sen. Alan Simpson                              is predicting the lame-duck session of Congress will be "chaos."

If re-elected, President Obama might allow the Bush tax cuts to expire, allowing long-term capital-gains tax rate to increase to 20%, plus a 3.8% investment surtax to finance Affordable Health Care Act. Adoption of new “Buffett rule” would take the rate to 30% for many taxpayers. Taxes on short-term capital gains would increase by 3% across the board,and dividends will once again be taxed as regular income, plus a 3.8% tax on investment income as part of the health-care overhaul passed in 2009. For the highest earners, tax rates on most dividends, currently 15% is set to jump to a whopping  43.4% next year.  This would require all high earners to pay for middle class            Affordable Health Care Act passed in 2010.

Since 80% of all the stocks listed on the NYSE and Nasdaq---now reaching four-year and 10-year highs respectively ---are owned by the top-10% of the richest Americans, a huge gap huge widening of the wealth divide between the rich and poor has been created.


Spain is widely considered too big to bail out: It makes up about 11% of the economic output of the Euro-zone economy. Greece makes up about 2-percent.


As of August 2012, biggest threat to the global economy has quickly shifted to Spain. The Madrid stock market and Spanish banking stocks continue to tumble. The benchmark IBEX-35 index is down -10% so farthis year, and is -30% lower from a year ago. Spain’s biggest bank, Banco Santander (STD.N)has fallen -18% over the past four weeks, and has dropped more than -45% over the past year.Credit Default Swaps, used to measure the cost to insure the debt of Banco Santander’s subordinated debt, for a period of five years, jumped +220-bps higher in the past two                    weeks to around 630-bps today, meaning it takes €630,000 to insure €10-million of STD’s debt against the risk of default.

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3 Big Lies Perpetuated By the Rich

Too many Americans continue to be numbed by the soothing sounds of conservative spin in the media. Let's take a look at the facts.

July 31, 2012  |  

Here are three of their more inventive claims:

1. Higher taxes on the rich will hurt small businesses and discourage job creators

A recent Treasury analysis found that only  2.5% of small businesses  would face higher taxes from the expiration of the Bush tax cuts.


As for job creation, it's not coming from the people with money.  Over 90% of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), the stock market, real estate, and  personal business accounts . Angel investing  (capital provided by affluent individuals for business start-ups) accounted for less than 1% of the investable assets  of high net worth individuals in North America in 2011.  The Mendelsohn Affluent Survey  agreed that the very rich spend less than two percent of their money on new business start ups. The Wall Street Journal  noted, in way of confirmation, that the extra wealth created by the Bush tax cuts led to the "worst track record for jobs in recorded history."

2. Individual initiative is all you need for success.

President Obama was  criticized for a speech which included these words: "If you've been successful, you didn't get there on your own...when we succeed, we succeed because of our individual initiative, but also because we do things together."


'Together' is the word that winner-take-all conservatives seem to forget. Even the richest and arguably most successful American, Bill Gates, owes most of his good fortune to the thousands of software and hardware designers who shaped the technological industry over a half-century or more. A careful  analysis of his rise shows that he had luck, networking skills, and a timely sense of opportunism, even to the point of taking the work of competitors and adapting it as his own.
Gates was preceded by numerous illustrious Americans who are considered individual innovators when in fact they used their skills to build upon the work of others. On the day that Alexander Graham Bell filed for a patent for his telephone, electrical engineer Elisha Gray was filing an intent to patent a similar device. Both had built upon the work of Antonio Meucci, who didn't have the fee to file for a patent. Thomas Edison's incandescent light bulb was the culmination of almost 40 years of work by  other fellow light bulb developers. Samuel Morse, Eli Whitney, the Wright brothers, and even Thomas Edison had, as eloquently stated by  Jared Diamond , "capable predecessors...and made their improvements at a time when society was capable of using their product."


If anything, it's harder than ever today to ascend through the ranks on one's own. As summarized in the  Pew research report  "Pursuing the American Dream," only 4% of those starting out in the bottom quin tile make it to the top quin tile as adults, "confirming that the 'rags-to-riches' story is more often found in Hollywood than in reality."

The richest 10% of Americans  own over 80%  of the stock market. However, "democratization of the stock market"  is enhanced access of Americans to participate in stock market. During President Clinton's turn his leadership motivated largest number of Americans to participate in stock market.

3. A booming stock market is good for all of us

The news reports would have us believe that happy days are here again when the stock market goes up. But as the market rises, most Americans are getting a smaller slice of the pie. In a recent  Newsweek article , author Daniel Gross gushed that "The stock market has doubled since March 2009, while corporate profits and exports have surged to records."  Actually, as demonstrated by economist  Edward Wolff , a distribution of financial wealth among just the richest 5% of Americans, those earning an average of $500,000 per year.




Thanks in good part to a meager 15% capital gains tax, the  richest 400 taxpayers DOUBLED their income and nearly HALVED their tax rates in just seven years (2001-2007).


So dramatic is the effect that anyone making more than $34,500 a year in salary and wages is taxed at a higher rate than an individual with millions in capital gains.


There's yet more to the madness. The stock market has grown  much faster  than the GDP over the past century, which means that this special tax rate is being given to people who already own most of the unearned income that keeps expanding faster than the productiveness of real workers.

And one fading illusion: People in the highest class are people of high class.

Scientific American  and Psychological Science  have both reported that wealthier people are more focused on self, and have less empathy for people unlike themselves. This sense of self-interest, according to a  study published in the Proceedings of the National Academy of Sciences and  other sources , promotes wrongdoing and unethical behavior.
Can't help but think about bankers and hedge fund managers.


Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites ( UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of " American Wars: Illusions and Realities " (Clarity Press). He can be reached at paul@UsAgainstGreed.org.