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12-12-2012, 09:56 AM   #1
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Rein in the Rich

This article makes good sense to me... the drivers and therefore 'problems' are different in different economies.


Rein In The Rich: How Higher Taxes Could Lift The Economy | The New Republic

QuoteQuote:
As the negotiations over the fiscal cliff continue, President Barack Obama has insisted on retaining the Bush tax cuts for the middle class, while letting the cuts for the wealthy lapse. Republicans have insisted that raising taxes on the rich would cost jobs – as many as 700,000, according to House Speaker John Boehner.

Obama, for his part, says that a tax increase would not cost jobs; that it would help the economy by reducing the deficit; and that it would be fairer than imposing new taxes on the middle class. “I’m not going to ask students and seniors and middle-class families to pay down the deficit while people like me who make more than $250,000 are not asked to pay a dime more in taxes,” he has declared.

Obama is right that a tax increase on the rich would not cost jobs; and he is certainly right that it would be fairer to tax the wealthy whose incomes have shot up, even during the downturn. And he is also correct that taxing the rich will actually benefit the economy--but not primarily for the reasons he cites. If the government extracts income from the wealthy, and then spends it on a $50 billion infrastructure program, an extension of unemployment insurance, and a Social Security payroll tax cut, as Obama has proposed, that will not only boost the recovery, but will also discourage the wealthy from rerouting their savings into the kind of speculative activity that helped create the Great Recession. A closer approximation of income equality is not only better for our souls—it’s also better for the economy. The question of fairness aside, the rich have been making relatively too much money for the country’s good.

Last September, the Congressional Research Service published a report countering Republican claims that lowering top tax rates would lead, or had led, to higher economic growth. “Changes over the past 65 years in the top marginal rate and the top capital gains tax rate do not appear correlated with economic growth,” the report concluded. Republican Minority Leader Mitch McConnell responded by having the report suppressed, but its findings were incontrovertible.

The CRS rested its findings, however, on the lack of a correlation between marginal tax on the wealthy and growth. It didn’t try to explain why higher rates might have contributed to faster growth, and lower rates to slower growth, and even recessions. This view remains highly controversial today, even among liberals, but during the 1930s many New Dealers took this position. Recently, Rutgers economic historian James Livingston has reasserted it in an excellent book, Against Thrift. There is a weaker and a stronger version of the argument.

The weaker argument goes like this: The modern American economy is driven by consumer demand; the consumer sector, which includes services, is where new jobs emerge, and where growth is spurred. During economic downturns, purchases of consumer durables, including automobiles and new houses (which economists technically label investment), have been most likely to ignite a recovery. The lower a person’s income, the more likely he or she will use additional income to consume goods and services; the higher the income, the more likely it will be saved. In Keynesian terms, middle and lower income taxpayers have a much high marginal propensity to consume. Therefore, it makes much more sense to give them rather than the wealthy a tax break.

The weaker argument shows that it is better in a faltering economy to reduce tax rates on the less wealthy than the wealthy. The stronger argument shows that with incomes soaring in the upper brackets, it is a good idea to raise tax rates on the wealthy. This idea comes from historical evidence showing that today’s economy differs from that of the older pre-Great Depression industrial economy.

In the first period of American industrialization -- roughly from the Civil War through the mid-1920s -- the economy was driven by the production of capital goods, from steel and petroleum to machine tools and threshers. More workers became engaged in producing these goods than in manufacturing consumer goods. In countries that are rapidly industrializing in this manner – think of China today – both workers and owners have to sacrifice their consumption in order to provide consumer goods for the growing number of workers who are making capital goods that they cannot consume.

But sometime in the 1920s, these relationships were inverted. In 1890, consumer purchases accounted for about 36 percent of GDP; in 1925, 40 percent. (Similarly in China today, consumption accounts for only about a third of GDP and investment for half.) But in the United States today, consumer purchases account for about 70 percent of GDP, and investment for only 15 or 20 percent. And the growth of consumption at the expense of investment hasn’t entailed any decline in output, including that of capital goods.


Due to modern technology – from electrification to the computer and the Internet – and to the increasingly sophisticated organization of work, it has become possible to produce more goods without a net increase in workers and capital. The output of capital and consumer goods has continued to grow, but most of the increase in the labor force over the last eighty years has been in government and services. From 1990 to 2008 (before the recession), the United States lost almost a million jobs in capital goods production.

As a result, the consumer sector no longer has to sacrifice its output and income in order to fund a capital goods sector that is growing more rapidly than it is. And instead of the economy being driven by the demand for capital goods, it is driven by the demand for consumer goods and services. The danger in the older economy was conspicuous consumption by capitalists and growing wage demands from workers, which threatened the funds available for investment in capital goods. The looming danger in the new economy in the failure of capitalists to consume or invest and the failure of workers, crippled by debt, unemployment or falling wages, to consume.

Government economic policy has to be, or at least should be, very different in this economy. It should not consist of giving tax breaks to the middle class and the wealthy, but of redistributing income downward--whether through tax policy, social programs, or labor regulations. If it doesn’t do that, or worse still, if it acts as if it were 1925 and encourages a growing gap between the rich and everyone else, it will threaten consumer demand. During the Coolidge and Hoover administrations, the top one percent increased their share of total income by 19 percent. And that happened, too, in George W. Bush’s administration. Such policies not only slow a recovery, but spur a slowdown by putting money in the wrong hands.

Regressive policies can also lead to financial crises. When firms suffer from global overcapacity or merely from domestic overproduction – when a glut arises of automobiles, ships, textiles semiconductors or fiber optic cable -- as happened in the late 1920s and again in the earlier part of the last decade, the wealthy, joined by corporate treasurers and bankers, have tended to pour their money into speculation rather than productive investment. The financial sector has become a casino for the rich, where they have gambled away funds that could have fueled the economy. So redistributing income through tax policy isn’t just fair; it is one way to began restructuring the economy to prevent future slowdowns and crashes.

Republican pleas to retain tax breaks for the wealthy and corporations and to eviscerate social programs do suggest a Romneyesque indifference to the 99 percent; they also presume an economy that no longer exists. “These incentives,” Livingston writes, “are merely invitations to inflate speculative bubbles.” Obama’s concession to arguments about the deficit, which come from Tea Party Republicans and business groups like Fix the Debt, is understandable, but unfortunate. There will come a time -- when unemployment dips, say, below six percent, and the countries’ businesses are at full capacity – when it will be important to reduce government deficits. And raising marginal taxes on the wealthy will be one way – along with other measures – to bring the deficit down.

But bringing down the deficit should not be the principal objective right now. What’s important is to continue the recovery from the Great Recession and to take measures to prevent future crises. Supply-siders were right about one thing: the best way to reduce the government deficit is to create economic growth. Obama’s proposal to raise taxes on the wealthy and to transfer those revenues to workers and the unemployed isn’t just the fair thing to do; it is exactly what’s right for the economy.



12-12-2012, 10:20 AM   #2
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In fairness, let's hear the other side of the argument:
Obama?s Tax the Rich Plan Will Slow the Recovery

QuoteQuote:
New information suggests that President Obama’s ongoing drive to hike taxes on the rich may slow the economy more than expected.


In his relentless quest to make the wealthy “pay their fair share,” Mr. Obama has assumed that high earners will continue to spend no matter what. After all, even the president has acknowledged that raising taxes across the board in a recession is not good practice; it is generally believed that the huge jump in taxes during the 1930s – the top rate soared from 25 percent to 79 percent by 1936 – actually prolonged the Great Depression.

Mr. Obama seems to feel that wealthy Americans operate outside the bounds of normal economic behavior – and that making the top two percent “pay a little more” will not impact our recovery.


But what if he’s wrong? In Europe, where austerity measures have included higher taxes on the wealthy, spending at the high end has declined, impacting the producers of luxury goods in their home markets. The CEO of Burberry, which shocked investors earlier this year by cautioning a slowdown, said last month, “We knew it wasn’t Burberry specific … and it was almost overnight.” In a recent CNBC interview, Francois-Henri Pinault, the CEO of the luxury powerhouse company PPR (owner of Gucci and Yves Saint Laurent), declared, “We are in a big depression when it comes to consumption.”

Though such firms have benefited from still-strong sales to tourists from China and other emerging markets, their hometown buyers have cut back sharply. Might that happen here in the U.S.?

As was (finally) pointed out in The New York Times this week, high earners in the S will get hit with a jump in taxes next year, regardless of how the fiscal cliff is resolved. As of January 2013, the top 20 percent will be hit with an average of $6,000 in new taxes, courtesy of Obamacare. The extra charges will stem from higher taxes on wages and investment income meant to finance Medicare as well as the broader expansion of healthcare coverage to the uninsured. As The Times noted, some 85 percent of the new levies will be footed by the top one percent.

What The Times did not mention is that the wealthy are also being targeted by states attempting to plug budget holes – fiscally challenged states such as California. On Election Day, voters in the Golden State approved tax hikes amounting to $6 billion per year, of which 79 percent will be paid by the top 1 percent.

Maryland, Connecticut, Hawaii and Oregon are among other states that have raised rates for high earners in the past couple of years. As the Tax Foundation points out, we would likely have seen more such hikes except that states recognize “the taxes will negatively impact location decisions.”

The higher tax crusade by the Obama White House may already be putting a damper on spending at the high end. Steve Kraus, chief opinion officer at Ipsos, reports that his organization’s latest polling of affluent Americans showed a distinct drop in optimism. In October, facing uncertainties that included an impending Hurricane Sandy and the election, as well as higher taxes, Americans earning over $250,000 “slipped back into neutral mode” regarding their luxury spending intentions, for the first time in a couple of years.

Similarly, Gallup reports that the self-reported daily spending of upper-income Americans (defined as those making at least $90,000 per year) “was lower this November – by an average of $113 – than in any November dating back to 2008.” Apparently, according to Gallup polling, spending by high earners has trended lower for the past few months.

This is not good news. Declining incomes have strained spending by the middle class; it has been the wealthy that have carried the bulk of the consumer recovery. That’s worrisome, since high-end shoppers spend heavily on discretionary items and can easily postpone such purchases. Middle-class spenders cannot easily cut back on food and gasoline, but the wealthy can surely put off buying another pair of Prada shoes or even filling the up their carts at Costco.

Economists estimate that the top 20 percent of wage earners normally account for around 40 percent of household spending; during this period, that figure may be as high as 50 percent. Kraus says the “ultra-affluent,” those whose incomes top $250,000, account for as much as 20 percent of some high-end categories. It is that group, of course, that will be hit by Mr. Obama’s tax hike.

High-end vendors like Tiffany and Coach have fared especially well in the aftermath of the financial crisis. Most recently, Bloomberg’s retail luxury index (which compiles indications of sales activity from high-end stores like Saks) has dropped sharply – from a high of 21 at the end of August to a more recent reading at the end of November of .81.

Uncertainty about our fiscal debate and about future taxes are doubtless taking a toll. Just how much of a toll was evident in the most recent University of Michigan-Thomson Reuters consumer sentiment report, which showed that the index slumped to 74.5 from 82.7 in November. The biggest one-month drop since early 2011 was a shock; economists were expecting the index to hold roughly steady after four months of improvement.

With the recovery continuing to limp along, raising taxes on the wealthy may scratch a presidential itch, but it does little to close our deficits and – if it slows our recovery – could even worsen our budget outlook. For sure, the tax hike will not put 12 million unemployed Americans back to work.
12-12-2012, 10:37 AM   #3
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There is only a certain amount of money to be spent. The only qyestion is, who do we want spending it. RIch people or poor through middle class people/ If you're talking, are you going to create more jobs by catering to 1% of the population or 99% of the population, I'd suggest that more jobs are likely to be created by enabling 20 people to buy a car , than one person to buy one luxury car.

QuoteQuote:
New information suggests that President Obama’s ongoing drive to hike taxes on the rich may slow the economy more than expected.
Great sentence to analyze.

"New information" = you should listen to us, we have information you don't. The word "new" or improved " are dead give aways you're being scammed.

QuoteQuote:
President Obama’s ongoing drive to hike taxes on the rich may slow the economy more than expected.
What does this actually say? it says we don't know.
But the killer line is "more than expected."

Not everyone expects taxing the rich more will cost even one job. The evidence at least where I live is that the rich a a hoarding money. The extra income they receive is being neither invested nor put back into the economy. At least in Canada if a simlar tax were to be introduced it would be to free money being hoarded by the rich and pumping it back into the economy to stimulate production of goods and services. So I expect the Canadian tact when it comes will be that taxing the rich will create spending and jobs.

QuoteQuote:
For sure, the tax hike will not put 12 million unemployed Americans back to work.
But that's not for sure. It's funny how he starts with what may or amy not be, and from those spurious conclusions ends with "for sure". How do you get "for sure" out of speculation and misrepresentation?
The whole tack of this article is to mis-inform and promote the benefits of having rich people get more money. It's neither reasoned nor reasonable. Or in short, it's propaganda.
12-12-2012, 11:04 AM   #4
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But this bothers me... (cue Jeff )

QuoteOriginally posted by Nesster Quote
But in the United States today, consumer purchases account for about 70 percent of GDP, and investment for only 15 or 20 percent. And the growth of consumption at the expense of investment hasn’t entailed any decline in output, including that of capital goods.

Due to modern technology – from electrification to the computer and the Internet – and to the increasingly sophisticated organization of work, it has become possible to produce more goods without a net increase in workers and capital. The output of capital and consumer goods has continued to grow, but most of the increase in the labor force over the last eighty years has been in government and services. From 1990 to 2008 (before the recession), the United States lost almost a million jobs in capital goods production.

As a result, the consumer sector no longer has to sacrifice its output and income in order to fund a capital goods sector that is growing more rapidly than it is. And instead of the economy being driven by the demand for capital goods, it is driven by the demand for consumer goods and services. The danger in the older economy was conspicuous consumption by capitalists and growing wage demands from workers, which threatened the funds available for investment in capital goods. The looming danger in the new economy in the failure of capitalists to consume or invest and the failure of workers, crippled by debt, unemployment or falling wages, to consume.
My worry is this. Clearly the cost of producing a widget has to be less than what it sells for, at each stage of the manufacture and distribution. The cost is essentially labor costs, occupancy, shipping, advertising, materials and so on. Therefore the labor cost - which is only partly wages - must be a fraction of the widget price.

If there was no importation, would not a consumer economy eventually start to deflate on its own: wages don't cover the cost of goods, resulting in fewer jobs and lower wages... High margin widgets become low margin widgets, the cost of continuous innovation to maintain margins eventually slows down and another segment takes up the slack. Workers are displaced, investments lose value as market focus shifts...

So, we import where the cost of selling the widget leaves us profit... but that means fewer jobs here... and at any rate the jobs remaining also face downward pressure as they remain a part of the cost of sales.

In this environment, who creates the value to break this cycle? How do you keep consumers buying?

12-12-2012, 12:01 PM   #5
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QuoteOriginally posted by normhead Quote
There is only a certain amount of money to be spent.
Problem is defining that point.. we are not NEAR it now..........
QuoteOriginally posted by Nesster Quote
But this bothers me... (cue Jeff )
naaahhh.. not today.. seems since this sandbox is on a limited life...(traffic is traffic.. ) it has lost its luster.. Suppose I'll have to go back to FF vs APS and "is my camera underexposing" you know crucial issues in life..

The Hoya wants to sell Pentax was fun for awhile.. as well as the SPARX hostile takeover.. Kind of gave up all this after VPN issues.. and USM motor failures and which software should I buy .. or how many pixels is too many.. (like fed spending... more than you think.. )

I feel dirty....
12-12-2012, 12:04 PM   #6
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Should we have a poll for who will be the last poster here?
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