Indeed it has been a very interesting several days in America. The DOW recorded its biggest point drop in history on Monday, closing down 777 points. The presidential debate was less than exciting last Friday, and for the first time in my life, C-SPAN had a simulcast on all the major networks as the House of Representatives voted on a bill that would have made history. This story continues to unfold so stay tuned for the breakdown as it happens.
We would have loved to move on to a different topic by now, but this is what everyone is talking about and it just wouldn’t make sense to change the discussion in light of the economy dominating the news. Plus, it is important to weed through the facts and understand really why we are here and which candidate is best served to get us out of this mess and prevent something like this from happening again.
I will make one more point on the Nordstrom analogy before I move on. Perhaps I was a little too optimistic in my assertion that friendly CEO’s of large companies would pass on savings from tax relief on to you, the consumer. Silly me, greed and corruption does exist as well as a desire to help the rich get richer. While I could still argue that some companies would in fact pass on the savings to the consumer, I will concede the point that the likelihood of this specific instance of a trickle down is pretty slim. However- the theory of trickle up still fails to address the exact opposite effect. If you take the stance that CEO’s are only after the best interest of their shareholders- then guess what happens if you INCREASE their taxes? You can bet they will pass that increase onto your Tory Birch flats and Ed Hardy t-shirts, bad news for you- even worse news for the economy. If they do not offset their lost earnings, their earnings per share (EPS) would take a hit and their stock would lose value. As we saw Monday- American companies losing value is not good for anyone. I don’t care who you are or how much money you make, not good. Furthermore tax increases would lessen the incentive to expand domestically and continually reinvest in their American operations.
Aside from all that, we seem to be neglecting the point that these companies and these so called top 5% of America EARNED their endless wealth. Most of them are not trust fund babies and at some point actually worked hard to be at the top. Its sickening how much money they have, they don’t need it all, they can afford more taxes, hell they can afford to give away a big chunk of their money and still be filthy rich. But the underlying principle of capitalism is they should be the ones to make that decision, not the government. The notion that they have so much money so all the sudden middle class and poor people, are somehow entitled to it, is socialist. I would like to hear a counter argument that suggests the Robin Hood tax plan does not take us a step closer to socialist ideals. When we drift too far from this point and justify it by blaming the rich for our problems, we neglect what makes this country great and that is- everyone has the opportunity to be just as filthy rich. Now you can dismiss that because your job sucks or you have $320 bucks in your bank account, or you can seriously consider it as an option. Yes, even for you my dear blog reader. Go start a business, make it great, work hard, generate excitement and be among those 5%- hey maybe by you and a couple friends doing that, the percentage of the super rich will become 6%? :) Instead of sitting around looking for a handout from the people who actually did that, perhaps you can turn the tables and be one of those people. And maybe, just maybe, when you get to the top you will use your resources for good instead of greed. Help the poor out of the goodness of your heart, not out of a civil obligation to carry your weight. Reinvest in the country that helped make you great by providing jobs, serving communities and expanding your successful enterprise. Seriously- stop reading this blog and go do that. What is stopping you? Again, I would like to hear an argument calling me crazy on this one. There is no reason why every individual cannot be great in this country.
Besides- Fannie, Freddie are the root of our current problem…
While the problems we have are serious and historic, I would submit that it has very little to do with varying view on economic principles and our current tax code. It in fact has everything to do with Housing as I outlined in a previous post. Regardless of which way our economy has been “trickling” this crisis would have happened. I can promise you that. I personally think we should dedicate the next couple posts to Fannie and Freddie which is the real root of this problem. I am finishing up my research and will post my findings next- I think you will find most of what I will outline very surprising... Stay Tuned.
Tuesday, September 30, 2008
Monday, September 29, 2008
Let's try "trickle-up" for a change
It's been a wild week in America. One candidate "suspended" his campaign until we have a bailout compromise. House Republicans changed their minds about this bailout bill because their feelings were hurt. And for the first time in comedy history, a VP candidate was spoofed using her own words during a TV interview. (BTW Tina Fey is brilliant). Oh, I forgot to mention the economy. Yeah, what is there to say other than "Oh, crap."
Well, there is something to say. Clearly, we need a whole new look at how we allocate monies in this country. Supply-side economics has ground the economy to a halt once again, and this is not the first time. How about the recession of the early 90's (1990-92, so that can't be blamed on a Clinton) or Black Monday in 1987. But, Reaganomics is operating a country under huge deficits, not just supply-side or trickle-down economics. No, TDE is much older than that. We see how funneling unending money to the richest 5% caused the crash of 1929 and FDR convincing the richest 5% to help us 95%ers out of the depression. We can go back further still. Before it was called TDE the name was the "horse and sparrow" theory in the 1890's. Why? Well, the theory states you feed the horse (the wealthy) and the sparrows (the rest of us) eat what's left over in the manure. No wonder the name got changed. The horse and sparrow economy led to what economists now say was a terrible recession in 1896.
Here's the issue and I hope to explain why the Obama tax plan is the solution.
Let's continue the Nordstrom's example. Now, I'm using Nordstrom's as a symbol for any company that has to make decisions based on windfalls. I don't have anything against Nordstrom's and this may or may not be how they allocate a lower tax investment.
Trickle-down
Let's say Nordstrom's lobbies for a lower tax investment. What do they have to consider when they receive this extra money? They could pass the total their savings onto consumers. But, would they do that? I submit that the CEO at Nordstrom's would quickly be shown to the door if that happened. Why? Because passing savings onto consumers is not the mission of Nordstrom's. Increasing the gains of shareholders is. So, a CEO has to balance reducing these new found profits by discounting prices or passing profits onto shareholders. In addition, Nordstrom's can invest money in domestic and foreign markets. These days I'm hearing that smart investors are moving their money overseas which doesn't benefit the American economy at all. Nordstrom's can also remodel a store or start a marketing campaign or purchasing new cash registers company wide. None of these directly drop prices.
In fact, there is no correlation between pricing and a company's tax obligation. Pricing is based on what the market can bear. Nordstrom's will continue to sell a product at the same or higher price if it is selling well and people aren't buying a similar product at Macy's. It would be unheard of for Nordstrom's to reduce to prices of everything in their just because they a paying less in taxes. This is why economists universally panned a gas tax holiday. People were willing to pay for gas and lifting the tax couldn't guarantee price relief.
Trickle-down doesn't work because the trickle happens far too slowly. The lower wage earners, whose spending boosts the economy, don't see the relief for quite some time. Therefore, less money is coming back up into the economy and lower wage earners are taxed at a higher rate to make for the lower tax investment of the wealthy. The system stagnates when money moves out of the country and stops circulating at the lower levels. Consumer confidence drops and people default on loans and mortgages. Banks in turn start losing money and bam the bottom falls out of the market.
Now, Trickle-up
So, what happens when we funnel money to the middle and working classes? They in turn spend their money in the American economy. Nordstrom' s sees that money because my wife will spend our return on new flats and we may invest in diversified portfolios, including maybe Nordstrom's stocks. The only thing a lower wage earner could do to stagnate the money is to store the money under their mattress. If they pay off their credit cards then those credit card companies can in turn grant credit to more consumers. If they save it, the bank can invest that money in the market. If they spend it, there it goes to invigorate the economy. We know this is what happens because it happened in the late ninties. It happened in the 50's and 60's. Ike and JFK were economic populists. Our boom times came from money going to average Americans so we can spend that money where we want. Nordstrom's will see that relief from us. They just have to work for it a little harder.
I suggest you visit electiontaxes.com. A professor at the University of Southern Maine created a website that will calcute your tax obligation under each candidate. It may be surprising what you find.
JB
Well, there is something to say. Clearly, we need a whole new look at how we allocate monies in this country. Supply-side economics has ground the economy to a halt once again, and this is not the first time. How about the recession of the early 90's (1990-92, so that can't be blamed on a Clinton) or Black Monday in 1987. But, Reaganomics is operating a country under huge deficits, not just supply-side or trickle-down economics. No, TDE is much older than that. We see how funneling unending money to the richest 5% caused the crash of 1929 and FDR convincing the richest 5% to help us 95%ers out of the depression. We can go back further still. Before it was called TDE the name was the "horse and sparrow" theory in the 1890's. Why? Well, the theory states you feed the horse (the wealthy) and the sparrows (the rest of us) eat what's left over in the manure. No wonder the name got changed. The horse and sparrow economy led to what economists now say was a terrible recession in 1896.
Here's the issue and I hope to explain why the Obama tax plan is the solution.
Let's continue the Nordstrom's example. Now, I'm using Nordstrom's as a symbol for any company that has to make decisions based on windfalls. I don't have anything against Nordstrom's and this may or may not be how they allocate a lower tax investment.
Trickle-down
Let's say Nordstrom's lobbies for a lower tax investment. What do they have to consider when they receive this extra money? They could pass the total their savings onto consumers. But, would they do that? I submit that the CEO at Nordstrom's would quickly be shown to the door if that happened. Why? Because passing savings onto consumers is not the mission of Nordstrom's. Increasing the gains of shareholders is. So, a CEO has to balance reducing these new found profits by discounting prices or passing profits onto shareholders. In addition, Nordstrom's can invest money in domestic and foreign markets. These days I'm hearing that smart investors are moving their money overseas which doesn't benefit the American economy at all. Nordstrom's can also remodel a store or start a marketing campaign or purchasing new cash registers company wide. None of these directly drop prices.
In fact, there is no correlation between pricing and a company's tax obligation. Pricing is based on what the market can bear. Nordstrom's will continue to sell a product at the same or higher price if it is selling well and people aren't buying a similar product at Macy's. It would be unheard of for Nordstrom's to reduce to prices of everything in their just because they a paying less in taxes. This is why economists universally panned a gas tax holiday. People were willing to pay for gas and lifting the tax couldn't guarantee price relief.
Trickle-down doesn't work because the trickle happens far too slowly. The lower wage earners, whose spending boosts the economy, don't see the relief for quite some time. Therefore, less money is coming back up into the economy and lower wage earners are taxed at a higher rate to make for the lower tax investment of the wealthy. The system stagnates when money moves out of the country and stops circulating at the lower levels. Consumer confidence drops and people default on loans and mortgages. Banks in turn start losing money and bam the bottom falls out of the market.
Now, Trickle-up
So, what happens when we funnel money to the middle and working classes? They in turn spend their money in the American economy. Nordstrom' s sees that money because my wife will spend our return on new flats and we may invest in diversified portfolios, including maybe Nordstrom's stocks. The only thing a lower wage earner could do to stagnate the money is to store the money under their mattress. If they pay off their credit cards then those credit card companies can in turn grant credit to more consumers. If they save it, the bank can invest that money in the market. If they spend it, there it goes to invigorate the economy. We know this is what happens because it happened in the late ninties. It happened in the 50's and 60's. Ike and JFK were economic populists. Our boom times came from money going to average Americans so we can spend that money where we want. Nordstrom's will see that relief from us. They just have to work for it a little harder.
I suggest you visit electiontaxes.com. A professor at the University of Southern Maine created a website that will calcute your tax obligation under each candidate. It may be surprising what you find.
JB
Saturday, September 20, 2008
Is Bill Gates a Patriot?
Reading the previous post really challenged my thinking as it was clearly well thought out and extremely thought provoking. I do have some reservations on a few of the points that were made, so here is my response as well as some additional insight.
When we talk about Patriotism as it relates to paying taxes we are addressing Sen Joe Biden's quote yesterday when he suggested that it was in fact more patriotic to pay more taxes. (Source: AP http://ap.google.com/article/ALeqM5ijhWY4xbOaT6L788T-6b9FgI2dKAD9393ULG3) Sen. Biden's claim is one certainly worth discussing, but I think the way he framed it has a few holes. It is one thing to say that paying your taxes in full, on time is patriotic, it is another thing to say that the wealthy in this country are not pulling their weight. As a frame of reference, I would not fall into Sen. Biden's or Sen. Obama's $250,000+ "rich" box, so it is possible to have concern about taking money from other people or attacking their patriotism without actually being one of them.
Taxes are in fact an investment.
There is no doubt that everything that was stated in the previous post, in regards to infrastructure and roads was right on the money. I don' think anyone could really argue against the fact that infrastructure is the backbone of the American economy, including the gentleman in the Ferrari who does need a road to drive it on.
Defense is the other crucial investment that our tax dollars pay for. As outlined in the preamble of the constitution "…ensure domestic tranquility. Provide for the common defense…" This is the basic provision that the FedEx building fire gets put out and the Canadians don't even make it across the border to invade Minnesota.
Taxes are necessary, of course. A tax free America would never work. Jesus himself said "Give to Caesar what is Caesar's" in reference to dutifully paying your taxes. So we agree up until this point.
Now about "fair share"...
I don't think it is fair to categorize all large corporations as tax evaders and as corrupt. There are of course, companies that will take advantage of any tax break they can get and even cheat the system by putting money in offshore bank accounts so they can avoid paying taxes on them, shame on them. That is in fact very unpatriotic. However, you can’t throw the baby out with the bath water on this issue and penalize all corporations for the behavior of a few. That would be like wiping out welfare because of the few individuals who purposely are lazy and choose to live off the system (also unpatriotic by the way).
I would submit that lower corporate taxes encourage more corporations to do business in the U.S. and thereby grow the economy greatly. I am sure most of them wish it made more sense to do business here and I'm sure a lot of them even go as far as foregoing millions of dollars in potential profit just so they are not tagged as "unpatriotic" - you decide what is fair in this regard and what the solution is. Do we raise taxes and try to force the hand of CEO's to keep all their profits taxable and on U.S. soil, or do we make the arena easier for them to be "patriotic" and keep reinvesting in the U.S. Economy? You can’t force anyone to do anything, as long as there is opportunity to save money or earn more money elsewhere, those avenues will be pursued. Forget about patriotism for a second- what about foreign companies that we want to attract? Isn't that one of the best ways to grow the economy? Why in the world would a foreign company try to expand into the U.S. if they could stay in their country and pay a fraction of the taxes- especially when they know Americans are the largest consumer in the world, and we are still going to buy their product! We need to encourage growth and corporate expansion by making it appealing; give an incentive to do business here. By raising taxes you may generate more “tax” revenue for a short while, but you are going to cripple overall economic expansion, you will discourage some companies from doing business altogether and thereby reducing tax revenue in the long term.
Now as it relates to YOU come April 15th- what is your fair share in this investment? The roads you drive on and the police officers, fire fighters, and armed forces that protect you and all of your rights?
I absolutely agree with JB that you should pay in relevance to how successful this country has made you. If it weren’t for the infrastructure that you stand on, you would have no wealth or success to speak of. The question remains, what is my fair share?
An example of an "unfair share" would be a flat tax. If everyone who made an income was required to pay $20,000 in taxes every year that would obviously be unfair. You can’t tell someone who made $30,000 to pay as much taxes as Bill Gates. No brainer, right?
I would submit that a simple percentage is the only TRUE fairness. Let's just use 25% as an across the board tax. You can't tell me that asking that same person who made $30,000 to pay $7,500 in taxes and asking Bill Gates who made $175 million to pay $43 Million, is unfair. That's a big tax bill for Mr. Gates- but guess what, this isn’t even what he pays. It’s also not even what the 30k/yr person pays. Under the 2008 Federal Income Tax bracket this scenario would have the gentleman making $30,000 actually in the 15% tax bracket and their tax bill being roughly $4,500. As for Mr. Gates? His income would put him (of course) in the highest tax bracket, which is 35%- which, if you are keeping score at home, is 20% higher than Mr. 30k/yr. The Gates tax bill would be a measly $61,250,000. Yes, Mr. Gates can easily afford this- but is it fair? Likewise, is it fair to criticize Mr. Gates' patriotism should he disagree with increasing this gap? I for one think Bill Gates is pulling his weight. I for one think Bill Gates and all his rich friends are patriots as long as they are paying what the government is requiring. 5 words for you- Bill and Melinda Gates Foundation. (please don't insult the good work and philanthropy of the Gates' by suggesting they only do it for a tax break, thank you.) Of course this is only one example, but it goes to show you that people are capable of doing good and reinvesting into society (and the world) without the Government forcing them to do so all the while, still paying their fair share of the tax bill and being "patriotic".
As Garrett pointed out in a previous thread, the larger issue is really income redistribution. Under the Obama tax plan, by the Senator's own admission, taxes on the so called "rich" would increase and the "middle class" would decrease. That would mean that some tax revenue would go from one class to another. Right? If you increase the higher bracket by 3% and decrease the lower bracket by 3%, aren’t you essentially taking from the rich and giving it to the poor? That does not resemble capitalism, that is purely penalizing the rich for their success and giving it back to us “less fortunate” middle class’ers. That is not my definition of patriotic, and certainly far from what I would call fair.
Let the rich keep the money that they earned. Tax them a fair amount of money for utilizing the amenities and consuming American resources, but don’t try to make them carry the country on their shoulders. Don’t increase capital gains tax, don’t reinstate the inheritance tax, and whatever you do, don’t increase taxes on small business. It just doesn’t make any sense. It discourages people from investing in anything American, from buying stocks to buying property, from starting businesses to working for small business…
Lastly, I will point out that I would answer “yes” to all of JB’s opening questions and I especially would like to highlight the fact that the Good Lord does expect us to “tithe” to our local church, which literally means 1/10th of our income, or 10%. He also tells us that “to whom much is given much is expected”, so apply both of those statements in context and remember- That was God talking, not Uncle Sam.
When we talk about Patriotism as it relates to paying taxes we are addressing Sen Joe Biden's quote yesterday when he suggested that it was in fact more patriotic to pay more taxes. (Source: AP http://ap.google.com/article/ALeqM5ijhWY4xbOaT6L788T-6b9FgI2dKAD9393ULG3) Sen. Biden's claim is one certainly worth discussing, but I think the way he framed it has a few holes. It is one thing to say that paying your taxes in full, on time is patriotic, it is another thing to say that the wealthy in this country are not pulling their weight. As a frame of reference, I would not fall into Sen. Biden's or Sen. Obama's $250,000+ "rich" box, so it is possible to have concern about taking money from other people or attacking their patriotism without actually being one of them.
Taxes are in fact an investment.
There is no doubt that everything that was stated in the previous post, in regards to infrastructure and roads was right on the money. I don' think anyone could really argue against the fact that infrastructure is the backbone of the American economy, including the gentleman in the Ferrari who does need a road to drive it on.
Defense is the other crucial investment that our tax dollars pay for. As outlined in the preamble of the constitution "…ensure domestic tranquility. Provide for the common defense…" This is the basic provision that the FedEx building fire gets put out and the Canadians don't even make it across the border to invade Minnesota.
Taxes are necessary, of course. A tax free America would never work. Jesus himself said "Give to Caesar what is Caesar's" in reference to dutifully paying your taxes. So we agree up until this point.
Now about "fair share"...
I don't think it is fair to categorize all large corporations as tax evaders and as corrupt. There are of course, companies that will take advantage of any tax break they can get and even cheat the system by putting money in offshore bank accounts so they can avoid paying taxes on them, shame on them. That is in fact very unpatriotic. However, you can’t throw the baby out with the bath water on this issue and penalize all corporations for the behavior of a few. That would be like wiping out welfare because of the few individuals who purposely are lazy and choose to live off the system (also unpatriotic by the way).
I would submit that lower corporate taxes encourage more corporations to do business in the U.S. and thereby grow the economy greatly. I am sure most of them wish it made more sense to do business here and I'm sure a lot of them even go as far as foregoing millions of dollars in potential profit just so they are not tagged as "unpatriotic" - you decide what is fair in this regard and what the solution is. Do we raise taxes and try to force the hand of CEO's to keep all their profits taxable and on U.S. soil, or do we make the arena easier for them to be "patriotic" and keep reinvesting in the U.S. Economy? You can’t force anyone to do anything, as long as there is opportunity to save money or earn more money elsewhere, those avenues will be pursued. Forget about patriotism for a second- what about foreign companies that we want to attract? Isn't that one of the best ways to grow the economy? Why in the world would a foreign company try to expand into the U.S. if they could stay in their country and pay a fraction of the taxes- especially when they know Americans are the largest consumer in the world, and we are still going to buy their product! We need to encourage growth and corporate expansion by making it appealing; give an incentive to do business here. By raising taxes you may generate more “tax” revenue for a short while, but you are going to cripple overall economic expansion, you will discourage some companies from doing business altogether and thereby reducing tax revenue in the long term.
Now as it relates to YOU come April 15th- what is your fair share in this investment? The roads you drive on and the police officers, fire fighters, and armed forces that protect you and all of your rights?
I absolutely agree with JB that you should pay in relevance to how successful this country has made you. If it weren’t for the infrastructure that you stand on, you would have no wealth or success to speak of. The question remains, what is my fair share?
An example of an "unfair share" would be a flat tax. If everyone who made an income was required to pay $20,000 in taxes every year that would obviously be unfair. You can’t tell someone who made $30,000 to pay as much taxes as Bill Gates. No brainer, right?
I would submit that a simple percentage is the only TRUE fairness. Let's just use 25% as an across the board tax. You can't tell me that asking that same person who made $30,000 to pay $7,500 in taxes and asking Bill Gates who made $175 million to pay $43 Million, is unfair. That's a big tax bill for Mr. Gates- but guess what, this isn’t even what he pays. It’s also not even what the 30k/yr person pays. Under the 2008 Federal Income Tax bracket this scenario would have the gentleman making $30,000 actually in the 15% tax bracket and their tax bill being roughly $4,500. As for Mr. Gates? His income would put him (of course) in the highest tax bracket, which is 35%- which, if you are keeping score at home, is 20% higher than Mr. 30k/yr. The Gates tax bill would be a measly $61,250,000. Yes, Mr. Gates can easily afford this- but is it fair? Likewise, is it fair to criticize Mr. Gates' patriotism should he disagree with increasing this gap? I for one think Bill Gates is pulling his weight. I for one think Bill Gates and all his rich friends are patriots as long as they are paying what the government is requiring. 5 words for you- Bill and Melinda Gates Foundation. (please don't insult the good work and philanthropy of the Gates' by suggesting they only do it for a tax break, thank you.) Of course this is only one example, but it goes to show you that people are capable of doing good and reinvesting into society (and the world) without the Government forcing them to do so all the while, still paying their fair share of the tax bill and being "patriotic".
As Garrett pointed out in a previous thread, the larger issue is really income redistribution. Under the Obama tax plan, by the Senator's own admission, taxes on the so called "rich" would increase and the "middle class" would decrease. That would mean that some tax revenue would go from one class to another. Right? If you increase the higher bracket by 3% and decrease the lower bracket by 3%, aren’t you essentially taking from the rich and giving it to the poor? That does not resemble capitalism, that is purely penalizing the rich for their success and giving it back to us “less fortunate” middle class’ers. That is not my definition of patriotic, and certainly far from what I would call fair.
Let the rich keep the money that they earned. Tax them a fair amount of money for utilizing the amenities and consuming American resources, but don’t try to make them carry the country on their shoulders. Don’t increase capital gains tax, don’t reinstate the inheritance tax, and whatever you do, don’t increase taxes on small business. It just doesn’t make any sense. It discourages people from investing in anything American, from buying stocks to buying property, from starting businesses to working for small business…
Lastly, I will point out that I would answer “yes” to all of JB’s opening questions and I especially would like to highlight the fact that the Good Lord does expect us to “tithe” to our local church, which literally means 1/10th of our income, or 10%. He also tells us that “to whom much is given much is expected”, so apply both of those statements in context and remember- That was God talking, not Uncle Sam.
Does paying you fair share of taxes make you more patriotic?
This is a question I've thought about in great length around April 15th every year.
Let me reframe this by posing some similar questions:
"Does paying you fair share of taxes make you more patriotic?"
"Does tithing correctly make you a more responsible church member?"
"Does paying your membership dues in full and on time make you better group member?"
"Does paying your rent on time make you better tenant?"
Some interesting thoughts may arise when we put these ideas questions together. How are these similar and how are these different? Here's some thoughts why I would answer in the affirmative to all of these questions.
Taxes are an Investment
What is the greatest investment we, as taxpayers, are making and benefiting from every day? The answer: Roads. Roads are the very reason why the "I made my money through my own hard work and no one is taking it from me" argument is moot. Roads and other infrastructure are the back bone of the American economy. Every time someone gets rich by selling a product think about roads for starters. Let's say I invented a fantastic new product. How did the raw materials get to a factory? How did the building materials for a factory get to the site? How do the workers at my factory get to work? How did the product get to retail sites in order from them to be sold? How did your consumers reach said retail site to purchase your product? How do banks move large amounts of cash (including cash from the sale of your product) from major retailers to their banks? When I put up a sign on the side of a busy freeway advertising my product, why are drivers even there? And when I get filthy rich, where am I going to drive my new Ferrari?
People get rich now by standing on the infrastructure of tax dollars invested now and one hundred years ago. We can go further into the infrastructure. Who protects the shipments from pirates on the high seas and bandits on the roads so my products make it safely across the country? And my shout out to FedEx because large retail and commercial shippers realize how much taxpayer money it takes to help them do what they do. If my factory catches on fire, how does the fire get put out? What if Canada decides to get cute and invade Minnesota? Who will protect may factory outside of Milwaukee?
Again, taxes are investments we make in order to protect the well-being in our society.
So the argument is "You know how to spend your money better than the government." I would submit that this isn't true in a great many cases. It goes back to roads. Fast-forward to a no tax American. Can you and your neighbors decide how to pool your money in order to build a road from your neighborhood to the local grocery store? What if there's potholes in the road? Which of you is going to make sure people drive safely on this road? When we get our tax cut, are we going to spend it on training doctors and scientists and build them hospitals and laboratories? Are we going to take that tax cut and pay for our local schools and universities? Is your tax cut going to be enough to pay your fair share of your children's teacher's salaries and training necessary to make those teachers competent?
Everyone pays their fair share
The truth is a tax free American would never happen. Why? Someone has to pay for all those things and I submit it should be the people who have benefited from it the most. Why do working class, middle class and even affluent Americans have one tax code and Halliburton have another? Thoughts? Big corporations would love it if continued to pay their way for them. They have teams of lawyers looking for ways to lower what they pay and that's if they are even "based" in America. They want working class through affluent Americans to pick up the tab. There wouldn't need to be an estate tax if corporations paid their fair share. Or a sales tax. Or a tax on retirement funds. Social Security would be solvent forever if we raised the income cap.
Finally, paying taxes is patriotic
Investing in our community is quite possibly the most patriotic thing we can do. Maintaining our infrastructure so that your fellow Americans can have the same opportunity that you had is patriotic. There would be no American patriotism if there were no American community. Taxpayers guarantee the worth of the dollars in your wallet, the strength of the roads you drive on, the security symbolized in our nation's firefighters and police officers, and the protection of our oldest and youngest citizens. Taxpayers do so much for the American community. When you achieve so much and realize that you did so through your own hard work and the hard work of the community that surrounds you, that is patriotic. To throw your hands up and say "that's it, I'm done paying taxes," after you've used the resources that this community has invested in, is not.
Something related to think about
Tax is a wedge issue. Republican strategists know that if they put ballot measures effecting tax rates on with their candidates, it will get out certain groups of voters. That's why there are measures about gay marriage, abortion, and teaching creationism in public schools. Not because these strategists care about these issues; Karl Rove himself said he uses socially conservative issues only to drive out the base. Issues he could care less about.
Let me reframe this by posing some similar questions:
"Does paying you fair share of taxes make you more patriotic?"
"Does tithing correctly make you a more responsible church member?"
"Does paying your membership dues in full and on time make you better group member?"
"Does paying your rent on time make you better tenant?"
Some interesting thoughts may arise when we put these ideas questions together. How are these similar and how are these different? Here's some thoughts why I would answer in the affirmative to all of these questions.
Taxes are an Investment
What is the greatest investment we, as taxpayers, are making and benefiting from every day? The answer: Roads. Roads are the very reason why the "I made my money through my own hard work and no one is taking it from me" argument is moot. Roads and other infrastructure are the back bone of the American economy. Every time someone gets rich by selling a product think about roads for starters. Let's say I invented a fantastic new product. How did the raw materials get to a factory? How did the building materials for a factory get to the site? How do the workers at my factory get to work? How did the product get to retail sites in order from them to be sold? How did your consumers reach said retail site to purchase your product? How do banks move large amounts of cash (including cash from the sale of your product) from major retailers to their banks? When I put up a sign on the side of a busy freeway advertising my product, why are drivers even there? And when I get filthy rich, where am I going to drive my new Ferrari?
People get rich now by standing on the infrastructure of tax dollars invested now and one hundred years ago. We can go further into the infrastructure. Who protects the shipments from pirates on the high seas and bandits on the roads so my products make it safely across the country? And my shout out to FedEx because large retail and commercial shippers realize how much taxpayer money it takes to help them do what they do. If my factory catches on fire, how does the fire get put out? What if Canada decides to get cute and invade Minnesota? Who will protect may factory outside of Milwaukee?
Again, taxes are investments we make in order to protect the well-being in our society.
So the argument is "You know how to spend your money better than the government." I would submit that this isn't true in a great many cases. It goes back to roads. Fast-forward to a no tax American. Can you and your neighbors decide how to pool your money in order to build a road from your neighborhood to the local grocery store? What if there's potholes in the road? Which of you is going to make sure people drive safely on this road? When we get our tax cut, are we going to spend it on training doctors and scientists and build them hospitals and laboratories? Are we going to take that tax cut and pay for our local schools and universities? Is your tax cut going to be enough to pay your fair share of your children's teacher's salaries and training necessary to make those teachers competent?
Everyone pays their fair share
The truth is a tax free American would never happen. Why? Someone has to pay for all those things and I submit it should be the people who have benefited from it the most. Why do working class, middle class and even affluent Americans have one tax code and Halliburton have another? Thoughts? Big corporations would love it if continued to pay their way for them. They have teams of lawyers looking for ways to lower what they pay and that's if they are even "based" in America. They want working class through affluent Americans to pick up the tab. There wouldn't need to be an estate tax if corporations paid their fair share. Or a sales tax. Or a tax on retirement funds. Social Security would be solvent forever if we raised the income cap.
Finally, paying taxes is patriotic
Investing in our community is quite possibly the most patriotic thing we can do. Maintaining our infrastructure so that your fellow Americans can have the same opportunity that you had is patriotic. There would be no American patriotism if there were no American community. Taxpayers guarantee the worth of the dollars in your wallet, the strength of the roads you drive on, the security symbolized in our nation's firefighters and police officers, and the protection of our oldest and youngest citizens. Taxpayers do so much for the American community. When you achieve so much and realize that you did so through your own hard work and the hard work of the community that surrounds you, that is patriotic. To throw your hands up and say "that's it, I'm done paying taxes," after you've used the resources that this community has invested in, is not.
Something related to think about
Tax is a wedge issue. Republican strategists know that if they put ballot measures effecting tax rates on with their candidates, it will get out certain groups of voters. That's why there are measures about gay marriage, abortion, and teaching creationism in public schools. Not because these strategists care about these issues; Karl Rove himself said he uses socially conservative issues only to drive out the base. Issues he could care less about.
Thursday, September 18, 2008
What's up with the Economy?
In talking with a lot of people its become evident that the common folk, not entrenched everyday in the wonderful world of Real Estate, Mortgages and Wall Street, have a very limited understanding of how we got to where we are today. So before we attempt to tackle the economy from a political perspective, I think it is important to first lay the groundwork to how we got to where we are today, I might ramble a little because this issue directly affects my family and I everyday (as it does many of you) because of my line of work, so forgive me in advance.
The Housing Crisis, The Mortgage Mess, The Mortgage Meltdown, Mortgage Lenders Implode-o-Meter, Liquidity Crunch, Liquidity Crisis, Economy in Shambles, Dow Down 500 points, Wall Street Mess, Credit Crunch, Lehman Brothers bankrupt, Bear Stearns Bail out, AIG Bail out, Fannie Mae & Freddie Mac bail out, IndyMac Seized by FDIC, Countrywide Bought by B of A, Merryil Lynch bought by B of A, WaMu For Sale…I’m sure I’ve missed a few headlines, but you get the point. Things are messed up right now.
If you have turned on the news in the past 8 or 9 months you have probably noticed that there is something terribly wrong with the economy. If you’ve left the country recently and been amazed at the fact that 1 U.S. dollar can no longer buy you a steak dinner –you are probably scratching your head wondering what in the world happened. The answer to that question is pretty complicated and it took several things to happen to find ourselves where we are today. It all starts with housing.
I’ve been in the mortgage business for almost 3 years now and in that time I can tell you that things have changed dramatically. Until about 6 months ago, if you had a heartbeat, you could get a loan. No job? No problem! No Down payment?? That’s ok too; in fact we will finance your closing costs and your appliances along with that brand new home. I’m talking loans with 125% loan to value were available! That means if you were buying a house for $250,000 – you could get a loan $312,500—ask me how that makes sense?. These loans didn’t require you to provide documentation as to how much money you made or how much money you have. We would just take your word for it. I know I sound very sarcastic right now but it is all true. Stated Income, Stated Asset loans were very common industry wide- every lender did them. What about sub-prime loans, or as my manager affectionately calls them “Ax Murderer Loans”. Yes, if you were an Ax Murderer you too could probably be approved. A sub prime loan is a loan given to someone with less than “stellar” credit (Read: Horrible credit) at a higher rate than those with good credit. Excellent idea! If you are less qualified, we will make it harder for you to keep up with your payments.
Now I hope you see the obvious danger in what I just described, but to spell it out for you- it caused major damage. It has been one of the worst domino effects in the history of economics, and the extent of the damage is yet to be seen. Here's how it all went down:
Phase 1: Everyone who wants a loan gets a loan, everyone and their mom buys a house or two, including property flippers who would buy homes and literally flip them within a matter of days for a profit, supply falls, demand rises, which means property values become inflated. The economy enjoys a false state of euphoria and homeowners tap into their home’s equity to buy luxury yachts.
Phase 2: The majority of these loans get packaged and sold as “mortgage backed securities” to investment banks (think Bear Stearns, Lehman Bros, Morgan Stanley, etc). Investment banks have a huge appetite for these “highly profitable” securities and keep buying them, even encouraging lenders to actually LOOSEN their guidelines. More people do more risky loans, still no alarm bells going off anywhere...
Phase 3: Sub-prime loans begin to fail. People who got into these loans can’t keep up with their payments and begin to default and go into foreclosure. Some alarm bells sort of start going off. Lenders begin to pull back on sub-prime lending, but continue doing stated income/stated asset loans.
Phase 4: Investment banks begin feeling the pain of their failing mortgage backed securities and don’t have enough cash to keep buying them. As appetite for mortgage backed securities diminishes, mortgages finally become harder to obtain. Supply rises, demand falls, and home prices plummet, foreclosures reach record highs and housing is in shambles.
Phase 5: Investment banks can’t keep up with their bad debt and are not generating enough revenue to offset their lack of liquidity. Bad news for wall street- as these banks begin to fail, investors begin to pull money out of the financial sector and slowly we find ourselves in a down market across the board. The financial sector is also a huge employer and as these people begin to lose their jobs, they find other jobs that they are overqualified for, taking several employment opportunities off the table creating a spike in unemployment and only a small increase in wages across the board.
Of course there is more to the story than that but I’ve already written way too much and I doubt you have even made it this far…
Now comes the finger pointing… Shouldn’t the lenders be held accountable for such loose guidelines? How about the investment banks for creating a market for these loans? Uhh what about the genius who bought a 1.4 million dollar home with a stated income loan, working at the airport as a baggage handler? Probably should have seen foreclosure coming there, bud. Or how about Congress; instead of just chillin and doing nothing, why don’t you put some rules in place to make sure non of this happened?... I know…Bush! You’re the president dude couldn’t you have prevented this?
So whose fault is it? Coupled with rising energy prices, which makes everything more expensive, and the housing mess I just outlined, the recipe for the economy is complete disaster. In the following posts we will examine why we are in the situation we are in and why each candidate is better suited to improve the econonmy. Enjoy!
The Housing Crisis, The Mortgage Mess, The Mortgage Meltdown, Mortgage Lenders Implode-o-Meter, Liquidity Crunch, Liquidity Crisis, Economy in Shambles, Dow Down 500 points, Wall Street Mess, Credit Crunch, Lehman Brothers bankrupt, Bear Stearns Bail out, AIG Bail out, Fannie Mae & Freddie Mac bail out, IndyMac Seized by FDIC, Countrywide Bought by B of A, Merryil Lynch bought by B of A, WaMu For Sale…I’m sure I’ve missed a few headlines, but you get the point. Things are messed up right now.
If you have turned on the news in the past 8 or 9 months you have probably noticed that there is something terribly wrong with the economy. If you’ve left the country recently and been amazed at the fact that 1 U.S. dollar can no longer buy you a steak dinner –you are probably scratching your head wondering what in the world happened. The answer to that question is pretty complicated and it took several things to happen to find ourselves where we are today. It all starts with housing.
I’ve been in the mortgage business for almost 3 years now and in that time I can tell you that things have changed dramatically. Until about 6 months ago, if you had a heartbeat, you could get a loan. No job? No problem! No Down payment?? That’s ok too; in fact we will finance your closing costs and your appliances along with that brand new home. I’m talking loans with 125% loan to value were available! That means if you were buying a house for $250,000 – you could get a loan $312,500—ask me how that makes sense?. These loans didn’t require you to provide documentation as to how much money you made or how much money you have. We would just take your word for it. I know I sound very sarcastic right now but it is all true. Stated Income, Stated Asset loans were very common industry wide- every lender did them. What about sub-prime loans, or as my manager affectionately calls them “Ax Murderer Loans”. Yes, if you were an Ax Murderer you too could probably be approved. A sub prime loan is a loan given to someone with less than “stellar” credit (Read: Horrible credit) at a higher rate than those with good credit. Excellent idea! If you are less qualified, we will make it harder for you to keep up with your payments.
Now I hope you see the obvious danger in what I just described, but to spell it out for you- it caused major damage. It has been one of the worst domino effects in the history of economics, and the extent of the damage is yet to be seen. Here's how it all went down:
Phase 1: Everyone who wants a loan gets a loan, everyone and their mom buys a house or two, including property flippers who would buy homes and literally flip them within a matter of days for a profit, supply falls, demand rises, which means property values become inflated. The economy enjoys a false state of euphoria and homeowners tap into their home’s equity to buy luxury yachts.
Phase 2: The majority of these loans get packaged and sold as “mortgage backed securities” to investment banks (think Bear Stearns, Lehman Bros, Morgan Stanley, etc). Investment banks have a huge appetite for these “highly profitable” securities and keep buying them, even encouraging lenders to actually LOOSEN their guidelines. More people do more risky loans, still no alarm bells going off anywhere...
Phase 3: Sub-prime loans begin to fail. People who got into these loans can’t keep up with their payments and begin to default and go into foreclosure. Some alarm bells sort of start going off. Lenders begin to pull back on sub-prime lending, but continue doing stated income/stated asset loans.
Phase 4: Investment banks begin feeling the pain of their failing mortgage backed securities and don’t have enough cash to keep buying them. As appetite for mortgage backed securities diminishes, mortgages finally become harder to obtain. Supply rises, demand falls, and home prices plummet, foreclosures reach record highs and housing is in shambles.
Phase 5: Investment banks can’t keep up with their bad debt and are not generating enough revenue to offset their lack of liquidity. Bad news for wall street- as these banks begin to fail, investors begin to pull money out of the financial sector and slowly we find ourselves in a down market across the board. The financial sector is also a huge employer and as these people begin to lose their jobs, they find other jobs that they are overqualified for, taking several employment opportunities off the table creating a spike in unemployment and only a small increase in wages across the board.
Of course there is more to the story than that but I’ve already written way too much and I doubt you have even made it this far…
Now comes the finger pointing… Shouldn’t the lenders be held accountable for such loose guidelines? How about the investment banks for creating a market for these loans? Uhh what about the genius who bought a 1.4 million dollar home with a stated income loan, working at the airport as a baggage handler? Probably should have seen foreclosure coming there, bud. Or how about Congress; instead of just chillin and doing nothing, why don’t you put some rules in place to make sure non of this happened?... I know…Bush! You’re the president dude couldn’t you have prevented this?
So whose fault is it? Coupled with rising energy prices, which makes everything more expensive, and the housing mess I just outlined, the recipe for the economy is complete disaster. In the following posts we will examine why we are in the situation we are in and why each candidate is better suited to improve the econonmy. Enjoy!
Deep Breaths
I can see people already getting overly anxious to talk about everything under the sun and even propose becoming a guest blogger - LOVE the enthusiasm. We will talk about every issue and if you want something specific to be discussed please let us know. I would encourage you to continue to post comments, input and challenge either side on what is being said, including what we post as fact. This is designed to be open forum, fact checking and healthy conversation. We hope you see that our goal here is to shed light on the issues instead of worrying about how many houses John McCain has, if Bristol Palin's child will be a boy or a girl, How black Obama is, and how Hillary Clinton feels about everything that is going on (Don't get me started on Matt Damon...). Point is, no one gives a rip. Save the drama for TMZ and let's get on with our lives. Sure we might joke about it from time to time but we are not going to obsess over pointless arguments that have nothing to do with each Candidates ability to be the next President. JB is right, if you only watch Hannity, O'Rielly and listen to Rush you will miss the point, just like if you only listen to Olberman, Matthews, Gibson, ABC, NBC, CNN, MSNBC - hell if you turn the TV or Radio on at all, you will probably miss the point. I have never seen an election so distorted on the issues- BOTH sides have missed the boat on this. Unbiased media coverage is very hard to come by these days- We have the Internet, so we are going to talk about it.
Next up... It's the Economy, Stupid.
Next up... It's the Economy, Stupid.
Wednesday, September 17, 2008
5 key points you should know about Obama before we proceed
More than any other candidate in Presidential election history, there are rumors, half-truths and flat out lies surrounding Senator Barack Obama. There are a few that are especially egregious that any rational American should know are bald faced lies on appearance.
"Obama is a Muslim"
"Obama went to a radical madrasah in Indonesia"
"He refuses to say to pledge of allegiance"
"He's not actually a born-citizen of the U.S."
"He's the Manchurian Candidate of a crazy Muslim fighting force in Kenya."
If you believe any on the above mentioned "facts" then do yourself a favor and start sending those emails your crazy uncle forwards to you right to your recycle bin. Please, please, please look into both candidates and vote based on all the issues that are important to you.
So here's the list of 5 key points we should start out with:
1. If you make less than $250,000 a year, the Obama tax plan will not raise your taxes. In fact, you will probably see a tax break.
I'll let that settle in..... You may have heard different from people who weren't quoting that tax plan directly. This is one of those things that even if you've heard that Obama will raise every one's taxes 2 million times over the week following Labor Day, it still doesn't make it true. I'm studying the Constitution right now for my Ed. degree so I won't go too far down the rabbit hole on this one, but only the House of Representatives can levy a tax. So, even if George Washington himself rose up from the dead and wanted to raise taxes, it will be impossible without the House's approval.
Now, I already hear the arguments. The Democrats are going to let the Bush tax cuts sunset thereby indirectly raising taxes. Two things, those tax cuts don't really effect middle-class Americans. In fact, we've been paying more to cover for tax cuts for the richest 7-10%. Also, that sunset clause was written by the Bush Administration and passed by a Republican Congress. So, if anyone is responsible for that sunset it's both parties.
2. Obama just finished paying off his student loans.
This really says two important things. First, Obama had to work his way through his schooling like many of us. Raise your hand if you are currently paying a student loan, have a child who is or have already paid off your student loan. I expect that's a lot of you. Does it say something about our system of higher education funding that a 47-year-old man has to serve in the U.S. Senate and write two best sellers in order to pay off his school loans?
Obama has a plan to help people get the opportunity that he and Michelle got. It's why they are here now. His goal is to make it so students aren't saddled with a huge debt before they even start their career.
3. You have eaten arugula in your salad and had orange juice for breakfast.
This is more about all of us. Elite is as elite does. If I have to hear one millionaire accuse another millionaire of being elitist I might scream. I'll just leave it at that.
4. If you really listen to either candidate, you may actually agree with some of the things they have to say.
Give it a whirl. Even if you are an ardent supporter of the other candidate. The worst that can happen is that you have a little more knowledge about why you're not voting for him. So, turn off Rush, Hannity, and O'Reilly and go to barackobama.com. Read the plans. Read the messages from his supporters. These are Americans. They may not agree with you on everything, but if you believe what some of the previously named entertainers say, you'll think "these are all latte sipping, Volvo driving, terrorist appeasing, defeat loving hippies." They are not. These are hard working Americans who are having troubles with the way the last eight years have gone. Obama supporters are not all African-Americans, idealistic college students, and Hollywood fat cats. Americans can disagree. That doesn't make them traitors; it makes them patriots.
5. Obama has a plan for progressive change.
It's there. It's ready for you to access on his website. Now, everything a president wants to accomplish during his term may not happen, but having an ambitious plan for the next American century is necessary. He has proven it time and time again. Barack Obama will listen to every American, not just the ones who voted for him.
There you go. We started with 5 "facts" (read ridiculous lies) that you won't see on this blog again. We ended with 5 key points that allow us to have this conversation from a rational standpoint.
Let's get it on.
"Obama is a Muslim"
"Obama went to a radical madrasah in Indonesia"
"He refuses to say to pledge of allegiance"
"He's not actually a born-citizen of the U.S."
"He's the Manchurian Candidate of a crazy Muslim fighting force in Kenya."
If you believe any on the above mentioned "facts" then do yourself a favor and start sending those emails your crazy uncle forwards to you right to your recycle bin. Please, please, please look into both candidates and vote based on all the issues that are important to you.
So here's the list of 5 key points we should start out with:
1. If you make less than $250,000 a year, the Obama tax plan will not raise your taxes. In fact, you will probably see a tax break.
I'll let that settle in..... You may have heard different from people who weren't quoting that tax plan directly. This is one of those things that even if you've heard that Obama will raise every one's taxes 2 million times over the week following Labor Day, it still doesn't make it true. I'm studying the Constitution right now for my Ed. degree so I won't go too far down the rabbit hole on this one, but only the House of Representatives can levy a tax. So, even if George Washington himself rose up from the dead and wanted to raise taxes, it will be impossible without the House's approval.
Now, I already hear the arguments. The Democrats are going to let the Bush tax cuts sunset thereby indirectly raising taxes. Two things, those tax cuts don't really effect middle-class Americans. In fact, we've been paying more to cover for tax cuts for the richest 7-10%. Also, that sunset clause was written by the Bush Administration and passed by a Republican Congress. So, if anyone is responsible for that sunset it's both parties.
2. Obama just finished paying off his student loans.
This really says two important things. First, Obama had to work his way through his schooling like many of us. Raise your hand if you are currently paying a student loan, have a child who is or have already paid off your student loan. I expect that's a lot of you. Does it say something about our system of higher education funding that a 47-year-old man has to serve in the U.S. Senate and write two best sellers in order to pay off his school loans?
Obama has a plan to help people get the opportunity that he and Michelle got. It's why they are here now. His goal is to make it so students aren't saddled with a huge debt before they even start their career.
3. You have eaten arugula in your salad and had orange juice for breakfast.
This is more about all of us. Elite is as elite does. If I have to hear one millionaire accuse another millionaire of being elitist I might scream. I'll just leave it at that.
4. If you really listen to either candidate, you may actually agree with some of the things they have to say.
Give it a whirl. Even if you are an ardent supporter of the other candidate. The worst that can happen is that you have a little more knowledge about why you're not voting for him. So, turn off Rush, Hannity, and O'Reilly and go to barackobama.com. Read the plans. Read the messages from his supporters. These are Americans. They may not agree with you on everything, but if you believe what some of the previously named entertainers say, you'll think "these are all latte sipping, Volvo driving, terrorist appeasing, defeat loving hippies." They are not. These are hard working Americans who are having troubles with the way the last eight years have gone. Obama supporters are not all African-Americans, idealistic college students, and Hollywood fat cats. Americans can disagree. That doesn't make them traitors; it makes them patriots.
5. Obama has a plan for progressive change.
It's there. It's ready for you to access on his website. Now, everything a president wants to accomplish during his term may not happen, but having an ambitious plan for the next American century is necessary. He has proven it time and time again. Barack Obama will listen to every American, not just the ones who voted for him.
There you go. We started with 5 "facts" (read ridiculous lies) that you won't see on this blog again. We ended with 5 key points that allow us to have this conversation from a rational standpoint.
Let's get it on.
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