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The “Economic Slowdown” — Why Now?
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The “Economic Slowdown”

I had a “duh” moment when reading a Dave Johnson post at Seeing The Forest on tax money. What he said was so obvious after I read it that I felt truly stupid for not realizing it.

Here’s the deal: the surplus that the shrubbery gave away with his tax cuts for the rich was in FICA/Social Security taxes. There was never a surplus of income taxes, even with the increases during the Clinton administration. The actual deficit that the Hedgemony has been running is at least a quarter trillion dollars larger per year than stated because they have been spending the FICA surplus. The so-called “Social Security crisis” is the point when they have to finance the government from actual tax receipts without any FICA surplus payments to hide what is going on with the budget – a very scary moment for Republicans.

The normal prescription for an “economic slowdown” is to cut taxes and interest rates to spur growth. It won’t work because of the Shrubbery’s mindset. He will want to cut taxes for the wealthiest people and corporations who will immediately move the money out of the country because the US is in a damned “economic slowdown”, and who wants to throw good money after bad. If these people had actually invested in the US economy after the first round of cuts do you really think the job growth and economic fundamentals would be this bad? Asia received the investment and the jobs because that’s where the real growth was happening. If you have been following the DOW you would realize there was no surge in investment. The conservative investors were buying T-bills that were needed to finance the deficits caused by their tax breaks.

Back to Dave’s post, and my missing the obvious – he asked what do you think happens to tax dollars? Of course, the money is spent on goods and services which spurs the economy. It is definitely spent in and for the US.

So, here’s my plan: get the money back from the wealthiest people and corporations, including the hedge fund managers, and start repairing the damage to the infrastructure throughout the country. Make all of the repairs to the roads and bridges, the national parks, the Gulf Coast – put the construction workers idled by the housing meltdown back to work building. Re-create the WPA to rebuild the country.

The thing about the capital gains tax is that it is a good idea to reduce it when the economy is growing, because there is a need for more investment to help the growth continue, but it doesn’t help in an “economic slowdown” because the investment opportunities aren’t there. You don’t expand a business until you have customers, and you need jobs to create customers. If the government supplies the jobs, the cycle begins again.


1 Kryten42 { 01.14.08 at 12:16 am }

So, here’s my plan: get the money back from the wealthiest people and corporations, including the hedge fund managers, and start repairing the damage to the infrastructure throughout the country. Make all of the repairs to the roads and bridges, the national parks, the Gulf Coast – put the construction workers idled by the housing meltdown back to work building. Re-create the WPA to rebuild the country.

Because I’m relatively new here, and I like you, and I assume you are serious… I won’t just laugh hysterically! 😉 😀

I also assume that you intend this for after the Presidential election? Assuming Bush doesn’t declare Martial Law because the brown people managed to detonate a nuke somewhere, or rig the elections again? 🙂

ON a more serious note… You are right. I have trouble seeing it happen. The wealthy really don’t care. They would be happy to live in Europe somewhere if the USA totally collapsed I’m sure (maybe not all, but too many).

I get a headache just trying to think about exactly what needs to be fixed there! You really need to basically scrap the entire system and start again. Even if Edwards (say) became Prez, and he really wants to make things work… where would he start? And I can’t see him (or anyone) fixing anything without making things worse first.

In honesty, you REALLY need to fix the Justice System first I think! The only real voice the people have is via the courts, and the courts, for the most part these days, sides with the wealthy.

Maybe you need an SAS squadron to act as *tax collectors*? 😉

We spent a lot of blogging hours trying to find a workable solution when I blogged at LM. Everyone had a different solution, but almost all only fixed a part of the problem (if at all!)

I dunno. I’m not even sure these days if we can fix the problems Howard created here!

2 Bryan { 01.14.08 at 1:09 am }

The Federal Court system is the hardest thing to fix, because judges are appointed for life. That will be an extremely slow process.

Much of the executive branch needs to be cleaned out and new people hired to fill positions held by incompetents and cronies. It’s not just the political appointees, career people were forced out to be replaced by someone’s brother-in-law or cousin.

Taxes can be changed by a majority vote in both Houses and a Presidential signature. They are amazingly easy to change at the Federal level in the US. All you need is the will to withstand the lobbyists.

The deficits are a powerful hammer to make the job easier. As long as you leave the rates on the middle class and below alone, you don’t have to worry about being the voice of “responsible taxation and spending”. All the Democrats need to do is to instinctively respond to “tax and spend” with “borrow and spend”.

The Shrubbery isn’t interested in doing anything that will actually improve the situation, because he’s a lame duck and must realize he will be replaced by a Democrat. He is going to veto almost all legislation that is sent to him from this point forward.

I don’t expect this to happen, but it is the quickest and most workable solution available for the next administration.

3 Michael { 01.14.08 at 4:07 am }

Are you willing to entertain a serious discussion of tax policy, and in particular will you be interested in considering the benefits of taxes particularly on land and natural resources, exclusive of improvements, but with special concern for depletion and environmental impacts?

4 Bryan { 01.14.08 at 7:40 am }

Tax policy is definitely not my area of expertise beyond the obvious factors involved in store front effects, i.e. the effects on pricing and the market.

When it comes to depletion, I don’t get a special allowance for depleting my life span for every hour I work, nor for depleting my paycheck for every dollar I spend, so I certainly don’t think a corporation should be giving a special allowance for selling what they pull out of the earth. The depletion allowances are corporate welfare.

Environmental impacts should be paid for by those who cause them, that is rather basic law. Corporations have been getting a pass on that for some time. If you make a mess, you are expected to clean it up, even if you are a child, I don’t see why corporations can’t be held to the same standard as third graders.

Actually, one of the big problems in the tax system is language. There shouldn’t be a gas-guzzler tax, it is a fine for bad behavior. There are a number of other “taxes” that should be clearly labeled as fines so they don’t just become part of the “cost of doing business”.

5 Michael { 01.14.08 at 12:55 pm }

What you have accurately identified is that the purpose of the present tax system is to take the incomes of wage earners and give it to corporations.

6 Michael { 01.14.08 at 12:57 pm }

I would collect a percentage up to the full rental value of land and natural resources in situ, plus charge an additional fee for depletion — which destroys value, and for environmental impacts — which cost everyone to address.

7 Michael { 01.14.08 at 1:00 pm }

I would also give an exempt (from taxation) value of land to every person, excluding corporations and foreign owners.

8 Michael { 01.14.08 at 1:12 pm }

Tax policy can be very simple and very transparent and very effective as a source of both revenue and benefit to society by discouraging the excessive speculation of land and natural resources.

9 Michael { 01.14.08 at 1:16 pm }

Tax policy is a means of social control, make no mistake. The current tax policy must be scrapped, in the opinion of many people, and replaced with something else. The people advocating a sales tax want to screw the poor and serve the rich. That’s not the right way to go.

10 Bryan { 01.14.08 at 8:30 pm }

Michael, you are talking about the Federal land leasing program which hasn’t been updated since the “opening” of the West for settlement. The entire program should be either eliminated or full market value applied. Further, such leases should be limited to US citizens. The lease should reflect any depletion, and it should apply to grazing and well as mining. People shouldn’t be able to receive nearly free land at the expense of the American people, especially when they are extracting resources.

I would personally like to the the entire program canceled, but barring that, full market value is the least tax payers have a right to expect.

The same goes for subsidized water for agribusiness. Why should rice farmers in Arkansas have to compete with subsidized rice production in California? There are other uses for the water.

11 Kryten42 { 01.14.08 at 10:04 pm }

Seems Obama’s economic adviser thinks that Obama’s long-term tax-cut plan he announced months ago is just what we need to keep the slump from “morphing into a drastic decline in consumer spending.”

Last week Hillary Clinton offered a broadly similar but somewhat larger proposal. (It also includes aid to families having trouble paying heating bills, which seems like a clever way to put cash in the hands of people likely to spend it.) The Edwards and Clinton proposals both contain provisions for bigger stimulus if the economy worsens.

And you have to say that Mrs. Clinton seems comfortable with and knowledgeable about economic policy. I’m sure the Hillary-haters will find some reason that’s a bad thing, but there’s something to be said for presidents who know what they’re talking about.

The Obama campaign’s initial response to the latest wave of bad economic news was, I’m sorry to say, disreputable: Mr. Obama’s top economic adviser claimed that the long-term tax-cut plan the candidate announced months ago is just what we need to keep the slump from “morphing into a drastic decline in consumer spending.” Hmm: claiming that the candidate is all-seeing, and that a tax cut originally proposed for other reasons is also a recession-fighting measure — doesn’t that sound familiar?

Anyway, on Sunday Mr. Obama came out with a real stimulus plan. As was the case with his health care plan, which fell short of universal coverage, his stimulus proposal is similar to those of the other Democratic candidates, but tilted to the right.

Much more on this at Taylor Marsh’s blog :
Krugman Labels Obama ‘Less Progressive’


12 Bryan { 01.14.08 at 11:34 pm }

Obama is not a liberal or a progressive, he’s another Republican with a D behind his name.

13 Michael { 01.15.08 at 1:59 am }

Bryan, I wasn’t talking about federal land lease, but I’ll let it go. As for Barack Obama, he’s compromised no doubt but he did vote against the authorization of force in Iraq.

14 Bryan { 01.15.08 at 12:50 pm }

The Federal government isn’t involved in property taxes, that’s a state and local government funding source, generally the major source for funding local schools. The income the Federal government derives from land is via leasing Federal land.

15 Michael { 01.15.08 at 6:22 pm }

Yes, Bryan, I know. However the federal government can apportion direct taxes and lay indirect taxes on the states. I am not saying what it does *now* but what it *should* do. And if you happen to disagree, fine. I’ll be glad to discuss it, or not. Obviously, the federal government doesn’t collect sales tax either, but some people think it should. I think sales tax is a bad idea, but I think a national land value tax is a good idea.

16 Bryan { 01.15.08 at 8:17 pm }

I would really have to think about a national property tax and its implications. I’m absolutely against a national sales tax because I don’t want to be an unpaid Federal tax collector. I had to do that for the state of California when I was in business in San Diego and it took too much of my time and energy. Let government collect their own taxes or pay to have it done.

I’m totally unaccustomed to seeing the property tax as anything other than a local tax, so I can’t judge the implications, especially in light of things like California’s Prop 13 and Florida’s Save Our Homes which distorts the system all ready.

17 Michael { 01.16.08 at 1:43 am }

Prop. 13 goes the wrong way entirely, but to explain in depth would take awhile. Property taxes are divisible into the land and fixed improvements, the latter are not what I believe should be subject to taxation. If the federal government apportioned the revenue collection to the states, the states should be equipped to collect and keep a percentage for their trouble. State propositions might not bear on this at all, but that would take analysis.

We’re in agreement on the sales tax idea, at any rate.

Seeing as this has been most likely a distraction already I’ll stop.

18 Michael { 01.16.08 at 1:55 am }

Here’s an interesting article on the subject.

19 Kryten42 { 01.16.08 at 2:47 am }

Interesting! That’s quite a document. Will take me some time to assimilate, though I have heard and read a little about Henry George. Thanks for the link Michael. 🙂


20 Kryten42 { 01.16.08 at 2:59 am }

Drat! I meant to also post some info about what the day-to-day economic situation in the USA is doing here in Aus (if anything). I just finished watching the evening news, and the relevant highlights are:

Investors have wiped $35 billion off the value of the Australian share market today after steep losses on Wall Street overnight.
The domestic market dropped for the eighth consecutive session.

Citigroup has reported a quarterly loss of $11.1 billion and write-offs of more than $19 billion due to the sub-prime mortgage market collapse.

The US President has called on OPEC nations to release more oil on the market, as soaring prices are hurting the world’s biggest ecomony.

Democratic White House hopeful Hillary Clinton has accused United States President George W Bush of “begging” for cuts in oil prices in “pathetic” encounters with Gulf leaders.

A sharp drop in consumer confidence is seen as insufficient to spare home and business borrowers another rise in official interest rates next month.
The Westpac-Melbourne Institute index of consumer sentiment has plunged 8.3 per cent to its lowest level in 14 months.

If interested, you can read the details here at the (Australian) ABC:
ABC Business News

Cheers! 🙂

21 Bryan { 01.16.08 at 4:04 pm }

Michael, I understand what you’re saying when you talk about the separation of the property tax into two parts, but I can’t see the states going along with it because it would mean doing a complete re-assessment of all of the property in the states and it would require eliminating a number of very popular exemptions [popular in the sense that they provide election time votes]. Rational taxation isn’t going to open any time soon, as much as we need it. The Republicans needed a Constitutional amendment to impose the income tax, so they may insist on something similar before allowing any radical shift.

People have said for years, Kryten, that “any time the US sneezes, the rest of the world catches a cold”, so things look pretty grim for the world with the US on the verge of “pneumonia”. The financial institutions are pretty much all multinationals now, so everyone has the opportunity to participate in the Ponzi schemes operating in other countries.

So, how’s that globalization working out for you, world?

22 Kryten42 { 01.17.08 at 7:44 pm }

And it’s rapidly getting worse. I think the US has lost control now. More news from Aus today. It’s not pretty.

Market records 10th slump in a row
Strong recession fears in the United States have dragged the Australian share market lower for the tenth consecutive session.

About 11:45am the All Ordinaries index had lost 147 points or 2.5 per cent to 5,709.

The ASX 200 was down 137 points to 5,658.

All sectors slipped into the red in the first two hours of trade with mining stocks among the hardest hit.

BHP Billiton was down almost 5 per cent while its rival, Rio Tino, lost about 5.5 per cent.

Macquarie Group was down about 2.3 per cent.

The Australian dollar was buying 87.5 US cents.

Merrill Lynch losses hit Wall St
There have been sizeable falls on American equity markets in response to another big banking loss and more concerns about the US economy.

Merrill Lynch has unsettled the market by making write-downs of about $US14 billion (nearly $16 billion) related to the mortgage market meltdown, and booking a quarterly loss of almost $US10 billion.

It has been the worst quarter in the history of the world’s biggest stock-broking firm.

On the economic front, a survey from the Philadelphia Federal Reserve indicates factory activity in the mid-Atlantic region has contracted more than expected this month, with its index of business conditions registering its sharpest drop in seven years.

At the same time, Federal Reserve chairman Ben Bernanke has told a Congressional committee a fiscal stimulus package could aid the economy, and reinforce the central bank’s cuts in interest rates.

New figures out of Washington show a big 14 per cent slump in new housing starts across the US.

On the New York Stock Exchange, the Dow Jones industrial average has closed down 307 points at 12,159 – a slide of 2.5 per cent.

The high-tech Nasdaq composite index has dropped 48 points to 2,347.

The British market is still in retreat – London’s FT-100 index has fallen another 40.5 points to 5,902.

Yesterday in Australia, it was day nine of the decline. The All Ordinaries index shed another 14 points to close at 5,857.

The resource sector was the major drag on the overall market, with BHP Billiton shares down $1.02 to $36.50.

US central bank ready to tackle recession risks: Bernanke

The chairman of the US Federal Reserve, Ben Bernanke, has voiced his support for an economic stimulus package to avoid a recession.

Wealthy may be next in line in US home crisis

A house in the wealthy Chicago suburb of Hinsdale is far beyond the reach of most Americans.

Unfortunately, it may also now be too expensive for some of the people who already live there.

Sharon Sodikoff, a broker associate at local real estate agency Prudential Homelife Realty, says some residents may have to sell up.

“There is a section of the population here that over-extended themselves to buy here and then keep up the facade of wealth,” she said.

“In the next year or so they’ll be forced out in dribs and drabs.”

The Headrick-Wagner Consulting Group says the average home sale price in Hinsdale in the 12 months to September 30 last year was around $US1.15 million ($A1.3 million).

With a picturesque little downtown area and large, expensive houses, the suburb seems a world away from the housing slowdown that seems to have brought the US economy to the brink of a recession.

But even there, far from the housing crisis’ epicentre, high earners with good credit may be heading for trouble as their adjustable rate mortgages (ARMs) adjust beyond their means, local real estate agents and others say.

In a normal housing market they would be able to sell, but now they are stuck.

More on this story here:
Wealthy may be next in line in US home crisis

Aust traders brace for Wall St fallout

Australian markets are expected to struggle in early trading following a tough session on the New York Stock Exchange.

Another dose of financial and economic worries resulted in Wall Street’s Dow Jones index closing 307 points lower.

The slide was mirrored on Australia’s overnight futures market, which recorded a 2.7 per cent slump.

The United States selling was fuelled by a $US10 billion quarterly loss at broking firm Merrill Lynch, and gloomy Congressional testimony from the Federal Reserve head Ben Bernanke, who endorsed a Government spending plan to stimulate the flagging US economy.

BT Financial Group chief economist Chris Caton has told ABC Radio’s AM program there is an even chance of recession in America, which would shave some growth off the Australian economy.

“We are probably growing somewhere around 3.5 per cent at the moment – it may slow us to less than 3 per cent,” he said.

“But that may take some of the pressure off the Reserve Bank in Australia to raise rates again.”

All the above are from here:
ABC Business News

BTW, I think Bernanke is an idiot and is in way over his head!

23 Bryan { 01.17.08 at 11:14 pm }

Bernanke is faced with cleaning up Greenspan’s messes while Greenspan is still hanging around offering opinions. Greenspan is a Randian idiot and should just go away and hide before people figure out what he did and decided to tar and feather him.

The Federal Reserve can’t do much about a recession in normal times, and a credit crunch with a liquidity crisis aren’t normal times. The housing bubble pulled the economy out of the recession in 2001, but there were no job gains to solidify the fundamentals. Getting more money into the hands of people who will spend it will help on many levels, but job creation is even more important, because tax cuts are worthless to people without a job.

24 Kryten42 { 01.18.08 at 12:32 am }

Hmmm. true. 🙂

So… Greenspan is to the US Economy what Kissinger is to US Foreign Policy?

25 Bryan { 01.18.08 at 11:19 pm }

As much as I disliked the man and his policies, Kissinger worked at his trade, while Greenspan avoided doing anything other than making speeches worthy of Chauncey Gardiner in Being There, careful to never actually say anything.