News Flash: In The Nation article, "In Praise of a Rocky Transition," Naomi Klein reports the following:
The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.
In a moment of high panic in late September, the US Treasury unilaterally pushed through a radical change in how bank mergers are taxed--a change long sought by the industry. Despite the fact that this move will deprive the government of as much as $140 billion in tax revenue, lawmakers found out only after the fact. According to the Washington Post, more than a dozen tax attorneys agree that "Treasury had no authority to issue the [tax change] notice."
http://www.thenation.com/...
Having Bush's Henry Paulson in charge of the bailout is NOT a case of the fox guarding the henhouse; this is the fox setting up an all you can eat KFC in the henhouse.
Toasters, the Titanic, and Cow Tipping: They Make More Sense than Derivatives
First of all, I apologize for the length of this diary. I have tried to cut it down as much as I can, but I'm my own worse editor. The diary is divided into three parts, 1) Just Count the toasters 2) The Titanic Principle, and 3) The Cow Tipping Theory. If you are in a hurry or just hate long diaries, read Just Count the toasters. It's short.
(Note: All friends referred to in this diary are either theoretical or imaginary.)
The other day a novice investor, and friend, who knew that I had been investing in the stock market for more than two decades and loved to talk about the inequities in the economy, had the poor judgement to ask about the current economic crisis. Poor thing.
I told her it was all a matter of the toasters, the Titanic, and cow tipping. As her eyes glazed over, I began to tell her about counting toasters. I also told her that I was not contending that doing the following would cure the economic ills that have been festering for twenty seven years, but it is a more sound view of economics than was espoused by the Bush derivative acolytes, Greenspan, Paulson, Cox, and Donaldson.
Just Count the toasters.
Examining the toaster logic is a very simply way to look at why the income needs to be redistributed to the middle, poor and working class.
A wealthy person will buy only one or two toasters. The top 1% of household income earners account for 1.2 million households. If each household has one to two toasters, that means a minimum of 1.2 million to a maximum of 2.4 million toasters.
If people purchase a new toaster every 2 years (There's not much data on toaster death rates but 2 years seems to be the expected life.) it amounts to .6 to 1.2 million toasters per year to get toasted goods to the top 1%.
Sounds like a lot of toasters, but is it really?
"Hamilton Beach-Proctor-Silex, Inc. (HB/PS), is the world’s largest manufacturer of toasters and toaster ovens. The company facility at Mt. Airy employs 1,000 people and manufactures 35,000 toasters per day." http://209.85.173.132/...
Well, the top 1% has just provided a whopping 17.14 to 34.28 days of work per year. The workers will just have to find 8 more months of work. Yippee - the toaster worker can retire in a few thousand years.
Now, that leaves the remaining 112.1 million households who still need toasters every two years. We'll give them only 1 toaster per household every two years. That's 56.05 million toasters per year. Oh my god! That comes out to 1600.57 days of work per year for the 1000 workers at Hamilton Beach-Proctor-Silex, Inc. We're gonna need more manufacturers of toasters and more workers.
That top 1% are unlikely to help the toaster economy. If the government taxes that top 1% more and redistributes that money to the poor, middle and working class people, it allows them to buy those 56.02 million toasters per year. And guess what? The more money that is redistributed to them, the more products they can buy. Their purchasing power far exceeds the top 1%. Their purchases will employ a hell of a lot more people than the top 1, 5 or even 10%.
Since Reagan our approach has been the opposite. We have been taking money away from the enormous purchasing power of 100 million working class households and putting it into the hands of a puny wealthy 13 million households. But won't, as the economic pundits claim, the economy slow as the wealthy are taxed more?
At this point her eyes began to droop and she was swaying slightly. Undeterred, I continued. I just spoke a little louder.
The Titanic Principle:
Think of investing this way. When the Titanic is sitting in the harbor and passengers are getting ready for the cruise on an "unsinkable" luxury ship, the passengers happily scurry aboard to the cheers of adoring crowds; everybody's happy. The problem occurs later when the unthinkable happens to the unsinkable. After the Titanic hits the iceberg, it is generally thought to be a bad idea to be onboard or in Monty Python terms, "Run Away!" Passengers who are lucky enough to get into a lifeboat are unlikely to re-board the Titanic unless they see that it is in no danger of sinking. Some may decide that they are willing to risk re-boarding because they think that there are valuables left on the ship. They figure that they can get on and off before the ship finally goes down. That's an even greater risk and basically for the suicidal. Some feel that unsinkable really means unsinkable; they settle down for a good night's sleep in the deep.
Investing can be much like being on the Titanic. For smart investors the first objective of investment has always been to manage risk while preserving capital. The capital (funds, available cash or equivalents) is the lifeboat. Without capital on hand, protecting assets or taking advantage of investment opportunities can only be accomplished through leveraging and that increases risk proportionally to the conditions of the leverage. The risk to reward ratio must be to their advantage before they make any investment, and that is especially true with every smart investor who makes it through the tough, down times, the collisions with icebergs. While every investor is a genius in a thriving market, only a few are in a declining one. Basically, smart or scared smart investors hold sizable amounts of cash or equivalents. Held cash does little good for an economy in need of an infusion of money.
The Cow Tipping Theory:
This theory holds that there are certain economic sacred cows that need to be tipped over.
One of the sacred cows has been grazing in the pasture for over two decades. That's one fat cow. During the twenty-six year Republican economic version of the Bataan Death March, they worked constantly to make sure that the government did not nurse at bulging teats of capital gains and income of the wealthy.
Conservatives and free marketers love to contend that lowering taxes, especially capital gains taxes, solves everything that is wrong with the economy and with mankind in general.
Tipping Time: The tiny-tax sacred cow is neither sacred nor a cow. It's all bull. If a healthy economy is measured by the equality of America' s standard of living, capital gains tax rates are not tied directly to the health of the economy and that is born out in the well known growing disparity between the rich and the working class. Even their claimed increase in revenues proves to be erroneous.
So no, ....the reduction in the capital gains tax rate from 20% to 15% in 2003 did not result in an increase in revenue over the course of the business cycle. In 2000 receipts totaled $119 billion, which equals $143 million in 2007 dollars. In 2007, they totaled $122 billion. That's a 15% decline.
http://curiouscapitalist.blogs.time....
Monday, January 28, 2008 at 5:15 pm
Do capital gains tax cuts increase revenues?
Posted by wpcomimportuser1
A corollary to the low or no tax sacred cow states that raising taxes brings forth the Four Horsemen of the Apocalypse, Strife, War, Famine and Death. It claims that raising income taxes on the wealthy is bad for the economy and ultimately hurts the working class.
Tipping Time: On the contrary, when revenues are needed, raising taxes, performed correctly, benefits the working class and the entire economy including the wealthy. As the preceding Titanic section indicated, the wealthy will be holding the most cash and waiting; thus, they are the ones to tax. (See toaster proof above.)
http://usgovinfo.about.com/od/incometaxandtheirs/a/taxburden06.htm
Jul 28 2008
In 2006, the top 5% of U.S. taxpayers, those with gross annual incomes of at least $153,500, paid about 60% of all income tax collected. In contrast, the 50% of taxpayers with incomes under $32,000, paid less than 3% of the total taxes collected. Taxpayers in the top 1%, those with incomes of $388,800 or more, paid almost 40% of all taxes collected.
The 40% of all federal taxes paid by the wealthiest 1% of Americans represents the highest percentage of all taxes they have paid since 1986, according to a July 21, 2008 report (.pdf) issued by the Joint Economic Committee (JEC). http://www.house.gov/...
In the mind of conservatives, that the 40% "represents the highest percentage of all taxes ...... paid since 1986" indicates that they should be "given a break." In reality it indicates that from 1986 to 2006 they have already been given an unprecedented "break." Consequently, while receiving more than any other era, they have made less of a contribution to this country than the top 1% of previous eras since the progressive income tax was fully instituted.
http://www.irs.gov/...
Individual Income Tax Collected in 2007 was $1,366,241,437,000
The Top 1% contributed $546,496,574,800
50% of the Tax Payers making less than $32,000 contributed $40,987,243,110
While the above figures may seem to be an argument for lessening the tax burden on the wealthy, it really is the opposite when the objective is to increase revenues in a time of need. Since the major portion of the taxes are paid by the wealthy, any increase in taxes on them produces proportionally more revenues faster. The logic is simple. 10% of the rich people's contribution will produce a lot more than 10% of the bottom 50%.
- An average increase of 10% on the top 1%, would produce an additional $54,649,657,480. 10% of the bottom 50% would be only $4,098,724,311
- An average increase of 15% would produce $81,974,486,220 but only $6,148,086,466.5 from the bottom 50%
- An average increase of 20% would produce $109,299,314,960 but only $8,197,448,622 from the bottom 50%
Additionally, contributing just 10% more through a tax increase on the wealthy still leaves them with a life of luxury. Since they will be holding, not spending, that cash in these troubled economic times, it is better to put it to use for the economy. Raising taxes on the 50% of people who are earning less than $32,000 just takes a huge amount of toaster spending money out of the economy.
The working class are by far the largest group of purchasers who spend the greatest amount of money for the most items. Putting the wealthy people's tax increase back into the economy for the working class would greatly benefit the entire economy because the working class must spend money on the necessities. Unlike the wealthy, they won't be stashing money to wait for a break in the market or other investments. They have little or no discretionary funds.
At this point, if "the market" investors were ever to read this post (none will), a room full of them would sound like a hospital baby ward. One would start crying and the next thing you know the whole ward would be wailing. But, in a while, they'll get tired and settle down. All they need is a "change" and a little bit of mother's milk or, as Naomi Klein puts it:
One thing we know for certain is that the market will react violently to any signal that there is a new sheriff in town who will impose serious regulation, invest in people and cut off the free money for corporations. In short, the markets can be relied on to vote in precisely the opposite way that Americans have just voted. (A recent USA Today/Gallup poll found that 60 percent of Americans strongly favor "stricter regulations on financial institutions," while just 21 percent support aid to financial companies.)
There is no way to reconcile the public's vote for change with the market's foot-stomping for more of the same. Any and all moves to change course will be met with short-term market shocks. The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust. Furthermore, the timing for this turbulence has never been better. Over the past three months, we've been shocked so frequently that market stability would come as more of a surprise. That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first. Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate. The longer he waits, however, the more memories fade.
Conclusion: Ignore the free marketers' wailing, tax the wealthy people and corporations and distribute it to the working class to create jobs in the environmental technology arena. After all, they were more concerned about making money than protecting the environment. It's time for them to help with the problem that they created.