PLANK NOVEMBER 19, 2012
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It’s been clear for a while that President Obama has all the leverage in the tax debate. Now it’s clear the Republicans know it.
On Friday, Obama met with congressional leaders for the first time since his reelection. The subject of discussion was how to handle the tax hikes and automatic spending cuts set to take effect on January 1. House Speaker John Boehner came with a proposal: Instead of racing to craft an alternative package before the new year, Boehner suggested, why not just pass a bill preserving the status quo for six more months, giving everybody a chance to work out a deal? But nobody expects Obama to go for it, unless Republicans agree to a deal on taxes that's largely to Obama’s liking. A senior Democratic aide on Capitol Hill thinks he sees a game of Texas hold 'em underway, with Obama winning:
My read is that the Republicans are playing poker with the President. The Republicans know they have a 2-7 unsuited, and the President has pocket aces. The Republicans want to see the flop, and are limping in. But they know the odds are against them. As long as the President doesn’t fold, he wins.
That's how most people seem to read the situation. But what exactly will Obama win? And what should he be trying to win?
Republicans want all the Bush tax cuts to become permanent, while Obama wants the tax cuts on household incomes over $250,000 to lapse. Obama has the right idea. The long-term goal of our fiscal policy should be to reduce deficits, so that public debt is not growing as a proportion of the economy. That’s not possible without raising taxes, and the place to start is on high incomes, effectively returning those rates to what they were during the Clinton era. Restoration of those rates on high incomes would affect only the wealthiest Americans, who are most able to afford it. And it would not harm the economy, according to the best evidence out there.
Unfortunately, raising taxes on the wealthy will probably not be sufficient to solve our fiscal problems. If we are serious about living up to our financial commitments—in particular, the guarantees of financial security in retirement and provision of basic health care to all—then eventually we will need more revenue. There are lots of ways to do this. The ideal would probably be a carbon tax, because it would have the virtue of raising revenue and slowing global warming. There's also a case for some kind of consumption tax, which economists tend to think is more efficient than income taxes. But since neither option seems to be viable right now, the next best thing might be to let all of the Bush tax cuts expire, so that everybody—not just the wealthy—go back to paying what they did during the Clinton era.
But wouldn’t raising taxes on the middle class slow the economy? Yes, if the rates went up right away. In fact, one of the most worrisome elements of the fiscal debate right now is that deficit reduction has so much focus. As the economist Peter Diamond has said, Washington is acting like we have a debt crisis and an unemployment problem, when the opposite is true: We have a debt problem and an unemployment crisis. Diamond’s point—which Paul Krugman made in the New York Times recently—is that we should concentrate on bolstering the job market now, while working to stabilize federal finances for the future. The former ideally would involve putting more money into the pockets of the poor and middle class, who are most likely to spend it. Raising taxes on the middle class immediately would, of course, have the opposite effect.
That's why a better approach might be to preserve tax breaks on incomes up to $250,000, and to renew anti-recessionary programs like extended unemployment insurance and a payroll tax holiday, but only on a temporary basis. And rather than setting these measures to expire on a fixed date, Congress could try an idea economist Peter Orszag has floated: Setting these tax cuts to expire when, and only when, the economy had become stronger. For example, Congress could declare that the tax cuts stay in place until four consecutive months of unemployment below 6 percent, at which point they would slowly phase out. Or Congress could set the tax cuts to expire based on some other indicator, like the employment-to-population ratio, or a combination of several.
Maybe this sort of arrangement is impractical, as policy or politics. (As far as I can tell, nobody has fully worked through the logistics.) And maybe the most important goal, for now, is simply breaking the ironclad Republican opposition to any new taxes. Obama seems well on his way to achieving that. But among mainstream economists there seems to be a lot of enthusiasm, and maybe even a consensus, for the idea of there being stimulus now, and deficit reduction later. In theory, that's exactly what this sort of plan would achieve.
26 comments
Best possible plan. Let the Bush tax cuts for the wealthy expire immediately, while gradually phasing them out for everyone else, dependent on how well employment is going. A 4% increase in taxes for the wealthy won't bring in enough revenue to decrease the deficit significantly--the rich don't pay as much of our taxes as those on the Right say they do. Even Republicans say that Clinton Era tax rates for the rich alone won't pay down the deficit. If America ever gets back to work, the middle class should pay Clinton Era rates, too. That, combined with cutting a bunch of unnecessary spending, will take a chunk out of our national debt. But will the politicians agree on this best possible plan? Very probably not. I'm surprised when two of them from opposing parties agree on a restaurant to go to.
- magboy47.
November 19, 2012 at 12:41am
Deeply misleading title. The upshot of the post is that all the upper income tax cuts have to go, and for the sake of medium-term budget balance, the rest of the Bush tax cuts need to go when the economy can handle it (probably not for another two years) with the payroll cut looking like something we may never wish to restore, suggesting we supplement with carbon taxes. In no way is this a full speed ahead when it comes to all of the tax cuts set to expire on December 31. It's not even one when it comes to the Bush income tax cuts.
- chaitless
November 19, 2012 at 12:42am
I love the idea of a trigger, it would give everyone what they want, Republicans and Democrats. I think it should be though for all income groups provided Republicans pass Obama's jobs bill. Republicans would be able to put off tax hikes for the time being and Democrats would be able to get Republicans to agree to tax hikes and they would get the jobs bill. Republicans should also agree to put off the spending cuts until the trigger is reached as well. Since I think Republicans don't believe Obama's jobs bill would work they would think it will be a few years at least before any taxes rise, but if they are wrong how could they complain about the US having 6% unemployment? Sure, they might argue it was because of low taxes but the trigger will be automatic.
- blackton
November 19, 2012 at 12:46am
My question: would you trust your aging parents' lifetime savings with Peter Orszag? What Cohn omits is that Orszag is proposing that we couple the short term stimulus Cohn describes with deficit reduction, with both taking effect later. In other words, kick the can down the road, much like what Boehner proposes. But doesn't Orszag propose specific stimulus and deficit reduction be adopted now, unlike Boehner, who really does want to kick the can down the road. Just this morning I solved my looming retirement problem (too much spending, not enough savings) by resolving that beginning in 2014 I cut back on personal expenses and contribute the maximum amount to my 401(k). The "fiscal cliff" is the specific stimulus and deficit reduction that Orszag proposes, only he wants to delay it until some time beyond January 1, 2013, when all's well in the kingdom. To answer my question: no, I wouldn't trust Orszag with my aging parents' lifetime savings.
- rayward
November 19, 2012 at 7:30am
I wouldn't either Ray, and moreover I don't think the Repubs are going to trust Democrats to follow through on promised cuts "in the future". Many still in Congress have already experienced this version of bait-and-switch a couple of times in the past--the tax increases hit right away, and the promised spending cuts end up like nuclear fusion: thirty years away, and always will be.
- Robert Powell
November 19, 2012 at 8:35am
"There's also a case for some kind of consumption tax, which economists tend to think is more efficient than income taxes." What case is this? I guess a consumption tax would be more efficient, but it would put more of a burden on lower income earners. The richer you get the less of a % of your money is used for consumption, right? So basically people who make enough to have a savings of any kind will have that money untouched and untaxed, while lower income earners living pay check to pay check will be the biggest consumers and therefore biggest taxpayers as a percentage of their income. Johnson's "Fair Tax" idea is what turned me off to him as a candidate because it essentially amounts to a regressive tax rate.
- asdrhm
November 19, 2012 at 9:27am
Best possible plan would be to pretend that you're trying to avoid the fiscal cliff (fiscal bluff??). But allow the deadline to pass, accept the increase in taxes on everybody, while maximizing blame for the consequences on the GOP. This should be easy to do, rhetorically, by pointing out over and over that this expiration was built into the original plan that Bush dishonestly sold to the American people. Everybody knew that the expiration was a sham, made solely to avoid examination of the long term budget consequences of the cuts. Keep repeating the fact that these cuts were an accounting gimmick, and keep repeating that name: Bush, Bush, Bush. It drives the GOP nuts and has the added advantage of being true. Then in January, announce that you're open for a wide variety of tax reform, AND entitlement reform.
- gwcross
November 19, 2012 at 9:53am
I say instead of identifying who should pay more taxes, focus on good tax policy. Do the reverse of Reagan tax policy, which decoupled tax policy from spending policy and was something to the effect of "The debt is big enough to take care of itself." The goal should be common sense taxation to reduce the debt with as little harm to the economy as possible. Instead of Cheney's "Reagan proved deficits don't matter," it should be "Clinton proved top rates don't matter."
- Nusholtz
November 19, 2012 at 11:38am
+1 GwCross. Plus, once we've gone over the "fiscal cliff" and resumed all the Clinton era tax-rates, anything AFTER that will be a tax-cut. Republicans love voting for tax-cuts. Everyone likes voting for tax-cuts. Not to mention, even though the Republicans SAY they'll do anything to avoid the cliff, one of the "anythings" they absolutely refuse to do is raise taxes. Thus the cliff becomes inevitable, based on Republican intransigence. But we don't need any Entitlement Reform. The deficit was caused by tax-cutting and two wars. It shouldn't be fixed on the back of Entitlements.
- AllanL5
November 19, 2012 at 1:25pm
+2 GwCross
- Curran1
November 19, 2012 at 1:52pm
Why is everyone so fixated on a 6% unemployment figure? It ain't gonna happen. Not even if all the stars aligned - M.E. peace talks, Eurozone stability, BrICs continue to grow, US doesn't drive off the fiscal cliff. The primary reason is the US economy no longer operates in a bubble with tangental ties to the world economy. The entire world economy is connected. The US housing collapse and subsequent world financial meltdown is a result of that inter-connectedness. We might be able to get the US unemployment rate close to 7% if we straighten out tax policies that promote domestic investment and hiring vs. give-aways for off-shoring. If the Bush-era tax cuts are left to expire incrementally that will allow time enough to restructure the tax codes for both personal and businesses so the net effect would be less of a drag on consumer spending, more savings and investments, less deductions and loopholes and consistent revenue streams for the Federal and States governments. Meanwhile deficit reduction has to be coupled with reinvestments into infrastructure and long-term job stability (not exponential growth) in areas where the US excels - design, engineering, hi-tech, etc. and not the low-wage, low-skill manufacturing sectors. The US also needs to restructure tax codes to encourage businesses to stop gaming the employment system to avoid paying taxes or providing a living wage or benefits by reducing everyone's hours to 30hrs/week or less. It's not as if we have a shortage of jobs to be filled or infrastructure to be repaired/replaced. But it takes a bit of time to re-train individuals to perform those skills. Any stimulus money should also focus on the trade skills that US manufacturers need and are looking for but can't find a skilled labor force to fill. If that means a 21st century version of the CCC, I'm all for it. I'd rather spend tax money on that than extending UI and welfare benefits for another 99 weeks. Plus it would go a long way to getting us closer to the magical 6% unemployment. But until all of those things happen simultaneously along with global expansion in every sector, 6% unemployment is a long, long way down the road.
- singlspeed
November 19, 2012 at 2:40pm
Here is my prediction. No deal in respect of the cliff. The cliff will come to pass. There will be a law that will then cut taxes for the middle class, and leave the above $250,000 figure as is - so that Republicans can take credit for a tax cut. There will be cuts to social security and medicare - both in terms of an increase in the age of entitlement - 65 to 67, starting from 2020 - means testing (above $100,000 in retirement income), modest adjustment to capital gains tax, reduction in rate of increase for the Pentagon, and adjustments to Medicare Part D - to allow the government to negotiate drug prices. As part of the grand bargain, the debt ceiling will go - adjusted to the level of spending authorised by Congress, which is what it ought to be in any event. RP: Clinton raised taxes and cut spending. The Republicans are the ones you can't trust on spending cuts, not Democrats.
- icarus-r
November 19, 2012 at 5:04pm
singlspeed, we are not suffering from structural unemployment. If we had work-sharing or there were five more interest rate points to go, no one would be talking about how 6% unemployment was impossible. Because it isn't. The number one reason we are in a funk right now is because we thoughtlessly moved to a funk regime. If businesses were kept from laying off people in late 2008-late 2009, we wouldn't have endured high unemployment and the economy would be performing better, since otherwise lost economic activity would be feeding off itself. Monetary policy and an investment positive fiscal cliff resolution may very well get us on track for 6%. After all, structural retraining takes half a generation. We don't have that kind of time.
- chaitless
November 19, 2012 at 7:14pm
Chaitless, From what I've read and heard over the last few months, especially from economists running computer modeling, the overall unemployment rate would be difficult to get below 6%. Their position was based on the fact that even if we clean our own house, the overall economy is so intertwined that it makes it difficult to push the unemployment rate down below 6%. Especially considering certain countries have higher unemployment rates and lower skilled labor forces that we can't compete against. That's why I said without everything perfectly aligning everywhere, it will be difficult to get the rate down to 6%. It's taken 4 years to get below 9%. I agree that the funk we're in right now is as much psychological as it is a lack of forward-thinking/moving policies. I'm not sure how you keep businesses from laying people off when so many see themselves not responsible to their employees but the "share holders" and ROI. And I completely agree that we don't have the time to do structural retraining, but we have to. We can't simply sit and wait for the private sector to step up and train the folks they need when they're not doing it now. That has to be a public policy position where we realize and admit that an educated and skilled public work force is good for the long-term American economy. And by educated and skilled - I'm talking about the sectors that can't find people to fill technically challenging jobs that don't necessarily require a medical degree or PhD in physics. I recently watched a report of hi-tech manufacturing and the companies don't or won't put much investment into training new hires to replace their aging boomer machinists that are on the verge of retiring. Instead the free market expects the public sector to spend tax dollars to train and educate the work-force they need. Personally, I think we need to do a massive investment push on trades and technical skills training and education especially for the people who may not be cut out for university work but have the acumen to program machines and perform the tooling required for our hi-tech industries. We also need long-term investments in science and math education to fill openings in the design/medical/engineering fields so we maintain our innovation edge. Hell a machinist can make $100K in some places. You mean to tell me we can't or shouldn't train unemployed folks for that? That's a better long-term investment than extended UI benefits. I agree that ultimately the fiscal cliff will get resolved but it will be so messy and filled with 'kick-the-can-down the-road' policy holes it will resemble swiss cheese instead of the sausage that typically comes out of DC. I really am a proponent of structural investments in our long-term economic needs. Maybe if more in DC took the long view they would see that we're already 5 years past where we could have been making these retraining policies & infrastructure investments work and seeing results now with more people working. Instead several years was wasted arguing about whether saving jobs was worth it or letting the free market work it's magic. Well...we muddled through that by trying both and the market has no interest in getting the unemployment rate down when they can make huge gains on "efficiency" efforts like down-sizing, cutting back hours and benefits or firing everyone. It's going to be a long slog regardless.
- singlspeed
November 20, 2012 at 10:30am
asdrhm writes: ""There's also a case for some kind of consumption tax, which economists tend to think is more efficient than income taxes." What case is this? I guess a consumption tax would be more efficient, but it would put more of a burden on lower income earners. " A modern consumption tax would rebate to all families the monies needed to ensure their taxes on basics are zero. The FairTax sends a check each month (about $500 for a family of 4) to every single family in America to cover this, and the end result is that the effective tax rate on a 15K earner is -23%, a $30K earner is 0%, a $45K earner is 7.7%, a 60K earner is 11.5%, and it continues to rise up to a 22% effective tax rate on the highest earners. So, a consumption tax doesn't have to be regressive at all. The best part of the consumption tax is that it serves as a wealth tax on wealthy earners that spend like drunken sailors. It also means there are only 2 numbers to adjust: The prebate (the amount we all get every month) and the tax rate. And adjusting the numbers impacts everyone. There is no way to carve out exceptions for favored groups.
- seattleeng
November 20, 2012 at 12:33pm
Singlespeed writes: "Their position was based on the fact that even if we clean our own house, the overall economy is so intertwined that it makes it difficult to push the unemployment rate down below 6%." Don't accept this. This is just the powers that be trying to lower your expectations. It was just 10 years ago we have unemployment below 5%. What has changed that would force this to be twice that amount from here on out?
- seattleeng
November 20, 2012 at 12:35pm
Seattle. Ask yourself what has changed in the last 10 years as it relates to the total global economy and interconnectedness of the entire financial system? A whole host of things have changed. I can tell you in my slow-moving sector things have changed quite a bit in the last 10 years. That you think the global business economy hasn't changed how it operates in the last 10 years is quite remarkable given what you do. And no one here asked you to accept anything. You seemed to have read past my point. Simply doing some basic domestic financial house cleaning will not result in the US jobless rate getting below 6%. As I pointed out, the factors that influence our total employment rate are also affected by the global markets. Unfortunately that is the way it is. We can't simply expect that by cutting taxes, lower regulations and hoping for a better Christmas, that the global market will magically fix itself. There are things that the US can do to help increase our capacity to grow more than 1% and reduce the unemployment rate. As much as we like to think it sometimes, no man is an island. We can do some things to position ourselves to lead and take advantage of the economy as it gets better. I'm not saying we won't ever get below 6% but it's going to hard and will take longer than folks care to admit. As is apparent in some of the commenters here.
- singlspeed
November 20, 2012 at 3:51pm
This article might help what I'm talking about a lot of things aligning in the universe. http://m.npr.org/news/Business/161153421
- singlspeed
November 20, 2012 at 3:53pm
Singlespeed, go search the google news archive for the phrase "new normal" and unemployment. History is rife with pundits telling us the good ol' days are over and it's going to suck from here on out. Here's a choice quote from the search to whet your appetite: "Unemployment has been edging upward since the 1970's. In 1969, unemployment dropped to its lowest leve in that decade: 3.5%. It moved up to to 4.9% in 19780, and with the exception of 1973, when it again was 4.9%, it has been rising ever since" Care to guess when it was written? Hint: it was from a time when unemployment was at 7%. If unemployment cannot be fixed, then expect middle class wages to continue to suck. Wages will not rise if there is a glut of workers willing to jump in at bargain prices and do the job. Only when we have employers fighting for qualified workers do wages really take off.
- seattleeng
November 20, 2012 at 5:37pm
seattle, Based on your last statement and what the record tells us, for the most part, the "normal" unemployment rate has steadily risen over the last 40 years. What would cause that? Could it be a population explosion, an expanded low-skill labor pool available across the globe, an increase in production efficiency out-put per worker, a flattening of middle-class wages in the US at the same time. Every decade the overall, accepted unemployment rate has been 1% higher than the previous decade due to many of the factors I listed above. And remarkably, there are folks out there willing to do the work at bargain prices. When you have unemployed folks with 10-15 year of experience taking lower level employment for a 10-15-25% pay cut then you see middle class wages continue to suck. And the article I pointed to was an economist running computer models with multiple variables showing that global economy can't grow fast enough over the next several years to overcome the glut of idle workers out there. And employers fighting over qualified workers isn't going to drive wages up. Not any more - at least in most sectors not in computer sciences. Even the medical industry is seeing a flattening of wages. Why? Because there are tons of people out there looking. As of right now, you haven't shown me anything that counters my points except what appears to be wishful thinking. Again, I haven't said the long-term unemployment rate can't be fixed, I'm saying it's going to take more than a little tax raising and spending cuts. It's going to take some structural changes to grow back the middle-class that has been hollowed out the last 40 years.
- singlspeed
November 20, 2012 at 6:04pm
Regarding tax rates...The CBO last summer took at a look at effective tax rates INCLUDING SS, medicare, fed, state and local transfers but not including state and local taxes. The summary is that our middle earner pays an effective tax rate of -5%. If you add in state and local taxes, it will probably break about even. In other words, when all taxes are factored in, the middle class is BARELY not mooching. Harvard economist Greg Mankiw notes about the study: "The most surprising fact to me was that the effective tax rate is negative for the middle quintile. According to the CBO data, this number was +14 percent in 1979 (when the data begin) and remained positive through 2007. It was negative 0.5 percent in 2008, and negative 5 percent in 2009. That is, the middle class, having long been a net contributor to the funding of government, is now a net recipient of government largess." And, in case you think the rates have gone down because middle class earnings have gone down, not true. In 1979, the middle class earned 15.8% of all the income ($51K, constant dollars) while in 2005, the middle class earned 13.3% of all the income ($58.5K). As I've said for a long time, the middle class have enjoyed a free ride in this country compared to their EU counterparts, where the middle class is savagely taxed. Time to spread the pain. Let's put the taxes where they need to be to pay for the government we think we want. PS. The top 1% over this time have seen their effective rates (after transfers) go from 35% in 1979 to 28% in 2009. These rates were 32% during Clinton's last 3 years, and 29% during Bush's last 3 years.
- seattleeng
November 20, 2012 at 6:15pm
singlespeed writes: "Based on your last statement and what the record tells us, for the most part, the "normal" unemployment rate has steadily risen over the last 40 years. What would cause that? Could it be a population explosion, an expanded low-skill labor pool available across the globe, an increase in production efficiency out-put per worker, a flattening of middle-class wages in the US at the same time. Every decade the overall, accepted unemployment rate has been 1% higher than the previous decade due to many of the factors I listed above." Our bottom was 2.5% in the late 40's (when they started counting this). We're 64 years beyond that. In 2006, we had achieved 4.4%. In 2000 we achieved 3.8%. if your assertion where true (1% higher each decade) then the floor of 2000 would have been 7.5%. It was no where near that. Have you really forgotten just how wonderful 2006 was from an employment perspective? That was not long ago. The world dynamics have not changed that much in the last few years.
- seattleeng
November 20, 2012 at 6:24pm
Seattle, Is the issue you have with my position is that you think it will only take a few months, weeks or business quarters to get the US unemployment rate below 6% or even close to 5% vs. the several years I think it will take? If so, why? I've put forth why I think the long-term jobless rate will take several years to push down below 6% (taking into account everything that affects the markets these days). I've also stated what I think the US needs to do in order to help that along. I haven't read anything from you about what you think it would take to accelerate growth and a drop in the jobless rates. I've indicated that the job market has gone through a fundamental change the last several years that is contributing to how people work and what people are getting paid across several sectors. How would you fix the unemployment problem? And I didn't forget how "wonderful" the job market was at 4.4% end of 2006 . Did you forget how "awful" the market was from an employment perspective in 2008 with that jobless rate hovering at 7.3% at the end of 2008? I wonder what caused that 3% drop in less than 24 months. World dynamics must not have changed much. As to my assertion of a 1% rise of the floor every decade (flattening out for the cyclical nature of the economy) why is 5% the floor? Why not the 2.5% floor in the late 40s? What would you propose be done to foster that kind of growth and what is your timeline for that to occur? The end of year jobless rate in 2002 was 6% in 2012 it is hovering at 7.9%. I guess the floor moved.
- singlspeed
November 20, 2012 at 6:54pm
singlespeed writes: "I haven't read anything from you about what you think it would take to accelerate growth and a drop in the jobless rates. " It's very simple: Investment is the byproduct of optimism about the future. Pessimism or uncertainty about the future forces people to sit on the sidelines and wait. Deficit spending is a promise that future taxes will go up. Each trillion we overspend today is a promise that taxes on the $60K earner will go up a few thousand dollars. And if the taxes go up, consumers have less to spend on companies' products. Those dollars instead are wasted in government. When people complain that corporations are sitting on trillions, and that if only we could force them to spend it we'd be ok, that thinking is backwards. The job of government is to create a stable and optimistic environment, a government that works efficiently while not overtaxing the population to pay for waste. The closer you get to this, the more the investment will flow. The more investment flows, the more hiring happens. The more we hire, the more wages rise. The more wages rise, the more we buy. The balance here is very delicate. Pissing all over business, massive overspending, increased waste from the gov, 60 new regulations per day, layers of complexity and oversight to business...all I know are a libs dream. But these things are add to the baseline friction. And friction slows systems. It is why the US growth versus EU growth since 1990 has been so different. The US growth has crushed EU growth during this time. And when all is said and done, the end result is the EU middle class has trailed far behind the US middle class in terms of disposable income. And at the end of the day, isn't that what we seek to optimize? A steadily improved standard of living, with more choices and more options?
- seattleeng
November 20, 2012 at 8:34pm
Seattle, You first complain that the middle class isn't paying their "fair share" of taxes and get more out of the government than they pay in, then you complain that any "spending" is a future tax on said middle class that is, for all intents and purposes, a bunch of moochers. But then if taxes go up then folks don't have anything to spend their money on. So we either have to raise taxes or not. Which is it? Do we raise it on labor or investment return? You then say "The job of government is to create a stable and optimistic environment, a government that works efficiently while not overtaxing the population to pay for waste" Hmm....So what specific steps would the government take to stabilize and create an optimistic environment? Is it eliminating all tax burdens (thereby creating greater debt to spending ratios, creating more middle class moochers)? Is it cutting all business regulations and environmental regulations? If the banks aren't lending it isn't because of Obamacare. It isn't because of clean air regulations. The banks stopped lending because they were over-leveraged and the government required them to have more capital backing and actually look at who they lend to. The last 5 years have been a slow stabilization of a leaky boat. In my industry where long term lending and performa requirements by banks require developers to have +20% in capital and a proforma that shows stable 5-10-15 and 20yr investment performance, otherwise the banks won't underwrite. That type of lending has started to increase and loosen up. Still slow but getting better. What that means is for several industries, their long-term investment strategies are positive otherwise they wouldn't be making such capital heavy investments. As you've indicated the balance is very delicate. I've proposed that our "investments" need to be in long-term restructuring/infrastructure and training of our labor pool to fill the gap in skilled labor that is required by the hi-tech industries here in the States. That is a form of stabilization and security that many industries can tap into for employee investments. But that takes time and several years because businesses are no longer interested in on-the-job training. They want to hire people that already have the skills they're looking for. What that means is the education system has to be restructured so that we're educating our population for the skills that are needed. As I've said before, I think it will take a lot of effort to get all of the stars to align in order for the jobless rate to drop to 5% and I think it take the better part of the next 4 years to get there and that is assuming that Washington can get their collective heads out of the sand. I'm all for re-working the tax code and flattening rates appropriately, cutting a lot of the industry-specific loop-holes but still maintaining reasonable regulations that discourage short-cuts and passing off the operating costs to the tax payers, I'm for eliminating the home mortgage interest rate deduction if we raise the tax rate on capital gains and cut payroll tax rates on labor, I'm for increasing the retirement age, and other measures, reducing entitlement spending and military spending. I'm all for hard investing. Like I've said, I'd rather my tax money go to retraining someone to be a machinist or welder than pay them UI benefits for 99 weeks. I don't think we're too far apart on the issue. Like I said, I just think from what I've read, is that the fundamentals of the game have changed so quickly the last 5-10 years and the hole so deep that it will take a much longer time to get out of the hole (as much as I would like to think otherwise). And I'm seeing improvements at the local and regional levels but nationally and globally it's a different animal.
- singlspeed
November 21, 2012 at 10:46am
Singlesppeed writes: "I'm all for re-working the tax code and flattening rates appropriately, cutting a lot of the industry-specific loop-holes but still maintaining reasonable regulations that discourage short-cuts and passing off the operating costs to the tax payers, I'm for eliminating the home mortgage interest rate deduction if we raise the tax rate on capital gains and cut payroll tax rates on labor, I'm for increasing the retirement age, and other measures, reducing entitlement spending and military spending. I'm all for hard investing. Like I've said, I'd rather my tax money go to retraining someone to be a machinist or welder than pay them UI benefits for 99 weeks." This is a very sane paragraph. A major key to getting things humming again is tax code. Deductions are payback for political favors. They need to be cut at every turn. The tax code needs to be very broad. But, a middle income earner also needs to carry his weight. A middle income earner in Germany is paying 56.4% of his earnings in taxes all up. In the US, a middle income earner is paying 0% all up. If you figure in insurance that he must buy under Obamacare, then he's paying 20%. But still, his income taxes need to move substantially higher. Perhaps 10% effective rate, maybe 15%. Step 2 requires the government show a path to fiscal order. We take in precisely what we pay out. With maybe a little extra for a rainy day. Those two steps alone would thrill most and go a long way to helping with the optimism. A next major step might include cleaning regulations, ensuring the remaining important regulations are uniformly enforced and clear and not "waivable" via special favors, etc, And then a few big vision ideas, such as "the US will become the worlds largest exporter of fossil fuels" would help set direction and let industry know where they can place bets. Finally, a massive gov push behind on-line learning to ensure that all K12 learning is augmented via exceptional on-line tools to help drill students on the various science and maths, and a path to a free 2 year degree via on-line learning again in science, maths, engineering. That our government isn't doing anything wrt on-line learning, and instead has turned over our entire education system to unions is criminal.
- seattleeng
November 21, 2012 at 1:39pm