The Economy- The View From Monday, September 15

[AGBF]

It is Monday, September 15. The economy isn't looking very good. It isn't simply a matter of whether the United States is techically in a recession or not. The unemployment rate is over 6% again and, most dramatically, the weekend brought a lot of turbulence to Wall Street (as if it needed it). Bear Stearns and Fannie Mae and Freddie Mac are barely behind us Now we have Lehman Brothers in Chapter 11 and Merrill Lynch being sold. Things are looking pretty frightening.

When I hear Republicans claim that they fear Barack Obama's programs will be expensive and raise taxes, I cannot help but wonder where they have been during the Republican presidencies. George W. Bush pushed for the war in Iraq which has cost billions of dollars. That he didn't raise taxes to pay for it, didn't make it free. It just makes Mr. Bush irresponsible. He is like a teenage kid who ran up a credit card bill for his own pleasures, then left his parents to pay it. When his parents say that things have changed and that they have decided to take in granny, Georgie tells them that granny is too expensive. (This is the Republican line to the Democrats when the Democrats say, "Gee...Iraq veterans are wandering around with untreated traumatic brain injuries. Shouldn't we put a little money into that?")

But, no. Georgie kept the money. There isn't any left for veterans. Create jobs for American workers? Make sure that Americans are able to afford health care coverage? Let those middle class Americans go without so that George W. Bush can say that he cut taxes while spending wildly and running up a huge deficit. Then point at Barack Obama and act as if a few million dollars could ever add up to the billions wasted in Iraq...or were they wasted? Maybe they were just moved around. Maybe they are now lining the pockets of Mr. Bush's friends at Halliburton and Blackwater.


Deborah

 

[NewEnglandLady]

I realize that many people feel that the government's role is to help the public. I am not one of them. I feel that the government's role is to protect the public and that's it. No welfare, no health care coverage, no federal taxes that do no go to roads and military, no subsidizations, no bailing out businesses that cannot make it on their own, no social security, no money for veterans.

The government has become a crutch for everybody--for individuals, for businesses and the result is that we ALL have to pay for it. Some are happy to do so. I am not.
I think in general peole are tired of the "victim" mentality--and more importantly, sick of paying for it. I think this is why Obama's plan doesn't resonate with many.

While I am have always been against the war (but would be happy to see military money go towards border protaection), I can understand why people would rather pay for protection than social programs.

 

[Krissie]

Deborah, that was a very thought-provoking post and so apt for this morning. From where I sit, many of my clients are scrambling in the wake of Lehman chapter 11. This has far-reaching implications for the financial markets worldwide.

I am hoping that Obama and Biden both will stand up and really focus on the middle class. It seems like Biden started speaking up for the middle class last week, but neither party, in my opinion, has done so to a sufficient degree. I have heard the Republicans talking about smaller government and not wanting "Warshington" to invade their lives; I guess that could be extrapolated to protecting small-town America from federal influence.

But what about the middle class - in small towns and big cities?

 

[stone_seeker]

Date: 9/15/2008 9:56:27 AM
Author: NewEnglandLady

I realize that many people feel that the government''s role is to help the public. I am not one of them. I feel that the government''s role is to protect the public and that''s it. No welfare, no health care coverage, no federal taxes that do no go to roads and military, no subsidizations, no bailing out businesses that cannot make it on their own, no social security, no money for veterans.

The government has become a crutch for everybody--for individuals, for businesses and the result is that we ALL have to pay for it. Some are happy to do so. I am not.

I think in general peole are tired of the ''victim'' mentality--and more importantly, sick of paying for it. I think this is why Obama''s plan doesn''t resonate with many.

While I am have always been against the war (but would be happy to see military money go towards border protaection), I can understand why people would rather pay for protection than social programs.

Ditto. I lost many friends in 9/11, my father was trapped under rubble for several hours. We havent been attacked since (but that gets no credit). I will pay for protection over anything else any day of the week. I do think Bush mismanaged it and Iraq shouldnt have been the focus. All the more reason to have someone with some military knowledge be the commander in chief.

 

[stone_seeker]

The middle class was kept in a depression the last time a president tried to raise taxes during a financial and economic crisis (Hoover).

Obama is too smart not to know he cant raise taxes in this environment but why wont he say it? He will gain A LOT of independent votes. Either he is pandering to a base or hell bent on redistributing income. Heck, if he said he wont raise tax until we are out of this mess, I might give him a second look.

 

[MoonWater]

Date: 9/15/2008 11:09:57 AM
Author: stone_seeker

Obama is too smart not to know he cant raise taxes in this environment but why wont he say it? He will gain A LOT of independent votes. Either he is pandering to a base or hell bent on redistributing income. Heck, if he said he wont raise tax until we are out of this mess, I might give him a second look.

Perhaps because he doesn''t want to look like Bush, Sr. later?


And Deborah, great post, per usual.

 

[Black Jade]

I agree about not having been attacked since 9/11. This is huge. All the people talking about how terrible Bush is need to move to Europe and see what it is like to live in fear of terrorist attacks. We don''t need that here. 9/11 was bad enough.

The poor, very poor (actually scary) economy is the result of greed. People forgot about boom/bust cycles and did all kinds of crazy, greedy things. The whole mortgage crisis was totally avoidable. A generation that had grown up in plenty (and with endless credit available) didn''t think about paying the piper one day. I can remember reading warnings everywhere--in MONEY magazine, in BUSINESS WEEK and anywhere that people discusssed finances about the kinds of mortgages being given out and about borrower''s inability to pay and what it would mean. Also about the way people were using home equity. I am not happy now that the warnings have come true--I feel frightened. We are all going to be affected and for some time.

But electing a president who thinks the answer is taxes that amount to wealth re-distribution and who doesn''t understand foreign policy very well, is not the answer.

Just my $.02.

 

[purrfectpear]

Date: 9/15/2008 9:56:27 AM
Author: NewEnglandLady

I realize that many people feel that the government''s role is to help the public. I am not one of them. I feel that the government''s role is to protect the public and that''s it. No welfare, no health care coverage, no federal taxes that do no go to roads and military, no subsidizations, no bailing out businesses that cannot make it on their own, no social security, no money for veterans.

The government has become a crutch for everybody--for individuals, for businesses and the result is that we ALL have to pay for it. Some are happy to do so. I am not.

I think in general peole are tired of the ''victim'' mentality--and more importantly, sick of paying for it. I think this is why Obama''s plan doesn''t resonate with many.

While I am have always been against the war (but would be happy to see military money go towards border protaection), I can understand why people would rather pay for protection than social programs.

Those veterans may not feel like protecting you since you want to cut off all their benefits

 

[NewEnglandLady]

Date: 9/15/2008 12:02:52 PM
Author: purrfectpear

Date: 9/15/2008 9:56:27 AM
Author: NewEnglandLady



I realize that many people feel that the government's role is to help the public. I am not one of them. I feel that the government's role is to protect the public and that's it. No welfare, no health care coverage, no federal taxes that do no go to roads and military, no subsidizations, no bailing out businesses that cannot make it on their own, no social security, no money for veterans.

The government has become a crutch for everybody--for individuals, for businesses and the result is that we ALL have to pay for it. Some are happy to do so. I am not.



I think in general peole are tired of the 'victim' mentality--and more importantly, sick of paying for it. I think this is why Obama's plan doesn't resonate with many.

While I am have always been against the war (but would be happy to see military money go towards border protaection), I can understand why people would rather pay for protection than social programs.

Those veterans may not feel like protecting you since you want to cut off all their benefits

I'm not asking them to.

Certainly they should be paid for their work and paid if they are injured. But I would never ask somebody to fight for me...I'd rather have them fight for themselves.

 

[Anna0499]

Maybe this will get more responses on this thread...no bites so far on the original one where I posted it.

Someone sent me this hypothetical in an email, maybe some economist-minded PSers can explain how it would be better for America''s economy under Obama:

A small business brings in $600,000/year in gross income. The business has 4 employees who each make $30,000/year = $120,000/year paid out by the business owner. A current tax rate of 35% costs the company $210,000/year. Assuming an additional 25% overhead at $150,000/year, the owner takes home about $120,000/year in income. Under Obama''s plan, the tax would be raised to about 51%, which would equal $306,000/year in taxes alone. The cost of employees plus overhead would remain the same to equal $270,000/year (although it would most likely be higher if taxes increase) and the business owner would now be left with a grand total of $24,000/year, or an 80% pay cut. What will happen? Obviously the owner will either close the business, fire some employees, and/or charge higher prices to make more profits to survive. The business would certainly not grow or hire more employees. The $500 or $1,000 tax check in the mail won''t do much for most Americans directly or indirectly affected by this scenario who lose their jobs or pay more for goods or services. It''s hard to understand how this would benefit people in the long-run. I would appreciate if anyone can refute this story for me, as it has bothered and scared me ever since I read it.

Also, maybe someone can explain to me how, if 40% of Americans don''t pay income tax, he will give tax cuts to 95% of Americans? Sounds like those of us who do pay taxes will be paying for handouts for the 40%!

 

[Delster]

NEL, on the subject of veterans, when you say they should be paid if they''re injured, do you envisage long term support for life-altering injuries? Which types of payment to veterans would you not support? I like reading your posts on big government, your viewpoint is different to mine but it''s always so well informed and it challenges me!

IndyGirl when you say "the tax would be raised to about 51%" which tax do you mean? I live in Ireland where high taxes are the norm (up to 42%) but it''s paid by the employees. People who are self-employed (i.e. they haven''t incorporated their business) pay a different kind of income tax and have less access to social benefits like unemployment assistance and other allowances. We have very low business and corporate taxes (like 12%) to shelter business and foster entrepeneurship.

 

[Anna0499]

Date: 9/15/2008 1:30:39 PM
Author: Delster
NEL, on the subject of veterans, when you say they should be paid if they're injured, do you envisage long term support for life-altering injuries? Which types of payment to veterans would you not support? I like reading your posts on big government, your viewpoint is different to mine but it's always so well informed and it challenges me!

IndyGirl when you say 'the tax would be raised to about 51%' which tax do you mean? I live in Ireland where high taxes are the norm (up to 42%) but it's paid by the employees. People who are self-employed (i.e. they haven't incorporated their business) pay a different kind of income tax and have less access to social benefits like unemployment assistance and other allowances. We have very low business and corporate taxes (like 12%) to shelter business and foster entrepeneurship.

A lot of small business owners claim their business incomes as personal income because they don't want to be taxed twice (personal & business). If they make $600,000 in gross income they would be taxed at around 51% under Obama's plan. Capital gains tax would be increased as well, which would increase the amount being paid out by business owners as well. Sorry if that's unclear...I received the story in an email and actually posted it to get clarification or to have it debunked by PS experts.

ETA: If Obama is going to end the war in Iraq then he should have plenty of money to fund his faulty universal health care plan & refund checks (to those who don't pay taxes in the first place) without raising taxes, shouldn't he?

 

[Delster]

They'd be taxed twice on the one income? I don't get it?

OK, so, over here:

A sole trader is taxed at a particular rate (the rate depends on the amount of income) on whatever they make. Taxed once. There's no profit/income split because they and the business are one.

A company/partnership will be taxed on its profits, and the directors/partners will be taxed on the income they pay to themselves out of that profit. Two separate taxes, at two different rates.



In neither situation is anyone taxed twice. My grasp of accounting is appalling so I'm sure I'm missing something really obvious here!

Apologies if I'm asking the world's must stupid questions...

 

[Anna0499]

Date: 9/15/2008 1:38:39 PM
Author: Delster
They'd be taxed twice on the one income? I don't get it?

OK, so, over here:

A sole trader is taxed at a particular rate (the rate depends on the amount of income) on whatever they make. Taxed once. There's no profit/income split because they and the business are one.

A company/partnership will be taxed on its profits, and the directors/partners will be taxed on the income they pay to themselves out of that profit. Two separate taxes, at two different rates.



In neither situation is anyone taxed twice. My grasp of accounting is appalling so I'm sure I'm missing something really obvious here!

Apologies if I'm asking the world's must stupid questions...

I *think* (and again, I'm not an accountant or economist) that the term taxed twice refers to the money itself being taxed twice. Even in the company scenario you described the same money would be taxed once as company profits and the again as income of the owners. If they just declare it as income instead of business profits then the money only gets taxed once. Does that make sense? i.e. If the company makes $1,000,000 and the tax is (made-up) 30% then you are left with $700,000; if you pay costs of $500,000 and pay yourself $200,000 out of that then you are taxed another 30% on the same money & are left with $140,000. If you declare it as income only and are taxed the 30% then you would keep $700,000 and pay out costs of $500,000 & be left with $200,000. I think that's what the email means anyway.

 

[NewEnglandLady]

Date: 9/15/2008 1:30:39 PM
Author: Delster
NEL, on the subject of veterans, when you say they should be paid if they're injured, do you envisage long term support for life-altering injuries? Which types of payment to veterans would you not support? I like reading your posts on big government, your viewpoint is different to mine but it's always so well informed and it challenges me!

IndyGirl when you say 'the tax would be raised to about 51%' which tax do you mean? I live in Ireland where high taxes are the norm (up to 42%) but it's paid by the employees. People who are self-employed (i.e. they haven't incorporated their business) pay a different kind of income tax and have less access to social benefits like unemployment assistance and other allowances. We have very low business and corporate taxes (like 12%) to shelter business and foster entrepeneurship.

Delster, I love your posts and find the economies of smaller countries like Ireland to be very interesting.

To be fair, I do think that veterans benefits are completely separate from social welfare programs and only listed it because it was cited in by AGBF orginally. Yes, those who choose to serve in the military should be paid. If those who serve can not continue on with their lives because of their duty, then I do think they should be compensated. However, other benefits including compensation for education, home loans, insurance, etc. that are all under the jurisdiction of the Dept. of Veterans Affairs cross the line between charity and taxpayers' money.

 

[partgypsy]

From Indygirl: A small business brings in $600,000/year in gross income. The business has 4 employees who each make $30,000/year = $120,000/year paid out by the business owner. A current tax rate of 35% costs the company $210,000/year. Assuming an additional 25% overhead at $150,000/year, the owner takes home about $120,000/year in income. Under Obama''s plan, the tax would be raised to about 51%, which would equal $306,000/year in taxes alone. The cost of employees plus overhead would remain the same to equal $270,000/year (although it would most likely be higher if taxes increase) and the business owner would now be left with a grand total of $24,000/year, or an 80% pay cut. What will happen? Obviously the owner will either close the business, fire some employees, and/or charge higher prices to make more profits to survive. The business would certainly not grow or hire more employees. The $500 or $1,000 tax check in the mail won''t do much for most Americans directly or indirectly affected by this scenario who lose their jobs or pay more for goods or services. It''s hard to understand how this would benefit people in the long-run. I would appreciate if anyone can refute this story for me, as it has bothered and scared me ever since I read it.

I''m not a tax expert, especially about businesses, so I think it depends on whether gross income or what the owner takes in as income for himself is taxed. I don''t know, maybe an accountant can chime in!
If it''s net (take home income) Obama''s plan only affects those individuals who earn more than 200K in income, so it wouldn''t apply in this case. If all gross income is taxed, the tax rate goes from 35% to 39%, not 51%. Maybe the confusion is that Obama plan (for those in the top income brackets with above 200K income) capital gains is going from 15 to 20% and income from 35-39%. However as those two groups of money are taxed separately it still doesn''t add up to 51%.
I don''t think Obama said that he was going to give tax cuts to 95% of people, just that he wouldn''t raise taxes for those people.
Here''s an explanation that sounds pretty nonpartisan about the differences between the two rates. One thing that is surprising is with either plan (with the effective tax rate at 18%), it doesn''t sound like the inflow will cover outflow, so to speak, so to avoid increasing the deficit the difference will still need to be made up elsewhere...
http://www.philly.com/inquirer/opinion/27847439.html

 

[Anna0499]

Date: 9/15/2008 1:57:32 PM
Author: part gypsy
From Indygirl: A small business brings in $600,000/year in gross income. The business has 4 employees who each make $30,000/year = $120,000/year paid out by the business owner. A current tax rate of 35% costs the company $210,000/year. Assuming an additional 25% overhead at $150,000/year, the owner takes home about $120,000/year in income. Under Obama's plan, the tax would be raised to about 51%, which would equal $306,000/year in taxes alone. The cost of employees plus overhead would remain the same to equal $270,000/year (although it would most likely be higher if taxes increase) and the business owner would now be left with a grand total of $24,000/year, or an 80% pay cut. What will happen? Obviously the owner will either close the business, fire some employees, and/or charge higher prices to make more profits to survive. The business would certainly not grow or hire more employees. The $500 or $1,000 tax check in the mail won't do much for most Americans directly or indirectly affected by this scenario who lose their jobs or pay more for goods or services. It's hard to understand how this would benefit people in the long-run. I would appreciate if anyone can refute this story for me, as it has bothered and scared me ever since I read it.

I'm not a tax expert, especially about businesses, so I think it depends on whether gross income or what the owner takes in as income for himself is taxed. I don't know, maybe an accountant can chime in!
If it's net (take home income) Obama's plan only affects those individuals who earn more than 200K in income, so it wouldn't apply in this case. If all gross income is taxed, the tax rate goes from 35% to 39%, not 51%. Maybe the confusion is that Obama plan (for those in the top income brackets with above 200K income) capital gains is going from 15 to 20% and income from 35-39%. However as those two groups of money are taxed separately it still doesn't add up to 51%.
I don't think Obama said that he was going to give tax cuts to 95% of people, just that he wouldn't raise taxes for those people.
Here's an explanation that sounds pretty nonpartisan about the differences between the two rates. One thing that is surprising is with either plan (with the effective tax rate at 18%), it doesn't sound like the inflow will cover outflow, so to speak, so to avoid increasing the deficit the difference will still need to be made up elsewhere...
http://www.philly.com/inquirer/opinion/27847439.html

Yeah, I didn't write the story, I just received it in an email and wanted clarification and figured PSers might be able to help. I realize that Obama won't be cutting taxes for 95% of Americans, but I believe he did say they would be getting money back...I just wonder how you can get money back when you don't give any & then who will be paying for that 40% to get the money back. The tax laws are so bureaucratic now that I don't think anybody fully understands them or the proposed tax plans!

I just don't think raising taxes on businesses is the way to go right now...

 

[strmrdr]

Date: 9/15/2008 1:15:04 PM
Author: IndyGirl22



A small business brings in $600,000/year in gross income. The business has 4 employees who each make $30,000/year = $120,000/year paid out by the business owner.

I stopped reading right there.
It was written by someone who does not understand business.
An employee making $30k a year in pay costs the company ~$50-$60k
4 employees making $30k costs closer to $240k than $120k.

If they cant get that right then the rest of it is off.

The basic premise however that higher taxes result in less jobs is the truth.
That 600k can only be split so many ways and make a livable wage for the owner.
The more of a split the government takes the less money there is for capital improvements and wages which means the company can not have an many employees nor can they expand.
A company with 600k profits does not qualify for SBA help and banks do not want to deal with them either so they do not get the funds they need to grow unless they can attract a VC shark who takes a large slice of the company and forces the company to take risks for short term gain that has a good chance of destroying the company.

The current economic mess is the direct result of the quest for short term profits and to low cash savings interest rates.

 

[Anna0499]

Date: 9/15/2008 2:13:49 PM
Author: strmrdr

Date: 9/15/2008 1:15:04 PM
Author: IndyGirl22




A small business brings in $600,000/year in gross income. The business has 4 employees who each make $30,000/year = $120,000/year paid out by the business owner.

I stopped reading right there.
It was written by someone who does not understand business.
An employee making $30k a year in pay costs the company ~$50-$60k
4 employees making $30k costs closer to $240k than $120k.

If they cant get that right then the rest of it is off.

The basic premise however that higher taxes result in less jobs is the truth.
That 600k can only be split so many ways and make a livable wage for the owner.
The more of a split the government takes the less money there is for capital improvements and wages which means the company can not have an many employees nor can they expand.
A company with 600k profits does not qualify for SBA help and banks do not want to deal with them either so they do not get the funds they need to grow unless they can attract a VC shark who takes a large slice of the company and forces the company to take risks for short term gain that has a good chance of destroying the company.

The current economic mess is the direct result of the quest for short term profits and to low cash savings interest rates.

Thanks for the insight Karl. I didn''t know about all that math because I am not an MBA/Accountant but I did think that the overall idea was correct. I just don''t see th economy getting any better if businesses are not allowed to thrive.

 

[strmrdr]

Date: 9/15/2008 4:00:53 PM
Author: IndyGirl22

Thanks for the insight Karl. I didn't know about all that math because I am not an MBA/Accountant but I did think that the overall idea was correct. I just don't see th economy getting any better if businesses are not allowed to thrive.

Your welcome.
Much as I don't want to the job market is forcing me to run my own business.
In a competitive market taxes and health care kill small businesses.

 

[diamondseeker2006]

Just wanted to say that a lot of people only operate on short term memory. I remember quite well the years that we paid a mortgage rate of 15%!!!! I believe that was during the Jimmy Carter administration. The grass is not always greener.

 

[Rank Amateur]

It''s all Clinton''s fault.

We have never recovered from the tech stock bubble he ignored nor from the terrorist-friendly world stage he fostered.

 

[jcrow]

i don''t usually post in these waters, though i read them. but this time i am compelled to do so.

fantastic post Deborah.

 

[MoonWater]

Date: 9/15/2008 10:34:40 PM
Author: Rank Amateur
It''s all Clinton''s fault.


We have never recovered from the tech stock bubble he ignored nor from the terrorist-friendly world stage he fostered.

LOL! Good ol'' Bill.