The Titanic sails at dawn - politics, economics & culture
Six American families paid no federal income taxes in 2009 while making something on the order of $200 million each. This is one of many stunning revelations in new IRS data that deserves a thorough airing in this year's election campaign.
The data, posted on the IRS website last week, brings into sharp focus the debate over whether the rich need more tax cuts (Mitt Romney and congressional Republicans) or should pay higher rates (President Obama and most Democrats).
The annual report (link.reuters.com/vec68s), which the IRS typically releases with a two-year delay, covers the 400 tax returns reporting the highest incomes in 2009. These families reported an average income of $202.4 million, down for the second year as the Great Recession slashed their capital gains.
In addition to the six who paid no tax, another 110 families paid 15 percent or less in federal income taxes. That's the same federal tax rate as a single worker who made $61,500 in 2009.
Overall, the top 400 paid an average income tax rate of 19.9 percent, the same rate paid by a single worker who made $110,000 in 2009. The top 400 earned five times that much every day.
Just 82 of the top 400 were taxed in accord with the Buffett rule, which proposes a minimum tax of 30 percent on annual incomes greater than $1 million.
Let's return for a moment to the single worker who made $61,500 in 2009 and paid 15 percent of his salary in federal income taxes. The top 400 made more every three hours than he did in a year, and yet many of them paid the same or a lower tax rate, according to the data in the report.
On top of his $9,225 federal income tax, he also paid $9,409 in payroll taxes, which include Social Security and Medicare taxes. Half of the payroll tax was deducted from his check. His employer paid the other half, which was really hidden wages taxed at a 100 percent tax rate.
His total federal tax burden was 30.3 percent, exactly 50 percent more than the 20.2 percent tax burden, measured the same way, on the 400 at the top.
TWO TAX SYSTEMS
"(L)ook at the man who insisted that credit default swaps had made the financial system stable, that there was no housing bubble, that the housing market was poised for recovery in 2006, telling us that with interest rates at their lowest levels ever, what we need to worry about most is … the threat of rising interest rates."
For some time now (Jersey Guv Chris) Christie has been touting what he calls the “Jersey comeback.” Even before his latest outburst, it was hard to see what he was talking about: yes, there have been some job gains in the McMansion State since Mr. Christie took office, but they have lagged gains both in the nation as a whole and in New York and Connecticut, the obvious points of comparison.
Yet Mr. Christie has been adamant that New Jersey is on the way back, and that this makes room for, you guessed it, tax cuts that would disproportionately benefit the wealthy.
Last week reality hit: David Rosen, the state’s independent, nonpartisan budget analyst, told legislators that the state faces a $1.3 billion shortfall. How did the governor respond?First, by attacking the messenger. According to Mr. Christie, Mr. Rosen — a veteran public servant whose office usually makes more accurate budget forecasts than the state’s governor — is “the Dr. Kevorkian of the numbers.” Civility!
Keynes was not in favor of the type of long-term fiscal irresponsibility that we have witnessed say in the United States during the Administrations of Ronald Reagan and George W. Bush. Yes I know proponents of the 1981 and 2001 tax cuts could argue that we were not at full employment when these tax cuts were passed. However, the 1981 tax cut was not needed to get us back to full employment. Volcker’s [contractionary] monetary policy – for better or worse (worse in my view) – was the main driving factor for the U.S. economy. And we know George W. Bush pursued a host of fiscal policies that were more long-term in nature and all fiscally irresponsible. If [anyone] thinks Lord Keynes would have approved these episodes of fiscal stimulus – I submit he’s very ignorant of the brand of economics that Lord Keynes and economists like Paul Krugman strive to describe.
(I)f you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression.Oh, wait a minute. That was Mitt Romney doing that Beltway "gaffe" thing, where blurting out the truth is seen as a "mistake," especially when it runs counter to every crank proposal Romney has endorsed that has been forthcoming from the Ryan Austerity Megaphone of the GOP - the dominant party "intelligentsia," who are either economically illiterate or WANT to plunge the country into even deeper extended depression.
From "Mitt Romney Is a Tool" - K. Genius & TBX
As the debate moves – appropriately! – to a discussion of Romney’s career at Bain, one thing I’ve noticed is that everyone on the right, and a fair number of people who should know better, basically believes that Gordon Gekko was right. Before the Gekkos came along, they assert, American business was sluggish, unproductive, and uncompetitive. Then came the LBOs and all that, and our economic energy was unleashed.
As I said, everyone on the right knows that this happened. Needless to say, none of it is at all true.
Let’s look at how trends changed after 1980 or so, when the underlying rules of American business (and politics) shifted. Start with productivity – I use a log scale, so that the slope of the trend represents the rate of growth. See the big acceleration? Neither do I – productivity growth has actually been slower since the rise of Bain-type operators.
A giant austerity bomb is timed to go off at the beginning of next year, and the threat of significantly higher taxes and lower spending has Republicans running around the Capitol sounding more like John Maynard Keynes than John Boehner.
Automatic, across-the-board reductions to domestic and defense spending, combined with the looming expiration of the Bush tax cuts, will dramatically consolidate the budget in the next calendar year, if Congress does nothing. And despite bemoaning deficits throughout the Obama years, the GOP’s suddenly come around to the view that cutting government spending is a job killer.
Just listen to Sen. John Cornyn (R-TX).
“Just when you thought the economic news could not get much worse with slow economic growth, with reduced wages because of higher costs, and with many people simply giving up looking for work with the lowest labor participation rate we’ve had in some time,” Cornyn warned reporters in the Capitol Tuesday, “we have an entirely predictable and preventable jobs crisis approaching in January, where because of the sequestration [automatic spending cuts], my state alone will lose 91,000 private sector jobs — and there are about a million private sector jobs at risk if the sequestration goes into effect on January 2.
This marks the return of the Defense Keynesians — Republicans who admit that government spending supports job growth in a weak economy, if and only if that spending is directed toward the military.
As luck would have it, a new Congressional Budget Office concludes Republicans are right about the economic consequences of defense cuts — but that their other fiscal priorities are just as perilous for economic growth.
If all the fiscal tightening scheduled for the beginning of the year is allowed to take effect, it will take a huge bite out of the projected deficit for the coming fiscal year.
Unfortunately, it’ll take a similarly large bite out of GDP — enough to threaten a new recession. And the resulting job losses would reduce tax revenues and increase spending on jobless benefits enough to undo billions of dollars in direct deficit reduction.
There’s one major problem with Romney’s rhetoric: his economic plan makes the debt worse. Romney’s tax plan gives a 20 percent across-the-board tax cut to all Americans and repeals the Alternative Minimum Tax, costing $10.7 trillion over the next decade and reducing federal revenues to just 15 percent of GDP, according to Center for American Progress Director of Tax and Budget Policy Michael Linden. Romney hasn’t offered a plan to pay for those cuts, instead simply asserting that he will balance the budget.
But balancing the budget under those terms would be next to impossible. Even if Romney limits tax deductions for the richest Americans as he says he would, he would need 6.5 percent economic growth for the next five years to keep his plan from adding to the deficit. To put that in perspective, the best five-year period of growth since World War II was from 1961 to 1966, when the economy grew at 5.8 percent per year.
Sometimes it’s hard to explain why we need strong financial regulation — especially in an era saturated with pro-business, pro-market propaganda. So we should always be grateful when someone makes the case for regulation more compelling and easier to understand. And this week, that means offering a special shout-out to two men: Jamie Dimon and Mitt Romney...First...let me talk about Mr. Romney, whose remarks about those troubles were so off-point that they constitute a teachable moment.Here’s what the presumptive Republican presidential nominee said about JPMorgan’s $2 billion loss (which may actually have been $3 billion, or $5 billion, or more, but who’s counting?): “This was a loss to shareholders and owners of JPMorgan and that’s the way America works. Some people experienced a loss in this case because of a bad decision. By the way, there was someone who made a gain.”What’s wrong with this statement? Well,...it’s not O.K. for banks to take the kinds of risks that are acceptable for individuals, because when banks take on too much risk they put the whole economy in jeopardy — unless they can count on being bailed out. And the prospect of such bailouts, of course, only strengthens the case that banks shouldn’t be allowed to run wild, since they are in effect gambling with taxpayers’ money.
Incidentally, how is it possible that Mr. Romney doesn’t understand all of this? His whole candidacy is based on the claim that his experience at extracting money from troubled businesses means that he’ll know how to run the economy — yet whenever he talks about economic policy, he comes across as completely clueless...
Jamie Dimon is no Jimmy Stewart. But he has, in a way, been playing Jimmy Stewart on TV, posing as a responsible banker who knows how to manage risk — and therefore the point man in Wall Street’s fight to block any tightening of regulations despite the immense damage deregulated banks have already inflicted on our economy. Trust us, Mr. Dimon has in effect been saying, we’ve got this covered and it won’t happen again.
Now the truth is coming out. That multibillion-dollar loss wasn’t an isolated event; it was an accident waiting to happen. For even as Mr. Dimon was giving speeches about responsible banking, his own institution was heaping on the risk. “The unit at the center of JPMorgan’s $2 billion trading loss,” reports The Financial Times, “has built up positions totaling more than $100 billion in asset-backed securities and structured products — the complex, risky bonds at the center of the financial crisis in 2008. These holdings are in addition to those in credit derivatives which led to the losses." ... It really is déjà vu all over again.
To say that the middle class is important to our economy may seem noncontroversial to most Americans. After all, most of us self-identify as middle class, and members of the middle class observe every day how their work contributes to the economy, hear weekly how their spending is a leading indicator for economic prognosticators, and see every month how jobs numbers, which primarily reflect middle-class jobs, are taken as the key measure of how the economy is faring. And as growing income inequality has risen in the nation’s consciousness, the plight of the middle class has become a common topic in the press and policy circles.
For most economists, however, the concepts of “middle class” or even inequality have not had a prominent place in our thinking about how an economy grows. This, however, is beginning to change. One reason for the change is that the levels of inequality and the financial stress on the middle class have risen dramatically and have reached levels that motivate a closer investigation. The interaction and concurrence of rising inequality with the financial collapse and the Great Recession have, in particular, raised new issues about whether a weakened middle class and rising inequality should be part of our thinking about the drivers of economic growth.
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| Simpson: "Veterans...are not helping the country in this fiscal mess." |
Today a bunch of rich white guys held a "Fiscal Summit" and agreed that:
1. Despite the fact that unemployment is causing untold suffering for millions of people, it's not very important.
2. Despite the fact that wage stagnation is destroying the middle class, that's not important either.
3. Despite the fact that we need the social safety net more than ever after what they've done to the economy, it's expendable.
4. Despite the fact that our government can borrow money at record low rates and use it to put people to work, thereby ending the recession and jumpstarting the economy, that option's not even worth discussing.
5. Despite the fact that these men all possess great power, wealth, and/or influence, everything that's wrong with the economy is your fault.
6. Since it's all your fault, you better get ready to pay up.
Oh, and one other thing:
7. They're all very smart and very brave. It's too bad the rest of you people are such jerks.
Let’s begin by stipulating the obvious: nobody outside of JPMorgan Chase knows for sure what really happened with those trades that have cost it so much money and done such severe damage to its once stellar reputation.In his conference call last Thursday, Jamie Dimon, the bank’s chief executive, characterized the trades as “stupid,” but refused to get into any specifics. Even hedge fund managers on the other side of the JPMorgan trades have been able to cobble together only bits and pieces. Most of the emphasis has been on the credit derivative business managed by one Bruno Iksil in JPMorgan’s London office — a k a the “London whale.” Yet from what I hear, his losses probably won’t total more than $600 million — while the bank’s total losses have reached $2.3 billion, and could well hit $4 billion, according to The Wall Street Journal. Where are the rest of the losses coming from? As I say, nobody knows.Still, we know enough to be able to make some informed judgments. We know that JPMorgan, awash in taxpayer-insured deposits, took some of that money — around $62 billion at last count — and decided to invest it in corporate debt, which had the potential to generate higher returns than, say, old-fashioned loans...We know that JPMorgan’s chief investment office, which had orchestrated the debt purchases, decided to hedge the entire portfolio by selling credit default swaps against a corporate bond index. You remember our old friends, credit default swaps, don’t you? Three years ago, they nearly brought down the financial world. Not content with its hedge, it then hedged against the hedge. It was all very complex, of course, and all done in the name of “risk management.”
THE American economy is experiencing a crisis in long-term unemployment that has enormous human and economic costs.
In 2007, before the Great Recession, people who were looking for work for more than six months — the definition of long-term unemployment — accounted for just 0.8 percent of the labor force. The recession has radically changed this picture. In 2010, the long-term unemployed accounted for 4.2 percent of the work force. That figure would be 50 percent higher if we added the people who gave up looking for work.
Long-term unemployment is experienced disproportionately by the young, the old, the less educated, and African-American and Latino workers.
While older workers are less likely to be laid off than younger workers, they are about half as likely to be rehired. One result is that older workers have seen the largest proportionate increase in unemployment in this downturn. The number of unemployed people between ages 50 and 65 has more than doubled.The prospects for the re-employment of older workers deteriorate sharply the longer they are unemployed. A worker between ages 50 and 61 who has been unemployed for 17 months has only about a 9 percent chance of finding a new job in the next three months. A worker who is 62 or older and in the same situation has only about a 6 percent chance. As unemployment increases in duration, these slim chances drop steadily.
The result is nothing short of a national emergency. Millions of workers have been disconnected from the work force, and possibly even from society. If they are not reconnected, the costs to them and to society will be grim.
Yesterday's JP Morgan implosion has now put any lingering questions to rest.
Wall Street banks simply cannot be trusted to manage the massive risks they are taking.
After the financial crisis, when most of the world's banks were revealed to have been run by reckless gamblers, a couple of institutions stood above the fray.
JP Morgan was one of them.
The idiocy of a handful of gamblers should not be construed as a problem with the system as a whole, institutions like JP Morgan said.
Well-run banks should be trusted not to be so colossally reckless and stupid.
Well-run banks should be allowed to manage their own risks. Well-run banks should not be hammered with straight-jacket regulations that would stymie their marvelous and creative innovation. Well-run banks should be free to look after themselves, like responsible adults.
And the banking lobbying engine rushed this message to Washington and threw money around. And the lobby quickly persuaded Congress that Wall Street was fine, that the financial crisis was an aberration, that Wall Street should be left alone.
JP Morgan was the prime engine of this message. And its brilliant CEO, Jamie Dimon, was Wall Street's defiant Adult-In-Chief.
Dimon had credibility, because unlike all the other incompetent banks, his bank hadn't imploded and brought the system to the edge of catastrophe...
But now JP Morgan has blown up.
So we finally know the truth about Wall Street, a truth most Wall Street observers have known all along:
Wall Street can't be trusted to manage—or even correctly assess—its own risks.
A few days ago, I read an authoritative-sounding paper in The American Economic Review, one of the leading journals in the field, arguing at length that the nation’s high unemployment rate had deep structural roots and wasn’t amenable to any quick solution. The author’s diagnosis was that the U.S. economy just wasn’t flexible enough to cope with rapid technological change. The paper was especially critical of programs like unemployment insurance, which it argued actually hurt workers because they reduced the incentive to adjust.O.K., there’s something I didn’t tell you: The paper in question was published in June 1939. Just a few months later, World War II broke out, and the United States — though not yet at war itself — began a large military buildup, finally providing fiscal stimulus on a scale commensurate with the depth of the slump. And, in the two years after that article about the impossibility of rapid job creation was published, U.S. nonfarm employment rose 20 percent — the equivalent of creating 26 million jobs today.So now we’re in another depression, not as bad as the last one, but bad enough. And, once again, authoritative-sounding figures insist that our problems are “structural,” that they can’t be fixed quickly. We must focus on the long run, such people say, believing that they are being responsible. But the reality is that they’re being deeply irresponsible.
