http://www.kqed.org/a/forum/R201108050900
The economists on the program (not liberal wackos) pretty much obliterate the GOP argument against any new revenue generation as part of a bigger plan to reduce national debt and put us on a better economic trajectory. The "educated people's" general strategy for economic recovery is like the opposite of the Tea Party's: increase short-term gov't spending (for infrastructure and other helpful investments), increase exports, and reform taxes (which will pay for that spending and also cut into our debt). And of course Warren Buffet, the poster child of all the positives of our free market, thinks taxes on high earners are too low as well. Taxing the incomes of the rich may discourage hard work and innovation to some extent (but not like the USSR), though there's little evidence that it's a net loss for society, especially considering all the good we could do with the extra revenue (even in the hands of inefficient Uncle Sam). It's true that the rich currently pay a disproportionate % of total income taxes, but that's how it's supposed to be. They also hold a disproportionate % of total national wealth, and that % is growing a lot faster than their tax outlays.
I don't know what is the deal with the GOP and taxes. They pay their country club fees, their PTA dues, and AMEX black memberships, don't they? We have to pay for the services and benefits we enjoy, right? Even if their vision of small gov't materializes, some private (profit seeking) firms will have to step in to meet the social demand for safety, conveniences, etc. If the rich aren't paying gov't for that stuff, then they'll have to pay Acme Corp. that may not have the customer's best interests at heart. Based on the track record, I would mostly prefer public service providers. The USDA and NPS have screwed over far fewer Americans over the years than Enron and Countrywide. We can't expect to live in a first world nation funded at third world levels.
Apart from raising some income taxes, ending some tax deductions is crucial. The mortgage interest deduction is the biggest culprit. I regret that I use it, but I wouldn't mind to see it disappear in a package of smart reforms. The interest deduction (and most itemized deductions in fact) just benefits select industries, political interests, and the rich at the expense of other national needs. The wealthy can hire accountants to best exploit the tax laws, and the more they spend, the more they get back (which encourages frivolous over-consumption and bubble creation). Many lower earning, less educated Americans are ignorant on some ways they could reduce their tax burden, and have trouble navigating our ridiculously complex tax code.
Does it make sense that the federal limit on full interest deduction for a married-filing-jointly couple is a mortgage of $1M? That's nuts, especially when the US median home price in 2010 was $185K. And you can even deduct on a second home that isn't heavily rented out. Those folks don't need a tax break. In general, affordable home ownership is good for our society, but of course it's not for everyone's budget. I could accept a meager interest deduction scaled vs. one's adjusted gross income and local median home price, but no way for entire jumbo loans, withdrawing equity to play the market, and any high earner. The rich are the last people who need rewards for purchasing stuff. Otherwise it incentivizes over-leveraging and buying too much real estate for one's budget. If the rich want a sweet crib, then why not pay more cash down rather than getting a reward for borrowing a huge sum? And now interest rates are very low (if your FICO score grants you access to credit), so it's not like interest is killing the average fixed-rate homeowner (assuming old mortgages can re-fi). The mortgage interest deduction is costing the US (that means you and I) about $90B/year. That's pretty much the size of spending cuts over 10 years that Obama-Boehner agreed to last week. Sure the real estate and banking industries would take a hit from this change, and maybe home prices would dip, but all that extra revenue could keep more people working/spending, and investments in infrastructure will yield future returns for everyone. It's better than a hand-out to upper-middle-class and rich homeowners.
http://www.irs.gov/publications/p936/ar02.html
http://www.washingtonpost.com/wp-dyn/content/article/2011/01/21/AR2011012102256.html
Unfortunately a lot of schedule A deductions follow this pattern: a net loss for America. This is also somewhat true for educational incentives. America just doesn't get the most bang for buck by helping people attend college, sorry Dems. It's something people are going to do anyway, so why encourage it? And for those who aren't ready for college but get suckered in by shady Univ. Phoenix recruiters, they are going to drop out saddled with tuition debt, which hurts everyone but Phoenix. I know education is an investment and cultural priority, but probably our K-12 system needs the help more. Yes colleges are getting pricier and more competitive, but why credit families making more than $100K/year? If they care about their kids' futures, they will save money for school instead of taking another trip to Maui. As you can see, the poor aren't the only ones depending on "gov't handouts". I fully believe that the qualified poor should get education assistance to help climb the ladder, but deductions for the middle class are not the best use of funds (though mortgage interest is still way worse than this).
And maybe we as a country are just consuming too much, and should save better to take pressure off some gov't services. China's economy is growing like gangbusters, yet the gov't:consumer spending ratio is much higher than ours. This won't last forever, and of course China is an exports economy, but it just shows that it's possible. Taxes always lower total economic efficiency ("deadweight loss"), but some revenues are necessary so we can have a civilization. And some taxes hurt more than others. We should be taxing consumption, not production. Many economists feel that the value-added tax is the best way to go. It's not that different, and theoretically generates the same revenue as sales tax, but creates less distortion in incentives. Firms only pay tax on the gross margin or "added value" of their output (sales minus costs of production) and get tax breaks on exports, while the end-user pays VAT on the purchase price of the goods/services. So the system doesn't unfairly punish producers, and encourages consumers to buy more responsibly. It is not perfect, and there are some regressive elements to it, but maybe the poor (who still need to buy some stuff) could be compensated by lower income taxes and subsidies on essentials.
http://en.wikipedia.org/wiki/Value_added_tax
But the problem is, all these tax arguments can make perfect logical and economic sense (and be fully constitutional), but if they conflict with the conservative ideology of the role of taxes in our culture, then they are political non-starters. Obama has mentioned tax reform in his speech today and during his 2011 SOU address, but we probably won't do anything about it. It's like racism, seriously. You can date the nicest, cutest, smartest, most honorable black man in the world, but your parents still won't approve when you bring him home. Heck a racist could be trapped in a burning building, and refuse to be saved by a black firefighter. That's what the GOP is like, totally irrational. It just doesn't make sense to unconditionally reject something that can be good (or at least necessary) for our survival.
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Sorry, just had to add this:
Check out these idiotic news headlines (attachment). The press is suggesting (maybe inadvertently) that Monday's terrible stock losses are totally due to the S&P downgrade. This is ridiculous for several reasons, but I'm sure the deficit-hawks in the GOP will jump all over this crap and twist its meaning. First, if US debt is somehow less safe now, then why has the yield dropped again as investors are dumping stocks in favor of US bonds (and gold)? That shows the people with the money don't care about what S&P did. Second, Moody's and Fitch didn't agree with S&P's rating (and neither did Warren Buffet), so it's possible that S&P are flat wrong. Third, no credible entity should care how the ratings agencies score them anyway (who the hell cares if we are AAA or AA+, especially when those ratings aren't quantitative and both are still very good?). Ratings are less and less important as pension funds and other big investors rely on their own research. Lastly, this S&P downgrade was not a surprise. They were pretty much "threatening" to do this weeks ago unless the gov't could agree on $4T in cuts (which is a tall order). So why didn't the markets react then?
http://finance.yahoo.com/news/Dow-plunges-more-than-634-apf-1960115615.html?x=0
"The market is under a lot of stress that really has little to do with the downgrade." - $20B bond fund manager
If this is so, then Yahoo! picked horribly misleading headlines, and unfortunately headlines may be all that some readers see.
Correlation doesn't prove causation. The markets were headed down today even if S&P did nothing. The downgrade surely didn't help make anyone feel better, but it's our stalled economic recovery and worries about Europe that are fueling most of the losses. Probably investors are more concerned about Washington's inability to enact changes and react constructively and swiftly to crises more than our actual debt numbers.
So the Tea Party should think about that too if they truly love this country. Or do you think the GOP obstructionism and ultimatums are deliberately designed to tank the US economy leading up to the 2012 election? Then they will try to pin our troubles on the Dems and retake the WH. Because our economy will eventually improve of course, and they don't want to allow Obama to take credit (it's bad enough that the guy took down Osama). So if Obama isn't an idiot, he has to stop playing nice and call out the GOP on this, and I think many sensible voters will side with him. If GOPers are scared to raise taxes and face voter anger, they should also fear losing their jobs if they fail to accomplish anything, or worse block efforts to help the American people.
I know this theory sounds horrible, but it wouldn't be the first time. There was an investigation into whether the Reagan campaign worked with the Pentagon to delay the Iran hostage crisis resolution until after he beat Carter in the 1980 election, so Jimmy couldn't get credit for it. A gov't investigation later refuted the claim, but many high-level people still believe it, and the facts of the case are quite intriguing.
http://en.wikipedia.org/wiki/October_surprise_conspiracy_theory
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http://fivethirtyeight.blogs.nytimes.com/2011/08/08/why-s-p-s-ratings-are-substandard-and-porous/?hp
Clearly the S&P rating has SOMETHING to do with the market. There are plenty of non savvy investors in the marketplace to make that effect happen.
Also I take issue with this housing tax break allowance. Of course i own an expensive home so this is near and dear to me but as a rich person who works for my income i essentially have 1 tax break which is my home. Without the interest writeoff I would be claiming zero and paying extra every month to avoid a fine for not putting enough away for taxes. Champagne problems maybe but in an area whose average housing cost is somewhere between 300k - 500k is getting the total jumbo loan as a write off a crime?
On a somewhat separate note, how can you eliminate that writeoff without screwing the people who already own homes? The price of a home has priced in the fact that people get a discount on mortgages and if a lack of writeoffs makes homes less affordable prices will reflect that by dropping. So folks with mortgages would be less able to pay for them and go underwater as a result. So implementation would certainly be an issue.
I do understand this is a writeoff that mostly benefits the rich but this is one of those things where certain areas of the country (read LA/NYC/MIA/ETC) have plenty of "rich" people who couldn't be homeowners near their place of employment otherwise.
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Regarding the S&P downgrade and the market drop, sure there were some knee-jerk, ignorant investors who got spooked by the news, but I'm not sure how much they contributed to the overall decline. Maybe US debt is less attractive now, but it's still the best game in town, so people were more worried about stocks/overall economy and fled to bonds/gold. So maybe S&P warned us that the well water has some bacteria in it, but we're thirsty as hell and it's better than drinking piss.
It's funny how the blogger is saying it may be profitable to bet against S&P over its sovereign debt ratings. Historically, when S&P downgraded sov. debt from AAA to AA+, the yields on those 10-yr bonds tended to go down over the next month (as we saw with the US yesterday). This may be due to other economic events coinciding with a country under debt stress, but no industrialized nation downgraded by S&P has ever defaulted afterward, and investors seemed to pay no heed to the lower ratings.
http://www.businessinsider.com/average-yield-impact-of-a-lost-aaa-rating-2011-7
The link below describes how 90% of subprime securities that Moody's/S&P rated AAA pre-bust were later shifted to junk status. Is anyone in MLB batting .100 and keeping their job? Some of the big banks are being investigated for pressuring the ratings agencies to raise the grades of some of their securities. In some cases, bank execs called into those agencies to complain, and after some wrangling/bribes/threats, the agencies made exceptions to their risk assessment standards so the securities could be rated higher. That's like Michael Bay calling into Rogert Ebert's office and wiring him some cash to sweeten his nasty review of the latest Transformers slop. Maybe instead of relying on the big 3 agencies tainted by conflict of interest, we could have a crowd-sourced service from vetted financially-savvy contributors, similar to a Wikipedia or Yelp? I know there is plenty of independent investment advice out there, but something a little more official and trustworthy could help. Maybe it already exists?
http://www.bloomberg.com/news/2011-04-13/moody-s-s-p-caved-to-mortgage-pressure-by-goldman-ubs-levin-report-says.html
Regarding the mortgage interest deduction, sorry I didn't clarify before but any changes wouldn't be retroactive to existing mortgages. They would have to be grandfathered in or have the deduction withdrawn gradually. I know how you feel though. We obey the law, work hard, and haven't withdrawn much from the system (we haven't taken any unemployment, welfare, disability, etc.). Where's our damn reward for being good soldiers? But that's the thing, in a compassionate society the able have to sacrifice more for the less able. Is it "fair"? Well that's another discussion, but people like us really don't need any tax handouts, even if we're not living large and many of our neighbors seem to be doing a lot better (in their cases, even less justification to help them). I'd rather a handicapped person still get her home care, or a veteran get his physical therapy, instead of me getting a deduction. Of course I'd rather all the normal people get more help and the rich pay more into the system, so I'd fight harder for Bush tax cuts repeal before I fight for mortgage interest deduction repeal. Also, if we reformed other aspects of the tax code and labor market, you wouldn't need the extra money from deductions anyway.
The interest deduction is supposedly meant to make home-ownership more affordable and encourage people to do it. You and I bought during a time of really low rates, and even fed/state tax credits for first-timers. If interest deduction is the last bit of help a person needs to get over the hump and afford a mortgage, then maybe that person isn't ready to own. For your family and mine, we wanted a place of our own and our lifestyles/finances permitted it, so we would probably buy with or without the tax break. It's like Cash for Clunkers - the wealthy mostly took advantage of it, and in fact the program unintentionally put upward price pressure on the used car market (by destroying some supply), which hurt poor people who can only afford bad used cars. Like I said though, I could support a partial interest deduction adjusted for income/location, but not as generous as the current program. The bigger problem is expensive real-estate in the big coastal markets as you said, but that is a whole other can of worms that I don't know how to address.
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Yes! MY point for the last 30 years with regards to 401Ks, etc. I HAVE NO IDEA what to do with my money, but ever since that asshole reagan came along with the 'you know best how to invest your money' line of bullshit, I've HAD to put my money into the market. the ones who convinced us that this was for the best, certainly knew what to do with our pensions-line their own pockets with OUR savings. They then burned me on the 401K bullshit, too. So, now, once again, it's my fault for not knowing what to do. I'm with the folks in the streets in london at this point. burn, baby burn.
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Yes I'm frustrated and pissed off too. Our money is going poof (not that I had much to begin with). We can't compete with the resources and power of Wall Street investors, and we're not rich enough to hire them. So unless we have a crystal ball, the best we can do is diversify and let it sit. A mix of industries, company types, funds, bonds, commodities, and some liquid cash for quick emergencies. But others on this list know much more about finance and investing than I do, so please chime in and help us.
In general, the US stock market has been a very good and safe bet since WWII, and T-bonds even better. There will be shitty days and scams of course, but in the long run our investments should appreciate better than real estate or CDs (unless the 21st Century economy is vastly different than history). But of course an individual has to tailor his or her investments for their risk tolerance, values, and life circumstances.
I don't know about all the circumstances going on in England now, but it seems like the Rodney King riots. I just think it's sad when trouble-makers destroy property and wreak havoc only in poor neighborhoods. People have every right to protest and show their anger. So if they want to break the law, torch Harrod's and 10 Downing Street, not the poor immigrant flats of people on the margins who never did wrong to anyone. And Harrod's is insured anyway, though of course it is more protected by security forces than the slums.
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