Reality-Based Politics

[Wilber]

Solved by going back to the Clinton-era rates, save for capital gains taxes staying at 15%. Raise those too if that will give the left their pound of rich flesh.

Sounds better than our 22% top rate for capital gains.

No, as election exit polls only found 13% of voters supporting tax increases, while still wanting entitlements at present or even greater levels. They have become spoiled by lower levels of taxation and greater debt. And a guy like Romney gets slammed for pointing out the percentage of people who pay no income taxes at all.

No one ever wants their taxes increased. Question is, do the politicians have the balls to do what is needed in spite of those polls.

[bush_cheney2004]

Sounds better than our 22% top rate for capital gains.

This too will revert to 20% on January 1st if Congress does nothing, just as intended. But Wall Street no likey.

No one ever wants their taxes increased. Question is, do the politicians have the balls to do what is needed in spite of those polls.

No. There is no political upside. Even Chretien/Martin were hated for doing so, and continuing the GST.

[Wilber]

This too will revert to 20% on January 1st if Congress does nothing, just as intended. But Wall Street no likey.

It won't affect the markets, only their private piggy banks.

No. There is no political upside. Even Chretien/Martin were hated for doing so, and continuing the GST.

Yet they managed to stay in power for 13 years.

Edited December 2, 2012 by Wilber

[bush_cheney2004]

It won't effect the markets, only their private piggy banks.

It could effect the markets, as investment is at a low point already. Higher taxes will push more sideline money into bonds.

Yet they managed to stay in power for 13 years.

Different political system...they were turfed for an unrelated matter. Walter Mondale campaigned with a higher taxes strategy in 1984...he did not do well.

[Wilber]

It could effect the markets, as investment is at a low point already. Higher taxes will push more sideline money into bonds.

I doubt it. Not unless interest rates rise signifigantly and tax rates on interest aren't any lower.

Different political system...they were turfed for an unrelated matter. Walter Mondale campaigned with a higher taxes strategy in 1984...he did not do well.

Election's over, time to start governing.

[bush_cheney2004]

I doubt it. Not unless interest rates rise signifigantly and tax rates on interest aren't any lower.

No, the problem is more systemic, as nearly an entire generation has not made significant gains with equities. Boomers are more risk averse as they age and the cult of stocks and funds has lost its luster. The biggest return over the past years came from paying off debt. Cash is king.

Election's over, time to start governing.

Canada is locked in until 2015....the U.S. 2014 election cycle has already started.

[Wilber]

No, the problem is more systemic, as nearly an entire generation has not made significant gains with equities. Boomers are more risk averse as they age and the cult of stocks and funds has lost its luster. The biggest return over the past years came from paying off debt. Cash is king.

I'm a boomer but I still have just under 25% of my portfolio in high quality equities that pay good dividends. Have to, if I want to get much more than 2% in steady income.

Canada is locked in until 2015....the U.S. 2014 election cycle has already started.

I think that is proving to be a major weakness in your system.

[bush_cheney2004]

I'm a boomer but I still have just under 25% of my portfolio in high quality equities that pay good dividends. Have to, if I want to get much more than 2% in steady income.

Lots of other boomers do as well, but the participation rate is way down and there has been a big flight to bonds. Corporations are sitting on trillions in cash. Insurance companies can't get a decent return and have to raise premiums. On top of that, Wall Street has a serious lack of trust and confidence.

I think that is proving to be a major weakness in your system.

While others say the same thing about a majority government that can act with impunity until 2015. No thanks.....

[Wilber]

On top of that, Wall Street has a serious lack of trust and confidence.

Then Wall Street has nothing to bitch about. Wall Street bears a large share of responsibility for this pickle.

While others say the same thing about a majority government that can act with impunity until 2015. No thanks.....

There are draw backs to both systems but I think government that is incapable of governing is a worse scenario, particularly in times when real governing is so necessary.. What's happened down there? Electioneering wasn't always put so far ahead of the country's best interests was it?. At least that is the impression we are getting here.

[bush_cheney2004]

Then Wall Street has nothing to bitch about. Wall Street bears a large share of responsibility for this pickle.

Wall Street doesn't see it that way. Like a casino with favourable house odds, it does not have a conscience, particularly when government is complicit and benefits from the taxes.

There are draw backs to both systems but I think government that is incapable of governing is a worse scenario, particularly in times when real governing is so necessary.. What's happened down there? Electioneering wasn't always put so far ahead of the country's best interests was it?. At least that is the impression we are getting here.

The original design specification was for government with purposeful checks and limits....."the government that governs least governs best". It is the growth of government (and spending) that has attracted so much electioneering and influence peddling. Take a look at this chart for government spending as a percentage of GDP:

[Wilber]

We know Wall Street has no conscience and those without conscience need no sympathy.

The original design specification was for government with purposeful checks and limits....."the government that governs least governs best". It is the growth of government (and spending) that has attracted so much electioneering and influence peddling. Take a look at this chart for government spending as a percentage of GDP:

So, what to do?

Right now, it looks like a government that is governing the least. Trouble is, that's not what is required at this time.

[Bonam]

The evidence, is that these simplistic slogans and catchphrases are so successful. Talking to us like children is a highly successful tactic.

Are you sure that is a result of increased stupidity of the electorate, rather than the parties and the media learning to communicate their message in the (seemingly) most effective manner to achieve their political ends?

[bush_cheney2004]

So, what to do?

Right now, it looks like a government that is governing the least. Trouble is, that's not what is required at this time.

That is the essence of the ideological debate....government will only continue to grow if spending cannot be curtailed. Hence taxes vs. spending cuts battles. These are battles in a much longer war going back to FDR's New Deal. The growth in government debt indicates that one side is losing. Even during Clinton's revenue surplus years, the real debt was still growing.

People like Grover Norquist are less concerned about taxes than the growth in spending. He created his "no taxes" pledge as a political gimmick and firewall against growing government any further. There was a time when this would have worked, just ask Bush #41. But not anymore.

[Wilber]

Not very encouraging

[dre]

Are you sure that is a result of increased stupidity of the electorate, rather than the parties and the media learning to communicate their message in the (seemingly) most effective manner to achieve their political ends?

But if you look at the messages they clearly designed to appeal to dullards. When you see republicans and democrats calling each other "hitler", or "fascist", or "socialist" do you think they are trying to appeal to geniuses?

Or when Vic Toews comes out and says that people who are against his internet surveillance bill "pedophile supporters".

And youre right. They ARE just communicating their message in the most effective manner, but what does that say about the electorate, that these simplistic and moronic slogans are "the most effective manner". If they thought we were smart they would make reasoned thoughtful arguments. If we WERE politically smart they would HAVE to.

[blueblood]

The hyperbole from the right on raising the tax rate a few percent on the top income earners is complete insanity: 1917 Russia? Lynch mobs? You've got to be kidding me. Was the US a Communist State when Regan or Eisenhower were presidents? Of course not, yet the top marginal rate was more than 10% points higher under Regan than Obama's proposal and over 50% points higher under Eisenhower. I guess Eisenhower is a bad example, since the US really did have lynch mobs then, except they weren't targeting the rich.

It's not insanity. The top earners already pay their freight, time for the scrubs to pick up the slack. Regan slashed taxes and compromised by closing a lot of loopholes. Eisenhower had loopholes big enough to drive a bus through. The USA is being outcompeted by lower tax and lower cost jurisdictions and if it doesn't compete he problem still exists.

The rhetoric of the democrats is akin to Chavez et al. And we know how that experiment turns out.

[cybercoma]

It's not insanity. The top earners already pay their freight, time for the scrubs to pick up the slack. Regan slashed taxes and compromised by closing a lot of loopholes. Eisenhower had loopholes big enough to drive a bus through. The USA is being outcompeted by lower tax and lower cost jurisdictions and if it doesn't compete he problem still exists.

The rhetoric of the democrats is akin to Chavez et al. And we know how that experiment turns out.

You use Regan as an example, yet say having a similar tax rate to him would be socialist. You look at the numbers. Obama is proposing a very modest increase in the highest income tax rate in order to make up for their fiscal shortfall. His proposal is quite reasonable.

The GOP completely ignored it. Well, good for them. It's time they made a counter proposal. But nope. Nothing. Either the fiscal cliff is just not that important to the GOP or they're reckless and irresponsible. I'm not sure what, but the ball is in their court and they're refusing to play. It doesn't look very good on them at all.

[bush_cheney2004]

They're aren't enough "rich people" to tax at higher rates and get enough revenue. Taxes need to go up for everybody, and spending must be cut, including the military. Don't worry, the 47% who pay no income taxes can keep worshiping President Obama.

[August1991]

Interesting thread.

Warren Buffet said he has been selling stocks since he was twenty. People bought them when taxes were high and when they were low. He said that in fact, the US economy has had some very good runs when taxes were a lot higher than they are now.

Warren Buffet is a businessman who sells stocks. He knows his target market well and appeals to them.

No, the problem is more systemic, as nearly an entire generation has not made significant gains with equities. Boomers are more risk averse as they age and the cult of stocks and funds has lost its luster. The biggest return over the past years came from paying off debt. Cash is king.

I agree.

-----

Here's the problem. Even if the US federal government raises tax rates on the rich, the near rich and the merely middle class, or even if it eliminates mortgage deductions/other payroll freebies, there will still not be enough tax revenue to cover expenses given the various entitlement programmes in place - and that's true even if the US economy returns to a reasonable level of growth.

In simple terms, the US federal government budget is not sustainable unless a) there are serious cuts in spending (medicare, medicaid, social security, defence) or serious new taxes (say, a federal sales tax of 10% or so).

This problem has been painfully obvious for at least 12 years but probably for about 40 or so (Clinton's "balanced" budgets notwithstanding). The 2008 recession just brought things to a head. (As Buffet would say, when the tide goes out, we find out who was skinny-dipping.)

I reckon that defence will get the hit. Between guns and butter, the current American voters are now going to pick butter.

They're aren't enough "rich people" to tax at higher rates and get enough revenue. Taxes need to go up for everybody, and spending must be cut, including the military. Don't worry, the 47% who pay no income taxes can keep worshiping President Obama.

BC, I just read your post after posting mine. You more or less say the same, but more succinctly. Edited December 4, 2012 by August1991

[August1991]

The original design specification was for government with purposeful checks and limits....."the government that governs least governs best". It is the growth of government (and spending) that has attracted so much electioneering and influence peddling. Take a look at this chart for government spending as a percentage of GDP:

BC, that graph includes both government purchases and government transfers. Government purchases have largely remained constant, around 20% or so - as in the late 1930s. (With Obamacare, they will likely rise if defence spending remains constant.) Transfers, however, have ballooned since the late 1930s.

Keep in mind the difference: a government purchase (ie. building a road) is when the government buys something from society, from the economy. It takes part of the GDP. A government transfer (ie. social security) has no direct effect on GDP since it is just moving money from one pocket to another.

[dre]

Interesting thread.

Warren Buffet is a businessman who sells stocks. He knows his target market well and appeals to them.

I agree.

-----

Here's the problem. Even if the US federal government raises tax rates on the rich, the near rich and the merely middle class, or even if it eliminates mortgage deductions/other payroll freebies, there will still not be enough tax revenue to cover expenses given the various entitlement programmes in place - and that's true even if the US economy returns to a reasonable level of growth.

In simple terms, the US federal government budget is not sustainable unless a) there are serious cuts in spending (medicare, medicaid, social security, defence) or serious new taxes (say, a federal sales tax of 10% or so).

This problem has been painfully obvious for at least 12 years but probably for about 40 or so (Clinton's "balanced" budgets notwithstanding). The 2008 recession just brought things to a head. (As Buffet would say, when the tide goes out, we find out who was skinny-dipping.)

I reckon that defence will get the hit. Between guns and butter, the current American voters are now going to pick butter.

BC, I just read your post after posting mine. You more or less say the same, but more succinctly.

I dont see much of that happening... I think the US stays on basically the same course its on until the bond market dries up, and both the debt and currency inflate their way to zero. The dollar will be worth nothing but the US will be debt free.

This is the plan as things stand now, and its basically working. The US has less real debt than it did 15 years ago, if you value the debt in most commodities. They only have a large debt if you value the debt in paper tokens, and those are rather meaningless over time.

Eventually you will be able to settle the 15 trillion dollar US debt with a burger and fries.

[August1991]

Here's a look at the figures:

I really would like to see the source of that graph (that is shown in various guises on the Internet). Charting tax rates for different family configurations, at various income/wealth levels, is a dog's breakfast at best. Charting them over time is a near impossibility. (eg. Consider how many people rose into the highest tax bracket merely because of inflation in the 1970s. Or, think how family configuration is different in 2012 compared with 1962. Nowadays, there are many more single-lead households.)

Your graph above seems to indicate the "Top Marginal Rate" (I assume that's combined federal/state/city on income, after deductions.) while referring to the "Tax Rate for Wealthiest". (Wealth and income are two different things in the same sense that a property tax is unlike an income tax.)

Anyhooo...

Payroll deduction of income tax started in the early 1940s. Until then, people kept all their income and then at the end of the year, they wrote a cheque for their income tax. This is how many people still pay property taxes. (And it's also how many people around the world pay income taxes.)

Needless to say, payroll deduction was one of the greatest inventions of the 20th century. Its 21st century equivalent is direct-deposit or the automatic payment through a credit card. Bond holders love this because it guarantees a revenue stream.

Looking at your graph, it's not hard to see what happened. Once payroll deduction kicked in, politicians were under pressure to lower tax rates.

Call this the Law of Unintended Consequences.

The dollar will be worth nothing but the US will be debt free.

This is the plan as things stand now, and its basically working. The US has less real debt than it did 15 years ago, if you value the debt in most commodities. They only have a large debt if you value the debt in paper tokens, and those are rather meaningless over time.

And I suppose that for you gold is not a "paper token".

-----

I think that there are two plans now.

Main Plan: The US economy picks up, Americans get back to work, they pay taxes, and the US federal deficit disappears through higher revenues.

Nightmare Fear: The US economy remains moribund, like Japan, and government debt balloons to 220% of GDP, interest rates remain at near zero, the US dollar maintains value/falls, inflation is close to zero/non-existent. The US economy falls into a severe liquidity trap.

The second scenario is a possibility. As BC posted above, "cash is king".

Edited December 4, 2012 by August1991

[dre]

Looking at your graph, it's not hard to see what happened. Once payroll deduction kicked in, politicians were under pressure to lower tax rates.

Actually what happened was tax rates came down in the US because the US government started extracting much of the money required to fund itself from the rest of the world. The end of convertability was a way bigger factor in that than anything else.

[bush_cheney2004]

...Keep in mind the difference: a government purchase (ie. building a road) is when the government buys something from society, from the economy. It takes part of the GDP. A government transfer (ie. social security) has no direct effect on GDP since it is just moving money from one pocket to another.

But Medicare, Medicaid, and Veterans Administration programs do purchase goods and services, and are growing at an unsustainable rate for the feds and states. Government spending has not remained at 20% of GDP.

[dre]

But Medicare, Medicaid, and Veterans Administration programs do purchase goods and services, and are growing at an unsustainable rate for the feds and states. Government spending has not remained at 20% of GDP.

That wont change until they get their credit card revoked. If governments had to fund themselves with taxation instead of borrowing then this kind of thing wouldnt happen. Spending would not get out of control because governments would have to raise taxes to increase spending, and raising taxes requires a tough political discussion.