The 70 Percent Solution

The Seven Percent Solution book cover

The Seven Percent Solution book cover

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Lender Of Last Resort

There is an interesting dynamic playing out at The Fed.

They have become the “Lender Of Last Resort” to most of the banking system. Historically, they were the LofLR to the money center banks, but not to “investment banks” such as Lehman, Bear Stearns, and Goldman Sachs. In that last “run on the banks” during the financial collapse, all the “investment banks” “went away” either by collapse, or by filing papers to become ‘regular banks’ and hit The Fed Discount Window.

It was the repeal of the Glass Steagall Act that lead to that result, as it let both kinds of bank get into the same lines of business, but only one class could use The Discount Window in a run on the bank… Gross stupidity of the worst kind. (This was the Republican contribution to the collapse).

The Fed also become the LofLR, via TARP, to all the folks who were issued mortgage paper on trash home loans under the CRA (This was the Democrat contribution to the collapse. The only stupidity greater than the repeal of Glass-Steagall was the CRA).

Less commonly known, The Fed has become the LofLR to The US Government. They are presently the buyer of about 70% of all the US debt being issued. That is why interest rates on Treasuries are being held so low. Other folks are unwilling to buy at that rate, and The Fed is bidding down the rate by buying up so much of it. This causes The Fed to have its Ballance Sheet ballooned out to gigantic proportions. Now, a regular bank has to have some of its money in “reserves” in an amount fixed by The Fed. They can’t just keep loaning out an infinite amount of “deposit receipts” for a finite amount of “collateral”.

The Fed does not have that problem.

The Fed, the CRA, the Collapse, and Banks of Many Colors

When a large number of depositors go to their bank and ask for their money back, the bank, holding “paper” like home mortgages and 20 year Treasuries has to have some cash to give them. Typically in the 10 to 20% range, called a 10:1 or 5:1 “leverage”. The “Investment Banks” didn’t have that “Fed Oversight” rule, so Lehman, for example, was at 40:1 leverage, meaning they had 2.5% of “assets” as cash or near cash instruments. As soon as 2.500001% of their depositors asked “for their money back”, Lehman was unable to meet redemptions, and did not have access to The Fed Discount Window for an overnight loan via presenting those mortgages for collateral.

At that point, Lehman collapsed. The Fed said “You are not one of OUR type of banks, sorry, no cookies.” Same story for Bear Stearns. At that point, Goldman Sachs filed “We are a regular bank, honest!!!” papers almost overnight and changed their charter. It doesn’t take much for 2.500001% of your depositors to write a check… a tiny bit of bad news, or even a surprise tax bill, can be enough. (This is the legacy of the repeal of Glass-Steagall).

At the same time, those investment banks, and many of the “regular banks” (like Washington Mutual that was mergered by Chase or Countrywide that was mergered by Bank of America – who also absorbed Merrill Lynch saving it from the “investment bank run” fate of it’s kin at BS and LEH) were forced to make crappy loans on broken collateral to folks with no money who could not ever pay them back. (The CRA contribution to this legacy of shame).

The Dimocrats, with Barney Frank out in the lead and the Clintons riding shotgun, were sure they could force bad lending practices on the banks, hand cash to the poor constituents, and buy votes with “other people’s money”. The banks, seeing that this was a sure path to ruin, wanted no part of it. But, the law was the law. Which was fine as long as the law was limited in the scope (size) of bad loan mandated, and the firewall limiting it from spreading to insurance and investment banks (Glass Steagall) was in place. At worse, they could ruin the commercial banks.

In the late 1990s, President Clinton and Dimocrats wanted more. They had a short hold on power, and were pushing the socialist agenda with a progressive face for all it was worth. “Home ownership for everyone” (on someone else’s dime), was the goal. BUT, they needed to buy some Republicrat votes… So, The Deal From Hell was struck. Repeal of Glass-Steagall in exchange for expansion of the CRA to cover even more loans. That was when The Match was struck and it was only a matter of time (and loan volume) until the thing blew up.

The Banks, freed from Glass Steagall were busy getting into insurance sales, securities sales (stocks, bonds) and generally linking together the three major areas that Glass Steagall had set as Strictly To Be Isolated (to prevent contagion). Insurance, Investment Banking (stocks, bonds), and Commercial Banks. The “Never shall there be contagion” that worked for 70 years was turned into “everybody plays with everyone else and shares germs”. One of those germs was the SIV and another the CMO. Structured Investment Vehicle and Collateralized Mortgage Obligation.

I won’t go into it in much depth here and now, but these were basically sausages made from a bit of good mortgages and a bunch of crap mortgages. By letting folks blend mortgages (commercial banking product) with securities (investment banking product) we got this hybrid. It would not have been TOO bad, but for the fact that someone believed that if they blended just enough crap in with a good investment, the whole thing became good, instead of tainted. Ask any decent chef – if some of the meat is bad, it will taint the whole batch… However, as the Banks had no real choice (if they held the mortgage crap themselves, they would go under, and the CRA law said they had to make the crap loans) they made the sausage as quickly as they could and sold it. As CMOs with batches of CMOs sold as SIVs.

At this point, the Rating Agencies got into the act. Fitch, Standard and Poor’s, Moody’s. They assigned a AAA rating to these sausages of tainted meat. Which were then sold globally. Loads of banks (of all sorts) could now put crap loans on their “reserves” list as AAA and make more crap loans. Insurance companies could now sell, and package, and use as AAA capital reserves even more crap loans. Great party. Real Estate sales boomed. The Dimocrats were in Pig Heaven and everyone was happy.

Until the sausage started to stink…

Eventually home prices were bid up to insane levels. Then some crap loans could not be serviced. The packages of mortgages that were the CDOs started to smell, and some very savvy money managers figured out they could short the banks, short their collateral (driving them into a need to get a loan from The Fed Discount Window… but as an Investment Bank, they could not do that…) and drive these folks to the wall. To put icing on the cake, you could buy a “life insurance policy” called a Credit Default Swap or CDS, on any given bag of crap. So these guys were buying life insurance on the crap, then shooting the “bank” that stood behind it.

That was the one place where Capitalists have some blame. (Though, oddly, not the Wall Street capitalists, they were the ones being shot…) They saw the advantage and ran with it. About 1/2 dozen guys, all told, made astounding money off of this trade. Short LEH, short LEH paper, buy a LOAD of CDSs on LEH paper (driving up worry as to WHY so much insurance was being taken out on LEH paper… leading to a modest 2.500001% ‘run’ on LEH deposits) and start a rumor of a run. Rumor becomes fact, LEH can’t go to The Fed for help (as it is an “Investment Bank” doing commercial banking…) and they collapse. Now look at the NEXT company holding a lot of LEH paper, start a rumor on their low collateral and high LEH holdings, short their stock, short their collateral, repeat until done. Take downs of Fanny, Freddy, AIG, etc. all followed.

There was also a rule change on stock trading that contributed. The uptick rule required that a stock move up one ‘tick’ (or 1/4 of a dollar when trades were done in fractions) before you could make a short sale. There had to be a ‘natural buyer’ to prevent a Classical Bear Raid from driving a stock to zero in a planic as “the fattest wallet wins”. That rule was removed during “decimalization”. The reasoning was that it was too easy to ‘game’ a 1 penny move. (The reality was the operators like Goldman Sachs wanted a free hand). I can only guess the regulators were too stupid to figure out that 1/4 point move threshold was 25 cents… At any rate, this opened the flood gates to the old fashioned bear raid with unlimited ability to short any stock to zero.

Now the Dimocrats would assert that everything was Just Fine with the CRA and repeal of Glass Steagall until those Nasty Wall Street Bankers broke things. But that is a lie. It was the CRA that made the crap in the first place. It was the repeal of Glass Steagall that let that crap escape from the commercial banking side and into insurance (AIG) and investment banking (LEH, BS, etc). And outside the realm of The Fed rules and Discount Window during a run. And it was removal of the Uptick Rule and creation of CDSs that gave the needed tools to run the table.

And Now?

So we had TARP, to pull the crap off the street and try to get the sausage separated into good meat and bad. We had “bank bailouts” and forced mergers to try to get everyone to The Fed Discount Window. We had the Stimulus Package to shove $Billons of good money into banks and insurance companies to replace the Crap Loans as real decent “capital” actually suited to “reserves”. And we’ve had a hundred and one attempts to keep home prices up at inflated levels to avoid a wave of defaults on those crazy prices some folks paid at the top of the bubble. (As the banks would end up owning properties that could only be sold at 50 cents on the dollar).

It hasn’t worked very well. Despite all the crowing about how well it has worked.

Homes are still dropping in price, back toward inherent value. Something like 30% of all mortgages are now “under water”, meaning the home owner could just leave them and have less debt in a better home. This has the banks scared, so we continue to hear pushing for more “stimulus” and more “troubled asset programs” (get it off MY books…) and more government funded “mortgage restructuring”…

At the same time, the lending standards have been tightened so much that new loans are almost impossible to get for the folks who actually need them. We have the government saying, at the same time, lend more, but don’t lend to anyone with an issue. Except that you can never have the same level of home purchase demand with those folks out of the market… So it is impossible to keep home prices up while raising lending standards.

All the while, sucking massive amounts of money out of productive investments and into bank vaults as new “reserves” and into paying off broken mortgages as “restructuring” and into “stimulus” to line pockets of politically connected organizations and fund pet projects of odd agencies that consume wealth rather than creating new wealth.

So our economy “stalls” and the “engine of capitalism” sputters. We get no job growth and things stagnate. You can only get job growth if someone has created the wealth to support that job. We’re broke, and the government is making us more broke by the day. In that condition, folks do not run out and hire a maid, gardener, or welder to make widgets…

The Fed has sucked a couple of $Trillion of various “assets” onto its balance sheet. (It has no ‘reserve requirements’ as it puts on commercial banks… so can loan an infinite amount of money on near nothing of real value. Leverage? How much would you like? Only “prudence” limits their leverage.)

As the loans for homes are repaid (or the GM and GS stock sold) money comes in to The Fed. They could simply disappear that money in a puff of smoke by making their “leverage” less (and more prudent) or they can then loan that money to someone else… The first action is called “running off” the loan portfolio. You just let the loans “run off” and accumulate the payments as ‘reserves’. The other is what we are doing.

QE 2 and 1/2

So The Fed does not need to do QE-3 or Quantitative Easing 3. As the present ‘assets’ from QE-2 “run off”, it just needs to “reinvest” the money.

But where is it “investing” this money?

U.S. Treasuries.

Classically treated as the definition of a ‘risk free’ investment. IMHO, not so much any more. Why? Because the natural buyers are leaving…

At this point, roughly 70% of US Government Treasuries are being bought by The Fed. This is holding down interest rates (otherwise the US Deficit and Budget would be even more broken and impossible, as ‘debt service’ would balloon greatly. Raise the rate on your credit card from 0.25% to 10% and “bad things happen” to your minimum payment… that we can barely meet as it is… by borrowing more…

So, recent news had Russia looking elsewhere to invest its money. They no longer buy US Treasuries. China has, for the last couple of years, been buying real assets instead (lots of Africa, mines, gold etc.) and I would speculate that, being smart, they have kept their Treasury purchases at about the same level, but shortened the maturities so as to be in a position to “run off” a large part of their holdings in under 2 years, should they choose to do it.

With 70% going to The Fed, you know a lot is NOT going to “natural purchasers”.

http://www.bloomberg.com/news/2010-12-20/federal-reserve-places-70-per-security-limit-on-treasury-debt-holdings.html

Federal Reserve Places 70% Per-Security Limit on Treasury Debt Holdings
By Liz Capo McCormick – Dec 20, 2010 7:35 PM GMT+0000

The Federal Reserve said it will limit its purchases to 70 percent of any single Treasury security as part of its plan to expand its balance sheet that’s known as quantitative easing.

The central bank had temporarily relaxed its 35 percent limit in November when announcing additional purchases of $600 billion of Treasuries through June. The New York Fed in a statement today gave allowable purchase percentages for three brackets in its system open market account, or SOMA, consisting of securities it holds, from more than 30 percent to 70 percent.

The Fed has acquired about $144.249 billion of Treasuries since it resumed buying U.S. government debt on Nov. 12. The central bank bought $14.569 billion in debt through two open- market operations today, the largest amount since it restarted the program after completing $1.7 trillion in debt purchases in March.

So, as of the last 6 months, The Fed is “only” buying 70% of the US debt…. How comforting… And it does this by creating money out of thin air. It takes in paper from the US Treasury, and gives in return a computer entry saying “you have this much cash – go spend”. That dilutes the value of all other dollars and leads, eventually, to inflationary pressures and devaluation of the US Dollar.

The central bank also plans to reinvest $250 billion to $300 billion of proceeds from mortgage-backed debt and agency securities into Treasuries.

And that, IMHO, is what QE 2 1/2 looks like.

Why do this? Well, a bit of an historical note from 2009:

http://www.thenewamerican.com/index.php/opinion/953-john-f-mcmanus/1494

Report: U.S. Running Out of Debt Buyers
Written by John F. McManus
Wednesday, 22 July 2009 12:43

Because Canadian-based Sprott Asset Management is not an American firm, its assessment of the U.S. government’s financial condition might well be considered more realistic than any home-grown perspectives. In any case, what the Toronto firm issued in its brief May/June 2009 report should not be overlooked.

Its bleak survey of U.S. indebtedness is certainly of interest to those Canadians who invest in U.S., but its no-holds-barred survey should also be carefully digested by all Americans. Only Americans have the capability of forcing the U.S. government to cease the reckless spending that weakens the dollar and threatens the very independence of the nation.

Sprott’s five-page report started off by noting that the U.S. government’s deficit last year was $705 billion (a budget shortfall of $455 billion and $250 billion for the two wars currently being waged). It then presented the Obama administration’s figures for the current year that total $2.041 trillion (a deficit of $1.845 trillion and a war expense of $196 billion). In fiscal 2009, therefore, the U.S. government must find buyers for approximately three times the amount it needed during 2008.

Got that? We needed 3 Times as much in 2009 year as in 2008….
And it is even worse now.

Where will those funds come from? The report lists 11 categories of traditional lenders, most of which are either no longer willing or are now incapable of helping the United States. The two largest sources of funds previously covering the accumulated shortfall were government agencies themselves (Social Security, Medicare, et al.) and foreign buyers of U.S. bonds. These two money suppliers already own 70 percent of the accumulated national debt: 42 percent the former and 28 percent the latter. But neither can be relied upon any longer.

Social Security is now paying out as much as it receives and Medicare is running in the red and getting in deeper every day. This means that funds previously supplied by these two government agencies are no longer available to cover federal indebtedness. Next, the foreign purchasers of U.S. bonds (China, Japan, et al.) are not only refusing to buy any more, they have begun selling what they already own. So the suppliers of 70 percent of funds previously covering U.S. shortfalls can’t be relied on to finance current and future indebtedness.

The bill for all the social programs is come due, and the congress critters can no longer use the Social Security Tax to fund their fun and games. That money is now being spent ON Social Security and the game of claiming there is a “trust fund” comes to an end. Ditto Medicare. This is the sound of a “Demographic Bomb” exploding.

Interesting that the 70% number comes around again, eh?

Of the nine remaining sources of debt funding, only a category Sprott labels as “Other Investors” continues to buy U.S. bonds. But these investors (individuals, brokers and dealers, trust and estates, etc.) have previously held only five percent of U.S. debt and their purchases in 2008 must triple to keep pace with the current skyrocketing federal indebtedness. This is very unlikely.

I know I’m not interested in buying any Treasuries… and even a double or triple of that 5% doesn’t get anywhere near what is needed.

The conclusion of that well written piece is pretty much “spot on”, IMHO:

Of the eight other past debt purchasers pointed to by Sprott, several are now selling instead of buying. State and local governments, a previous source of funds, are themselves in deep financial trouble and cannot be counted on to help the federal government by purchasing its bonds. All the other once-sure debt buyers aren’t going to continue pouring money into the fiscally sick U.S. government – with one exception, the Federal Reserve.

“As the lender of last resort, the only purchaser left is the Federal Reserve,” says the Sprott report.
It notes that the Fed has a new policy entitled “Quantitative Easing” that includes printing vast new quantities of currency used to purchase treasury bonds and other financial instruments. One result has seen “the Federal Reserve doubling the monetary base of the United States over the span of a mere nine months.” Non-confidence in the value of the U.S. dollar and its financial instruments is already high and there are good reasons to see it rising even higher.

The report ominously concludes that “the future solvency of the United States as a nation state is currently in jeopardy.” Holders of U.S. debt are looking to sell and potential buyers aren’t buying. The Canadian firm seems on sound footing with its claim that the U.S. “is in far deeper trouble than the mainstream press cares to admit.” The only source of funds for America, it notes “is continued money printing.”

Who can deny the following summation presented in this report? It states: “The U.S. budget is ludicrous, spending is out of control, spending promises are out of control, the world knows it – and we know it.”

That this prognostication is now born out in the facts on the ground is, er, “an issue”…

In his recent press conference The Bernank said he had no clue why the U.S. economy was moribund and growth was not happening.

OK, here, let me give you a clue:

WE HAVE NO MONEY LEFT TO INVEST.
THE GOVERNMENT IS SPENDING IT ALL.

Is that clear enough?

Large swathes of America were barely making it and were using their home as an ATM. Refinancing to take the money out and live on it. Between the folks who never could afford to pay their mortgage (which mortgages you now own, BTW); and the folks who COULD pay their mortgage, but not do that and live the good life, so they hit the “Home ATM” and are now underwater on that mortgage so no more cookies; and the rest of us who WERE prudent with our debt’ so never played that game, but now shop only at Walmart and drive a 20 year old car with no money for a new one:

Who is going to make a productive investment, hire new labor, or even go buy that shiny Government Motors Volt car?

Now you are taking the money we have saved and making it worth even less. Think we are going to magically buy MORE cars if the price goes from $20,000 (we have, but need to scrape by) to $30,000 (we don’t have)? The more you print, the less we buy. Got it?

Your 70% solution is much worse than the 7% solution of Sherlock Holmes…

http://www.imdb.com/title/tt0075194/

The Seven-Per-Cent Solution

The title of the movie refers to the drug Sherlock Holmes is abusing. He injects himself with a solution of 7% cocaine and 93% saline solution.

Your credit card is maxed out, your friends have stopped loaning you money, you are selling the furniture to buy more “juice”, and every day America is looking just a bit more “ratty”. The Game has reached an end. There is no one left to fool. We’ve spent all we had, and then some. We’ve got commitments to spend even more, and far less wealth left, and with a lot less income coming in; with which to do it. This is the “Splat” at the end of the long floating fall.

Think about it….

In Conclusion

The Dimocrat solution is to raise taxes, especially on the “rich”. Forgetting that the “Propensity to invest” rises with incomes. To “tax the rich” more means less investment and fewer jobs, and thus lower taxes paid. They want to do this as class envy revenge, and to promote the “Progressive Agenda” of equality in poverty. They are winning, we are all ending up poor.

The Republicrat solution is to leave the financial industry a Wild West without firebreaks or uptick rules limiting the ability of Fat Wallets to run the table; cut taxes (taking on more government debt) and make some modest (nearly token) cuts in the growth of government spending.

Neither one of those will work.

The Dimocrat “solution” will just be the road to Progressive Hell as we run out of Other Peoples Money to spend.

The Republicrat “solution” is to tighten our belts and play the same old failed game faster.

Nobody is bothering to notice the two most salient facts:

The Demographic Bomb is exploding now. We have “entitlements” and retirement packages that simply will never be paid. Period. It was a fraud to issue them, and now it’s pretty clear that the Ponzi is over.

Wealth Creation has gone to China while we squabble. No new cookies…

Until folks figure out that they need to address those two things, we’re just waxing the deck on the Titanic for a better slide into the deep…

My solution?

#1) Tell China “no dice” on mercantilism. Put on a tariff of the amount needed to make up for any mercantilist acts (i.e. too low a currency peg). Not a Smoot Hawley with high tariffs on everything, just enough to make up for THEIR market manipulations and only on their goods.

#2) Stop taxing wealth creation and employment. At least for a clear and planned period of time that a company can depend upon. Encourage businesses to hire and make a profit, don’t beat them for it.

#3) Encourage Coal To Liquids and Gas To Liquids (via tariff, subsidy, whatever) to eliminate the drain of our money to OPEC.

#4) Admit that you can never pay the committed retirement packages and “social benefits” and cut them now. The only alternative is to inflate the dollar to about 1/2 the present already near nothing “value” and pretend to pay. Start with dumping the most recent programs. Medicare Part B, the prescription drug program, Obamacare. Convert the present government retirement packages to defined contribution, not defined benefit – stop making more new lies…

#5) Get out of Iraq and Afghanistan. Their problem now. We don’t need to be spending a few $Trillion “Nation Building” there, all they will do is pervert it or burn it down anyway. You are not investing there, you are consuming. Stop it. Now.

#6) Cut about 1/2 of the present Government agencies. Just get rid of them. For example: We have no need, at all, for a Federal Department of Education. We did not have one before Carter and things were better then, than now. It is a simple failure. Stop failing. There are dozens more like that. We did a similar pruning of excessive government post W.W.II and things were fine. A free economy adapts and adjusts. We will all have more money to spend and invest, and that is all it takes.

#7) An “aspirational goal”: Read, and follow, the Constitution. Not just what you would like to think it says. What the founders actually said and meant. Not just what you can cram into the Commerce Clause, but what it was intended to do (prevent states from putting tariffs on each other).

I figure that ought to cover most of it. A “70% Solution” if you will.
But, if not:

#8) Since I don’t think our present political class will ever do any of the above: Make the following changes to the US Constitution:

a) Repeal The 16th Amendment.

b) Remove the Commerce Clause (put in “no State shall levy a tariff on any other State commerce, the US Congress shall determine tariffs on any other foreign goods and have no other power over commerce“.

c) Remove The 17th Amendment and return the Senate to the States. Make us a Republic again.

d) Strongly limit, or perhaps, if really needed, remove the Necessary and Proper Clause. While I would have hoped congress could use it properly, they have failed.

e) Remove The General Welfare Clause It has been abused way too much.

Think that will lead to chaos? All it does is put those powers in the hands of the Several States, closer to the people where they may better manage and control them. The US Congress has shown itself unable to handle the power, and too distant from the people and The Several States for reasonable restraint and oversight. The best solution is to give them a “time out”.

Say for about a century…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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118 Responses to The 70 Percent Solution

  1. gallopingcamel says:

    Wow!

    Have you read “Reckless Endangerment” by Gretchen Morgenson and Joshua Rosner? It makes me really mad to find that most of the architects of this mess made fortunes and there is nothing we can do about it!

    I can’t believe the breadth and depth of your erudition; it reminds me of something out of the Deserted Village by Oliver Goldsmith:

    QUOTE (starting at line 193)
    Beside yon straggling fence that skirts the way,
    With blossom’d furze unprofitably gay,
    There, in his noisy mansion, skill’d to rule,
    The village master taught his little school.
    A man severe he was, and stern to view;
    I knew him well, and every truant knew;
    Well had the boding tremblers learn’d to trace
    The day’s disasters in his morning face;
    Full well they laugh’d with counterfeited glee
    At all his jokes, for many a joke had he;
    Full well the busy whisper circling round
    Convey’d the dismal tidings when he frown’d.
    Yet he was kind, or, if severe in aught,
    The love he bore to learning was in fault;
    The village all declar’d how much he knew;
    ‘Twas certain he could write, and cypher too:
    Lands he could measure, terms and tides presage,
    And ev’n the story ran that he could gauge.
    In arguing, too, the parson own’d his skill,
    For, ev’n though vanquish’d, he could argue still;
    While words of learned length and thundering sound
    Amazed the gazing rustics rang’d around;
    And still they gaz’d, and still the wonder grew,
    That one small head could carry all he knew.

  2. Serioso says:

    I’ll give you an ‘A’ for diagnosis and a ‘D’ for recommendations on treatment. As I’m sure you know, the 100 highest income tax returns (with an average reported income of 300 million dollars) paid less than 18% federal tax. Tax the rich? YES! When the millionaires and billionaires pay a lower tax rate than someone making . $100,000 a year, something is terribly wrong with our taxation system.

    And there is plenty of money sloshing about looking for good investments, a “worldwide excess of savings.” There is absolutely no shortage of funds looking for good investments.

  3. boballab says:

    Tax the rich? really why not just confiscate their wealth that will fix them and the problem right? right? Umm why stop there we can grab the entire wealth of the richest people in the US and the money from the corporations. That would fix it! Right? Umm No that would only pay to operate the US government for 1 year and then what do you do the next year since you swiped all the private capital.

    Here is a nice video explaining it for you:

    if that doesn’t work try this link:

    So the Tax the rich option is a failure before it even starts.

  4. Richard Ilfeld says:

    I am dismayed, with resignation, at the inability of those who wish to tax the rich to discriminate between wealth and income.

    They rail against the wealthy — millionaires and billionaires. But, in terms of the tax policies usually dicussed, like percentage of income tax paid, we are talking about two different animals.

    Your dislike of wealth may be sublime or disgusting depending on ones point of view, but to make a cogent argument, how do you feel about the incomes in question and how they are earned.

    Here’s a target group of a “tax the ‘rich'” misogeny…the roster of Major league Professional Baseball players. All have high incomes, well within that magical miniscule percent that makes them abusers of social justice in the eyes of those who demand higher taxes…..yet most are not yet wealthy, and, in fact, the regrettable statistics suggest that many of them never will be.

    Why are their incomes illegitimate? Why they must pay more in taxes? Why should people who are obviously in a meritocracy, and obviously must perform or suffer a sudden fall from both fame and fortune, pay more to support the many social desires of an elite that delights in handing out other people’s money….

    As you go through groups with high incomes — and remember the $200,000 threshold often cited probably doesn’t cover the couple with civil service jobs in San Francisco, — you are going through the targets of your vented spleen. Many if not most of the “wealthy’ you revile will be left on the outside looking in.

    And i’m still waiting for the reasonable proposal to confiscate 50% of the gain in a congress critters net worth gain while in office for public purposes…..

    “fair” is “fair”.

    I won’t wait for an answer …. I’m taking my 20 year old car to Walmart.

  5. John F. Hultquist says:

    Within your #4 solution, you write:
    “The only alternative is to inflate the dollar to about 1/2 the present already near nothing “value” and pretend to pay.”

    [Remember the phrase: “They pretend to pay us and we pretend to work.”]

    and within the “In Conclusion” section, you write:
    “. . . to promote the “Progressive Agenda” of equality in poverty. They are winning, we are all ending up poor.”

    Color me depressed but these two comments seem to be the trajectory we are on.

  6. George says:

    The “general welfare” thing is grossly misunderstood. There is a huge difference between “to promote the general welfare” and “to PROVIDE the general welfare”. The government is not obligated under the constitution to PROVIDE for anyone’s welfare.

    I agree on the notion of returning the Senate to the State Legislatures. When the notion of making the Senate popularly elected was first passed, the US was still mostly a rural country. By that I mean that >50% of the population did not live in cities. Now that the population has migrated, having the Senate popularly elected means that the largest one or two metro areas control the Senate delegation. Whoever controls NYC, controls New York’s Senate delegation. Whoever controls Philadelphia and Pittsburgh controls Pennsylvania’s. Whoever controls Wilmington controls Delaware’s. There is been a great shift of power from the legislature, to the people at large, to the largest metro area of a state. That needs to be corrected.

    The other change we need is in the electoral college. We need the electors to be reflective of their constituency. You get one elector for each seat in House and Senate. Rather than the winner take all approach we have in the states, which again allows the major metro of the state to elect all of that state’s electors disenfranchising the rest of the state, we need to go to a system where two electoral votes are granted by state-wide popular vote and one vote for each House district carried by the candidate.

    This accomplishes two things:

    1. It makes the electoral vote much more likely to align with the popular vote and makes it nearly impossible to lose the popular vote yet win the electoral vote.

    2. It eliminates “flyover country”. Illinois, for example. Cook County controls the entire state. However, if you look at the electoral map of the 2008 elections for Illinois, it paints a completely different picture. Same with Pennsylvania:

    http://www.washingtonpost.com/wp-srv/politics/interactives/campaign08/election/uscounties.html

    The districts that a Republican candidate will give their electoral vote to the Republican candidate and vice versa.

    Removing departments of the government is a good idea. Department of Education can go away as can Department of Agriculture. The Dept. of Ag. budget is larger than the national farm income of the US.

  7. lapogus says:

    A visualisation of the scale of the problem – http://www.usdebtclock.org/

    (warning – processor intensive flash – don’t leave it running on a laptop which gets hot).

  8. E.M.Smith says:

    @GallopingCamel:

    Thanks! But “I’m just me”… No more and no less than any other. Full of faults and “issues”, with a few tricks I do well.

    One is that I’m unlimited in the “turf” I can understand. If something catches my fancy, I can “absorb it” very quickly and in depth. The flip side of that is that I’m not very good at staying on “one thing” forever. As soon as I’m bored, the mind insists on “moving on”… and I’m unable to stop it. I can slow it down for a while, about a year, max. I can “grit my teeth” and still do work in an area I’ve mastered and now find dreadfully dull. For up to 2 or 3 years at a shot.

    There isn’t much market demand for a polymath who can be an “instant expert” in a field, then wants to do something he has never done before…

    So “The Gift” does not pay well…

    But it is very entertaining.

    Until you are stuck at a job for 5 years doing the ‘same old same old’ and reporting to people who can’t believe you could do some job you have not already done for 5 years… so I entertain myself a lot. Often at work I’d be knocking out some “work product” while thinking largely about things completely unrelated to it. The “make a budget” or “write a computer program” processes just running as “background” tasks and doing what was expected while “The Me” checked out and went off pondering something else…

    At one time, one teacher noticed I’d go to “neutral expression” in class and thought I was not paying attention. He was “partly right”. I was “monitoring, filtering for useful, and immediately dumping if not useful” while thinking other things. I was called on with a question: ” What did I just say?” I’d already dumped the “content” as it was useless. I’d already read 2 months ahead in the book that weekend and he was just droning about it. I stammered out some reasonable response about the general topic… And immediately put in place a “30 second delay” on the dump queue. For decades afterward (starting with that teacher about a week later) folks would ask something along the lines of “What did I just say” or “What do you think?” and I would “replay the tape” and either parrot it back verbatim or give a gogent answer. Folks learned to never challenge me… and I learned to put on a mild kalideoscope of facial expressions that would rotate through “attentive, contemplating, slight questioning, soft smile, repeat” that convinces most folks I’m actually listening to their every word… Worked wonders in college when some drone would ask “what did I just say” and I’d repeat with exact duplication of cadence and intonation every word. It being an audio track, I’d even have stammers and pauses in the right places… Unnerves some folks “right quick” ;-)

    So, for example, you got this piece rather than a WSW posting. I’ve got the full notes on the WSW ready to do the posting. But THIS was what the old noggin wanted to think about… so it did. Now, after midnight, I’m back to work on the WSW that I ought to have done… but since I already know what is going to go into it, it isn’t very ‘interesting’ to me right now…. It’s an ongoing battle…

    To answer your question: No. I’ve not read the book. I think I already know most of what is in it. I may skim it some day at the bookstore and see. For now, there are other things more interesting to me…

    Oh, one small sidebar:

    I ought to have included a statement about the “Mark To Market” accounting rule change. It was a part of the problem too. Banks, historically, could carry a home mortgage or a bond in another company at the value expected in long term holdings. So a 20 year $1000 IBM Bond could be carried at $1000, as if held to maturity you would get that $1000, no matter WHAT the sales price today might be.

    Some “Dim Bulb” decided that this was not a true reflection of the firm at that moment, so the Accounting Standards were changed to demand that the Banks always list the value of their assets if sold Right Now and not if held to maturity. If I have a mortgage for $1,000,000 and can only sell it today for $500,000 as it’s a terribly depressed market; I was not allowed to say “Gee, the Mayor lives in that house and it’s the best one in town. He’s worth $20,000,000 and is good for it.” Nope, I had to show that I’d “lost” $500,000 of “assets”.

    Well, it didn’t take the “operators” long to realize that if they shorted some of the stock and bonds of, oh, LEH then AIG holding some LEH bonds and stocks to eventually pay the insurance contracts it wrote would have “less assets” and have to “mark to market” the “loss”. This rule was iron clad.

    It MANDATED that the “shorts” could drive any financial company to the wall (as they all ‘borrow short to lend long’ term) simply by pressing on their holdings and waiting for the Mark To Market to make them “below capital standards”.

    The lack of an “uptick rule” to stop the shorting, and the forced use of “mark to market” made it a simple matter of taking out life insurance (CDS) on a company, then taking it out and shooting it in the assets…

    Just madness. ANY trader knows the mantra “The market can remain irrational longer than you can remain solvent”, yet the academics (believing in the fantasy of The Efficient Market Hypothesis) had forced the regulations into a mode where banks, insurance companies, and everyone else HAD to accept the verdict of the irrational market Every Single Quarter (and in some cases, monthly). Handing the keys to the vault to The Bear Operators in a game of “Biggest Wallet Wins” (and when you are shorting a company in a Bear Raid, your wallet gets bigger every day while theirs shrinks).

    While “Mark to Market” has been softened a bit, the general belief that it is correct is still in place. As are CDS contracts (though there is some movement to make them regulated as an insurance contract – yes, they were an insurance contract that was not under insurance regulation…). As is the lack of an Uptick Rule. As is the lack of firewalls between Insurance, Commercial Banks, and Investment Banking…. As is the CRA. As are Fanny and Freddie.

    ALL the major issues still exist. Only thing really different is that most of the value in the short trade is already gone and The Fed is willing to blow out its balance sheet to any size, so has The Fattest Wallet. Barney Frank and friends are busy spanking the bankers, putting them in chains and leather harnesses, and thinking that will fix anything. It won’t. The Game will return next time the conditions look ripe. A bit different due to the higher capital requirements and The Fed Discount Window; but it can still be played – just not quite as large…

    Yeah, I’d not buy financial stocks in the USA or EU now either…

    @Serioso:

    If I gave a damn about your “grades” I’d be an idiot. I’m no idiot.

    You then follow with a complete non-sequitor. Yup, there is lots of money “sloshing around” and it’s all headed for other countries where it will be less taxed and make better returns.

    That the tax CODE is broken and smart operators can find a way around it just makes it a Very Stupid Game to raise rates even more. I’ve “lived that dream” in the 90% confiscatory rates pre-Regan with even less total collections. Regan cut tax RATES and collected more TAX REVENUE.

    Learn the difference, then maybe you can say something that doesn’t sound so much like mindless Dimocrat Talking Points.

    @Boballab:

    Since you seem willing to “suffer fools gladly” more than I am, perhaps you can spend some time explaining the reason that “Propensity to Invest” goes up with more income (i.e. rich folks invest) and why investing makes more total money than “eating your seed corn”… And why reducing your investment and consuming all your wealth leads to poverty…

    @John F. Hultquist:

    Have I mentioned lately that Economics is called The Dismal Science for a reason? …

    @George:

    IFF they read the clause correctly, there would be no need to remove it. As they don’t, it must…

    Personally, I’d go back to having the Senate appoint the president and dump the whole mechanism. But I didn’t put that in as it would take much more space, a lot of folks might not realize it was contingent on the senate going back to The Several States, and it’s something the states could do anyway if they wanted…

    But yeah. If you keep the Electoral College, you need to fix the urban problem. Keeping a presidential vote as is, I’d make the electoral college be selected by county in each state. Batch the rural counties and the urban counties and then split the electoral votes between them.

    We have the same problem at the State level in California. When I was a kid, the counties selected the Senators for the State Legislature. We had strong counties with sound budgets. Each county had a county hospital providing free care for the indigent. Post the change, the counties are now bankrupt as the state has loaded them up with mandates while stealing all the money. In San Bernardino County, the rural 99% has tried to leave, but can’t, as the major city keeps voting that they must stay in the same county. It’s just a mess with a couple of urban centers (SF LA) telling all the rural counties that their conservative votes are useless, and they can’t leave the system… With counties electing the senators, the rural counties had SOME say in their future…

    Democracies inevitably fail on the issue of “the largess of the public purse” and the move to direct democratic election of senators and governor / president has put us on that path.

    @Lapogus:

    Yup, that Debt Clock kind of says it all…

  9. E.M.Smith says:

    @Richard Ilfeld:

    https://chiefio.wordpress.com/2011/06/26/the-70-percent-solution/#comment-19548

    very well said…

    Frankly, I’d like to see any congress criter have to convert their “net worth” (other than the one family home, personal items, and cars) into U.S. Treasury Bonds on entering congress and hold them for the duration…

    WHY should they have ANY stocks? The temptation is too great…

    And since they control the “soundness” of the Treasuries, they ought to be fine with the deal ;-)

  10. gallopingcamel says:

    @Lapogus:

    I thought you were kidding when you said the Debt Clock app was processor intensive. Within a couple of minutes the fan on my twin 2.8 GHz CPU was running at top speed!

    That site has been added to my bookmarks. Thanks!

  11. Pascvaks says:

    Little Boy Blue! Come Blow Your Horn!
    The Sheeps in the Meadow!
    The Cows in the Corn!

    Where is the Little Boy
    Who Watches After the Sheep?

    He’s Under a Haystack Fast Asleep!

    (He’s also grown old and tired,
    He’s developed a bad habit too.
    Where Sherlock liked 7%,
    The Old Boy is on 70%,
    And can’t hear a bloody thing.)

    Ain’t Life a Beach?
    Where did all these Lemmings come from?

  12. gallopingcamel says:

    Chiefio,
    Thanks for sharing that stuff about your thought processes. A memory that can perform tricks like that makes me think of Macaulay.

  13. Murray says:

    Hi Cheifio
    Interesting write up. As usual you get a lot of the big picture right and the details and/or motivation mixed to wrong. Your assertion that the CRA was the major culprit is nonsense, as is the idea that the CRA was a Democrat invention, or that it forced banks to write bad loans. See http://en.wikipedia.org/wiki/Community_Reinvestment_Act and try to read it without your filter, and when in disagreement check the references.
    For a better and more complete view of the whole banking and sub-prime mess read the book revioew here http://www.nybooks.com/articles/archives/2011/jul/14/busts-keep-getting-bigger-why/?pagination=false
    and then read the book.
    Spreading home ownership was one of BushII’s priorities, not Clintons.
    I haven’t researched most of the other stuff to see what other history you are rewriting.
    How come no comments about the dreaded creeping socialism?

  14. Murray says:

    Oops, forgot to add
    I agree with most of your recommendations.

  15. George says:

    Actually, the change in the elector allocation can be done with no change to the US Constitution, it only requires a change at the state level as each state is in charge of its electors. Colorado attempted to pass just this sort of reform but it was voted down because Denver voted against it.

    Basically, the city of Denver and surrounds control the entire state’s delegation. The notion of “winner take all” electors is why one can win the electoral vote but lose the popular vote.

    The should at least portion out he electors according to their proportion of the vote but the “right” thing to do in my opinion is to assign them by congressional district carried as each elector (except for two representing the Senate seats) is supposed to represent a House district.

    Even using that simpler process would have resulted in 20 electoral votes in California going to McCain, 35 going to Obama which reflects the popular vote split in the state.

  16. Richard Ilfeld says:

    @Murray – seems to me you are trusting public assertions to discern “motivation” rather than actions. “Its a river in Egypt”.

    People say what they want others to think, but more frequently act in accordance with their own true feelings.

    My favorite example is to ask how many public progressives sit down at their kitchen table and either budget or discipline their own children in accordance with their public pronouncements?

    Ya doesn’t have to call it hypocracy, of course — it can be called human nature but I thnk it undisputable that the “do unto others in a way you would never do unto your own….and then lie about it” philosophy rules the roost in progressive governance circles.

  17. Richard Ilfeld says:

    Another annoyance —

    There is much talk about reducing the deficit. This does not speak to the DEBT. Most plans to reduce the deficit still INCREASE the DEBT. To REDUCE the DEBT you need a current account SURPLUS …..

    or, as I think EM and I agree, most likely a restructuring.

  18. E.M.Smith says:

    Murray continues in his fantasy that I have some kind of “filter”, completly oblivious to the facts and out of touch with the observations of the person best situated to observe them. My “issue” is too little filter (almost none much of the time) not too much. It is things like folks saying “My, what a beautiful baby” and me (now just thinking it, no longer saying it out loud) “that is an ugly baby if ever I’ve seen one. Pattern match to the library of other babies puts it way low. Balding, toothless, pot belly, unpleasing features.”

    I get in trouble for not “going along to get along” and instead saying, simply “That is not true. The result will be your own benefit, but the organization will suffer as a consequence”. (I’ve also learned to shut up on that too).

    My whole life I’ve suffered from Little To No Filter. Yet Murray is sure he can diagnose from a distance and with amost no information. Why? Because it gives him Self Confirmation bias and a feeling of understanding, even if the reality is lacking.

    @Murray:

    The CRA was passed by a Democratic Congress with both houses and a 60+ seat senate. It was signed by Carter. It was amended under Daddy Bush for more disclosure, but under Clinton the wost damage was done. It’s a Progressive Wet Dream from end to end, originally advanced and promoted by a “community organizer” group (per the Wiki you so love)

    History Wikisource has original text related to this article:
    Community Reinvestment Act of 1977

    The original Act was passed by the 95th United States Congress and signed into law by President Jimmy Carter on October 12, 1977 (Pub.L. 95-128, 12 U.S.C. ch.30).[38] Several legislative and regulatory revisions have since been enacted.

    http://en.wikipedia.org/wiki/95th_United_States_Congress

    The apportionment of seats in this House of Representatives was based on the Nineteenth Census of the United States in 1970. Both chambers had a Democratic majority. It was the last time either party held a filibuster-proof (60 member) majority in the Senate, until the 111th United States Congress in 2009 (in which both chambers once again held a Democratic majority).

    Who supported and advocated and “organized” to get it passed?

    Original act

    The CRA was passed as a result of national pressure to address the deteriorating conditions of American cities—particularly lower-income and minority neighborhoods.[4] Community activists, such as Gale Cincotta of National People’s Action in Chicago, had led the national fight to pass, and later to enforce the Act

    http://www.npa-us.org/index.php

    National People’s Action (NPA) is a Network of community power organizations from across the country that work to advance a national economic and racial justice agenda. NPA has over 200 organizers working to unite everyday people in cities, towns, and rural communities throughout the United States.

    Gotta love those Progressive AsoLIberal organization. Always happy to lable themselves with the parroted Dimocrat Talking Points and buzz words. Dripping with Class Envy and always playing the Race Card. Oh, and either “social justice” or “racial justice” is pretty much always used only by The Loonly Side Of Left.

    And what is on their list of recent “topics” under “issues and campaigns”?

    A National People’s Action report released in 2009, with Senator Dick Durbin, showed that 2009 was the worst year ever for foreclosures in Chicago, with the crisis deepening in middle class communities.

    The New Bottom Line campaign, a coalition of grassroots community, faith and labor organizations is releasing an update of the research report for 2011, and will be acting to get the attention of state attorney generals, or AGs, to push for a strong settlement with the banks that is fair to homeowners.

    Working closely with Dick Durban (closely enough to issue a joint report). Dripping with “buzz words” that act as group identity labels. “grassroots community” “labor organization” “crisis deepening” even their name “People’s Action”…

    Who’s Dick Durban?

    Richard Joseph “Dick” Durbin (born November 21, 1944) is the senior United States Senator from Illinois and the Senate Majority Whip, the second highest position in the Democratic Party leadership in the Senate.

    He was the first United States Senator to support the presidential candidacy of Barack Obama, then the junior senator from Illinois.

    But I’m sure that somehow you will find a way to see this as “All Bush’s Fault”…

    There was one update (just after the S&L crisis that was caused by a similar bubble from a similar “promotion of home ownership” from the same group of clowns who never learn that inflating a bubble comes just before it pops. I lived throught the S&L bubble and collapse and watched it real time too. Some things never change. Not seeing a lot of S&L branches any more either…)

    Legislative changes 1989

    The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President George H. W. Bush in the wake of the savings and loan crisis of the 1980s. As part of the subsequent general reform of the banking industry, FIRREA added section 807 (12. U.S.C. § 2906) to the existing CRA statutes in an effort to improve the area concerning insured depository institution examinations.

    The new language now required the appropriate Federal regulatory agency to prepare a written evaluation after completing the examination of an institution’s record in meeting the credit needs of its entire community, including any low- and moderate-income neighborhoods within it.

    So the contribution of Daddy Bush was to try to clean up after Jimmah Cahtah and the S&L mess and to put some kind of audit process in place.

    I guess we CAN fault him for not working to toss the whole stinking mess out, but then again, he’s a Company Man anyway and largely on board with the Big Government In Charge agenda of the most Republicrat among them.

    But wait, there’s more…

    It is a Class Envy Progressive Tool from end to end. Under the supervision of Barney Frank a bank was forbidden to do things like, oh, merge with another; unless it has made enough crappy loans.

    In 1991 the act was amended to say if any financial institution just handed over a brank wholesale to The Right People (women, minorities) it would earn CRA brownie points on it’s audit… er, “CRA Rating”…

    Upon the addition of section 808 (12. U.S.C. § 2907) to the existing CRA statutes by the Act, any depository institution which donated, sold with favorable terms (as determined by the appropriate Federal financial supervisory agency), or made available on a rent-free basis any branch of such institutions located in any predominantly minority neighborhood to any minority depository institution or women’s depository institution, the amount of the contribution or the amount of the loss incurred in connection with such activity would go towards meeting the credit needs of the institution’s community and would be taken into consideration when CRA examinations were evaluated.

    This is what those of us unencumbered by a “filter” call a blatent racist and sexist “shakedown” in furtherance of The Progressive Agenda.

    In 1992, Interstate Banking was allowed, but the merger and expansion of a bank was limited to those who had enough CRA brownie points.

    Legislative changes 1994

    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the Community Reinvestment Act ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches.[49][50]

    According to Bernanke, a surge in bank merger and acquisition activities followed the passing of the act, and advocacy groups increasingly used the public comment process to protest bank applications on Community Reinvestment Act grounds.

    This was the cudgle used to batter any “prudent” bank. You either made bad loans, or you got mergered out of existance as someone who did got to take over your turf, and even your bank.

    In 1995, it was expanded even more in power (a Progressive Never Stops and will always push an advantage until the entire system collapses. So they began pusing in ernest here. The Clintons have fingerprints all over this stage).

    Regulatory changes 1995

    In July 1993, President Bill Clinton asked regulators to reform the CRA in order to make examinations more consistent, clarify performance standards, and reduce cost and compliance burden.[51] Robert Rubin, the Assistant to the President for Economic Policy, under President Clinton, explained that this was in line with President Clinton’s strategy to “deal with the problems of the inner city and distressed rural communities”. Discussing the reasons for the Clinton administration’s proposal to strengthen the CRA and further reduce red-lining, Lloyd Bentsen, Secretary of the Treasury at that time, affirmed his belief that availability of credit should not depend on where a person lives, “The only thing that ought to matter on a loan application is whether or not you can pay it back, not where you live.” Bentsen said that the proposed changes would “make it easier for lenders to show how they’re complying with the Community Reinvestment Act”, and “cut back a lot of the paperwork and the cost on small business loans”.[36]

    By early 1995, the proposed CRA regulations were substantially revised to address criticisms that the regulations, and the agencies’ implementation of them through the examination process to date, were too process-oriented, burdensome, and not sufficiently focused on actual results.[52] The CRA examination process itself was reformed to incorporate the pending changes.[40] Information about banking institutions’ CRA ratings was made available via web page for public review as well.[36] The Office of the Comptroller of the Currency (OCC) also moved to revise its regulation structure allowing lenders subject to the CRA to claim community development loan credits for loans made to help finance the environmental cleanup or redevelopment of industrial sites when it was part of an effort to revitalize the low- and moderate-income community where the site was located.[53]

    Again we have the “focus on results” of funneling money into places that were a lousy risk, with bad collateral, for the purposes of “social justice”. Now we even get some of the “environmental agenda” being loaded in too. All nice Progressive Agenda “issues”. Social “engineering” at it’s finest.

    And what did the more Radical Right think about it?

    During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act.[54]

    Not sounding exactly like a Right Wing Wet Dream to me…

    But I’m sure it’s all Bush’s Fault… somehow… /sarcoff>

    Then comes the moment when they push just a wee bit too far for more “Juice” in the next campaign and manage to break everything. This is where the “Match is lit” in the house full of gasoline.

    Legislative changes 1999

    In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act. This law repealed the part of the Glass–Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services since its enactment in 1933. A similar bill was introduced in 1998 by Senator Phil Gramm but it was unable to complete the legislative process into law. Resistance to enacting the 1998 bill, as well as the subsequent 1999 bill, centered around the legislation’s language which would expand the types of banking institutions of the time into other areas of service but would not be subject to CRA compliance in order to do so. The Senator also demanded full disclosure of any financial “deals” which community groups had with banks, accusing such groups of “extortion”.[56]

    In the fall of 1999, Senators Christopher Dodd and Charles E. Schumer prevented another impasse by securing a compromise between Sen. Gramm and the Clinton Administration by agreeing to amend the Federal Deposit Insurance Act (12 U.S.C. ch.16) to allow banks to merge or expand into other types of financial institutions. The new Gramm-Leach-Bliley Act’s FDIC related provisions, along with the addition of sub-section § 2903(c) directly to Title 12, insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect.[57]

    So here is where the Dumb Republicrats cut the deal from hell. In exchange for allowing financial contagion via removing Glass Steagall, (and letting their banker friends into each others pants) they argreed to expand the CRA to all of it. Gasoline poured, match lit.

    Now we have the ability of the entirty of the financial world to be burned to the ground with the bad loans that had prior been limited to a very small part of the system. AIG, a giant insurance company, had been isolated from the world of Mortgage Stupidity. Lehman Brothers and Bear Stearns had been isolated from the world of Mortgage Stupidity.

    But the money in the Commercial Banks was running thin, the game was reaching a stalling point. And a Ponzi Scheme allways looks for new blood to keep it going One More Round. So that’s what was done.

    Now everyone just LOVES the drugs and money while they are fresh, but eventually you run out of “Other people’s money to spend” and you run out of Fresh Marks to pull into your Ponzi. It was a fun party while it lasted, artificially inflating crap houses and neighborhoods with cash from pension funds, retirement accounts, insurance policies, etc.

    But when it finally ends, the crash is just that much harder…

    But Progressives never want to hear the words “prudent lending standards” and “ability to pay” and “quality of collateral”… They just want the money spent. Now please.

    There were some more regulatory shuffles as things inflated. Even Student Loans got thrown into the mix:

    Legislative changes 2008

    With the passage of the Higher Education Opportunity Act into law, Pub.L. 110-315, on August 14, 2008, each appropriate Federal financial supervisory agency shall now consider, as a factor in assessing and taking into account the record of a financial institution’s CRA compliance, any & all low-cost education loans provided by the financial institution to low-income borrowers. All the affected Federal financial supervisory agencies have one year after the date of enactment to issue rules in final form to implement the change into the Code of Federal Regulations (CFR) according to Title X, Subtitle C, Section 1031 of the Act.

    More of Other People’s Money being funneled into “Social Justice” and “Class Envy” to the “low-income borrowers”.

    Or you get whacked with the CRA Clue Stick.

    You know, Murray, this is not sounding much like a Conservative Agenda to me…. It does look a lot like “Throw good money after bad”. And it DID blow up in the collective faces of the perpetrators.

    But I’m sure you can just sweep it under the rug by pointing out that the banks and integrated finanical institutions found a way to get the crap off their books via SIVs and CMOs. I’m sure you would have been much happier if they had not and “All the evil banks had gone bankrupt” instead.

    Oh, and it MUST be Bush’s Fault, somehow… though I’ve not seen his name yet in the history and the bubble is already fully inflated at this point with the Ponzi reaching the end of OPM to exploit…

    CRA reform proposals

    In 2007, Ben Bernanke suggested further increasing the presence of Fannie Mae and Freddie Mac in the affordable housing market to help banks fulfill their CRA obligations by providing them with more opportunities to securitize CRA-related loans.

    Oh Dear. Looks like it was The Bernank that that proposed more securitization of CRA-related loans…

    And we find Democrats continuing to look for more of “Other People’s Money” to suck in:

    U.S. Representative Eddie Bernice Johnson introduced new legislation, (Community Reinvestment Modernization Act of 2009), in Congress on March 12, 2009 to expand the scope of CRA to include non-bank financial institutions, such as credit unions.

    What you can point to as valid, is that the CRA directly managed financial institutions were only part of the problem. Most of the crap loans were made by various mortage brokers et. al. once folks accepted the notion of lending to bad neighborhoods and poor borrowers and repackaging the debt in to CMOs and SIVs to “third pary the risk”.

    This ignores entirely that the whole removal of Glass Stegall and the incentive to do the CMO / SIV process came out of the drivers of the CRA and the legislative changes and regulatory changes it brought. It ignores that the CRA was the wedge that drove “prudent lending practices” out of existence. It ignores that Fanny and Freddy (the play things of Barney Frank) were the preferred vehicle to move those other bad loans onto the world market. It ignores the whole bubble creation via excess demand creation driven by the CRA.

    Basically, it ignores that the whole process was doing EXACTLY what the Progressive Agenda wanted. Moving a load of cash to poor folks who could not afford the loans at the expense of folks with more money in order to buy votes and curry favor. Creating the Ponzi that others jumped on for the ride too.

    But I’m sure it was all just a Conservative Conspiracy lead by Baby Bush. Or at least you can see it that way through your “filter”…

    BTW, mark you calendar. Great Depression 1930’s S&L Crisis 1970’s-80’s. CRA Crisis 2010. Add roughly a generation. I make that about 2035-2040 for the next “round” of a housing bubble / collapse.

    Unless, of course, The Bernank manages to get this one reflated…

    But Baby Bush brought him in, so it must be Bush’s Fault even if things collapse again in 2015 after a reflation…

  19. E.M.Smith says:

    @Richard Ilfeld:

    Yup. Politicians like to talk about changing the first or second derivative, but never the primary curve…

    Frankly, I’d love to see the House just let the debt limit be hit.

    The whole PURPOSE of a LIMIT is to be a LIMIT, to be HIT and stop the stupidity.

    On a recent TV show a well connected Democrat from the inside circles said that, basically, Obama was in the catbird seat as he could just let the limit be hit, the stock market would crash, and then the Republicans would give him whatever he wanted. THAT was what they learned from the “emergency TARP” vote.

    They need to learn a new lesson.

    Let the debt hit the LIMIT. Let the market do whatever it does as it goes crazy for a couple of days. It will get over it.

    THEN, things will improve much more rapidly as folks realize that the Tax And Spend Monster has a leash on it and it’s a “Choke Chain”…

  20. George says:

    There are always more have-nots than haves. That is the way it has always been. What happened was we created a huge middle class. The “Progressives” must destroy that middle class and create only a rich class that is their host and a poor class that depend on them and provide the votes to keep them in office.

    I almost wish we had a system where the number of votes you get is equal to the amount of tax you pay. No tax, no vote. You pay 10,000 in tax, you get 10,000 votes. Just like shares in a business.

    That was one reason why during the founding times, most states required people to own property in order to vote.

  21. H.R. says:

    @George

    “[…] I almost wish we had a system where the number of votes you get is equal to the amount of tax you pay. No tax, no vote. You pay 10,000 in tax, you get 10,000 votes. Just like shares in a business. […]”

    And when the 100-200 richest people vote as a bloc, we’re right back where we started from.

    Did you ever hear the term, “The Power Elite?” (Wiki link to the Reader’s Digest version)

    http://en.wikipedia.org/wiki/Power_elite

    Hard to say how the votes of the rich would offset the votes of the middle class. A draw? Would the middle class vote in those that would confiscate the wealth of the few? I do think the internet is taking the information control out of the hands of the elite; not so in the 50’s.

    I’ll have to let your idea percolate a while. For the moment, I can’t envision where it would all wind up.

  22. It seems that most of the relentless growth in the power of the federal government has relied on the “Commerce” and “General Welfare Clauses” coupled with a SCOTUS that played along most of the time.

    Is there any way to get back to a federal government with defined and therefore limited powers? Is there any hope that our legislators and SCOTUS will take the 10th amendment seriously?

    It is a miserable feeling to recognise a problem but have no idea what to do about it. However, if that debt clock keeps running like that I suspect the matter will be taken out of the hands of politicians by angry mobs.

  23. kuhnkat says:

    Hey EM,

    Let’s not forget that the only close to real job Obie had was working for a law firm with his wife. What kind of suits did they handle?? Suing banks to FORCE them to write bad loans among other progressive activity!! Then in his Community Organizer Job he showed people how to apply for these loans and other Gubmint handouts and how to harass gubmint departments into giving them stuff!! Yup, the current admin DESERVES to FAIL at dealing with the results of their stupidity!! Unfortunately it is probably what they were working toward. Once you destroy the economy you take full control and use the police and military to control us and redistribute what we no longer have or produce.

  24. George says:

    Ok, so maybe you get a cap on the number of votes you get. The important thing is, people who don’t pay into the system should not get a vote and the reason is simple. It gives politicians an incentive to make people poor.

    If you make 51% of the population dependent on government programs, the candidate making the most promises in the way of government programs wins. All you have to do is keep a majority of the population on the programs.

    We now have >40% of the population paying no income tax at all. I don’t remember the latest statistics for food stamps but it was large. Add in a nearly 20% real unemployment rate, people who are retired or who need medicaid, shoot, pretty soon you get to 50% of the population dependent on the government.

    When we have an unemployment problem, the Democrat solution is more unemployment benefits for a longer time. They aren’t really interested in providing jobs, they are more interested on making you dependent on the program. Now when elections come around, a person promising higher unemployment compensation gets a lot of votes.

    Democrats don’t fix problems, they provide lotions that allow one to live with the problem forever, as long as you have access to the “lotion”. Actually fixing the problems will become impossible soon because we have a whole generation coming up who believe it is the responsibility of the government to take care of them. They have no concept of taking care of themselves. And they are going to constitute >50% of the votes.

    The rest of us who are working to support them might want to start looking at an apartment in Belize.

  25. Serioso says:

    Back in the late 1970s (when I first bought a house), the average down payment that banks typically required was about 18%. A few years ago the average had dropped to 4.7% (data courtesy of the inestimable John Maulden). Nobody forced the banks into this sort of stupidity, certainly not the CRA, although the CRA may have contributed to the climate of low down-payment mortgages.

    In case anyone doesn’t understand the significance of the down payment change: It is almost impossible for a bank to lose money in a foreclosure when the down payment is 15-20% or more. When the down payment is under 10%, any mortgage is a shaky investment. Under 5% and it’s a crap shoot.

    I can’t see why anyone thinks the CRA had much to do with the madness of the financial institutions. The banks +Wall Street created a monster bubble all by themselves, and the way out from under this bubble is bound to be painful no matter what the various governments do. All the idiot investors and bankers deserve whatever hardship comes their way. It’s less clear what should happen to the buyers/suckers, but I assume the banks should prefer a well-cared-for occupied home (perhaps rent free) than an empty house quickly stripped of its value and valuables.

  26. E.M.Smith says:

    @Serioso:

    You are a bank. BY LAW you must make enough CRA points. To do this, you MUST lend into places and to people where there is no hope in hell of anyone having a 20% or even a 10% down. Don’t do it, you suffer institutional death.

    That’s why. DIRECTLY driven by the requirements of the CRA for “enough” loans to folks with no money.

    The banks were happy making 20% down standard mortages to folks with money on houses that were good collateral. It was exactly and entirely the CRA that forced them to change from that model. Get a clue.

    The only parts the banks and financial industry own as “causal” are:

    1) They lobbied for repeal of Glass-Steagall (so they could get into some buisinesses other than crap mortgages as it was pretty clear that was going to be an issue.)

    2) They invented, and bought into, CMOs and SIVs as a vehicle to “third party the crap” they were forced to mortgage (as they knew it was too crappy to keep on their books and did not want to be put out of business by it, but were forced to make the loans by the CRA).

    3) Once they got #1, they gleefully let their newly mergered insurance and securities arms get their assets entangled with the crappy CRA driven loan portfolio “assets”.

    4) When #1 was done, the former commercial banks could go to The Fed Discount Window. The former Investment Banks could not. They let this dicotomy of access persist despite the facts that they could be in identical lines of business and that any “run on the bank” would leave the prior Investment Banks with no Lender Of Last Resort.

    Of those, please note that #1 and #2 are directly tied to trying to survive as a functional entity while being forced to violate good lending practices (lend only to areas with good collateral and only to people with some money) by the CRA requirements to lend to bad neighborhoods and to poor broke people.

    If you can’t see that, there is zero hope for you in understanding economics.

    #3 was blatent greed and stupidity, and maybe some lack of an education in Econonomic History. (A class who’s utility I questioned when required to take it, but the wisdom of which I now recognize…)

    #4 was also a bit technically arcane. But folks in the business ought to have realized the “issue” as “Bank Runs” and their consequences are major issues in any Econ education and any banker ought to have a clear understanding of what it means to have no access to the Lender Of Last Resort. All I can figure is that the Wall Street guys at the investment banks where pretty dumb on that point and filled with enough Hubris to think they new more than bankers about banking.

    Please note that “Desire to make dumb loans to poor people with no down payment and bad collateral” is nowhere in the list of things that belong to the Bankers and Finance industry as motivations. Those come directly and via the force of law from the CRA (as amply annoted above in the CRA details of consitent ratcheting up of “audits” and “compliance” requirements).

    So “read it and weep”, it was the CRA. Clear to anyone with half a brain who reads the requirements of the law and how they were used over time. The banks didn’t just suddenly wake up one morning, all at the same time, infused with the desire to make crap loans to broke people on lousy homes in bad neighborhoods.

    Oh, and realize too that “mortage standards” are set by Fanny, Freddy, and FHA. It is the Federal Government Agencies and the quasi-agencies that buy up the mortgages in the aftermarket and set the minimum standards they will accept. So you can go ask Barney Frank why his oversight committee told them to set those loan standards so low… (Hint: It was so banks could meet their CRA requirements).

    The Democrats own this pupply stem to stern, top to bottom, Fanny, Freddy, FHA, CRA and all.

    (FWIW, my Dad sold real estate for a living for many years. Had his own office. From about the age of 10 onward I was reading the “how to be a realtor” books and learning the mortgage business – from a realtors point of view. Tagging along on trips to banks to talk about getting mortgages for buyers. Going on trips to show farms and houses. Helping write up second notes and learning to fill out “quit claim deeds” and all. Yes, I helped around the office. So I’m kind of “well steeped” in the history of it. Been watching it “up close and personal” for about 48 years now…)

  27. David says:

    E.M. states
    “BTW, mark you calendar. Great Depression 1930′s S&L Crisis 1970′s-80′s. CRA Crisis 2010. Add roughly a generation. I make that about 2035-2040 for the next “round” of a housing bubble / collapse.”

    I am a curious on this about how you came to such a predictive 2035 -2040 timeline. This appears to demand a reinflation or at least a recovery. Right now I am having trouble seeing how or when this will occur, as unfortunately I think we are only at the beginning of our financial woes, and by “our” I mean all the nations on our little blue green planet. As you have pointed out your solutions, ( greater depth on doing all possible to produce abundant inexpensive energy, fossil fuel, nuclear etc would be a possible future post on its own) right down the line are not being followed, in fact we are doing the opposite in many cases. The only way I see a ship of this size and momentum turning around is via a crash unlike anything the world has seen.

    BTW, great and best overall article on the collapse I have seen, a real keeper including the follow up comments.

  28. Richard Ilfeld says:

    Ah yes, economic history…..wherein we learn that our problems are neither new nor unique, but rooted in the vicissitudes of human nature. When a soverign entity has more debt than can be reasonably paid, the debt is not paid. A “default” of some form occurs. In some cases,life goes on much as before, farmers till the fields, teachers teach in the classrooms, workers work in the factories, and the society as a whole suffers an infusion of folk wisdom on thrift while operating for a while on a somewhat lower standard of living. WE can only hope…..

    Normalization of interest rates, the real consequences of massive new government intrustion into the economy, and failure to meet impossibly rosy growth scenarios get us to the place where, finally, there is no way to sweep the problem under the rug. The bills are going unpaid and the creditors no longer cooperate. I think it’s within the decade….reasonable people may differ.
    Coercive governments can hang on for a long time.

    Then what? Confiscatory taxation, price controls, and rationiong allow nations to pay for major wars. The war ending is a signal to return to normal. If these measure are adopted to fix the economy there is no endpoint, and we’ll be left with one of the flavors of totalitarianism on the road to a total collpase. None are appealing.

    Restructure. If you own our debt you take a haircut. The “new dollars” are worth 70% of the old dollars. We’ll pay off our debt 70 cents on the dollar.
    Entities using legal tender advantaged, ordinary folks see thier standard of living go down a lot but not fatally. We move to a balanced budget because we have to — who will lend us money.

    There are many ways to restructure. One of the awful truths about our current circumstance is that millions of jobs have been lost in the private sector! Perhaps worse, millions more have gone uncreated so we have a cohort of new workers who can’t enter the work force and will quickly develop bad habits.
    Yet federal employment has been untouched and the scope of dependency payments has decreased.

    If these two items cannot be reversed, restructuring beggers the ordinary folks (“the forgotten man” from the thirties) in favor of the governing elite and the segment of takers who come to prefer taking to working (why a philosophical ethos like “The American Dream” is important. Time for the pitchforks, tar, and feathers, and you end up with Hughey Long.

    E.M. had a strong point about a parlimentary system — where we can find most of the success stories in getting out of messes like we are in. When and if a majority, often in a spasm of hoplessness following an especially serious reversal, is voted in, they enact their program (platform) in whole cloth — and it has a chance to work. Our friends to the north saw the loonie at 50 cents and acted — its now a buck.

    No matter how our election comes out, having a near majority of legislators gerrymandered in and more concerned with castng blame improperly for the CRA whilst extending its provisions is debilitating.

    We do tax at about 20% of GDP. We have, within recent memory, run satisfactory governments on that basis of expenditure. Notwithstanding the Ponzi nature of our social safety net, there is enough money in those dedicated revenues to help those truly in need. And hitting the debt Limit does give the executive authority to allocate funds, as available, to priorities as seen from that office.

    Ths is plausibly our only benign way out. We need to elect, or re-elect an executive with the wisdom and ability to allocate funds to run a 2012 government more like a 1990 government and sell us the truth that this is solving our probelm and leading to a brighter day, rather than casting blame.

    Remember, balancing the budget, which is the common name for spending only what we take in, still leaves us with a 14 trillion debt overhang compounding as we roll it over if interest rates increase, and a fair number of unfunded liabilities. It may, however, give us the moral strength to continue the process of deleveraging within our social compact.

    I see no progressive solution historically that hasn’t ended badly — arguing about Bush and the CRA, or that all that’s need is more taxation on the rich is rearranging the deck chairs on the Titanic. The iceberg isn’t listening.

  29. George says:

    The notion that we are in the economic mess because we have been undertaxed and because government is too small is simply absurd. I am astounded that anyone would hold that position with a straight face.

  30. E.M.Smith says:

    @David:

    The “timeline” is based on the length of a “generational memory”. My family went out of their way to instill in me a strong awareness of The Great Depression, but most families did not.

    So about 1970, the folks “in charge” were largely born after 1929-32 and even if born in 1925 most likley had poor memories of it (and very few of THEM would have memories of the economic history of polices at the time or housing policies…)

    Similarly, folks who were 30 years old in 1970 and “lost money” in the S&L Crisis are now 70 years old. Many are dead and gone. Many in nursing homes. Yes, some are still sailing their boats and going camping, but even then, the “40 something” decision makers are often not asking “Granddad” about that S&L Crisis driven by a government policy to promote home ownership and a bubble / burst.

    So, right now a load of “40 somethings” and older “just got whacked with the clue stick”. (The “20 somethings” mostly don’t own homes or have money in the bank, so didn’t notice). Run the clock forward to where the “40 Somethings” are in the ground, in the nursing home, or out fishing. Will the folks who are 10 years old TODAY remember the things that caused the “Banking Crisis”? That it was government programs designed to inflate a housing bubble, then the inevitable popping of that excess demand?

    Nope, not a chance.

    This is a fundamental oscillator based on the human life cycle. There are many such in Economics.

    I just find the housing boom / bust cycle driven by our government a particularly interesting one… (Our culture is fixated on promoting home ownership, so it happens here. If we were looking at China where they herd folks into giant appartment blocks, the driver would likely be different).

    Sidebar:

    I have completely failed to pass on this institutional memory to my kids. I still have some hope (and part of why I’m writing things here is to make a library for them to read when That Day comes and I’m “put in the home” and they wonder what that stuff was that Dad always talked about…)

    But as of now, my “20 somethings” have no clue and no interest in housing. Other than living in some of it Right Now, it’s a non-entity. In about 10 – 15 years I expect they will be looking to buy, and that is about when the next “bubble” will start being inflated…

    Depressions, even great depressions, rarely last a generation. At most, it’s a decade or two. Some even 1/2 that. The “few years” one way or the other mostly depend on how stupid the Government can be and how long they can keep trying the wrong policies before a revolt happens… Under FDR, it was quite a long time… Prior depressions ended much faster as there was less “mucking about” and “social engineering” so folks had a bubble pop in their faces. Cursed. Picked themselves up and got back to work. FDR managed to stretch out the “Crisis” for a very long time as he was busy re-hacking the constitution and supreme court and “pot stirring” the markets so much that nobody would do anything.

    Rather like Obama today…

    Think about it… Never has so much depended on so few as hangs today on the Tea Party and what they can do to stop FDR Wannabe Obama and the Dimocrats from making The Great Depression II happen as they model themselves on his policies.

    Sidebar for “FDR was our saviour” advocates:

    Yes, Hoover was President when the depression hit. He had the bad luck to take office just as the bubble reached it’s peak. He didn’t get to stay around long enough to matter, though. And what was his only real “claim to fame”? A Progressive idea if ever there was one. (Remember this was the golden age of “Progressives”…)

    From the wiki:

    As the United States Secretary of Commerce in the 1920s under President Calvin Coolidge, he promoted partnerships between government and business under the rubric “economic modernization”.

    Yes, that “Economic Third Way” that Progressives of all stripes just love.

    It was working for The Fascists in Italy (who were LAUDED by American Progressives and praised by the likes of WIlson prior to the war) and was widely seen as the way to fix things here.

    Yes, Coolidge was a Progressive Republican in wanting that “Third Way” solution. He ought to have just let markets do what they do instead of going for Government / Business “partnerships” that lead to stagnation as everyone sat around waiting for something to be decided…

    He was “Pro Big Government” and “Pro Central Planning” through and through. Just like all Progressives (and not significanly different from FDR in that regard).

    Hoover aimed to change that, envisioning the Commerce Department as the hub of the nation’s growth and stability. He demanded from Harding, and received, authority to help coordinate economic affairs throughout the government. He created many sub-departments and committees, overseeing and regulating everything from manufacturing statistics, the census, and radio to air travel. In some instances, he “seized” control of responsibilities from other Cabinet departments when he deemed that they were not carrying out their responsibilities well. Hoover became one of the most visible men in the country, often overshadowing Presidents Harding and Calvin Coolidge. Washington wags were soon referring to Hoover as “the Secretary of Commerce… and Under-Secretary of Everything Else!”

    As secretary and later as President, Hoover revolutionized the relations between business and government. Rejecting the adversarial stance of Roosevelt, Taft, and Wilson, he sought to make the Commerce Department a powerful service organization, empowered to forge cooperative voluntary partnerships between government and business. This philosophy is often called “associationalism”.

    Many of Hoover’s efforts as Commerce Secretary centered on the elimination of waste and the increase of efficiency in business and industry. This included reducing labor losses from trade disputes and seasonal fluctuations, reducing industrial losses from accident and injury, and reducing the amount of crude oil spilled during extraction and shipping. One major achievement was to promote progressive ideals in the areas of the standardization of products and designs. He energetically promoted international trade by opening offices overseas that gave advice and practical help to businessmen. Hoover was especially eager to promote Hollywood films overseas.[16]

    His “Own Your Own Home” campaign was a collaboration to promote ownership of single-family dwellings, with groups such as the Better Houses in America movement, the Architects’ Small House Service Bureau, and the Home Modernizing Bureau. He worked with bankers and the savings and loan industry to promote the new long-term home mortgage, which dramatically stimulated home construction.

    Sound familiar?

    Yup, that’s the simple strait up Progressive Agenda through and through.

    It’s also part of why I’m no big fan of the Republicrats either. They, too, are Just Fine with:

    Central Planning
    Central Services
    Government Coordination of Industry
    Government Promotion of Home Ownership
    Big Government
    Big Taxes

    and a flood of bureaus, commissions, departments, GSEs, et. al.

    While lately the Republicans have Talked the Talk on small government, lower taxes, free markets, et. al. they have deep Progressive Roots leading all the way back to the start of The Progressive Movement.

    It brought us The Great Depression, made it longer and worse than any other under FDR, and has generally screwed things up since whenever we get rolling again.

    Economic History, it’s a Cold Bitch in February at the Arctic Circle. But you can learn something from it if you just read it.

    Looking Forward

    The Dimocrats are certain that The FDR Way is the way to go. After all, in their (empty?) heads he Saved The World with The Progressive Agenda and it was the Evil Republicans who screwed things up and created the depression via greed.

    What they do not ken is that it was PROGRESSIVE Republicans who created the depression, then PROGRESSIVE Democrats who made it a Great Depression (only ending when war forced us into a temporary maximum production economy for a few years and sucked anyone who could walk into the Army)…

    So you can rest assured that Obama and the Dimocrats will follow every single page in the FDR Playbook that they can possibly push through. They are certain that they are on God’s Own Mission to Save The World.

    That they are wrong will never occur to them.

    Even some Republicrats will agree with them, so support parts of their agenda.

    Who stands against this tide?

    A few folks who think that individuals can decide best how to live their own lives and are otherwise kept outside the halls of power.

    Frankly, if The Tea Party can not leverage a halt to the “Tax and Spend and Spend and Borrow” to fund The Progressive Agenda, I’m pretty sure we get a collapse, a Great Depression II and W.W.III out of it. I’d send Congress an Economic History Book, but I’m pretty sure they don’t know how to read. They’ve already said they don’t read the bills they pass…

    But I really hope I’m wrong….

    “But Hope is not a strategy. -E.M.Smith”…

  31. E.M.Smith says:

    @Richard Ilfeld:

    Very well written!

    @George:

    Why would their face be straight? Nothing else about them is ;-)

  32. boballab says:

    EM:

    You forgot to mention the second part about why WWII ended the Great Depression. While the unemployed suddenly found themselves either in the military via the draft or finding a job with a company filling the “Arsenal of Democracy”, consumer goods were rationed. To make it easier for others to understand what that means here it is in todays buzz words: Austerity Measures.

    You were allowed x amount of gas.
    You were allowed x amount of sugar.
    You were allowed x amount of butter.
    You were allowed x amount of meat.

    Even clothing became rationed before wars end:

    In addition to food, rationing encompassed clothing, shoes, coffee, gasoline, tires, and fuel oil. With each coupon book came specifications and deadlines. Rationing locations were posted in public view. Rationing of gas and tires strongly depended on the distance to one’s job. If one was fortunate enough to own an automobile and drive at the then specified speed of 35 mph, one might have a small amount of gas remaining at the end of the month to visit nearby relatives.

    And here is the kicker the war ended before rationing did:

    After three years of rationing, World War II came to a welcome end. Rationing, however, did not end until 1946. Life resumed as normal and the consumption of meat, butter, and sugar inevitably rose. While Americans still live with some of the results of World War II, rationing has not returned.

    http://www.u-s-history.com/pages/h1674.html

    During the wars years yo had all those workers earning a paycheck and not having the consumer goods to spend it on. So guess what they did with it?

    Save it.

    When the war was over and the companies started producing consumer goods again there was a citizenry that could now afford it. That is why the economy boomed after the war.

  33. P.G. Sharrow says:

    E,M,Smiths’ Economic History; Post and comments, what a read. Good thing it has been raining all day. :-)
    CRA to gas up the balloon and “mark to market” to explode it. Followed with the “Obamanation” to stop all progress to repair the damage. The progressive agenda must create enough discomfort to dispel the historic lies of the last 100 years, only then can real “Economic History” be taught instead of “Progressive Economic Lies”, that has been taught in our school systems. There will be no excape of this “Great Depression”. Once again the rules will need to be recast for the next rebirth. Maybe “E.M.Smiths’ Laws of Economics” ? pg

  34. George says:

    Maybe this would be of interest in this thread:

    http://mises.org/daily/3788

    The Depression of 1920

  35. E.M.Smith says:

    @George:

    What a wonderful “counter point” to the present “We’re All Keynsians Now” DC mindset… and an existence proof of “the other way” working…

  36. George says:

    Most people who call themselves “Keynsians” have never read John Maynard Keynes. They believe Keynes gives them an out for deficit spending, and he sort of does if you take in only a portion of what he wrote and ignore the rest. He was actually still for financial responsibility, but simply not on an annual scale. He was for balancing a budget over a longer period of time. Because economic cycles tend to last longer than budget cycles, his notion was to bank funds in times of surplus to use in times of deficit and keep government about the same size during both periods. He did not favor greatly expanding government in times of downturn. The notion was to run a deficit during periods of economic slowdown using the funds set aside during periods of economic growth. He wasn’t in favor of simply printing money to finance debt.

    Monetizing the debt is a bad, bad idea and Keynes would, I am pretty sure, not be in favor of it. What these people have done is taken one little piece of Keynes out of context and then stretched and twisted it to meet their needs while suppressing the surrounding context of it. JMK spins in his grave.

  37. George says:

    But giving Congress a pile of money and telling them to just sit on it until a recession is impossible. They are like a kid in a candy store with a $10 bill in their pocket. They just can’t resist the desire to buy some votes somewhere with it.

  38. Serioso says:

    “Federal taxes are the lowest in 60 years, which gives you a pretty good idea of why America’s long-term debt ratios are a big problem.”

    http://blogs.reuters.com/felix-salmon/2010/12/06/chart-of-the-day-u-s-taxes/

    Federal debt is the highest it has been since WWII. But note that debt DECREASED as a percentage of GDP from Truman through Carter. It was under Reagan that debt began to climb. There was a dip under Clinton, and then the climb returned under Shrub and Obama.

    Many Republicans believe in “starving the beast,” i.e., cut taxes, run up the debt, and call for a large cut in government expenditures. And that’s pretty much what we have.

    Low taxes really are a great part of the problem. And when the highest income taxpayers pay a lower rate than those in the middle, that’s a SCANDAL.

  39. George says:

    I don’t think the problem is low taxes, per se. It is that an increasing number of voters do not feel any pain from increasing the size of government because they don’t pay any taxes. Right now the tax is being spread pretty much equally when the Federal Reserve monetizes the debt because it devalues the dollar and makes everything more expensive. That increased cost of goods is a hidden tax that the federal government is taking from us.

    But everyone should feel a little pain for increasing the size of government and I don’t believe *anyone* under 75 years of age should be exempt from paying income tax.

    Also, if a program has existed for 5 years or more and it has more people on it now than it had 5 years ago, it needs to be terminated because rather than solving the problem, it is enabling the problem it is meant to address.

  40. boballab says:

    @Serioso

    Were do you get this idea that the TAX RATE of the “Rich” is lower then the Middle class?

    You know it isn’t hard to find the actual rates online:

    [Tax Rate Schedule X, Internal Revenue Code section 1(c)]
    10% on taxable income from $0 to $8,500, plus
    15% on taxable income over $8,500 to $34,500, plus
    25% on taxable income over $34,500 to $83,600, plus
    28% on taxable income over $83,600 to $174,400, plus
    33% on taxable income over $174,400 to $379,150, plus
    35% on taxable income over $379,150.

    [Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]

    10% on taxable income from $0 to $17,000, plus
    15% on taxable income over $17,000 to $69,000, plus
    25% on taxable income over $69,000 to $139,350, plus
    28% on taxable income over $139,350 to $212,300, plus
    33% on taxable income over $212,300 to $379,150, plus
    35% on taxable income over $379,150.

    [Tax Rate Schedule Y-2, Internal Revenue Code section 1(d)]

    10% on taxable income from $0 to $8,500, plus
    15% on taxable income over $8,500 to $34,500, plus
    25% on taxable income over $34,500 to $69,675, plus
    28% on taxable income over $69,675 to $106,150, plus
    33% on taxable income over $106,150 to $189,575, plus
    35% on taxable income over $189,575.

    [Tax Rate Schedule Z, Internal Revenue Code section 1(b)]

    10% on taxable income from $0 to $12,150, plus
    15% on taxable income over $12,150 to $46,250, plus
    25% on taxable income over $46,250 to $119,400, plus
    28% on taxable income over $119,400 to $193,350, plus
    33% on taxable income over $193,350 to $379,150, plus
    35% on taxable income over $379,150.

    http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2011-Tax-Year.htm

    Now I know this is a hard concept to understand but TAX RATE is not proportional to TAX REVENUE.

    To make it even simpler: you can raise the TAX RATE on the “Rich” and TAX REVENUE can decrease. You can also lower the TAX RATE and TAX REVENUE can increase.

    Here is the bottom line Spending is skyrocketing and the proof is in the pudding. The Tax rates were set in 2002 to new levels and went into effect for FY 2003 and they haven’t change since. Now look at the numbers from that time:

    2003-2008 Tax receipts increased from 1,901.1 to 2,286.8

    2003-2008 Outlays increased form 2,303.9 to 2,702.3

    Was this running a deficit? Yep:

    2003 1,901.1 2,303.9 -402.8
    2004 1,949.5 2,377.5 -428.0
    2005 2,153.6 2,472.0 -318.3
    2006 2,324.1 2,563.8 -239.6
    2007 2,414.0 2,565.1 -151.1
    2008 2,286.8 2,702.3 -415.5

    But do you notice something, the amount of deficit spending was going down each year from 2004 thru 2007 then ballooned again in 2008. I wonder what happened in 2008 that caused this…lets see something is coming to me…Ah I remember the housing market went Boom. Banks, GM and Chrysler were crying for bail outs and we had things like TARP and the loans to the car manufacturers. See that is called a SPENDING problem not a REVENUE PROBLEM. The Tax Rates on the rich didn’t drop in 2008 or on any one else, they stayed the same the Government just increased SPENDING.

    Now I bet you are asking about why I didn’t show 2009 and 2010, probably thinking I’m trying to hide how good Obama is going. Wrong! Here is 2009 and 2010:

    2009 1,898.3 3,172.2 -1,274.0
    2010 2,162.7 3,456.2 -1,293.5

    Click to access fed_receipt_sum_historical.pdf

    Look at that Receipts are about the same but SPENDING went through the roof. The shortfall between receipts and outlays tripled under Obama. Now what caused that I wonder…hmm…could it have something to do with oh I don’t know the “Stimulus”?

    So no, the problem isn’t the “rich” not paying their “fair share” it’s that the Lib/Prog Dimocrats can’t stop SPENDING like a drunken sailor in a whorehouse on payday.

  41. Serioso says:

    @boballab

    Maybe you missed my comment on 26 June 11:41 pm.

    The rich don’t pay the rates you quoted! YOU GOT IT WRONG!!! The maximum rate on capital gains and “qualified dividends” is 15%. And, guess what: That’s just about what the very rich pay.

    It is still a SCANDAL.

  42. H.R. says:

    @George

    “Also, if a program has existed for 5 years or more and it has more people on it now than it had 5 years ago, it needs to be terminated because rather than solving the problem, it is enabling the problem it is meant to address.”

    Brilliant!

    Worse, look at the duplication of federal programs at the state, county, and local levels; all of them growing. “If it was a grand idea (for votes and taxes) at the federal level, then it will work for us at our level.” Or so the reasoning goes by the pols that think they have to b e seen as”doing something” about every little sob story reported on the 6:00 o’clock news.

  43. boballab says:

    @Serioso

    My god your understanding of the the US Tax system is so bad you don’t even realize what your talking about:

    1. The Very Rich still have personal incomes and are taxed at the Personal income rates.

    2. There is no one Capital Gains tax rate. For gains made on assets own for less the one year the tax is based on the Personal income tax rate:

    Tax Rate on Short-Term Capital Gains

    Capital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 35%.

    Long term Capital Gains income tax is 0% for the 10% and 15% brackets, everyone one else pays the exact same rate. To put it in dollar numbers for you: everyone that is filing single or Married filling separately making less then 34,000 per year, People filing Head of Household up to $46,250 per year and married filing jointly up to $69,000 pay Zero, Zilch, Zip capital gains tax. EVERYONE ABOVE THAT PAYS 15% PERIOD, THE SUPER RICH DO NOT PAY LESS THEN THE MIDDLE CLASS.

    Tax Rate on Long-Term Capital Gains

    Capital gain income from assets held longer than one year are generally taxed at a special long-term capital gains rate. The rate that applies depends on which ordinary income tax bracket you fall under.

    Zero percent rate if your total income (including capital gain income) places you in the ten or fifteen percent tax brackets.

    15% rate if your total income (including capital gain income) places you in the twenty-five percent tax bracket or higher.

    http://taxes.about.com/od/capitalgains/a/CapitalGainsTax_4.htm

    As to “qualified dividends” that applies to anyone that owns stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. EVERYONE, THE RICH DO NOT PAY LESS THEN THE MIDDLE CLASS.

    Tax Rate on Dividend Income

    Dividends are classified either as ordinary dividends or as qualified dividends. Ordinary dividends are taxed at your ordinary tax rates for whatever tax bracket you are in. Qualified dividends are taxed at a 15% percent rate. To be eligible as a qualified dividend, the dividends must be from a domestic corporation or a qualifying foreign corporation and you must hold the stock “for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.” (Publication 550.)

    http://taxes.about.com/od/capitalgains/a/CapitalGainsTax_4.htm

    I got stock that pays dividends, I have owned it for 8 years and I make about $30,000 per year and I pay the same rate as Bill fricken Gates, not more.

    You have repeatedly made the same Factual Errors and have been shown that multiple times, yet you persist in telling it. The “Rich” pay the most in taxes:
    The Top 10 Percent of Earners Paid 70 Percent of Federal Income Taxes

    Top earners are the target for new tax increases, but the U.S. tax system is already highly progressive. The top 1 percent of income earners paid 38 percent of all federal income taxes in 2008, while the bottom 50 percent paid only 3 percent. Forty-nine percent of U.S. households paid no federal income tax at all.
    http://www.heritage.org/budgetchartbook/top10-percent-income-earners

    WASHINGTON (AP) — Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it’s simply somebody else’s problem.

    About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That’s according to projections by the Tax Policy Center, a Washington research organization.

    [SNIP]

    In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

    Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

    The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

    The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

    http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0

    Read that last paragraph about 1000 times and get it through your head: The Government is SPENDING money on Tax Credits to people who pay no taxes. And the reason for that? Tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package in 2009. Are you now going to demand that taxes be raised on the low and middle income families because they are the only ones that got Taxcuts in 2009? If you don’t your nothing but a hypocrite.

  44. E.M.Smith says:

    @serioso:

    I doubt that anyone has missed even one of your comments…
    or ever will…

    Learn about the Laffer curve. It will save you a lot of hot air:

    http://en.wikipedia.org/wiki/Laffer_curve

    We long ago passed the point where raising rates gives an increase in revenues. The more you rate rates from this point, the more lucrative it is to pay a good tax lawyer and accountant / investment adviser to offshore your money. Don’t LIKE that? Tough. Not a damn thing you can do about it including raising tax rates.

    How do you get more money from The Rich? Simple. Lower tax rates. Then they don’t waste time on all the “tax games” and pay more tax REVENUE to the government. Nope, not a hypothetical. Existence proof under Regan et. al.

    That the Republicrats can spend as badly as a Demican does not change Economics, nor the Laffer Curve. And no matter how much you flap your gums or wear down your fingers, those facts of life remain.

    The more you raise the Tax Rates to “soak the rich”, the greater the disparity will be between what they pay and what the middle class pays, because the middle class can’t hire the lawyers and accountants and advisors to legally hide the money and /or offshore it.

    Until the Dimocrats learn that, they will continue to do Stupid Things with tax policy and end up with ever greater percentages of tax from the middle class and ever lower percentages from The Rich.

    Reality is a Bitch, but a beautiful one.
    You ought to visit it some time.

    @H.R.:

    Goes a long way to explain why California as a CARB in addition to Federal Air Quality requirements and why California has a OSHA in addtion to Federal and why …

  45. boballab says:

    EM:

    Here is more confirmation that we are heading down the same route as Greece:

    In a rare criticism of the government, the governor of the Bank of Greece, Giorgos Provopoulos told Tuesday’s Kathimerini daily that “piling more taxes on taxpayers has reached its limit.

    He said the new plan “does not place enough emphasis on the containment of spending.”

    Approval of the austerity measures by lawmakers would unblock 12 billion euros of emergency loans from last year’s 110-billion-euro bailout and free eurozone finance ministers to start drawing up a second bailout for as much again at talks Sunday in Brussels.

    But even a former IMF board member, economist Miranda Xafa of Geneva-based investment managers IJ Partners, says the plan is deeply flawed.

    “In the last year, 250,000 people lost their jobs in the private sector — and none in the public sector,” she told AFP.

    “Now the country is bankrupt so it has no choice,” she said.

    http://www.france24.com/en/20110628-greece-braces-grounding-general-strike-unions-parliament-austerity-measures#

  46. George says:

    The real problem with the tax structure is that the bottom 50% of wage earners account for such a small portion of government tax revenue that government has no incentive to keep them employed. The entire bottom 50% of wage earners could go out of work tomorrow and the government would lose something like 5% of tax revenue. That 5% is nothing when we are talking about budget deficits of 2 trillion. Hell, doubling the tax on the bottom 50% wouldn’t have any impact either. The fact is, the government doesn’t care a pinch of owl poop about the lowest 50% of wage earners except for their vote. They have absolutely no incentive to see that they are employed and it is no skin off their nose if they all lose their jobs as long as politicians can keep the checks coming to the mailbox.

    It really is sad and this is why we need to get rid of “career” politicians. I say there should be no pension whatsoever for politicians. Let them fund their own pensions.

  47. E.M.Smith says:

    @George:

    Were it up to me:

    1) ALL “securities and marketable notes” other than the primary home and real estate already owned get converted to US Treasuries upon entry to Congress or for “assistant department head or above” Executive. I.e. “trust fund” ONLY in US Treasuries. (They CAN pick the duration, from 90 day bills to 20 year notes). NO real estate can be purchased while in office. (All those games of buying 200 acres then routing a freeway past it get canned. Any land already owned that DOES get a freeway or airport within 10 miles of it gets sold and the assessed value in the year PRIOR to the approval of the project is handed to the critter.)

    2) NO pension. If you are there long enough to need a pension, you are doing something wrong. You do get Social Security based on your wages.

    3) Salary set to the median WAGE earned in the nation. (Take all hourly and salaried pay. Rank low to high. Find where person of 50% rank is located. That’s your pay for the year. NOT “mean”, “median”…)

    4) Medical care provided free. At the nearest military base by base doctors. Appointment via queue with all other base staff. No cutting in line.

    5) Transportation via commercial air, coach. Want more? Buy an upgrade. (President and VP excepted as they are subject to folks wanting to kill them…)

    6) NO Limos. Car with better than EPA mandated average MPG and costing less than MEDIAN US Car sold in prior year may be checked out of the motor pool. You buy your own gas. Return it with a full tank. (Again, Pres and VP excepted as they need the armored cars.)

    7) Staff: 1 Secretary. 1 Gofer. 1 Researcher. 2 Staff Lawyers. Period. Per congress critter. Why two lawyers? One to read / write your laws for you, one to keep you out of prison. Hey, it’s a full time job…

    8) All meals provided in the cafeteria. Budget per head set equal to the MEDIAN family food budget per head.

    9) Expense account: 10% of Salary.

    10) “Office Expenses”. 10% of Salary.

    11) Congress gets NO exemption from any law they pass.

    I think that about covers it.

    I’d be happy to take the job on that basis. They ought to be too….

  48. H.R. says:

    @E.M.

    “7) Staff: 1 Secretary. 1 Gofer. 1 Researcher. 2 Staff Lawyers. Period. Per congress critter. Why two lawyers? One to read / write your laws for you, one to keep you out of prison. Hey, it’s a full time job… “

    Make that 3 lawyers; 2 to keep them out of prison ;o)

    (Hey! This taxpayer ain’t payin’ no stinkin’ overtime to that one poor-ol’ overloaded lawyer. Ask any Illinois governor how many are needed on a team.)

  49. H.R. says:

    Oh! and George and EM…?

    I just thought you’d be interested to know that my 2nd cousin on my mother’s side, once removed, just got a job in The Department of Redundancy Department; Belt and Suspenders and Drawstring and Elastic Waisband Division after passing the federal, state, and local background checks.

    It’s a new position to back up the fellow who was hired to substitute for the Public Relations contact… “just in case.”

    :o)

  50. David says:

    Response to
    on 28 June 2011 at 10:06 pm George
    “Maybe this would be of interest in this thread:”
    http://mises.org/daily/3788
    The Depression of 1920

    on 28 June 2011 at 10:30 pm E.M.Smith
    @George:

    “What a wonderful “counter point” to the present “We’re All Keynsians Now” DC mindset… and an existence proof of “the other way” working…”

    My Uncle, Leonard Wessell, sent me an e-mail which put me on the path to learning about the 1920 depression. “…Harding ran on the platform that he would radically cut gov. outlays, pursue monetary deflation (without monetary minipulation by the fed as today) and let the free market do the rest. Really, compared to Harding, the Tea Party is a spendthrift. He radically kept his promises. And “deflation” took place enabling the free market to do what it does at the end of a boom-and-BUST (= maluse of economic sources for goods not sought by the market) cycle. You may be asking me how can it be that “deflation” was a job stimulating policy (as it is in Misesian economics)? /// Remember my definition of “deflation.” Deflation (in the negative sense) occurs if there is a massive reduction of quantity of money (which happens when the bottom of the market falls out) not accompanied by a corresponding demand for money. The falling of prices is a function of falling demand e.g. jobs lost, investment choked, business go bust, etc.) as the supply/demand effect. And it is precisely this, which along with the gov. refusing to stimulate, is the mechanism for recovery for the deprression of 1920.” The result, ” I will limit myself basically to the unemployment figures as percentage of working force.
    1919 1.4%
    1920 5.2%
    1921 11.7%
    1922 6.7%
    1923 2.4%”

    So yes, there was a counterpoint to the FDR Obama plan, and pain, thrift and deflation was a part of the solution. Our current fear of deflation is a large part of extend and pretend. Unfortunately today debt is much greater then in the past. I sent my Uncle this video, which most of you have probably seen. If not it is enjoyable, and if you have, it is still enjoyable again.
    http://globaleconomicanalysis.blogspot.com/2010/11/qe-explained.html

  51. David says:

    Regarding HR https://chiefio.wordpress.com/2011/06/26/the-70-percent-solution/#comment-19680

    My Dad is 85, he was very healthy until he recently had Pneumonia, which probalbly activated TB in his system, likely caught from a trip to Thailand. The TB was not of the easily contagious kind, as it was active in the GI tract, not the lungs. He is now on 6 months of medication. How does this relate to unnecessary Govt workers. Well some poor Govt worker showed up at Dad’s house and announced that he would be by every day, to make certaind Dad took his medication. After a short debate Dad convinced this now intimadated worker that it would not be necessary for him to do this.

  52. Serioso says:

    I love the way everyone ignores social security and medicare taxes, pretending they do not exist. People should look at where the feds get their money: A big percentage comes from this source.

    The fact remains that the average tax rate paid by the 100 returns with the highest income, averaging 300 million dollars per return, is less than the tax rate paid by a salaried person making 300,000 dollars. That’s just nuts. All income should be taxed at the same rates, regardless of its source.

  53. H.R. says:

    @ Serioso

    You opened a big can of worms by mentioning SS and Medicaid, but who is “everyone”?

  54. George says:

    Oh, heck, this administration is even actively sabotaging Social Security. Just when the boomers begin to retire and 300,000 a month are set to go on benefits while we are creating fewer than 200,000 jobs a month, he DECREASES the FICA payroll tax by 2%. I can not think of a more perfectly timed point in time to do the most possible damage to Social Security than to lower the FICA payroll tax.

    This administration is worse than incompetent, it is malevolent.

  55. E.M.Smith says:

    @Serioso:

    You are starting to sound an awful lot “Troll-ish”. Bringing up Dimocrat Talking Points seems to be about the extent of your pattern. Either you have no original thoughts in your head, are swimming waaay out of your league, or are a kid in the learning process.

    On the off chance that it’s the last one, I’m being tollerant; but be advised: Trolling with Talking Points gets old really fast, isn’t very interesting, and especially when delivered as a Bald Faced Asertion Of Gods Own Truth ends up looking like a Troll, not someone interested in thinking and learning (who tend to ask rather than tell…)

    Per Social Security and other taxes:

    Yes, it is a shame that people tend to ignore them, as Congress treats it just like any other income tax and spends it immediately (and never did put it in a “trust fund” but used it for “spend now give IOU” budget games.)

    Clearly they can not be trusted with a “retirement fund”, and we need to fix that. So the best thing to do is immediately convert Social Security taxes to 401K contributions. Anyone over 50 gets to stay in SS. Anyone over 30 and below 50 gets to choose to freeze present SSI benefits and add a 401k or keep dumping more into SSI. Anyone below 30 gets a 401k and no S.S. choice. General Revenue to pay for the shortfal in SS benefits promised to the folks in the system (and money to pay for it squandered in the past).

    Basically, shut it down in a way that is sensitive to the fact that “older folks” have paid into it their whole life, against their will in many cases, and with some expectation of it being there. Convert it to a defined contribution plan for the folks who are young enough. Make it a hybrid for those in the middle.

    On Medicare / Medicaid / MediCal, Medi…. , Part B Drugs, Obamacare:

    It’s all just continued “Boil A Frog” Socialized Medicine. It has no place at the Federal level as the constitution does not provide for it. As an interim measure, hand a block grant to each state equal to present payments to their citizens, and shut down the Federal end. Over time, ramp down the grants as the states get back in decent shape (as shrinking the Federal Tax Take leaves more for the states… basically, undo the last 50 years of “centralize and penalize” and turn the states free). We’ll work it out.

    FWIW, when I was a kid, that’s the way it was.

    The Social Security Amendments of 1965 was legislation in the United States whose most important provisions resulted in creation of two programs: Medicare and Medicaid. The legislation initially provided federal health insurance for the elderly (over 65) and for poor families. While President Lyndon B. Johnson was responsible for signing the bill, there were many others involved in drafting the final bill that was introduced to the United States Congress in March 1965.

    We lived well before 1966… It cost about $10 (or about $100 in todays money) for an office visit with the doctor in his private office (I’m remembering the one I had for strep throat and my Dad parting, slowly, with the tenner…) where we where handed the penicillin on the spot and got to spend about 15 minutes getting a tutorial on antibiotics and bacteria (the Dr. realized I was a smart cookie and even, on another visit, showed me how the office was layed out and what equipment was used for what. He lived upstairs, the “surgery” was downstairs…)

    Folks with no money went to The County Hospital for free medical care. It was a PITA to get there, but folks who needed help found a way. Town doctors tended to have a ‘sliding scale’ for poor and old folks anyway, and there were often ‘free clinics’ for things like vaccination. (On one occasion the county and local doctors organized one at The Farm Labor Camp about 2 miles outside town near the river… Dad took the family and that is where I got my Small Pox and a few other vaccinations all in one go… It was that, or pay $10 / kid at the Drs. Office, and free was better than the equivalent of about $600 (Mom and Dad too) at the office…

    One day, about 3rd? grade, we all lined up in the caffeteria at school. There was someone with a strange airgun thing and we all marched past, about 2 seconds / person getting some vaccination or other… no charge.

    Now? You ship off a few $10,000 to Washington. IFF you are lucky, about $5,000 of it comes back. This pays for visits to the Dr in a Nice Comfly Expensive office. Of that money, about $3000 goes to various malpractice and insurnace costs and other overhead, some goes to the vaccine manufacturer, and some goes to the Doctor, who tries to third party his bills off to Other Peoples Money via that Federal Wash Money Launder process.

    I’m not seeing a big improvement here…

    So, IMHO, we need to just back out One Predidential Legacy At A Time, and do it in reverse order.

    1) Obamacare
    2) Baby Bush Medicare Drugs
    3) (whatever the other guys did, I vaugely remember some coverage expansions to kids and other ‘needy’)
    4) Johnson’s Medicare
    5) FDRs Social Security

    Return charity to the charities and the individuals who do a much more efficient job of it and ought to get to enjoy the giving rather then feel robbed by the government…

    Per:

    “That’s just nuts. All income should be taxed at the same rates, regardless of its source.”

    I agree completely. We need a National Flat Tax and repeal all this “progressive tax soak the rich” nonsense…

    and we could then get rid of the 2 x tax rate for SSI for self employed folks:

    http://www.ssa.gov/OACT/ProgData/oasdiRates.html

    shows rates rising from 1% to 6.2% for employees over the life of the plan from inception in 1937 to 2000, and for self-employed, their taxation begins in 1951 (Yes, the self employed were outside the system until then, and did just fine, thank you very much) at 2.25%, rising smoothly to the rate today of 12.4%.

    I can see no reason at all to charge folks who employ themselves twice as much as folks employed by Evil Companies. It just encourages folks to go be wage slaves to Evil Companies…
    (/sarcoff> for the sarchasim impared…)

    Some mysteries for you to ponder:

    1) How does washing money through the sticky and morally impared hands of politicians in Washington DC put more money into fixing the actual problems locally? Look closely at the spending habits and housing of federal agency heads and above before answering. Then look at the retirement plans of petty clerks…

    2) How does applying tons (literally) of “regulations and mandates” improve efficiency of care delivery? Ponder the impossibility of having a mass vaccination at the Farm Labor Camp today before answering… just getting all the needed “inspectors” on site and paid would kill the deal, the malpractice insurance burden being just icing…

    3) How does taking money away from the people help them buy more of the services they most need?

    4) How can someone in D.C. possibly make a decent decision about “Penicilin for Strep Throat” vs “endless PSAs on TV about diet”? They don’t even have “eyes on the ground” to know what the problem is.

    As near as I can tell, you have a bag of propaganda you dip into and pull out a Talking Point (perhaps even one you dearly believe) and not much else. There is little to no evidence that you actually think through the mechanism of what happens, how things work, and / or look at the money flows. Nearly no evidence of any sense of history or of a time when things were not This Way (and often worked much better) That is naive at best.

    Then again, most Progressives are like that. The bulk of them are naive. The others are mendacious and powerhungry and rise to positions of authority by pandering to the bulk…

    I have, personally, watched the rise of Medicare from nothing to the devouring monster it is today. About to bring down the country on the back of unfunded mandates and unlimited unfunded obligations. Yes, when I was a kid, you actually had to plan for your future and save money if you wanted expensive treatments that would, at best, give you a few more months of misery in a hostpital as you died. Now “Other Peoples Money” picks up the tab as enormous quantities of money are spent in the last part of a life on useless “treatment”.

    The difference is that now, it is everyone’s estate being bankrupted, not just the individual in question. The end game is the stupidity you have in England today. My aunt had a knee going bad. The idiots in charge were debating a knee replacement surgery. Why “idiots”? They actually were proposing to put an artifical knee in the good leg as the bum one had her putting more weight on her ‘good’ knee…. and leave the bad one bad… They spent a good 2 or 3 years arguing over it (and doing nothing) until she eventually had a stroke. Then, as she couldn’t walk (after they were done ‘treating’ it…) there was no longer a need for the knee surgery.

    This, they call “efficiency” as they avoided an expensive knee surgery…

    How is this different from just saying “It costs $20,000 to get it”? Well, in that case, my Aunt would have decided to pay for it, or not, and had two working legs for those 3 years (or not). End of problem. Oh, and about 5 “professional arguers” at the various bureaus would have had to find productive work to do…

    This same Socialzed Medicine killed her husband. He went in for a relativly trivial surgery and they botched it, killing him on the table. Never ought to have happened. Too much anesthesia and not enough monitoring.

    I also had experience with it on a trip to England. After 2 visits and three doctors I was told they didn’t know what to do and I might be able to get a private doctor to treat what I had and was given the name of a 70 Something lady Doctor from somewhere with a Germanic like accent. She politely explained what she would have done 30 years before, but that her hands were not steady enough now, but gave me a treatment I could do myself and that worked in 2 days. FWIW, any of: Surgical removal of the cyst, treatement with fat soluable antibiotics, or strong heat treatment would work. I’d had the surgical approach, done by My Dad when I was 8 the first time, and I’d had the antibiotics later back in the USA a few years after this trip. The Old Doc gave me an antibiotic and told me to do hot compresses, as hot as I could stand, every few hours. It worked best of all.

    But by hurding all the doctors into a “weekly clinic” for that part of the body and hiring a bunch of clueless ones who have no idea what to do, everyone has ‘access to treatment’ and it’s less expensive per visit. It just doesn’t work very well…

    That is the end game of government control and “efficiency”. And it is where our medical system is headed, fast.

    During my lifetime I’ve watched it go from “walk in if it is imporant enough and get immediate treatment” for $100 of todays money (or less if you didn’t have it, sometimes zero) and be done; to Oceans Of Money to DC, Freight Cars of regulation and lawsuits in return, less treatment, oh, and you still have to pony up the $100, but it’s as 4 “copays” of $25 each for the 4 visits it takes now. Some of which actually let you talk to the doctor for 30 seconds…

    So look, here’s the deal:

    Some of the time you are an “interesting irritant” and provide some fodder for discussion. Much of the time it’s Trollish Talking Points. I’m a bit ambivalent at the moment, but … Please “tighten up your game” and bring someting more to the table. Some depth. Some history. Some understanding of how things work. Either that, or please convert from Bald Assertion Of God’s Own Truth to enquiry for learning the truth. Just thowing Troll Bombs and running is going to result in… well, in “not good”…

    I’m getting tired of trying to untangle your confusions.

  56. boballab says:

    OMG this person is delusional about tax rates. Has everyone noticed that every time he jumped up and down going “The Tax Rate on the Rich is less then the Tax Rate on the Middle Class” he has shown no evidence of that. No links to the IRS’s website, no links to news articles about who pays what, nothing but a bald assertion. I show that his claims are false first with his Income Tax Rate rant with quotes and links, he tries to move the goal posts to Capital Gains and “qualified dividends” again with no proof. I again show his claims to be false again with quotes and links and show him how much “the rich” actually pay. Again he quietly shuts up about that and tries to move the goal posts to Medicare and Social Security. Now that is a move by the truly desperate and ignorant.

    First of all Medicare is taxed at a flat rate no matter how much money you make:

    Medicare taxes are imposed at a flat tax rate of 2.9% on wages, salaries, and business or farming income earned by self-employed individuals. There’s no limit on the amount wages subject to Medicare taxes, unlike the annual wage limit for Social Security taxes.
    The medicare hospital insurance tax is paid half by employees through payroll deductions and half by the employer. Accordingly, employees pay a Medicare tax rate of 1.45% (half of the 2.9% rate).

    Self-employed persons pay both halves of the Medicare tax since they are both the employee and the employer. However, self-employed persons are allowed to deduct half of the Medicare tax as an adjustment to income. Self-employed persons calculate and pay their Medicare tax when filing their personal tax return as part of the self-employment tax.

    http://taxes.about.com/od/payroll/a/Medicare-Tax.htm

    Matter of fact in 2013 there will be a second higher rate for “the rich” that was enacted in 2010 by Obama:

    Starting in 2013, the flat 2.9% Medicare tax will continue to apply to wages under $200,000 (or under $250,000 for married couples filing a joint return). There will be an additional 0.9% Medicare tax on wages over $200,000 ($250,000 for joint filers). This additional tax is to be withheld from wages, or if not withheld, it is to be paid directly by the employee. This additional Medicare tax also effects self-employed persons paying the self-employment tax.

    Additional Medicare tax on investment income. HR 4872 modifies the health care act to impose the expanded 3.8% Medicare tax on investment income for people with income over $200,000 (or $250,000 for joint filers). Investment income for the purposes of the Medicare tax base would include interest, dividends, royalties, rent, passive activity income (such as income passed-through from partnerships and S-corporations), and gain from the sale of property. This additional Medicare tax is technically called the unearned income Medicare contribution tax.

    http://taxes.about.com/b/2010/03/30/tax-provisions-in-the-health-care-reform-law.htm

    AGAIN THE RICH DO NOT HAVE A LOWER RATE AND PAY LESS THEN THE MIDDLE CLASS. Also by the way I hope you don’t sell any property that gets you more then $200,000 since you will then be considered “Rich” and have to pay this tax on it.

    As to Social Security Tax it is also a flat tax rate with a annual maximum wage cap:

    Here is the breakdown on these taxes: The employer and employee each pay 7.65%.

    Breaking these percentages down further:

    The OASDI (Social Security) portion is 6.2% (4.2% in 2011), up to the annual maximum wages subject to Social Security.

    The Medicare portion is 1.4% on all employee earnings.

    The Social Security portion is capped each year at a set amount; the Medicare portion is not capped.

    http://biztaxlaw.about.com/od/glossaryf/a/FICAtax.htm

    Now that rate is applied to the person’s gross pay. There you go if you work for someone you pay 6.2% on all wages up to roughly 106,000. It doesn’t matter who you are, it doesn’t matter if you make 300,000 a year or 30,000 a year you still pay 6.2% (except for 2011).

    Now if you are self employed you pay a much higher rate but if you file the right paperwork you can get your money back:

    A self-employed person pays twice as much as an employee pays. However, if you are self-employed there are special tax credits you can take when you file your tax return. These credits lower your overall rate.

    In 2011, the Social Security tax rate is 13.3 percent (10.4 percent Social Security tax plus 2.9 percent Medicare tax) on self-employment income up to $106,800. Although you do not pay self-employment tax on net earnings exceeding $106,800, you must continue to pay the Medicare portion of the Social Security tax (2.9 percent).

    http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/430/related/1/session/L2F2LzEvdGltZS8xMzA5MzcwNDIzL3NpZC85MVBlRkt4aw%3D%3D

    Now special for just this year the the employee gets a break on his SS tax, the guy that is paying him stays the same:

    For 2011, the maximum taxable earnings amount for Social Security is $106,800. The Social Security tax (OASDI) rate for wages paid in 2011 is 4.2 percent for employees and 6.2 percent for employers. For example, an individual with wages equal to or more than $106,800 would contribute $4,485.60 to Social Security in 2011. The employer would contribute $6,621.60.

    AGAIN THE RICH DO NOT PAY A LOWER RATE THEN THE MIDDLE CLASS, THEY PAY THE SAME RATE.

    Again you made a factually incorrect statement with out any supporting material.

    You make the statement that the Feds get a big percentage of their Revenue from SS and Medicare and they do 40% however a larger percentage of their revenue comes from Income Taxes: 51% (That is personal and corporate income taxes combined)

    Note: the link says FY 2007 but the chart has been updated to FY 2010.

    Oh you might like taking a gander at the testimony given to the US Senate this year about if the rich pay their fair share by Scott Hodge:

    But perhaps the most troubling development in recent years is that the efforts of lawmakers to use the tax code to help low- and middle-income taxpayers have knocked millions of taxpayers off the tax rolls and turned the IRS into an extension of the welfare state.

    Today, a record number of Americans—52 million, or 36 percent of all filers—have no direct connection with the basic cost of government because they pay no income taxes. If we add this group to the people who have some income but don’t file a tax return, the ranks of American households outside the income tax system rise to 48 percent.[1]

    Indeed, many of these 52 million tax filers now look to the IRS as a source of income thanks to the more than $100 billion in refundable tax credits paid to people who have no income tax liability.

    As a result of removing millions of people from the bottom of the tax rolls, we have dramatically reduced the number of people with “skin in the game.” Indeed, the top 1 percent of taxpayers now pays a greater share of the income tax burden than the bottom 90 percent combined.

    [SNIP]

    Tax Expenditures and Progressivity

    There is a common belief that because so many tax expenditures benefit upper-income taxpayers, the “rich” are not paying their fair share of taxes. Nothing could be further from the truth. Indeed, because of the expansion of tax benefits aimed at low- and middle-income households, the OECD finds that the U.S. has the most progressive income tax system of any industrialized country. What that means is that the top 10 percent of U.S. taxpayers pay a larger share of the income tax burden than do the wealthiest decile in any other industrialized country, including traditionally “high-tax” countries such as France, Italy, and Sweden.[7]

    http://www.taxfoundation.org/publications/show/27099.html

    Matter of fact there is nice easy to read chart of the data that Scott Hodge showed to the Senate by Dr. William Briggs of Cornell University which can be found here:
    http://wmbriggs.com/blog/?p=3652

    Guys should we institute a 3 knock down rule here?

  57. E.M.Smith says:

    @Boballab:

    I generally like to run the place as a “benevolent dictator” but I’m open to a “Voted off the Island” if folks are bothered enough…

  58. George says:

    I don’t think I would take seriously anything published at firedoglake. Seriously, it is a purely agenda driven site and facts won’t stand in the way of their agenda.

  59. gallopingcamel says:

    Each of the chapters in “Reckless Endangerment” is headed by a quote from a prominent person. My personal favorite is Chapter Ten:

    “What Congress did turned out to be absolutely brilliant – it created a system that harnesses private enterprise and private capital to deliver the public benefit of home ownership. And it maximizes this public benefit while minimizing the public risk, and without spending a nickel of public funds.”
    —–Franklin D. Raynes, CEO of Fannie Mae, May 16, 2000

    Raynes made a fortune by implementing the “brilliant” designs of Congress.

  60. George says:

    There is an extremely dishonest article going around among the left-wing sites today that uses a little bit if smoke and mirrors. It claims that state revenues are increasing and it also credits tax increases with this increase in revenues. The implication is that tax revenues have increased *because* states have increased taxes. That is the dishonest part. The folly comes from lumping the states together. Yes, some states have increased taxes. Yes, some states have seen an increase in revenue. But the states accounting for the majority of the revenue increases are the states that have maintained or lowered their tax rates. It is an extremely dishonest and misleading report. It is like having a group of children, feeding 10 on a diet of only candy and feeding 40 on a balanced diet and trying to say that when children eat more candy, their health improves because A: more candy was eaten and B: the average health improved.

    What I would like anyone to do is compare the situations in places like Wisconsin, New Jersey, and Virginia where you have a fiscally responsible state government that has replaced a fiscally irresponsible government and note the benefits and then compare that with Illinois.

    Also note a very important point. A tax increase may increase revenue … the first year. That is until people see their tax bill in 2012. Then they will make adjustments and wipe out those revenue increases in follow-on years. People just don’t realize yet what is going to hit them next April.

    The report is an extremely irresponsible, misleading, and just plain wrong piece of propaganda designed to further the notion that tax increases are a good thing.

    We aren’t in this mess because we were under-taxed.

  61. George says:

    And now we have this:

    The chief economic culprit of President Obama’s Wednesday press conference was undoubtedly “corporate jets.” He mentioned them on at least six occasions, each time offering their owners as an example of a group that should be paying more in taxes.

    “I think it’s only fair to ask an oil company or a corporate jet owner that has done so well,” the president stated at one point, “to give up that tax break that no other business enjoys.”

    But the corporate jet tax break to which Obama was referring – called “accelerated depreciation,” and a popular Democratic foil of late – was created by his own stimulus package.

    So he signs this huge stimulus bill in 2009, and in 2011 campaigns on the evils of his own work? The bill was signed in February of 2009. It passed the House without a single Republican vote. Remember, Democrats had both houses of Congress at that time.

    So the Democrats are now campaigning on the evil that they themselves created. If I were a business person, I would not trust a Democrat as far as I could throw them. Why? Because they saw this law and bought a plane. The law was designed to get people to buy planes in order to employ people. Now the plane is being used in a campaign of class warfare holding up the people who did exactly what the government wanted them to do as somehow bad. Now the company has the plain, the accelerated depreciation might be terminated, and they are stuck holding a plane they might not have otherwise had if the law had not been created by the Democrats in the first place.

    This is what I mean by this administration being worse than stupid, they are malicious.

  62. H.R. says:

    @Serioso
    “Read ‘em and weep:”

    I did, but I laughed!

    I am beginning to see the problem; you’re buying the verbal sleight-of-hand instead of the straight interpretation.

    Straight goods:

    1. The higher your income, the higher your income tax rate: full stop.

    Here’s the verbal sleight-of-hand as used in your links

    Take some middle-class schlubb making $100,000 AGI. We look at the tax table and his tax rate is 25% so he pays $25,000 (note that we don’t know his gross income).

    Compare the poor schlubb to some swell with an income of $336 million. Note that the swell paid $57 million in taxes or $16.9% of his income, BUT that is not his tax rate. Get it? See the sleight of hand?

    The swell guy had 10 accountants and 5 tax lawyers (and a lobbyist in a pear tree) and paid all sorts of tax rates on all sorts of income types for whatever revenue sources he couldn’t hide from the IRS in offshore accounts, but his income tax rate was higher if he had more in personal income than the poor schlubb.

    Part of that $336 million may have come from selling a company that he bought into ten years ago on a hunch that some crazy inventor was right about anti-gravity boots and that portion was taxed at the same capital gains rate as anyone else (with exceptions as noted above where poorer people may not be taxed at all on capital gains.)

    If the poor schlubb had $0 in capital gains, his tax rate was zero. That’s a much, much lower rate than the rate paid by the swell guy, eh?

    Part of that high income may have been from sitting on numerous boards with his fraternity chums and so he’s paid $400,000 for those cushy gigs. His tax rate on that ordinary income would be 35%. Whaddya’ know? The poor schlubb comes out on top again!

    And what if our rich guy gave $336 million to charitable foundations while our poor schlubb had to pass on charities this year? Compare the percentages of net income retained. Who’s ahead; the schlubb or the rich guy?

    Now, what if that poor schlubb’s gross income was $400,000 and his AGI was $100,000 because of the uninsured loss of his house? $25,000 divided by $400,000 is… (carry the one… square root of i… plus 4ab..) …is 6.25%! The swell guy got SCREWED!!!

    But back to my #1 above. Where tax rates are progressive, the more you make, the higher your tax rate, period. Taxes paid divided by your income is NOT your tax rate. (unless you’re in the “no tax” bracket)

    That’s how the “soak the rich” game is played and you’ve bought it hook, line and sinker.

    Re-read your own links with a different mind-set.

  63. boballab says:

    @EM

    It wasn’t bothered so much as more in the line of the boxing reference that when one contestant keeps getting knocked down the prudent thing for the ref to do is stop the contest.

    @ Serioso you keep asserting “the rich’s” TAX RATE is less then the middle class as I and later H.R. showed you that is not true and your links proved it. You equated the percentage of total income paid as taxes for “the rich” and the middle class to being each’s TAX RATE, which is not. From that false premise you went go a logical road to fallacy.

    Bottom line Serioso the Tax Rates on the Rich are never lower then the Middle Class and the Rich pay more in absolute dollars then the Middle Class. Learn how the system works before spouting off.

    Also here is a free lesson on why the proposed Flat Tax’s would cause the rich to pay more in absolute dollars, but no Dimocrat will ever support it.

    Under a pure Flat Tax system like the one I grew up under in Pennsylvania there is no income tax brackets and there is so few deductions it scares Dimocrats:

    Pennsylvania personal income tax is levied at the rate of 3.07 percent against taxable income of resident and nonresident individuals, estates, trusts, partnerships, S corporations, business trusts and limited liability companies not federally taxed as corporations.

    Pennsylvania taxes eight classes of income: (1) compensation; (2) interest; (3) dividends; (4) net profits from the operation of a business, profession or farm; (5) net gains or income from the dispositions of property; (6) net gains or income from rents, royalties, patents and copyrights; (7) income derived through estates or trusts; and (8) gambling and lottery winnings other than Pennsylvania Lottery winnings. A loss in one class of income may not offset against income in another class, nor may gains or losses be carried backward or forward from year to year.

    The commonwealth employs three primary methods for collecting personal income taxes:

    estimated and final payments from individuals;
    employer withholding; and
    estimated withholding from nonresident partners or shareholders by partnerships and S corporations.

    The Pennsylvania personal income tax does not provide for a standard deduction or personal exemption. However, individuals may reduce tax liabilities through certain deductions, credits and exclusions.

    Deductions:

    Taxpayers may reduce taxable compensation for allowable unreimbursed expenses that are ordinary, actual, reasonable, necessary and directly related to the taxpayer’s occupation or employment.

    PA law allows three deductions against income: deductions for medical savings account contributions, health savings account contributions and IRC Section 529 tuition account program contributions.

    Credits:

    Credit against Pennsylvania income tax is allowed for gross or net income taxes paid by Pennsylvania residents to other states or foreign countries.
    Credit is available to lower income families and individuals receiving Tax Forgiveness.

    Tax credit programs also reduce income tax liability for qualified applicants.
    Exclusions:

    Taxpayers may exclude from compensation qualified payments to IRC Section 125 (cafeteria) plans for programs covering hospitalization, sickness, disability or death.

    Excluded from Pennsylvania-taxable income are capital gains from the sale of a principal residence for all taxpayers who satisfy ownership and use requirements.

    Taxpayers may also exclude from income personal use of employer-owned property.

    http://www.portal.state.pa.us/portal/server.pt/community/personal_income_tax/11409

    If we went to that tax system Federally the Rich would have their tax rates lowered. That is something no Dimocrat would support even though in absolute dollar terms the rich would pay more then before. The reason they won’t support it? Because a flat tax is not progressive at least that is what they would say publicly but the truth is that the DIimocrats are the wealthiest people in the country and they don’t really want to pay that. With the progressive system we got they got all those nice deductions and loopholes.

  64. Serioso says:

    To be very brief: Do not confuse tax rate (which IS total tax divided by total income) with marginal tax rate. I never said the rich pay a lower marginal rate.

  65. boballab says:

    Serioso

    You still haven’t grasped the concept of the US federal tax system: There is no one tax rate only marginal ones. So when you claim that the Rich have a lower Tax Rate under US Federal Tax Laws you are claiming they have a lower marginal rate.

    You cannot have a Progressive tax system that has one single rate for all income:

    A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.[1][2][3][4][5] “Progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.[6][7] It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.

    http://en.wikipedia.org/wiki/Progressive_tax

    Do you understand? If not read the bolded part again: If you want to soak the rich you have a Progressive Tax and the country with the most progressive tax is the US.

    You can not do the comparison you are trying to do, until all income has the same tax structure. That means no separate capital gains taxes, corporate taxs, luxury taxes, inheritance taxes or dividends tax. That in turn means it is no longer Progressive.

    Every deduction and loophole in the US Tax code is available to everyone not just the super rich.

    Now here it is a challenge: Find in US Tax Law where total gross income is taxed at one rate. If you can’t admit that there is only marginal rates and that under law the Rich are not paying a lower rate. If you can’t find that in the law admit you don’t know WTF you are talking about.

  66. E.M.Smith says:

    I’ve added “Serioso” to the moderation queue.

    If something other than dodging, defliection, Dimocrat Talking Points, deliberate topic changes to hide ignorance, and bald assertions of That Which Is Demonstrably False comes along, I’ll let it through.

    As it stands, I’m just not seeing a whole lot of “value added” other than creating comment volume. I’d rather have quality than quantity…

    @Serioso:

    Your attempt to re-define “tax rate” as a simplistic and idiiotic Tax/Income was the last straw.

    You could have, at a bare minimum, looked at the Wiki:

    http://en.wikipedia.org/wiki/Tax_rate

    where you would have found that the term encompases a LOT of turf.

    In a tax system and in economics, the tax rate describes the burden ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, effective, effective average, and effective marginal. These rates can also be presented using different definitions applied to a tax base: inclusive and exclusive.

    Including “marginal tax rates”…

    If you had wanted to do a bit more than the bare minimum, you could actually have learned some of the terms of art of the Economics or Accounting professions and been even better educated. As it is, you are just wrong, and wasting my time. There is little that is of less intrest to me than changing someones mental diapers and cleaning up their messes…

    FYI, here is an example of someone using “tax rate” specifically to talk about the US Tax Code and marginal tax rates:

    http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

    Historical Top Tax Rate
    Also available as: PDF | Excel

    31-JAN-11

    Historical Highest Marginal Income Tax Rate
    [chart follows]

    Here is another:

    http://online.wsj.com/article/SB10001424052702304259304576375951025762400.html

    Why 70% Tax Rates Won’t Work
    Memo to Robert Reich: The income tax brought in less revenue when the highest rate was 70% to 91% than it did when the highest rate was 28%.

    By ALAN REYNOLDS

    The intelligentsia of the Democratic Party is growing increasingly enthusiastic about raising the highest federal income tax rates to 70% or more. Former Labor Secretary Robert Reich took the lead in February, proposing on his blog “a 70 percent marginal tax rate on the rich.” After all, he noted, “between the late 1940s and 1980 America’s highest marginal rate averaged above 70 percent. Under Republican President Dwight Eisenhower it was 91 percent. Not until the 1980s did Ronald Reagan slash it to 28 percent.”
    […]
    All this nostalgia about the good old days of 70% tax rates makes it sound as though only the highest incomes would face higher tax rates. In reality, there were a dozen tax rates between 48% and 70% during the 1970s. Moreover—and this is what Mr. Reich and his friends always fail to mention—the individual income tax actually brought in less revenue when the highest tax rate was 70% to 91% than it did when the highest tax rate was 28%.

    Notice the free alternation between “marginal tax rate” and “tax rate” unadorned. That is legitimate useage.

    That you can not even use the language accruately, apparantly do not bother to read other folks comments, do not learn anything, spout patent falsehoods (easily demonstrated with something as simple as a web search of “tax rate wiki”…) and generally are behaving as nothing more than a Troll; and, frankly, have bored the hell out of me, earns you your present spot in the Moderation Queue.

    Now, if you are a kid posing as an adult, who is simply clueless and would like to learn, you would be better served by not posing, just saying “I’m fed this at school” or “my community organizer meeting said this” and I’d like to know the other side. Then, folks like me, would be quite willing to take the time to share what we have learned over many long decades of “life with an out of control government”.

    As it is, I’m left with the choices of: Poser, Clueless and not willing to learn, Troll, just really dumb and likes to annoy people, Professional Progressive Rabble Rouser (perhaps volunteering). NONE of those makes a very good case for giving you an open Mic…

    You’ve had hints, then nudges, then outright guidance. Now you get The Queue.

  67. Serioso says:

    @boballab

    “Every deduction and loophole in the US Tax code is available to everyone not just the super rich.”

    [ Sniditude and bating barb deleted. No intellectual content left. -Mod ]

  68. George says:

    This ought to make his head explode:

    http://www.torontosun.com/2011/06/28/lennon-was-a-closet-republican

    Lennon was a closet Republican

    “He was a very different person back in 1979 and 80 than he’d been when he wrote Imagine. By 1979 he looked back on that guy and was embarrassed by that guy’s naivete.”

  69. George says:

    And another thing (I feel like Jackie Gleason),

    http://blogs.wsj.com/wealth/2011/06/29/obama-calls-people-earning-250000-a-year-jet-owners/

    Asking private-jet owners to give up tax breaks may not be that radical. And it probably would be supported by the vast majority of the nonjet-owning voters.

    The problem is that most of the people that would be subject to the higher taxes the president wants aren’t likely to be private-jet owners. Someone earning $250,000 a year–among those scheduled for a tax increase in 2012–is unlikely to afford a jet–or even a few charter trips on a jet.

    In silicon valley, $250,000 is pretty much every single dual-income working family. Their house, probably build in the 1960’s or 1970’s is a three bedroom, single story ranch home with three bedrooms and two baths that costs around a million dollars. They probably have a monthly mortgage payment of $5,000 to $6,000 — for a 40yo tract home in a baby-boomer era housing development. They pay about $1,000 per month for after school daycare per child during the school year, about half again more than that during summer vacation. And that is at the standard daycare vendor at the school (YMCA in my case), not some upscale private daycare. They lose about half their pay right off the top due to taxes (because they are “rich”). They pay about $400 to $600 for health care depending on the plan they have. In the end, they aren’t any better off than someone making $50,000 in Albuquerque.

    But they are “jet owners” according to Obama. Many were also Democrats until only the past couple of years when they have started ripping the “Obama” stickers off their cars and registering “No Preference”.

    I don’t think I have ever seen an administration so out of touch with the people who are actually enabling his own programs.

  70. George says:

    Milwaukee school district goes from $400 thousand deficit to $1.5 million surplus under Walker plan. Plans to hire more teachers and reduce class sizes. All without a tax increase. More jobs, better schools, fiscal responsibility. Meanwhile, California is cutting money to the schools mainly to fund a ridiculous pension plan.

    http://althouse.blogspot.com/2011/06/under-new-wisconsin-budget-repair-one.html

  71. boballab says:

    But George remember the Teachers and their Union opposed that budget repair bill because of the adverse consequences to the children.

  72. In jolly old England we did not mess around with trivial marginal tax rates like 70%. During WWII the top rate was 99.25%. After the war the top rate declined to the positively generous rate of 95% by 1973.

    In 1974 the top rate plunged to 83%.

    No wonder we had such a problem getting our economy going! Food rationing until 1954!

    Imposing punitive taxes is a key part of the “Politics of Envy” that John Edwards wanted to bring to the main street USA.

  73. David says:

    Just thinking…. Hum? to a degree let the democratic talking points through, the responses are far more astute, detailed, and conclusive then on most blogs. And so to a degree this is great stuff, in that I now have about a dozen clear responses on this thread to the “tax the rich” me me dem talking points.

    For this reason I appreciate the patience so far. I do agree that a response which refuses to respond to detailed posts showing where one is incorrect is, (as it appears here someone did not even read the posts) tiresom and irratating. Serioso, I for one wish you to post freely here, but please listen to EMs request to “pick up your game” This means rephrasing IN YOUR OWN WORDS to those arguments laid out against your POV. And from there explaing why you think this is incorrect. In this manner somthing is learned in the response. Dont just post a link, summarise what is learned there. It is ok to make a longer post, in fact this is often required for effective communication. If you follow the above then others who may have greater wisdom then yourself will be able to see how and why you misrepresent or fail to understand what they are saying.. In order for their to be communication both sides must understand what is being said. The Lafffer curve for instance is a fasinating subject on its own. Exactly where (at what tax rate) Govt revenue is highest, varies from city to city, from country to country, and over time even in the same cityand country, but the curve itself is real. Of course, even if one could find the optimum level of maiximum govt revenue, does not mean that is the desireable.tax rate.

    For instance our country is in a crisis. SS is, at this point, nothing more then a safety net for many that have few other resources. So, although philosopically I agree that the tax on income for SS funds which ends at about $105,000 is correct, I now feel that PERHAPS this tax should be extended to include all earned income via payrole on net business earnings. Alternatively, or in conjunction with this thought perhaps there should be further limits on what people take from S.S. if their retirement income is already very high.

    This goes against my conservative perspective. However I did not create this situation, polticians robbed the fund and now it is broke. If millions of elderly are suffering greatly and in poverty, (regarless of the reason) then a response must be given. However, I would like something tried first. Were I in charge, (-; I would clearly outline the dire situation to the American people. I would then provide a line within the tax forms that allows, either “a” a voluntary reduction in SS recieved, which can be a year to year choice, or “b” a voluntary increase in the dollar amount at which the SS tax ceases, also something that could be changed yearly. Then I would see the response. The voluteer aspect of charity is very important. Indeed, if the govt takes care of all, and demands all, then it is not charity at all, and charity is driven from the culture, a true sickness. In fact on reflection as I write, this is the only way I would aproach this. A culture that refuses to respond with charity, will reap the strife and conflict inherent in self centerness. A society that demands charity, destroys it and hs none. Further I think there would be a great response. In fact I would extend tax breaks for specfic charties that serve needs which the govt currently provides, thus in this way moving funds from very ineffcient govt programs to more effcient and locally operated voluteer organizations. This would take detailed understanding of both the govt programs involved, and some supervision of the effetivness of the charties qualifying.

    Taking this further I would offer a box for all who wish to pay greater tax to be used for specific govt programs they support. That way all liberals could be charitable to there favorite charity, the govt. I do not know of any contibutors to a charity or church who say to there fellow contributor, “If you do not give more, I will not give more” “If you are not charitable, I will not be charitable either” Think about it.

  74. Richard Ilfeld says:

    There is a Xeno’s paradox aspect to negotiations between liberals and conservatives. In every instance the conservative turtles give up part of what the liberal rabbits (no aspersions cast upon your bunnies here, Mr. Moderator)
    demand as part of a “reasonable” solution. In the next instance more is desired and again the turtles move a litle way. And again and again and again. The few turtles who check back realize that they have moved well beyond the bunnies initial goals, yet nirvana is as far away as ever.

    This cannot happen if both sides stand on well defined principles — both then see a compromise as a specific position between two poles. This cannot happen if both sides actually agree to well-defined principles, and neither decides to fudge — “Congress shall make no law……..”

    Knowing that painting with a broad brush obscures detail and makes one validly vulnerable….here goes:

    The Conservative/Classical Liberal/Libertarian side of the story has in mind some sort of lightly regulated Adam Smith market and minimalist government the enforces private property, contact law, and keeps the peace internally and externally. This is admitted and explicitly defended.

    The progressive supports some sort of collectivist society where everyone shares the bounty of the few producers, who produce because they can’t help themselves no matter how much they are beaten, and authority and the material goodies that go with authority flow to the elite that is smarter than everyine else, thus has and deserves power, and in smaller measure to the minimum necessary instruments of force necessary to keep everyone in line internally.
    This is neither admitted nor defended.

    Thus a huge number of ‘discussions’ are principled on one side, and tatical on the other, and never the twain shall meet.

    The “right” has observed the historically factual success of its policies in creating the greatest good for the greatest number. While historians on the left, like their present day political bretheren, concentrate on the momentary evils present in the progress of civilization at every stage, there is no respectable debunking of the sources of wealth over ages. In this respect, even Marx was a “capitalist”, he was arguing about the role and importance of Labour as “modern” society had evolved, but not against the capitalist principle historically.

    I wonder how many on the left, if faced with the philosophy in service of which they enthusiastically attack one ‘evil’ of society after another, would recoil in horror.

    Such attacks, if the philosophy is hidden, require some great motivator. I would submit the energy of the left for the last generation has come from a realization that “white/western civilization guilt” can be harnessed to compel compromise after compromise with progressive tatical positions.

    Racial guilt has about run its course. Environmnental guilt has foundered on the facts (a cold rain has fallen on this hot idea…..sorry).

    Class envy is next up, per Mr. Obama’s current mantra’s. If this fails he might well be facing a new phenoma in his experience…..Xeno’s turtle has figured out the paradox and is going to stop racing. One can hope.

  75. E.M.Smith says:

    @George:

    In my neighborhood, a 1000 sq. ft. “ranch home” built about 1960 goes for just about $600,000 (was $700,000) and the 1200 sq. ft. ones with two bathrooms go for $700,000 or so.

    Oh, and when I was running my own company, it cost me $1200 / month for medical insurance for the family. (Now that I gave up and became a parasite on the economy, the spouse works for the School District and we get essentially ‘free’ medical care, even if it is Kaiser… Something nominal, like $50 a month IIRC, was recently imposed. Everyone in the district was up in arms; I was thinking “Man that’s cheap!”)

    I “did the math” about 5 years back. The Son had a full boat scholorship to UC, but they were talking about “means testing”. So, with the economy imploding anyway and most of my clients leaving California, I just decided to “retire in the middle” rather than keep hustling. That meant the kid had “no worries” in college payment land.

    I would have needed to generate, roughtly, $80,000 per year of new income to me to pay the same as his grant (as, right off the top, 1/2 of it would go to Fed and State income taxes), or generate about $160,000 of new revenue per year to my business (if I did the work personally) or generate $400,000 of new billables if I had a guy working for me doing it.

    So I was faced with:

    a) Find $400,000 of new contracts in a depression with everyone leaving the State and wall to wall “space for rent” signs on the Silicon Valley industrial sector.

    b) OR, fire a guy and try to get “just” $160,000 of added billables. Oh, and do two full time jobs. Run the company AND work the contract.

    c) Or, fold the company. Tell everyone to go home Take the Free Money and Free Medical care and watch the garden grow.

    I chose “C”. Free Money.

    I was letting most of them go anyway as business was drying up as customers went bankrupt or left for China. I get “$80,000 of benefit” via the State picking up the tab for the kid ( he DID do the very hard work of getting honors to get that grant… so mostly I’m just not screwing up his hard work by working too hard myself… Yes, life is strange in Kalifornia…) and the spouse went to work as a school teacher to “pay the bills” and get benefits. As the mortgage was about 20 years old at that point, our payment is relatively small.

    That’s the problem with a People’s Republic of Kalifornia. It beats you with a Clue Stick if you are “Middle Class” until you decide that “poverty pays better”. So we’ve become a state of the filthy rich and the servant class.

    Ever more “Undocumented” Mexicans flipping burgers, clipping lawns, cleaning McMansions. Ever more “public servants” teaching the Mexican kids how to speak English (much of my Spouse’s school is Mexican) or arresting them for doing drugs and breaking the law, then watching them in prison. (Police and Prisons are two of our best “growth industries” – but while Hispanics and Gangs are a large part of the client base, there’s still plenty of White Trash in the mix too. Local police can make over $125,000 / year and up to $450,000 or so for a Chief of Police in some cities. Great retirement, too… if your city does not go bankrupt…)

    And that is how a once great State becomes a Mini-Me Greece.

    Entrepreneurs either are making so much money they can carry the parasite load, or they pack up and leave, or, as for me, they decide that joining the crowd at the trough has better work/reward ratio.

    But, times change.

    The kid has graduated college.
    The Spouse has finally agreed that maybe staying in California was a bad idea (now that it’s almost too late to leave).
    The State is on the ropes.

    So I’m starting that slow process of finding a new job as a “50 something” (and hoping to get it done before I’m a “60 something” in just a couple of years…) who’s been out of the workplace for a few years. (It doesn’t help that my prior decade was ‘working for myself’ with the client list largely out of business or gone, so little in the way of referrals…)

    And that is The Other Side of the “Welfare Class” problem. Once you take the largess of the Public Purse, it’s all that much harder to stop… Harder to find a job again. Harder to just “make it happen”.

    In many ways, it would be easier to just sign up for Food Stamps and see what the Unemployment / Welfare system did with “old unemployed guys”. (Last time I took unemployement it was for 2 weeks in about 1969 when I was in High School between summer jobs. It was such a bother, I’ve never signed up for it since.) Just present myself to The System and say “I’m your problem now”…

    But, as the State is bankrupt, just hasn’t admitted it yet, that’s probably not a good long term strategy… And, frankly, I’ve not been “dependent” on someone else for 40 years and I don’t think I’d be able to tollerate the process…

    So, while in Florida next week (via air, so no stop in Texas… sorry) I’m going to be seeing what jobs might be available, if any. A friend has a lead on one (though the hiring manager commented “seems to have been out of the workforce for quite a while”…) and I’m going to be ‘testing the waters’ and tuning up my interviewing skills.

    One humorous note, though: Every so often, someone who reads my trading postings will try to assert Class Warfare arguments as though I’m a Rich Fat Cat. Clearly I must be. I live in Silicon Vally and trade stock for a living… I usually say nothing then. But the reality is that I live in that 1000 square foot track home with a family of 4 in 3 (small) bedrooms with one (small) bath. Trading stock has kept me in groceries and paid for the Daughter to go to college, but not much more. No new cars. No trips to Europe or Australia. Heck, I need to buy an ‘interviewing suit’ as my one and only Tweed Jacket is so out of date and well worn as to look horrid. ( I think I bought it about 1983? …) So not a lot of new clothes either. Bought tires for the car 4 years ago (on sale, at Sears, for $225 total… good, but cheap, tires). Oh, and I’ve paid for car repairs too…

    IMHO, pretty darned good for a fairly small stake. (You have to be even better at trading if you are sucking some tens of thousands a year out of the account for spending. It’s hard to make 20% / year on a stake… during all market conditions…)

    And that’s what the Class Warfare folks “don’t get”. Warefare on “the rich” doesn’t hurt them much. They have the giant $Millions to $Billion scale wealth that can fund a bevvy of lawyers and accountants and investment managers to protect it. It really hurts the middle class guy who has to work 10 x as hard and smart to climb up into the $Millionaire ranks; while carrying a “bleed” on his accounts for things like, oh, food and clothes…. and doing it all by his lonesome…

    So, Tax the Biz Jet? All that happens is that a Biz Jet pilot is out of work, a mechanic doesn’t have the money to send the kid to college, a little used FBO in some small town lets go the kid who washed planes, and Goodyear sells fewer airplane tires… Maybe even some Seminar or Presentation in some small town that would have had $10,000 of expense money dropped in town doesn’t happen. Folks fly commercial to Orlando instead, or just teleconference. Or even just move the whole business to a better country for doing business… (Let’s see… Live in NYC and spend gigantic taxes and STILL not be able to deduct the busness costs… or re-candle to The Bahamas, deduct my Biz Jet there, have a lower cost staff, and fly in to NYC whenever I feel the need… Decisions decisions…)

    But I’m rambling…. I need to look at markets again and decide “what next”, having made my “take” for the month. I can pay my mechanic now for the repairs he did on my 1984 car… and even pay for my Lowest Price I Could Find flying July 4th Red Eye ticket to Orlando… ($99… $120 “all up” – which makes me wonder what that added 20% is…) and I think I’ve even got enough as of today to buy an “interviewing jacket”. Maybe next week I’ll even get new pants and shirt ;-)

    God I hate Class Warfare. Why? ‘Cause I’m the guy who get’s shot trying to make it to the next trench. Not the General who’s already in the bunker…

  76. E.M.Smith says:

    @Richard Ilfeld:

    It’s “Turtle and HARE”, not Rabbit… Very different!!! ;-)

    (Technically, they are different. Rabbits tend to live more under shrubs and Hares tend to spend more time dashing in the open… They are also more “G tollerant” and often have much higher bult back legs for faster dashes and swifter turns… http://en.wikipedia.org/wiki/Hare for details… Bunnies are rounder, can move fast for a little while, but don’t do well if taking high G’s and can even break their spine in a drop for a hand-held height. They like to snuggle more ;-)

    Like that Xeno’s Paradox point. The Republicrats need that ‘splained to them so they can get back to being Republicans again…

    @David:

    The “time out” to moderation is as much for me as for the person sent there. Many of those answers come from me (though, thankfully, more folks have stepped up to the plate this time) and I need to focus on things like, oh, paying for my airplane ticket and expenses in Florida ;-)

    So Serioso can still post, just they will sit ‘en queue’ until I have time to do a “QA assesment” of them. If some other, more responsible and disciplined Left Wing Voice wants to step in, they, too, will be granted a Open MIc by default (until they show they can’t handle it well). I’ve nothing against folks taking either side, only the quality of the presentation is what matters to me, really.

    Like that line from My Fair Lady: “The French don’t care what you say as long as you pronounce it correctly!”

    While I’m presently a bit “right of center” (using the dreaded and mindless ‘left right’ broken metric), that is because the “right” has moved more “left” while I sat still in the middle…. I’m still no fan of totally “free” markets, as the inevitable end is “Fattest Wallet Wins” monopoly abuse. I’m still no fan of Socialism, as that just makes the “Fattest Wallet Monopoly” the goverment, hands it an army and a tax code along with a police force and the courts, and THEN tells you to “Like it”… but you can’t leave…

    So I’m in favor of some particular arguments from both the left, and the right. (Things like “The War On Drugs” are just stupid and don’t work. Abortion ought to be between a woman, HER God, and HER Doctor. Overseas wars? Why bother?… Yet… Doctors and patients ought to choose drugs, not the FDA. Federal Education Department? Things have gotten steadily worse since it was created… Federal Agriculture Department? I think a farmer and his dirt can figure out how to grow crops. Etc.)

    At any rate, I need to “tend the markets” for a bit, then I’ll check for any Serioso posting. If he / she can bring some more valuable content, they will ge through. If it’s just Trolling, it will depend on how much time I have to waste…

  77. George says:

    I can’t understand why Obama wants to put the business jet industry out of business. Those are good jobs that make good salaries and pay good taxes.

    The problem with “equality” is that it encourages just the sort of thing you did when you “unplugged”, let your company go, and decided to sit in the garden.

    If the more successful you are the more is taken away from you and if the less successful you are, the more is given to you, well, hey, no brainer.

    If you tax success and subsidize the lack of success, which one will you end up with more of over time? That isn’t theory or opinion, that is simple economic math.

    Look at it in more human terms. Joe Sixpack has 2.3 kids, a wife, and rents a 3br house someplace. His wife has a high school education and works as a hairdresser. He has a high school education and works as a landscaper. They are barely making ends meet. Life is very stressful. They are both “self employed” and must pay both halves of their social security. She must pay “station rent” at the salon where she works and buy supplies, he must maintain a truck and tools and buy supplies. They must pay their own healthcare. Joe loses three of his customers because their home was foreclosed on, the places are empty and they have moved away. Jane doesn’t see her customers as much as she did since the local widget factory shut down.

    Suddenly it becomes much easier for them to simply quit, go on section 8 for a rent subsidy, mediCal for the kids, get on food stamps to help with the groceries, she does some hair “under the table” on the side and he cuts a few lawns on the same basis. Maybe she watches a friend’s kids during the day while they work. Life is suddenly much less stressful and there is a hell of a lot less paperwork. Maybe when it is all said and done, they have more disposable cash than they had before.

    I saw this sort of scenario quite a lot back East.

  78. gallopingcamel says:

    Chiefio,

    A very illuminating ramble. My own plight has many parallels. As I am a little older, the college tuition problem went away (only one of my six children needs to complete college and he has the US Air Force in his corner).

    My problem is medical insurance that was costing $500 per month until my wife lost her job two years ago. The monthly costs steadily rose as COBRA and other temporary supplements ran out. Today, we are paying almost $3,000 per month, mostly in premiums and co-payments. If Obamacare is going to help in 2014 it will be too late for us.

    The #1 solution to our problem is for my wife to get a job with decent medical benefits. It would not matter very much if the salary were slim to none as the improvement in family cash flow would be at least $25,000 per annum from the medical benefits alone.

    Much more likely, we will hang on in Florida as long as possible based on my earnings from part time employment and then relocate to Medellin, Colombia. While we like Bogota, I found it difficult to play golf at El Rincon or Los Lagartos (too snobbish) and La Cima (too high at 10,000 feet and no golf carts). The atmospheric pollution is getting pretty bad although not even close to Mexico City in that regard.

    The big attraction of Bogota, Medellin and Cali is the quality of medical care. The costs are typically five to ten times lower than in Florida while the service is far better. Can you imagine doctors who make house calls? What about a cranial MRI costing $102 including the doctor follow up?

    The bad news about Colombia is its confusing bureaucracy. It is almost impossible for a foreign national to get a bank account and it is one of the few countries that tax your world wide earnings. (Somalia, the USA, Colombia and two or three others).

    With regard to house prices, I bought this solidly built 2,000 square foot ranch on a golf course in Florida for $280,000 in January 2007. The current valuation is $190,000 and that is not going to rise any time soon owing to layoffs at our major local industry, namely the Kennedy Space Center. It blows my mind what you folks are paying for houses in California. My advice is to sell up and buy a much better house over here.

    My kids have read the tea leaves; three of them work for the government. I can’t say I blame them for realizing that the public sector offers better benefits and security than the private sector.

  79. Richard Ilfeld says:

    Took response to rambling private on your aol acct.

  80. George says:

    Initial claims for state unemployment benefits slipped just 1,000 to a seasonally adjusted 428,000, the Labor Department said. Economists polled by Reuters had forecast claims dropping to 420,000. The prior week’s figure was unrevised at 429,000.

    It was the 12th straight week that claims have been above 400,000

    This is while we have about 300,000/month eligible to retire on social security benefits.

  81. boballab says:

    Here is the dirty little secret that most of the progressive “foot soldiers” do not understand: Under any tax system that their leaders come up with it will not “Soak the rich”.

    The simple reason is because their leaders are the rich.

    The NYT even ran an article on this back in 2010 where they listed the top 25 richest Senators and Representatives based on the latest numbers available to them (2008). Of the Senators 14 of them were Democrats including the 6 wealthiest. Of the Reps 12 of them were Democrats including half of the top 6.
    http://economix.blogs.nytimes.com/2009/11/25/your-senator-is-probably-a-millionaire/

    Here is some of the Democrat names that might sound familiar as saying they want to “stick it to the rich”:

    John Kerry, Jay Rockefeller, Diane Feinstein, Nancy Pelosi and the late Edward Kennedy.

    Now seriously do you truly think they are going to pass tax laws that would “Stick it” to themselves?

    The reason I like the Idea of a pure Flat Tax is not that it will “stick it to the rich” (because it won’t) but that a large percentage of the that over 40% that pay no federal taxes now will. Yes I know I’m a heartless_____ blah blah blah. Hey I’m like our host, I didn’t start out “far right”, I was very close to the middle. The lefties just kept moving the goalposts closer to Stalin while I stayed still.

  82. H.R. says:

    @boballab

    “The lefties just kept moving the goalposts closer to Stalin while I stayed still.”

    Yup, except quite a few in the middle still haven’t noticed the goal posts have moved. They will soon, though.

  83. E.M.Smith says:

    @Gallopingcamel:

    At the peak (about a year before the crash) of the housing bubble I talked my Florida Friend into selling out of here and moving there. He has a home that costs 1/2 of what the one here cost. He lives in a gated section inside a gated community in a few thousand sq. ft. of home with a pool. Not much of a job, but it pays the (trivial) mortgage and car payments, and he gets to live with wealthy folks.

    At that time, I wanted to do the same, and would have likely been his neighbor. The spouse didn’t want to move…

    “Home equity” was not part of the “means test” for the kid’s money… nor were IRA accounts. Guess where all my “net worth” is located… Hard to spend any of it, but hey, it would just go to 9% Sales Tax if I did… so I don’t. Rough on the State, not having that tax income, but hey, “Not My Problem” (as they always said to me when I complained about their actions…)

    At present, we could likely own that same Florida house with about $100,000 left over (depending on how all the capital gains things work out), but with about $150,000 less “cash in the bank” ( that would have paid all household bills forever given my investment plan for it, that also got scuttled along with the move). “Work for toys” was all that would have been needed.

    Having two drivers for the bus never works very well…

    At any rate, present “hope” is to land some modest job in Florida, rent a condo cheap, and keep the California House for the kids and to store a lot of the “crap” one accumulates. Live in California when it’s Summer in Florida…

    We’ll see if that plan works out…

    As property tax in California is limited, it can sit here at 25 year ago tax rates and, in about 8? more years, no house payment. State gets nearly nothing in the whole process. Kid gets a free place to live. Someday an inheritance. Me and any money I make got to a state that doesn’t think they ought to get a share… (Florida, Texas, Alaska, Wyoming, etc…)

    @Boballab:

    One of the major benefits of a “flat tax” is that it actually would get taxes from the very rich. Not much a Tax Lawyer can do with “It’s a flat 10% no matter what, sir.”…

    But yeah, it will never be passed by the Limousine LIberals as they want to keep their limousine and servents…

    @Richard Ilfeld:

    Ok ok… guess it’s time to service that email account too … it’s only been about a quarter, but don’t want to let it sit too long ;-)

    @George:

    Yup, that was about the “size of it” until the dot.com bubble burst and things here started going under. That was when it moved “upscale” from Joe and Jane Sixpack to E.M. Zinfandel ….

    Much happier now, BTW. Get up when I want. Go to bed when I want. Enjoy garden and friends much more….

    A bit tight on “splurge” money, so buying fewer books and no new “toys”. Only really miss chances to travel to other countries, but hey, at least I’m not working 12 hours a day THEN doing the “back room work” of cranking the corporate legal structure each quarter… and all the time dreaming of maybe someday finding out if my trading “skilz” are up to it… (They are ;-)

  84. boballab says:

    EM:

    When I stated that to Serioso, I mentioned that in absolute dollars the rich will pay more, but at the same time the Tax Rate on them would drop. Also even that increase in absolute dollars wouldn’t be “sticking it or Soaking the rich” since they won’t really feel any pain from that modest increase in absolute terms. Especially since that can cut their private accounting expenses and lawyers bills.

    Oops exposed another dirty secret there. The lawyers ain’t going to give up that cash cow known as he US Tax Code.

  85. boballab says:

    EM since you brought up gardening how is your tomatoes doing? Every time you turn around you here more wet weather for California. Luckily here we have been staying mostly in the mid 80’s but humidity has been bad at times and the T-storms seem to veer around where I live. Thankfully for the sprinklers my Beefsteak plant has around 20 fruits on it at the moment (Its 4.5 feet tall and about 3 feet in diameter). My 2 Better Boy Hybrids that I grew from seed are starting to set fruit now and I just got a couple Roma’s that are starting to set. I bet you can Imagine what I am going to be doing with those tomatoes.

    My potato plants are still flowering and I got tubers 2 inches long and growing.

  86. E.M.Smith says:

    I have some, roughly, 8 inch tall dinky vines that ought to have been planted out about a month ago, but I didn’t. At this point, with the trip sceduled, they will likely just be left to die in the “transplant starter” pots.

    It’s hard to grow tomatoes where I am in the best and hottest years. Under cold wet rain it’s just, literally, a non-starter.

    I’ve got some Great Kale though … In June… In California…

    Oh, and per tax code:

    Written by lawyers. Passed in a congress mostly full of lawyers. Causes the employment of herds and herds of lawyers… Yah Think? Naw… Lawyers are always trustworthy and would never do any ‘self dealing’, even ones that are politicians… /sarcoff>

  87. Serioso says:

    A Report from Moderator Purgatory

    When I first jumped into this discussion, I had only one major point to make: The very richest taxpayers pay, as a percentage of their total income, a smaller federal tax than most middle-class and upper middle-class Americans. I called this percentage “the tax rate,” and several posters seemed to understand this to mean the marginal tax rate, which I did not intend. Perhaps I need to be clearer; I strive for brevity and that may get in the way of clarity. In any case, what I said is true. And, in my opinion, it is a scandal.

    [ It helps if you use the common definitions of words that we all share, rather than making up your own and then telling folks they were wrong as they did not use YOUR definition. Given that 5% of taxpayers cover something like 25% of all income taxes and the top 25% of taxpayers are somewhere near 85% of all taxes paid, it is definitely “pissing into the wind” to try and claim that The Rich are not taxed enough. That roughly 1/2 of the population, the lowest paid half, pay ZERO income tax; it is doubly hard to assert that THEY are being unfairly touched by taxation that instead ought to be born by The Rich. When your premise is so out of touch with the reality as to constutute a bad joke, saying “what I said is true” becomes either Troll Bait, stupidity, or farce. So I strongly suggest that you do some “fact checking” before posting, as your “instincts” are vastly divergent from reality, and that you BELIEVE your “stuff” is true, is even more telling… “Tighten up your game” still stands. -Mod ]

  88. George says:

    Happened to notice this article:

    http://www.professorbainbridge.com/professorbainbridgecom/2011/07/secession-from-sf.html

    And noticed that it contains a common misconception about San Francisco. San Francisco isn’t all that big in political influence in California anymore. San Jose is now California’s third largest city with a population of about a million.

    San Francisco is really in the San Jose metropolitan area. San Jose is to the Bay Area what Watsonville is becoming to the Santa Cruz county area. Where these people should be concentrating their message is in San Jose and the general Silicon Valley area (San Jose, Santa Clara, Sunnyvale, Cupertino, Campbell, Saratoga, Los Gatos, Milpitas, Mountain View, Los Altos, Palo Alto).

    Anyone making inroads into that area stands to gain much greater political influence and San Francisco can safely be ignored.

  89. George says:

    Hmm, have I been placed in the moderation queue for some reason, I must have missed it.

  90. George says:

    ok, maybe the previous posting just had to many proper names and it tripped the auto-mod bucket.

  91. E.M.Smith says:

    @George:

    No idea. IP didn’t change, nor did email address. Text looks clean to me for the only one I found ‘en queue’;

    https://chiefio.wordpress.com/2011/06/26/the-70-percent-solution/#comment-19802

    Sometimes WordPress just does inexplicable things…

  92. David says:

    Serioso, I tried to throw you a rope here, https://chiefio.wordpress.com/2011/06/26/the-70-percent-solution/#comment-19750 to suggest actualy acknowledging and responding to what others have said. Also I provided some unique commentary on addressing some issues which you might find interesting..

  93. Serioso says:

    @David

    Thanks for the rope. But I think I’ve finally been able to make my point clearly. On the other hand, when the Chief blames the CRA for its role in the recent financial crisis, without any supporting evidence to show what percentage of loans were made due to CRA requirements, I get hot under the collar. I guess I need to calm down, do my own research, and stop expecting others to come up with the sort of supporting evidence that others expect of me. I’ll keep trying.

    [ Also learn to see the evidence folks have placed in front of you. The CRA forced banks to lend to folks with poor collateral and poor ability to pay. That was its purpose. Then we get a “subprime crisis” caused by folks with poor credit getting loans they could not repay… Think there is a connection?… Substantially ALL of the subprime loans are directly due to CRA (with a little help from Fanny, Freddy, and the FHA all reducing loan standards as otherwise no loans could be resold – as substantially all are – and under prodding from the same folks who wrote the CRA – Barney Frank and friends in the Democratic Party Leadership. Put in short: Prior to CRA: 20 % down, have a job with 35% = mortgage payment, be in a neighborhood where the collateral is good (location, location, location). Post CRA: Zero Down, No Job No Problem “liar loans”, any house / any where; FHA, Fanny, and Freddy will buy and repackage the loan so No Problemo… When a law has done exactly what it was designed to do, stated to do, promoted as doing, and the historical record shows it has done; there isn’t a lot more “proof” to be added. So “what percent due to CRA” is simply “What percent was subprime, with low down.” That is, the problem loans. (As prior to CRA the category did not exist as commercial product, you could only do that with a private lender on private direct notes. i.e. a private second or loan from “Dad” or a ‘seller carry note’. Fractional percentage of the market at best.) Others require you to provide evidence for outlandish claims that are obviously false; you respond with wanting “proof” for things that are “by definition”… Think about it. -Mod. ]

  94. David says:

    Serioso, EM is entirely correct about the CRA. Janet Reno, as attorney General, instituted about 17 law suits against the Banks. The Banks had to play ball, and they got the message, and like any organism, they made the best of the situation which, due to the short sightness of their choice, in the long run, compounded the problems. Individuals, also supject to the expediancy principle, jumped into the program with enthusiasm. Your point was a very simple one. Others tried to show you that the picture is much bigger then you suppose. I was hoping you could comment on their comments and ideas, something you have not done at all.

    Off topic, E.M. we also have bunnies, and I have been dropping food for one in particular. He now lets me get within about six or seven feet of him. In honor of your story I have named him Mitra, (Sanskrit for “friend”)

  95. Serioso says:

    @David
    @Chiefio

    I take your point that the CRA was important, but my problem is this: According to John Mauldin, the average down payment right before the bubble burst was 4.7%. That’s average. For the CRA to be a major factor, substantially ALL loans would have to be CRA eligible, and, as far as I know, that’s not true. What I’m trying to find out is what percentage of loans were made in order to be in compliance with CRA rules. That would be useful data, but I’ve been unable to dig it up.

  96. bruce says:

    pretty good example of what I believe comes down to a genetic condition.
    The goal of the individuals thinking becomes unassailable. As you can imagine this has positive and negative survival aspects. Generally though, even the most strongly endowed with this trait see the light before heading off the lemming cliff.
    So its not a trait to weed itself out, and when its aimed at more positive production or worthy goals, well, you have successful endeavors.
    How one focuses the unassailable into a realistic goal is the question.
    E.M. has done it with rabbits… with some limited success.
    In the end though, we are left to the vagaries of nature to decide, or, perhaps the teachers (union)/ college.

    Maybe E.M. and Khan offer up for worthwhile educational alternative, to do battle with the latter?

  97. E.M.Smith says:

    @David:

    Bunnys (and most other prey animals) share some comon traits, and have some comon ‘triggers’ for worry.

    So, when ‘enticing’ your bunny, you do not want to estimated to be a ‘tricky predator’ and do want to be evaluated to be ‘fellow herbivore’.

    Things that make bunnies worry:

    Crunch sounds like walking on leaves or breaking twigs in a way that sounds like bones being chewed. Vectro being undone drives them bonkers…

    Looking Right At Them with that “both eyes in front stereo vision predator getting ready to pounce estimating distance”. Learn to “scan” around, slowly, like you ware on the watch for predators. Look at the bunny, then look away at a plant or the lawn in front of you.

    If possible, do this while plucking individual leaves off of a plant or tree. I’ve also adopted the “elephant grazing” look of having one arm “grooming” the lawn in front of me as I’m bent over slowly advancing. Step, groom, step, groom… It looks like a grazer…

    Don’t talk, or at most, speak VERY softly. Your normal vocalization level sounds like tarzan and a shouting mob.

    Bunnish includes a soft “tooth chatter” when very happy. If you can gently “chatter” your teeth when “grazing” or plucking some choice leaves, they will KNOW you are an herbivore. Don’t over do it, you don’t whant to come arcross as emotionaly unstable manic… Little soft “erp erp rupt” grunts can help. Do NOT make them too high pitched, loud, or with too much air pressure as that seems to mean “Look Out, Predator BIRD!” (I was ‘on a role’ once and let the ‘erp erp rupt” turn into “ERUPT ERUPT REEEPPT” and eveyone scattered, some tilting the head to get a better look at the sky…)

    When you approach to ‘drop some food’, as SOON as they start to retreat or ‘tense up’, stop moving and look nervously to each side, perhaps even stepping back one slow step. Then set the food down and “graze” away from it.

    Bean leaves are #1 preference. Cabbage / Kale / Collards etc. are #2. Peas leaves and Celery are up there too, but I’ve not had enough at the same times for comparative ranking. Carrot tops are well loved as well.

    Enjoy learning how to be a “big deer” and making new friends on The Pasture…

    @Bruce:

    While the CRA et. al. were done for what look like altruistic reasons, some other parts were done from simple self interest and greed. (Senators buying votes, banks wanting to dump risk, Fanny and Freddy curring favor with the congress under their appointed masters, etc.)

    IMHO, the reason you get such catatrophies is that altruism becomes aligned with greed. Under a competative capitalistic system, we do not expect much altruism, and much skepticism is put into evaluationg actions and building control systems. (Accounting standards, traditional lending practices, just being skeptical of ‘too good to be true’).

    But when The Government gets behind an “altruistic” cause, they crush those “arms length you bastard” practices. Further, they validate the “it can be true” lack of skepticism. This lets The Evil Bastards run much farther and longer than they otherwise could, as they are now often part OF the govenment.

    In this case, for example, the leaders of Fanny, Freddy, et al were directly beholden of the same Congress Critters who pushed CRA on the industry and would sue you out of existence if you didn’t make enough loans to people with no money. So everyone thought it just grand when they decided by buy “liar loans” and all those old fashioned “lending standards” were just silly… Oh, and Fanny and Freddy gave a bundle in campaign “contributions”…. I think you can guess “to whom”…

    http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

    The top 5:

    1. Dodd, Christopher J
    S
    D-CT
    $133,900

    2. Kerry, John
    S
    D-MA
    $111,000

    3. Obama, Barack
    S
    D-IL
    $105,849

    4. Clinton, Hillary
    S
    D-NY
    $75,550

    5. Kanjorski, Paul E
    H
    D-PA
    $65,500

    Notice any pattern here?

    Part of why GSEs are broken and part of the problem.

    Congress mandates what the GSE and well connected Progressive Company (think GE) wants, company rewards with a cut of the take… as a “contribution”…

    Ant THAT is why we got the CRA, the subprime mess, and are now getting Windmills and Bank Shakedowns.

    I didn’t go into this in the article, but the “root cause” is the Democrats realizing they can run a “Shakedown” ala Jessie Jackson on any industry they target and realizing that if they make it a GSE then they can lock in larger “contributions”…

  98. George says:

    What gets me is how Barack Obama managed in a single term in the Senate to collect nearly as much as Dodd did over 30 years.

  99. George says:

    The top ten donors to the Obama campaign:

    University of California $1,591,395
    Goldman Sachs $994,795
    Harvard University $854,747
    Microsoft Corp $833,617
    Google Inc $803,436
    Citigroup Inc $701,290
    JPMorgan Chase & Co $695,132
    Time Warner $590,084
    Sidley Austin LLP $588,598
    Stanford University $586,557

    John McCain’s largest donor was:

    Merrill Lynch $373,595

    His largest wouldn’t have made it into Obama’s top twenty.

    Note that the above also includes individual donations by employees of those organizations.

  100. George says:

    The reference for the above information is here:

    http://www.opensecrets.org/pres08/contrib.php?id=N00009638&cycle2=2008&goButt2.x=11&goButt2.y=13

    You can view the information for other candidates, too, by using the little widget in the upper right corner to switch between candidate views.

  101. George says:

    I was just out in the car driving and was listening to a Fresno radio station. The guy on the radio was mentioning the notion that I linked to a few posts back about splitting California into North California and South California. He had an interesting angle on it that I hadn’t thought about before.

    He said this notion gets floated from time to time and doesn’t ever get any traction but this time it might. The reason is that it would allow the State of California to basically eliminate its unfunded mandates and start over from scratch. The State of California would cease to exist as an entity wiping the slate clean. It would be about the same as if California declared bankruptcy without having to declare bankruptcy. You simply dissolve the State of California and create two new states, the State of North California and the State of South California. Then like magic, you leave the federal government on the hook for the pensions and walk away.

  102. boballab says:

    George:

    There is one simple problem with that whole idea: Congress needs to approve of the 2 new states for them to join the union and agree to take on their debt.

    It is not as simple as the Governor and the state assembly passing a split and then there they are 2 new states. What they would have to do is make a proposal and submit it to Congress. The US Congress then if they so choose take statehood away from California and make it a territory again, then split the new territory in 2 and then readmit them as states. Part of that process is what happens to California’s debt and the US Congress gets to decide who is left holding the bag, including the two new states.

    This process of course hasn’t ever been done before, the closet is when the Republic of Texas was annexed by the US and the formation of Maine. All the other states, except Alaska, Hawaii and the original colonies were administered by the Federal Government so all expenses incurred prior to Statehood were already on the Federal books.

    Maine was let go by Mass. without Mass. also leaving the Union. Since Mass. didn’t stick any of their expenses onto Maine when they separated the US Government didn’t need to agree to pick it up to let them in. Maine’s joining the Union was part of the Missouri Compromise of 1820.

    Alaska was a straight land purchase from Russia so it didn’t require the US Government taking on someone else’s debt.

    Hawaii was a separate country that was annexed and made a Federal Territory. This is would mean that US Government agreed to take on the expense/debt of that country as they would be running it directly.

    Now Texas was a separate country but unlike Hawaii it was never under direct Federal control. ie it was never a Territory. When the US annexed Texas they agreed as part of the Annexation to take on Texas’s debts instead of leaving it to the new state. That is the important part. Congress didn’t need to take on that debt, they did it as part of the dispute between the Republic of Texas, the US Government and the Territory of New Mexico as part of the 1850 Compromise.

    The Texas Annexation of 1845 was the annexation of the Republic of Texas to the United States of America as the 28th state. This act quickly led to the Mexican-American War (1846–48) in which the U.S. captured additional territory (known as the Mexican Cession of 1848) extending the 19th century southern U.S. territorial acquisitions from Mexico all the way to the Pacific Ocean. Texas then claimed the eastern part of this new territory, which comprised parts of present-day Colorado, Kansas, New Mexico, Oklahoma, California,and Wyoming. This created a continuing dispute between Texas, the federal government and the New Mexico Territory until the Compromise of 1850, when these lands became parts of other territories of the United States in exchange for the U.S. federal government assuming the Texas Republic’s $10 million in debt.

    http://en.wikipedia.org/wiki/Texas_Annexation

    The Republic of Texas claimed ownership of the eastern half of present-day New Mexico, along with sections of Colorado, Kansas and Wyoming. Texas had never effectively controlled the area, which was dominated by hostile Indian tribes (see Comancheria). However the federal government had seized and controlled the area after 1846. The Compromise of 1850 solved the problem by setting the present boundaries of Texas in return for $10 million in federal bonds paid to the state of Texas.[17]

    The state of Texas was heavily burdened with debt which had arisen during its struggles as the Republic of Texas. The federal government agreed to pay $10,000,000.00 in “stock” in trade for the transfer of a large portion of the claimed area of the state of Texas to the territory of the federal government and for the relinquishment of various claims which Texas had upon the federal government. (This “stock” bore interest at the rate of 5%, which interest was collectible every six months, and the principal was redeemable at the end of fourteen years.)[18]

    http://en.wikipedia.org/wiki/Compromise_of_1850#Texas

    In the end California can not split itself in two and foist their sovereign debt onto the Federal Government and become two new states in the Union with out Congress agreeing to it. I highly doubt you could get Congress to go along with that.

  103. George says:

    What about West Virginia?

    Also, the counties could simply leave the state but remain territory of the US, They don’t need to secede from the union. The federal government does have the say to recognize a state or not, but what goes on inside a state is out of the federal government’s jurisdiction. The counties could simply decide to leave the state.

    The problem is that the state budget mess is so bad that something like this is bound to happen. The more fiscally responsible counties are going to want to stop the stealing of their tax money. If the state doesn’t dissolve, it will probably go into bankruptcy. Imagine what happens when interest rates return to normal levels. California’s interest payments on its debt could easily double.

    The state government is now taking “forced loans” from the counties from their property tax revenue. Part of Proposition 13 that limited property taxes also mandated that the cities and counties turn all of their property tax over to the state. The state could take a cut for itself and then redistribute the revenues back out to the counties. The poorer counties went for this because it meant they could get back more than they put in. Now the amount that the state is taking is increasing and more counties are getting back considerably less than they took in. They are starting to rebel against the state stealing their tax revenue.

    Something’s got to give.

  104. boballab says:

    George:

    No they can’t decide on their own to go back to being a Territory managed by the Federal Government without the approval of Congress. Their only options are stay as they are, split off a portion that becomes it’s own country or completely leave the Union.

    Remember Maine? Maine split off from an existing state in 1820 and it had to get Congressional approval to become a state. If Congress decided to pass up on allowing Maine in then they would have been frozen out of the Union.

    West Virginia I did miss but it doesn’t help your case either. West Virginia was just a part of Virginia that did not want seceded from already being in the Union. This goes back to where I stated above where one portion stays in the US the other has to secede and becomes either it’s own country or part of another country like Virginia. Either way the expenses/debt of either does not transfer to the federal government.

    So yes the counties could leave California but they would need to be recognized as being a State or joining another state by the US Congress just like what happened with West Virginia.

    The question of the constitutionality of the formation of the new state was brought before the Supreme Court of the United States in the following manner: Berkeley and Jefferson counties lying on the Potomac east of the mountains, in 1863, with the consent of the reorganized government of Virginia voted in favor of annexation to West Virginia. Many voters of the strongly pro-secessionist counties were absent in the Confederate Army when the vote was taken and refused to acknowledge the transfer upon their return. The Virginia General Assembly repealed the act of secession and in 1866 brought suit against West Virginia, asking the court to declare the counties a part of Virginia which would have declared West Virginia’s admission as a state unconstitutional. Meanwhile, on March 10, 1866, Congress passed a joint resolution recognizing the transfer. The Supreme Court, in 1870, decided in favor of West Virginia.[34]

    http://en.wikipedia.org/wiki/West_Virginia#Separation_from_Virginia

    That is the Bottom line, California has no way to transfer it’s debt to the federal government without the consent of Congress. No matter how you try to twist and turn it

  105. George says:

    Of course it has a way to transfer the pension obligation. It can simply declare bankruptcy. The pension guarantee corporation will then be obligated to pick them up.

  106. George says:

    What I am getting at is that simply dissolving the state and forming two new ones would eliminate the burden of bankruptcy as the new states would have a clean financial bill of health. That would probably work to everyone’s benefit including the federal government.

  107. boballab says:

    George

    You made two mistakes in your two posts.

    1. The Pension Guarantee Corporation only guarantees Private Sector pensions.

    Q: What is the Pension Benefit Guaranty Corporation (PBGC)?
    A: PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 (ERISA) to protect pension benefits in private-sector traditional pension plans known as defined benefit plans. If your plan ends (this is called “plan termination”) without sufficient money to pay all benefits, PBGC’s insurance program will pay you the benefit provided by your pension plan up to the limits set by law. (Most people receive the full benefit they had earned before the plan terminated.) Our financing comes from insurance premiums paid by companies whose plans we protect, from our investments, from the assets of pension plans that we take over as trustee, and from recoveries from the companies formerly responsible for the plans, but not from taxes. Your plan is insured even if your employer fails to pay the required premiums.

    http://www.pbgc.gov/about/faq/pg/general-faqs-about-pbgc.html

    So right there the pensions that the State of California obligated itself to does not get backed by the PBGC.

    2. Dissolving the state does not magically make the debt go away, they are still liable for it. That is why I pointed you to the what happened to Texas. The State of Texas was liable for the debt of the Republic of Texas. That debt the Republic ran up didn’t magically dissolve away when the Republic did, it transferred to the new entity the State of Texas.

    The state of Texas was heavily burdened with debt which had arisen during its struggles as the Republic of Texas.

    http://en.wikipedia.org/wiki/Compromise_of_1850#Texas

    It wasn’t until 1850, 5 years after Texas was annexed, that the US Congress took on Texas debt as part of a deal to keep Texas as a state. All that would happen is one of 3 things if they separated:

    a. They both default on the debt they inherit and don’t pay. Of course people would would be leery of loaning them money after that.

    b. They decide to split the debt between them. Depending if they form their own countries or if they will apply for permission to join the US will determine who gets what of the bill. If they secede then split apart then that division of debt will be part of the secession documents. If they apply to join the US then Congress will work a deal on how much each group owes before allowing them to join the US.

    c. Somehow some way they convince the US Congress to buy out their debt like Texas did. Remember Texas sold their claim to parts of Colorado, Kansas and Wyoming. So what is it that they could sell tot eh US Government that would pay for their debt?

    The federal government agreed to pay $10,000,000.00 in “stock” in trade for the transfer of a large portion of the claimed area of the state of Texas to the territory of the federal government and for the relinquishment of various claims which Texas had upon the federal government. (This “stock” bore interest at the rate of 5%, which interest was collectible every six months, and the principal was redeemable at the end of fourteen years.)[18]

    The Constitution (Article IV, Section 3) does not permit Congress to unilaterally reduce the territory of any state so the first part of the Compromise of 1850 had to take the form of an offer to the Texas State Legislature, rather than a unilateral enactment. The Texas State Legislature did ratify the bargain and in due course the transfer of a large swath of land from the state of Texas to the federal government was accomplished. Texas was allowed to keep the following portions of the erstwhile disputed land: that which is south of the 32nd parallel, and that which is south of the 36°30′ parallel north and east of the 103rd meridian west. The rest of the land which had been disputed between Mexico and the Republic of Texas was transferred to federal government.

    Sovereign Bankruptcies do not work the same as Chapter 7 and 11 for private individuals and corporations. Keep an eye on what happens to Greece to see what might happen to California.

    Like I said there is no way for the state of California to transfer it’s debt onto the other 49 states without the consent of Congress. Sorry, Californians made the mess and now they are stuck with it.

  108. George says:

    Ok, so then the workers will simply be “SOL” (in the vernacular) when Illinois or California go broke, which I believe is going to happen and has happened before. Indiana went bankrupt, sort of. They simply repudiated their debts. Basically just defaulted.

    http://en.wikipedia.org/wiki/Indiana_state_bankruptcy

    But there is no such thing as a bleeding turnip. Indiana: “The 1841 budget had over $500,000 in debt payments, plus regular spending, but revenues that year were only $72,000”

  109. boballab says:

    George

    Yes and later down you would find they sold assets to their London creditors for them wiping out half the debt:

    James Lanier, president of the Bank of Indiana, was sent by Governor Bigger to negotiate with the state’s London creditors in a hope to avoid total bankruptcy in 1841. He negotiated the transfer of all of the projects, except the Wabash and Erie, to the creditors in exchange for a 50% reduction in the debt they held, lowering the total state debt to $9 million.[17]

    The other thing is that when they first got into trouble they tried what the Federal Government and alot of State Governments have been doing: Borrowed More Money:

    The Panic of 1837, caused primarily by western land speculation, left the state in dire straits financially. Income shrank, and in 1838 the state’s taxation revenue was $45,000, but the interest on the state’s growing debt was $193,350. Governor Wallace made the startling report to the General Assembly who began to wrangle over what action should be taken. Provisions were made to make debt payments with more borrowed money, in the hope that the projects could be finished before the state’s credit was maxed out. The gamble proved to be a bad decision and by 1839 there was no money left for the projects and work was halted.

    Then of course they tried the Democrat favorite: Raise Taxes!

    The proponents of the system had promised their constituents that taxes would not need to be increased, and that once the projects were finished taxes could perhaps be abolished because tolls would pay all the state’s needs. Because of this, no provisions had been made to pay interest on the massive debt.[17]

    In 1841 Governor Samuel Bigger proposed the creation of county boards to set property values. The result of the new system led to as much as a 400% tax increase in some parts of the state. Citizens decried the draconian tax hikes, and many refused to pay. The General Assembly was forced to repeal the system the following year.[17]

    That didn’t work either and of course came the default and resulted in what I stated previously about once you default people don’t lend you money:

    The result of the repudiation ruined Indiana’s credit for nearly twenty years.

    In Indiana’s case the smart thing to have done was not borrow more money in 1837. Instead that was when they should have sold some of the assets to the London Creditors and got out relatively cheaply and learned their lesson. Just like California should have learned it’s lesson years ago and stop adding more debt.

    Oh I agree, California is more then likely going to have to default, the question is: “When will it occur and will by that time the Federal Debt battle be solved and the Feds bail them out.”

    My opinion is to the first soon and to the second no. Like I said watch what happens in Greece for that is what I see happening in California.

  110. E.M.Smith says:

    @George:

    “Sorry, Californians made the mess and now they are stuck with it.”

    Or they can move to Nevada, Texas or Florida … ;-)

  111. George says:

    More on this idea:

    http://www.pe.com/localnews/stories/PE_News_Local_D_secede01.411b87a9f.html

    Apparently some people are pretty exited about it. Heck, if they did this, I might move to that state.

  112. George says:

    Actually, it might be easier for those counties to simply separate from California and join Nevada.

  113. E.M.Smith says:

    I think the problem is the fixation on N vs S, they need to think in terms of E vs W.

    The coastal zone is all population and AsoLiberals / Progressives. The inland areas are more farming / conservative.

    So they need to extend their counties right on up the Sierra Nevada and wrap around to include farm counties like Butte and the Northern mountain counties like Shasta…

    Basically, pitch out LA to SF/ Marin (maybe on up to Mendocino) and extending inland to Sacratomato for a “clean sweep”.

    The N vs S leaves the Conservative Rural vs Urban AsoLiberal divide in place for much of new states…

    And I agree it would be easier for those inland counties to just join Nevada… Would cut down on the drive for folks in LA / SF wanting to hit the casinos and brothels too… ;-)

    Nevada would likely appreciate getting those conservative areas added to the state as it would dilute some of the recent AsoLiberal Tax Refugee influx to “near Las Vegas” that has tilted the state more “progressive” lately.

  114. George says:

    The problem is water. The proposed “state” is nearly all desert. There would be a fight with N. California over the Owens Valley.

  115. boballab says:

    EM:

    George Will has a nice column in the Post about a new book out: “Reckless Endangerment”.

    Guess what it is about?

    Put on asbestos mittens and pick up “Reckless Endangerment,” the scalding new book by Gretchen Morgenson, a New York Times columnist, and Joshua Rosner, a housing finance expert. They will introduce you to James A. Johnson, an emblem of the administrative state that liberals admire.

    The book’s subtitle could be: “Cry ‘Compassion’ and Let Slip the Dogs of Cupidity.” Or: “How James Johnson and Others (Mostly Democrats) Made the Great Recession.” The book is another cautionary tale about government’s terrifying self-confidence. It is, the authors say, “a story of what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”

    One of the best two quotes quotes from the article are these:

    In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.

    [Snip]

    By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties.

    http://www.washingtonpost.com/opinions/burning-down-the-house/2011/06/30/AGeRSGuH_story.html?hpid=z3

  116. George says:

    “almost 40 percent of new subprime loans were for amounts larger than the value of the properties”

    We had some absolutely stupid loans around here. No money down, reverse amortization, adjustable rate, for example. In other words, the loan payment wasn’t enough to pay principal and interest and the loan balance actually increased every month. The notion being that home prices were appreciating faster than the mortgage balance was increasing and mortgage rates were declining so when the term expired on the ARM you would have enough equity from appreciation equity to convert to a conventional mortgage.

    Then a funny thing happened. The Fed decided they needed to take interest rates up a tick in order to protect the dollar. That was the domino that started the whole thing. Starting in 2004, the fed started bumping the discount rate up a quarter percent at a time.

    Now what starts happening is that ARMs begin adjusting upwards. People who qualified for loans when the discount rate was at 2.5% in 2004 were having trouble making payments in 2007 when it was 6.25% as mortgage companies began to jack up rates in response to changes in government rates.

    You can see the panic starting to set in at the fed as they start trying to ratchet rates down but it is too late:

    Aug 17, -0.5%
    Sep 18, -0.5%
    Oct 32, -0.25%
    Dec 11, -0.25%

    So 2007 sees the year end with the primary fed discount rate at 4.75%, the secondary rate at 5.25% And it still isn’t enough.

    Going into 2008 sees the panic continue and we get to large cuts in January:

    Jan 22, -0.75%
    Jan 30, -0.5%

    No we’re down to 3.5% and still sinking.

    But it is too late. Many mortgages have already adjusted to the previous higher levels, people are behind on their mortgages and starting to default.

    People are panicking and attempting to stave off disaster and are putting homes on the market to sell them before they go default or go into foreclosure in order to save their credit. A flood of houses on the market causes prices to begin to plummet. Now the second shoe drops. Because appreciation has stopped, people whose ARMs are expiring learn they can’t convert to conventional mortgages because the house is no longer worth the loan balance.

    Now we have a full panic. People with good jobs who have never been late on their payments can’t refinance that short term balloon mortgage and they don’t have the cash to pay the balance.

    Now a slug of homes land in foreclosure. Prices drop even more. People can’t sell homes for the normal reasons (they need to move because their job is moving or something.) and if they can sell their old home, they can’t qualify for a mortgage on the new one.

    So we have a double whammy. Lots of homes on the market with falling prices but nobody can qualify for a loan to buy them. Inventory builds even faster.

    And here we are today. I have a friend who bought her house for $400,000 in a rural California town and it is now worth $200,000. People who are buying homes are people who can pay cash or put very large down payments on them (generally in the area of 50%). She can’t sell her home. She’s stuck. If she does sell it, she will lose a lot of money.

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