By Ilene
One line of reasoning from the “no tax hikes” crowd in the debt ceiling debate is the inaccurate premise that the very wealthy, the top 0.1%, are job creators. If they’re the “job creators,” it might be in the public interest to protect them from excessive taxation - thereby allowing these top 0.1% to spend money on creating jobs--This is incorrect.
The overwhelming majority of U.S. jobs are ‘created’ by ordinary Americans when they spend their paychecks. Consumer spending drives about 70% of our GDP. When average Americans are struggling with high unemployment, which recently popped back up to 9.2%, they are reluctant to spend money on anything beyond basic necessities. The broader U6 unemployment number - which includes the underemployed and “discouraged workers” - is 16.2%.
Meanwhile, U.S. companies are not stepping up hiring due to weakness in the economy - there is no demand. As Paul Ashworth of Capital Economics wrote, “Businesses aren’t confident enough, and the longer this goes on, the harder it is to convince them that they should be.”
Let Them Eat Cake
The overwhelming majority of U.S. jobs are ‘created’ by ordinary Americans when they spend their paychecks. Consumer spending drives about 70% of our GDP. When average Americans are struggling with high unemployment, which recently popped back up to 9.2%, they are reluctant to spend money on anything beyond basic necessities. The broader U6 unemployment number - which includes the underemployed and “discouraged workers” - is 16.2%.
Meanwhile, U.S. companies are not stepping up hiring due to weakness in the economy - there is no demand. As Paul Ashworth of Capital Economics wrote, “Businesses aren’t confident enough, and the longer this goes on, the harder it is to convince them that they should be.”
Let Them Eat Cake
The Republicans are standing firm against raising taxes, in an era when many American corporations are already paying surprising little in taxes.
Russ Winter of Winter Watch at the Wall Street Examiner discussed the gap between what people think corporations pay in taxes, versus what they really spend. For example, Microsoft “lowers its effective tax rate a full 7% by taking foreign income to $19.2 billion from $15.4 billion, and lowering US income (and expenses) from $9.6 billion to $8.9 billion. Today MSFT is effectively a 68% foreign operation. In return it gets all the benefits of stimulus and minimizes the costs of supporting the US system...
“One of the big economic winners, Apple Computer, is even worse, hardly paying a thin dime to a U.S. Gumnut tottering towards insolvency. Here is the big picture of this foreign company getting U.S. benefits going back a few years [chart by Capital IQ]
Little wonder so much largesse flows into the hands of so few. Bloomberg’s Jesse Drucker estimated that Google all by itself has saved $3.1 billion in taxes in the past three years by shifting its profits overseas. If the U.S. is looking for a source to close its out of control deficits I have some suggestions...
“When one hears talk of tax reform, and closing tax loopholes, prepare to duck and cover if you are an ordinary American. Taxes collected for CY 2011 for the corporation year to date were $131.5 billion, versus $167.2 billion for the same period in CY 2010, down nearly 17% YoY. Little wonder there are so many earnings beats from the corporate sector...
“Mark Kreiger writes a spot on piece regarding the high end luxury bubble that includes this gem - ‘The social crisis facing the country as a result of the most egregious plundering in modern American history will spell the end of the ‘high end’ theme. Buying into this trend now is like getting long Marie Antoinette’s unsevered head in 1792.’”Meanwhile, compouding the issues of the bleak labor market, and coporation tax loopholes, the impasse between the President and the Republican leadership reached new lows last week when talks broke down and Rep.
Boehner walked out of negotiations. “The White House deal for the House would have required that alongside these cuts, tax revenues would go up by $1.2 trillion, largely through a rewrite of the tax code to eliminate many deductions and loopholes". That’s substantially less in revenue than the $2 trillion in the “Gang of Six” plan.
The problem is that while much of the cutting would start right away, most of the revenue increases would be put off, in part because a tax-code revision would take months, and in part to allow House Republicans to say they did not agree to any specific tax revenue increases (i.e. they planned on lying to their constituents).
Democratic lawmakers were furious when they heard about these details, calling the plan wholly unbalanced. Bush tax cuts expire as scheduled next year. That's another $400 billion ($40Bn a year!) which the White House wanted to raise by ending tax loopholes and deductions.
“So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $40 billion in annual deductions". President Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base."
“So, on the eve of economic calamity, the Republicans killed an overly generous deal largely over a paltry $40 billion in annual deductions". President Obama was willing to take considerable heat from his liberal critics over the deal, and the Republicans were not willing to do a thing to anger their Tea Party base."
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