U.S. Credit Downgrade - Who is to blame?

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Why not? I think they were taxed at higher rate before. Besides, why shouldn't they be taxed the same rate as any other income?

 

On the one hand, I think that after 3 years in office, a President shouldn't be saying too much about "it's not me, I'm just cleaning up the mess the last bastard left behind" even if it IS true. If it happens on your watch, you should swallow your medicine like a big boy.

That said, though, honest people should recognize the fact that things don't just reset to zero when a new President walks in. The fact is that the US (and I would bet many other Western democracies) have been spending more than they produce for far, far too long, and now the piper has come demanding payment. I don't care about the nuances of public policy and all of that other ivory tower nonsense, you simply cannot escape the basic principle that spending more than you make is going to bite you in the heinie eventually.

So when my fellow right wingers latch onto this like an effing lamprey, stating things like "US credit rating survives great Depression, but not 3 years of an Obama Presidency", my stomach churns at their vile opportunism. Things didn't just suddenly drop into the crapper when Obama came along. A little less political opportunism and a little more "screw arguing about the past, what can we ALL do NOW to fix the problem?" is what I think should be coming from the folks in power.

 

Now THAT is funny - Like those CEOs who get millions of dollars for getting fired and jacking things up. They usually find a way to get their money, regardless of how the company performs. In fact, some of the most high-profile failures in the last few years have seen CEOs walk away with millions, with shareholders and regular employees on the unemployment line.

 

Oh, yes. I was a salesman who often got a bonus for sales performance. Mrs. Chandos's management job is 30 percent of her yearly salary. We made last year.

 

The bottom line is that for many uber-rich americans, this is taxed way less than "regular" income would be. Why? Working is also good for the economy.

 

Capital gains are only taxed when you dispose of the asset and realise the gain. If the tax is too high people are very reluctant to sell and so the government doesn't get any tax. Keeping the rates relatively low means people will sell the assets more quickly and keep the taxes coming in.

 

That makes sense. Don't forget that the tax system in the US is progressive, and the rules for one level apply as you pass through that level. So if you lower taxes on one level, someone in the top level will benefit from that tax break as well.

For non-US board members: When you do your taxes, first you take all your deductions (things like interest paid on your mortgage) and exemptions (kids). After that, everything else you made is taxable income. So it's possible if you have a low salary and have kids, that your exemptions and deducitons exceed your annual salary, in which case you don't pay any taxes.

Here's the tax rates for this year (all rates are for married couples - the brackets go somewhat lower for singles).

First $17K - 10%
$17K-$69K - 15%
$69K-$139K - 25%
$139K-$212K - 28%
$212K-$379K - 33%
Over $379K - 35%

So let's take a hypothetical example of a guy who makes $500K. After he goes through his exemptions and deductions, he figures out he has $400K of taxable income. He does NOT pay 35% on the whole thing. The first $17K he pays 10%. The $17K-69K he pays 15%. And so forth as he goes through the groups, and he only pays 35% on the last $21K of income he earned. So by raising the tax on the top income groups would still let the wealthy "keep" their tax break on the first $212K they earn just like everyone else. The reason why they say the rich get a bigger tax break is that they benefit all the way up to $212K (compared to what they were paying prior to the Bush tax cuts), and since most people don't earn anywhere near $212K, they get the biggest benefit.

A couple of other things. I would say that the first thee lines - everything up to $139K encompass the vast majority of the people living in the US. Like probably 90% or more of the people in the US. If you include that 4th line (which would not be affected by the tax hike), you get the majority of that remaining 10%. I also find it odd that the biggest jump occurs after $69K. It jumps by 10% - all the other increases between brackets are much smaller.

This is true. If you buy $1000 worth of stocks, and a year later those stocks are now worth $1500, you only pay taxes on it if you sell the stock and realize the gain. In this example you would pay 15% of the $500 you made, so $75. So you actually made $425. However, if you don't sell the stock, you don't pay anything, because it's possible that the stock price goes down after that.

 

That's just the base tax rate and does not include the second tax rate called "alternative minimum tax" which was specifically designed to close a lot of the "usual" loop holes for the wealthy (above ~$225K). So as you start to make more money, the number of deductions you can claim goes down a lot and you pay even more taxes (unless you're one of the wealthiest 0.001% who live off of capital gains and only pay 15%).

Increasing the tax on such a small population of individuals will not really affect the budget or deficit.

 

T2, you were just saying that they pay over a third of all tax income in the United States. When they already are responsible for that much, then obviously the tax rate for them affects the budget, no matter how many there are. 10% more or less tax revenue from them would be roughly 4% more or less revenue altogether - a considerable amount already.

Granted, there are probably some deductions they can't claim, but there are probably some that they can and that make no sense for anyone earning less. I don't see why a return to the Clinton tax rates and eliminating some loopholes would be a bad thing. It might not be able to close the deficit entirely now. Actually, I'd say it shouldn't erase the deficit altogether just now: presuming progressive tax rates, when the economy is doing badly it should run some deficit, otherwise you are taking too much when it recovers. You should be saving for a rainy day, not on a rainy day. Ideally, the rates should be enough for the US to run a balanced budget or a minor surplus in good years, giving the government some reserves when the next economic downturn comes.

 

You simply need to do the math. Two hundred thousand people paying an additional $10,000 only nets you two billion dollars. Taxing them an additional $100,000 only pumps it up $20 billion. Even tripling the tax on the top 1,000 money makers still brings in less than $20 billion (based on Buffett's $7 million tax bill last year).

Sure every little bit helps but we're really talking about insignificant numbers compared to the amount spent by the government.

 

Since 1% own roughly 40% percent of the wealth, an increase in taxes in that income bracket means taxing a huge amount of the capital in the economy and thus provides a lot more revenue than one would assume. The Bush tax cuts alone added a trillion in debt.

In a serious recession situation, thinking that giving the rich more money to invest is an incentive to invest in the productive side of the economy is simply unrealistic given where the profit potential really is. There is 600$ trillion floating around the speculative market alone, an enormous amount of capital that's only being used in future price bets aiming for simple profiteering with no productive use whatsoever.

That is only one of many examples of idle capital that, if a light tax was imposed, be a major help in reducing the deficit. With so many easily profitable but publicly useless ventures for massive capital in our economy today there is not a lick of sense to be had in allowing investments in those to expand at the expense of investment in society through lack of regulation and taxation, while we face massive unemployment and go through a national budget crises.

"Tea Partiers" and other billionaire funded politicians played a big part in the downgrade by refusing to increase revenue on idle capital while demanding cuts in public spending, the ones responsible for the well being of america's less fortunate citizens. Moral point of this aside, spending cuts without revenue increases don't do anything for our long term fiscal sustainability. There simply isn't enough to cut in public services to get over our debt problem, it's not a viable option. The military is another matter, but no politician ever seems to want to do anything about it, despite public opinion being more favorable towards this option than cutting social spending.

The problem comes down to this: Economic voodoo being talked about as truth because it serves the interests of the ones who have the power to make it seem like the truth.


http://www.huffingtonpost.com/2011/05/20/bush-tax-cuts-debt_n_864812.html

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=7131

http://economix.blogs.nytimes.com/2011/07/26/are-the-bush-tax-cuts-the-root-of-our-fiscal-problem/

 

Your comparing apples and oranges there dog (Bush tax cuts also benefitted business). The total tax money generated in 2009 from individual income taxes was $954 billion dollars. If the top 1% accounts for 40% of tax income, increasing their taxes by 5% (which is the amount usually being considered IIRC) would only increase the coffers by $48 billion. Not enough to really get us anywhere.

 

Buisnesses who then use that money for things that aren't always or even often anymore for the public good, something that taxes and government in general are supposed to promote. And i'm not talking just individual income, i'm talking about taxing giant sectors of the economy that, like in the case of speculation, are unregulated and untaxed, have truly massive capital behind them, and contribute nothing to society. When you factor in taxes like those and an increase in the capital gains tax, among other things, taxing the giant and productivity-lacking wealth bases of the nation suddenly generate a lot more revenue.

 

I think we should blame the idiot who thought that a congress-controlled debt ceiling was a good idea. It's a useless, dangerous construction and instead of discussing if it should be raised or not the congress should be occupied by abolishing it entirely.

I mean really there is never a good reason to not raise the debt ceiling, ever. A decision not to raise it always leads to default of one kind or the other which in turn leads to economic chaos. If you wish to regulate your debt then a much smarter thing (not that I advocate it either) is to follow the Maastricht Criteria in the EU (which does not work atm since everyone decided to ignore it) and regulate the yearly deficit the government is allowed to gather. In that way it would be a ongoing part of the budget negotiations and make the proceedings more transparent too. Something like that might have been in the republican balanced budget amendment they wanted but I haven't got the time or the interest to actually see what it included.

EDIT: Checked the history of the debt ceiling, and the thought of Congress authorizing each debt separately gave me the shudders so I suppose it was an improvement at the time. Fact remains though that it's badly outdated and in desperate need of reform, so the blame for the credit downgrade largely falls on the dysfunctional debt ceiling system. The rest of the actors share part of the blame also. Obama for lack of leadership, Tea Party for their populist stance and S&P for jumping the gun on this one.

 

Wouldn't the top 2% in the US represent about 6 million people? And an increase of 2% in income tax certainly would be more than $10,000 for many of them. It wouldn't be for those just above the $250K threshold, but many of that 2% are far above it. Just sayin...

 

The only problem with a balanced budget amendment is that the same people who are trying to get this passed also strictly oppose any sort of revenue increase. It's like they're trying to dismantle the very functions of government itself (other than war, of course). I wonder how many Tea Partiers would agree with the idea of Anarcho-Capitalism.