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As Debt Limit Deadline Draws Closer, We (Sadly) Explain What ‘Default’ Could Mean

Alas, we’d hoped it wouldn’t come to this point.

But seeing as the United States is now just days away from the August 2 deadline for raising the debt limit, we figured it was time for an explainer on what it could mean if Congress fails to solve its budget stalemate. (See our continually updated reading list.)

First, let’s review what this scary word, “default,” actually means. It’s essentially failure to honor the debt that’s owed. And in a very general sense, that’s what will happen after—or not long after—the August 2 deadline passes.

But to be more specific, the United States actually has two main types of “debt”: 1) the debt to investors who bought U.S. bonds, meaning they loaned money to the U.S. government, and 2) bills that come due, such as payments owed to Social Security, Medicare, pension plans, contractors etc. Defaulting on bonds—that is, not paying back a loan—will have more far-reaching consequences on interest rates, credit ratings, and on the global markets than missing payments for spending. (Of course, if you're one of the millions of Americans who depend on Social Security, any suspension of those checks will be plenty serious as well.) 

After August 2, the government will still have some incoming revenue to pay some debts, but it won't have enough to cover everything. (Check out this neat interactive from Bloomberg Government to see the situation up close.) 

It's still unclear exactly which obligations will get covered and which won't, but the likelihood that bondholders will go unpaid is extremely low. Or nil, as Slate puts it. One anonymous administration official told Bloomberg that bondholders will be prioritized. 

The White House said this week that in the next few days, the administration will reveal its repayment priorities. Perhaps wary of the PR implications of putting investors first in line, Treasury officials have suggested the United States doesn’t have the authority to prioritize certain payments over others. The Government Accountability Office looked into the matter and reached a different conclusion—that “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.” (This handy Congressional Research Service report [PDF] has more details.) 

Assuming the United States does prioritize investors, Social Security recipients may not be the only ones who could be left empty-handed until the mess is sorted out. Government contractors could be in this group, and they’re bracing for it. The troops could have their paychecks put on hold. Veterans payments could be stopped. Revenue going from the federal government to the states for construction, Medicaid and unemployment would also likely be stopped.

“Federal Government Debt” is defined as the interest on outstanding credit instruments (T-bills, etc.). Payments to social security, government employees, etc. are not considered “debt.” They are government obligations, and are VERY different.

We are NOT going to “default” on our debt. If we miss the 8/2 debt ceiling, some people (most likely govt workers, defense contractors, medical insurance payments, and states’ distributions) will take delays, cuts, and furloughs. Social security, VA, and lifeline recipients (food stamps, etc.) will not see a disruption, at least for a few weeks.

Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.

This whole affair is a freeking political circus - theatrical in every respect. Despite what the rating agencies are saying publicly, we’ve already lost our AAA rating, regardless of what happens on Aug 2. Remember, these are the same incompetent corporate-banking-beholden agencies who failed to identify that their 2005-2008 AA-rated derivative baskets were in fact B-grade junk.

I do hope Aug 2 comes and goes without a debt ceiling adjustment, that the American people wake up and realize that we have been little children spending artificial money we did not earn, and that ultimately we get some derivation on a balanced budget law that forces our government to grow up, be sober adults, and keep government within a reasonable budget. Government spending of 22% of GDP is wildly out of hand. We need to dramatically reduce defense spending, for starters. We can no longer be the world police.

Barry Schmittou

July 29, 2011, 12:17 p.m.

Our leaders should not be allowed to make any decisions on the economy while they are protecting multiple counts of bid rigging by major financial corporations who have all received multiple Non Prosecution agreements.

These businesses include Prudential, MetLife, Unum insurance, JP Morgan. Additionally Wachovia bank was fined $110 million for money laundering but no one was prosecuted !!

As you’ll see later Bush Attorney General John Ashcroft was paid “between $28 million and $52 million” to monitor one of these agreements.

Here are a few examples of bid rigging :

JP Morgan received a non prosecution agreement for bid rigging in 32 States on July 6, 2011.

Here’s a quote from the U.S. Department of Justice :

“From 2001 to 2006, certain then-employees of JPM at its municipal derivatives desk (which was closed by the Company in 2008) and/or predecessor desks entered into unlawful agreements to manipulate the bidding process and rig bids on certain relevant municipal contracts, and made payments and engaged in other activities in connection with those agreements, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and certain sections of Title 18 of the United States Code”

AND JP Morgan received another agreement from the SEC. Here are quotes from ProPublica :

“The $154 million settlement the Securities and Exchange Commission wrested from JPMorgan Chase involved only one of more than two dozen mortgage securities deals that the hedge fund Magnetar helped create. As we detailed last year [1], many banks in the waning days of the boom created collateralized debt obligations, or CDOs, with the help of Magnetar, which also bet against many of the same investments.”

In 2006 the Securities Exchange Commission wrote :

“AIG will pay in excess of $1.6 billion to resolve claims related to improper accounting, bid rigging and practices involving workers’ compensation funds.”

(end of quote)

If an average citizen whose children were starving to death shoplifted $5.00 worth of food they would certainly be prosecuted.  But the financial giants who created and profited from the financial collapse repeatedly receive non Prosecution agreements.

Two years after this $1.6 billion resolution of crimes AIG received $182 Billion of taxpayer money to bail them out. This amount the government gave to bid riggers is equal to 10% of the 2 trillion that President Obama wants to increase the spending cap !!

Right after the bailout and bid rigging in Workers Comp in the U.S., an AIG investigator endangered a severely injured War Zone Contractor’s life knowing that he has Post Traumatic Stress Disorder ! 

The investigator from Malta even used a fake department of Labor criminal investigator badge but the DOL/DOJ have taken no action !

Remember, this War Zone insurance violation was committed after AIG admitted 1.6 billion in “bid rigging and practices involving workers’ compensation funds” in the United States !!
I have many more examples of Non Prosecution agreements that were given to major corporations for bid rigging huge contracts !!

Additionally, numerous reports seen on Propublica.org, PBS’s Bill Moyers Show, PBS’s Now, and a report written by Joe Nocera, indicate the following :

(1)  Multiple businesses bundled loans that were certain to fail
(2)  Then resold the bundled loans as being top rated A+ loans
(3)  At the same time they placed financial bets that these bundles would fail.
(4)  They reaped huge profits from everything just mentioned!!

I have filed a motion In The United States District Court For The Middle District Of Tennessee in case number No. 3:05-0013 requesting the Court to prevent default and appoint a Special Prosecutor to investigate the overwhelming number of bid rigging cases the U.S. Government has decided not to prosecute.

If anyone ever sets on a Federal or local Grand Jury I have much more evidence I can provide, including evidence of a major Obama contributor signing a Non Prosecution agreement.

I’m also very concerned that default or the uncertainty caused by our leaders failure to act (which may be intentional) could create increased profits from interest that may be paid to the very financial institutions that are committing multiple crimes and contributed to the financial collapse that is associated with this default.

If anyone ever sets on a Federal or local Grand Jury

Much of the evidence has come from ProPublica.

ProPublica has 34 stories about multiple companies committing financial crimes, including stories titled :

“Banks’ Self-Dealing Super-Charged Financial Crisis”

“How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm”

“Merrill Lynch Did a Deal ‘Precisely’ Like Goldman’s, Suit Asserts”

As mentioned Bush Attorney General John Ashcroft was paid “between $28 million and $52 million” to monitor one of these agreements.

At congressional hearings on DPAs in March 2008 Rep. Linda T. Sanchez (D-Calif.) observed, “Late last year, I was troubled to learn of what appeared to be a backroom, sweetheart deal where New Jersey U.S. Attorney Christopher J. Christie appointed John Ashcroft, the former Attorney General, to serve as an independent corporate monitor and collect fees between $28 million and $52 million.” Sanchez pointed out that Ashcroft had been selected “with no public notice and no bidding.”

“Assuming the United States does prioritize investors, Social Security recipients may not be the only ones who could be left empty-handed until the mess is sorted out. Government contractors could be in this group, and they’re bracing for it. The troops could have their paychecks put on hold. Veterans payments could be stopped. Revenue going from the federal government to the states for construction, Medicaid and unemployment would also likely be stopped” .

This is utter hubris. Demagoguery straight out of Reid and Boehner’s offices.

Stop sending checks to the war profiteers.Stop paying for the defense of South Korea, Canada, Australia, Europe, Taiwan and a 130 other countries. Stop sending foreign aid to Pakistan, Afghanistan, Egypt, and a 130 other countries. Get real.

Barry Schmittou, thanks! Your comment was worth its weight in gold. Pro Publica should hire you.

Oscar R. Buergis

July 29, 2011, 1:49 p.m.

If you think, that the problem is solved by printing gree backs like hell:
You’re just wrong!  You’d be wondering how dramatically for instant fuel prices will raise in the next few month. But that’s just the beginning.
Obviously the Reps. have lost their mind… China is congratulating!

Certainly it is a crime that whitle collar crime seems to go unprosecuted in this country and it will not stop until someone goes to jail and not a clerk or mairoom lackey. I am disappointed in the Bush and Obama Administrations not prosecuting these criminals.  A fine, which most likely can be taken off taxes as a ‘cost of doing business’ is just a slap on the hand, anoither one to be laughed at around the Board room.

I have read in two or three sources that Cantor wins if the US defaults because of some short sale certificates he bought. Maybe that is why he has that that ‘fox eating s**t grin’ on his face all the time.

This debate really boils down to one thing: Republicans tryng to make Obama look bad, but he doesn’t need their help, and I’m a Democrat who voted for him.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

RECALL..RECALL…RECALL…RECALL…ALL OF THE GOP MEMBERS ELECTED IN NOVEMBER 2010.

There are some members of the Tea Party Republican group who are poised to profit from a default. For example:: Congressman. Cantor   owns shares of the ProShares Trust Ultrashort 20+ Year Treasury ETF, which bets against the Dollar.

Then there are the Congressmen like Mr Boehner who do not want to pay their fair share of income tax and thus refuse to cancell the Bush tax cuts for the wealthy.

If some payments are not made, the salaries and expense checks for both houses of Congress and the President deserve to be first in line to NOT be paid.

pdlane, you are probably right about Cantor, but what is there about (let’s aim low), a $1 trillion increase in national debt that makes you sleep better at night?

I don’t understand why we have to live within our means, but our government can borrow endlessly to feed the special interests that fund the political campaigns of the folk in Congress.

Is government too small for you? Are we not fighting enough wars? I’m just intrigued.

Yah, tax the rich. I’m not rich. One percent of the wealthiest Americans already fund about 25% of the budget. Let’s just wipe them all out. Class war. That’s another war we could engage in. That’s a consideration, but in doing so, there is no need to borrow additional trillions of dollars. Just freeze spending and then adjust from which source you want to confiscate the loot to feed the beast.

Actually, when Clinton balanced the budget, there was no war going on…then Bush came threw and flushed that right out, funding his cronies with all the no bid contracts and salaries 2-3 times the soldiers.

I say tax remittances 25% for 6 months and we will be out of debt, and have a surplus…but the war needs to stop, and the Kuwaitis & Saudis need to reimbuse us for the Iraqi war, they asked us to flex for them.

Also, Clinton invited a constant flow of grass roots groups to the whitehouse for opinions..he was not just at the mercy of lobbists like Obama.

And they need to reverse some of these damaging trade laws that are killing US business…Impose duties and tariff to make our products competitive..or..create a Made in America Seal..to offer the high quality, healthy products the world wants, and not the poisonous crap the Chineses is feeding us…we should have a choice…

The politicians have not read State and Revolution by Karl Marx, where he says the aid of the Communist is to control the capital of the capitalists…and this is where our tax base has gone.

Barry Schmittou

July 29, 2011, 2:53 p.m.

Thank you very much Albert !!

I hope you will consider emailing ProPublica and asking them to cover the evidence I have submitted to them.

They are really doing a great job in exposing corruption !!

I have evidence posted on blogs that prove multiple insurance companies are endangering lives by committing identical crimes in five different types of insurance, and I believe with media coverage our government will be forced to stop this destruction of so many lives.

The evidence includes this :

MetLife V.P. James Sullivan giving Obama $30,000 for his victory party and then Sullivan signed MetLife’s third Non Prosecution agreement for bid rigging in U.S. Title 29 health care policies.

Bush’s former Attorney General Ashcroft received over $25 million for 18 months of part time work monitoring a Deferred Prosecution Agreement, the DOL and DOJ will do absolutely nothing to help patients like :

(1) Jacquelyn Addis who had brain lesions and Multiple Sclerosis ignored by MetLife and their consultant Dr. Greenhood during the time that MetLife received it’s first, second, and third Non Prosecution agreement.

(2) Patient Joanne Vick who had MetLife and Dr. Greenhood ignore a foot that she broke in 5 Places after she developed diabetic kytoacedosis following childbirth.

** The DOL and DOJ will not even ask Dr. Greenhood to stop ignoring Multiple Sclerosis and broken feet !!!!!!!!

(3) DOL/DOJ did nothing after seeing many quotes from Psychological patient Brenda Zanny’s case, where U.S. District Judge Richard Enslen wrote :

“Metlife and its henchmen should appreciate that such conduct may itself precipitate the suicide death of a person who has placed implicit trust in their organization. This record is an open indictment of MetLife’s practices and treatment of the mentally-ill and long-term disability benefits.”

ProPublica has been very kind to allow my comments, especially since I have Post Traumatic Stress Disorder, but after many months of allowing me to post links I’m pretty sure they don’t want me to do that anymore. I completely understand because their stories are detailed and if people link off to mine then they detracts from ProPublica’s efforts, and I do not want to do that.

Plus I have so much evidence it might take John Grisham a few years to make several novels with it. The facts are so hard to believe it seems like fiction !!

Gia, you are correct, but we are giving foreign aid to the Kuwaitis & Saudis (have until recently anyway and will do so again in the future, if only the Chinese would lend us the money). They are not going give us a penny for our oil wars.

In addition, the Iraqis want war reparation costs and compensation for the violent deaths of 1.4 million of their people since the start of the Bush/Cheney oil wars. (Can you fathom that? 1.4 million deaths - Just Foreign Policy website. Is that how we go about making friends around the world, especially among Muslim nations?)

Obama promised us that he would bring the troops home the minute he walks into the White House. “You can take that to the bank,” he said. The only consistent anti-war politician for the past 30 years has been Ron Paul. The Republican establishment hates him. I love him.

Barry Schmittou, have you submitted these facts to Matt Taibbi at Rolling Stone magazine? He has published stuff like this in the past. The main stream media won’t touch it, so he has to go to a music magazine. What does that tell you about the main stream media? It tells me they are also feeding at the government trough, hence they are doing their level best to dupe the public into believing that raising the debt limit is good for the country.

Barry Schmittou

July 29, 2011, 3:10 p.m.

Thanks Albert !!

I’ll send my evidence to him !!

Gosh…..Why is there NEVER any mention about NOT paying the Federal Government Employees?  The Federal Government AND the President are perfectly willing to not sending checks to Social Security folks, but I never hear them stopping the pay for 500+ members on Congress, who by the way, got us in debt way past our ears, or the 100’s of thousands of staffers and Agencies in Washington….....Why is that?

Oh, we need the Department of Energy employees and staff?  Education?  Agriculture?  IRS?

If the debt ceiling is not raised, IMMEDIATELY cut jobs in the “Public Sector”  and I’m not talking cutting to the bone, I’m talking amputation here….....How about using my tax dollars to pay for the e-mails firing most Federal Employees?  I could go for that…....

Let’s see “Them” feel the pain for a change….....

Kudos to Barry for this important work. I’m really impressed with the majority of replies on this forum. I had in the past associated ProPublica as a knee-jerk progressive outfit. Judging from the replies here, there are many thoughtful independent thinkers. A welcome change from most other mindlessly partisan chat sites.

“tontis” if they prosecuted the “big shots” who would contribute to their re-elections?
After the Supreme Court ruling we will now have the best government corporate money can buy.

I have an idea. Since the Teaparty simpletons that were swept into office last November just for spite of the dysfunctional governance we had think we want to “shut it down”. Why don’t we use the government they despise and withhold their paychecks until they compromise? Diplomats shoud be able to use diplomacy rather than the nuclear option every time they don’t get their way.

Wow.  Excellent article, and superb comments.  Any of you reading this page could certainly provide a better solution to this mess than what we will get.  What is critical to understand, and easy to forget, is that those in control, and Congress, and the President are not being stupid, irrational, or short-sighted.  They are doing just fine.

This country is in the hands of a mafia.  The best interests of the American people are not a concern of this mafia.  What drives decisions is enhancing the power of this mafia, and stripping the American people of as much of its wealth as they will tolerate.  With this as the underlying motivation, consider what a fantastic job they have done over the last decade.  These are not stupid people, and the results of the last decade are proof.

Remember that there are people (not financial institutions, or corporatons, or countries) somewhere in the world, who indirectly will be the eventual beneficiaries of all this debt.  Step back a minute and consider that the U.S. economy has never been so productive; the net income has been pouring in faster than ever.  The “crisis,” if you will, is that the rewards of this productivity is going to a different group of people.  The rewards will go to this mafia, not to me, not to you, and not to your grandchildren.

The mainstream media would have you believe that everybody is going broke, and everybody is losing.  Not so.  This is a zero-sum game.  The U.S. Government’s $50T or so in obligations will be going eventually to PEOPLE.  Just this portion of the debt in America, the Federal Government’s portion, is enough to make 50,000,000 millionaires.  That’s about half of the households in America.  The PEOPLE holding the notes expect the U.S. Government to deliver this sum.

These people are not the American people, they are those in control of this international mafia: Goldman Sachs, the Federal Reserve, AIG, ... you know the institutions, but you probably don’t know the names of the people behind the scenes.  These beneficiaries don’t see a crisis with the debt ceiling, to the contrary, they are high-fiving it.  Mission Accomplished.  The crisis is simply that the American people have allowed their wealth, and future income, to be stolen.

The game being played today is just preparation for more confiscation of middle-class wealth.  Confiscating the retirement benefits (Social Security), eliminating Medicare, and adding more burdens on the poor, and maybe even more “bailouts” for the richest institutions.  The ultimate goal is NO government services for the people; just taxes.  No more property ownership; just rents.  No more expectations of a lawful, responsive government; just hope that the government abuse does not get much worse.

@Albert- you should do a little research on income inequality. Sure, the richest 2% pay a very large % of the total income taxes, but they earn way more than that % of our wages. Moreover, there really is a class war going on, but it’s the richest Americans who have won that war. As Warren Buffet pointed out, his secretary pays a higher tax rate than he does. Also, in addition to major corporations using the tax loopholes to pay zero in federal taxes, hedge fund managers pay just 15% on their “carried interest” which should be ordinary income. Do you pay less than that?

One more thought, if Citizens United didn’t hide the source of funding, we would probably see that the newbies in the House actually don’t have the intellectual acumen to write the complex legislation they’re offering right now for a constitutional amendment for a balanced budget fixing the debt to GDP ratio at 1965 levels, No, if we could look behind the curtain, we would see a very sophisticated cabal of lobbists and attorneys representing the usual suspects, billionaires like David Koch and Rupert Murdoch who would just love to downsize the federal government so as to minimize their regulation and oversight of the business interests and keep their taxes unfairly low. We might get transparency and disclosure in the future, but that will require that we change the composition of the SCOTUS which has politicized almost every important decision they’ve made in recent years. Talk about judicial activism!

WAdem, you are just parroting the media.

If you really have an idea, why don’t you tell us why government is too small and needs to grow, why we we are not fighting enough wars, not dishing out enough foreign aid, not giving the war profiteers enough money, etc., etc.

I think government is now too big relative to GDP, but I don’t mind if you want to grow government. All I’m asking is don’t borrow 40 cents of every dollar that you spend in growing the beast. What is there about $14 trillion, not too mention the $60-odd trillion in unfunded entitlements that doesn’t scare you?

Don’t say Congress (I don’t care which party) wants to cut the budget by x trillions over the next five years. Those numbers are based on previous budget projections that include huge increases in expenditures and would have driven the national debt over $20 trillion. Don’t believe everything they tell you on TV and believe nothing that emanates from Washington. They have already stolen a huge chunk of your future and the future of our children and grandchildren. How can you stick up for them?

I know, because you don’t like Republicans, neither do I. You also want to tax the rich. That’s fine by me. Maybe will have better success than the Soviet Union. However, don’t tax the rich to fund increased expenditures, more wars and more boondoggles. Tax the rich to help pay off some of the debt. Maybe I’ll buy into such an idea. So give us some real ideas and real answers. Calling people names is proof that you’ve run out of ideas.

WAdem, you are correct, I probably give the rich too much credit. I gave you my opinion about taxing the rich above. I’m not rich, but somehow fleecing the rich reminds me of the Soviet Union.

Well, Warren Buffett is a very good man, of high integrity, but he is disingenuous. Unlike other corporate executives that pig out on compensation, he takes about $100,000 a year, the last time I looked at Berkshire’s proxy statement. He has earned less in a lifetime as the CEO of Berkshire than the likes of GE and Exxon’s CEO’s take home in a month. He must be paying his secretary more than $100,000 a year, or he is talking about her joint return with her spouse.

However, nobody pays more tax in this country than Warren Buffet. He owns 43% of Berkshire, one of the largest corporations in the world. Berkshire pays billions of dollars in tax every year. As the virtual owner of Berkshire, he is a major contributor to the Treasury.

In theory, he is happy for the rich to pay more taxes, but he knows that won’t be him. First, he draws a small salary. Secondly, he does not distribute Berkshires profits as dividends. He wants to keep the cash and reinvest it, rather than give part of it to the Treasury. (Believe it or not, we are all better at spending our hard-earned wages than the government. It is also more fun.) Thirdly, he hardly ever sells the stocks he buys, because he does not want to generate capital gains, which means paying taxes. Fourthly, when he dies, his whole estate goes to the Gates Foundation. Thereby, the government won’t be able to slap estate taxes on the $50 billion that he would leave behind. He thinks the Gates Foundation is far better at domestic and foreign aid than the government. He will not entrust his estate or part of it to the government and rightly so - smart man.

This is a good example of how the rich, with the help of tax lawyers and accountants and using their own ingenuity can immunize themselves from higher taxes. Research shows that no matter how the government has tried in the past to increase revenues by raising taxes, in the end it is never able to collect more than 20% of GDP.

You mention Koch and Murdoch. I think they are supporters of the GOP and I am no apologist for the GOP, but these kind of people you correctly vilify are not unique to one political party. Our whole government have sold out to special interests. When they raise literally billions of dollars in campaign financing, you have to ask, what is Congress giving in exchange this time. Congress has a $4 trillion budget that it wants to distribute, perhaps as much as half to deserving causes, but the rest goes to their backers. That’s why we can’t raise the debt ceiling. Enough is enough.

@Albert- I actually do believe we need to ask our government to spend a lot more right now. The ARRA was woefully short on infrastructure money and loaded with tax cuts. I am for killing all of the Bush tax cuts which will happen on Jan. 1, 2013 if nothing is done.

I do agree that we need to downsize our military/defense budget big time, but that will also create more unemployment. We need to think big and unfortunately we have too many politicians who don’t get it. They want to relive the mid-30’s when Hoover focused on shrinking government at all cost. He was very successful, but he shrunk the entire economy and we didn’t truly recover for almost 20 years.

Debt to GDP is around 23% right now, but we are just beginning to recover from the Great Recession and cutting now only insures a repeat of the Great Depression. Tell me why it will be different this time?

Debt to GDP hasn’t been near 18% since about 1965. What the libertarians want to do is set up a constitutional amendment that will force us to dismantle the New Deal. Moreover, government will be handcuffed it we set a low limit. We will not be able to handle war or emergencies. I’m not saying we should spend recklessly, but much of what you hear right now is spin. Our debt to GDP peaked at 120% after WWII and taxes were raised to 92% for the highest wage earners. Guess what happened? The economy boomed and the rich got richer, but the middle class emerged. We need to reboot our economy, not cut back right now. We’ve been there; done that and it wasn’t pretty.

@WAdem

“ I actually do believe we need to ask our government to spend a lot more right now.” But do we have to do so by borrowing 40 cents in the dollar?

“The ARRA was woefully short on infrastructure money and loaded with tax cuts.” We are spending a lot of money on infrastructure in Iraq and Afghanistan and a billion dollar embassy in London.

“I am for killing all of the Bush tax cuts which will happen on Jan. 1, 2013 if nothing is done.” Not going to argue with you on this one, although the rich will find a way around it. The Bush tax cut did help small businesses that are incorporated as LLCs. An LLC’s profits are allocated to the partners who are then taxed on that at marginal rate. More often than not, when an LLC makes $250K in net income, it is not like an executive that gets a $250K salary. Every penny of the LLCs $250K is needed for growth in assets and employees. It is a bit of a job killer to tax a small business, just because it generates $250K in profits, but I can see where you are coming from. Bush lied and they died, so I have no sympathy for anything that emanate from war criminals.

“I do agree that we need to downsize our military/defense budget big time, but that will also create more unemployment.”

No ways. If having a big military creates jobs then why don’t we just turn the whole country into a military base? The Soviet Union had tried something similar. Every penny spent on the military is taken from you and me. (Or borrowed from the Chinese, but we are trying to put an end this stupidity.)

We have a choice: Leave, say, one hundred million dollars in the hands of the wage earners, or confiscate it and spend it on the military. Which option would generate more jobs? If the latter, then why stop at one hundred million? Truth is, when government takes money from us, there is a net loss of jobs. If they use the money for essential services then we can accept the net loss of jobs. But if they take it to give it to foreign governments, to create government entities, like Fannie Mea, to artificially boost home ownership, run Amtrack, etc., etc., it just doesn’t work.

We have 900 military bases in 130 countries. Our taxes (our borrowings) are generating jobs in those countries, that’s for sure.

Singapore’s GDP per capita was $600, below that of Guatemala, 44 years ago. They decided to keep the size of government at about 12% of GDP.  Such a small government means the highest individual tax rate is 20% and corporations pay 18%, but manufacturers get tax holidays. Hence, manufacturers, especially those in California, are relocating to Singapore. Malaysia is now copying Singapore.

Small government and low taxes meant that today, GDP per capita in Singapore is now close to $43,000, making it the 4th richest country in the world. It has a population of 5 million and it generates $240 billion in GDP for a country one-eight the size of Delaware. Government spending does not create prosperity.

“They want to relive the mid-30’s when Hoover focused on shrinking government at all cost. He was very successful, but he shrunk the entire economy and we didn’t truly recover for almost 20 years.” This is not the mid-30. We live in a totally different world. There were a lot of other mistakes made in the 1930. We are now competing against the likes of China, Singapore and even Canada, where they have brought the corporate tax rate down to 15%. Talking about Canada. The country can afford universal health care because it only spends $20 billion a year on defense. They rely on us to defend them. So do Korea, Europe, Taiwan, Australia and a 130 other countries. Including the wars we will spend a trillion dollars on the military this year. Canadian taxpayers won’t spend that in fifty years. nice to sponge of us.

“Debt to GDP is around 23% right now, but we are just beginning to recover from the Great Recession and cutting now only insures a repeat of the Great Depression. Tell me why it will be different this time?” Debt/GDP is 93% and if we keep on spending, it will be 110% in a year or two. No, government spending does not create enduring growth. It actually detracts from growth as pointed out above. Hey, if we were running surpluses, it would be a moot point. Norway’s government runs a 15% budget surplus. We are not so lucky. The Norway government has a sovereign wealth fund equal to $95,000 per man, woman and child. We have debt equal to $44,000 per man, woman and child. Mainstream media will not tell you this.

“Debt to GDP hasn’t been near 18% since about 1965. What the libertarians want to do is set up a constitutional amendment that will force us to dismantle the New Deal. “

How’s the New Deal working out for you? The first Social Security tax was 2%. They’ve raised it 20 times since then. Still, you’d do much better investing in private pension funds than Social Security. Social Security is a massive Ponzi scheme. It would be illegal if you and I tried to run it. Now that the government is running out of money, they want to tweak the rules. Pay out less. Not pay the inflation adjusted increases. Up the retirement age, etc. If Social Security were a private pension fund (like they have very successfully in Chile), they couldn’t do that. They’d be sued.

Yes, I agree with you, a balanced budget amendment is just another method, but valid in my opinion, to try and tie down this runway spending, but it is impractical. However, I would not mind if we could not afford to fight a war, because we have to balance the budget. We could have bought a lot of oil with the $1.2 trillion Bush wasted on his oil wars.

“Our debt to GDP peaked at 120% after WWII and taxes were raised to 92% for the highest wage earners. Guess what happened? The economy boomed and the rich got richer, but the middle class emerged. We need to reboot our economy, not cut back right now. We’ve been there; done that and it wasn’t pretty.” No, you are fantasizing. You need to provide more facts and figures to link a boom to 92% tax rates.  How many people were taxed at 92% Two dozen? The rest made other arrangements. I don’t know who fed you this nonsense.

At one time, back in the late 1800’s - early 1900’s, the wealthy bailed out government, by givining them a low interest loan, or buying bonds…

Giving the wealthy tax cuts was suppose to create jobs…but the jobs are all off shore…so that party is over..what the hell is the tax cut for?!

Also when studying urban planning, I did a study on mexico and the maquiladoras as a 3rd world city…in 204..their wages were the same as in 1940…i think taht is what suppose to happen here…go global with you products and business guys…if you don’t have a product…find one…drop-ship…this is now a global economy…  Check this out…if this what we are headed for in 20 years..

http://youtu.be/rPILhiTJv7E

This is where our tax base is going: (Thanks to the Bushes and Republicans)...why didn’t anyone cry foal when Bush was destroying the economy and committing war crimes and using our children and our money to fix it, to keep him out of prison.

And While I’m at it…

If Pro Life is so important, why is it OK to kill children thru war in other countries, and let them die in Africa….No..it’s about control and prower.

@Albert- Singapore is a very poor comparison. Try again and this time pick one of the largest economies.

Your point that we shouldn’t be borrowing 40 cents of each dollar we spend is simply a recognition of past spending. By any measure Republicans have outspend Dems over the last 30 years starting with Reagan. I think we agree that way too much is being wasted in the war zones, but while I am not backing Obama’s continuation of the Iraqi war, I know pulling out would precipitate howls from the right wing media and he is running for reelection.

In fact, watching the circus over raising the debt ceiling and seeing the latest TV ad from Crossroads, a so-called grassroots organization (but only if you believe having billionaires and a cable network running your behind the scenes PR) which attacks the “unlimited spending of the last 2 years” and “we cannot give him a blank check”. Sound familiar? The same sound bites that are coming out of the Tea Party candidates in the House right now. I would love to have the power of subpoena and do a little bit of “follow the money” with the hyper partisan shills. I would bet a lot of dinero that their balanced budget amendment is written by lobbyists working for David Koch.

Social Security is a very successful program. I am retired and earned and saved quite a lot during my career. I planned to use SS as part of my retirement. I like it much more than my 401K which brings me to the realization that the GOP is wrong in each case. Defind benefits beats defind contribution IMHO. Full retirement was better than the self directed 401Ks. Moreover, I feel more confident in investing and managing my own retirement account and have never found anyone who puts my interests ahead of his own. Having said that, SS beats private accounts for most investors.

The “Ponzi Scheme” line is spin. If one takes all of the money contributed to SS from both employee and employer plus compound interest at the prevailing treasury rate, SS is quite flush with cash. Moreover, you don’t hear any politicians of either party talking about replacing the monies that have been redirected to the general fund. They just want to steal it. Comprende?

I am not linking the post-WWII boom to high taxes. What I am saying is that low taxes do not increase growth, nor do they increase the desire of our largest corporations to hire here at home. We have cut marginal taxe rates for the “job creators” by exactly half (70% to 35%) since Ron Reagan took office and guess what? We are not creating jobs. We have essentially been in a jobless recovery for more than 10 years and there has been a structural change in the creation of jobs.

Despite what you hear, most large corporations don’t pay 35% taxes. It is the small guy that gets hurt while the largest like GE and Google pay little if anything. We need to rejigger the tax code and the recent “:Grand Bargain” would have achieved that. It would eliminate most loopholes and drop the top rate to 23-25%. That means capital gains and dividends as well as “carried interest” would jump and revenues would rise substantially. The Tea Party should have taken that, but I forgot, their rich donors don’t want to pay more taxes and they could see the train coming.

I’m wondering whether Boehner and his acolytes, after their attempt to crash the entire world economy down, will look back and say “we did what (part of) the American people wanted us to do”.
Were Tea Partiers aware of it? What were they thinking? Parochialism is never ever a win-win.
And suppose the whole system crumbles, will the Republicans look back and say we were responsible for all this mayhem?
Is this anything to be proud of? Will they be wondering of other more pressing consequences in socio-political terms?
Aren’t they conscious of the damage worst off economies will be likely to suffer? Talk about populism, and siding with the people!
Will they contemplate it and surmise:“was it all worth it”?
Their spirits are definitely not in their right places.
Better to reconsider. And let it be. It’s good for their health. And everybody’s

WAdem

@Albert- Singapore is a very poor comparison. Try again and this time pick one of the largest economies.”

Come on! There is nothing small about a country with a population of 5 million and $240 billion in GDP. Singapore is the 40th largest economy in the world. Greece’s GDP is $300 billion, so large that the global economy is being shaken by its economic woes. Imagine if Greece had adopted the Singapore model. Singapore has no natural resources and has to import all raw materials and agricultural products. United Emirates and Venezuela, just above Singapore in the GDP race have huge oil revenues, without which they would fall well below Singapore. Singapore produces more GDP than Egypt (that’s minnow?), Nigeria (with its 80 million population and huge oil reserves can’t match Singapore’s GDP), Israel, Chile, Portugal and Algeria. Besides Singapore still grows at 9% p.a., its long-term growth rate. At this rate, five years from now, Singapore will be in top 30 in the GDP contest. OK, reset. Admit Singapore is an excellent example. This is an intellectual debate. You can’t just say it is a poor comparison and not support your assertions with facts.

“Your point that we shouldn’t be borrowing 40 cents of each dollar we spend is simply a recognition of past spending. By any measure Republicans have outspent Dems over the last 30 years starting with Reagan.”

I don’t make a distinction between Reps and Dems. In 2006, Obama and every Dem Senator voted against raising the debt ceiling. As today, these votes are just pretense. Both parties are beholden to war profiteers and their allies in corporate America. They will not stop the spending. Both parties are to blame for the $14 trillion debt.

“I think we agree that way too much is being wasted in the war zones, but while I am not backing Obama’s continuation of the Iraqi war, I know pulling out would precipitate howls from the right wing media and he is running for reelection.”

Why should he care about howls from the warmongers on the right? Instead of wasting money on infrastructure projects in Afghanistan and Iraq (a billion dollar embassy the size of the Vatican and 14 military bases), he could give us back the money (my preference) or spend here in, say, the inner cities. If Martin Luther King were in the White House today, he would not have squandered our borrowings abroad. He would have been a leader and uplifter (no such word, but you know what I mean) of his people here at home.

“In fact, watching the circus over raising the debt ceiling and seeing the latest TV ad from Crossroads, a so-called grassroots organization (but only if you believe having billionaires and a cable network running your behind the scenes PR) which attacks the “unlimited spending of the last 2 years” and “we cannot give him a blank check”.
Sound familiar? The same sound bites that are coming out of the Tea Party candidates in the House right now.”

Mainstream media is leading you by the nose. The GOP establishment (Romney et al, with the help of the Limbaughs and Hannitys) are making an all out attack on Obama, not the Tea Party. They want the spending to stop. They want to freeze the current budget. They are not going far enough because there are still too many warmongers among them. (Just to avoid confusion: Ron Paul, some call him the father of the Tea Party, is not part of the Tea Party. He has fought for 30 years against unconstitutional wars. He has never taken a penny from special interests. He has no blood on his hands. His supporters did not vote for warmonger McCain.) Yes, Crossroads is just the GOP establishment grandstanding. It has nothing to do with the current debate. The Democrats have their own super PACs, not unique to one party.

“I would love to have the power of subpoena and do a little bit of “follow the money” with the hyper partisan shills. I would bet a lot of dinero that their balanced budget amendment is written by lobbyists working for David Koch.”

You wouldn’t because you research will show that the parasites have infested both parties to the hilt. Check the donor list of the Democrats. They are riddled with the likes of Koch. You need to be objective.

“Social Security is a very successful program. I am retired and earned and saved quite a lot during my career. I planned to use SS as part of my retirement. I like it much more than my 401K which brings me to the realization that the GOP is wrong in each case. Defind benefits beats defind contribution IMHO. Full retirement was better than the self directed 401Ks. Moreover, I feel more confident in investing and managing my own retirement account and have never found anyone who puts my interests ahead of his own. Having said that, SS beats private accounts for most investors.”

You have just agreed with my main argument: “I feel more confident in investing and managing my own retirement account and have never found anyone who puts my interests ahead of his.” The 500-odd miscreants on Capitol Hill have their own interests at heart. You and I are very low on their totem pole. They don’t toss missiles at Libya to protect your interests. They do that to make sure their backers among the defense contractors receive enough orders for replacement missiles and other ordinance to keep their bottom lines growing while households tighten their belts.

SS does not beat private accounts, not by a long shot. Private accounts don’t change the rules on you. Private accounts are invested in hard assets. Social Security taxes are appropriated by Congress in exchange for an IOU on which the government defaults by making sure that, with the help of the FED, inflation erodes the purchasing power of your retirement funds. The government cannot raid a private pension fund. Have you had an inflation adjustment in your SS receipt in recent years? Do you believe the government’s calculation that the inflation rate is benign? In Chile they run a Social Security system like we have here, but taxes are paid over to private institutions that protect the pensions of retirees from the avarice of government. There is no way in the world that you could turn this sow’s ear into a silk purse. You are getting the crumbs of what you would have had if you contributed you taxes to a private institution, but politicians would like you to believe that they have done you favor. You need to be more of a skeptic.

“The “Ponzi Scheme” line is spin. If one takes all of the money contributed to SS from both employee and employer plus compound interest at the prevailing treasury rate, SS is quite flush with cash. Moreover, you don’t hear any politicians of either party talking about replacing the monies that have been redirected to the general fund. They just want to steal it. Comprende?”

Alice in Wonderland… Alice, are you there? SS is not flush with cash if you calculate its liabilities the way corporations that run defined benefit plans have to do in terms of Generally Accepted Accounting Practice. Corporations have to estimate future payments to all workers entitled to benefits and then discount that at an estimated rate of return, against which they set off the fair value of the pension plans assets. The shortfall is the un-funded portion of the plan. If you do that calculation for SS you get a shortfall of about $40 trillion. The SS system depends contributions from younger workers to supplement the available funds (about $4 trillion at most) that source retirees’ payments. That’s the classic definition of a Ponzi scheme. Again you have to be better informed and far more skeptical.

“I am not linking the post-WWII boom to high taxes. What I am saying is that low taxes do not increase growth, nor do they increase the desire of our largest corporations to hire here at home.”

I can give you the names of dozens of US corporations who have moved their manufacturing facilities to Singapore, in part to enjoy the tax holiday and lower labor costs. You probably invest in some of them, and why not? You have to take care of your own interests. We are now living in a highly globalized economy. Capital flows (and that would include your capital; you are not an altruistic investor) to areas where the returns are the highest. High labor costs and high taxes depress returns, hence capital flies abroad. You can’t create jobs without capital. Higher taxes chase capital abroad. It is self-evident logic. I showed you earlier how a dyed-in-the-wool Democrat and very much in favor of taxes, Warren Buffett, have arranged his own affairs such a neat way that the government’s take of his income and wealth is minimal by comparison to what, say, a married couple earning $200K a year have to pay.

“Despite what you hear, most large corporations don’t pay 35% taxes. It is the small guy that gets hurt while the largest like GE and Google pay little if anything.”

You are quite right. The government collects less than $250 billion a year in corporate tax, and that is at a 35% rate. You want to increase the rate? In which case, the takings would probably drop to $200 billion. More relocations abroad. However, if they cut the rate, like in Canada to 15%, a lot of capital will come back from abroad and create jobs here in the US. The reason US corporations pay so little tax, despite a 35% tax rate is because they move their profitable businesses abroad, then sell the products to their US at a huge margin, with the foreign profit being taxed at a low rate. If your retirement funds are invested in these corporations you would be very happy about their astute tax planning. It leads to higher dividends and to a better retirement for you. They keep the profits abroad (more than a trillion dollars currently accumulated by Fortune 500 corporation) so they do not have to pay tax on repatriation. No US government has ever been able to raise more than 20% of GDP in taxes. Hence, you have to cut the size of government to less than 20% of GDP. Once you do that you can then tweak the tax code to decide who would fund the government.

“We need to rejigger the tax code and the recent “:Grand Bargain” would have achieved that. It would eliminate most loopholes and drop the top rate to 23-25%. That means capital gains and dividends as well as “carried interest” would jump and revenues would rise substantially. The Tea Party should have taken that, but I forgot, their rich donors don’t want to pay more taxes and they could see the train coming.”

As I said above, cut the size of government and then rejigger the tax code. The other way round won’t work. Forget about the Tea Party. That is just the media’s little rant against those who want to cut the size of government. They all want a large government, because they also have their snouts in the taxpayers’ trough. If Congress were more disciplined and concerned about your and my interests, there would not have been a minor people’s revolt that gave us Tea Party representatives. They promised voters that they would go to Washington to shrink the size of government. I honor them for sticking to their guns. We have never ever seen such loyalty to voters before. McCain said in the GOP debates that we all went to Washington to change Washington, but Washington changed us. You can’t say that of the Tea Party folk, but I don’t want to start a Tea Party debate. I don’t like their stance of militarism. I want the killing to stop.

Marco, read my posts above and tell us all what is there about (let’s aim low), a $1 trillion increase in national debt that makes you sleep better at night?

I don’t understand why we have to live within our means, but our government can borrow endlessly to feed the special interests that fund the political campaigns of the folk in Congress.

Is government too small for you? Are we not fighting enough wars? I’m just intrigued.

As you will see from my posts I am no fan of Boehner, et al. I want to discuss the fundamentals. See my posts above.

@Albert-

Singapore is less than 1/3 the size of California, so a poor comparison.

You just made my point. We individuals CAN’T lob missiles into Libya. There are certain things we need government for and defense is one. I think we agree, though, that way to much money is spent on the MIC.

If you think private accounts are superior to SS, you are truly an idiot. I can’t reason with those who cannot accept facts. The only reason I am comfortable managing my own money is that I do it full time. Most investors have little chance of beating an index fund. Hell, most mutual fund managers can’t. In addition, the fees associated with funds and money management are huge. Wall Street loves the idea of private accounts. That should tell you that the would love to have more of your hard earned money to skim profits from.

I cannot find anywhere to agree with your assessment of SS. You can simply let the government know that you don’t want yours. From my vantage, it is very easy to fix the temporary shortfall we are looking at. We just need to raise the limit on FICA and matching deductions and raise the retirement age slightly. Reagan/Greenspan did this in ‘82 and it worked. It can work again. Don’t hold your breath for GOP support though, corporations would like to kill SS. They want to eliminate their contribution just like with defined benefit retirement plans.

You outline of how biz works in Singapore is precisely why we need to change our laws to capture more corporate taxes here. I fully understand globalization, but providing a tax holiday here only allows corporations to expand their operations abroad. Aren’t we fools? We need to charge fees and duties for those who want access to our market. If HAL and RIG want to create a false HQs in Switzerland, let them sell all of their products there. We are not leveraging the largest market in the World because we are now the United Corporations of America. DUH!

Warren Buffett is not squealing about paying much higher taxes. He is one who would see his tax rate from dividends and LT capital gains jump 60% with the Grand Bargain recently offered by Obama. Moreover, he has already committed to give away his fortune unlike the greedy trust-fund losers I have cited in the past for corrupting our government.

You are really uninformed when it comes to corporate taxes. You need to do a little more research. I think the rate right now is around 8.6% actual and the hardest hit are the small guys. As Helmsley once said “taxes are for the little guy” and the corporate lobby which controls the GOP, want to continue the smoozing of the wealthy and Wall Street while ensuring they don’t have to compete for campaign money.

I have an interesting question for you, why did the House Teapublicans refuse the Grand Bargain a few days ago? Your answer will tell me whether you understand what is driving our politics or simply following what you read and hear from a couple of sources.

@Albert- I forgot to cover the Tea Party. First it isn’t a grassroots organization. It was originally that, but was hijacked by Fox News and the GOP to spin their corporate nonsense. I just saw the latest “Crossroads Grassroots Org” ad and it parrots the taling points big corporations have constructed for the Tea Party. You do know that many of these guys and gals are former lobbyists, don’t you?

When you hear “smaller government” recognize it is big business and the wealthiest Americans who have dominated our political debate for many years. What they want is to continue their attack on the middle class and keep their taxes low. They are actually killing the golden goose. The more they decimate the middle class, the more they eliminate their customer.

What we are facing right now is not from too much spending. It is a combination of too little government spending to offset what the Great Recession has taken from our economy. Look at what the Teapublicans are offering as a “solution” more tax cuts for the rich and killing our social safety ner. We are becoming more like China than Germany. I would much prefer the latter.

Wadem, thanks for calling me “truly an idiot.” I wasn’t aware of this fact. Your government gave me a green card because they classified me as an “alien with exceptional ability.” Just my point, the government always gets it wrong.

OK, you have not provided what I asked for: facts and figures. To follow your line of reasoning, Singapore, a country poorer than Guatemala, with no natural resources, no agricultural land, became the 4th richest country on a per capita basis and 40th largest economy in world by pure luck? The Singapore government ascribed its success to low taxes and small government. Are they deceiving us? Do you have a better explanation?

If anything, the size Singapore is a limiting factor, making its extraordinary success even more difficult to explain other than by its sensible economic policies.

“You just made my point. We individuals CAN’T lob missiles into Libya. There are certain things we need government for and defense is one. I think we agree, though, that way to much money is spent on the MIC.”

Firing missiles into Libya has nothing to do with our safety: oil and military interests alone. Excluding Social Security and Medicare (self-funding through payroll contributions), the 2011 budget will amount to $2.215 trillion. Military spending of $712 billion (not including cost of wars, Veterans Administration and Homeland Security) comprises 32% of the budget. We are defending 130 countries with 900 military bases. Homeland defense would cost a fraction, but this budget item evidence of the overbearing influence of the military-industrial complex.

“If you think private accounts are superior to SS, you are truly an idiot.”

Well, I can’t argue with a genius. Pity you can’t give me studies that SS has outperformed the S&P 500, rather a mediocre measuring stick. As I argued, at least if you have retirement funds in a private pension fund, they can’t change the rules on you as SS does all the time. You haven’t answered half the questions I asked you. I suspect you would rather avoid uncomfortable facts.

“I can’t reason with those who cannot accept facts”

I have supplied you with a mountain of facts. How about reciprocating? Find research that proves the superior returns of SS.

“The only reason I am comfortable managing my own money is that I do it full time. Most investors have little chance of beating an index fund. Hell, most mutual fund managers can’t. In addition, the fees associated with funds and money management are huge. Wall Street loves the idea of private accounts. That should tell you that the would love to have more of your hard earned money to skim profits from.”

There are many mutual funds and money managers who have given investors stellar returns over decades. You are not the only with the ability to manage money successfully. Do you have a public track record, like a mutual fund against we can measure your returns. Most people who manage their own money and boasting about their returns are like fishermen when it comes to describe the size of their catch.

With your exceptional ability to manage money, you could have qualified for a big piece of our SS contributions. I mean if you had two decades of 10% p.a. returns, would you not tender to manage SS funds and would you not have done a better job? I agree the fees are too high, but a simple regulation that limits the fee of these SS-designated funds to, say, 30-basis points if the money under manage exceeds, say, $10 billion, would suffice. Regulations could also have mandated that SS-type retirement funds (i.e., those funded by payroll taxes) can only be invested in companies with a 20-year track record of paying and increasing dividends at, say, a rate of 4% p.a.. Such an investment strategy would have beaten the S&P 500 by quite a margin. Eliminating companies that use stock options would have raised the returns even higher.

“I cannot find anywhere to agree with your assessment of SS. You can simply let the government know that you don’t want yours.”

Now that’s a stupid comment. Why would I pay into SS and then tell the government I don’t want what I am entitled to? Once this budgetary crisis has come to its final conclusion, the government will change the SS rules on us. They are going to raise the retirement age, increase payroll taxes for the 21st time, tweak the inflation adjustment in their favor, and make a host of other changes to lower their commitment to future retires.

“From my vantage, it is very easy to fix the temporary shortfall we are looking at. We just need to raise the limit on FICA and matching deductions and raise the retirement age slightly.”

Exactly, raise the retirement age. That’s a material change to a previous agreed upon contract. A private pension fund can’t do that to you. If you are an employer, like I am, you hate payroll taxes, because they act as a disincentive to hire staff. I’d rather give my contributions of their FICA taxes to the host of money managers that have an undeniably solid track record. Just invest it in Berkshire Hathaway. It’s a no-brainer. When the credit crisis hit, America’s icons, GE and Goldman Sachs, came running to Buffett, cap in hand for a bail-out. I think you deserve a Congressional Medal. You devotion to government is unsurpassed.

“Reagan/Greenspan did this in ‘82 and it worked. It can work again. Don’t hold your breath for GOP support though, corporations would like to kill SS. They want to eliminate their contribution just like with defined benefit retirement plans.”

If they broke the contract in the past, then it makes it easier to do so again and again and again. Some kind of a New Deal. Defined benefit retirement funds were not eliminated by the Republicans. You are not an idiot like me. Rather you are ignorant. You have been fed propaganda. The Financial Accounting Standards Board changed the accounting rules. Corporations used to account for defined benefit plans like the government accounts for Social Security. New workers funded the payments to retirees. The new rules mandated that corporations calculate all future benefits payable to workers under defined benefit plans, discount these numbers and compare it to the assets accumulated to meet these obligations. The shortfalls that showed up were huge and corporations had to make contributions to plan assets to cut these shortfalls significantly. This shock to their financial system caused corporations to change from defined benefit funds to defined contribution funds. It had nothing to do with the Republicans.

“You outline of how biz works in Singapore is precisely why we need to change our laws to capture more corporate taxes here. I fully understand globalization, but providing a tax holiday here only allows corporations to expand their operations abroad.”

Providing a tax holiday here only allows corporations to expand abroad? – just the opposite. Giving corporation a tax holiday if they relocate their manufacturing facilities from aboard to the US will result in a rush of manufacturing activity in the US. Corporations across the globe, not only US corporations, will open up manufacturing facilities in the US. We see evidence of this when a State or a city offers US corporations special tax breaks to relocate. Study the SEC filings of large US corporations, especially those located in California and see how many of them have moved their manufacturing facilities abroad the past ten years to capture lower taxes. I am at loss how you can argue that tax holidays in the US would “allow corporations to expand their operations abroad.” Some might use the tax savings to grow their business abroad, but far more corporations of all nations not only the US would relocate to the US. It is a pretty simple economic rule, even an idiot like me can follow the logic: High taxes cause capital to flee. No capital, no jobs.

“Aren’t we fools? We need to charge fees and duties for those who want access to our market. If HAL and RIG want to create a false HQs in Switzerland, let them sell all of their products there. We are not leveraging the largest market in the World because we are now the United Corporations of America. DUH!”

The Soviet Union followed this policy with great success. If you were a CEO of a public corporation you would look at every line item in your income statement, including the tax line. You would arrange the business in such a manner that you minimize the corporations’ taxes. Hence, to stop the migration of US corporations abroad and encourage the migration of foreign corporations from abroad reduce corporate taxation. Corporations are the vehicles by which investors allocate capital and hence they are the job engines of the global economy. Charging fees and duties were tried during the Great Depression and made matters infinitely worse. India’s economy only started to grow when they dropped all the regulations that prevented foreign corporations from doing business in India. Protectionism is never an option.

“Warren Buffett is not squealing about paying much higher taxes. He is one who would see his tax rate from dividends and LT capital gains jump 60% with the Grand Bargain recently offered by Obama. Moreover, he has already committed to give away his fortune unlike the greedy trust-fund losers I have cited in the past for corrupting our government.”

Buffet doesn’t care how high Obama raises taxes against the rich, because he has immunized himself against the full impact of such taxes as I explained above. I highlighted the fact that he is a man of great integrity, but he made sure that not a penny of the $50 billion he accumulated in his lifetime falls into the hands of the miscreants in Washington.

“You are really uninformed when it comes to corporate taxes. You need to do a little more research. I think the rate right now is around 8.6% actual and the hardest hit are the small guys. As Helmsley once said “taxes are for the little guy” and the corporate lobby which controls the GOP, want to continue the smoozing of the wealthy and Wall Street while ensuring they don’t have to compete for campaign money.”

I’m sorry, I really am ignorant of these issues as the above posts demonstrate. Corporations pay 35% on their US-derived income and those with manufacturing activities pay 33%. The tax code contains a host of loop-holes by which some corporations (e.g. those with heavy R&D expenditures) can lower that to the 25%-range. If the average corporate tax rate is 8%, it would be attributable to the fact that they have arrange their affairs in such away that most of their profits are earned abroad where the rates a much lower. Take this from an ignorant idiot.

Again you are far too myopic. The corporate lobby controls the GOP and the Dems. It doesn’t pay them to only back one horse. They hedge their bets by buying the loyalty of Representatives on both side of the isle.

“I have an interesting question for you, why did the House Teapublicans refuse the Grand Bargain a few days ago? Your answer will tell me whether you understand what is driving our politics or simply following what you read and hear from a couple of sources.’

The House passed a Cut, Cap and Balance “bargain” by a huge margin (which included a provision to raise the ceiling by more than $2 trillion), but the Dem-controlled Senate refused to vote on it. (Both the GOP and Dem establishment already have a secret deal ready to sign for the President. All this theater is just pretense to give the media fodder to attract an audience and keep the advertisers happy).  Boehner then came up with a new plan that in fact does not cut the spending. It cuts $900 billion from the CBO estimates, which would still add more than a trillion dollars to debt next year. These 22 Representatives are holding true to their promise to reign in this expansionary government that has burdened us with $14 trillion in debt, when we “only” had $6 trillion in debt in 2000. Both parties are to blame. They are equally corrupt. Makes no difference who controls what. As I said above, corporate interests have bought them all. You should hail the 22 for standing true to the promises they made to the electorate. It is wholly unusual. You don’t seem to care about the debt being placed upon us, our children and our grandchildren. The government is not big enough for you. You complain about corporate lobbyist, but you want a bigger government, which would just more government contracts to the corporations, the war profiteers, the Haliburtons… The 22 who were brave enough to stand up against their bonehead leader and stick to their principles are the only allies we have in Congress against this govt-big business cabal. Hence the media vilifies them.

UMM, if bond holders are given priority for payments after 2 August, then Social Security recipients have nothing to fear. Social Security is a pay as you go system and the extra funds it has are used in the general budget but the system receives government securities to cash in when necessary. If it becomes necessary Social Security can cash its securities which are backed by the full faith and credit of the United States of America.

Almost the same for the USPS. The USPS was set up to support its operations out of the revenue it generated by doing Post Office stuff but their revenues are used in the general budget but I don’t think they receive any securities to cash in when they’re short of funds.

I sent an e-mail to Sam Graves (R-MO) asking what the Republicans are doing to recover the trillions of dollars Bush wasted in Iraq but he responded with the typical elected official BS. 30

Best Regards,
Ken Knox

“@Albert- I forgot to cover the Tea Party. First it isn’t a grassroots organization. It was originally that, but was hijacked by Fox News and the GOP to spin their corporate nonsense. I just saw the latest “Crossroads Grassroots Org” ad and it parrots the taling points big corporations have constructed for the Tea Party. You do know that many of these guys and gals are former lobbyists, don’t you?”

I agree wholeheartedly with you and with the point you made in the paragraph that followed; not quoted.

“What we are facing right now is not from too much spending. It is a combination of too little government spending to offset what the Great Recession has taken from our economy.”

Geez, we have raised the national debt from $6 trillion in 2000 to $14 trillion and you say we are suffering from a lack of government spending? It begs credulity.

I illustrated above that if you take, say, a hundred million dollars out of our hard-earned wages, the result would be a net loss in job creation. If not, then every country in the world should take 90% of its workers hard-earned wages and their would still not be enough workers to fill all the vacant jobs. They tried that in the Soviet Union and East Germany, to some extent still in North Korea. As I said, this is just self-evident stuff, not rocket science.

I know your line of reasoning. We should not take, say, a hundred million from our hard-earned wages, but rather borrow the money, spend it and then repay it when the economy recovers. Tried that since 2000 and in big measure since 2009 - result: unemployment rate 9.4%.

“Look at what the Teapublicans are offering as a “solution” more tax cuts for the rich and killing our social safety ner. We are becoming more like China than Germany. I would much prefer the latter.”

You are just so easily duped by the media. Throw your TV out like I did and research the facts yourself. The Tea Party is agitating for cutting the size of government, especially the borrowing. At least just freeze the budget at current levels.

“killing our safety net…’ What nonsense. A safety net that has fallen in disrepair and where there aren’t enough funds to make repairs is not much of a safety net. The Tea Party is saying that young people should be allowed to take care of themselves. They would all opt out of SS en masse, if given the choice. Talk to young people. they know they are buying into a social security system that, if properly measured, is $40 trillion in a hole. They are nor expecting to get anything. Inflation alone will erode their benefits. There still are many Americans who believe in the spirit that made America great. They want to take responsibility of their own future. They don’t look to government (the taxpayers) to provide for them. It’s a pity the Soviet Union collapsed. It was a prime example of safety nets at work. Of central planning. Just the kind of stuff you love.

We are getting worse than China. China’s debt to GNP is 17.1% and will be 10.9% in 2012. We will be at 109.4% (Barron’s Aug 1, 2011) Taxes are low in China. There are no safety nets for the Chinese. The Chinese save about 30% of their net income to provide for future retirement and medic care. It is a one-party state (sort of what we have - two wings of the same predatory bird), but the size of government relative to GNP is small. If you invest in Chinese corporations listed on the Hong-Kong stock exchange (H-shares) you don’t pay a 15% withholding tax, like you do to all other governments on other exchanges. These Communists know that low taxes attract capital and capital creates jobs.Just across the border from Hong-Kong you have enterprise zones to attract manufacturers with zero taxes. Hey Presto. Corporate tax is 15% in China, but tax holidays and enterprise zones see to at that in the end taxes are super-low. Same in Taiwan and South Korea.

As for Germany, it spends 1.4% of its GDP on defense; $46 billion. We spend $712 (2011 - not including wars), 4.7% of GDP. Germany has cash to spare for safety nets, because we have military bases in Germany protecting their territorial borders. Canada spends $20 billion. it has lots of revenues left after that provide universal health care. If we spent 1.4% of GDP, our defense expenditures would only be $212 billion. We are borrowing $500 billion every year from the Chinese and Japanese to defend a 130 other nations with our 900 military bases.

OK that’s it from me. Those persuaded against their will are of the same opinion still.

While I can’t give specific results/outcome, I can assure that the average/common worker will get the worse of whatever deal is the result. I can also assure you that the politians/President, etc. will not be hurt in the least.  All the rich/influencial people/groups can rest easy because this government/politicians are untrustworthy to think of the majority of “little guys” who do all the dirty work to keep this great country working.
There should be term limits for all offices—don’t give them an uncontrolled license to keep screwing us.

@Albert- I have attained a seven-figure net worth. Have you? I speak from personal experience. SS was part of my retirement plan. I paid into it involutarily. Now Ryan and the GOP want us to forget that politicians starting with Reagan stole our retirement funds and used the money so as to avoid taking responsibility for their idiotic policies like the missile defense and tax cuts.

Anyone who thinks the problem is spending and not as a result of the tax cuts of the last 3 decades is hopeless. The top marginal tax rate has dropped from 70% to 35% in that period. We pay the lowest tax rates we have in more than 60 years, yet the GOP continues to spin the nonsense that we need more tax cuts and the foolish believe them. Those who ascribe to magic thinking via the nonsense the tax cuts pay for themselves are delusional. Even David Stockman who rolled Supply-Side Economics out in the 80’s has admitted that it was a trojan horse to give tax cuts to the rich.

We do need a discussion on what type of government we want, but those who champion retooling the New Deal, need to be more honest and transparent. What we are witnessing on Capital Hill right now is a small gourp of Congressmen who are being back by billionaires and Wall Street donors who want to dismantly the New Deal and keep their tax cuts. Their words sound plausible until you look at what they are trying to do; destroy the middle class.

You do relize that when a hedge fund manager pays just 15% on “carried interest”, he is taking advantage of a loophole that was created by corporate lobbyists in response to his wealth, don’t you. The whole notion that giving tax breaks to the “job creators” has been shown to be total BS. Where are the jobs from the Bush tax cuts? And when we last gave a tax holiday to coporations to repatriate their tax obligation, they didn’t hire here in the U.S., but they did expend overseas. I can’t blame them. Corporations have no souls. They are chartered to make as much money as they can for shareholders and management. Comprende?

“What we are witnessing on Capital Hill right now is a small gourp of Congressmen who are being back by billionaires and Wall Street donors who want to dismantly the New Deal and keep their tax cuts.”

Half-right. Not a small group. A huge group of Congressmen, including current and former presidents - both parties heavily infested. Wall Street donors buy the loyalties of both parties, hence makes no difference who is the White House and who controls Congress.

You don’t get it. Research shows the government can only raise 20% of GDP in taxes, no matter how hard you try to rejigger the rates and who you tax. And they don’t deserve more, unless we want to morph slowly but surely into the Soviet Union.

“Their words sound plausible until you look at what they are trying to do; destroy the middle class.”

They have already destroyed the Middle Class. It is just not yet that transparent and obvious. Wait until hyper-inflation comes, government’s little trick to repay debt with a devalued currency. National debt = $44,000 per man, woman and child - not counting the tens of trillions of dollars in unfunded New Deal entitlements. What’s there about broke you don’t understand?

“You do relize that when a hedge fund manager pays just 15% on “carried interest”, he is taking advantage of a loophole that was created by corporate lobbyists in response to his wealth, don’t you.”

Yes, it’s a scam, but that’s why they bankroll political campaigns. You need to vote for people who have never ever taken a dime from special interests: Ron Paul

“The whole notion that giving tax breaks to the “job creators” has been shown to be total BS. Where are the jobs from the Bush tax cuts?”

Hedge fund managers aren’t job creators. Not total BS, unless you can explain the Singapore miracle by any other means. You better tell the Canadian government, the South Korean government, the Taiwanese government, and the Chinese government (and many others, especially in Asia) that they should stop attracting capital with their low taxes. It is making the US uncompetitive. Alternatively, we could follow their good example.

I’m not talking about the changes at the margin like the Bush tax cuts. We don’t know if the Bush tax created jobs, because the war criminal went on a spending spree to fund his trillion dollar oil war. You have to cut spending and lower taxes - the Singaporean way; unless you can refute the Singaporean government’s explanation of the cause of their prosperity. You can’t. You stumped. Show me a country with government expenditure equal to 30% of GNP that has a vibrant economy. Don’t say Norway. Norway runs a 15% budget surplus every year. Their sovereign wealth fund equates to $95,000 per man, woman and child. No destruction of the middle class in Norway.

The Indian government had tremendous success when they gave IT companies tax holidays. So called Software Technology Parks (STPs) got a ten year tax holiday and that’s why the Indian IT industry is so huge today. Special Economic Zones (SEZs) have now replaced STPs. Development centers operating in SEZs will be entitled to income tax incentives for periods of up to 15 years. If it is BS then it would not be used across the world to attract capital and create jobs with such demonstrative success. It’s ECO 101 stuff. Some people are so ideologically handicapped. As I said before, pity the Soviet Union failed. Your ideas are in sync with the politburo’s central planing agenda.

“Corporations have no souls. They are chartered to make as much money as they can for shareholders and management.”

I don’t invest in companies that enrich insiders, but those who go all out to take care of shareholders are just fine. What’s wrong with making money for shareholders? We take the risks. We want the returns. Again, a in a Soviet style paradise, enveloped in safety nets, there is little room for corporations pursuing the profit motive. Apple, Microsoft, IBM, etc. did not originate in the Soviet Union. In fact the Soviet Union gave nobody any incentive to enrich themselves. They produced nothing of value or note. No Boeing, no Caterpillar, no Intel, no nothi’n. Once the Soviets fully redistributed all the wealth, cumulative decay set in.

OK, no more of this. I’ve just about written a book here. You keep agitating for more taxes and bigger government, more wars, more welfare, more subsidies, more government boondoggles, like high-speed trains. That’s fine by me. It’s too late to save the Republic. The delusional safety net is already at breaking point. There is no point in adding to or subtracting from government. It’s too late. We are already screwed. Spending money at the rate of one dollar every single second, or $86,400 every day, it would take you nearly 32,000 years to spend $1 trillion. In Washington, they spend a trillion with a stoke of a pen. We are screwed. End the debate. There is nothing to debate. This is not 1776. This is 2011. Interests rate are rising. The current annual government interest payments of $348 billion will be one trillion dollars before you can say Christopher Robinson. We’ve dug too big a hole for ourselves. Toast. Finito [Thanks for the dialogue, anyway. Sleep tight]

Maybe those imbecilic tea-party are right but for the wrong reason.Perhaps we are merely deluding ourselves into believing that the US economy is not bankrupt.Maybe the best thing for the country is to default on the debts to foreign creditors and just have a fresh start.

@Albert- You are truly amazing saying no government can raise more than 20% of GDP. I am not for unnecessary taxes, but you’ve got to have been living on another planet not to realize that the preponderance of our current debt and deficits are directly resultant from the 2 wars, 2 tax cuts, Medicare Part D, and the Great Recession which began BEFORE the Republicans relinquished power.

The Tea Party and it’s supporters are a very small minority and decreasing all of the time. Look at their intransigence right now and tell me you actually believe they will all be reelected and that voters will add more. I will take the other side of that bet.

While I like Ron and Rand Paul and agree with much of what they believe, they are way out of step with most Americans when it comes to destroying the Fed and most Federal agencies and returning to the gold standard. In addition, Rand suggests that each business owner should have the right to decide whether or not to serve blacks. Nice guys; stupid policies. We don’t need to return to the 20th Century, thank you! Hell, Perot was right on most counts, but he could not lead in our republic.

You continually misconstrue my positions. I am for free enterprise. I own GS, AAPL, GOOG, GE, MO, XOM and many other individual issues and options on them, but I don’t want my companies to deny science like XOM does. We have way too much influence on our political debate by corporations and they don’t always support good public policy. XOM and climate change is a perfect example. They still spend countless millions corrupting our political debate even thought they admitted years ago that the science behind global warming was sound.

I and most progressives I know realize that something must be done to curtail government spending, but this must be balanced. Rand Paul and most of his cohorts on both sides of the aisle are or will be multi-millionaires. They have no clue of how hard it is to raise a family of 4, for instance, on the median wage in the country and plan to send your children through college, etc. He along with his Tea Party crowd want to correct the debt problem that was created over the last 30 years RIGHT NOW. And he wants to ask a SS recipient to accept 3% less if he is 65, 6% less if he is 75 and 9% less if he is 90 years old! He is asking the retiree on a fixed income to do this while protecting millionares like himself from giving up any of the tax cuts he has benefited from over the last 3 decades. Marginal tax rates on the top bracket have plummeted by 50% from 70% to 35% since Reagan started this “trickle down” nonsense. We need a fair tax system where those who benefit most from Eisenhower’s Intercontenental Hiway Program and ARPANET and so on, pay progressively higher taxes. I applaud Obama for putting so-called entitlements on the table, but the Tea Party nixed a fair compromist to please their corporate donors.

By the way, a balanced budget amendment will handcuff the legislature from doing it’s job. If that’s the best they can do, fire them all. Our debt to GDP topped out at 120% at the end of WWII. We raised taxes to 92% and enjoyed prosperity despite that marginal tax rate. We can do it again, but not on the backs of our disabled, poor and aged.

The only reason you see Republicans continuing to ask Obama to come forth with a written budget is that they are stuck running on the Ryan budget which is nuclear if you haven’t noticed. The AARP had is right a few years ago when they ran an ad showing a contractor saying “we can fix it” while looking at a dripping faucet and the wrecker ball was knocking down the house. That has been the REpublican response to anything that benefits the middle class and poor.

I challenge you to ask any of your friends who have either lived in “socialist” Europe or a European himself whether or not the would prefer US citizenship. You will be surprised at their response. We are heading towards third World status due to the corruption of our politicians. We need to get the money out of politics and the corrupting influence of our debate.

You say that we a bankrupt. Do you know what a sovereign nation is? Which one has the World’s reserve currency? Why can’t Greece solve it’s debt problem by printing more euros? You seem to know all the answers. Show me!

It maybe time to make the sobering conclusion that we no longer can afford to occupy Afghanistan & Iraq or dump billions of dollars in bombs on Libya.Nor give away billions to negligent banks and investors.

Michael Arnold

July 30, 2011, 11:14 p.m.

“One anonymous administration official told Bloomberg that bondholders will be prioritized”

Fine. If that happens, you’re gonna see some real action in the streets of Washington D.C.

@Albert- well I’m simply worried about the fact that Tea Partiers are playing with people’s fears; nothing new you’d say.
But since time immemorial demagoguery has had the upper hand in these respects, and I think the majority of world’s population isn’t paying too much attention (i.e. developing world’s population, for instance).
This is why the ones that follow the issue are either very much involved emotionally, or are pretty much savvy economically; being in the spotlight worldwide is always much out of control to some extent, and a lot more to gain about.
This is why I stay 100% behind President’s Obama call for active involvement media-wise, flood the representaives’ websites to make them change their minds.
I also see that internationally (mainly Europe) the news you get aren’t satisfying enough to have a crystal clear overview of the matter (and thus fear-inducing).
As I say, right-wingers are always playing this game: bypassing rationalities and enhance world’s fever to maximum degree.
What are they hoping for and aiming at, third world war in the long run?

...President Obama I mean…Forgive me.

There is a lot of hatred and vitriol in these comments, but that is to be expected from left-wing “progressives”.  Let’s get one thing straight. The Bush tax cuts are for everyone not the rich. Let us not vilify the wealthy people; most of whom have made their money by working hard and becoming successful. These are the people who hire workers, donate to charities and give of themselves. Isn’t that the American dream to become successful?

Let’s talk about the Tea Party. I wonder how many of you have actually attended a Tea Party rally. I can tell you it is amazing to see thousands of well-behaved people coming together to protest what is happening to their government. There is no violence, hatred, or discrimination anywhere; just a real grassroots demonstration of people who are unhappy with what their government is doing. Our last election proved that people will get out and vote for positive change. We were fooled in 2008 by Obama and the Dems, but we have learned our lesson. Beware of the slick rhetoric practiced by the liberals (progressives).

If an agreement isn’t reached by Aug. 2, our debts will be paid, Social security will continue, the military will be paid, etc. Tim Geithner and Obama have the discretion to decide who and when bills will be funded.  All the scare tactics are business as usual in Washington.

Obama promised change in Washington.  How’s it working for you?

To John L
.....we can no longer be the world police

Dear John, that would be a very good thing. The policing of the world by the US is a pretext to exploit, opress and subjugate.  Misery and havoc wherever the policing took place for the benefit of the shareholders and criminal bankers who stilll want more and are prepared to ruin the world for their own benefit.
I wish the US population could be weaned from their tranquilizers and Faux-lies adddiction.

“@Albert- You are truly amazing saying no government can raise more than 20% of GDP. I am not for unnecessary taxes, but you’ve got to have been living on another planet not to realize that the preponderance of our current debt and deficits are directly resultant from the 2 wars, 2 tax cuts, Medicare Part D, and the Great Recession which began BEFORE the Republicans relinquished power.”

I did not say no government I say the US govt. Read all my posts carefully. As you describe yourself as some sort of an investment genius you no doubt have a subscription to the Wall Street Journal. Search the archives to fact check my assertions below taken from the WSJ (I’m also supplying links to other articles as a sort of a free education on the “let’s-tax-the-rich” silliness - oops, the moderator would not accept the post with the links, but search the WSJ archives for tax receipts, 20% of GDP, etc.)

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). W. Kurt Hauser was the first to make this observation in a WSJ op-ed in 1993, after which it became known as “Hauser Law.” Another WSJ op-ed (Nov. 26, 2010) by same writer notes that since 1993, there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes and the number of tax brackets among others. “Yet, during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP,” writes Hauser. He explains, “Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same.

When US taxes were cut in 2003, politicians and the media predicted that the rich would gain a huge tax windfall. The WSJ (August 28, 2010) provided IRS data to show that actual tax payments (total revenues) collected over the period 2003 to 2007 were about $350 billion higher that Joint Tax and the Congressional Budget Office predicted when the 2003 cuts were enacted.

Moreover, the wealthiest taxpayers paid a larger share of all income taxes from the beginning to the end of this period. The IRS data show that in 2003 those with incomes above 200,000 paid $313 billion in income tax. By 2007, they paid $610 billion. When the recession hit, the payments fell to $537 billion in 2008. But even accounting for that decline, payments by the rich were still 65% higher five years after the rate cut that was supposedly a giveaway to the rich.

The share of federal income taxes paid by the $200,000-a-year-club was 42% in 2003 but 52% in 2008. From 2003 to 2008, millionaires increased their tax payments to $249 billion from $132 billion. The number of returns declaring $1 million or more in income increased 76% to 319,000 from 181,000 as the economy expanded. These “damnable rich” accounted for 3% of all taxpayers in 2008, but paid more in taxes than the bottom 97% of all taxpayers.

If you own GE, you should study the company’s proxy statements the past ten years. The company exists for the sole purpose of enriching insiders. By owning GE you are contradicting the distaste you expressed earlier about US corporations: “Corporations have no souls. They are chartered to make as much money as they can for…management. Comprende?” You are obviously not doing proper research, so let me help you:

Net income at GE grew at rates of 0.3% p.a., -6.7% p.a. and -16.3% p.a. during the past ten, five and three years, respectively. The worst performing segment was GECS, where net income declined at -4.9% p.a., -19.9% p.a. and -36.7% p.a. over the past ten, five and three years.

It is impossible to judge this kind of performance as being worthy of any kind of executive bonus. However, the Board mined the data and finding a found good measures to use as justification for performance bonuses.

One could defend the Board’s action by arguing that up until 2007, performance wasn’t too bad, but it all unraveled over the past three years. As we have seen, the unraveling was a consequence of prior decisions that were made, particularly at GECS that had disastrous results in 2008 to 2010. Notwithstanding, in 2009 and 2010, executives received exorbitant stock options grants, priced opportunistically at a time when the company’s stock traded at record lows.

While shareholders suffered agonizing losses, executives were gearing up for super-sized stock option gains in future years. On March 12, 2009, six trading days after GE stock reached a 17-year low of $5.73, three executives received one million options each with a strike price of $9.57 and five others received 1.8 million in aggregate. On July 23, 2009, four of these executives received an additional 800,000 options and five others received 1.850 million options in the aggregate. The strike price of the second grant was set at $11.95. These options expire in 2019.

GE’s stock traded at $24.93 at the beginning of January 1999, 10 years prior to the above grants. If the stock price takes until 2019 to reach $24.93 again, it would mean a 20-year round trip of dead money for shareholders. The three executives who received their 1.8 million options at a weighted average strike price of $10.63 stand to gain $25.7 million each within the next ten years. If the stock price compounds at only 5% p.a. over the next eight years, the option gain will increase to $29.5 million. (Never forget that these gains represent the shareholders’ cost should management repurchase the stock at the time of exercise to neutralize the dilutive impact of the option exercise.) There is no way to justify this kind of opportunism and blatant disregard of the executives’ own contribution to the desperate situation that the company found itself in at the onset of the credit crisis.

OK, as I said above, I want close this discussion. We’ll let the editors and others decide on who made the best case for big government vs small government.

@Gail “There is a lot of hatred and vitriol in these comments, but that is to be expected from left-wing “progressives”.”

I find just the opposite—the comments on this thread are at a generally higher and more independent level than most of the leftist or rightist partisan sites I’ve read.

@Gail said “Beware of the slick rhetoric practiced by the liberals (progressives).”

There is no shortage of “slick rhetoric” at any point along the political spectrum. Try to rise above it.

Well said John L.
Right-wingers’ is an old chestnut of a strategy; analyzing the content of your opponent’s discourse and turn it the other way round. Example: suppose a “Progressive” is being run over by a Tea Partier driving recklessly: who’s to blame? The “Progressive” in Tea Partier’s mind, even when the evidence is blatantly showing he or she was breaking the law and driving unlawfully at full throttle.
The Tea Partier’s standpoint would be: “It was that effing Communist that threw himself under the wheels of my car!”
You get a lot of this everywhere aggressive, intolerant, arrogant, violent, racist and xenophobic people are in power: Italy for instance.

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