Real Effective Tax Rates | Romney's versus Obama's

To contact us Click HERE

Content of Character ::

According to a report released by the Tax Foundation, an effective federal tax rate of 14.0% is higher than what 97 percent of Americans pay.

- By: Larry Walker, Jr. -

And according to The Tax Policy Center, the average effective federal tax rate for all Americans, as a percentage of cash income, was only 9.3% in 2011. Those in the Top 20 Percent (with incomes over $103,465) paid an average of 14.9%, while those in the Bottom 20 Percent (with incomes below $16,812) received back refundable tax credits averaging 5.8% of their incomes.

Within the Top Quintile, the Top 1 Percent paid an average rate of 20.3%, while the Top 0.1 Percent paid an average of 19.8%. It’s important to note that these are averages, which means that within each quintile some pay more than the average and others less. But overall, since the average effective federal tax rate for all of America is 9.3%, this represents a kind of minimum benchmark. What’s your effective federal tax rate?

Under the traditional model, in 2011, Mitt and Ann Romney paid an effective federal tax rate of around 14.0% (see definitions at the end), while Barack and Michelle Obama paid 17.8% (see table below). So does that mean the Obamas are more patriotic? Before you answer that, consider that the Romneys paid a total of $1,912,529 in federal income taxes, versus the Obamas $150,253. So does this give the Romneys the upper hand?

Digging a little deeper, it turns out that the Romneys paid an effective state and local tax rate of 11.3%, compared to the Obamas 7.0%. The Romneys also paid $1,541,905 in state and local taxes, compared to the Obamas $59,804. Shouldn’t state and local taxes be counted as well, since they are, after all, taxes? Yes, of course.

So when all taxes are on the table, the Romneys overall effective tax rate was 25.2%, compared to the Obamas 24.8%. And, the Romneys paid a total of $3,454,434 in federal, state and local taxes, versus the Obamas $209,057. So in light of these facts, is one of the two presidential candidates better suited for the Oval Office than the other? Is one a tax deadbeat and the other a saint? If a presidential candidate’s effective tax rate matters, then this election should be a toss up. But if it doesn’t, then Barack Obama’s entire – fair share monologue – is nothing but rubbish. The question is – what really matters?

Real Effective Tax Rates

Perhaps a more suitable measure of patriotism may be found in one’s real effective tax rate. One way of lowering U.S. tax liabilities is through charitable giving. When gifts are given to charity, the taxpayer no longer controls the assets, and so is granted a deduction against his (or her) taxable income of as much as 50% of adjusted gross income. Depending upon one’s marginal tax bracket, the tax savings may be as high as 35% of the amount given.

What happens to the money once it has been gifted? It gets spent by recipient organizations on salaries and wages, goods and services, real property, or is otherwise invested toward its charitable endeavors. Thus, charity is wealth redistribution, or if you will, a type of voluntary taxation. I would add that charitable giving is a much more efficient means of spreading the wealth than the U.S. government’s wasteful method, which after a certain limit may be summed up as little more than legalized robbery.

In 2011, the Romneys gave away $4,000,000, or about 29.0% of their income, although they only chose to claim a tax deduction of $2,250,772. The Obamas donated $172,130 or about 20.0% of their income. When we add this voluntary taxation to the total amount of taxes paid, we find that the Romneys paid a real effective tax rate of 54.4%, compared to the Obamas 45.1% (see table below).

Just to add some perspective I included data from the Roosevelts and the Carters tax returns (above). It’s interesting to note that in 1937, Franklin and Eleanor Roosevelt donated $3,024, or only about 3.2% of their income, while in 1978, Jimmy and Roselynn Carter gave away $18,637, or about 7.0%. When we add the amount of the couples voluntary taxation through charitable gifts, to the total amount of taxes paid, we find that the Roosevelts paid a real effective tax rate of 33.3%, compared to the Carters 45.6%. So was FDR a slacker? Was Jimmy Carter slightly more patriotic than Obama? And isn’t Mitt Romney a better man than them all?

Note: The Roosevelts income of $93,602 in 1937 is equivalent to $1,504,178 today, while the Carters income of $267,195 in 1978 is equivalent to $948,325. A study of historical Presidential tax returns is interesting, informative, and highly recommended for anyone serious about tax reform, as is a study of historical income tax rates.

Tax Return Analysis: Romneys versus Obamas

Following are some other key statistics from the Romneys and Obamas tax returns:

It’s notable that 94.8% of the Romneys income came from investments – interest, dividends and capital gains, versus -12.8% for the Obamas. The Obamas tax return includes a capital loss carryover of $116,151, a consequence of failed investments from the past. That’s interesting, since Barack Obama is the one always harping on the idea of government investment, yet all the while it turns out that successful investing is a trait beyond the scope of his expertise. Small wonder his taxpayer-funded green energy investments have turned out to be dismal failures.

What’s even more notable is the fact that roughly 62.4% of the Romneys income came from capital gains and qualified dividends which, based on current law, are taxed at a maximum rate of 15.0%. In contrast, around 99.0% of the Obamas income came from wages and net book sales which are taxed at ordinary rates of as high as 35.0%. Thus the Romneys effective tax rate should be considerably lower than the Obamas; but it turns out that both couples effectively paid about the same overall effective tax rate, 25.2% versus 24.8%, as explained earlier. So in spite of favorable capital gains rates, overall effective tax rates tend to balance out. One reason for this phenomenon is that most of the States don’t reciprocate (i.e. there is no favorable capital gains rate at the state level).

Next, we find that the Romneys paid $102,790, or 0.8% of their income, in foreign taxes, while the Obamas paid $5,841, or 0.7%. Thus, on a percentage basis, both families earned about an equal amount of their income from foreign sources. So is either candidate more likely to outsource American jobs than the other? I guess Obama could limit sales of his books to the USA, and cut-off the rest of the world, as if that would make any sense. I’ll let you figure that one out.

Next, we discover that the Obamas claimed a retirement contribution deduction of $49,000, or 5.8% of their income, while the Romneys claimed none. Foul! The question is that since Barack Obama now qualifies for a $191,000 a year presidential pension, why is he continuing to maximize the simplified employee pension account (SEP) deduction? In the private sector, the most anyone can exclude from income for retirement purposes, including employer matching contributions, is $49,000 per year. Yet Barack Obama gets to claim this maximum deduction, while at the same time deferring taxes on the annual contributions the U.S. Treasury makes to his pension account. Does that sound fair to you? Is Obama paying his fair share?

Is a guaranteed $191,000 a year for life, on top of a virtually unlimited presidential expense account, insufficient for Mr. Obama? In stark contrast, Mitt Romney refused to take a salary while he served as Governor of Massachusetts. So has anyone bothered to ask if he would waive his presidential salary? Would he also consider waiving the presidential pension and lush lifetime expense account? Somebody needs to ask that question. By the way, Mitt Romney could have claimed exactly the same SEP-IRA deduction that the Obamas did, based on his net business income, which would have further reduced his tax liability, but chose not to. So what does this say about character?

Next, the Obamas also claimed a $47,564 home mortgage deduction amounting to 5.6% of their income, while the Romneys claimed none. Wow! So since the Obamas claimed both a $47,564 home mortgage deduction, and the $49,000 maximum retirement contribution exclusion, while the Romneys claimed neither, this gave the Obamas an 11.4% handicap. Note: According to the Internal Revenue Service, in tax year 2010, only 25.8% of tax filers claimed the home mortgage deduction, which kind of makes the case for placing limits on this deduction.

Now when it comes to charitable contributions, as stated earlier, the Romneys gave $4,000,000, or around 29.2% of their income, while the Obamas gave $172,130, or 20.4%. But since the Romneys only chose to write-off $2,250,772, their actual deduction amounted to just 16.4% of their income. So once again the Obamas had a slight advantage, yet when their total itemized deductions are compared, we find that the Romneys amounted to 34.2% of their income, while the Obamas amounted to 33.0%, or about the same.

Finally, the Romneys federal taxes included an Alternative Minimum Tax (AMT) of $674,512, representing 4.9% of their income, while the Obamas incurred a liability was $12,491, or 1.5%. The AMT limits certain deductions and tax preferences to ensure that high income earners pay at least a minimum amount of tax. So what will happen when the AMT is eliminated? Will the rich pay less in taxes? Not necessarily, because if the same deductions and tax preferences for high income earners were eliminated from the get go, then the AMT wouldn’t be necessary. Isn’t this the objective of tax reform, to eliminate deductions and preferences, lower tax rates, and thus simplify the tax code? So when tax rates are cut by 20% in the next year or two, and that’s where we’re headed, the first place to look for deductions and preferences to eliminate is within current AMT regulations.

Content of Character

So what’s the point? First of all, we learned that in 2011, the Romneys paid a total of $3,454,434 in federal, state and local taxes, while the Obamas paid $209,057. When state and local taxes were added to the mix, we found that the Romneys paid an overall effective tax rate of 25.2%, versus the Obamas 24.8%. But when charitable contributions were figured in, we discovered that the Romneys paid a real effective tax rate of 54.4% compared to the Carters 45.6%, the Obamas 45.1%, and the Roosevelts 33.3%.

What should be clear is that measuring a person by the size of their effective tax rate reveals nothing about their character. If those who pay the largest share of taxes are the most patriotic among us, then that all but eliminates everyone except for the Top 1 Percent. If effective tax rates are so important, then why not simply convert to a flat tax (i.e. the FairTax)? That way the concept of effective tax rates becomes meaningless. In a perfect world it seems this would be the goal.

Is paying more taxes than absolutely necessary savvy? No, but anyone who voluntarily pays more must really love this country. Mitt and Ann Romney didn’t claim all of the charitable contributions they could have, and thus paid a higher amount in taxes than legally required. When it comes down to it, no one that I know cares anything about increasing their own personal effective tax rate; most are like the Obamas, preoccupied with finding ways to reduce it.

The main point of this post has been to prove that measuring any American by the size of their effective tax rate reveals next to nothing about the content of their character. Thus, Barack Obama’s entire fair share mantra turns out to be nothing but rubbish. The rich already pay more than their fair share sir. It’s time to bring on a business guy, someone who really understands what’s going on in this country. It’s time to lower income tax rates, limit deductions and preferences, broaden the tax base, and reduce the size of government. It’s time to lower the federal deficit and move towards a balanced budget. It’s time to purge Barack Obama’s jaded philosophy of – do as I think, not as I do.

Definitions:

(a) The Traditional Model – Under the traditional model, the effective tax rate is calculated by dividing total income taxes (before tax credits and other taxes), by total income (before exclusions and deductions).

(b) Effective Federal Tax Rate – The effective federal tax rate is determined by dividing total federal income taxes (before tax credits and other taxes), by total income (before exclusions and deductions).

(c) Effective State and Local Tax Rate – The effective state and local tax rate is determined by dividing total state income taxes, real estate taxes, and personal property taxes claimed on federal Schedule A, by total income (before exclusions and deductions).

(d) Overall Effective Tax Rate – The overall effective tax rate is calculated by dividing total federal income taxes (before tax credits and other taxes), plus total state and local taxes as in (c), by total income (before exclusions and deductions).

(e) Real Effective Tax Rate – The real effective tax rate is calculated by dividing total federal income taxes (before tax credits and other taxes), plus state and local taxes as in (c), plus charitable contributions, by total income (before exclusions and deductions).

References:

The Romneys 2011 Tax Return

The Obamas 2011 Tax Return

The Roosevelts 1937 Tax Return

The Carters 1978 Tax Return

Romney’s Taxes: A Window Into Charitable Giving

Even at 14%, Romney Pays a Higher Rate than 97% of His Fellow Americans

Ex-presidents have huge expense accounts

PresidentObama’s Taxpayer-Backed Green Energy Failures

PRAVDA: Obama 'Re-Elected by Illiterate Society'...

To contact us Click HERE
“Obama is a Communist without question promoting the Communist Manifestowithout calling it so. How shrewd he is in America. His cult of personalitymesmerizes those who cannot go beyond their ignorance. They will continue tofollow him like those fools who still praise Lenin and Stalin inRussia. 

Obama had NO strategy for economic success but nevertheless wasre-elected by an illiterate society and he is ready to continue his lies ofless taxes while he raises them. He gives speeches of peace and love in theworld while he promotes wars as he did in Egypt, Libya and Syria. He plans hisnext war with Iran as he fires or demotes his generals who get in the way.

Bye,bye Miss American Pie. The Communists have won inAmerica with Obama. America continues to repeat the Soviet mistake. Any normalindividual understands that liberalism is a psychosis.”

By Xavier Lerma - 11/19/2012

Putin in 2009 outlined his strategy for economic success. Alas, poor Obama did the opposite but nevertheless was re-elected. Bye, bye Miss American Pie. The Communists have won in America with Obama but failed miserably in Russia with Zyuganov who only received 17% of the vote. Vladimir Putin was re-elected as President keeping the NWO order out of Russia while America continues to repeat the Soviet mistake.
After Obama was elected in his first term as president the then Prime Minister of Russia, Vladimir Putin gave a speech at the World Economic Forum in Davos, Switzerland in January of 2009. Ignored by the West as usual, Putin gave insightful and helpful advice to help the world economy and saying the world should avoid the Soviet mistake.
Recently, Obama has been re-elected for a 2nd term by an illiterate society and he is ready to continue his lies of less taxes while he raises them. He gives speeches of peace and love in the world while he promotes wars as he did in Egypt, Libya and Syria. He plans his next war is with Iran as he fires or demotes his generals who get in the way.
Putin said regarding the military,
"...instead of solving the problem, militarization pushes it to a deeper level. It draws away from the economy immense financial and material resources, which could have been used much more efficiently elsewhere."
Well, any normal individual understands that as true but liberalism is a psychosis . O'bomber even keeps the war going along the Mexican border with projects like "fast and furious" and there is still no sign of ending it.  He is a Communist without question promoting the Communist Manifesto without calling it so. How shrewd he is in America. His cult of personality mesmerizes those who cannot go beyond their ignorance. They will continue to follow him like those fools who still praise Lenin and Stalin in Russia.  Obama's fools and Stalin's fools share the same drink of illusion.
Reading Putin's speech without knowing the author, one would think it was written by Reagan or another conservative in America. The speech promotes smaller government and less taxes. It comes as no surprise to those who know Putin as a conservative. Vladimir Putin went on to say:
"...we are reducing taxes on production, investing money in the economy. We are optimizing state expenses.
The second possible mistake would be excessive interference into the economic life of the country and the absolute faith into the all-mightiness of the state.
There are no grounds to suggest that by putting the responsibility over to the state, one can achieve better results.
Unreasonable expansion of the budget deficit, accumulation of the national debt - are as destructive as an adventurous stock market game.
During the time of the Soviet Union the role of the state in economy was made absolute, which eventually lead to the total non-competitiveness of the economy. That lesson cost us very dearly. I am sure no one would want history to repeat itself."
President Vladimir Putin could never have imagined anyone so ignorant or so willing to destroy their people like Obama much less seeing millions vote for someone like Obama. They read history in America don't they? Alas, the schools in the U.S. were conquered by the Communists long ago and history was revised thus paving the way for their Communist presidents. Obama has bailed out those businesses that voted for him and increased the debt to over 16 trillion with an ever increasing unemployment rate especially among blacks and other minorities. All the while promoting his agenda.
"We must seek support in the moral values that have ensured the progress of our civilization. Honesty and hard work, responsibility and faith in our strength are bound to bring us success."- Vladimir Putin
The red, white and blue still flies happily but only in Russia. Russia still has St George defeating the Dragon with the symbol of the cross on its' flag. The ACLU and other atheist groups in America would never allow the US flag with such religious symbols. Lawsuits a plenty against religious freedom and expression in the land of the free. Christianity in the U.S. is under attack as it was during the early period of the Soviet Union when religious symbols were against the law.   
Let's give American voters the benefit of the doubt and say it was all voter fraud and not ignorance or stupidity in electing a man who does not even know what to do and refuses help from Russia when there was an oil spill in the Gulf of Mexico. Instead we'll say it's true that the Communists usage of electronic voting was just a plan to manipulate the vote. Soros and his ownership of the company that counts the US votes in Spain helped put their puppet in power in the White House. According to the Huffington Post, residents in all 50 states have filed petitions to secede from the Unites States. We'll say that these Americans are hostages to the Communists in power. How long will their government reign tyranny upon them?
Russia lost its' civil war with the Reds and millions suffered torture and death for almost 75 years under the tyranny of the United Soviet Socialist Republic. Russians survived with a new and stronger faith in God and ever growing Christian Church. The question is how long will the once "Land of the Free" remain the United Socialist States of America?  Their suffering has only begun. Bye bye Miss American Pie!  You know the song you hippies. Sing it! Don't you remember? The 1971 hit song by American song writer Don McLean:
"And, as I watched him on the stage my hands were clenched in fists of rage.
No angel born in Hell could break that Satan's spell
And, as the flames climbed high into the night to light the sacrificial rite, I saw...
Satan laughing with delight the day the music died
He was singing, bye bye Miss American Pie
Drove my Chevy to the levee, but the levee was dry
Them good ol' boys were drinking whiskey and rye, singing...
This'll be the day that I die
This'll be the day that I die
So, the question remains:
How long will America suffer and to what depths?
http://english.pravda.ru/opinion/columnists/19-11-2012/122849-obama_soviet_mistake-0/# 

Deflation: Making Sure "It" Doesn't Happen Here

To contact us Click HERE

The trend is abundantly clear; the U.S. economy has been slowing for more than six months and is perilously close to contraction.

After growing at a robust 4.1% clip in the last three months of 2011, gross domestic product fell to 2% growth rate in the first quarter, before falling again to 1.5% in the second quarter.

Using monetary policy, the Federal Reserve has made repeated attempts to stimulate the economy and raise it from its listless state. The Fed has held short term rates at a remarkably low level of between 0% and 0.25% since December 2008. It has also purchased nearly $3 trillion worth of Treasuries and housing-related assets to lower long-term interest rates and try to spur the economy.

If these efforts have worked at all, they have so far averted a double-dip recession. Yet, these extraordinary measures have not resulted in an economic recovery. To the contrary, things are getting worse.

Clearly, the economy is contracting, or deflating. Recessions are technically defined by two consecutive quarters of contracting GDP. Though we aren't there yet, the current trend is worrisome. Recessions are, by definition, deflationary. Above all else, the Fed fears deflation; it is harder to control than inflation and once it takes hold, deflation can be crippling.

The U.S. economy is built on a perpetual growth model. Deflation aside, even stagnation is debilitating. Growth is imperative.

The Fed likes inflation because it makes debts easier to repay. But inflation also devalues the money in everyone's pockets and bank accounts.

At a rate of three percent annual inflation, your money loses 30 percent of its buying power over the course of a decade. For example, inflation was 27% from 2000 to 2010. That's a hidden tax on all Americans, young and old, rich and poor. So, inflation is also a pernicious thing.

With that in mind, what follows are highlights from a speech given by Ben Bernanke on Nov. 21, 2002. This is the infamous speech that earned Bernanke the moniker "Helicopter Ben."

As you read the speech, bear in mind that it was given a full six years before the financial collapse, which led to the federal funds rate being reduced to its present level of 0% to 0.25%. It was also four years prior to Bernanke being nominated as chairman of the Federal Reserve.

As you'll see, Bernanke had a plan, a vision and a philosophy — all of which explains what is going on today, monetarily. You can see Bernanke's utter fear of deflation. Concerns about inflation? They hardly exist. In fact, Bernanke makes clear that central banks seek an inflation rate between 1 and 3 percent per year.

Bernanke also outlines the "special problems" that central banks face when the federal funds rate reaches zero due to deflation. This should cause the reader to wonder how bad the problem could become, considering that the rate is already effectively zero. As Bernanke notes, a zero interest rate places a "limitation on conventional monetary policy."

However, in Bernanke's view, even when the interest rate has been forced down to zero, the Fed "has most definitely not run out of ammunition."

There is a singular strategy always at the Fed's disposal, according to Bernanke, providing it "considerable power to expand aggregate demand and economic activity" and allowing it "to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero."

What is that strategy, you are surely asking?

Printing money.

The problem is that printing large sums of money, without any relation to a corresponding increase in the amount of goods and services in the economy, devalues all of the money in circulation.

"By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so," said Bernanke, "the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."


Note: The bolded areas are my emphasis. The italicized areas are Bernanke's.

Deflation: Making Sure "It" Doesn't Happen Here

The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief.

Before going further I should say that my comments today reflect my own views only and are not necessarily those of my colleagues on the Board of Governors or the Federal Open Market Committee.

The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand — a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending — namely, recession, rising unemployment, and financial stress.

However, a deflationary recession may differ in one respect from "normal" recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero. Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the "zero bound."

Deflation great enough to bring the nominal interest rate close to zero poses special problems for the economy and for policy. First, when the nominal interest rate has been reduced to zero, the real interest rate paid by borrowers equals the expected rate of deflation, however large that may be. To take what might seem like an extreme example (though in fact it occurred in the United States in the early 1930s), suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.

Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value.

Beyond its adverse effects in financial markets and on borrowers, the zero bound on the nominal interest rate raises another concern — the limitation that it places on conventional monetary policy. Under normal conditions, the Fed and most other central banks implement policy by setting a target for a short-term interest rate — the overnight federal funds rate in the United States — and enforcing that target by buying and selling securities in open capital markets. When the short-term interest rate hits zero, the central bank can no longer ease policy by lowering its usual interest-rate target.

Because central banks conventionally conduct monetary policy by manipulating the short-term nominal interest rate, some observers have concluded that when that key rate stands at or near zero, the central bank has "run out of ammunition"— that is, it no longer has the power to expand aggregate demand and hence economic activity. It is true that once the policy rate has been driven down to zero, a central bank can no longer use its traditional means of stimulating aggregate demand and thus will be operating in less familiar territory. The central bank's inability to use its traditional methods may complicate the policymaking process and introduce uncertainty in the size and timing of the economy's response to policy actions. Hence I agree that the situation is one to be avoided if possible.

However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition. As I will discuss, a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero.

There are several measures that the Fed (or any central bank) can take to reduce the risk of falling into deflation. First, the Fed should try to preserve a buffer zone for the inflation rate. That is, during normal times it should not try to push inflation down all the way to zero. Central banks with explicit inflation targets almost invariably set their target for inflation above zero, generally between 1 and 3 percent per year.

Under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.

The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning.

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

In the United States, the Department of the Treasury, not the Federal Reserve, is the lead agency for making international economic policy, including policy toward the dollar; and the Secretary of the Treasury has expressed the view that the determination of the value of the U.S. dollar should be left to free market forces. Moreover, since the United States is a large, relatively closed economy, manipulating the exchange value of the dollar would not be a particularly desirable way to fight domestic deflation, particularly given the range of other options available. Thus, I want to be absolutely clear that I am today neither forecasting nor recommending any attempt by U.S. policymakers to target the international value of the dollar.

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.

Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.

Don't Expect Justice in a Corporatocracy

To contact us Click HERE
For any society to survive, much less thrive, it must be rooted in trust. The citizenry must trust the government and, most importantly, the justice system. It also helps if the people trust the banks that hold their money and finance their nation's economy.

However, that sort of trust is now virtually non-existent in our society.

According to a Gallup poll, only 18% of Americans — an all-time low — have confidence in banks. And a Pew Research survey found that Americans' trust in government is only marginally higher, at 22%.

Perhaps Americans have come to the conclusion that their government is colluding with the banks against their best interests. The examples are far and wide. In fact, they are so numerous that listing them all would be tedious, and reading them all would be cumbersome.

But, just to make the point, here are a few less than shining examples:

The SEC charged Wells Fargo with selling products tied to risky mortgage securities, causing municipalities and non-profits to suffer substantial losses as a result.

In response, Wells Fargo, the nation’s biggest consumer bank, recently agreed to pay a $6.5 million fine for these offenses without admitting or denying the charges.

Wells Fargo reported second-quarter pre-tax profits of $8.9 billion. This means that Wells Fargo will cough up a $6.5 million penalty from the nine-thousand-million dollar profit it made in just the second quarter of this year alone. That's about 0.07 percent of a single-quarter's profit.

Does this sound like justice to you? Will such a fine cause Wells Fargo to change its behaviors and practices? That's a rhetorical question.

A Senate report issued in July found that a "pervasively polluted" culture at HSBC allowed the bank to act as financier to clients moving shadowy funds from the world's most dangerous and secretive corners, including Mexico, Iran, Saudi Arabia and Syria.

The report said large amounts of Mexican drug money was likely to have passed through the bank. HSBC's U.S. division provided money and banking services to some banks in Saudi Arabia and Bangladesh that are believed to have helped fund al-Qaida and other terrorist groups.

The U.S. unit of the London- based HSBC, Europe’s biggest bank, “offers a gateway for terrorists to gain access to U.S. dollars and the U.S. financial system,” according to the report.

Laundering money for criminal enterprises, including drug cartels, is nothing new for the Big Banks.

In 2010, Wachovia Bank (now owned by Wells Fargo) paid $160 million to resolve a criminal probe that Mexican cartels were using currency-exchange firms to launder cash through the bank.

British bank Standard Chartered recently agreed to a settlement of $340 million with New York’s top banking regulator, Benjamin Lawsky, over claims that it laundered hundreds of billions of dollars in tainted money for Iran and lied to regulators in the process.

The New York Department of Financial Services charged that the bank schemed with Iran for nearly a decade to hide from regulators 60,000 transactions worth $250 billion.

Lawsky’s office threatened to revoke the bank’s state license at a hearing scheduled this week, prompting Standard Chartered to settle. Such a move would have been a death knell for the bank.

For a bank that announced record profits of $6.78 billion in 2011, a $340 million fine is nothing more than a slap on the wrist. In fact, it amounts to just 5 percent of last year's profits. That sort of expense is simply calculated into the cost of doing business.

According to the New York Times, a trove of e-mails and memos detail an elaborate strategy devised by the bank’s executives to mask the identities of its Iranian clients and to thwart American efforts to detect money laundering.

In light of all this, it's tough for anyone to reasonably claim that justice was served because Standard Chartered paid a $340 million fine. Sadly, that sort of outcome is the rule, rather than the exception.

The report issued by the Financial Crisis Inquiry Commission nearly two years ago found that, by 2006, Goldman Sachs traders knew that they were selling dangerous investments packed with subprime home mortgages. Goldman was making big profits on these toxic investments, which they privately characterized as "junk," "dogs," "big old lemons" and "monstrosities."

These mortgage investment products eventually collapsed in value, bringing down the housing market and very nearly the American economy along with it.

Despite misleading investors about the risks of a mortgage-backed investment product known as Abacus (which Goldman was in fact betting against), Goldman Sachs was allowed to settle with the Securities and Exchange Commission for just $550 million.

Goldman had revenue of $28.8 billion and net income of $4.44 billion in 2011. Once again, the fine was merely a slap on the wrist that will not dissuade or prevent the Wall St. bank from similar behavior in the future. Such a penalty is merely calculated into its cost of doing business.

The SEC has also dropped its investigation into Goldman Sachs over a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely. Moreover, the Federal Housing Finance Agency had filed a lawsuit against Goldman alleging that it knew that Fremont, a subprime lender, was selling it mortgages certain to fail.

The Department of Justice also announced that it is ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”

In May, the SEC dropped its probe of Lehman Brothers, even though an independent examiner appointed by the bankruptcy court of the defunct bank concluded that there were "actionable claims" against senior Lehman officers for using an accounting tool known as Repo 105 to book billions of dollars in phony sales to disguise the true extent of the bank's financial woes.

These are just the latest indications that the federal government has been neutered by Wall St. The revolving door between Washington and Wall St. has created a good old boys network, a corporate/political alliance that now controls our government. Our alleged leadership has been bought and paid for.

Regulation is dead. The industry's complaints about the burden of regulatory rules are absurd and fantastical.

Accountability and an adherence to the law are no longer expected from the Banksters. They do whatever they wish, gutting laws, ripping off their clients and paying meager fines to continue their perverted business as usual. Justice is only for regular people.

Ethics, scruples and moral decency are wholly absent. The government refuses to enforce its own laws and it allows bank lobbyists to water down others until they are meaningless.

More than 2,500 banking lobbyists are swarming the halls of Congress each week, fighting reform, meaning that the Big Banks now have five lobbyists for every member of Congress.

The Justice Department refused to pursue cases against Angelo Mozilo, the former head of the defunct mortgage giant Countrywide and Joseph Cassano, who ran the financial products division at AIG. These two men were central figures in the financial collapse, which led to the crisis that continues to destabilize our economy. And yet they remain free men.

I could go on and on with examples of paltry fines, dropped charges and cases that were never even opened. It's all so disgusting and disheartening. How can this nation claim to observe the rule of law when it refuses to uphold and enforce its laws?

How did the mega banks and corporations become exempt?

This nation's Supreme Court has upheld the absurd notion that corporations are people, due all the same rights under the law. While such a suggestion is absurd on its face, the deeper problem is that corporations — such as banks — are afforded an entirely separate set of rights and privileges that are not afforded to real, living, breathing, human citizens.

This nation's judicial, executive and legislative branches of government are all corrupt. How can anyone reasonably expect Wall St. or big business in general (Big Media, Big Energy, Big Agriculture, Big Pharma, Big Insurance, etc. ) to be otherwise? They are all part of the corruption.

The heart of the problem is that corporate financing of political campaigns has led to corporate control of our country. Corporations have bought our government and they now own it. They control the country and the government.

This nation is now a corporatocracy. We are officially the United States of Corporate America.

Despite Good News, Jobs Problem Continues to Confound U.S.

To contact us Click HERE
The government reported that 146,000 nonfarm payroll jobs were created in November. Though the creation of jobs is always welcome news, it must be viewed in the proper perspective.

Over the past year, employment has risen by an average of 157,000 per month in a country with 134 million jobs. That’s an increase of about 0.1% a month.

While the unemployment rate also fell sharply to 7.7%, it was due to a decline in the labor force, not to any improvement in the labor market.

The labor force fell by 350,000 in November and the labor force participation rate (the percentage of people employed and those who are unemployed but seeking a job) fell to 63.6% from 63.8% in October.

For perspective, the labor force participation rate was 67.3 in January 2000. Yet, when the recession began in December of 2007, the participation rate had fallen to 66 percent.

This means that in less than 13 years, the percentage of Americans participating in the labor force has dropped from 67.3% to 63.6%, a rather striking decline.

Clearly the long term trends are not good. The unfortunate reality is that discouraged people continue giving up their search for work.

Additionally, the average duration of unemployment was at 40 weeks in November, near historic highs.

The official unemployment figure doesn't include those who have lost their unemployment benefits. Nor does it count those who only have part-time jobs but want full-time work.

None of that is encouraging.

It takes about 125,000 new jobs per month just to keep up with population growth. Though the economy is currently achieving that, we need 250,000 new jobs per month for a year to truly drop the unemployment rate by a little more than 1%. Yet, in order for that to happen, the economy needs to grow north of 3% per year.

However, U.S. gross domestic product increased at an annual rate of 1.3% in the second quarter and by 2.0% in the first quarter. That does not bode well for job creation.

Unfortunately, at this rate, it will take years to create jobs for everyone who wants one.

At the pace of job creation over the past two years, the U.S. would not return to pre-Great Recession employment levels until after 2025, according to the “jobs gap” calculator from The Hamilton Project.

The Great Recession—which officially lasted from December 2007 to June 2009—resulted in massive job losses that the economy is still trying to recover. In 2008 and 2009, the U.S. labor market lost 8.4 million jobs, or 6.1% of all payroll employment. This was the most dramatic employment contraction (by far) of any recession since the Great Depression. By comparison, in the deep recession that began in 1981, job loss was 3.1%, or only about half as severe.

The economy has since recovered four million of those lost jobs, meaning we are only half way to recovery. Yet, that doesn't even begin to address the monthly increase of new entrants into the labor market, which creates a continual need for even more jobs.

Despite the slow but steady state of job creation, here’s the underlying problem: the recovered jobs on average pay a lot less than did the jobs that were lost. Low-wage jobs like retail and food service workers have made up 58 percent of the subsequent job growth. With less income, Americans have less to spend and spending is what expands economies.

Wages in the retail industry remain low compared to other sectors, with the average full-time sales worker making just $21,000 per year, according to the Bureau of Labor Statistics.

Peter Edelman, a law professor at Georgetown University, says the proliferation of low-wage jobs is the single biggest cause of persistent poverty.

"The first thing needed if we're to get people out of poverty is more jobs that pay decent wages," he argued in a July New York Times op-ed. "We've been drowning in a flood of low-wage jobs for the last 40 years… Half the jobs in the nation pay less than $34,000 a year, according to the Economic Policy Institute. A quarter pay below the poverty line for a family of four, less than $23,000 annually."

And wages in the bottom half "have been stuck since 1973, increasing just 7 percent," Edelman noted.

Jeff Faux, a progressive economist who founded the Economic Policy Institute in 1986, argues that by the mid-2020s, even with the most optimistic assumptions about economic growth, current trends indicate that the average American's wages will drop about 20 percent. One big factor is that more and more good jobs will go overseas, leaving even America's best and brightest no alternative but to enter the service industry.

America's dual problems of high unemployment and low-wage jobs will continue to have negative consequences for our consumption-based economy, which is 70% reliant on consumer spending.

Obviously, there is less consumption when fewer people are working and when so many of those with jobs are earning so comparatively little. Ultimately, there is less disposable income being directed back into the economy. It also results in lower tax receipts at both the state and federal levels.

If unemployment remains stubbornly high, wages will also remain stagnant. That will create a negative feedback loop of both lower consumer spending and lower economic output.

As of now, we're still a long way from recovery, and a full recovery is anything but assured.

Japan's bubble economy burst in the late 1980s and, nearly a quarter-century later, it has yet to recover.

That's a horrible precedent for the U.S.

Social Security on the Chopping Block

To contact us Click HERE
The White and Congress are presently engaged in heated Fiscal Cliff negotiations. With the national debt exceeding $16 trillion and the CBO projecting continued deficits for the next decade, even Social Security has entered the budget-cutting discussions.

However, Social Security is financed by an independent payroll tax, which solely funds the program. For 75 years, Social Security collected more funds than it paid out. By the end of 2011, that surplus had reached $2.7 trillion. Those surplus funds were used to buy special bonds from the U.S. Treasury, creating the so-called Social Security Trust Fund. This fund is expected to keep Social Security fully solvent until 2033.

Even after that time, payroll taxes are projected to cover approximately 75% of program obligations.

Under current law, the securities in the fund represent a legal obligation the government must honor when the program's revenues are no longer sufficient to fully fund benefit payments.

According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2011 onward. However, due to interest (earned at a 4.4% rate in 2011) the program will run an overall surplus that adds to the fund through the end of 2021.

The problem is that, over many years, the government used the monies slated for the Trust Fund to instead finance its annual budgets. In other words, the $2.7 trillion Trust Fund was transferred to the general fund, which pays the government's everyday operating expenses each year. And it's all gone.

In order to repay retirees the money that was already collected from them, the government will have to redirect money from it's future budgets, or general fund, back to retirees. This is why Social Security is suddenly on the chopping block in current budget negotiations.

Though Social Security is independently funded and does not contribute to the government's annual budget deficits, there are some reasons for concern.

According to the Social Security Administration (SSA), just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67. That will be a heavy burden for the system to bear. It may also force a reexamination of the definition of "disabled" and result in stricter rules for qualifying.

The SSA also notes the following:

• In 1940, the life expectancy of a 65-year-old was almost 14 years; today it's almost 20 years.

• By 2033, there will be almost twice as many older Americans as today -- from 43.4 million today to 75.7 million.

• There are currently 2.8 workers for each Social Security beneficiary. By 2033, there will be 2.1 workers for each beneficiary.

Given longer life expectancies, the coming tidal wave of retirees, and the diminishing number of workers per retiree, it's clear that some changes may be needed by 2033, when the Trust Fund (aka, the money the government collected and spent on other things) is finally exhausted.

In the meantime, the government owes it to its citizens to return the surplus money that's been collected from them, and it is legally obligated to do so. That money will have to come out of other government programs, such as military spending. Regardless, it will surely have to come from elsewhere in the budget.

It should also be noted that the Social Security retirement age is already 67 for those who were born in 1960 and after. That's something that needs to be considered in any negotiations.

One way or another, the government needs to repay the citizens the money it has already collected from them. And it should not attempt to tax them again in order to repay them.

Deficit cracking GOP's solidarity

To contact us Click HERE
November 27th 2005 - More than a decade after the Republican Revolution, when Newt Gingrich became House speaker on the promise to downsize government, Republicans are facing another revolution.

This one is from within.

When Congress returns next month from its Thanksgiving recess, Republican leaders who have never failed to marshal their forces on big party-line votes face the prospect of defeat on tax cuts and spending restraint -- the core issues that have united the party since President Ronald Reagan and gave them their House majority in 1994.

They have lost some tax and spending votes already, and postponed others because of the specter of losing. After a five-year spending spree on everything from the Iraq war to Medicare, deficits are now jeopardizing the tax cuts that were the centerpiece of President Bush's first term.

A move to preserve tax cuts on capital gains and dividends -- the gemstone of the Bush tax cuts for conservatives -- is in trouble in both the House and the Senate. For the first time since George W. Bush took office, House Democrats are united against tax cuts, and Republican moderates are bucking their party leadership.

GOP leaders are pushing a measure to control entitlement spending by shaving Medicaid and food stamps for the poor. But the combination of investor tax cuts and reductions in poverty programs has already led to a series of embarrassing defeats in committee and on the House floor. Republicans are headed for a pre-Christmas showdown that could turn into a political disaster.

Hurricane topples plans

Hurricane Katrina last summer was a tipping point. The storm forced Republicans to ditch the estate tax repeal because it was deemed unseemly to end a wealth tax after poor people had lost their homes. Sensing a public relations disaster, Republican leaders also postponed extending the investor tax cuts until the end of the year.

Congress quickly passed $62 billion in emergency disaster relief. But Bush's promise to "do whatever it takes" to rebuild the Gulf Coast set off a rebellion among conservatives, who demanded spending cuts to pay the bill.

"I think they blinked after Hurricane Katrina," said Brad Woodhouse, a liberal activist who helped defeat Bush's Social Security overhaul and has turned his fire on the Republican budget, heading a liberal alliance called the Emergency Campaign for American Priorities.

"It was such an acknowledgment of how inappropriate these spending cuts to finance tax cuts are," Woodhouse said. "It was like blood dripping in the water for us."

The budget outlook -- and the problems facing the GOP -- promise to get much worse. Medicare's costly new prescription drug benefit, an $18 trillion unfunded liability sponsored by the White House and Republican leadership, starts in January. Just two years from now, in 2008, the enormous Baby Boom generation will begin retiring, ceasing income tax payments and starting to collect benefits, leading to a budget squeeze unprecedented in U.S. history.

"We're seeing the future," said Bruce Bartlett, a former Treasury official in the George H.W. Bush administration and tax-cut advocate. "The decisions that have been made over the last five years have resulted in the chickens coming home to roost."

Total spending increases under the current President Bush closely rival those of President Lyndon Johnson, a Democrat famous for conducting the Vietnam War while simultaneously increasing domestic spending.

Discretionary spending rose 48.5 percent in Bush's first term, according to an analysis by the libertarian Cato Institute, twice as much as in two terms under President Bill Clinton, when spending rose 21.6 percent. Adjusted for inflation, Bush has increased total spending at an annualized rate of 5.6 percent, compared with 1.5 percent under Clinton.

"It's only a matter of time before we stop talking about cutting taxes for a very long period of time and talk basically about increasing taxes," Bartlett predicted. "The end of the era of tax cutting is going to put tremendous strain on the Republican coalition, just as the end of the era of big spending put tremendous strain on the Democratic coalition" in the 1980s. "You're hearing more and more people on the Republican side talking about major losses in the congressional elections next year and about 2008 being a really, really bad year for Republicans."

In the two months since Republicans pulled their tax cut bills, the atmosphere has only gotten worse. Republicans lost two important off-year gubernatorial elections in Virginia and New Jersey. Bush's popularity has hit new lows, with the public now decidedly opposing the Iraq war. Leading GOP candidates, including Sen. Rick Santorum, a conservative member of the Senate leadership who faces a tough re-election fight in Pennsylvania, have refused to appear with Bush at campaign events.

"Republican members of Congress recognize that the president can't help them very much any more," said Cato Institute Chairman Bill Niskanen, a former Reagan administration economist. In addition, the indictment of former House Majority Leader Tom DeLay seriously weakened party discipline in the House and exposed deep divisions between fiscal conservatives and moderates.

"There is a substantial ideological split, particularly among House Republicans, on fiscal responsibility," Niskanen said. "A lot of them have gone along with a high rate of growth of spending but have done so without any enthusiasm."

As the post-Katrina conservative revolt gelled, the Republican leadership turned to Medicaid, food stamps and student loans for spending restraint. The Senate is proposing $35 billion in reductions and the House $50 billion; both chambers are also seeking between $56 billion and $59 billion in tax cuts.

Large gap to cross

There are enormous differences between the House and Senate on both measures. Reconciling them will be very difficult in the two weeks Congress has left before adjourning for Christmas.

Combined, the measures increase the deficit. The spending restraint appeased conservatives but provoked an outcry from Democrats and GOP moderates. Efforts to console moderates by dropping a measure for oil exploration in the Arctic National Wildlife Refuge and adding subsidies for home heating costs and dairy farmers have done little but stoke more controversy.

The Medicaid and food stamp cuts have attracted the most fire, and barely passed the House 217-215 before Thanksgiving, with no Democratic support. Republicans recessed before attempting to pass the tax cuts.

Much of the roughly $11 billion in cuts over five years proposed by the Senate for Medicaid, a health care program for the poor that many elderly use to pay nursing home costs, were recommended by state governors. They contend the program is becoming burdensome for the states, which must come up with money to match federal funding. Democrats have portrayed the reduction in the growth of Medicaid spending as dire, but even liberal analysts concede they are not severe. One provision would increase co-payments from $3 to $5, and another would allow elderly nursing home residents to shield $750,000 in home equity, raised from $500,000 after Republican moderates objected.

The cuts are "not awful," said Jason Furman, a former adviser to Democratic presidential candidate John Kerry now at the liberal Center for Budget and Policy Priorities.

"It's less about the magnitude and more about why should you be asking poor people to pay anything more for health care at the same time that you're giving brand-new tax cuts to the most fortunate," Furman said. "That is what is just completely wrong with this picture.

"A go-it-alone Republican strategy works when you're trying to cut taxes or increase spending, but when you're trying to make tougher choices, the only way to do it is to work together with the other party for shared sacrifice," Furman said. "Budget reality is starting to catch up with the Republican Party."

Heavy U.S. borrowing with much more on the horizon is stoking concern about a potential financial crisis. Any one of several big economic imbalances -- including looming pressures on the federal budget, the zero U.S. savings rate, the historically high trade deficit, a real estate boom that has supported consumer spending -- could provoke a sudden financial shift, economists say.

"It's not unrealistic to think that if we continue to delay -- and the Baby Boomers do start to retire as early as 2008 -- that sooner or later the lenders to this country may decide it's not the best place to park all their savings," said Maya MacGuineas, director of fiscal policy for centrist New American Foundation.

Bartlett warns of a "financial Katrina."

"It's just a matter of time before we have some kind of economic event that I think is just going to change the political situation 180 degrees and make deficit reduction the order of the day," he said. "I don't know what it will be. I just know that when you've got gasoline spilling onto the floor of your house, it doesn't really matter where the spark comes from."