| Author | Message | ||
     wharfrat Citizen Username: Wharfrat Post Number: 897 Registered: 6-2001 |
December 30, 2003 OP-ED COLUMNIST Our So-Called Boom By PAUL KRUGMAN It was a merry Christmas for Sharper Image and Neiman Marcus, which reported big sales increases over last year's holiday season. It was considerably less cheery at Wal-Mart and other low-priced chains. We don't know the final sales figures yet, but it's clear that high-end stores did very well, while stores catering to middle- and low-income families achieved only modest gains. Based on these reports, you may be tempted to speculate that the economic recovery is an exclusive party, and most people weren't invited. You'd be right. Commerce Department figures reveal a startling disconnect between overall economic growth, which has been impressive since last spring, and the incomes of a great majority of Americans. In the third quarter of 2003, as everyone knows, real G.D.P. rose at an annual rate of 8.2 percent. But wage and salary income, adjusted for inflation, rose at an annual rate of only 0.8 percent. More recent data don't change the picture: in the six months that ended in November, income from wages rose only 0.65 percent after inflation. Why aren't workers sharing in the so-called boom? Start with jobs. Payroll employment began rising in August, but the pace of job growth remains modest, averaging less than 90,000 per month. That's well short of the 225,000 jobs added per month during the Clinton years; it's even below the roughly 150,000 jobs needed to keep up with a growing working-age population. But if the number of jobs isn't rising much, aren't workers at least earning more? You may have thought so. After all, companies have been able to increase output without hiring more workers, thanks to the rapidly rising output per worker. (Yes, that's a tautology.) Historically, higher productivity has translated into rising wages. But not this time: thanks to a weak labor market, employers have felt no pressure to share productivity gains. Calculations by the Economic Policy Institute show real wages for most workers flat or falling even as the economy expands. An aside: how weak is the labor market? The measured unemployment rate of 5.9 percent isn't that high by historical standards, but there's something funny about that number. An unusually large number of people have given up looking for work, so they are no longer counted as unemployed, and many of those who say they have jobs seem to be only marginally employed. Such measures as the length of time it takes laid-off workers to get new jobs continue to indicate the worst job market in 20 years. So if jobs are scarce and wages are flat, who's benefiting from the economy's expansion? The direct gains are going largely to corporate profits, which rose at an annual rate of more than 40 percent in the third quarter. Indirectly, that means that gains are going to stockholders, who are the ultimate owners of corporate profits. (That is, if the gains don't go to self-dealing executives, but let's save that topic for another day.) Well, so what? Aren't we well on our way toward becoming what the administration and its reliable defenders call an "ownership society," in which everyone shares in stock market gains? Um, no. It's true that slightly more than half of American families participate in the stock market, either directly or through investment accounts. But most families own at most a few thousand dollars' worth of stocks. A good indicator of the share of increased profits that goes to different income groups is the Congressional Budget Office's estimate of the share of the corporate profits tax that falls, indirectly, on those groups. According to the most recent estimate, only 8 percent of corporate taxes were paid by the poorest 60 percent of families, while 67 percent were paid by the richest 5 percent, and 49 percent by the richest 1 percent. ("Class warfare!" the right shouts.) So a recovery that boosts profits but not wages delivers the bulk of its benefits to a small, affluent minority. The bottom line, then, is that for most Americans, current economic growth is a form of reality TV, something interesting that is, however, happening to other people. This may change if serious job creation ever kicks in, but it hasn't so far. The big question is whether a recovery that does so little for most Americans can really be sustained. Can an economy thrive on sales of luxury goods alone? We may soon find out. Copyright 2003 The New York Times | ||
| 1-2many Citizen Username: Wbg69 Post Number: 802 Registered: 6-2002 |
Krugman's broader perspective raises, for me, again, the question of the AMT take-back. sbenois brought this up yesterday, I looked into it, found a few facts and ultimately concluded that the AMT take-back - which was assumed all along would be 'corrected' in the Bush tax plan - appears NOT to have been corrected. so, basically, the tax cuts actually push MORE middle-class people into the more-rigid AMT, which truly takes back their tax cut - but the rich people don't get hurt at all. huh?! they get to keep their huge, 25% reduction (from 20% to 10%) in the tax on corporate dividends and capital gains. if this is true, this is an enormous disparity, and a particularly gouging example of Bush saying one thing and doing the opposite, given the great heralding of the tax cuts as helping average Americans. I'm no economist; my read on this could be wrong, and in fact I would be happy to be wrong. anyone out there with more expertise who can refute this? if not, it's just one dot that people like Krugman are connecting, to see the picture of redistributing wealth from the millions who create it, to the very few rich corporate masters. | ||
| bobk Citizen Username: Bobk Post Number: 4170 Registered: 5-2001 |
There was an article in the WSJ where WalMart indicated that they expect the lower than expected sales were because of lower salesin the womens clothing and housewares lines.  I dunno, but maybe even their customer base was buying electronics on the internet instead? | ||
| sportsnut Citizen Username: Sportsnut Post Number: 809 Registered: 10-2001 |
1-2many - I think you're slightly off on this one. Here's a brief article that may shed some light on the topic: http://www.usatoday.com/money/perfi/columnist/block/2003-12-01-amt_x.htm You are correct that more people will be subject to AMT. I was hit with it last year. But don't forget that the AMT is a creditable tax, which means that you can use the AMT portion of the tax as a credit against your regular tax in a year in which the latter exceeds the former. In addition your assumption that only the "middle class" will suffer while the rich get richer is inaccurate. One of the largest "preference" items relates to incentive stock options, which as you may know is how many "rich" corporate executives get a majority of their pay. I'm not quite sure if you are saying that dividends and capital gains are not subject to AMT (which is wrong) or if you get to keep the lower rate even if you are subject to the AMT. Which may or may not be correct you really have to do the calculation on an individual basis because it is very involved. I am not a rich corporate master - yet I, as will many of my friends, will be paying AMT this year. | ||
| 1-2many Citizen Username: Wbg69 Post Number: 805 Registered: 6-2002 |
sportsnut - your final line is the point: more and more "average" Americans are subject to AMT. (I have paid it myself. I expect to definitely pay it again.) and application of AMT takes back the new tax cuts. tell me why you say it's wrong for me to say dividends and cap. gains aren't subject to AMT. isn't the whole point of taxing dividends/cap gains separately, to, well, tax them separately from earned income, to which the AMT applies? | ||
| 1-2many Citizen Username: Wbg69 Post Number: 806 Registered: 6-2002 |
I don't understand this phrase: "you can use the AMT portion of the tax as a credit against your regular tax in a year in which the latter exceeds the former." does this mean that, in a year where you pay AMT, the difference between the AMT and your "regular" tax can be used as a credit in subsequent years? also, my point was that the "rich corporate masters", meaning people who make substantial income via dividends/cap gains, don't have their tax cut taken back by AMT - which by definition does not apply to dividends/cap gains - if it did, what would be the point of this separate tax structure for dividends/cap gains? | ||
| sportsnut Citizen Username: Sportsnut Post Number: 810 Registered: 10-2001 |
The reason that I said you were wrong is that the AMT doesn't only apply to "earned" income. It applies to all income. The income is taxed at different rates that's all - the rates are the same for AMT purposes and regular tax purposes. I think I see the confusion now. Hopefully this will make it a little clearer. Let's say you have an asset with a regular tax basis of 50. You sell it for 100 resulting in a 50 gain. That gain is subject to a 15% rate. You pay 7.50 in tax. Now you prepare your AMT form. If there are no AMT adjustments to the basis (which is likely) you would still be subject to the tax of 15%. However if there is a basis adjustment of +25 your AMT liability on that asset would be 3.75 = (100 - (50+25(basis adjustment)) x 15%. So your statement that the AMT doesn't tax Cap gains and dividends is not accurate. It does but most likely it will not result in a difference except as shown in the example above. Also, yes the AMT is a creditable tax. If your regular tax liability for 2003 is 100 and your AMT liability is 200, the IRS deems you to have paid 100 in AMT. In 2004 the situation is reversed and now your regular tax is 200 and the AMT is 100. You will wind up owing only 100. 200 less a credit of 100. The thought being that if you look at the regular tax liability for the two years you'll notice that its a total of 300 (100 in 2003 and 200 in 2004) without the credit you would have theoretically paid 400. Therefore, the credit is necessary to reduce that amount. Clear as mud now? | ||
| Tom Reingold the prissy-pants Citizen Username: Noglider Post Number: 1574 Registered: 1-2003  |
Many are arguing that we're seeing a normal pattern of an economic recovery, and as normal, the jobs will come soon. Can anyone argue for or against this? Tawk among ya-selves. Tom Reingold There is nothing | ||
| Kenney Citizen Username: Kenney Post Number: 240 Registered: 11-2003 |
Jobs are usually the last to come on board in a recovery; business hesitant to add workers until future outlook is visible and cash from current operations sound. The reason this cycle could be different is the gains in productivity allowing business to produce goods and services without having to add workers. The excess capacity from the bubble build up is still with us. Without pricing power, business will also find it difficult to add cost with new hiring. The only limit to our realization of tomorrow will be our doubts of today..FDR.. Liberty, when it begins to take root, is a plant of rapid growth...G.W. Everyone wants a voice in human freedom. There's a fire burning inside of all us...L.W. Dave Ross is the coolest!!(being banned sucks) | ||
| 1-2many Citizen Username: Wbg69 Post Number: 810 Registered: 6-2002 |
I'm still working on AMT and whether there's a time bomb in there for "the average American." sportsnut, thanks for taking the time to go through your examples. my point, still, is that it very much appears that capital gains and dividends - which far and away go to the ultra-wealthy, though a few little bits go to "middle America" - cap gains and dividends got a 25% cut via Bush's plan. in contrast, the average American, while being told s/he was getting a great cut, actually, increasingly gets pushed into AMT, in fact gets pushed there by the tax cuts, where the promised tax cut is taken back. the only exception I see to the above rule of giving a great tax break to the ultra-wealthy, is a limited one: that the capital gain of exercising a stock option, does not get the 15% reduced tax rate, but rather IS impacted (and sometimes rather perversely) by AMT. while not discounting that exception, the rule still seems to be that other capital gains are not impacted by AMT. and in fact, get the advantage of the lower, and now even further reduced, capital gains rate of, now, 15%? your scenarios don't address whether AMT impacts dividends. don't dividends get the lower, 15%, tax rate? and if so, isn't that NOT taken back by AMT? I have done a fair amount of legwork looking into this, it looks right to me, I present it in good faith. if I'm wrong, would you point me to sources I may not have found? if so, I'll happily (OK, maybe grudgingly) retract anything I have said that is incorrect. | ||
| cjc Citizen Username: Cjc Post Number: 608 Registered: 8-2003 |
Will democrats work to raise the AMT limits? I doubt it. Much as they only gave lipservice to the middle class tax cut that someone ran on in 1992, only to find that Social Security taxes went up on those paying into a failed system as well as the seniors forced to live on it. | ||
| 1-2many Citizen Username: Wbg69 Post Number: 811 Registered: 6-2002 |
TomR: I think looking to poverty levels, and the level of assistance sought from charities, are perhaps more reliable indicators of how the American people are doing. which may be a different inquiry than how the "economy" is doing. america's second harvest has some very interesting, and sad, information about participation in their and other charity programs, which suggests continued and even increased poverty and hunger. | ||
| 1-2many Citizen Username: Wbg69 Post Number: 812 Registered: 6-2002 |
cjc: so you're saying it's OK that Bush is (1) lying to middle America, telling them he's giving them a tax cut when in fact is pushing them into a harsher system, while also (2) handing out great tax cuts to the wealthy? your response is nothing but an attempt to misdirect attention from this lie and injustice. | ||
| sportsnut Citizen Username: Sportsnut Post Number: 816 Registered: 10-2001 |
1-2many I think that despite being pushed into AMT the tax cuts are still there for "middle america." Here try this link: http://www.turbotax.com/calculators/lawchange/notemplates/index.html It will estimate your tax liability under the old law for 2003 and under the new law. I just did mine and I will be subject to AMT but it is still a reduction over what I would have paid had the cuts not been in place. I do not have significant dividends or capital gains that qualify for the reduced rates. As to whether the cuts benefit those who pay the most tax (the wealthy) - that discussion has been had over and over again here on MOL. Suffice it to say that you and I will never agree on that topic. But again, don't forget the creditable nature of the tax. You'll get it back at some point when your AMT liability falls below your regular tax so theoretically its not really a permanent tax increase. Is the AMT flawed? Any system not indexed for inflation is flawed. Will it catch the unweary? Yes, but it will not take back all of the tax cuts (generally speaking). | ||
| cjc Citizen Username: Cjc Post Number: 611 Registered: 8-2003 |
1-2...he's not lying to the middle class. I think the republicans could -- if they faced no opposition from the left -- easily raise the limit of the AMT to lessen it's ever encroaching on the middle class. I know there were discussions to that effect, but that it was a bridge too far at that point. I have faith it will be addressed -- but not by anyone on the Left where a "rich" family of four makes 143K. Tax systems are harsher when democrats are in charge every time. Percentage wise -- the wealthy will be paying an even bigger share of the overall income tax bill after Bush's tax cuts. Bush's tax cuts also took many in the lower percentiles completely off the tax rolls. Using your logic, if a couple thousand doens't matter to a rich guy, then a couple hundred means a great deal to the poorer guy -- so why not applaud that rather than rescind all tax cuts as Howard Dean wishes to do? The top 5% paid 54% of all income taxes in 2000. That's a AGI floor of something like 128K. These tax cuts turned this economy around, just as they did with JFK and with Ronald Reagan. 2004 looking mighty good. | ||
| sportsnut Citizen Username: Sportsnut Post Number: 817 Registered: 10-2001 |
Oh and I almost forgot - I think your conclusions with respect to capital gains and dividends is partially correct. It was the statement that they are not subject to AMT that I was disputing. I think I am not explaining it clearly. All I can say is that they are subject to AMT or else the income generated would be removed from the calculation. That they are generally taxed at the same rate for regular and AMT purposes doesn't mean that they are not subject to the tax. | ||
| 1-2many Citizen Username: Wbg69 Post Number: 813 Registered: 6-2002 |
sportsnut - thanks for your input. I think you said it best - that we have to agree to disagree on whether the wealthy should pay more. and on this point, my position is that the ULTRA-wealthy should pay more, and that income that goes by and large to the ultra-wealthy, should not get this 25% (!!) decrease. cjc: your conclusions are just absurd. to take your most central point: "Tax systems are harsher when democrats are in charge every time." this is way off. but just take the last 5 presidencies - we have gotten our most unprecedented deficits, from REPUBLICAN ADMINISTRATIONS. someone has to pay those bills sometime. so Democrats come on the scene to right the ship. that ELIMINATING the DEFICIT requires, in part, adjusting tax rates, is something so obvious it shouldn't have to be stated. why, in your world, is it worse to PAY for government spending, than just to deficit-spend, as W is doing? | ||
| cjc Citizen Username: Cjc Post Number: 612 Registered: 8-2003 |
Democrats under Clinton lucked into a balanced budget, something they never called for nor proposed in their lifetimes. Surely you recall Clinton first proposing budgets with 200B deficits as far as the eye could see, then arguing against a balanced budget amendment (complete with outs for war and national disasters), and he was caught on tape saying "we don't need to balance the federal budget" later to say he might be able to balance in 9, 8 and then 5 years.... How did he do it? By watching (not helping) the economy explode after 1994 when business knew with a republican congress they wouldn't get whacked again, hillary's healthcare failed and they reduced cap gains taxes to boot. Add to that, the deficits don't matter a whit given the spending plans of the democrats for expanding an already massive welfare gift to seniors for drug benefits as well as funding an already bloated educational system. Democrats didn't even call for balancing the budget after that heralded "peace dividend" with the collapse of the Cold War. They wanted to continue spending -- not paying down anything. Reagan's tax cuts virtually doubled the take to the Treasury by the end of his term. Deficits are not the result of taking in MORE revenue. SPENDING is the culprit. 1-2 -- do you remember TEFRA? That was when republicans in the 80s agreed to hike taxes by $1 so long as they were offset by $2 reductions in spending. The tax rates went up, but the spending didn't come down. Same thing happened with Bush 41 -- but for some reasons Democrats didn't hail the decision and worked to defeat him (as did many conservatives). Fiscally responsible democrats -- that's the absurdity and the country knows it. | ||
| 1-2many Citizen Username: Wbg69 Post Number: 815 Registered: 6-2002 |
the absurdity is that Keynesian economics, first proposed by Democrats, and supporting gov't spending to stimulate the economy, was actually taken over by Republicans in the 80's - and no one even commented on it. It was then that Dems became the party of fiscal conservatism. | ||
| Tom Reingold the prissy-pants Citizen Username: Noglider Post Number: 1581 Registered: 1-2003 |
When the country goes to war, the government points out that the war is an important mission and that we have to sacrifice to pull it off. And they raise taxes. That was until our current president, who said that, of course, the right thing to do in wartime is to cut taxes. Not only does this not add up, but he worded it as if there was historical precedent, whereas the opposite was true. But of course, it's pleasant music to hear of a tax break. cjc, I agree that Clinton was lucky that tax revenues were higher than expected. Nevertheless, I don't consider Bush's tax cuts to be responsible. Also, Clinton's goal was to reduce the deficit, not to increase it, which has been Bush's accomplishment, if you can call it that. Clearly, any politician will do whatever wins him favor, principles be damned. Clinton was lucky, sure. But as I see it, Bush isn't lucky, he's doing the wrong things, and he takes credit for the mess he's made by calling it a success. And I'd like your take on Krugman's article, if you have an opinion. Tom Reingold There is nothing |
