Taxes and job creation

Raising taxes on wealthy Americans doesn't stifle job creation. In fact, it could even enhance it -- if wealthy Americans aren't greedy.

I agree that raising taxes on businesses would stifle job creation. But all the talk we hear lately is about raising taxes on personal income. If the taxes raised are those of a wealthy business owner, it is only the salary that the business pays the owner that is taxed, not the business's income. The business's net profit would be unchanged by the tax increase, so it should cause no change in the business's hiring practices.

But here's how it could actually enhance job creation. Let's say the wealthy business owner doesn't want his personal income taxed at a higher rate. All he has to do is lower the salary his business pays him to a tax bracket with a lower rate. On average, CEOs earn a hugely disproportionate income relative to the other employees in their business, so they should be able to afford a decrease in their salary -- particularly if it means growing their business so it can be more profitable in the long run.

All else unchanged, the decrease in salary would result in an increase in the retained earnings of the business. This increase in retained earnings thereby increases the wealth of the person who owns the business by the same amount but he doesn't get taxed on it because it's not regular income. However, by virtue of the business having greater retained earnings, the incremental capital assets is an incentive for the business to grow, which means increased job creation.

Doomsday!

The federal government is rapidly approaching the limit of the amount of debt congress permits it to have. Meanwhile, politicians and the media alike are blustering about a debt ceiling doomsday scenario. They base this assertion on the premise that hitting the debt ceiling means that the federal government goes into default.

I believe this is a non sequitur. What I don't understand is why hitting the debt ceiling necessarily means the federal government goes into default. It has almost $200-billion in monthly revenues -- as I understand it, that's more than enough to service our current debt obligations.

Wouldn't hitting the debt ceiling just mean that the Fed would have to stop issuing new bonds and the government would have to operate without a deficit? As I recall, America was in pretty good fiscal shape the last time we ran a budget surplus -- much better than it is now. I see no problem with spending the same as the federal government did then.

The irony is that the GOP claims federal spending is the least productive application of savings. Yet many of those same Republicans support increasing the debt ceiling. There is a finite amount of savings in the financial markets. If the federal government takes on more debt, it takes the amount of that increase away from private investment. You can't have it both ways.

The most obvious question about this issue is, if congress raises the debt ceiling every time we hit it, what is the point of having a debt ceiling in the first place? If I'm missing something in this equation, please post a comment and explain.

The Party family

The GOP is normally so disciplined -- a big reason for its success. It makes me wonder whether I'm pleased or scared that it's been co-opted by the Tea Party.

Congress needs to eat humble pie...

...because neither the Democrats nor the GOP are taking much of a bite out of the deficit.

Click the image above to view full-size.

An inconvenient truth

The railing Right would have us believe that the election earlier this month was a repudiation of the Obama administration's policy. Common wisdom is that it's all about jobs with voters. Since unemployment is higher than ever under the current administration, the conservative echo chamber would say, the electorate decided to evict President Obama's Democrat cohort from congress. As inconvenient as it may be for the GOP, the truth of the matter is that more private sector jobs have been created this year than in the entire eight-year tenure of the Bush administration.

Why do so many Americans think that the country is still shedding jobs? The same reason so many Americans think President Obama is a Muslim. It's the result of a false depiction of the government (i.e. the Democrat-controlled congress and the Obama administration) fabricated by the GOP and the right-wing media that has been adopted by the Tea Party and other middle-America voters without critically analyzing the messages that shape their view of the political environment. The fallacies are much more convenient for them than the truth is.

In fact, we have seen ten straight months of private sector job growth this year. More than 863,000 private sector jobs have been created in 2010. The number of new private sector jobs this year alone exceeds the total created during all eight years of the Bush administration.

If you were as serious as me ...

...you'd think that the ninny seems to make a lot of sense:

(Click comic to expand.)

Are home buyers exempt from personal responsibility?

While the Obama administration struggles to prevent foreclosures, Americans with responsible mortgages are left asking, "Where's relief for homeowners who played by rules?" In the middle of the decade, many people were watching their friends' and neighbors' homes wildly appreciate. They determined that they needed to get in on the 'easy money,' blithely ignoring the adage they were taught from childhood: what goes up, must come down.

In the meantime, a few others watched the mayhem in the market and decided not to mortgage their future on what was clearly overpriced housing. They lived in their modest apartments until valuations fell back to a reasonable level, then bought their homes with a fixed mortgage payment they could manage.

No sooner did they buy them, when the feds began creating programs to bail out those other homeowners. Remember those buyers with mortgages so big that they eat up every penny of what would be their discretionary income? How about the ones who got mortgages they could afford in 2006 knowing they might adjust to a level they couldn't afford in a few years but just assumed they'd refinance when that happened? Those were the only ones the Obama administration wanted to fix the game for, baking a moral hazard right into the last market that needs it.

What the housing market needs in its current condition is for the government to keep its hands off of it. Distressed homeowners who have to become renters would have been much better off had they instead been renters all along anyway. If the feds create any incentives in this market, they should benefit responsible home buyers, who will stabilize the housing market.

At least Fannie Mae is going to try and make people take personal responsibility for a "strategic default." Now Fannie Mae gets tough on homeowners who walk away from a mortgage they can afford to pay. Instead of letting them off with the difference, Fannie now gets a court order requiring a defaulting borrower to pay any remaining unpaid portion of the loan after a seized home is sold. To put further pressure on them, Fannie Mae said it would not buy or guarantee another home loan for those abandoning a home to foreclosure for seven years.

But it's not just the homeowners who should take personal responsibility for their commitments. Banks that made the high risk loans should suffer the consequences when the mortgages fail and not be bailed out by the government. Not until all the inflation has left the bubble will the housing market become healthy again.