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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Deficit
February 3, 2012 at 10:13 AM

Vote: Should corporations pay more taxes?

Corporate profits are at records and major companies are sitting on enormous piles of cash. Corporate tax rates are at their lowest level since 1972. According to the Wall Street Journal, “total corporate federal taxes paid fell to 12.1 percent of profits earned from activities within the U.S. in fiscal 2011, which ended Sept. 30, according to the Congressional Budget Office.” From 1987 to 2008, the average rate was 25.6 percent.

One big reason is the “bonus depreciation” temporary tax break, supported by both parties. Another, less discussed, is the many ways the biggest companies deploy massive resources to use perfectly legal tax dodges. This might not matter so much if the country didn’t face a $10 trillion deficit, shrinking funding for education and research, and was stuck with a 1970s infrastructure, and that falling apart. So, today’s poll:

Corporate taxes

Mea Culpa Department: In Sunday’s column on manufacturing, I discussed Henry Ford’s influence on raising wages, also noting he was a crank and no friend of unions. I neglected to note he was also an anti-semite, especially through his writings in the Dearborn Independent, a newspaper he owned. Later, he tried to do a Ron Paul and claim he didn’t know of the vile slanders published in his name. It won’t wash and stains his legacy. Anti-semitism is a special evil that culminated in the Holocaust. No wonder Hitler admired Henry Ford. I regret my omission.

Continue reading to see the week’s links and the haiku:

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Comments | More in Debt, Deficit, Tax policy

November 22, 2011 at 9:40 AM

Super committee #fail and the economy

The failure of the so-called supercommittee’s economic implications have very little to do with U.S. sovereign debt. We don’t have an immediate debt crisis, as is happening in Eurozone countries. America can borrow in its own currency, a huge advantage, and the dollar is the world’s reserve currency. With historic low interest rates, we can also borrow very cheaply. The crises we do face: Unemployment, slow growth, state fiscal problems and the huge demand hole left by the Great Recession.

Draconian spending cuts is the last thing we should be doing. This nearly guarantees a double-dip recession and pain for millions of average Americans. While the “failure” seems to portend such cuts, they were already the mandate of the committee. President Obama was on board from the beginning, buying into the Robert Rubin/Larry Summers wing of his party on austerity (which is doing such a great job of wrecking the U.K. economy right now).

As is well known, FDR throttled back government spending in 1937, seeking to balance the budget. The result: Severe recession. Been there, done that. So if there was no serious economic (as opposed to political) argument to be made for cutbacks, why did the market react so badly yesterday?

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Comments | More in Debt, Debt ceiling debate, Deficit

October 12, 2011 at 10:15 AM

Debt overhang: One big weight keeping the economy down

I’ll call your attention to Harris Collingwood’s article in The Atlantic: “The recovery’s silent assassin: How debt deleveraging is killing the economy.” It points to a little-discussed phenomenon after three decades of debt-driven growth: As households, businesses and governments pay down debt at the same time, the economic crisis will only linger and perhaps get worse. This isn’t the only problem facing the economy, but it’s a big one.

Using one woman’s life changes as an example, he writes:

Millions of Americans are taking similar steps. Some 8 million U.S. consumers stopped using bank-issued credit cards in 2010, according to the credit-reporting agency TransUnion. The average credit-card balance has fallen 10 percent this year from 2010, to $6,472; U.S. consumer debt has dropped for 12 consecutive quarters, from a peak of $14 trillion in early 2008 to $13.3 trillion last spring, mainly because of mortgages repudiated or abandoned. People are cutting visits to the hairdresser, buying used cars without financing, and living on surplus cheese as they trudge toward the promised land of a debt-free existence.

Suppose everyone did what Heather Anderson is doing? And that the federal government, just as virtuously, did the same? And Europe too? What if everyone deleveraged at once? Guess what–that is exactly what’s happening in the wake of the Great Recession. For better or worse.

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Comments | More in Debt, Deficit, Deflation, Housing, Income/living standards, Recovery

September 22, 2011 at 9:04 AM

The Fed and the markets: What you need to know

Two developments are driving the fear in the markets today.

First, Wednesday’s statement by the Federal Reserve’s policy-making Federal Open Market Committee contained these words: “There are significant downside risks to the economic outlook, including strains in global financial markets.” Second, China’s manufacturing sector is on track to contract for a third straight month, its worst performance since the recessionary trough of 2009.

For months, as the economy has slowed and data have emerged showing the Great Recession was much worse than previously assumed, the conventional wisdom has clung to Ben Bernanke’s measured assurances that recovery was just around the corner. The FOMC statement finally dashes those hopes. (This is the same guy who said don’t worry about subprime just before that explosion).

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Comments | More in Bailout, Deficit, Federal debt/deficit, Federal Reserve, Great Recession

September 13, 2011 at 9:30 AM

Is Social Security a Ponzi scheme

No. The classic Ponzi scheme is always a private phenomenon, where returns are offered that can’t actually be met; early investors are paid by the money from newer investors, until the fraud unravels. And the originator of the scheme is enriched until, or if, he is caught. Named after Charles Ponzi, a fraudster from the Roaring ’20s, it was on display in our time with Bernie Madoff. If one wants to stretch the definition, the housing bubble was a sort of public-private Ponzi scheme, with easy Federal Reserve money setting off a mania that enriched a few banksters while socializing the losses and leaving millions foreclosed or underwater on mortgages when it collapsed.

Whether Social Security in its present form is sustainable is a valid question. The program traces its roots to that famous bleeding heart, Otto von Bismarck. The Iron Chancellor began the program to undercut the appeal of socialists and communists. It was heavy lifting to achieve Social Security in this country during the New Deal, even with FDR and heavy Democratic majorities in Congress. Since then, it has kept tens of millions of older Americans out of poverty (without Social Security, at least 45 percent of senior citizens would be below the poverty line today). It is a social insurance program, an inter-generational compact, where working people pay taxes to support the retired. Many now worry that longer-living baby boomers will bankrupt the program.

Thanks in no small part to the Irishmen’s deal between President Ronald Reagan and House Speaker Tip O’Neill, Social Security is in much better shape than many Americans realize. According to the Congressional Budget Office, Social Security’s shortfall over the next 75 years is equal to about 0.6 percent of gross domestic product.

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Comments | More in Deficit, Social Security, Working America

September 6, 2011 at 9:33 AM

Stormy September

Today’s selloff on Wall Street is only the beginning of what we should expect from September. The global economy is slowing. The American economy is close to a double-dip recession or is still in one, the old-fashioned metrics no longer useful. Europe is a mess: Behind the so-called sovereign debt crisis are big banks that made bad bets (sound familiar?), and a monetary union on the brink. As the nest-eggs of average Americans evaporate, there’s only so far they can max out the credit cards to keep the vaunted consumer economy going.

Austerity will only make things worse, as has been happening in Europe. Nobody expects a bold move on jobs from President Obama, who is looking more and more like a one-termer no matter what outrageous things are said by the GOP field, especially the front-runners. Obama, a creature of Wall Street and Robert Rubin’s obsession with pleasing the bond playerz, will only add to the rolls of jobless as public-sector jobs continue to be eliminated.

None of these issues can be addressed quickly anyway. That is, even if our leaders were speaking truth to the American people and taking serious measures.

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Comments | More in Deficit, Federal debt/deficit, Federal Reserve, Great Recession, Income/living standards, Macro/Big picture, Recovery

August 8, 2011 at 9:36 AM

Dysfunctional government, dysfunctional credit agencies

Note to readers: I will be blogging less during August. Come September, I’ll return to blogging every business day.

It would have been helpful if Standard & Poor’s had been so vigilant in the mid-2000s, when it and the other credit-rating agencies were assigning top grades to sub-prime securities and other financial weapons of mass destruction (in exchange for tidy fees from the banksters). Were that so, we might have avoided the worst financial panic since the Great Depression and one of the key drivers of the deficit S&P now so abhors.

S&P’s $2.1 trillion error right out of the box Friday further calls into question its standing to make a statement about the safety of U.S. debt. The New York finance lawyer who writes The Economics of Contempt blog goes further:

Look, I know these S&P guys. Not these particular guys — I don’t know John Chambers or David Beers personally. But I know the rating agencies intimately. Back when I was an in-house lawyer for an investment bank, I had extensive interactions with all three rating agencies. We needed to get a lot of deals rated, and I was almost always involved in that process in the deals I worked on. To say that S&P analysts aren’t the sharpest tools in the drawer is a massive understatement.

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August 3, 2011 at 9:30 AM

Behind the market sell-off, danger of another recession

Every once in a while market moves coincide with broader reality and that’s what’s happening now. Tuesday’s big swoon in the Dow was the worst in two months and after eight days of carnage the index is headed for its longest decline in thirty years. I’m not the only one who has that summer/fall of 2008 feeling, when the feds were playing catchup to the panic and thought letting Lehman fail would be a really, really smart idea. The market sniffs recession.

Once again: The debt was never the immediate problem. Growth is. The “compromise” will merely slow growth further while doing nothing to promote stability. Friday’s jobs report will be pivotal, but, the ADP hiring survey notwithstanding, it’s likely to be grim, following on anemic reports this week on manufacturing, services and consumer spending. GDP grew at only 0.9 percent for the entire first half of the year. And that’s just the start of the damage. The Economic Policy Institute estimates the budget deal could cost 1.8 million jobs by 2012. The Eurozone crisis also continues.

The Federal Reserve is mighty silent. The best we have is the Onion’s parody of a drunken Chairman Ben Bernanke opening up at his neighborhood bar. ” ‘Look, they don’t want anyone except for the Washington, D.C., bigwigs to know how bad s*** really is,’ said Bernanke, slurring his words as he spoke.”

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Comments | More in Consumer spending, Debt ceiling debate, Deficit, Eurozone, Great Recession, Income/living standards

August 1, 2011 at 9:40 AM

Let’s make a deal: A balanced way to slow the economy

As I warned in Sunday’s column, the tentative budget deal does nothing to address the real problems facing the U.S. economy. Now that we know some details, let me count the ways:

1. It does nothing to address the drastic slowdown in growth, underscored by today’s manufacturing report. In fact, the “balanced” approach that relies strictly on spending cuts will hurt growth by killing more jobs directly and indirectly tied to the federal budget. It precludes a badly needed (real) stimulus. And it doesn’t deal with health-care costs, which are a major driver behind the deficit, besides wars, the Bush/Obama tax cuts and the recession.

2. Without a big pickup in growth, job creation will languish. Thus, unemployment looks to remain unusually high for years to come. And without real growth, the deficit will linger.

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July 29, 2011 at 10:50 AM

If the default happens, there’s no place to hide

Forget “safe havens” of gold, corporate bonds and Swiss francs. If a U.S. default really happens in the next week or two, most of us will be trapped in the express elevator to hell. Sorry. There’s just no nice, compromise-ey way to phrase it. A freeze-up in short-term credit and layoffs at Flir are only the beginning.

While President Obama has brilliantly channeled the ghost of Herbert Hoover, the blame for this wholly unnecessary event will lie with the radicals that have taken over the Republican Party. There is no debt crisis. We do face a jobs and growth crisis, which was not squarely addressed by a president in thrall of Robert Rubin and a bought-and-paid-for Congress. As I’ve written before, playing games with the full faith and credit of the United States is as dangerous a ploy as one could imagine. Yet our representatives have done it. The message to the world is that the world’s largest economy can’t govern itself.

The economy has already hit stall speed, with growth slower than at any time since the Great Recession already ended. It won’t take much to push us into a double-dip.

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Comments | More in Debt ceiling debate, Deficit, Federal debt/deficit, Outlook

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