…That the latest email scam offers me an Immigration and Working Pass to go to Spain!!
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Tags: recession
AP reports that wholesale food and energy prices are rising, and seems surprised to find new danger of inflation despite the tepid economic “recovery.” The stock market is up, commodities are rising, but hiring is flat and wages are down. So how can there be inflation?
My macroeconomics professor used this mantra: “Inflation is always and everywhere a monetary phenomenon.” The more money you pump into the economy, the less value each unit has. If the money supply increases faster than the value of the economy, inflation is unavoidable.
The money supply has increased by 2/3 over the past ten years. Despite the downturn in the economy, or perhaps because of it, M-1 has increased 66% and M-2 has increased 77%. Over the same period, GDP increased only 42%. The money supply grew much faster than the economy. So why are we surprised that our dollar doesn’t go as far as it used to?
Incidentally, the price of goat feed has already risen 13% this month. Brace yourselves! Whether or not you got a raise last year, things are going to cost more.
Tags: government, recession
Dear Mr. Philpot,
I enjoyed meeting you at the Iron County Fair on Monday, where we spoke briefly about taxes. I would like to follow up about this because I think there is a great deal of misunderstanding on the subject. As a tax preparer and political blogger, I would like to offer the following data in the hope that you will modify your position– as I wish many politicians would.
First, according to the Census Bureau, median income for American taxpayers is $51,283; Utah is slightly higher at $59,395. So half of all American (and Utah) households earn less than this figure.
IRS statistics show that only 1% of all Americans earn more than $380,384 per year. Only 10% earn $101.799 or more. So 90% of all Americans earn less than $102,000 per year. When we’re talking about the number of Americans affected by the tax rates in the upper income bracket, it is a very small number of very privileged Americans.
Of far more concern is FICA/SECA tax, which takes 15.3% of every dollar earned by both wage earners and the self-employed. The median family earning $51,000 per year would pay very little income tax (about $1,750 for a married couple with two children claiming the standard deduction and the child tax credit), but over $7,800 in FICA/SECA tax. Likewise a family struggling to get by on $20,000 would pay no income tax at all, but would lose $3,000 of its income to FICA/SECA.
Technically an employee only pays 7.65%, or half of their FICA tax, while the employer pays the other half. But anyone in business knows that the employer has to reduce salary to cover the cost of his/her employees, so FICA tax reduces disposable income by 15.3% for employees as well as the self employed. I can’t tell you how often a client has decided not to hire a part-time employee because of he cost of payroll taxes, so FICA on low-income earners discourages hiring as well.
FICA/SECA is a regressive tax. Any earnings over $106,800 are not subject to social security tax. Thus the same privileged 10% get a tax break with respect to FICA/SECA, while the rest of us, and especially the working poor, struggle to pay for a fund that will probably be broke before we ever collect.
Our government under both the Bush and Obama administrations has heavily favored the elites. Bailouts, tax cuts, tax credits, subsidies, and expenditures for the wars have given trillions to big business and their owners. Most of this has been done on credit. Both presidents gave us a few hundred dollars in tax rebates. But that doesn’t compare to the massive transfer of wealth from our Treasury to crooked bankers, sweetheart military contractors, corporate mega-farmers, Afghan warlords, and oil companies.
The national debt is perhaps the cruelest tax of all: The money supply, as represented by M-2, has grown from 4,658 billion in January 2000 to 8,611 billion in July 2010, an increase of 85%. That means 85% more dollars have been pumped into circulation, making each dollar we earn and save worth about 54 cents compared to what it was when President Bush took office ten years ago– and few of us have 85% more wealth than we did then.
There is an argument that average Americans benefit from “trickle down”– when big corporations are taxed less and subsidized more, they spend more. But looking at he state of the economy today, that’s a hard argument to support. The backbone of our economy, both nationally and in Utah, is small business. We work hard, we hire our neighbors, and we put money back into the local economy rather than shipping jobs offshore. We generally don’t earn $100,000 a year, and we generally don’t qualify for subsidies, tax credits, or even health insurance credits.
It’s been a long time since I’ve seen a President or a Congress concerned with the financial well-being of average Americans. As a nation, we’ve done quite well for the rich, but the poor is struggling and the middle class is in trouble. And the problem is not the amount of income tax we pay, it’s a government that favors the wealthy.
I hope that you will help change that.
“Unemployment rate rises, in sign of weak growth” –Washington Post
“Private Sector Adds 67,000 Jobs” –Wall Street Journal
The data in the two articles is largely the same. I guess it depends on whether you see the glass as half empty or half full– or whether you have a vested interest in the stock market rising.
Tags: recession
Housing prices fell an astounding 27% in July, making it clear that the recession will not be ending soon. Lower sales means lower prices– and lower tax revenues for municipalities, who in turn are raising tax rates to compensate.
A random survey of three properties in my county shows an average valuation drop of 15% from last year, down to roughly 2004 levels. Yet (if proposed budgets are approved) our property taxes will actually increase by 3.7% to 4.3% as city and county governments try to make up for lost revenue elsewhere.
Tags: recession
Las Vegas is a city that survives on the disposable income of consumers. These days, consumers don’t have much of that, and Las Vegas has been hard-hit by the recession. The Herbst family filed bankruptcy last year, putting the Primm casinos into receivership (and a death spiral). This year, Station Casinos filed for protection, with the Fertitta family barely hanging on to their properties at auction. Riviera Holdings, which owns the Riviera Casino, also filed this year, with its stock removed from the NYSE after values plummeted from $30 to below a dollar– it;s currently trading at 9 cents per share.
Hooters Hotel may be next, as the company warned in May that it lacks sufficient cash to service its debt and may have to seek protection. And mothballed projects on the Strip have hurt Circus Circus as well, putting its future in jeopardy. Overall, bankruptcy rates in Vegas were up 16% over 2009 for the first quarter 2010.
The good news is, there are great deals to be had in Vegas, as casinos and hotels struggle to fill their rooms. The bad news is, closing businesses mean folks out of work who can’t pay their bills. Las Vegas has 14.1% unemployment, giving Nevada the highest unemployment rate in the country– higher even than Michigan. Las Vegas also has the highest foreclosure rate in the nation, hit first by toxic mortgages and now by lost jobs.
It’s hard to see how the city can dig its way out of this one.
Tags: recession
In a reminder that our economy requires excess to survive, the Fed made moves today to discourage saving and encourage spending.
One of the effects of the recession has been a new financial responsibility by many American households, who have been saving more and debting less. But while that’s good for individuals, it’s bad for the economy, which requires spending and more spending to stay afloat. More than 2/3 of the U.S. GDP is consumer spending.
Think about that: if consumers stop spending to excess, then people lose their jobs. That means many Americans are employed in making, delivering, or selling stuff we don’t really need. We have fewer people employed in farming, manufacturing, and durable goods than ever before– thanks largely to efficiency and the global economy. When was the last time you bought a shoe or television made in USA?
We are told that this is good for us because the increased global opportunities for American businesses. But does our experience support that premise?
Globalization means that companies can manufacture wherever it is cheapest to do so, and sell wherever it is most profitable to do so. It is rarely cheaper to manufacture in the U.S. when an average Sri Lankan factory worker earns $3 per day. That means the pressure on American wages is always downward, as we compete with China, India, Sri Lanka, Vietnam, and a plethora of other third world nations.
Globalization may be good for corporations and their stockholders, but it isn’t good for American workers. The current recession, and the Feds moves today, should abundantly confirm that.
Tags: corporatism, recession
(Jasoneppink photo.)
Congress today passed a much-anticipated bill to help states pay for teachers in classrooms. The bill will provide $26 billion in aid for education and medicaid.
The bill pays for itself in part by cutting almost $12 billion from the food stamps program, suggesting that Congress is switching priorities from helping the tens of millions of long-term unemployed, to keeping more people from becoming unemployed.
Tags: recession
WSJ.com reports that retail sales fell 1.2% last month, which “conflicted with remarks by [Fed Chair] Ben Bernanke.” While this may be a surprise to some, casual observations of the local economy might have predicted a slowdown:
- A wholesaler I work with in another state saw its sales in May 2010 drop 80% from May 2009. That’s not a typo.
- My own collection issues have risen, as clients find it more difficult to pay their bill.
- The Mayor of Cedar City, Utah, reports that “a plumbing and electrical supply house, a restaurant, and a video rental store have closed or announced that they will close.” That video store is the local Hollywood Video, the only remaining video rental store in town.
- Roberts craft store in Cedar City has also closed.
- A realtor reports that in 2009. 32% of the homes sold were foreclosures, and another 20-25% were short sales. In other words, more than half the homes sold were distressed sales.
- Deseret News reports that sales tax revenues are lower across the state, and a drop in auto sales in particular have impacted local municipal budgets.
- The Mayor of Cedar City says, “The biggest challenge I have faced since taking office is balancing the upcoming budget.”
On Thursday, Ben Bernanke told Congress,
“Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence, and some improvement in credit conditions.”
What planet is he on?
Tags: recession
With unemployment at the highest rates since the 1980s , and some California counties reporting rates over 20%, it may not look like the economy is improving. But The Kiplinger Letter offers some good news:
- Banks have “pots of money” to lend, and they are beginning to lend it.
- Businesses are holding much of their assets in cash, ready to invest it.
- Auto sales are beginning to rebound.
But will it be enough to carry the economy as federal stimulus winds down later this year?
Seperately, MSNBC reports that small business owners are less pessimistic about the economy. Their outlook has improved from dismal to not great.
As CSM points out, small businesses are doing what makes them great : staying small. The recession itself may be helping us to stay local!
Tags: recession
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