The Standard & Poor rating service is becoming something of a handmaiden to the tea party (TP) and fellow traveling right wing fiscal hawks who seem to have an interest in aggravating our fiscal problems rather than seeking solutions. At least that's the way I view S&P's decision on Friday to downgrade the country's AAA credit rating. Moody and Fitch, the other two major credit rating firms, are sticking with the AAA rating, although both have served notice that they will be watching the U.S. credit standing with a critical eye.
In a recent posting I was critical of all the credit rating agencies in their role as judges of any country's credit standing, although there is enough evidence to question the fiscal viability of such countries as Greece, Ireland, Portugal, and perhaps a few other European countries. My point in that posting was that these private credit rating agencies were the same ones who were knowingly giving high investment ratings to mortgage-backed bonds being huckstered by investment banks such as Goldman Sachs. The high ratings were given even though there was plenty of evidence to know that the bundle of mortgages serving as collateral on a bond issue was loaded with subprime housing loans that were almost certain to go bad.
So why should we give them any more credibility when it comes to assessing a country's credit worthiness? In the case of the S&P downgrading the U.S.'s AAA rating, the Obama administration protested that the model used by S&P for analysis was off by several trillion dollars. S&P paused briefly in making the decision final, but quickly went ahead with the original downgrade decision. What really caught the eye (or ear) was that S&P acknowledged a $2 trillion error in its calculation but it didn't make a difference relative to other data points such as the ratio of debt to gross domestic product. The $2 trillion error didn't "make a material difference," according to S&P.
Then came the subjective political judgment on risk with S&P saying its decision also considered the slowness of Congress raising the debt ceiling and the political infighting involved. It was akin to the TP modus operandi -- we know where we want to go and that is where we are going regardless of the facts and how what we do may negatively affect the U.S. fiscal credibility in the world and the world economy itself. The only saving grace, at least in my initial reaction, is that ultimately it won't be the S&P decision that drives the bond market and collateral effects, but the judgment of investors in the safety of U.S. bonds. Given the shakey fiscal condition of some European countries, the U.S. bond market is likely to remain the best poker game in town. Now to turn the corner and go abroad.
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Israeli Prime Minister Netanyahu said he was willing to reopen peace talks with the Palestinians using the pre-l967 borders as a starting point for negotiations. This comes after Netanyahu several weeks ago denounced President Obama's proposal that the l967 borders be the basis of new talks, but with the recognition that land swaps will be a necessary part of any agreement, such swaps reflecting the reality of where Israel has established new or expanded settlements.
The Netanyahu offer, agreed to in written form with the U.S., had the clear appearance of a phony gesture concocted by both the U.S. and Israel to head off the Palestinian strategy to bypass the peace talks and go to the U.N. this fall to seek recognition of Palestine as an independent state. Both the U.S. and Israel figure they have a lot to lose if the Palestinians pursue their U.N. strategy for recognition. Recognition would put international pressure on Israel to make concessions on various outstanding economic and security issues. The U.S. stands to lose even more friends in the Muslim world if it votes against Palestinian recognition, as it almost certainly would if recognition comes to a vote. As of this posting, the Palestinians have rejected the Netanyahu offer. But on the unending Israeli-Palestinian confrontation, there is no such thing as the final word.
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There was another outbreak of violence in China's predominantly Muslim province of Xinjiang in northwest China. This time it was a rather mild outbreak compared with previous violence between the Muslim Uighurs and the Chinese Han minority. The basic Uighur complaint is that Beijing development policies, such as development of oil and natural gas resources, discriminate in favor of the Han. That has been the Uighur charge against China.
What struck me was farther down in the story with China saying that the Uighur ringleaders received their training in firearms and explosives in Pakistan! Pakistan has long been a staunch ally of China in China's long border dispute, including a war, with India, Pakistan's number one enemy. So Pakistan, or at least the northeast frontier region bordering Afghanistan, has now become an equal opportunity training camp for terrorists, a charge we have long made about Taliban and al-Qaeda safe havens in Pakistan.
To conclude, the world at home and abroad has become so jumbled and messy that it may be time to step through Alice's looking glass in search of an alternative reality.
I use this site to keep my current events straight. It doesn't surpise me that the rating was downgraded. I am a honestly a little angry with this administration right now as to any talk of tax increases upon those of us already paying 50% of the federal taxes. Especially with all the losses just incurred in the stock market. Some people just lost 10% or more of their 401 Ks. 50% of the people in this country don't even pay taxes and talking about increasing the taxes on those that do seems unbalanced. Reform the taxes and remove loop holes etc. but this is not the time to be talking about raising taxes. Also, focus on fixing the economy and stimulating job growth which will increase the tax base. That would be another way to increase revenue. Can we at least try something else to raise revenue before jumping to increases in taxes on those already paying the lions share of taxes? Small businesses are already facing so much uncertainly with higher health care costs and unemployment insurance rates.
ReplyDeletedpchuck
ReplyDeleteYou can be sure of one thing. You're not alone out there and the current drop in the stock market is very scarey for many people for resons you stated. The two biggest sources of assets for people are their homes and their 401k. With housing in a prolonged slump, it is very unnerving to now see the 401k's losing so much value.
Your views have a lot of company, although I think there is a lot of sentiment for not just closing the loopholes but also raising the tax rate on the wealthy. I do not think, however, that $250,000 is a mark of the wealthy. Anyone living in New York, San Francisco, and D.C., for example, knows that a $250,000 income has not put him or her among the wealthy. I am one of those who would raise the rate a few percentage points on the wealthy, but I would at least set that mark at $1 million.
Closing loopholes and increasing the rate on the wealthy is part of the great need to increase revenues in the short run. It's the GOP intransigence against any revenue increases that really drives me nuts. Fixing the economy and increasing the tax base through more jobs is a longer term proposition, but long or short there seems to be little real movement by anyone in Washington to get on with a job creation program. One can never be sure what such a program looks like, but to me at least one part of it would be a stimulus package. That would cost money we don't really have but maybe it would be worthwhile to encourage the corporations to bring their overseas earnings home by a one-year gift rate of 5 percent tax on these earnings rather than the regular corporate rate. Then take the tax proceeds of that returned money and earmark it for a real stimulus job-creation package for building and repairing infrastructure. I am not a big fan of a tax holiday for such earnings but if it could be earmarked for real stimulus spending, then I would be satisfied.
Meanwhile, for the great bulk of taxpayers I would leave the rates where Bush put them, at least until we are sure that we have an economic recovery and then perhaps revisit the issue of rates for everyone. But that would be down the road for a number of years.
We had this discussion in an earlier blog that $250,000 should not be considered wealthy as you said people living in more expensive areas like New York City have much higher expenses. I agree with dpchuck that it does not seem fair that the 50% of the country actually paying taxes should have to pay more. I heard a piece on the radio about a guy talking to his neighbor complaining that "rich" people ought to pay more taxes. The neighbor asked what percentage the other guy thought the "rich" should pay. He said 33%. The neighbor said that the "rich" are already paying more than that so should they get a rebate? If the administration gets it way and raises taxes then a lt of people including the small businesses which are the backbone of the country are paying more in taxes at a time when 401Ks are going down and houses are worth less and other local and property taxes are on the rise and health care costs are on the rise.
ReplyDeleteJeffrey
ReplyDeleteThere is a lot of misunderstanding and misinfor mation about the taxes we pay. The biggest misunderstanding is that when people say they are in the 33 percent bracket it sounds like they are paying that on all of their taxable income. But in fact that 33 percent is what is called the marginal rate, the rate paid on the last dollar of income you earn. In fact you don't hit the 33 percent rate until your taxable income reaches about $212,000 (for married couple filing jointly). Below that amount you pay different rates (10, 15, 25, 28) as you go up the income scale. I believe you only pay 10 percent on the first $17,000. Likewise, you don't hit the highest 35 percent rate until you reach $379,000.
And don't forget that the taxable income on which you pay is the bottom line after deductions for personal exemptions ($3,750 per person) and itemized or standard deductions. So a person making say $75,000 of adjusted gross income, may only be paying taxes on $45-50,000 after the deductions. So the great bulk of people are in effective tax rates of 15 or 25 percent.
A lot of people have no tax obligation because after the deductions, their income falls to the bottom. And, of course, there are the tax cheats who pay nothing and many who have so many loopholes and places to hide their money tax free that they end up paying nothing.
While you apparently wouldn't agree, I think the rich (above $1,000,000 in taxable income) should pay more. And somewhere down the road when we indeed have had an economic recovery and unemployment has dropped to about 6 percent, then maybe it is time to consider an increase of a few points in all tax brackets. Right now is not the time for that since, as you note, a lot of bad or undesirable things are happening that have a negative impact on individuals and families.