Saturday, July 28, 2007

Presidential Policy and The Economy

There were a few questions in regards to the economy and the stock market brought up by Adam’s email last week that were left unanswered. While I did not have an opportunity earlier, I intend to answer those questions. However, I make no claims to be an economist, I have a limited knowledge of economics and I base most of my points on individual opinion rather than on fact so please feel free to comment, rebut or correct any inconsistencies that may arise.

While there is no doubt that the rise in the stock market is a good thing, especially for those who invest, it is important to note that the stock market relies heavily on the global economy and is not just specific to the American economy. It is not an accurate measure of the American economy. All the markets in the world are interconnected and what happens one side of the world will, without a doubt, affect the other side. For example, in February of this year a hiccup in Chinese market caused the Dow Jones to drop 400 points in a single day. This hiccup in China was believed to be Government intervention in the Shanghai market to slow the growth of that booming market. GDP, job creation and buying power are three statistics that give much better descriptions of the domestic economy.

One of the questions from earlier was how presidential policy can affect the stock market. There is saying about presidential influence on the economy that says all presidents get either more credit or more blame than they deserve. While Presidents have very little affect on the economy they do in fact have an affect on the economy. Example: While it is difficult to nearly impossible to prove, you could make the argument that Bush’s tax polices have affected the stock market in a positive way. Stock markets usually rise when there is an influx of investment income, more people investing with more money. You could contribute this increase in the stock market to Bush’s tax polices if you made the assumption that Americans in the higher income brackets are more inclined to invest their tax breaks in the stock market than Americans in the lower brackets. Since the higher income brackets are receiving nearly all of the tax breaks, it is very possible that they are reinvesting their money saved and as I said earlier this is creating a great influx of investment capital in the market and could very well be a contributor to the stock market rise. I would say that assumption is by no means a stretch, and it is very possible that the tax cuts have pushed the stock market higher.

Although the argument has been created that George W. Bush’s tax cuts have benefited the stock market they are having potentially very damaging affects on the economy in the form of Income Inequality. This disparity of income started well before Bush was elected, but his tax cuts are compounding the problem. In the United States the income gap between the wealthiest 10 percent and the poorest 10 percent is the greatest of any other country, except for Russia. Since 1980 the wealthiest third have grown their income by three times the amount of those in the lower classes. Tax breaks on capital gains and dividends have given the top bracket an incredible ability to sustain and grow their wealth, while the lower income classes do not have the adequate supplemental income to take advantage of this break. As Al Gore had ranted about in his race for the white house, 35% of Bush’s the tax cuts were going and did go to the top one percent. The reasoning for this policy was that the top one percent shoulders the load of the taxes so they should get the benefit of the breaks. Apparently the notion that the system was already set up to allow the wealthy to grow their wealth at 3 times the rate of the middle class was not enough. Our founding fathers built this country on the belief that all men are created equal, however, our tax system is set up so that a person born today will not have the same opportunity to grow his or her wealth as another born on the other side of the tracks. For the former land of opportunity , there is nearly a 50% chance that if your father is in the lower fifth of the income bracket than you will be there too. Throughout Europe that statistically is between 25 to 30%.

The Concentration of wealth in the hands of the few, drives social discontent and damages the economy. As a country whose economy has always been driven by the strength of its middle class, the growing issue of income inequality needs to be addressed and it is something the Government and the President can have a significant affect on. After all, many historic revolutions were brought about as a result of income inequality.


Anonymous said...

great post said...

Oh good Lord. When the Founders said "...all men are created equal" they were talking about and most decidely meant white, male, mostly protestant property owners.

Unless the United States has turned into Cuba recently the tax code has evolved to charge those who earn the most the most in taxes. Why in all this bloviating didn't anyone mention the millions of Americans taken entirely off the federal tax rolls altogether by tax cuts presented by Kennedy, Reagan and Bush? So many millions that you liberals who won't be happy until those of us who earn an income have no income needed to create an earned income tax credit specifically for those who pay NO taxes.

The top 50% of income earners in this country pay 95% of the country's income taxes. The lower 50% of income earners pay 5% of the taxes. I pay 10 times the income taxes of 99% of the lower income earners and yet the police don't come to my house 10 times as fast, the water in my tap isn't 10 times as cold and my street not plowed 10 times as quickly.

I pay my fair share because that's the way the system has to work but it won't work if you believe that beating me up over my income, my income taxes or my miniscule tax break equals devastation to society and everyone in it. If you really believe that then you're likely not working for a living yet and certainly don't pay much in taxes.

Pandering to the masses who don't realize who really pays the bills in this country is what liberals do. Start telling the truth. 32.4% of tax filers have exactly zero tax liability - yes 42 million people who filed a federal tax return out of 131 million had ZERO liability - another 15 million people didn't have to file a return at all.

The richest 1 percent has average income of $1,259,700 and forks over 31.1 percent of its income to the federal government. The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent.

Give it up.

Douglas E. Flynn said...

Yes it is true, those who earn the most income shoulder the burden of the Federal Income taxes, I don’t think anyone needs convincing of that. Here is the thing and I am referring to Bush’s tax cuts which began in 2001 by giving the highest portion of the cut to the top one percent. By 2010 the total tax benefit for the top 1% over that 10 year period is estimated to be 715 billion. The total amount of the tax benefit to all income groups is 1.9 trillion. It is important to note that these tax cuts are unfunded. You can go ahead and say these tax cuts are on borrowed money.

“If you’re going to lower taxes, you shouldn’t be borrowing essentially the tax cut. That over the long run is not a stable fiscal situation.” - Alan Greenspan

These tax cuts, along with the war in Iraq and the money owed to social security is what has ballooned the national debt from 4.5 trillion (the debt in 2000) to 9 Trillion. These tax cuts on borrowed money do not last forever. They have to be reclaimed at some point in the form of spending cuts or future tax increases. If these tax cuts were to be repaid in 2010, the total cost of the tax cuts would be 2.4 and 2.6 trillion. The added debt burden to the lower income families out weighs the minimal tax cuts they have received. The top 1% on the other hand, who received massive tax cuts, are the only ones who will net a positive difference of tax cut less burden of debt.

The tax cuts have had significant effects to the tax system, none of which are positive. If tax cuts are to be put in place and you believe they should go to those who pay the most taxes, fine, but tax cuts should be based on surplus’, they should not be issued on borrowed money and should not burden other income groups or future generations. The tax code has evolved recently to sneak around the graduated income tax. Anyone who claims that recent tax law seeks to add greater burden to the higher income group is grossly mistaken.