Archive for April 24th, 2013

The rich are getting richer under President Obama, and this is partly true because of his policies, such as the South Korea Free Trade Agreement.

According to a report out of the Pew Research Center, “During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%.”

There’s are several reasons for this trend. One of the worst is that one to two plus million jobs are exported every year from the US, according to the Federal Reserve. The difference between the old wages and the new lower wages over there are redistributed from the job losers to rich shareholders via higher corporate earnings, increased dividends and rising share prices.

And that is precisely what has occurred, a massive redistribution of income, which has fueled a rise in share and bond prices (wealth). BTW, income is money coming in, such as weekly pay checks and corporate dividends, while wealth is composed of assets.

The people in the top 7 percent saw their total wealth increase $5.6 trillion, mostly in the form of stocks and bonds. The 93 percent and lower saw their wealth decrease by $0.6 trillion. Their wealth is mostly in their houses.

What happens when job get shipped overseas? Many people lose their houses. If enough jobs are shipped overseas, then local tax bases begin to shrink. Teachers, fire fighters, government lawyers and accountants; they lose their jobs, they lose their houses. But corporate share prices rise because labor costs are reduced. In other words, a massive redistribution of income results in a massive redistribution of wealth.

The 1 percent have stolen virtually all income growth during the last five years. They now steal over 30 percent of all yearly US income, up from about 8 percent thirty-three years ago. Free trade treaties have played a massive role in this.

According to Pew, “During the period under study, the S&P 500 rose by 34% (and has since risen by an additional 26%), while the S&P/Case-Shiller home price index fell by 5%, continuing a steep slide that began with the crash of the housing market in 2006. (Housing prices have slowly started to rebound in the past year but remain 29% below their 2006 peak.)”

The reason for the results of this study is massive corruption in the US government. Money is the reason why many congress persons and senators vote to redistribute income from the 99 to the 1 percent. All of this was easily predictable, and I did so in The Rigged Game.

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Yes! Taxes can be raised on corporations.

I had a guy who wrote that if taxes were raised on corporations, they will simply pass on the tax increases to consumers. I disagree. The writer also suggested I didn’t know anything about economics in refuting this. So what I wrote about that is below.

Dear Sir,

“I think I understand economics quite well, thank you.

In the world of supply and demand, which is the world of competition, to pay higher taxes, businesses will reduce their expenditures and intensify competition as they seek more customers. This intense competition will result in lower prices.

That’s the way it was in the three decades after World War II when corporate tax rates were higher than nowadays, corporate profits were consistently strong, and inflation was low.

What you wrote suggests that there is no competition and that businesses can jack up their prices whenever they desire. I disagree and the historical record sides with me.

So from the point of view of anybody who believes we live in a competitive capitalist system, the point-of-view you have doesn’t seem logical.”

The man wrote back and said a few things about how I am incorrect and that raising the corporate tax rate would only result in higher prices. And once again his point of view is not logical. He wrote, “You imply that the only thing that made the 1950s prosperous was the corporate tax rate. As if the whole complex economy just has one knob, and if we just turn that one knob, everything will be great. There’s a zillion variables in the economy”

So I wrote back what is below.

“I agree with you on many points, especially the part about economics being a sub category of politics. Great book on that is “Why Nations Fail.” I also agree with you that there are many variables besides tax rates that help or hinder businesses in their successes and failures. However, I still think you’re incorrect about how all businesses will simply pass on their tax increases to consumers. They have tons of other options (“a zillion variables”).

For example, corporate profits are at record highs right now. So are retained earnings. It’s obvious corporations don’t need to raise prices or decrease shareholder dividends to pay higher taxes if they can simply take money out of their record retained earnings.

Many would probably do this rather than increase prices because the demand for goods and services is historically weak. In a competitive environment, raising prices would push more and more consumers out of the market, thereby decreasing the size of markets. Competition in shrinking markets would increase. Businesses wouldn’t want to do this because that would lower their already fat profit margins. And why bother anyway? What with record retained earnings.

And that’s another point. How can large corporations be engaging in fierce competition with one another and still make record profits year after year, and in an environment with weak demand?

The answer is that many markets are tightly controlled by oligarchs. They’ve already jacked up prices so high that major corporations are sitting on trillions of dollars. We’re paying for that, but maybe we can’t continue to pay for that forever.

So most corporations may simply pay higher taxes out of retained earnings, or they’ll use phony accounting methods to push profits to the Caymen Islands or Panama.

The point that I make above it obvious. It would be good for the middle class and for the economy if marginal corporate tax rates were raised significantly.

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