Once upon a time, there was an American Dream

Posted: October 26, 2011 | Author: | Filed under: income inequality | Tags: , , , | 8 Comments

and over the last three decades it has clearly been disappearing.

The US made incredible strides in the post World War 2 era by bringing huge numbers of American families into the middle class.  This has been clearly reversed over the last three decades according to a new report coming from the Congressional Budget Office.  The report shows that “the top 1 percent of earners more than doubled their share of the nation’s income over the last three decades”.  It also indicates  the role of government in creating the vast inequalities and the resultant stagnating economy, joblessness, and unsustainable federal spending.  Policy has deliberating pulled the rug out from under the middle class and placed a red carpet out for the very few.  The study was commissioned by Senators Max Baucus and Grassley.

In addition, the report said, government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

“The equalizing effect of federal taxes was smaller” in 2007 than in 1979, as “the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,” the budget office said.

Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income.

The report, requested several years ago, was issued as lawmakers tussle over how to reduce unemployment, a joint committee of Congress weighs changes in the tax code and protesters around the country rail against disparities in income between rich and poor.

In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

And for the three-fifths of people in the middle of the income scale, the growth in such household income was just under 40 percent.

The findings, based on a rigorous analysis of data from the Internal Revenue Service and the Census Bureau, are generally consistent with studies by some private researchers and academic economists. But because they carry the imprimatur of the nonpartisan budget office, they are likely to have a major impact on the debate in Congress over the fairness of federal tax and spending policies.

Rapid growth in the income of the very few has come from other factors too.  Of course, incredible bonuses and executive compensation has played a role.  Additionally, the increasing role of the financial services industry in the economy which mostly produces overhead in relationship to useable goods and services is another reason.  Another factor is capital gain with the preferential tax treatment it receives, its relationship to asset bubble and its disproportionate role in the incomes of the very wealthy.

The interesting thing is that the very rich can get richer from trade and globalization.  Huge businesses and capital can go any where these days.  Most Americans rely on their labor and are limited in their mobility.   If the KFC in Louisville has no customers, perhaps one in Beijing will. That is why it is essential that any attempt to stimulate the economy or create jobs happen in a way that ensures the money stay within communities.   There’s a bill coming up in to create an infrastructure bank in the US which would do just that.  It ensures that funds would be used on projects that would create jobs, tax revenues, incomes, and spending that stays within our borders.

On Tuesday, Rep. Marcia Fudge (D-Ohio) offered H.R. 3259, which would create the bank and fund it at $5 billion per year through 2015. Assuming that bill could be approved this year, that would provide $20 billion for the bank, double the initial amount of money Obama requested.

Democrats have said any money provided to an infrastructure bank could be leveraged to provide financial support to infrastructure projected valued at 10 times that initial amount, or more.

“Whether you are a Democrat or Republican, we all have infrastructure that is crumbling, and we have people in our districts who are eager to get back to work,” Fudge said. “This legislation allows us to target the large number of deficient bridges in our communities and other dangerous infrastructure for repair, making travel safer for our residents.”

Fudge said the bill would allow funding for transportation, drinking water and public housing projects. Her bill is the House companion to S. 1550, which Sen. Sherrod Brown (D-Ohio) introduced in September.

Of course, there’s one problem.

While the bill could move in the Democrat-controlled Senate, it would seem to have no chance of being considered in the House. Republicans in the House continue to insist on spending cuts, and no new federal spending programs. Neither bill provides for any offset in spending to create the infrastructure bank, and instead rely on new appropriations.

How did we possibly arrive at the point where elected officials will actively work against the interests of the people that elected them?

Details Emerge on Obama Student Loan Plan

Posted: October 25, 2011 | Author: | Filed under: Barack Obama, Domestic Policy | Tags: , , | 4 Comments

Some details on the Obama Student Loan relief program have been released prior to the President’s speech on Wednesday in Denver.  The new program expedites changes that were not to take effect until 2014. It  adds a few more provisions including the ability to consolidate loans into the direct government plan.

The plan also would accelerate imposition of a cap on payments at 10 percent of income for some people with federal education loans by having it take effect next year rather than in 2014, Melody Barnes, White House domestic policy adviser, told reporters.

For some workers burdened by student loans the changes “could reduce their payments by hundreds of dollars every single month,” Barnes said.

—

Under the loan proposal, people who have student loans through both the direct government loan program and the Federal Family Education Loan program would be able to consolidate what they owe into a single government loan with lower monthly payments and interest rates, Barnes said.

That could reduce by as much as 0.5 percent the interest paid by 5.8 million people, saving borrowers hundreds of dollars, she said.

The acceleration of the 10 percent income cap would affect an estimated 1.6 million borrowers whose type of loan and whose debt in proportion to income and family size makes them eligible for the federal student loan Income-Based Repayment Plan, according to a fact sheet released by the White House.

This program is aimed at reducing the number of defaulting loans that have now reached highs not seen since 1997.  Student loan debt has just reached 1 trillion dollars and rivals the level of credit card debt.

How Orwellian of them

Posted: October 25, 2011 | Author: | Filed under: Civil Liberties, Civil Rights, Domestic Policy, Surreality, Team Obama | Tags: , , | 20 Comments

Public access to government information is vital to a functioning democracy.  That’s probably why the Justice Department is proposing this change to the Freedom of Information Act.  They’re working on further disappearing people and information now.   Is having a functioning democracy politically inconvenient or simply expedient in this age of terrorist games? This is one change that we should be fighting tooth and nail.

A proposed revision to Freedom of Information Act rules would allow federal agencies to lie to citizens and reporters seeking certain records, telling them the records don’t exist.

The Justice Department has proposed the change as part of a large revision of FOIA rules for federal agencies. Specifically, the rule would direct government agencies who are denying a request under an established FOIA exemption to “respond to the request as if the excluded records did not exist,” rather than citing the relevant exemption.

The proposed rule has alarmed government transparency advocates across the political spectrum, who’ve called it “Orwellian” and say it will “twist” public access to government.

In a public comment regarding the rule change, the ACLU, along with Citizens for Responsibility and Ethics in Washington (CREW) and OpenTheGovernment.org, said the move “will dramatically undermine government integrity by allowing a law designed to provide public access to government information to be twisted to permit federal law enforcement agencies to actively lie to the American people.”

Anne Weismann, the chief counsel of CREW, said the Justice Department has a legitimate purpose behind the rules: to protect sensitive information about ongoing investigations. However, she said lying about the records “is an overbroad and improper response.”

“The problem is, if you’re a FOIA requester and the agency says they don’t have the records, you have no reason to doubt that,” Weismann said.“But if they cite an exemption, you have the option to sue.”

I can think of a number of records pertaining to our current wars as well as a variety of domestic terrorism criminal suits that could conveniently be disappeared.  Would this also extend to the request that got the FED to pony up its TARP details, or say, the request to see who visited the White House during the Health Care Reform debates like all those Big Pharma folks?

This is vital to a free and functioning press.  I know we don’t have much of that left, but a few reporters still actually take their jobs as journalists seriously.  This is also important for academics, lawyers, and a host of others who need the details to determine potential wrong doing or innocence.  This certainly means the government would be able to interpret what it wants to give you under a FOIA request.  This is a very bad thing.

Tuesday Reads

Posted: October 25, 2011 | Author: | Filed under: morning reads, Republican presidential politics | Tags: , , , , | 24 Comments

Good Morning!

The Republicans continue to tear each other apart as the 2012 elections get closer.  Karl Rove considers Herman Cain “not up to the job”.   Bachmann’s former NH staff have released a letter that puts the candidate in a bad light.

“Team members were repeatedly ignored regarding simple requests, sometimes going weeks with little or no contact with the national team,” they wrote.

The former New Hampshire staffers said they maintained a sense of loyalty to Bachmann as a candidate and were willing to continue helping her despite lingering uncertainty about payment of wages.

“Sadly, they were deceived, constantly left out of the loop regarding key decisions, and relegated to second-class citizens within a campaign in which they were the original members,” the group said.

The ex-staffers laid out a timeline very different from the one put forth by the Bachmann campaign, claiming that the New Hampshire campaign manager, Jeff Chidester, resigned in an email 10 days ago. When nobody reached out to the other staffers to address their concerns, they called it quits.

Meanwhile, Cain and Gingrich are going rogue by trying to have their own debate in Texas with Tea Party activists.

Presidential rivals Herman Cain and Newt Gingrich (R-Ga.) will participate in a “Lincoln-Douglas” influenced debate hosted by Tea Party activists in Texas next month, National Review is reporting.

The debate will focus on fiscal issues and the economy, and will be moderated by Rep. Steve King (R-Iowa).

“We initially wanted a forum with all of the candidates,” Bill O’Sullivan, treasurer for the Texas Tea Party Patriots, told National Review. “But when we heard Gingrich say he wanted a more serious debate, like the Lincoln–Douglas debates, we wanted to do that, especially since watching the recent superficial debates has been frustrating.”

Rick Perry has introduced his tax plan which is a flat tax plan of 20%.  As expected, it will give a huge tax break to the wealthy and to corporations.  It also would eliminate inheritance  and capital gains taxes.  Perry seems to think that middle class tax payers will  be able to appreciate those things too!  What a moron!  Here’s some of the plan’s major points.

  • “The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.”
  • Elimination of the estate tax
  • Cut the corporate tax rate to 20 percent.
  • Temporarily lower corporate tax rate to 5.25 percent to encourage repatriation.
  • Transition to “territorial” tax system that only taxes in-country income.
  • Eliminates the tax on Social Security benefits
  • Eliminates the capital gains tax

I wanted to share the first of this Bloomberg series on bias and blindness by one of the father’s of behavioral finance Daniel Kahneman.  He explains some of the frames folks use that some times leads them to make bad decisions in the face of risk.  Optimism evidently leads to excessive risk taking.

The evidence suggests that an optimistic bias plays a role — sometimes the dominant role — whenever people or institutions voluntarily take on significant risks. More often than not, risk-takers underestimate the odds they face and, because they misread the risks, optimistic entrepreneurs often believe they are prudent, even when they are not. Their confidence sustains a positive mood that helps them obtain resources from others, raise the morale of their employees and enhance their prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.

An optimistic temperament encourages persistence in the face of obstacles. But this persistence can be costly. A series of studies by Thomas Astebro shed light on what happens when optimists get bad news. (His data came from Canada’s Inventor’s Assistance Program — which provides inventors with objective assessments of the commercial prospects of their ideas. The forecasts of failure in this program are remarkably accurate.)

In Astebro’s studies, discouraging news led about half of the inventors to quit after receiving a grade that unequivocally predicted failure. However, 47 percent of them continued development efforts even after being told that their project was hopeless, and on average these individuals doubled their initial losses before giving up.

Many House Democrats don’t think the Obama plan to help homeowner’s with underwater mortgages goes far enough.

“It’s far too little, it’s just baby steps,” Rep. Dennis Cardoza (D-Calif.), a longtime critic of the administration’s housing policies, said in a phone interview. “They’re still not getting it.”

Cardoza, who announced last week he’ll retire at the end of 2012, noted that the housing collapse was a leading cause of the recession but among the last to be addressed.

“We need to excise the cancer that caused the illness before the patient can recover,” he said.

Rep. Lois Capps, another California Democrat critical of the administration’s foreclosure-prevention efforts, echoed that concern Monday, saying “much more is needed” to stabilize the struggling housing market.

“Today’s announcement is an encouraging step forward, but it is only one of a number of steps needed to fully address the growing foreclosure crisis,” Capps said in an email.

Here’s some common sense from Bernie Sanders speaking on the Ed Show and a few comments on the President’s program.  Senator Sanders also thinks the plan does not go far enough

So, that should get us started today. What’s on your reading and blogging list today?

Going around Congress

Posted: October 24, 2011 | Author: | Filed under: Barack Obama | Tags: , , , | 13 Comments

It has been clear from the very beginning of the Obama administration that Republicans were out to make him a one term president and to tank just about any initiative he could possibly make.  It has amazed me that the President sought middle ground with folks that had pre-announced their intention to find none.  I could never figure out why executive orders were not flying out of the White House from the get go. It seems that re-election prospects and the economy are now registering as bleak enough to justify that strategy.

In a few short minutes, President Obama will announce a series of executive branch orders that will deal with refinancing mortgages and student loans. He’s in Las Vegas today which is undoubtedly home to  the worst of the housing crisis. The major problem recently has been with underwater mortgages.  The new loans will require no appraisal, no credit check, and you will not have have to be 90 days delinquent.  You can miss only one payment to qualify.  Evidently the new strategy is to move instead of wait for lawmakers.

According to an administration official, Mr. Obama will kick off his new offensive in Las Vegas, ground zero of the housing bust, by promoting new rules for federally guaranteed mortgages so that more homeowners, those with little or no equity in their homes, can refinance and avert foreclosure.

Interesting enough, I just was in Denver discussing a Philadelphia Fed study that showed how the current refinancing programs were actually encouraging default on primary mortgages.   Hopefully, this will reduce the time period between experiencing financial stress and getting relief for many home owners.

And Wednesday in Denver, the official said, Mr. Obama will announce policy changes to ease college graduates’ repayment of federal loans, seeking to alleviate the financial concerns of students considering college at a time when states are raising tuition.

The president’s announcements will bookend a three-day Western trip during which he also will hold fund-raising events in the two cities — both Nevada and Colorado are election battlegrounds — as well as in Los Angeles and San Francisco.

The “We can’t wait” campaign is a new phase in Mr. Obama’s so-far unsuccessful effort — punctuated until now by his cries of “Pass this bill!” on the stump — to pressure Republicans to support the job creation package he proposed after Labor Day. It comes after unanimous votes by Senate Republicans in the past week to block the plan; House Republican leaders have refused to put the measure to a vote.

There are two possible ways this can help.  First, it may keep homes from going to foreclosure and being placed on the market.  This could possibly slow down the price decline in the market which would stop forcing home values into the underwater condition.  Second, lower mortgage payments could keep people their homes and free up some income for other expenditures. The details of the student loan plan have not been announced yet but the President will be talking about it in Denver on Wednesday.   Let’s hope some of this works.  Better late than never.

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