standard & poor’s downgrade debt ceiling inflation

US debt concerns a major rating agency as …
cut waste misleading statistics income gap

China to cut tax for low earners to boost stability

While one government stays locked in a downward spiral, another responds to new conditions rationally. Ultimately, the whole question of taxing and spending can be settled rationally. We trim, blend, and append five 2011 articles from: (1) Wall St Journal, Apr 19, on S&P by D. Paletta & E.S. Browning; (2) D o w n s i z e r - D i s p a t c h, Apr 20, on suggested budget cuts by their president J. Babka; (3) Apr 16 on deceitful statistics by J. Hirschhorn; (4) Clawback, Apr 12 on local loopholes by M. Lee; and (5) BBC, Apr 21, on Chinese reform by S. Chen

by Damian Paletta & E.S. Browning, by Jim Babka, by Joel S. Hirschhorn, by M. Lee, and by Shirong Chen

Standard & Poor’s didn't lower its top-notch AAA-bond rating for US government Treasury securities -- their prices initially fell but later rebounded -- but the credit-rating firm did lower its outlook on US bonds from stable to negative.

The move to a negative outlook means S&P believes there is a one-in-three chance that Treasury bonds could be downgraded from their AAA rating. Outlooks cover a period of six months to two years.

A downgrade would push up interest rates on Treasurys, which are a benchmark for other consumer and business borrowing rates, raising the cost of credit throughout the economy.

This year's budget deficit is projected to rise to between $1.5 trillion and $1.65 trillion, about 10% of America's GDP, or total economic output.

S&P changed its outlook while assuming the debt ceiling will be increased. The US debt now stands at $14.219 trillion -- just shy of the $14.294 trillion cap.

Since S&P began assigning outlooks to government debt in 1989, five AAA-rated countries have been assigned negative outlooks, including Britain in 2009. Three were subsequently downgraded, and Britain and one other were returned to a stable outlook.

To see the whole article, click here

JJS: A wake up call or business as usual?

The huge spending programs to "stimulate" the economy failed, and we got socked with a triple-whammy of high debt, high unemployment, AND high inflation.

If the US credit rating gets worse, the world's markets may abandon the dollar.

Instead of raising the debt limit, government can keep paying the interest on the national debt and maintain payments for Social Security plus also withdraw troops from overseas.

Then cut waste:
* End futile wars and cut the Pentagon budget by two-thirds. This will save $600 billion per year and still leave us with a defense budget twice the size of China's.
* Eliminate unconstitutional spending on corporate welfare, schooling, and agri-business.
* Abolish agencies that are dedicated to harassing American citizens, like the TSA and DEA.
* Cut the budgets for all other departments and programs to force frugality and efficiency.
* Reduce regulations that stifle innovation and business expansion.

Cutting government spending is the best stimulus because it frees up resources for business growth.

JJS: How can it be a ceiling if they just keep raising it? It’s not much of a sleight of hand. And it’s not the only way government misuses language and numbers.

The Federal Reserve keeps printing money to cope with the budget deficit and national debt problems, which is a major reason for the sharp increases in prices.

Gasoline prices have jumped more than 10% in recent weeks and for most of us is about a dollar more a gallon than a year ago or so. Food prices and health care costs have also hit many Americans hard, especially those who have seen their incomes decline. People on Social Security are receiving no cost-of-living increase.

How do the powerful keep the US population dumb and distracted? One way is issuing misleading statistics:
official unemployment figures are too low by a factor of two;
inflation is not under 3%, the official rate, but closer to 10%.

The mass media continually spread the intentionally false data. Who is falling for the economic propaganda? Gallup measures optimism about the economy as a function of age, income, and political party affiliation; worst of all are Democrats and the young.

In a University of Michigan survey just 11% expect inflation-adjusted income gains during the year ahead, barely above the all-time low of 8% in 1980, and only 21% expect the economy to improve over the coming year. Where is the political outrage?

JJS: Did somebody above mention corporate welfare? It’s not just federal politicians who’re bankrupting government by lavishing favors upon insiders.

Tax dodging is not only about the offshore havens and accounting loopholes. It’s also about state and local corporate income tax credits, sales tax exemptions and rebates, and property tax abatements. Such sweet deals are for companies that would have expanded anyway.

A few of the many large corporations getting lucrative deals:

* Intel paid $51 million in state and local taxes in 2010, which is less than 1% of its $13.9 billion in pretax US profits. In the previous two years Intel received net refunds.

Boeing expects to receive a net tax refund of $137 million from state and local governments for 2010, while earning more than $4 billion in US pretax profits for the year. For the past three years combined, Boeing’s total state and local net tax bill was $28 million on domestic pretax profits amounting to $9.7 billion -- less than 1/3 of 1%.

When large corporations pay less, households and small businesses pay more, or public services declines, or some of both.

JJS: Even if some politicians lack character, others have what it takes to reform taxes.

As the widening gap between rich and poor creates social unrest in many parts of the country, lawmakers are revising the income tax law to narrow the gap and to encourage more domestic consumption.

The amendment will raise the threshold for personal income tax from 2,000 to 3,000 yuan a month (from $304 to $456). Some 50 million more people would be exempt from income tax.

Meanwhile the country's powerful Development and Reform Commission is drafting a plan to increase the benchmark salary set by the government by 15% each year in the next five years.

Still more than 100 million people will be designated as below the poverty line and receive low-income and housing benefits from the government.

If China's domestic consumption grows, that could have a far-reaching impact on the rest of the world.

To see the whole article, click here

JJS: Instead of haggle every year over taxes and spending, we could settle the whole mess once and for all.

Forget taxes. Instead focus on commonwealth. Focus on the wealth that society generates, the wealth that exists due not to anyone’s exertion of labor or investment of capital but due to the advantages of location (the three most important things in real estate). This flow of “rents” -- all the money that society spends for all the nature it uses (land, resources, etc) -- is a huge part of any nation’s GDP and could constitute the nation’s tax base.

Forget about taxing anything else, anyone’s earnings or business or buildings. Resort to those conventional yet counterproductive and controversial taxes only in emergency and only with full voter approval. Then your tax policy is done, carved in stone.

Turning to spending, forget social programs. Instead, have providers compete and pay citizens a dividend. A fair share of society’s surplus would be plenty to empower people to afford quality doctors and teachers. Of course abolish corporate welfare and fund infrastructure with user fees. Now subsidies are gone and your dividends are set in concrete.

What about so-called defense which is really war? War is an emergency. That justifies a tax. Tax citizens enough to pay for the war while they’re waging the war. Don’t leave it to children and grandchildren to pay their parents’ military adventures.

Same goes for crime and the need for police and courts funded in the local budget. Crime might not be an emergency but it is a special violation of rights so crime-fighting deserves its own tax. Consider it the cost for law and order.

There. That settles the arguments over public revenue policy. Now you can go and lock the hood on the economy.


Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

Following Wall St. advice proves costly

Hit the brakes, Ben -- Danger -- inflation ahead

China's frothy property market falters in June

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