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Tuesday, November 29, 2005

True tax reform

"Reforming" taxes under Dubya has been like reforming the number of limbs on your body or reforming the number of apertures in your head. The budget, the economy, and the truth have been bludgeoned all out of shape by tax "reform" from the Republicans. Dubya and his compliant Congress have rammed through giveaways that have, to put it mildly, exacerbated the disparity between the rich and the rest of us.

With tax cuts, as with the War in Iraq, the rationale changes to fit the changing PR requirements. Originally it was "because it's your money" (and the government shouldn't be running surpluses with your money). Then the economic downturn of 2001 offered the chance to say, "to stimulate the economy." The design of the tax cuts did not follow that stated goal, since they were targeted to the rich and not to the middle or lower classes. And the effect certainly has not been a stimulated economy. See the Economic Policy Institute's "The Boom that Wasn't" at epi.org.

A real reform comes from the Progressive Policy Institute's tax man Paul Weinstein, Jr. See "Family Friendly Tax Reform" at ppionline.org. (I have some difficulties with PPI, the "Third Way" descendent of Clinton's Democratic Leadership Council, but they're right on track here.)

Progressive candidate alert: Weinstein's scheme is politically do-able. When the pendulum swings back this way, people will want to see real change. This is not extreme. It's a first step. And it's an object lesson on the differences between the political sides. It's simple. It's economically sound.

The PPI proposal would eliminate 68 tax breaks and replace them with four new tax incentives that would come in "above the line" and thus be available to substantially more taxpayers. The $436 billion in net new tax relief to American families would come from consolidating current breaks and cleaning up some of the bias in the code toward wealth and privilege. There's plenty more to be done to make taxes adequate, but this goes a long way to making it more fair.

The four basic elements are easy to understand: college, homes, families and pensions.

  1. A refundable college tax credit would provide up to $3,000 per year to students. This is more generous and simpler than the current system.
  2. The home mortgage deduction would move to the front page of the tax form. Currently only one-half of the 72 million homeowners itemize, and thus are able to take the credit.
  3. A family tax credit would replace three existing incentives and provide greater benefits to more families. Right now a taxpayer has to sift through more than 200 pages of instructions and other material to apply for the several different breaks.
  4. A universal pension would replace IRAs and the other 15 existing accounts with one simple, portable retirement account for all. It would even provide a $500 stake to get people into the UPs.
The tax code has been abused, not reformed by Republicans. Tax breaks during wartime, in itself, is a concept which demonstrates Dubya's Queen of Hearts mentality.We are on the cusp of going from a bell curve economy, with a strong middle class, to a barbell economy, with wealth at the top and poverty at the bottom and a middle class that is stressed, thin and unable to support the kind of society we have long taken for granted as our right. Weinstein has rooted out some of the most egregious giveaways to the rich and used them to pay for the net cost of real "reform" and "relief."

Saturday, November 26, 2005

GM's shutdowns abetted by Bush budgets

GM's announced shutdown of a dozen plants and layoff of tens of thousands of workers has set off intense handwringing and even more vilification of the corporate giant. Some of it is justified. Some of it is national policy. Universal health insurance would reduce stress on businesses by reducing the cost of benefit for workers, for example. More important is the value of the dollar.

"The de-industrialization of America" is a tag on the Reagan era, when half the auto industry was exported to Japan. It was not a happy time. Fingers were pointed in every direction. Councils on competitiveness were convened. Trade protection was demanded. Then, as now, the cost of the dollar was ignored because it was not understood.

When trade goods are translated through a high dollar, imports are cheaper and exports more expensive. Wal-Mart booms and Hundais rule. The dollar gets higher when the federal government does not balance its budget and has to offer a higher interest rate (price) for debt financing. It is higher, too, when other countries purposely maintain a weak currency.
Dubya's outlandish deficits are even bigger than Reagan's. Balance the budget by returning taxation to the rich. Then let's go to work on a sensible exchange rate system.

PS: Don't be surprised when the Chinese come in and buy up the neighborhood. What else are they going to do with dollars? The greenback doesn't spend good in China. We should be happy our debt isn't denominated in yuans. And notice that Boeing will continue to do well because its competition is in Europe. The dollar is weak against the euro.

Friday, November 25, 2005

Housing weakness portends economic bad times

The AP reports that mortgage lenders are seeing a slowdown in re-fi's and home buying. This is bad news for Washington's economy, as well as for the whole country. Residential construction, remodels, and attendant purchases have floated the economy for the past four years. Re-fi's have brought equity out of houses and into the consumption economy. It had to end. The question is, How hard will we fall?
The economy of Western Washington ought to be rising with its big exporters like Boeing, Microsoft and Paccar. Instead, we like the rest of the country, have been floating on the sea of red ink in residential construction and housing-related activities. (The red ink from the Feds, funneled into the pockets of the rich and into the war in Iraq, doesn't do much for the economy.)

The state's chief forecaster Chang Mook Sohn has been warning for some time that the improvement in the state's finances he projects depends on housing, and when it falls, it could take the state down with it.

Historical trends analysis developed by Dean Baker of the Center for Economic and Policy Research (www.cepr.net) says the correction could be sharp. Baker was one of the few economists to call the stock market bubble bursting while others were blithely predicting the New Economy would carry us up to Dow 36,000. For the past several years he has predicted a similar bursting of the housing bubble.
When it happens it will kill the jobs picture here in Washington and will absolutely crunch the revenue situation for all levels of government. With the Rube Goldberg revenue archetecture we've got, and the general ignorance purveyed by the anti-tax right wing, the outcome is not pretty to contemplate.