Higher taxes for the rich?

Giving up one’s American citizenship in favor of avoiding taxes clearly shows a person’s loyalty and love for just money, not his country. It is ( almost ) only in America where one could create such tremendous amount of wealth. And yet they turn greedy once their mouths are filled, cheeks bursting with gold coins they mean to swallow and devour.

People and corporations already have. Look no further than GE or Apple.

LOL.

Rich people are not going to move to Somalia if they have to pay Clinton-era tax rates again. This threat is about as credible as the threats children make when parents force them to share their toys.

Most rich people don’t even seem to know how much they pay in taxes in the first place. Remember when Jamie Dimon, CEO of JP Morgan Chase, thought he was paying 39%?

Also, @Cruiser, can you walk me through your logic on how raising taxes on individuals would lead to businesses relocating?

If we raised taxes on wealthy people, do you think Citibank would move all of its American bank locations to China?

If we lowered taxes on wealthy people, do you think Apple would relocate all of its Chinese manufacturing operations to America?

The US is not the only place where this phenomenon is happening. France is seeing the same problem. When wealth exits tax revenues decline and business thrives where capital is available. A disturbing trend.

@Qingu Apple has been asking for Tax Shelters for a number of years to bring that money back into the US without being hit so hard. The Government has said no so the money stays overseas. Simple as that. The tax system is broken.

There is nothing more disturbing than wealthy people threatening to (but not actually) leaving a country that charges them higher taxes.

@missingbite, you’re talking about corporate tax rates. This question is about tax rates for individuals.

@Qingu Kinda why I asked the question instead of giving a lecture on my thoughts here.! Wanted to see what the experts might have to say

Would you agree that the answer is “tax rate on individuals has just about nothing to do with the location of businesses?”

Again: we can talk about corporate tax rates. I think they should be lower. But that’s an entirely different issue.

@Qingu I believe it’s all related. Think of all the good that money just from Apple would do for the US economy. Then the tax rates on individuals could be lower as well. Taxing individuals sounds fun but actually does little. We could tax the rich at 100% and still not take care of our problems. We need tax reform.

@missingbite, why do you believe it’s all related? What does Tim Cook’s’ tax rate have to do with Apple Inc.‘s tax rate? Why would raising or lowering Cook’s tax rate change Apple Inc.‘s manufacturing location or its use of corporate tax shelters?

Don’t just assert that they’re related. Show how they’re related.

And it’s true that raising rates on the top 1% won’t solve 100% of our problems. I wasn’t aware that we weren’t considering solutions that were not magical.

@Qingu I would not agree as my corporate tax rate IS my tax rate. Other than payroll and state taxes or lack thereof which do vary greatly from state to state. I know my bus is hammered by 5% state tax and moving to Texas would save me $60,000 per year in state taxes. Not to mention opening an overseas branch where I could hide my export profits. That money would filter back into my pockets as retained earnings or better yet a nice new fancy company car or corporate retreat….I have a long list of things I could “invest” in if I could keep more of the tax cash I fork over to the Government.

I already have an effective tax rate of 36% and I know just how crippling it would be to my company right now if I had to endure even just another 5% increase in taxes. It would kill any ability to grow or add much needed new employees. I am not a big enough company to pull off the expense gymnastics that Fortune 500 companies do. Hence why I asked this question to see how others perceive this give and take tax dance this country has to perform every year.

@Qingu They are related because if we restructured our tax code and companies like Apple and GE were not sheltering so much money I believe our personal rates could be lowered. Not to mention, many many individuals run very small corporations with just a few employees. We can’t shelter our money like Apple or GE so we get hit harder.

@Cruiser, sometimes it’s amazing that people like you are able to run a business.

No, your corporate tax rate is not your personal tax rate.

Yes, your corporate tax rate helps determine how much income you presumably take home.

And yes, I agree that corporate tax rates should be lower. You are talking about this backwards. I asked why raising or lowering your individual tax rate would affect how you run your business.

Please explain how it would.

@missingbite, I see. So they’re related in the sense that everything in a national economy is related.

Which is another way of saying “they’re not directly related at all.”

For 1% I don’t think people would be moving loads of their money off shore or giving up their citizenship. The tax hike would have to be much much more. My husband’s family said in MX the wealthy just move their money out of the country, nut that is a much different situation. The wealthy don’t really see the benefit of their money like we do in America. Well, parts of America. We paid much higher taxes previously in history, people were not running for the border in droves.

@missingbite it makes a difference. Every time the Republicans talk about lowering corporate taxes to be competitive in the world they leave out the countries most similar to us who have lower corporate rates have higher individuals rates. Here is a graph with the numbers.

Years ago we “forgave” corporate tax so businesses would move money back to the US and and it was unsuccessful.

@Qingu I am an S corp. and the money my company make is MY money! And the taxes I pay on my profits is paid for out of MY profits! How hard of a concept is that for you to grasp?? And this concept is entirely why the Supreme Court was able to make the ruling on Citizens United of Corporations being a “person”!

@Cruiser Do you pay yourself a salary also?

LOL. What’s your income, Cruiser? If you don’t know about the existence of marginal rates, I don’t think I’m going to be able to continue this conversation…

@JLeslie Yes I do take a salary.

If you move or live overseas and draw an income from a US business, you pay US taxes on it. The only way to avoid that is to move the Corporate headquarters overseas. Not surprisingly the high dollar earners in most corporations (CEO, Board of Directors, owners, etc.) have a lot of say in where the corporate headquarters are located. There is a direct link to personal income taxes.

@Jaxk, what’s the link?

If we lower Tim Cook’s taxes, why would Tim Cook relocate Apple’s plants or stop using overseas tax shelters for Apple Inc.‘s books?

Still waiting for an actual explanation, instead of repeated assertions that “they’re related.”

I never heard about a sudden influx of rich people when the taxes were lowered. I don’t expect a mass exodus if they are raised.

No, Im a long way from being rich but I respect folks that are..They earned it and they should be allowed to keep it. They should only pay their legal share and not be penalized for their capitalistic methods and incentives”

@Qingu I am painfully aware of marginal rates and if I had not had amortization and depreciation and a good chunk of good will to write off my effective rate would have been 40% this year. Yay for me! I have a large debt to pay off and narrow enough profit margin to maintain in order to not default on the loan I have and further tax obligations would put me precariously near default.

@Roby, in what sense did Mark Zuckerberg “earn” 1,000 times as much money as me last year?

do you think Mark Zuckerberg works 1,000 times as hard as me?

@Cruiser So you are taxed on your salary as a personal income, and the profit is taxed at a corporate tax level I guess? All I know is business owners seem to pay much lower taxes from what I can tell as a whole, because of the tax laws. I’m talking little businesses right now. I really don’t know how it all works. I wish the media would start interviewing accountants and not these other talking heads who have no idea how it all really washes out in the end.

@Cruiser, why don’t you walk me through your finances then. I mean I’m assuming your S Corp is not large. What is your S Corp’s profits? Are you the sole shareholder?

@JLeslie, Cruiser’s company is not taxed at all. THe profits all go directly to shareholders (possibly just him), and then they get taxed at personal rates.

Which is why I’m asking how much profits we’re talking about. I want to see how 35–39% increase for +250k brackets would actually affect how he runs his business. Because I don’t think it would at all.

I remember an article where Warrent Buffet says he pays less taxes than the middle and lower class. He also agrees that the rich should pay more.

@chelle21689, he pays lower taxes than the middle class because most of his income comes from capital gains, which are only taxes at 15%.

Most wealthy people get their income from capital gains.

Note that income from capital gains is not remotely fixed (it varies based on the stock market). So it’s not like rich people know how much money they’ll make every year. They don’t know how much they’ll take home after taxes. It seems like many rich people don’t even know what their tax rates are, or how taxes even work.

Which makes their bitching about having to pay higher tax rates more than a little infuriating.

@Qingu

For large corporations such as Apple, it is not necessary to move any manufacturing plants only the corporate headquarters. A fairly small task. And since they already have operations in many countries, it’s even easier. That way the salaries of the top will be taxed much lower and the corporate tax rate will reflect that of the corporate headquarters. For smaller companies such as an S-Corp, you may be more inclined to move the whole damned thing.

Either way there is a lot of money at stake for those top earners. If you only making $10K a year on your business, it’s not realistic but then no one really cares if you move either.

@Jaxk, do you honestly believe Apple will move its corporate headquarters if we raise taxes back to Clinton levels? I’d appreciate an honest answer.

I don’t think they’d move their corporate headquarters if we raised taxes back to Eisenhower levels.

Small S-corp businesses do not generally make enough money to be affected by higher marginal rates. If they do then the question becomes why are they hoarding cash and not investing.

And I disagree that there’s a lot of money at stake for those top earners. I don’t think those top earners have a clue how much money they even have. And while there might be a large numerical value, the “stakes” involved are purely status. The only effect Tim Cook will feel from having ten million or two less dollars from higher taxes will be if he loses a spot to some other multimillionaire in the “richest people in the world” list and feels jealous.

@Qingu

I have no idea what Apple would do. Is your whole argument based on Apple? And it’s almost amusing that your view of both rich and S-corps are based on the idea that Saverin has no idea how much money he has or what he pays in taxes. Get real.

@Jaxk, I look forward to seeing how much Cruiser knows about his business’s finances.

Do you have anything else to add to your argument or are you going to leave it at “if we tax rich people more they might move or they might move their corporate headquarters despite the fact that I have yet to provide a single instance of this happening or a single explanation for how it would be advantageous for a given company”?

It should be noted, per your link, that Saverin wasn’t a natural-born American citizen, and wasn’t really giving up much. He “moved to the U.S. in 1992, and became a citizen in 1998”, and is a “Brazilian-born resident of Singapore.”

He wasn’t born here, and he already lived in Singapore. I can see why, for him, this move makes sense. I doubt that people who were born and raised here, have their whole lives based here, are going to jump ship because they have to pay a little more.

@Qingu

I suspect @Cruiser is smart enough not to give you his financial statement on the internet.

Whoops. I thought “Saverin” was Cruiser’s real name. :)

What Augustlan said. The costs (financial and social) of relocating yourself or your headquarters to another country are huge. The one dude who actually did it in your link is a pretty atypical example.

I don’t want his financial statement. I just want to know how much profits and shareholders we’re talking about. I suspect he is tilting at windmills. I guess we’ll see.

@Qingu I am not sure what discussing my finances will do to further this discussion.

I am sure my situation is not unique but I will say that what little profits/retained earnings I have would be a lot less if I had to pay any more in taxes and right now anything over 5% more in taxes would kill any ability for me to expand. And if and when this economy actually starts to move again I will need every dollar I can to invest in more people which again I would not be able to do if corp rates go up much further not to mention even a little more in health care benefit costs we already shoulder.

Go ahead and move. I’m perfectly ok with that.

@Qingu

Just a few that moved

@Cruiser, Why on earth would higher personal taxes prevent you from investing?

Your investments in payroll are deductible.

I’m also not sure what you mean when you said “if corp tax rates go up much further.” You don’t pay corporate taxes.

Wow @Jaxk, that’s a new low for you. Or did you suddenly forget we were talking about raising personal income taxes and not corporate taxes?

Oh, come on! Income taxes and corporate taxes are at historically low rates. Raising the tax rate on the wealthy does not kill jobs, is not extreme, and if someone wants to threaten to take their toys and leave, fine, go.

Our tax system is bullshit. Millionaires paying a lower rate than teachers and cops? Corporations making billions in profits and getting tax rebates? Bullshit.

@syz, I actually don’t have a problem with corporations making billions of profits and not paying taxes. My problem is that those profits end up (1) sitting there doing nothing rather than being invested to pump funds into the economy and (2) paid off overwhelmingly to CEO golden parachutes and hedge fund managers rather than the corporation’s workers.

Corporations aren’t people; they shouldn’t be taxed like people. But the corporate tax structure should incentivize a stronger middle class, rather than an oligopoly.

Edit: But corporate tax rates are NOT the issue of this question, and I wish we would avoid talking about them. Because so many people seem confused about the difference between corp and personal tax rates. Or maybe they just pretend to seem confused, I dunno. I guess there are cases where they are one and the same (S corps) but so far the one person here bitching about an increase in his tax rate hasn’t really explained his reasoning and seems rather ignorant of how it would actually affect his business, so….

@Qingu Whoa, wait a sec! Not paying any taxes? Awww, corporation buildings need the service of firefighters too in case of fire don’t they? Lol.

Corporations don’t need anything, they’re inanimate. The people who run the corporations and make money off their investments in corporations do.

I would gladly trade high marginal rate personal tax increases for corporate tax reductions.

I think part of the frustration with people not understanding the tax laws is they say things that aren’t factual (like it seems to me the majority of the US populations thinks if they are in the 33% tax bracket all their money is taxed at that rate, while the truth itis only the amount over the breakpoint of moving into that tax bracket) and many people who have never made more than $75k seem to think they know for sure how the wealthy spend and save their money. If I can make $500k on a business deal, I am not going to pass it up because I might get taxed at 20% rather than 15%.

As far as personal income, the people hurting the most are those without jobs and people below the poverty level. Most of the rest of the country can afford a 1% increase, especially the top 1%. Trust me, I have a bunch of friends in the top 1%, they would not even notice. If it was passed and never publisized, and the accountant just prepared the taxes like any other year, at least 50% of the people would have no idea. Not just the rich, that is true for the middle class too. Bunches of middle class Republicans were sitting around me a couple years ago saying Obama had raised taxes and now they are paying more when the exact opposite was true, they were paying less. When I showed them the tax tables compared to the year before they either did not understand it, or had nothing to say because they were wrong. Not sure which was true. This just proves they have no idea what they pay.

Oh, and @augustlan makes a great point about him not being born and raised in America, and I guess he did not come to America poor. He feels more a citizen of the world than of a specific country most likely.

@JLeslie

I don’t mean to pick here but your scenario just doesn’t work. IF I could make $500K on a business deal, it would depend on how much I have to invest, how long before I realize the gains, how risky is it, and what other opportunities are on the table for that money. Your scenario is simply not realistic. That’s why some will invest in tax free municipal bonds, while others will invest for capital gains, while others will invest for dividends, while others will invest US bonds,...well you get the point. The tax rates have a dramatic affect on how you invest, where you invest, and how you handle your money. At least for those that have money to invest. For some reason you seem to believe that rich people are stupid. That’s seldom the case.

Of course we should have a progressive income tax and a heavy estate tax. There are several reasons for this. The U.S. is better off, more progressive, and infrastructure improves when a competent government is financially solvent. Second we need to stir the economic pot to prevent the multi-generational accumulation of wealth. When a family starts out rich and accumulates great wealth it becomes the country’s royalty. Why do you think England still has a king? They’re the richest family in the country!

We don’t need royal families, we need workers and entrepreneurship. When you have old money you have stagnation. There are enough old politicians supplying us with stagnation we don’t need royals too.

@Jaxk It depends on the business. Once a breakeven point it surpassed, sometimes the increased expenses for the business is minimal. A friend of mine just landed a $900k a year contract, well his partner did while we were having lunch, and almost all of it will be profit.

I don’t think rich people are stupid, I didn’t say that. I said people who aren’t rich many times are ignorant. I understand the wealthy, hell most people, are going to evaluate where their money is best spent or invested.

The other thing I pointed out was how unaware most people are of the ins and outs of the tax codes at all the income levels. I include myself. Above I said I did not know how corporate taxes work exactly. But, I don’t walk around saying I do know when I don’t. Sure I might make a mistake or be misinformed at times, and when someone corrects me I am happy to know the truth. When I corrected my friends who were wrong about Obama raising their taxes I get the feeling it pisses them off. Makes them angry for several reasons, one, they want to hate Obama; two, they want the world to be constructed in their black and white liberal bad way; three, they think they are being called stupid (by the way I am not including you in with those people to be clear).

@Jaxk, no it doesn’t.

Why on earth would someone not invest in a business deal if they would only net 75% of the resulting 500k and not 85% of 500k.

Your answer is smoke and mirrors. There is a margin where tax rates do start to affect investment but we are nowhere near that and you know it.

@Qingu

As I said, it depends on the risk, time period, and the required investment.

@Jaxk I’ve made investments to make a thousand dollars. I had to pay 35% taxes but still had $650 that I wouldn’t have had otherwise. I think that tax rates only affect questionable investments like business take-overs. Legitimate investments are unaffected.

@Ron_C

God I wish I had the opportunity for risk free, guaranteed returns. It certainly makes the investment easier. Where do you guys find these?

@Jaxk it wasn’t risk free, just dumb luck. I was talking to the guys at a Rotary Club meeting. I would recommend the Rotary to anybody, not just for the investment advice. I participated in some great project and had fun with a great group of people.

@Jaxk You are talking about reinvesting in the business, I am talking about paying taxes on gain.

@Cruiser I made my views very clear here. Good riddance. People so greedy and unpatriotic that they will only stay here if they can do so tax free, with working stiffs paying their way will pull up and leave anyway after they are done harvesting everything this nation has to offer.

@JLeslie

It sounds like a new contract as you mention above would be income rather than capital gains.

@Jaxk same difference. Why would the difference between 35 and 39% cause you to think twice about making a good investment?

crickets chirp

My take is that it isn’t the people that earn $250–500k that are the problem. The problem is that tax rates top out at a level far lower than the really wealthy people earn. Couple that with a long-term capital gains rate of only 15% instead of 20% and you’ll realize that even the bottom half of the top 1% gets screwed because of three people who a lower effective rate than those earning successful business owner incomes (low/mid-six-figure range). I haven’t crunched or seen the numbers, but I suspect that leaving three existing rates alone, raising capital gains back to 20% (in a way that doesn’t lead to double taxation), and maybe adding some more brackets would be a better solution.

One thing Reagan had right is that closing loopholes allows for a dramatic drop in tax rates without a dramatic drop in revenue. While I oppose flat taxation, I admire it for it’s simplicity; the Tax Code has more pages in it than the combined works of Neal Stephenson. As a gamer, I know that the more complex the rules, the more you can get away with without breaking the rules.

Also, i think we need stricter definitions of what qualifies as earned in the US as opposed to abroad. That is a loophole that corporations use all the time.

@Qingu

I’m not sure how far I’ll pursue this but let me go the extra mile. First of all it affects how much you have to invest, whether in your own business or others. Second it affects what is a good investment and what isn’t. All investment is risky, some more so than others. Just saying this is a good investment certainly wouldn’t be enough to get my money.

Finally, there are several proposals for raising taxes, let the Bush taxes expire, let the tax expire only on the top 1%, raise the cap gains rate, and the buffet rule. Each has different ramifications. The current result of all the uncertainty is that no one is doing much investing. When tax hikes enter the general conversation, everyone hunkers down. We’re hunkered down.

@Jaxk First off, profit is profit, Now, if I invest a million dollars and only turn $80K in profits instead of $85k, that is still more than I had, and if paying that extra $5k in taxes saves me far more than $5k in the near future, it’s still a better investment, Seems rather shortsighted to ignore the future costs.

One thing that is overlooked is that people outside of the top tiers also invest. The money I put into my 401k… where does that go? I thought that a few companies (whichever ones my fund manager has in there) split that up and used it the same way they would money from a multi-millionaire. Imagine if you took a few people like me, maybe fifty million of us who wanted a little something for when we get old, and gave us a little extra money to do so. I think there would be a little more investing than you think, and what wasn’t invested would wind up benefiting other aspects of the economy. But so long as people believe that $1,000,000 is less than ( 100,000 * $2,500), we will perpetuate our current system of ignoring the average person.

Now, is getting a lot of people off of the government teat a good cost-cutting measure? I consider that a good investment, so it must be a stupid idea. How about having the average worker move into a higher tax bracket and have the tax burden on the top tiers reduced by the fact that more people below them have to pay? No, apparently that is an unwise investment; better to have all the money trickle up until you are the only one able to pay taxes and then bitch about the unfairness.

You are correct that we are hunkered down, but taxes are not the only place where our country is having some pretty nasty ideological divides. In fact, taxes may be pretty low on the list of problems we face… and considering how contentious taxes are, that is not a good sign.

To the rest of the world America’s tax system is ridiculous. The more you earn the more you should pay in taxes, duh.

@jerv

Just to keep a little sanity to this discussion. We are $16 Trillion in debt. If I look at the interest just on the Obama debt, it is $150 billion/yr and that is at near zero interest rates. His tax hike on the wealthy is estimated to net about $1.1 trillion over 10 years. That’s about $110 billion/yr. It doesn’t even cover the interest payments on the debt he has already racked up, let alone any other programs or debt reduction.

As if this isn’t bad enough his programs aren’t helping. For instance cash for clunkers cost $3 billion. The new car sales were to people that already could afford new cars not poor people. We paid $5,000 to people that didn’t need it. The people that couldn’t afford a new car, those low income earners or someone without a job that wanted a used car, well the used car market dried up and used cars were more expensive. So we spent $5 billion to help affluent people and hurt the poor. Good deal. Or how about his $24 billion in ‘Green energy subsidies’ mostly for solar like Solyndra. We bankroll the company and since it still not competitive with other sources of energy, we then subsidize the consumer. And who are these consumers? Well you’re not going to see many solar panels on the south side of Chicago. Solar is subsidized by tax breaks. The only way solar makes sense is if you are in the top tax brackets. Again the only beneficiaries are the top 10%. Or how about the stimulus money for ‘Wind’. it is estimated that 79% of it has gone to overseas manufacturers. Now that’s a winner. I won’t even go into the mortgage adjustments or other insane programs.

Most economists agree that raising taxes during a recession is a bad thing. Democrats have convinced themselves that if you only raise them on the rich, it won’t have any impact. I disagree but even if you believe that, you know that raising taxes won’t stimulate the economy. If there is any reaction in the economy from raising taxes, it will be a negative one. So why risk throwing us into a double dip recession? Is it really just so you can get even with the evil rich people? Do you hate them so much you’ll risk everything for virtually no benefit? Apparently so.

@Jaxk Evil rich? Hate?

@Jaxk , Most economists agree that raising taxes is the right thing, most particularly Paul Krugman. As you point out, the interest rate is near zero, which is why borrowing money by the government is a good idea. The large amount of money that we are paying on the debt is due to the stupid decision by Bush to run it up at a time when the economy was doing well and the rates were high.

There is another point that I have not seen being made. The rich are not currently investing in the economy even though their tax rate is so low, as is evident by the high rate of unemployment. Why is that? It is simple. Why should they increase production when people can’t afford to buy what is currently being produced? Instead they concentrate on cutting costs, which includes outsourcing and cutting even more jobs through automation. The solution is equally obvious. Take money from the 1% and give it to the 99%, who will use it to purchase goods, which in turn will give businesses reason to expand. In the long run, it turns a lose/lose situation into a win/win situation.

When tax rates are high, investments increase because tax rates are high.
High tax rates are a disincentive to pulling money out of an investment. Low tax rates are an incentive to pull money out of an investment.
Low tax rates are one of the biggest reasons investment is terribly low among all the entities that have giant piles of capital sitting around (e.g. fortune 500 with record amounts of uninvested cash).

@Jaxk On the alternative energy money going overseas, that is because we are behind the rest of the world in many forms of technology. We do tend to be lagging more and more lately, to the point where we can only catch up by buying, not by researching. Maybe we should have thought of that a few decades ago instead of assuming cheap oil was eternal.

On the debt, you present such a double standard that I am just going to look at you funny, assume you already know why what you said is hypocritical, and move on.

Why should we let the rich have/keep all the money at great cost and with no benefit? I think the economy would be stronger if there was more spending and more investment; the rich are neither investing nor spending, nor are they leaving enough money around for anybody else. Apparently, you just want to watch the world burn.

@LostInParadise ~That sounds like Socialism, so let’s prove or moral superiority over those Democrats by doing the exact opposite!
Seriously, that makes too much sense for the party of fiscal responsibility to ever allow. Dogma trumps logic, math, and precedent.

@Jaxk, sorry, but you don’t get to dismiss tax hikes as inconsequential to solving our debt problem (“only $100 billion”) when you haven’t suggested any spending cuts that would save more money.

Also, do you agree that spending cuts can throw the economy into a double-dip? Or have you convinced yourself that only tax hikes can do that?

@Jaxk funnily enough I don’t recall much “hunkering down” when Clinton raised taxes.

You still haven’t shown that a marginal increase in taxes would rationally affect investment either. You just keep on asserting it. And then when jerv called you on it, you shifted to whining about the deficit.

@Jaxk If we brush off every suggested step to handle the deficit because it alone comes nowhere close to solving it, just what is left on the table? That’s like claiming you really want to walk from New York to Los Angeles, but insisting you can’t get started till you work out a way to do it in a single step.

@ETpro A billion here, a billion there… eventually we are talking about real money.

@ETpro

I’m going to try this one more time. First we have a basic disagreement on what is rich. You guys seem to like to point at Buffet and try to manipulate taxes to get him to pay more but then put the threshold at $200,000. Now I have no problem with eliminating some of the abuses but adjusting the tax rate is not how I see it working to any benefit for the country. Buffet manges his fund and takes capital gains as his payment for it. Same is true with most hedge fund managers. We don’t need to raise the rate to get what should be normal income. We simply need to call it what it is, income. If you are a simple investor, there is no reason to change the capital gains rate just so that you can get to Buffet. I will oppose any rate change but have no problem reclassifying what should be normal income to normal income. When you raise the rates you impact millions of people and small businesses, most of which aren’t the focus of your ire. those are the people that are either struggling to grow thier business or trying to build a retirement dream. I agree that Buffet will do fine either way.

We do the same thing with regulation. The SBA and independent studies show that the vast majority of the cost of regulation is borne by small business. When we drive through regulations like Dodd-Frank, we cripple the small banks but have little impact on the big guys. This makes the small community banks a prime takeover target for the big banks, making them even bigger than ‘too big to fail’. We attack the wrong people with these regressive regulations.

And the debt. We just went through an crippling recession caused by (in a large part) the sub prime lending. People had their payments double overnight when the interest rates adjusted. Nonetheless, we think that because interest rates are low the government can borrow any amount of money and not get caught. It is the same problem we had with sub prime loans, why would we think government debt won’t catch us in the same loop. Interest rates will adjust in the near future. When they do, we will be Greece unless we do something now to stop the rise in debt. You apparently don’t see a problem but I do. There is no serious proposal on the table to reduce our debt now or in the future. Some minor elusive reduction in future growth of spending won’t cut it. And every time any tax hike is mentioned it is in conjunction with another spending program.

Growing even more federal government and more spending won’t solve our problems. And raising the tax rates to do so, only strips more money from our economy. We need to use private sector money to grow out of this mess and laundering it through the federal government only reduces the effects. IMHO.

@Jaxk Given the fact that even the top 1% have a huge gap between the bottom and the top, I still feel that setting the threshold as low as many do is foolish. I maintain that the problems don’t really begin until you start talking about people who make 5–10 times the cutoff for the highest bracket; many people seem unaware of the inequality at the top.

@jerv

That is a big part of my problem. The other part is that we want to treat those that have saved or invested money for retirement that have a one time jump in thier income the same as those that earn it every year. There used to be an income averaging option for these one time events but that went by the wayside. I think people should be able to save for retirement either by investing in a home, business, or just savings and be able to keep more than 50 cents on the dollar that they save. We shouldn’t penalize those that do all the right things just because we hate the top 400 income earners.

I believe we’re still waiting to hear exactly how going back to Clinton rates would be catastrophic for small businesses. Our resident small business person, @Cruiser, appears to be surprisingly silent on the subject.

Also, @Jaxk, you can repeatedly assert that regulations are the bane of small businesses all you like. Until you show how specific regulations in Dodd Frank affect small businesses—while considering the tradeoff of not having the regulations—you’re just full of hot air. Of course, last I heard you’re still living in the fantasy land where systemic shocks like the Great Recession were caused by lack of domestic oil production and Fannie and Freddie, so I’m not sure you’re even capable of a reasonable discussion about the pros and cons of regulation.

@Jaxk Include me out of “you guys” The buffet rule applies ONLY to tax returns with over $1,000,000 in taxable earnings. I agree with you that keeping taxes somewhat moderate on those earning in the $200 to $250K range is reasonable, given what inflation has done to that amount of money. The current brackets are mostly a holdover from the 1960s. If they were indexed to inflation, $200,000 then would be over $1 million today. Substantially over. It seems so simple to index margins to inflation. So obvious. I guess that’s why we can’t even talk about doing such a thing. Gridlock is so much more fun.

@Qingu I said my peace here and can now takes cues from all the mega rich that are fleeing France and Greece as we speak for this very real threat of of higher taxes thanks to their new regimes. London could soon rival NY for it’s financial muscle.

@Cruiser, you haven’t said much of anything. You asserted that raising the marginal personal income tax rates back to Clinton-era rates would have a devastating effect on your small business.

I then asked you to show how. And you haven’t. You also seemed to be unaware that investments like payroll are deductible.

And now you’re changing the subject instead of defending your assertion.

But please. Don’t let that stop you from moving to Singapore if you’re that concerned about paying an extra 4% on the margins even though you probably won’t have to. I hear Singapore has a lovely low crime rate.

@Qingu I am very aware of deductions and deductions are crucial towards offsetting the tax burden. But I need profits to re-invest into my business. I am hamstrung by a 25% debt to coverage ratio covenant I must maintain for my lender and I average a 37% ratio currently. And because my loan consumes over 50% of my profits there is not a lot of money left over to invest in my biggest need right now and that is people. So right now the mere threat of BO raising taxes is what is keeping me and I know a LOT more business owners from hiring or investing in their business. Hand wavers like you @Qingu don’t feel the squeeze of a shitty economy that business owners like me are feeling and thank GOD our Democratic President has the brains to resist the passioned outcry from the 99% to sock it to the 1% right now because he is smart enough to know the results would be devastating. And if he were campaigning for a first term against a President that did what he has done to our economy I can guarantee you he would not be clamoring for a tax increase right now either.

I sold all my investments, decimated my 401K, put up my house and car to buy this company in the worst economy on record. I drive a 6 yr old car, haven’t had a raise in 3 years nor have any of my employees, I have not been able to provide bonuses or matching 401K contributions and I most certainly cannot afford to hire more people but I did manage to pay over 35% of my percentage of the profits/income in taxes. And since I have only owned the company one year now, it is critical that what little profits I did make stays in the company bank account for the next 4 years if BO get’s re-elected because I know I will get shafted even more than I am now. Please do not insult me further with your insinuations I do not know the implications or ramifications of the current tax code and the burden it places on the very businesses that are supporting this great country of ours.

If there is “not a lot of money left over” to invest, why are you complaining about higher marginal rates? What is “a lot of money”?

If your biggest need right now is people, and you do have enough profits to cover payroll… why the hell are you not hiring?

Why would the threat of higher taxes prevent you from investing if those investments are tax-deductible?

@Qingu Pay attention!! A new employee here is a commitment of at least $60,000.00. That is EXACTLY what it would take to cover a 5% increase in my tax rate and can you guarantee me that BO won’t raise my taxes?? So if I hire someone now and make a financial commitment to a human being are you willing to cover that expense for me if BO raises my taxes?? Would you be willing to fire them for me because I need that payroll to pay more taxes??

@Cruiser, do you understand how marginal tax rates work?

Let’s say you make $1 million in revenue, but you have $700k in costs. So that leaves you with $300k in profits.

For $250k of those profits, you will not see any tax increase, even if BO gets his way. For $50k, you will have to pay 4% more taxes per BO’s tax plan. (The horror!)

But then, if you hire another worker at 60k, then suddenly your profits are only 240k. Which means no tax increase whatsoever per BO’s tax plan.

Now I don’t know how much money we are actually talking about here. But my sense is that if you are actually making enough profit so as to be seriously affected by a higher marginal rate on the 250k+ bracket, then, well, I don’t really feel sorry for your plight. It would of course help if you gave me some numbers to work with.

@Qingu Look I would not nor could not argue with you there one bit IF we were not in the worst economy of my lifetime AND I did not risk everything I own to have the joy of owning my own business to throw it all away by making bad business decisions. $300,000 won’t even cover one month of my expenses here and right now I feel it prudent to keep what little profits I did make in the business for any number of contingencies that could blind side me and more taxes right now is one of my biggest threats.

Dude. I’m not sure what you’re not understanding.

If you only have “a little profits,” you will not be affected by a tax increase. Obama’s proposed tax increases only affect margins above 250k.

And if we have different understandings of what “little profit” means and you do have millions of dollars in profits that you are hoarding, then why are you not hiring the workers you say you desperately need? Or giving yourself and your employees raises, or matching 401ks, or paying down your debt, or any of the business expenses you said you’d like to do? Expenses that are deductible and thus would partially or wholly negate any tax increase you’re worried about?

If the answer is that you’re hoarding cash instead of making rational business investments because you’re “scared,” well, sorry, but I don’t think that maintaining historically low taxes on high margins to pander to people like you is worth their contribution to the national debt.

@Cruiser I’ll try to reword what @Qingu is saying.

Income is taxed differently in each bracket. For instance if I make $300k and that puts me in the 32% bracket (I am making it up, I don’t know the percentages off the top of my head) that does not mean my entire income is taxed at 32%. it means the first $50k is taxed at the rate <$50k is taxed at, then the next $50k is taxed at whatever that bracket is taxed at, etc.

If tax increases are only made on people who earn over $250k, the first $250k of your income will be taxed exactly the same, and anything above will be taxed at the higher rate. So, that means whoever is complaining is making over $250k in income or profit. Or, just have a fundamental dislike for a tax hike and/or progressive taxes. But, since you are talking about how it would affect you personally, I think @Qingu is saying if you make $300k and you pay a new employee $60k, then you will have $240k left over for your pocket and you would have zero tax increase.

By the way: the average income for an S corp is about $100,000.

Which means the average S corp will see absolutely no tax increase under Obama’s plan—not even close.

Maybe Cruiser runs an extremely successful S corp. In which case, why am I supposed to care if he has to pay as much in taxes as extremely successful S corps did under Clinton.

@Cruiser I work for a small business that manages to control it’s debt ratio and managed to make it through the worst of the downturn not only without laying off any of it’s ~100 workers, but doubling in headcount and opening a new facility to expand our capabilities (and make a few jobs) despite how hard the manufacturing sector was hit. Maybe it was luck, but I think that it was more likely good business strategy that didn’t try for a quick buck during the boom that preceded the crash.

@JLeslie I do understand this and I AM complaining in that I need a lot more than $250 K in profits just to have a cushion to cover my monthly expenses and thanks to Bush and now Obama’s bungling of this economy for the last 3 years I DON“T HAVE that luxury quite yet. My cushion is the guillotine I would feel if we continue to have a sucky economy much longer. Apparently only business owners know and feel the pressures of rising costs of heat, gas, health care, raw materials can have in a flat or receding economy AND face an increase in a tax rate that would effectively squash any ability for their companies to grow. I thank GOD that Obama is smart enough to have not done what Dummycrats have wanted him to do.

My bottom line is I need to generate $30,000 more a month in business just to cover the $5,000/mo salary for a new employee. That represents 2 straight years of 5% growth for me just to break even on that added cost. That is a LOT of extra work for us just to break even just to have a new employee. Have you seen 5% growth any where in this economy in the last 3 years? I am doing this work here to make money not pay taxes to a government that can’t manage it’s own affairs. I would much rather NOT grow and put that $60,000 a year in my pocket. Add in an increase in my taxes and you will have taken away any incentive for me to grow my business.

@Cruiser, what is your average yearly profit?

Edit: and are you the sole shareholder?

@Cruiser I have no problem with you preferring to not grow and keep the $60,000. Let’s say for sure you knew taxes would not change for the next 10 years. Then do you want to grow? Or, do you want to keep the $60,000? Considering the economics of your business and breakeven points. I don’t mean to come across as though I know all the numbers of your business. My only question is about taxes incenting or deincenting you.

@Cruiser I just reread your answer. It seems you are saying you are not making $250k a year, so the tax hikes on the “rich” that are being proposed won’t affect you at all financially. It isn’t even in the equation.

Unless you are saying you want taxes to be even lower than they are. But, that is a different topic that I don’t even think is really on the table in politics today.

I am confused too.

Also confused by the idea of needing extra profits to cover expenses. Sounds like he meant revenue, not profits? Or is he talking about hoarding profits to cover the possibility of sudden shocks in expenses?

I’d like to get a straight number from him.

@Qingu My impression is he wants a cushion, which I can understand. $30k in expenses is $360k a year, so I guess @cruiser wants a certain amount of profit for him to live on, plus carry the business during a down month(s). I don’t know how long he has had the business, but I would think the kitty would be building over time to protect the business in down times. I had thought he pays himself a salary, so that would be taken out before stating a profit I would think. Unless I was confused on that point when we were discussing it above.

I doubt @Cruiser confused profit and revenue, unless it is just a typo type error. I also don’t feel he needs to share his total profits or income, most people don’t want to, but the breakeven and costs of his business are good information for the equation. However, knowing if his income/profit is below or above that $250k mark certainly matters for the current tax increases being discussed in poitics today.

@JLeslie, he can deduct his own salary as a business expense. He shouldn’t be living on his corporation’s profits.

He can claim he needs 250k in cash per year as a buffer. But I call bullshit. That’s 2.5x the average income of small businesses. And more important, he’d only be taxed at higher rates for profits over and above the 250k he supposedly needs to hoard.

I cannot wait to see how this discussion plays out.

@Qingu As am I, but it may be a typo. But it does make me think that the reason my employer has been so successful may be partly because most of the increased revenue is countered by deductible expenses, thus leaving actual profits relatively flat. And you know that a company that generated $60m in revenues last year keeps a close eye on their taxes

Well your company might not be an S corp if they’re making that much money. But even so.

Companies should not be hoarding money. They should be investing and hiring, especially if there is demand (which Cruiser says there is). A higher marginal tax rate would punish small businesses that simply hoard large amounts of profits over and above the 250k cutoff. My point is, so what? Abloo bloo bloo? Let’s all play a tiny violin for taxing businesses that prefer to sit on cash instead of using it to hire people and invest?

@Qingu Yes, I know his salary is deducted, is not counted as part of the profit. That was part of he reason I originally asked if he pays himself a salary as part of his accounting. Possibly his wife too. Profit is everything after all expenses are paid out, I understand that. I am not 100% sure, even though we discussed it above, if he is including his income in with his profit number when he talks about it immediately above.

@Qingu I think owners have a right to hoard money and refuse growth and business. What I have a problem with is if they blame it on taxes when that is not really the reason why. I am not accusing @Cruiser of this by making that statement, I want him to have a chance to respond to the clarification questions we have asked.

I do think there is a general climate in the air, especially among Republicans, to blame taxes for their hoarding, so they can get their politicians voted in promising no tax hikes.

It’s like the complaint that banks aren’t lending, are you saying they have some sort of obligation to lend? That a Bed Bath and Beyond has an obligation to open another store? The only moral obligation I think a business has it to pay it’s employees fairly and treat customers equally and fairly. If it is a public company there is an obligation to the stockholders, but even there I answering to the board and stockholders sometimes a creates a bad situation, because they sometimes demand unreeasonable profit goals, pushing the business to hurt their own employees, quality of product and and quality of service.

Practically speaking, it would be good for the economy if businesses stopped hoarding cash and started investing and hiring workers. Thus, I have zero problem with hiking taxes on excess profits that are hoarded instead of invested. It would help pay down the debt, and it would encourage more investment/hiring or at least disincentive hoarding cash that does nothing for the economy.

But… this is a moot point if Cruiser doesn’t even have profits in excess of 250k. Nobody is calling for raising his taxes if he doesn’t. So let’s not get ahead of ourselves until Cruiser gives a straight answer. :)

@Qingu Most of those that oppose tax hikes for the rich are not themselves rich, much like many of those who seek to control what a woman may/may not do with their body lack a uterus. And the great thing about complaining about things that don’t affect you is that you don’t even have to know what you’re talking about when you tell others they are wrong and you are right!

“you don’t even have to know what you’re talking about when you tell others they are wrong and you are right!”

Ain’t that the truth.

@Jaxk It is the truth and you, @Jaxk, are a part of the collective noun, “you” as am I and all the rest of us.

@ETpro I am not hoarding cash but I am keeping funds in reserve for that “what if” time to preserve my companies ability to run. Companies are hoarding cash though because there is no place to put it. I earn 1/10th of a percent on my money market…I may as well keep it in a paper bag.

I would not have a problem paying more in taxes IF our Government demonstrated a greater ability to engage in the same fiscally disciplined strategies companies like mine have had to implement to respond to a weakened economy.

@Cruiser, what is your average annual profit?

@Qingu I don’t have an average….I booked my first year this year. And I do not see a good reason to share this here with you.

@Cruiser What bothers me is why were companies ever ok with being fiscally incompetent? I am not accusing you of it, but part of the pain I believe we are feeling in our economy was a bubble that grew and grew because individuals and companies felt like there would never be a rainy day. If our economy, real estate, if lending had been done, had been growing at a reasonable, practical, responsible rate, we would not be on this roller coaster of highs and lows in my opinion, not to this extreme.

@Cruiser, can you give me a ballpark? Is it more or less than 250k?

@JLeslie I don’t think your concerns are so easily applied with a wide brush as I do think most companies do have rainy day reserves but I cannot imagine many companies have planned for a three plus year stretch of negative or very marginal growth while absorbing all the rising costs of doing business. I have had to stretch terms for many of our long term customers who are traditionally very prompt with payment. I have also seen many well established companies fold their tents because they simply ran out of money.

But the companies that are still doing well are the ones who made the hard choices and made sacrifices to keep the lights on.

@Qingu can you give me a reason why you need to know this?

@Cruiser, to determine whether you would actually be paying higher tax rates, duh.

If your company makes less than 250k in profits, you will not be affected by Obama’s tax hike. Thus making your constant whining about it a farce.

I suspect this is why you don’t want to tell how much your company makes. But feel free to prove me wrong.

@Qingu I I would have had to pay an additional $20,000.00 in taxes last year if Obama’s 4% hike went into effect. And with my projected growth it will be a bit more this year. I would much rather invest that money into new IT systems I desperately need to spur the growth of my business.

@Cruiser, so you have annual profits of around $750,000. (= 20k / 0.04 + 250k)

That’s 7.5 times as much as the average S-class corporation. Congratulations! You appear to be incredibly successful.

Now, why the hell should I care if you pay more in taxes?

And why the hell aren’t you investing your massive profits in hiring and new IT systems that you say you desperately need?

@Cruiser All I know is my husband worked for many large companies that spent incredible amounts of money on things like vacations for employees, and everything being mailed overnight (when a lot of it could have gone regular mail) and paying for lunches for the entire group when someone in the group had a birthday, and first class flights, and new computers, and furniture for new employees, and paid cars for executives, and cell phones for people at many levels, and more. They could have been more conservative with the money, or God forbid, charged a lower price for their services so the masses could more easily afford them.

@Qingu I never asked you to care if I pay more in taxes. I paid an effective rate of 35% on those profits and have to earmark a large chunk of that for my partners. After taxes there were funds for exactly one months operating expenses and that does not even come close to providing a comfort zone for me in this current economy and as long as interest rates are zero, with zero growth in this economy, I would find it financially irresponsible to spend a nickle of my reserves. Obama and his current policies are anything but inspiring for spurring business sector investing. Too damn risky for me at this point as my profit reserves barely make up 4% of what I owe to the lender so I have a long road ahead of me before my debt is paid and I can lay claim to any of these profits. And the more I have to pay to this government for the piss poor job they are doing the more aggravated I get. I would gladly pay more if I felt it was a worthy investment and right now it just isn’t.

@JLeslie I too see this type of lavish spending in some of my customers who are now heavily underwater and struggling to stay in business. I will never get that.

LOL.

So you’re hoarding profits even as you owe massive debt?

Aren’t debt-payments tax-deductible?

@Cruiser I assume you are not dealing with the owners of a small company, but people who don’t give a damn really about the ultimate bottom line as ling as they have their luxuries and fun. It is a sick viscious cycle that inflates everything and makes life harder for the average guy. Companies paying outrageous prices for flights, so now all flying is more expensive. They used FedEx, so FedEx became huge, and then when companies cracked down on using overnight mail, bunches of lay offs had to happen there. It goes on and on. And, then those employees lose houses and cars because they are without a salary and did not save money when they were swimming in it. Then that contributes to housing values plummeting. Drives me crazy. This is why I defend you on the saving for a rainy day bit. I think it has been sorely lacking in the US.

At the same time I want our national debt paid down, and I want socialized medicine, and I support many social programs. I do want the money spent better, but I also look at the private sector and am appalled. Seems like the entire country, from government, to business, to individuals need to bring integrity back. Not everyone, not everyone in government and business and individuals even are bad, but too many are.

@Qingu Yes, but I don’t consider saving one months operating expenses in reserve “hoarding” I look at it fiscally prudent and insurance against the actions of an incompetent Government.

@JLeslie Yes I see the collateral damage all up and down my street as families are forced to downsize or worse into foreclosure as their companies, jobs and incomes vanish.

But I will say this @JLeslie, I do understand why a company would use proceeds from the business to provide perks and luxuries that would otherwise be taxed and handed over to a government that has done everything it can to make doing business as difficult as it is. One thing is certain, I will NOT be paying the insane amount of money to the Government this year as I did last year because I will implement financial strategies to put my companies proceeds to better use than paying the IRS.

@JLeslie

Isn’t that exactly what you guys are arguing about? @cruiser needs to pay more taxes so the government can continue their parties in Vegas and Hawaii.

@Cruiser If it truly works out that companies treat employees rather than pay the money to taxes, then I would agree most businessmen would be inclined to do it, and I understand why. Another reason flat tax and getting rid of loopholes might make better sense. I’d have to think about it more.

@Jaxk Give me a break. I am the first to criticize government spending, I lumped in the government with business and individuals in my statement of being frustrated with the lack of integrity we have observed. What I am tired of is people idealizing business as being less corrupt than government at this time in our history. I cry bullshit to that. It’s all generalizations, I said above, but there is just too much bad right now in all realms to be able to ignore it. How can we expect people to spend government and corporate money well, when they can’t keep their own finances straight? I used to say it disheartens me that not everyone spends money as thought it was their own, but now that saying does not even work, because people are greedy and spend recklessly in their own lives.

@Cruiser, I look at your annual profits and note that they are 7.5 times as much as the average profits for an S-class corporation.

Maybe your monthly expenses really are that volatile that you need that buffer (as opposed to paying down your debt). I’m skeptical.

And even so, I fail to see why the threat of higher taxes would prevent you from hiring, if you know that hiring would increase your profits. 17.6k (the amount of extra taxes you’d pay per year under Obama after the deduction of hiring) is completely marginal for your operation. If you know that hiring someone would grow your business (ie that there is adequate demand), why on earth would 17.6k in extra taxes a deal breaker?

Personally, I don’t see why a small buffer (a month or so worth of operating expenses) would be considered profit rather than overhead; insurance is an overhead cost and a reasonable buffer sounds like insurance. In that, I have to agree, though I can see how it could also be abused.
That said, $17,600 is less than I earn and I earn less than most in my trade; when you add in insurance and other expenses, that is at most one-half of an employee, probably less.

@Cruiser

Vote against the tax hikes and join your local country club. It’s cheaper than your share of Michelle Obama’s vacation in Spain and more enjoyable. Plus it keeps the money in the US instead of sending it overseas. Win-win. Michelle may have to vacation in Stockton like the rest of us, but I don’t really care.

That’s what I’m doing and I’m happier for it.

Ah @Jaxk. Don’t ever let honesty stop you from repeating a debunked right-wing talking point.

@Qingu

Good on. You think that because Michele bought her own deodorant it didn’t cost us anything. Oh the gullibility of the masses.

Bought her own deoderant, plane tickets, hotel bookings, and other travel expenses.

We did have to pay for security. I believe we’re also paying for Newt Gingrich’s security when he flies around though, so I’m not sure what your point is. Are you saying that elected officials and their families with secret service protection must never be allowed to leave their castle towers?

And did you complain when Bush and previous Republican presidents went on vacation? I’m guessing no.

@Qingu

I’m sorry, I thought you were saying that business owners should not be trying to line thier pockets with the profits from thier business, they should be reinvesting, hiring, etc. Not taking lavish vacations and living the high life. I assumed your comments were for Democrats and Republicans alike. Apparently not.

@Jaxk I sent in my application last month

@Jaxk They can take the lavish vacations, but they also have to pay the taxes on money that allowed them to do so. Also note that money invested or spent is circulating whereas money hoarded is not; even living the high life is better for the overall economy than just sitting on a pile of money.
Still, a business should spend more on itself than on it’s executives. I seriously doubt @Cruiser is drawing a $5m salary, he’s spending on the business.

@Jaxk, wow, you really had to stretch to connect your little drive-by talking point to my posts in this question, didn’t you.

I said no such thing. I don’t care if rich people take vacations. I don’t care if Cruiser gives himself a raise (which would be deductible and lower his taxes).

I do think rich people should pay more taxes. And I don’t think most small businesses will be affected by higher marginal rates. I don’t think higher rates will prevent small business owners from hiring more people except at the barest margins. Cruiser, if he even has his finances in order to begin with, appears to be an anomoly and in any case he hasn’t explained why 17k in extra taxes is such an onerous amount to prevent him from hiring the worker he says he desperately needs.

@Qingu Please think about this for a second or two. I just bought this company last year and I was not and still am not a rich man. I owe millions to the lender and until I pay off the loan everything I own and all the assets of the company are pledged as collateral. Provisions of the loan include covenants one of which is to maintain a minimum debt to coverage ratio and if I don’t I am in default. If I go hog wild and spend on new hires and equipment my very narrow debt to coverage ratio is screwed and guess what so am I. This is too new in the game with too thin a mattress to fall back on IF things don’t go as planned. This is not all about me either. I have two partners and 8 other employees my business decisions directly affect not to mention the lender who has entrusted my/our abilities to pay back the millions we owe. Not an easy task to set out to do in this restrictive oppressed depressed economy Obama has created for us….so until I see light at the end of the 3 year long tunnel we have been in I will keep my cash reserves.

I worked my ass off for this company for the last 16 years of my life and sacrificed a LOT to get this opportunity. And there is only one reason I was able to get this chance and that is because the lender knows with great confidence that I know what I am doing and will make the right decisions for this company so I am able to first and foremost pay back this loan.

FYI, a pre-payment clause does not allow me to pay down the principal so there is zero financial benefit to throwing more money at the loan.

@Qingu

You’ve got your tax scenario confused. If he takes more in salary it is a business expense but it is still personal income. The income from the business (assuming it’s an S-corp) is also personal income. The income taxes add no matter how you slice it.

As for the vacations, your right Bush spent many days at his Ranch in Crawford chopping wood and clearing brush. The Obama seem to want a slightly different lifestyle patterned more along the lines of the British Monarchs. I can’t help but think it may be more appropriate to change his title from Mr. President to Your Highness or maybe Your Eminence

@Cruiser, I understand you’re not a rich man. I understand it is challenging to be a business owner in a depressed economy.

I do not see how an extra ~20k in taxes, out of $750k, materially affects your business. I do not see how it prevents you from hiring. After all, you aren’t hiring now, and you don’t have to pay 20k extra in taxes. I believe it’s clear that there are other factors that are preventing you from hiring, such as your aversion to risk due to high debt and apparently your doubts about continued demand for your products; extra 20k in taxes would at most marginally change your equation re: hiring.

And that is my point.

It’s also absurd to blame Obama for the depressed economy. What would you have done differently? How would you increase interest rates?

@Jaxk, fair enough about Cruiser’s personal income. I however see no reason to engage with you in your BS talking points about Lord Obama, since (1) there’s no substance and (2) you’re smart enough to know they’re BS. I don’t require honesty on your part to have discussions with you of course, but it would be nice one of these days if you at least tried.

@Jaxk I agree with you and I would never begrudge a President or his family some time off but honest to God to do so in the lavish fashion they have when a vast portion of the country has not had that luxury of taking a vacation or a even a staycation for that matter.

@Cruiser ” government that has done everything it can to make doing business as difficult as it is.” My company does millions of dollars a year in U.S. and international business. We still have to pay estimated taxes, and quarterly taxes. That has gone on for many years and has been supported by Republicans and Democrats. It is a little cumbersome but not too bad. What is really bad is international shipments in North and South America. Evidently it is very easy for huge corporations like GM, Ford, ABB etc.. to send components and whole assemblies across the border as they wish. The problem is for small companies like ours. There are tremendous hoops and payments we have to make to get things into and out of Mexico. In Canada there are hidden taxes we get charged at the border plus horrendous delays going back and forth across the border whether we have a broker or not.

The North American Free trade agreement put in big obstacles for small companies and virtually none for large international ones. If you want to simplify anything, dump all the free trade agreements and reinstate the tariffs. At least with tariffs, all companies were on equal footing.

@Qingu I don’t have any expert answer for what would have worked better but what I do know is the banking regulations and restrictions that Obama put into place in wake of the banking collapse put a strangle hold on people like me and other legitimate businesses from having access to capital.

I also have listened to my customers repeat similar stories where cash was simply not flowing, mines I deal with could not borrow the money they used to be able to borrow for their planned shutdowns. Being less restrictive over lending practices is a dangerous suggestion in wake of the banking fiasco….but there in itself, I firmly believe Gietner and friends could not have bungled the handling of that problem any more if they tried.

Plus the Fed keeping interest rates this low for this long has kept a ton of money on the sidelines and it appears to me it will continue to sit there until someone who knows what they are doing takes charge of the Fed.

I also believe the bailout approach Obama took was smoke and mirrors and simply letting the banks and automakers restructure under traditional methods IMO would have allowed for these problems to correct themselves much quicker than the Government bailouts accomplished and the best part is it would have been done with other corporations money bailing out the failed institutions and not ours.

@Ron_C I hear you there and it takes an act of congress to clear products for overseas shipments and I have the added hurdle of shipping dangerous goods. I am fortunate that many of my Mexican customers have me ship to Laredo or El Paso and come across the border to pick it up themselves. The red tape for export is beyond cumbersome and shipping to the EU, China and Australia are among the worst.

Things go in cycles. Things that are out of balance tend to get over-corrected. Given that the economy tanked under too little regulation, the inevitable result is eventual over-regulation. The economy didn’t get where it is today solely by Obama’s hand, yet every bad thing that has happened to the economy in the last decade is his fault.

Don’t make this political unless you are willing to cast blame on both sides of the aisle.

@Cruiser, banking regulations did not strangle your access to capital. There was a credit freeze all throughout the recession (ie before Dodd Frank). Most of Dodd-Frank hasn’t even come into effect yet.

We both agree that poor access to credit is hampering the economy. But even your buddy @Jaxk agrees that TARP (I’m assumign this is what you’re referring to when you mentioned Geitner, although it was created under Bush) was a necessary evil to restore confidence to the banking sector and that it made the credit situation better, not worse.

I certainly don’t understand how letting the banks fail and restructure would have made your access to credit better. Why would a failed, bankrupted, and completely panicked banking industry want to loan you more money than a bailed-out, safely-capitalized, and modestly regulated industry?

As for the Fed, low interest rates encourage lending. I mean your statement is the exact opposite of the truth. Setting interest rates near zero means banks have a financial incentive to lend credit (because they can charge interest at a rate that is inevitably higher than zero). Raising interest rates would mean that banks would be more inclined to just sit on their capital.

@Cruiser Bush gave out the first set of money to banks, TARP was issued under Bush. That is when the bank my husband worked for got theirs. The Obama gave out more money and made rules that if you took money, even the money under Bush, you needed to do some reporting to the federal government. Banks had to take mo ey even if they didn’t need it when Bush did it, to make sure they did not get eaten up by bigger banks.

@JLeslie The only problem I have with your commentary is that Obama campaigned to “fix” the problems Bush not only created but failed to correct. I wish I could simply throw 5 trillion dollars Willy Nilly at problems other people created and 3 years later continue to hold the “other” guy accountable for the continued misery.

@Cruiser do you honestly believe that Obama has nothing to show for his administration’s efforts?

And yes, the financial crisis happened under Bush’s watch, because of his administration’s lack of oversight. Maybe Clinton’s deregulation deserves some blame too. But the reason the economy is in the state it’s in is because of the financial crisis. Employment fell by 5% almost overnight if you’ll recall. That’s a huge hole to dig out. And unless you have some ideas about how to dig out faster (for example, more public spending on infrastructure), I’m not sure what your point is.

@Cruiser I have no problem with you having a problem with how Obama has handled some things. My problem is only mentioning Obama when it comes to “bailout” (which is sort of an innacurate word regarding the banks and the car manufacturers, they were loans).

I bet if we poled 1,000 Republicans at random, more than half believe TARP was done by Obama. What do think? Facts matter. And, again, Bush gave it away without demanding any reporting by the banks, no oversight, no one really watching what the banks were going to do with the borrowed money. Obama changed that.

As far as the banks not lending, was that all to do with new regulations? Were the regulations tighter than say 20 years ago? I am asking, I have no idea the actual answer. What I do know is when I bought my first house 19 years ago I had to show I was financially stable and a good risk. 10 years ago when I was a realtor I could not believe the loans my clients were getting. Honestly, the thing I could not believe the most at the time was that they took the loans, not that the banks were giving them. Later I became very critical that the banks were giving them. I don’t know if it was different for business loans.

Do you think banks have an obligation to loan money? Do you think they wanted to loan, but couldn’t because of new laws?

@JLeslie I bet that if we polled 1,000 Republicans, more than half would believe that facts don’t matter.

Trickle down economics cause the middle class to disappear as money trickles up; a fact that they deny.

They claim that gas prices are up due to reliance on foreign oil, but we are actually importing less oil under Obama than under W.

The Bush tax cuts have a price tag of around $2 Trillion and W’s other policies cost around $5T, yet Obama is a wastrel for spending barely over ¼ that.

There are some irrefutable facts that they will refute merely because the fact do not fit their bias. Obama will always be a Muslim Kenyan to many of them.

That kind of ruins it for those Republicans that actually have more than two active brain cells and enough wisdom to actually use them, but c’est la vie.

@jerv Oh, don’t get me started about gas prices. Somehow the Republicans have completely forgotten under Bush the gas prices were just as high for a while.

@JLeslie They were not only NOT loans or bailouts they were handouts! Show me anywhere in the private sector where a company squanders cash flow, lacks ingenuity AND innovation to be so far behind the competition they fail AND a fairy Godmother throws money at them to have a do over?!?

Banks are not obligated to do anything more than make money for their shareholders and the sudden swings up of down of the economy is what makes running a bank or any business a constant challenge to second guess what the market will bear. Unfortunately greed will play a factor on the private side and glut will play a factor on the public side and the epic struggle will forever perpetuate.

@Cruiser Well, I know my husband’s bank paid all the money back. I am pretty sure Chrysler has paid all the money back, but I would have to double check it. Don’t get me wrong, I was not thrilled with the whole thing, but the possibility of total financial collapse was pretty scary. Romney has said, and I assume it is true, that he had suggested bankruptcy for Chrysler, probably that might have been ok also. They need to be reorganized and be watched. The government essentially did the same thing I guess, required some changes from Chrysler to reorganize and have a better plan for the future.

@Cruiser This says 68% of the money given to banks has been paid back. I don’t know how reliable it is.

@JLeslie see…IMO they should have never got the money in the first place at least according to the standards my business or ordinary business have to adhere to. Why the special treatment? Was it because the big 3 and your husbands biz had a lobbyists in their back pocket to steer rescue their way??

Plus a minus 32% return on my investment (per your link) is only something the Government can get away with.

@Cruiser My husband’s bank (to be clear, he is an employee, not an pwner, except for some shares of stock we own) didn’t really need to take it, and would have passed it up, but since other banks were taking it they needed the money to puff up their balance sheets and P&L’s or they looked less valued than the next bank, and were vulnerable to be taken over. This was true for a lot of banks. It’s something like that, he can explain it better.

@Cruiser My husband read something the other day that some bank is taking thousands off of some loans, kind of forgiving a portion of a loan/mortgage. That makes me sick. I don’t mind them renegotiating the terms, but changing the price! Pisses me off.

/headdesk

@Cruiser Just curious; what would’ve been the cost of letting the banking system collapse? Sure, the government would’ve saved it’s (or rather, our) money, but would that money have been worth anything? Would it have covered the bills? Put another way, would you rather a 32% loss or a far larger loss, possibly one in excess of 100%?

@jerv There is rarely anything close to a 100% loss. Most bank failures was because of a greedy penchant for shady loans but the housing bubble caught the banks with their pockets (coffers) in the red. Shit hit the fan all at once and they were screwed. In a normal private world those banks that were greedy/messed up would have to fold their cards and be bought out. But the save the day mentality of Obama “I will Champion the common man” brought in all sorts of unprecedented Government intervention.

Had the banks been allowed to take it on the chin….those homes that defaulted were home owners that should not have been loaned the money in the first place, those loans or homes would have been sold off for something. Just because a home is in default doesn’t mean it is worthless. So these loans would have some value and at least some if not a good portion of the original loan amount would be recouped. To cry foul that only the Government could have saved the day is a false set of goods a too large a portion of this country took hook line and sinker.

Just to add a little sanity to the discussion. The TARP funds were intended to avert a financial crisis. Whether they did that or not is pure speculation. In my opinion the bailouts were cheap insurance against what might have happened. The loans have been mostly paid back with some notable exceptions Freddie, Fannie, and AIG. They were by far the largest. The TARP funds never made any impact on loans or at least no significant impact. The massive meddling in the banks businesses forced the banks to repay as quickly as possible rather than use the loans for any lending.

There were only a few banks that really needed the bailout but it was decided that if they only gave money to a few, those banks would appear to be risky and a run on those banks would be more likely. If they gave to all no one would know which were in trouble and which weren’t. So they strong-armed those that didn’t need it to take it. The banks quickly regretted that.

There were a number of things that happened that affected lending. The banks were operating under an accounting rule called ‘Mark to Market’. That meant that thier assets (homes and businesses) that held as collateral, would adjust in value as the market went up or down. When the housing bubble burst, the banks assets began to fall. Every Time a short sale or a foreclosure sale occurred below market, all the surrounding properties were immediately revised down in value. At the same time the administration raised the cash requirements for the banks. Each bank is required to keep a percentage of their assets in cash as the requirement was raised the banks had to raise cash leaving less available for lending. And of course with houses foreclosing the cash flow was diminished as people stopped making thier payments, making even less cash available for lending. Then to add insult to injury, Dodd-Frank put even tighter restrictions on the banks and lowered the cash flow from credit cards and such. Dodd-Frank as with most government legislation, is only a framework and the actual rules are put in place by the regulatory agencies. So now we have the banks with less cash, diminishing assets, higher cash requirements, less revenue in which to generate that cash, and a very uncertain regulatory environment that will certainly raise their costs. And of course no one can understand why the banks aren’t lending..

@Jaxk That sounds about right.

sigh

@Cruiser So… you support monopolies and lack of competition? Personally, I support free market Capitalism where competition is encouraged in order to both stimulate progress and efficiency, and to ensure that you don’t bleed the customer base dry. But if you want monopolies that make a quick buck now at the expense of leaving people too poor to ever buy anything in the future, then you and I have irreconcilable differences; I want a healthy, sustainable economy, and I’m not budging.

@Jaxk I like to call that sort of thing, “Heart of gold, brain of shit”. A well-meaning idiot is still an idiot. Of course, neither side has a monopoly on idiocy…

@jerv Where is the monopoly in the private sector in the banking/housing collapse?

As I see it, the main reason why @Cruiser is not investing is that the economy is not doing well. This makes perfectly good sense. Why invest if you can’t recoup your investment with greater sales? Here is an idea. Use the $20,000 extra dollars in taxes plus the extra taxes from other companies who make more than 250K, to distribute among the needy, who will use the money to buy more things, making it worthwhile to invest more. Everybody wins!

@Jaxk, “Then to add insult to injury, Dodd-Frank put even tighter restrictions on the banks and lowered the cash flow from credit cards and such.”

Prove it.

@Qingu

Are you really not aware that the credit card swipe fees were reduced under Dodd-Frank.

I meant prove that such restrictions are actually responsible for freezing up credit. (In retrospect, my post was certainly confusing—apologies).

You seem to be arguing that if only banks had more cash (from fees and such), they’d be more willing to lend. Um, hello? Lack of capital didn’t stop them from making incredibly risky and leveraged loans throughout the 2000’s.

@Qingu Not to mention that they probably made more money in fees on low-earners than they did on interest on loans to high earners. Predatory practices were the rule rather than the exception, and now they are paying for it. Further proof that self-regulation doesn’t work in the really real world, and often leads to over-regulation.

Well Jaxk in general seems to believe that ensuring rich people and powerful corporations have lots and lots of cash will magically make the economy better. I imagine this is just an extension of his trickle-down ideology.

@Qingu

It’s still confusing. You want me to prove that if the banks have less cash available for lending that they will lend less cash. Frankly I have no idea how to prove anything to you.

The banks were awash in with cash in the 2000s and the loans were viewed as risky. Hell, banks were making a fortune on those sub prime loans and when they needed more cash they simply bundled a bunch of those loans and sold them to Freddie and Fannie. Freddie and Fannie would buy up everything. Hell Barney Frank and co. were screaming that there was nothing wrong with that system. Which is why Bush couldn’t get through any reforms on Freddie and Fannie.

I imagine we both agree that banks need to be sufficiently capitalized in order to function (duh).

How much they lend, over and above this threshold, is not at all derivative of the amount of excess capital they have. It’s also determined by interest rates, by the state of the macro-economy, by individual risk and capacity for risk, etc. Yes?

I mean it’s the same bullshit you always spout about businesses hiring. “They would hire more if they just had more cash!” Nevermind the state of economy, the lack of demand for their products, and the fact that they already have tons of cash and are not hiring. The answer is always giving more money to the supply-side.

And in 2000’s banks made loans well in excess of their capitalization, and I have no idea why on earth you brought up Fannie and Freddie. Is this like some kind of conservative bodily reflex where whenever someone calls you on economic bullshit you automatically spout something even more nonsensical about Fannie and Freddie?

Banks before the CRA were much more strict on loaning money. Fannie and Freddie helped banks make risky loans. If you can’t put at least 20% down on a house it shouldn’t be bought.

@Qingu I think both you and @Jaxk are right as the banking collapse was a team effort but the ones who got away with it were the executives who knew better yet kept making sub prime loans not only because they could, it was the only place to put money because the Feds had interest rates so low there was not too many other places to make investments that provided decent yields. Kind of like now!

But the Fed regulations allowed for this risky lending to occurr and yes Fannie Mae and Freddy gobbled up these bundled loans again because nobody stepped up to say “hold up here” this isn’t going to go well if….

And the executives of these Wall Street firms are not all too blame for their risky and profitable investing moves, Fannie Mae was the source of the decline in mortgage underwriting standards that eventually brought down the financial system. Again this was a team effort between Greenspan, wrong-headed incentives which rewarded Wall Street bankers and traders for taking risks with other people’s money while somehow absolving them of accountability, the SEC regulators who failed to regulate or caved into the desires of those it regulated, the ratings services which were paid by Wall Street to slap AAA credit ratings on securities that were anything but, and politicians who did everything they could to encourage homeownership—thinking it was an important part of the American Dream—which led thousands of people who would otherwise be renters to take out mortgages they could not afford.

@Qingu

Business failure rates are up by 40%. That’s not because they have lots of cash. Where do you get this shit?.You brought up the lending in the 2000s. You can’t talk about that period without bringing up Freddie and Fannie. Hell they bought half of the loans. You’re obviously not interested in what has or is happening. And honestly, I’m losing interest in trying to explain it to you.

Fannie and Feddie were not drivers of subprime loans. They followed in the footsteps of the rest of the banking industry and had little overall effect on the crisis. They held fewer subprime loans than most other banks. And the housing bubble was international. (How on earth could F&F caused the housing crisis in Spain?)

It’s a complete nonsequitor, at best, to bring Fannie and Freddie up in this discussion. More often than not it’s an intentional distraction away from an honest discussion of banking regulation. Like shouting out “Acorn stole the 2008 election” in a discussion about gerrymandering.

@Jaxk, I would understand if you lost interest in trying to explain the mechanics of your fictional alternate universe. I’m getting bored listening to it. It’s like listening to people explaining the details of their dreams. In any case I’ve certainly given up hope for you to respond honestly to the discussion about sufficient capitalization of banks.

@Cruiser, I think you are unduly obsessed with low interest rates. They weren’t that low for a good chunk of the aughts. You also appear to have the point here completely backwards. Low interest rates encourage lending. If interest rates were high, people would just keep their money in money market accounts instead of risking loaning it out for higher interest.

@Qingu My whole point is low interest rates discourage conventional investing. People/corps invest to make money and higher rates encourage investing. So absent higher interest rates, money sits on the sideline. The only place to get 5% is in mortgages or as in my case, in venture capital loans to people buying businesses. Low rates encourage borrowing as in low interest mortgages.

Which leads us full circle back to FM&FM who are the whole reason banks would even think of issuing risky sub prime mortgages. The Fed created FM&FM to provide Government backing of loans made under THEIR underwriting rules and regulations which were more lax than what a conventional lender would allow for. So the existence of this Government Sponsored Entity actually drove and encouraged risky sub-prime loans. Without the backing of FM&FM, banks would have not made many of those riskier sub-prime loans and we would not have had the housing crisis.

@Cruiser, no, it’s really the exact opposite of what you say. Low interest rates encourage investing and credit flow.

I mean, if you don’t get this then I don’t know what to tell you. Ask @Jaxk if you don’t believe me.

And no, F&F were not “the whole reason” banks issued subprime loans. Those loans boomed at private banks as F&F pulled back.

“Fannie and Freddie, however, didn’t pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.”

Source See also here.

You’re completely wrong, Cruiser. It would be nice if you swallowed your pride and actually changed your views for once.

@Cruiser

I don’t know why but @Qingu seems to want to use me to reinforce his arguments while simultaneously screaming I don’t know what I’m talking about. Nonetheless, let me inject a few facts. It seems he wants to tell us that Freddie and Fannie had nothing to do with this yet. That they held the good loans. Yet when the bailouts occurred Freddie and Fannie were the largest by a long shot, of all the bailouts. I’m not sure how he accounts for that in his world.

Also it should be noted that the sub prime mortgages held by Freddie and Fannie were simply under reported. In layman’s speak, they lied about thier exposure. A quote from the article @Qingu linked: “As the SEC said in its press release on the suit: “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was.” This explains why Min and others-despite the insolvency of Fannie and Freddie- have continue to argue that the two companies did not hold substantial amounts of subprime and other low quality loans. Fannie and Freddie simply failed to disclose this information. ”.

It would be nice if someone would swallow their pride.

I think we all need to; tempers are beginning to flare. And when I say that, it’s getting bad!

@Qingu hmmmm…..I have $5,000.00. Should I put that in a CD earning .05% or put a down payment on a new SUV I really need that is offering zero down and get crazy low rate financing? Hmmm…I will have to think this over for a split second!

Plus pay attention to what I wrote and posited! The private banks made these loans only because they knew they had the backing of FM&FM! You apparently lack an understanding of the what and why of FM&FM and you could learn a bit if you read your own links!

“The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets”

“Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don’t lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.”

“It’s a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.”

“In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.”

Like I said above it was a “team” effort and one that was not only endorsed by our Government it was encouraged!

@Jaxk I don’t get it either. @Qingu seems smart enough to talk intelligently about these things but also takes things in circles like a merry-go-round ride. Even his own links contradict his talking points.

@jerv no tempers flaring here sir!

@Jaxk, can you please explain to Cruiser that low interest rates encourage lending?

@Cruiser, I understand how securitization works. Do you? How do you think the fact that F&F purchase loans from private banks supports your point? They securitized less subprime loans than did private banks, and their share of such loans dropped during the boom.

“That is, during the boom not only did the fraction of loans securitized by Fannie and Freddie fall, but the absolute number fell. At the same time the absolute number of private-label securitizations rose.
There is a simple and obvious reason for this. The development of structured products meant that for many consumers the free market offered a more attractive loan than the government subsidized one.” Source

“Moreover, much of what Fannie Mae bought was the safest portion of the mortgage-backed securities. Even when the crisis was underway, Fannie Mae’s losses on subprime loans were minimal, only about 5 percent of its total losses. They were not taking the kinds of risk the private lenders were; for example, they never bought any part of the now infamous collateralized debt obligations.” Source

Now, I agree that the government is not blameless in the subprime crisis. But their blame has much more to do with lax regulation of the shadow market for credit default swaps and ratings agencies doling out triple AAA’s to subprime loans than with F&F. The obsession with F&F is a red herring.

@Jaxk, to answer your question:

“Yet when the bailouts occurred Freddie and Fannie were the largest by a long shot, of all the bailouts. I’m not sure how he accounts for that in his world.”

It’s really not that hard. You are aware that the financial crisis and ensuing recession created a situation where the housing industry collapsed and many people’s mortgages are underwater, yes? And entering into a conservatorship of a bank concerned with such mortgages (which, as you know, we did not do with private banks) would thus be quite costly?

Are you really dumb enough to confuse the cause of the crisis with mopping up the effect of the crisis? Or do you just think that your audience here is that dumb? Or are you attempting to make some philosophical point that Fannie and Freddie are “too big to fail”?

@Qingu The FM&FM debate is not a “red herring” it is a prime example of government not paying attention to what is going on in their own house. Political pressure from Congress and organizations like ACORN demanded low income people have a chance to own a home and even offered FHA loans for 1st time home buyers with rebates and all sorts of incentives.

Plus just consider the scenario of the FHA lending program even their website screams Another American Dream Come True. What does this all mean? It means that almost anyone with a job can get a loan. Why is this significant to this discussion? Because this is what happened then in the 90’s and continues to this day. No money down? 2.7% APR!!!! Fantastic! Another American Dream Come True!!

Wait a minute….no money down…you mean they are able to make a major purchase like buying a home and they can’t even come up with a few grand to get a mortgage?? Uh…what happens if they get laid off??? Or the interest rates suddenly jump in 2 years when their APR is up?? Oh Oh! You mean like what has been happening for the last 5 plus years??? Another housing bust??

And you seem like you are only content to blame the fat cats on Wall Street for our problems?? It was a team effort and there is more than enough blame to go around! I truly blame the people who were foolish enough to take a mortgage they had little to no ability to continue to cover for a few months if and when. Plus don’t tell me that once they pass the credit background check that they then go out and max out a few credit cards to buy nice things for their homes. Ooops they have been laid off and can’t even cover the electric bill. HS this has and is still going on and on and on….

I don’t know how to make this any clearer, Cruiser. Subprime loans were less common at F&F than they were at private banks.

Which part of that statement do you dispute?

@Qingu I don’t dispute that aspect of it because FM&FM don’t make loans they buy them from banks after they are issued so banks can have their money back to issue more shitty loans. What part of that do you not get? It’s like AA handing out fifths of Vodka at the step meetings.

Are you under the impression that F&F bought every single subprime loan from private banks?

Do you not realize that private banks also securitized those loans from other private banks?

@Qingu of course I do and it was actually insurance companies that did the bulk of what you are referring to. What I am finding out to be most interesting in my ongoing research is how this all really played out. I hate using WIKI but I don’t have the time and energy to use certified sources…

” In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992. The Act amended the charter of Fannie Mae and Freddie Mac to reflect Congress’ view that the GSEs ”... have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return;” For the first time, the GSEs were required to meet “affordable housing goals” set annually by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases and increased to 55% by 2007.”

“In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.”

“In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.”

To their credit FM&FM increased their lending standards but the private sector did not and continued to offer low interest no money down loans. Because they needed to maintain profit levels of the early 2000’s they became even more aggressive in their offerings to first time home buyers with teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans.

Once all these low interest APR loans both private and FM&FM backed and rates started to rise, the first dominoes of defaults were tipped that started our housing crisis.

Lie I said, it truly was a team effort across the board. One man Mike Stathis saw this all coming…

“In his 2006 book, America’s Financial Apocalypse, Mike Stathis also warned about the risk of Fannie Mae helping to trigger the financial crisis: “With close to $2 trillion in debt between Freddie Mac and Fannie Mae alone, as well as several trillion held by commercial banks, failure of just one GSE or related entity could create a huge disaster that would easily eclipse the Savings & Loan Crisis of the late 1980s. This would certainly devastate the stock, bond and real estate markets. Most likely, there would also be an even bigger mess in the derivatives market, leading to a global sell-off in the capital markets. Not only would investors get crushed, but taxpayers would have to bail them out since the GSEs are backed by the government. Everyone would feel the effects. At its bottom, I would estimate a 30 to 35 percent correction for the average home. And in ‘hot spots’ such as Las Vegas, selected areas of Northern and Southern California and Florida, home prices could plummet by 55 to 60 percent from peak values.”

You didn’t answer my questions, Cruiser.

Do you realize that FF did not securitize all the subprime loans? That most were securitized by private banks?

Please acknowledge.

Here’s a TED Talk by Venture Nick Hanauer. It’s going to finally be posted on TED, but they censored it when it was given, fearing it would alienate their wealthy donors. What Nick says is so obviously true. You cannot solve a lack of consumer demand by taking money from consumers and giving it to the very wealthy. All that will do is further depress demand.

@ETpro That’s what I’ve been saying, but the “tax cuts for the rich, regulation is evil” crowd lacks the financial sense of a third—grader and refuses to see that.

@Qingu You didn’t read my answer as in the first line!

@ETpro I agree that some or a little bit more than some of what Nick says is obviously true but it is astonishing to me that a man as wealthy as him put so much time into an argument that parts of are so patently false. How does anyone think that taking more money from the rich will create more jobs? That notion is as ridiculous as one saying letting the rich keep their money will create jobs.

I know for a FACT that the only way I will ever have the need for more employees here is for me and my sales staff to be aggressive in our sales approach to convince more companies to give me money for the products I dream up and create. There is no red carpet that consumers travel to my front door. If I don’t have the smarts and ingenuity to create better products….guess what I and 8 other people will be out of a job.

Nick is spewing a straw man argument here.

@Cruiser, I wasn’t sure to what you were referring. So we’re in agreement, finally? :)

And actually, I don’t think taking money from the rich will create more jobs. It will however help pay down the debt. And I would rather tax the rich to do that than cut the social safety net.

I would also suggest that you will have the need for more employees if there was more demand for your products. Even if you have the best products and the most aggressive salespeople, in a severely depressed economy, people aren’t going to have enough money to buy them (or they’d rather spend their money paying down their debt). The economic environment matters a great deal more than your simplistic equation implies.

@Qingu More taxes to pay down the debt is stating the obvious but what is really missing from the debate on this matter is what are we going to do differently with that money? Barack campaigned on the platform of change and virtually guaranteed us to cut the budget deficit in half. But nothing has changed at all and from my POV it has only gotten worse. Government spending is a record high levels and frankly IMO the return on the dollar investment in our Government SUCKS!

What is also missing from the jobs debate is that we are in and have been in a global economy and that other countries are competing for our consumer dollars and in many cases doing a better job at it by being innovative, creative and working harder at it than we are or are willing to do. So what happens?? Jobs are lost overseas to where US companies are doing what the have to to compete and survive. This is our reality and somehow people can’t wrap their heads around this. Paying people more and taxing the rich will not change this component of this global economy doing things better and cheaper than we are. So people screaming for the rich to pay more are essentially asking for the rich to subsidize this deficit of the US being lazy or unwilling to be creative and innovative to do things smarter and cheaper in order to produce quality competitive products.

It frosts my cookies that we had to bail out the big automakers when it was their own damn fault that they mismanged their companies and the same thing can be said of these banks and institutions that secured all those sub prime loans. These wall street execs knew what they were doing and were just too damn greedy and THEY should pay for their excesses and mistakes NOT the American tax payer. But I do think Obama handled that bailout well and forcing Chrysler to take cash from Fiat or die was the right way to do that. Should have done the same with GM IMO.

Companies that fuck up like that either go out of business and another company will pick up where they left off and do a better job or other companies buy them up and do a better job.

One thing that HAS to change is this “I want it now” and “I am entitled to it now” mentality without making scarifices or commitment to the type of change that has to happen if America is to fend off this foreign assault on our economy. If people spent a few extra dollars to buy American made products, union made products our economy would light on fire overnight. Instead people want things like that bigger screen TV and can only get it if they buy foreign made products.

@Cruiser, you need to be specific. What exactly did you want Obama to change? Are you saying you wanted him to slash safety net spending (unemployment insurance, social security, medicare and medicaid) in the middle of the worst recession in 80 years? How would that make things better?

If we look at every other country that’s tried this kind of “austerity” policy to deal with debt, it’s actually made things WORSE. Spain, Britain, Portugal, and Italy all tried it and not only is their unemployment sky-high but their debt—the whole problem that austerity was supposed to solve—got worse too, because austerity kills economic growth.

I thought we were in agreement that stimulating the economy to promote job growth was a more pressing concern than immediately paying down the debt. So what exactly is your problem? What would you have done differently?

As for the rich subsidizing the deficit, I have absolutely no problem with that. They benefit from society; society costs money to maintain. The alternative is the poor and middle class subsidizing the deficit, and they can’t afford it. The rich can. Hell most rich people wouldn’t even notice if we secretly raised their taxes unless their accountants told them it happened.

@Cruiser If you just tax the rich and pay down the debt with it, it won’t create any jobs. If instead you put the million plus skilled construction workers back to work rebuilding our crumbling infrastructure and upgrading the electrical grid with the revenue and you send block grants to the state to put all the laid-off teachers, firefighters, and police back to work; you suddenly have nearly 3 million people able to buy the stuff that industry builds and that retailers sell when they haven’t been able to do so for quite a long time. The GOP keeps claiming Obama has massively expanded government, but that’s a bald-faced lie. Public sector employment is way down since 2008. It is consumer demand that drives jobs, not concentrated wealth at the top.

If that isn’t true, how do you explain the fact that the longest economic boom and the largest expansion of the GDP in US history was the post-war boom from 1945 to 1980; and during that entire time the top marginal rate was at least 100% higher than it is today?

@ETpro I could not agree with you more except I would like to see that money come from within the government. There is enough fat and wasteful spending in the current budget to pave over the entire country. If the GSA can be exposed for their little shenanigans, I almost don’t want to know the rest of that story either. There are so many ways we could reduce government spending and I am not talking entitlements either.

I went to the SBA before I bought this company and actually came away dumber than I was before I walked through their door.

But I fear nothing will ever get accomplished until someone has the guts to stand up to “K” Street. Until there is some serious campaign reform, the tail will continue to wag the dog and the taxpayers will continue to get stuck with the tab..

@Cruiser, there’s really not. The government is basically an insurance company (SS, Medicare) with an army.

Slimming down bureaucracy and improving efficiency should be done, obviously, nobody says they shouldn’t, but they aren’t magic bullets. I challenge you to find enough wasteful spending in the current budget to fund $300 billion in infrastructure spending.

@Qingu That’s EASY! Cut the Pentagon budget in half! There! Done with money left over for a few lavish vacations! Next question….

@Cruiser Lets cute the TSA as well. We surely are not getting our money’s worth out of them.

What happened to going through the budget line by line? Isn’t that part of what Obama ran on? Has he done this and can you provide links to it?

@missingbite, I’m sure you can find Obama’s budget proposals on a popular internet search engine of your choice.

I’m also sure you realize that Obama, in the executive branch, doesn’t actually pass a budget.

@Cruiser, I’d love to cut the Pentagon in half, but good luck with the politics on that one… Obama to his credit did cut Pentagon spending as part of the “failsafe” in the last round of debt ceiling negotiations. ANd now the Republicans want to undo those cuts…

@Qingu Of course I know that. I did pass Civics in HS and contrary to the way you seem to think about people, not all right leaning people are idiots.

You do know he ran on going through the budget line by line and just because he put out a budget proposal doesn’t mean he did went through it.

I also know that our Democratic controlled Senate has not even thought about a budget in three years.

@missingbite I am not sure we will ever see the light of an Obama budget plan as it didn’t get a single vote last week….not even one Dem vote! ouch! You can see the CBO’s analysis of it here

@missingbite, it turns out it’s hard to pass a budget when Republicans in Congress reflexively refuse to support anything Democrats put out there.

But feel free to blame Obama for the other party’s obstructionism in another branch of government.

and I know we’re all supposed to pretend like we’re outraged when the government doesn’t pass a budget, but it’s not like the money doesn’t get allocated.

@Cruiser As seductive as the GOP fiction that all government spending is waste may be, it is utter nonsense. Cutting government spending means cutting government orders to companies just like yours. The government doesn’t buy its goods and services from magicland. It buys them from private industry. Any substantial cut in government spending means private sector jobs and public sector jobs lost, which further depresses the demand-driven economy.

The GOP has a one answer approach no matter what the economic problem is. Solve the Supply-side problem. The only thing is we’ve almost never had a supply side problem. With US corporations sitting on $2 trillion in cash reserves right now, we most definitely don’t have a supply side problem today. We have a Demand Side problem. Supply side solutions work to reduce demand. Austerity will make a weak economy seriously ill, not better.

@Qingu Please explain how it’s Republican’s fault when not a single Democrat voted for his budget proposal in the house? 0 – 414! Give me a break. Is that what you call him going line by line and proposing a balanced budget?

@Qingu you are correct about one thing above, the money does keep getting allocated.

Why on earth would they waste time voting for a budget that has no chance of passing thanks to Republicans?

And what part of “Obama doesn’t pass the budget” do you not understand? I thought you took civics class. If you’d like to see Obama’s budget proposal, Google it. It took me 2 seconds to find.

@Qingu You are very good at twisting words and saying nothing.

Where did I say Obama passes a budget?
Why do you think Obama puts out a proposal?

You can try and attack me if you like it just shows what kind of person you are.

P.S. I would expect those great Democrats to vote yes on an Obama proposal if it was any good just so they could argue they want to do the right thing. Instead they all voted NO and you think it was because the Republicans wouldn’t vote yes?

Really? That is laughable.

If you understand that the president does not pass a budget, why are you criticizing Obama for not passing a budget?

As for why they wouldn’t vote yes, Democrats tend to be pragmatic. I appreciate that they aren’t wasting time, as my representatives. Though I guess you prefer your representatives to spend countless hours making speeches and voting for ideological bills and amendments that they know perfectly well have no chance of passing, as Republicans seem to love doing. Different strokes for different folks, I guess.

I’ll explain slowly. What I am criticizing Obama for is running a campaign on going through the budget line by line to eliminate waste and fraud so he can propose a budget that is balanced and reduces the deficit. He has done none of that that I can see.

His budget proposal was a joke that not even ONE democrat in the house could support and you claim that was because they are pragmatic?

Thanks for playing. I’ll ignore posts from you from now on and you can ignore mine. We are definitely from different planets.

A politician pragmatic…now that is funny! Thanks for the laughs!!

I would like to see the capital gains tax repealed for at least a couple years and add a small transaction tax to trades to discourage short term trades. Further I would like to see the additional money to stimulate the economy come from the government in the form of a “Buy American” law. In fact I would like to see NAFTA and all of the free trade acts abolished in favor of reasonable tariffs. We must also remove all tax incentives for companies to bring in skilled foreign workers and for transferring labor jobs overseas.

We need to stop the bleeding and the anti-American policies of government and industry. While we’re at it we should abolish computerized voting machines. We can automate counting without compromising accountability. In my ideal world, everyone would vote, corporations would be committing an felony if they contribute to a candidate or PAC, and candidates would be committing a felony if they accept any of that money or support.

@missingbite, while you’re ignoring me, you might actually want to take my suggestion and google Obama’s budget. Here I’ll do it for you.

http://www.whitehouse.gov/omb/budget

Now if you were honestly interested in his budget proposals, presumably you would look them over and tell us all what you disagree with.

I look forward to your critiques, I’m sure they’ll be well-thought-out and substantive.

Here is a video on YouTube that says what I was trying to say, only much more successfully. The video created a bit of controversy, because it was not accepted by TED.

@LostInParadise I am a TED member. I wrote them about their decision to censor Nick Hanauer’s talk. I am going to trust that they will have no problem with my sharing the response, since it is basically posted on their site. Here it is:

“We appreciate your feedback on Nick Hanauer’s talk and welcome the conversation forming around it. We chose not to post the talk for several reasons. As TED curator Chris Anderson said on his just-published blog post on the topic, ‘Our policy is to post only talks that are truly special. And we try to steer clear of talks that are bound to descend into the same dismal partisan head-butting people can find every day elsewhere in the media.’ We appreciate your feedback on Nick Hanauer’s talk and welcome the conversation forming around it. We chose not to post the talk for several reasons. As TED curator Chris Anderson said on his just-published blog post on the topic, “Our policy is to post only talks that are truly special. And we try to steer clear of talks that are bound to descend into the same dismal partisan head-butting people can find every day elsewhere in the media.’ You can read his full response and view the video in question here:”
http://tedchris.posterous.com/131417405

“If you would like to check out some of TED’s content on income disparity, Richard Wilkinson’s TEDTalk “How income inequality harms societies” is a great place to start:” http://www.ted.com/talks/lang/en/richard_wilkinson.html

“He also gave an insightful interview for our TED Blog:” http://blog.ted.com/2011/10/24/how-economic-inequality-harms-societies-richard-wilkinson-on-ted-com/.

“And we have many more talks on income inequality, some of which are collected on the TED Blog here:” http://blog.ted.com/2012/05/17/playlist-the-roots-and-effects-of-income-equality/

@ETpro , Thanks for the links. I just looked at Wilinson’s talk. What is particularly interesting is that income inequality also hurts the wealthy.

@LostInParadise Not that they care that they are cutting their own throat in the long run. People who know about economics all say that the policies that Republicans generally favor are harmful… so of course they do the harmful, uneducated thing and seek to take the problems we have now and give them steroids.

If we’re discussing economics we don’t have a government guarantee for the FOR WHOM question on who gets a slice of the economic pie. According to economist Brian Ross (2013), when the government starts reslicing the economic pie, politics may overwhelm charity. Only a small fraction of all income transfers in the United States goes to poor people. Rich people get more Social Security and Medicare benefits than poor people get in their welfare benefits. And “corporate welfare” (tax breaks and subsidies) far outstrip poor people’s welfare as well. As a consequence, the FOR WHOM question generated by government intervention isn’t always more equitable that that of the marketplace. If we look at this problem from an economic perspective, it’s about supply and demand. Businesses must make their product (goods) more attractive to drive the demand side of the transaction. If we’re talking about taxes, small business do get taxed as personal income, whereas corporations can find all the breaks through marginal tax rates. I agree with the President’s plan to tax the top 1% who make use of the marginal tax. Before anyone starts arguing the economic distribution of the WHOM gets what question, this information was directly taken from my MPA degree course’s class BUS 599: Intro to Quantitative Principles: Accounting, Finance & Economics.