Will taxing the rich really fix the economy?
The rich are roundly blamed for the country's economic woes. But the problems the economy faces run deeper than tax code matters.
The rich are roundly blamed for the country's economic woes. But the problems the economy faces run deeper than tax code matters.
Gold down below $1,600! Is the bull market in gold finally over?
Nah鈥et鈥檚 change the subject.
Today, our hearts go out to the poor 1%鈥�
Yes, dear reader, they鈥檙e blamed for the crisis鈥�
They鈥檙e reviled, calumnied, and criticized鈥�
They鈥檙e hunted by the taxmen鈥�
And now they are being shunned by the very institutions they most wanted to get to know. Bloomberg:
Most offshore hedge funds will no longer take US clients. Overseas banks don鈥檛 want their money either.
Why? Because there are over 400 pages of new regulations in the FATCA legislation. Way too much for a sane person.
Everybody wants to tax the rich, investigate them, crucify them鈥�
But what did they do wrong?
In 1970, the top 10% of California鈥檚 taxpayers paid 28.2% of all the personal income tax in the state. Who complained? They were pulling their weight. Paying their fair share.
Now, 78% of all California鈥檚 personal income tax comes from these 鈥渞ich鈥� people.
But what, exactly, happened between 1970 and 2010 that shifted so much wealth and so much tax burden to the top earners? As you can see, it wasn鈥檛 just cutting their taxes 鈥� they鈥檙e paying more now than ever.
So what happened?
The whole system changed. Richard Nixon cut the dollar loose from gold. He may not have upset the world, but he changed the US economy. Instead of being an economy based on real money where real savings and real production increased real wages and profits, it became a smoke and mirrors economy鈥ith money that you couldn鈥檛 trust鈥DP growth that was largely phony鈥nd zero real growth in wages.
From the 鈥�70s to 2012, US stocks 鈥� measured by the Dow 鈥� rose more than 13 times. From under 1,000 to over 13,000. Here鈥檚 a question: how could America鈥檚 companies be so much more valuable鈥hen their customers hadn鈥檛 gotten a penny richer?
Follow the money. From 1970 to 2008, the US money supply (M-2) grew from $624 billion to $8.2 trillion. Guess how much that is. It鈥檚 1,314% 鈥� almost the same as the Dow.
鈥淭he only real force that ultimately makes the stock market or any market rise (and to a large extent, fall) over the longer term,鈥� writes analyst Kel Kelly, 鈥渋s simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets).鈥�
You鈥檒l recall, Dear Reader, that we are getting suspicious of GDP. As we said yesterday, it measures how fast the wheels are spinning; it doesn鈥檛 tell you if you are getting anywhere.
What happened over the last 30 years in the US? Money鈥unny money from the feds鈥as causing the wheels to spin faster and faster. But the economy got nowhere鈥�
鈥xcept deeper in debt.
Yes, the phony money caused people (many of them in Japan and China) to produce more stuff.
And, oh yes, it shifted money from the middle classes to the rich, by increasing the relative value of their investments 13 times鈥hile simultaneously holding real wages flat.
Ken Gerbino explains it in another way:
Now, the feds have the voters where they want them. Forty-six million on food stamps. And millions more dependent on federal handouts鈥� Most people can鈥檛 afford to oppose the government. They need it to eat. The Week reports:
The feds have the rich where they want them too. They鈥檙e now pariahs鈥ll over the world. Nobody wants them. Nobody likes them. Banks won鈥檛 touch their money.
Now, the feds can squeeze them for campaign contributions and tax money as hard as they want.
Regards,
Bill Bonner
听蹿辞谤 The Daily Reckoning