Category Archives: Economics

Economics, Politics

Just Compensating

Daniel Gross, at Slate, wrote a Moneybox commentary on Wall Street bonuses. He makes a point in it that I did not realize:

At most companies, bonuses are paid out of profits. No end-of-year profits, no bonuses. But on the island nation of Wall Street, they’re paid out of revenues.

Bonuses out of revenues, what sort of nonsense is that? No wonder they can pull down ridiculously obscene compensation. Let’s see – we are doing a 10 billion dollar refinancing, we want 10% to do it and 50% of that will go into the bonus pool. The other 50% will go to pay for the office building, the corporate jets,  the million dollar salaries; your basic operating expenses. Anything left over would be profit. How do they get away with it?

Since the 1980s, notes Brad Hintz, an analyst at Sanford C. Bernstein, it’s been the standard for half of revenues to be devoted to compensation. So long as these outfits were private partnerships, that practice didn’t really matter to the rest of us. But since the 1990s, when investment banks went public, compensation has evolved into a zero-sum game between employees and shareholders. Guess who lost?

Any compensation in excess of the annual presidential salary is not deductible from corporate ledgers and the corporation must pay corporate taxes on excessive compensation.

Economics, Politics, Preparing for the worst

Can we start here?

I keep hearing about people trying to shout down health care discussions- and most of the shouters don’t appear to understand what they are talking about. Can we start with this article by Paul Krugman and work from there?

A friend sent me  a link to HR3200 (all 1017 pages) and to a short 35 page summary of the bill (more of a short explanation of each section). Or is it fair to get into a complicated discussion with an informed base?

I don’t see anything on ‘death panels’ in the bill, but maybe I don’t know the right codewords to read it correctly – could:

A BILL To provide affordable, quality health care for all Americans and reduce the growth in health care spending, and for other purposes.

be the sinister code words we are looking for? What are those ‘other purposes’? Oh, they appear to be revising the tax code, providing credits for small businesses, and improving Medicare and Medicaid.

I think I found the sinister part that  is so disturbing the American Citizenry :

The bill would prevent foreign multinational corporations incorporated in tax haven countries from avoiding tax on income earned in the United States by routing their income through structures in which a United States subsidiary of the foreign multinational corporation makes a deductible payment to a country with which the United States has a tax treaty before ultimately repatriating these earning in the tax haven country. (from section 451 of the explanation)

Yes, this is decidedly sinister.

Economics, Politics

U.S. Is Said to Agree to Raise Stake in Citigroup

News Alert: U.S. Is Said to Agree to Raise Stake in Citigroup From the NYT.

Why? Why? Why?

Why can’t we just let these ‘big’ banks die? Are the Treasury officials afraid that their friends won’t talk to them any more if their friends lose their shirts and pants and West Side condos? There are a lot of fiscally sound banks out there that can pick up the credit load and remove the credit crunch problem, especially with several hundred billions of support from the Fed. Problem is that they are more ‘Main Street’ banks than ‘Wall Street’ banks.

Providing Citigroup with an additional influx of cash won’t help the credit crunch. All they are going to do is pay off their losses which won’t leave enough for lending to anyone.

Let Them Die!

Economics, Politics

Capital Gains

Capital Gains Tax.

I would like to see the Capital Gains Tax, as applied to stocks and bonds, modified a bit. Specifically, I would like to address investment profits derived from securities subject to regulation/control by the SEC.

If you invest in a stock/bond/security and later sell it for a profit you pay a tax on the difference between your purchase price and your selling price – your Capital Gain. In and of itself, that’s fine. But, if you are selling one stock in order to buy or invest in another stock, you pay the Capital Gain tax on your profit and only have the remainder to invest in the new stock. You haven’t taken the profits and used them in the non-security world and you have less to invest in a new security. I would like to remove the Capital Gains Tax on security sales where the proceeds are directly applied to the purchase of another security. You are only taxed on the proceeds you take out of the security marketplace.

I think this would encourage, indeed stimulate, investment in new potential industries and encourage people to move their investments around. I find it sometimes isn’t worth contemplating moving investment money around when you know you will be paying a 15% – 20% – 30% tax on the proceeds. So it sits, slowly not growing. I may take other money and invest it in the new industry I think will be growing but the older money stays where it is, stuck until it is needed. The newer industry doesn’t get the boost it might with more capital investment and then good things don’t happen.

Economics

Money, Money Money…

I don’t like where some economic advisers are wanting to take us.

Why don’t we, the people, take this TARP bailout money and start our own bank(s) to provide the short-term credit for corporate entities – this appears to be where the credit logjam is occurring – and let the current financial institutions die? This will provide the capital needed for the economy to run for the near-term and if the new bank(s) is set up right it may be able to address the long-term funding growing corporations need.

We might even be able to get into some consumer credit business as well, but why not leave that to the banks and credit unions that didn’t run themselves into the ground. Once all the current banks that have dug this economic sinkhole  have buried themselves, we can sell our young vibrant bank(s) to investors and recoup our investment.

We don’t need to nationalize the existing banks and get stuck with their toxic wastes. We can start anew and try to do it right.I’m not sure that this approach will help any for the mortgage market, but realistically, people with no income and with a $500K mortgage should default and give the house back to the bank that financed them.

As the commenters in the linked article note, don’t give any money to the folks who created the crisis. Don’t reward bad behaviour.

Economics

Further ado

2007 Mean Household income is $67,609
total of 116,783,000 households
aggregate US income in 2007 – $7,895,581,847,000 –
Let’s call it $7.9T – Total 2007 US income.

The Median Household income is $50,233 which means that 58 million households are making less than $50K and 58 Million households are making more than $50K. And the Mean, or Average, household income is $67K. Something doesn’t seem quite right here… But I didn’t start this to talk about income inequality.

A few days ago I mentioned that the 2007 health care expenditures in the US were $2.2 Trillion and the per capita cost of that comes to ~$7K per person. And I thought that was a doable cost to support. How can it be done?*

If we go to some sort of National HMO plan that covers the full range of health care that $2.2T covered, then we can drop about 20% of the costs right off the top to get rid of the administrative overhead and all those redundant file clerks at every office, leaving us with about $1.8T to manage. I think about $0.5T of the expenses is for Medicare but I want to roll the Medicare expenses into my plan so I will leave them there.

I like the way SSA does it, and Medicare, with the Employee paying 50% and the Employer paying 50%, so the Employees need to cover $0.9T to cover their part of the HMO insurance.  $0.9T/$7.9T = 11.4%.

The Employers get out of the health care management business altogether, saving themselves a lot of aggravation and expense,  and will end up with a presumably healthier, more productive workforce.

So along with the 6.2% FICA, and an additional 11.4% payroll tax to cover the medical  everyone will be paying a 17.6% payroll tax. But unlike FICA/SSA, the medical/HMO can be used immediately. Should be used immediately. If people started getting routine medical maintenance when they are young, and using neighborhood clinics instead of emergency rooms for minor ailments, the long-term medical costs would drop a bit right there.

A 17.6% payroll tax is a bit steep if you have to worry about other taxes on top of that, but that medical coverage could pay for itself overnight if you don’t have the coverage today. I would further propose to get rid of all the deductions and other bits that make tax season so much fun and give a straight single deductible of $50,233. You only pay income taxes on your income greater than the median family income. 

*Must remember to start with First Principles:

We the people of the United States, in order to form a more perfect union, establish

justice, insure domestic tranquility, provide for the common defense, promote

the general welfare, and secure the blessings of liberty to ourselves and our

posterity, do ordain and establish this Constitution for the United States

of America.


I think this comes under the promote general welfare principle, so we can proceed.

Economics, Politics

Planning ahead

Why don’t we set aside 5% per year of initial infrastructure project costs to use for maintenance. If you can’t fund the long-term maintenance then don’t do the project. I suspect a lot of municipal water systems could have used that philosophy a a long time ago.

Should we even consider flying anymore, given the state of the Air Traffic Controllers?