The top one tenth of one percent of taxpayers number 140,000 and earn at least 1.5 million and these are the so called millionaires and billionaires that Obama is talking about. Obama’s latest payroll tax plan is back to the 2% reduction we had this year and will cost 185 billion. If we want those rich people to pay for this it will cost each of them 1.3 million.
I still work part time and I earn $15,000 per year so this will save me 2% or $300. While I am happy to get an additional 300 bucks, I am not that enthused about asking some rich guy to pitch in 1.3 million to cover this.
Monday, January 16, 2012
Borrow and Spend
There is a lot of talk in the news today asking how we got to where we are and I believe that I have a very good perspective on the answer. I was born in 1937 which puts me 10 years younger than the great generation who lived through the great depression and who fought and won WW11 and ten years older than the baby boomers who were born between 1946 and 1964. I see those who came before me as people who would save and invest and those who came after borrow and spend.
The concept of borrow and spend has remained with us and was magnified at the end of the cold war when the Berlin Wall fell in 1989. As President Clinton came into office in the 90’s the price of oil was falling, the price of houses rising, the dot com bubble was growing and every mail box was filled with new credit cards. As people saw their 401K plans growing and the houses increasing in value they took advantage of the easy use of multiple credit cards and went on a spending binge financed by the growing equity in their homes. This went on for almost 20 years and then came the day of reckoning and the raw reality of the hangover at the end of an all-night party.
The young folks who followed the baby boomers, the so called Gen Xers, expected to continue the life style of their parents and did so up until the big mortgage crisis hit and now they are in economic retreat. The days of starter castles are behind. No more imported marble counter tops and it is back to the basics starting with paying down debt. It may take a few years but most will come out of this a little wiser
The concept of borrow and spend has remained with us and was magnified at the end of the cold war when the Berlin Wall fell in 1989. As President Clinton came into office in the 90’s the price of oil was falling, the price of houses rising, the dot com bubble was growing and every mail box was filled with new credit cards. As people saw their 401K plans growing and the houses increasing in value they took advantage of the easy use of multiple credit cards and went on a spending binge financed by the growing equity in their homes. This went on for almost 20 years and then came the day of reckoning and the raw reality of the hangover at the end of an all-night party.
The young folks who followed the baby boomers, the so called Gen Xers, expected to continue the life style of their parents and did so up until the big mortgage crisis hit and now they are in economic retreat. The days of starter castles are behind. No more imported marble counter tops and it is back to the basics starting with paying down debt. It may take a few years but most will come out of this a little wiser
corruption
Here is another example of how corruption is open for all to see.
Franklin Raines was born into a working class family and through hard work and scholarships graduated from Harvard Law School and went on as a Rhodes Scholar.
Starting in 1969 he started working behind the scenes for various political figures from both parties. In between his government jobs he worked for the law firm of Lazard Freres which is a subsidiary of the world wide investment banking firm of Lazard LTD.
In 1991 he became vice chairman of Fannie Mae and left that post to become Director of Office of Management and Budget in the Clinton Administration where he worked for two years and then became director of Fannie Mae in 1999.
Up to this point it is an admirable career of the little guy makes good.
Recall it was during the Clinton years where the call went out to encourage more people to reach the American dream of home ownership. Clinton told his manager of HUD to use “creative financing” to increase home ownership and thus sent us down the path of no down payment, no documentation, interest only, negative amortization loans which culminated in today’s mess where millions of people who should never had a home loan and now losing their homes.
The large increase in home loans thus created by these new programs allowed Fannie Mae, the largest home finance company, to grow at a rapid rate. As they grew the payment for the Director, Mr. Raines grew proportionally.
While these bonuses meant millions for Mr. Raines it was apparently not enough so he adjusted the books to move money from one year to the next to increase the bonus many times over and for this maneuver he received $90 million in bonus money by overstating earnings by 6.3 billion dollars.
Civil charges were filed against Raines and he had to pay a fine of 3 million which by the way was paid by the Fannie Mae insurance company, plus donate 1.3 million in stock and give up another 5 million in benefits.
Here is a follow up posted in April of 2008.
WASHINGTON — Former Fannie Mae chief Franklin Raines and two other top executives have agreed to a $31.4 million settlement with the government announced today over their roles in a 2004 accounting scandal.
Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.
Raines, a Seattle native and prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million,
If you do the math you see he came out about 60 million ahead and no criminal charges were ever filed.
As you watch the news each day and see the number of poor working stiffs who are losing their home you can comfort yourself with the knowledge that Mr. Raines is living on easy street.
Franklin Raines was born into a working class family and through hard work and scholarships graduated from Harvard Law School and went on as a Rhodes Scholar.
Starting in 1969 he started working behind the scenes for various political figures from both parties. In between his government jobs he worked for the law firm of Lazard Freres which is a subsidiary of the world wide investment banking firm of Lazard LTD.
In 1991 he became vice chairman of Fannie Mae and left that post to become Director of Office of Management and Budget in the Clinton Administration where he worked for two years and then became director of Fannie Mae in 1999.
Up to this point it is an admirable career of the little guy makes good.
Recall it was during the Clinton years where the call went out to encourage more people to reach the American dream of home ownership. Clinton told his manager of HUD to use “creative financing” to increase home ownership and thus sent us down the path of no down payment, no documentation, interest only, negative amortization loans which culminated in today’s mess where millions of people who should never had a home loan and now losing their homes.
The large increase in home loans thus created by these new programs allowed Fannie Mae, the largest home finance company, to grow at a rapid rate. As they grew the payment for the Director, Mr. Raines grew proportionally.
While these bonuses meant millions for Mr. Raines it was apparently not enough so he adjusted the books to move money from one year to the next to increase the bonus many times over and for this maneuver he received $90 million in bonus money by overstating earnings by 6.3 billion dollars.
Civil charges were filed against Raines and he had to pay a fine of 3 million which by the way was paid by the Fannie Mae insurance company, plus donate 1.3 million in stock and give up another 5 million in benefits.
Here is a follow up posted in April of 2008.
WASHINGTON — Former Fannie Mae chief Franklin Raines and two other top executives have agreed to a $31.4 million settlement with the government announced today over their roles in a 2004 accounting scandal.
Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.
Raines, a Seattle native and prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million,
If you do the math you see he came out about 60 million ahead and no criminal charges were ever filed.
As you watch the news each day and see the number of poor working stiffs who are losing their home you can comfort yourself with the knowledge that Mr. Raines is living on easy street.
Hard times
Yesterday a friend was bemoaning the fact that the world is moving too fast and I was reminded of my father who was born in 1900 before autos and died in 1969 after man had walked on the moon. Upon further reflection I realized that the differences between my wife and my daughter were even a better example of how things change.
My wife was raised on a farm in North Dakota, one of 16 children. She was born in 1932 at the start of the Great Depression. They had no running water, no indoor plumbing and no electricity. The wood fired cook stove in the kitchen helped to keep the place warm. On Saturday nights they would bring in a large galvanized tub and heat water on the cook stove and everyone would take their weekly bath to get ready for church the next day. The girls went first and then the boys. This was to keep the water fairly clean for a while since the boys worked in the fields. Everyone had chores and my wife milked 18 cows every morning before school.
For school they hitched the horse to the sleigh and traveled over the snow banks on the two mile journey into town. There was a stove in the wagon and they gathered around that to warm their hands. Her clothes were homemade hand-me-downs.
At birthdays there were no presents but mom always made a cake and this was shared with family members and there were no leftovers. Birthdays were not a time of getting things but a time to share the one gift with others. Christmas was not a time of gifting but of visiting with neighbors and going to church.
Winters were especially difficult when simple things like going to the bathroom required hanging onto a rope stretched from the house to the outhouse so you wouldn’t get lost in the storms that made it difficult to see your hand in front of your face. With ten girls they had one large bedroom that was wall to wall beds and they slept two or more in a bed depending on the size of the kid.
Now fast forward one generation to my daughter who lived in a house with all the modern conveniences. She told me that it was in Junior High that she discovered that not every kid had a room of their own. Birthdays were a dozen friends all bringing gifts plus what mom and dad provided. A party with cake and ice cream, hats and decorations. Christmas was almost sinful with presents all over the living room and kids opening them and tossing them aside to get to the next gift. Her clothes were store bought and new and a clean bath every morning was the norm.
I do not begrudge my daughter’s life style as I was delighted that we were able to provide things but I just want to point out the difference that one generation can make.
My wife was raised on a farm in North Dakota, one of 16 children. She was born in 1932 at the start of the Great Depression. They had no running water, no indoor plumbing and no electricity. The wood fired cook stove in the kitchen helped to keep the place warm. On Saturday nights they would bring in a large galvanized tub and heat water on the cook stove and everyone would take their weekly bath to get ready for church the next day. The girls went first and then the boys. This was to keep the water fairly clean for a while since the boys worked in the fields. Everyone had chores and my wife milked 18 cows every morning before school.
For school they hitched the horse to the sleigh and traveled over the snow banks on the two mile journey into town. There was a stove in the wagon and they gathered around that to warm their hands. Her clothes were homemade hand-me-downs.
At birthdays there were no presents but mom always made a cake and this was shared with family members and there were no leftovers. Birthdays were not a time of getting things but a time to share the one gift with others. Christmas was not a time of gifting but of visiting with neighbors and going to church.
Winters were especially difficult when simple things like going to the bathroom required hanging onto a rope stretched from the house to the outhouse so you wouldn’t get lost in the storms that made it difficult to see your hand in front of your face. With ten girls they had one large bedroom that was wall to wall beds and they slept two or more in a bed depending on the size of the kid.
Now fast forward one generation to my daughter who lived in a house with all the modern conveniences. She told me that it was in Junior High that she discovered that not every kid had a room of their own. Birthdays were a dozen friends all bringing gifts plus what mom and dad provided. A party with cake and ice cream, hats and decorations. Christmas was almost sinful with presents all over the living room and kids opening them and tossing them aside to get to the next gift. Her clothes were store bought and new and a clean bath every morning was the norm.
I do not begrudge my daughter’s life style as I was delighted that we were able to provide things but I just want to point out the difference that one generation can make.
early retirement
Statistics tell us that middle class wages have been stagnant over the past 30 plus years and there are a number of reasons for this, one being the tendency of public sector workers to accept lower pay for increased benefits, mostly in the area of retirement and health care. Since I spent many years calculating retirement benefits for people. I use this as example to illustrate the point. Most public employees are unionized and have defined benefit pension plans. These are plans that guarantee a pension based on years of service. Typically they will pay a man 1.5% of his final salary for each year he worked. If he retired with 30 years of service he would receive 45% of his final pay. Here is an example of how it works. A man starts working for the company at age 32 and retires at age 62. First calculate his net pay before retirement.
$40,000 gross -11,400 standard deduction - 7,400 personal exemptions(2) $21,200 taxable income $2,330 federal tax plus $700 state tax plus $3,060 payroll tax $33,910 net pay assuming no deductions for health care or pension
Retire with 45% of pay or $18,000 plus $15,000 social security or $33,000. There is no income tax or payroll tax for this retiree.
I have visited with many people who did not plan to retire at 62 but when I pointed out they would be working for free they changed their minds. In reality most of the people I worked with who were union employees have more net income after retirement than when they were working. Since most of these people accepted benefits in lieu of salary it is particularly difficult for them to now see cities, counties and states who cannot afford to keep the promises that were made to these retirees.
$40,000 gross -11,400 standard deduction - 7,400 personal exemptions(2) $21,200 taxable income $2,330 federal tax plus $700 state tax plus $3,060 payroll tax $33,910 net pay assuming no deductions for health care or pension
Retire with 45% of pay or $18,000 plus $15,000 social security or $33,000. There is no income tax or payroll tax for this retiree.
I have visited with many people who did not plan to retire at 62 but when I pointed out they would be working for free they changed their minds. In reality most of the people I worked with who were union employees have more net income after retirement than when they were working. Since most of these people accepted benefits in lieu of salary it is particularly difficult for them to now see cities, counties and states who cannot afford to keep the promises that were made to these retirees.
Bush tax cuts
If the Bush tax cuts are allowed to expire, it will mean 3.3 trillion in revenue over the next ten years. If only the tax cuts for those over $200,000 expire this will mean an additional 1.1 trillion over ten years or 110 billion per year. The Obama plan to cut payroll taxes by 3.1% would cost 240 billion. The cost of extending unemployment benefits would be 45 billion.
Spending would include 10 billion for infrastructure and 190 billion for aid to states to prevent layoffs of public employees.
This totals 110 billion of increased revenue from increasing taxes on those over $200,000 and 485 billion in spending which will increase the deficit by the difference or 375 billion.
This is a way to take money from those earning more than $200,000 per year and give it to states that have deficits. They will then use the money to retain public employees who might otherwise be laid off. Some feel this is just a way to reward states for bad fiscal policy and to get votes from public employees.
Spending would include 10 billion for infrastructure and 190 billion for aid to states to prevent layoffs of public employees.
This totals 110 billion of increased revenue from increasing taxes on those over $200,000 and 485 billion in spending which will increase the deficit by the difference or 375 billion.
This is a way to take money from those earning more than $200,000 per year and give it to states that have deficits. They will then use the money to retain public employees who might otherwise be laid off. Some feel this is just a way to reward states for bad fiscal policy and to get votes from public employees.
rationing
I have always maintained that the only way to save Medicare is to ration benefits. We have been doing this right along but without bringing it to the attention of the general public. Donald Berwick was appointed by Obama as head of the Center for Medical Services and he praised the British health care system and said the only way to maintain it was through income redistribution. He concluded that rationing had been going on under the radar but it must be made public.
Forgetting all of the treatments that are adjusted for Medicare patients and concentrating on the finances, it is well known that for every dollar the hospital spends on Medicare patients the government only reimburses them 85 cents. What this does is skew the cost away from Medicare and onto the private system since hospitals make up this 15% by charging private patients more.
Obama care impacts Medicare by limiting the growth of Medicare and by committee cutting fees to doctors and hospitals if the growth exceeds a given amount. So while treatment cannot be cut directly it can be adversely effected by availability of doctors care and hospital cost.
Obama care creates no new doctors but allows seniors to have free physicals and other preventive benefits and this puts more pressure on doctors, many of who will decline to accept Medicare patients. When doctors are paid more to quickly see a 30-year-old with a sore throat or do a wellness checkup than to see a 75-year-old with 25 complex medical problems who needs help to get on an exam table, Medicare patients may be crowded out.
With the demise of the super committee there lies looming ahead a 27% cut in doctor’s fees unless congress acts
What all this means is that we are heading for rationing which is the only possible way to reduce cost. It is just not politically smart to describe this rationing as death panels but the fact remains that rationing is inevitable.
Forgetting all of the treatments that are adjusted for Medicare patients and concentrating on the finances, it is well known that for every dollar the hospital spends on Medicare patients the government only reimburses them 85 cents. What this does is skew the cost away from Medicare and onto the private system since hospitals make up this 15% by charging private patients more.
Obama care impacts Medicare by limiting the growth of Medicare and by committee cutting fees to doctors and hospitals if the growth exceeds a given amount. So while treatment cannot be cut directly it can be adversely effected by availability of doctors care and hospital cost.
Obama care creates no new doctors but allows seniors to have free physicals and other preventive benefits and this puts more pressure on doctors, many of who will decline to accept Medicare patients. When doctors are paid more to quickly see a 30-year-old with a sore throat or do a wellness checkup than to see a 75-year-old with 25 complex medical problems who needs help to get on an exam table, Medicare patients may be crowded out.
With the demise of the super committee there lies looming ahead a 27% cut in doctor’s fees unless congress acts
What all this means is that we are heading for rationing which is the only possible way to reduce cost. It is just not politically smart to describe this rationing as death panels but the fact remains that rationing is inevitable.
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