FRED
02-10-07, 03:35 PM
http://www.itulip.com/images/wealth.jpg
Wealth De-redistribution
Can Luxury Taxes Diffuse the Medicare Time Bomb?
By Jane Burns
February 10, 2007
Once I had a friend, let’s call him Hewitt, who came from money so old that a New York City park bore a family name of his mother. Hewitt had grown up in a lovely Upper Eastside apartment overlooking Central Park, attended the best schools and summered in exclusive coastal enclaves. Hewitt’s parents’ expenditures on the family’s well-being and pleasure were sizable, but essentially a matter of private consumption. In public, Hewitt’s parents were circumspect. They dressed plainly—Hewitt himself wore chinos with mended holes—and drove a Chevrolet so elderly it was likelier to inspire pity than envy. I thought Hewitt and his parents were classy and smart; they knew how to make use of their money and they kept it to themselves.
Thirty years later, I wonder what Old Money thinks when it reads in its house organ, The New York Times, about the latest extravagances in Greenwich mansions for hedge fund operators or gazes at the advertisements for jewels whose cost is many a U.S. family’s annual income. This, rather than the random coupling of genitals, is real pornography to me. I hope Old Money sees the folly in flaunting wealth while the U.S. savings rate in 2006 declined to negative 1 percent, according to the Commerce Department, meaning average Americans spent more than they earned last year. It was the lowest savings rate since a negative 1.5 percent in 1933 during the Great Depression.
According to financial writer Ben Stein, those who fail to save and invest by under-consuming their earnings risk a nightmarish old age. “When you’ve got no money, people can see right through you,” Stein writes with co-author Phil DeMuth in their 2005 book “Yes, You Can Still Retire Comfortably.” They continue: “Even the bus driver treats you with silent contempt. Being poor is like being radioactive.”
The point is made, although I think the authors do a disservice to bus drivers, who as working people likely understand a failure to save can result from a failure to earn that’s out of our control. “Working longer—at least in a job with comparable pay and benefits—is often not a choice for those who develop health problems or are laid off late in their careers,” according to the Economic Policy Institute.
If we haven’t had the experience ourselves yet, we’ve heard the stories. Recently, an old friend—a hard-working, frugal guy with whom I’d fallen out of touch—suddenly died in his late 50s. I couldn’t believe it when his ex-wife told me that for the last four years he’d literally been scavenging tin cans. “He was just a guy with a house and a car,” she said. At least he’d died happy, finally getting a promising position two months earlier.
When stories like that add up, they find their way into focus groups from which pollsters carry a message back to Washington: “Middle-class people want to be financially self-reliant, but it’s scary working without a net.”
On Jan. 31, congressional Democrats held multiple hearings on middle-class financial woes. Whether to cure middle-class economic angst or exploit it, Sen. Charles Schumer (D-NY), chairman of the Democratic Senatorial Campaign, has written a new book on the subject featuring Joe and Eileen Bailey, a fictional, politically independent couple from Long Island with three kids in public schools and growing money worries. And at the Brookings Institution, two former U.S. Treasury secretaries, Robert Rubin and Lawrence Summers, and former Federal Reserve Board of Governors vice chairman Alan Blinder, have signed on to the Hamilton Project, which “aims to rebuild the social safety net without interfering with international trade and the free market,” according to the Washington Post.
http://www.itulip.com/images/networth2.jpg
Chart shows the distribution of liquid net worth, IRAs and Keoghs, housing equity, and total net worth in the HRS. All values are in 1992 dollars. Liquid net worth is the sum of checking and saving accounts, bonds, stocks, and other assets, minus short-term debt. Total net worth is the sum of liquid net worth, IRAs and Keoghs, housing equity, other real estate, business equity, and vehicles. The number of observations is 5,292. Figures are weighted using survey weights.
What is the “social safety net”? Traditionally it’s been unemployment insurance, health care for the poor and, for seniors, Medicare and Social Security, these last two being all that stands between many and worse than the nightmare Stein and DeMuth describe. In Bush’s first term, when he was pushing Social Security privatization (a.k.a. The Financial Services Full Employment Act), I discussed it with a Washington attorney named Michael Gordon. In 1974, as an aide to Sen. Jacob Javits, a moderate Republican from New York, Gordon had been the chief architect of the Employee Retirement Income Security Act, ERISA, created to protect workers with defined benefit pension plans. (Yes, we are talking ancient history here.)
Gordon, who passed away three years ago, told me the cure for funding federal social safety nets was a dedicated 1 percent sales tax on luxury items, but Congress wouldn’t touch it. In 1990, Democrats, working out a deficit reduction deal with George H. Bush, had slapped a 10 percent tax on payment above certain levels for boats, cars, jewelry, furs, and private planes. Sales fell, spectacularly in yachts, and killed jobs. Most of those luxury taxes were repealed in 1993, followed by the one on cars in 1996.
Middle-class Americans may be worried today, but it’s hard to imagine a 1 percent luxury tax, much less 10 percent, passing Congress or even being proposed. Distrustful of government and its powers to tax, we live in a different time. It is hard to picture an undiminished Medicare, which is the financial time bomb, not Social Security. As more middle-class Americans add medical charges to their credit card balances and home foreclosures and personal bankruptcies mount among the indebted, it can only be hoped that those upon whom financial fortune has smiled will consume with class.
__________________________________________________
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For macro-economic and geopolitical currency ETF advisory services see Crooks on Currencies (http://www.isecureonline.com/reports/CRC/WCRCH100/)
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Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/forums/../GeneralDisclaimer.htm)
Wealth De-redistribution
Can Luxury Taxes Diffuse the Medicare Time Bomb?
By Jane Burns
February 10, 2007
Once I had a friend, let’s call him Hewitt, who came from money so old that a New York City park bore a family name of his mother. Hewitt had grown up in a lovely Upper Eastside apartment overlooking Central Park, attended the best schools and summered in exclusive coastal enclaves. Hewitt’s parents’ expenditures on the family’s well-being and pleasure were sizable, but essentially a matter of private consumption. In public, Hewitt’s parents were circumspect. They dressed plainly—Hewitt himself wore chinos with mended holes—and drove a Chevrolet so elderly it was likelier to inspire pity than envy. I thought Hewitt and his parents were classy and smart; they knew how to make use of their money and they kept it to themselves.
Thirty years later, I wonder what Old Money thinks when it reads in its house organ, The New York Times, about the latest extravagances in Greenwich mansions for hedge fund operators or gazes at the advertisements for jewels whose cost is many a U.S. family’s annual income. This, rather than the random coupling of genitals, is real pornography to me. I hope Old Money sees the folly in flaunting wealth while the U.S. savings rate in 2006 declined to negative 1 percent, according to the Commerce Department, meaning average Americans spent more than they earned last year. It was the lowest savings rate since a negative 1.5 percent in 1933 during the Great Depression.
According to financial writer Ben Stein, those who fail to save and invest by under-consuming their earnings risk a nightmarish old age. “When you’ve got no money, people can see right through you,” Stein writes with co-author Phil DeMuth in their 2005 book “Yes, You Can Still Retire Comfortably.” They continue: “Even the bus driver treats you with silent contempt. Being poor is like being radioactive.”
The point is made, although I think the authors do a disservice to bus drivers, who as working people likely understand a failure to save can result from a failure to earn that’s out of our control. “Working longer—at least in a job with comparable pay and benefits—is often not a choice for those who develop health problems or are laid off late in their careers,” according to the Economic Policy Institute.
If we haven’t had the experience ourselves yet, we’ve heard the stories. Recently, an old friend—a hard-working, frugal guy with whom I’d fallen out of touch—suddenly died in his late 50s. I couldn’t believe it when his ex-wife told me that for the last four years he’d literally been scavenging tin cans. “He was just a guy with a house and a car,” she said. At least he’d died happy, finally getting a promising position two months earlier.
When stories like that add up, they find their way into focus groups from which pollsters carry a message back to Washington: “Middle-class people want to be financially self-reliant, but it’s scary working without a net.”
On Jan. 31, congressional Democrats held multiple hearings on middle-class financial woes. Whether to cure middle-class economic angst or exploit it, Sen. Charles Schumer (D-NY), chairman of the Democratic Senatorial Campaign, has written a new book on the subject featuring Joe and Eileen Bailey, a fictional, politically independent couple from Long Island with three kids in public schools and growing money worries. And at the Brookings Institution, two former U.S. Treasury secretaries, Robert Rubin and Lawrence Summers, and former Federal Reserve Board of Governors vice chairman Alan Blinder, have signed on to the Hamilton Project, which “aims to rebuild the social safety net without interfering with international trade and the free market,” according to the Washington Post.
http://www.itulip.com/images/networth2.jpg
Chart shows the distribution of liquid net worth, IRAs and Keoghs, housing equity, and total net worth in the HRS. All values are in 1992 dollars. Liquid net worth is the sum of checking and saving accounts, bonds, stocks, and other assets, minus short-term debt. Total net worth is the sum of liquid net worth, IRAs and Keoghs, housing equity, other real estate, business equity, and vehicles. The number of observations is 5,292. Figures are weighted using survey weights.
What is the “social safety net”? Traditionally it’s been unemployment insurance, health care for the poor and, for seniors, Medicare and Social Security, these last two being all that stands between many and worse than the nightmare Stein and DeMuth describe. In Bush’s first term, when he was pushing Social Security privatization (a.k.a. The Financial Services Full Employment Act), I discussed it with a Washington attorney named Michael Gordon. In 1974, as an aide to Sen. Jacob Javits, a moderate Republican from New York, Gordon had been the chief architect of the Employee Retirement Income Security Act, ERISA, created to protect workers with defined benefit pension plans. (Yes, we are talking ancient history here.)
Gordon, who passed away three years ago, told me the cure for funding federal social safety nets was a dedicated 1 percent sales tax on luxury items, but Congress wouldn’t touch it. In 1990, Democrats, working out a deficit reduction deal with George H. Bush, had slapped a 10 percent tax on payment above certain levels for boats, cars, jewelry, furs, and private planes. Sales fell, spectacularly in yachts, and killed jobs. Most of those luxury taxes were repealed in 1993, followed by the one on cars in 1996.
Middle-class Americans may be worried today, but it’s hard to imagine a 1 percent luxury tax, much less 10 percent, passing Congress or even being proposed. Distrustful of government and its powers to tax, we live in a different time. It is hard to picture an undiminished Medicare, which is the financial time bomb, not Social Security. As more middle-class Americans add medical charges to their credit card balances and home foreclosures and personal bankruptcies mount among the indebted, it can only be hoped that those upon whom financial fortune has smiled will consume with class.
__________________________________________________
Special iTulip discounted subscription and pay services flogged here:
For a book that explains iTulip concepts in simple terms americasbubbleeconomy
For a macro-economic and geopolitical View from Europe see Europe LEAP/2020 (http://www.itulip.com/forums/showthread.php?t=728)
For macro-economic and geopolitical currency ETF advisory services see Crooks on Currencies (http://www.isecureonline.com/reports/CRC/WCRCH100/)
For the safest, lowest cost way to buy and trade gold, see The Bullionvault (http://www.bullionvault.com/from/itulip)
To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)
Copyright © iTulip, Inc. 1998 - 2007 All Rights Reserved
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/forums/../GeneralDisclaimer.htm)