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Saturday, September 24, 2011

As The World Turns

The speculative bubble in silver that I recently wrote about has apparently burst.

Meanwhile it's no surprise that President Obama's proposal for new economic stimulus are getting little traction in an oppositional Congress. Whether it will serve Democrats well as a platform for election in 2012, time will tell. I am heartened that he did propose cutting some expenditures, a courageous step in this environment. 

To those who see no problem with continuing to run huge deficits, I offer this graph.

As a percentage of gross domestic product, our federal debt is now twice what it was at the end of the Roosevelt stimulus programs. We are on our way to a level of debt not matched since the peak of World War II, when the future direction of civilization was in doubt. Even so, in the 1940s most of the creditors of the U.S. government were U.S. citizens; we owed the money to one another. Today a significant (and growing) portion of our debt is being funded externally, e.g. by the Chinese. That's a practical, not xenophobic, concern.

On the subject of Obama's proposed alternative minimum tax: we have had an AMT since 1969. Yes, it was adopted under President Richard Nixon, a Republican. I have no disagreement with an AMT applied to ordinary income, although I would hope that the new AMT is simpler to calculate than the existing one. However, applying a new AMT to capital gains income is worrisome. 

People like Warren Buffet derive most of their wealth from capital gains which generally are the consequence of profit that has already been taxed (or should be) at the corporate level; that's one of the reasons why we tax capital gains at lower rates than ordinary income.

What would make more sense than applying AMT to capital gains is a simplified corporate tax structure with no loopholes and a lower marginal tax rate, with an overall increase in the take from corporations. We should add a requirement that companies with excess cash on hand, such as Apple, disburse the excess gradually to shareholders in the form of dividends that are taxable.

The U.S. presently has one of the highest corporate tax rates in the world -- which naturally drives corporations to Congress in search of special treatment. It also drives corporations into overseas jurisdictions, with a loss of American jobs. Both of those behaviors are unhelpful in the current climate. Therefore I'm disappointed that President Obama appears unwilling to tackle corporate tax reform. To that extent, my friends who decry the impact of corporations on the contemporary political scene are on target.