Interest on Federal Debt Topped $454 Billion in Fiscal 2011

So says the US Department of the Treasury here.

With fiscal 2011 receipts running at $2.3 trillion according to Treasury here, interest payments now represent 20 percent of federal revenues. Since we're spending $1.5 trillion more than we presently took in, you could say that almost a third of this deficit spending is interest payments.

Total US government debt is running at approximately $15 trillion, so an interest payment of $450 billion per fiscal year implies an interest rate of about 3 percent.

Double that interest rate to 6 percent and interest payments balloon to $900 billion and 40 percent of current revenues.

Mark Steyn recently had some unhappy, pornographic thoughts about that, here:

R.I.P.

[W]ere interest rates to return to their 1990-2010 average (5.7%), debt service alone would consume about 40% of federal revenues by mid-decade. That's not paying down the debt, but just staying current on the interest payments.

And yet, when it comes to spending and stimulus and entitlements and agencies and regulations and bureaucrats, "more more more/how do you like it?" remains the way to bet. Will a Republican president make a difference to this grim trajectory? I would doubt it. Unless the public conversation shifts significantly, neither President Romney nor President Insert-Name-Of-This-Week's-UnRomney-Here will have a mandate for the measures necessary to save the republic.








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The 2010s Will Be Grim, a Depression of Spectacular Severity

So says Martin Hutchinson (who blames the Federal Reserve for the Great Depression) for the Asia Times:

[T]he 2010s will be a grim decade, because the transitional and wealth effects of eliminating the government debt markets that have formed the centerpiece of the last three centuries will be enormous - a Reinhart/Rogoff depression of spectacular severity.

Bond market investors, take note.

Read the rest here.

Things You Do When Democrats Get Elected President

Lyndon Johnson: Keep an eye on your shoes.

Jimmy Carter: Change your religion.

Bill Clinton: Buy a pistol.

Barack Obama: Upgrade to Life Member in the NRA.

Remembering the $Trillions Withdrawn from the Housing ATM

Boy, don't we wish we had those back today.

Consider The Washington Post, May 30, 2007, here:

According to Fed data, homeowners' equity -- the value of their homes minus mortgage debt -- grew to nearly $11 trillion at the end of [2006], or double the value at the end of 1998. ...

[T]he housing boom ... fueled spending directly by turning homes into cash machines. As prices rose and interest rates fell, Americans extracted trillions of dollars in extra cash through home sales, mortgage refinancings and home equity loans.

Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005 -- more than triple the rate in the previous decade -- according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. That's the "free cash," as the authors call it, left over after closing costs and other fees deducted from equity withdrawals.

Most of the money extracted during those boom years, nearly two-thirds, came from home sales, the authors found. Another 21 percent came from home equity lines of credit, while 15 percent came from mortgage refinancings.

About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.

Translated into dollars, a trillion dollars a year for five years over 2001 through 2005 is $5 trillion nominal in extra spending money, nearly a quarter of which, $1.15 trillion, was simply blown. Some people literally ate it, drank it, and danced the night away with it. If the study is correct, the extra spending money in the 1990s from our homes came to an additional $3 trillion. I can only guess about the 1980s, but even if only $1.5 trillion, this means Americans have easily extracted almost $10 trillion from home equity over the course of 30 years.

A review of the latest Federal Reserve data here shows that net worth of owners' equity in household real estate has fallen $7 trillion just since 2005. Falling from $13.2 trillion in 2005 to $6.2 trillion as of the end of Q2 2011, this is a decline of 53 percent. This metric pretty perfectly mirrors the bubble in housing which began in earnest in 1997, coincident with the change in the tax law permitting capital gains tax free every two years up to $500K with conditions. Except that the measure hasn't yet quite reached what it was in 1997. We're still about a trillion dollars shy of that mark in nominal terms.

Total real estate valuation over the same period has fallen less, from $22.1 trillion to $16.2 trillion, or 27 percent. But equity as a percentage of value has fallen more than valuation, 35 percent.

A longer term chart of the latter phenomenon found here shows that since 1980 home equity as a percentage of value has been under constant pressure, most probably from what is called portfolio shifting, debt expenditures from car loans and credit cards, college tuition, stock investing and second, third and fourth home investing piling into HELOCs, 2nds, refis and the like. The interest on all that stuff before 1986 was tax deductible in its own right, but after Reagan's famous tax reform, deductibility was restricted to interest from home equity loans and lines of credit only. That arrangement was formalized at levels up to $100K in 1987, precisely after which as shown in the chart the decline in owners' equity commenced with new vigor. So people who could financed everything they could through HELOCs, cash out refinancing and the like in order to continue to be able to deduct the interest expense on their tax returns.

As a result of this and the collapse in the real estate bubble, today we are faced with the dramatic all time low of 38 percent in owners' equity as a percentage of value, a decline of nearly 47 percent since 1982.

Just think how much better off we would be today if we hadn't tapped all that equity over those three decades, especially in inflation-adjusted terms. We truly have been the squanderers.

So present household real estate valuation at $16.2 trillion represents a level last seen in 2003 in nominal terms. But adjusted for inflation, that's $13.7 trillion, which was actually the total nominal value of household real estate last seen in 2001. To get to the pre-bubble valuations of 1996, today's number would have to fall yet further to $11.8 trillion.

In other words, to erase completely the effects of the bubble on valuations, adjusted for inflation, would imply that total real estate valuation would need to fall another 27 percent from here, or $4.4 trillion.

The American dream nightmare.

'Gridlock is the Most Constructive and Moral Form of Government'

Except "with entitlement programs on autopilot."

So says David Harsanyi here. The only truly sane thing I read today, or most days.

You've got to like a guy who starts off with an HL Mencken line like "every decent man is ashamed of his government." I'm feeling especially decent today.

What we really need to fear most is one party, it doesn't matter which one, in complete control of the government. And that we don't exactly have that today means I can be grateful with a straightface tomorrow, Thanksgiving 2011.

Failed Banks From Last Friday, 11/18/11

#89 was Polk County Bank, Johnston, Iowa, costing the FDIC $12 million.

#90 was Central Progressive Bank, Lacombe, Louisiana, costing the FDIC $58.1 million.

Second Estimate of Q3 2011 GDP Falls to 2.0 Percent from 2.5 Percent

Per the BEA today, here:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.3 percent.

The GDP estimates released today are based on more complete source data than were available for the "advance" estimate issued last month.  In the advance estimate, the increase in real GDP was 2.5 percent . . ..


So .4 in the first, 1.3 in the second, and now 2.0, for an average of 1.2 so far in 2011. That's not even treading water. Obama doesn't have a clue. The guy should pack it in and just go golfing for the rest of his life.

Today's Economy is Already Being Stimulated by a Bipartisan Attack on Federal Revenue

I'm talking about the Social Security Tax Holiday for 2011, which continues to add $112 billion this year to workers' paychecks as we speak.

If it's doing any good for the economy, remember it's going away in about six weeks and will all be reversed next year. It's called pulling prosperity forward. Which leaves a void in . . . the future, to be filled by . . . what, exactly?

Except Obama doesn't want there to be a question about the immediate future, which is why his famous, urgently-needed "today" jobs bill from last August but which still isn't going anywhere includes an extension and expansion of the holiday, and will cost the Social Security program $240 billion next year on top of this year's cost.

Obviously necessary, if you're running for reelection.

But it's just more gimmickry from our professional grifter class. Refresh your memory about it here, but think about it this way: These same crackpots keep wanting to take away your tax deductions PERMANENTLY while at the same time offering you TEMPORARY crumbs from our masters' table.

$112 billion this year, $240 billion next year, but in the disguise of tax reform they want to saddle you forever with paying higher income taxes to the tune of $88 billion each and every year because you can no longer deduct your mortgage interest. Tax deductions have a permanency tax rates do not. The lower overall rates bequeathed to us by the 1986 tax reform which today's Republicans so proudly do hail were gone like a fart in the windstorm by 1992 when Bill Clinton took over.

A bowl of pottage for your birthright.

'The US Must Force Open Foreign Markets Or Protect Its Own'

So says Peter Morici of The University of Maryland here:

[G]lobal competition, communications technologies and essentially unchecked immigration have hammered down wages and winnowed opportunities in once decent paying occupations—for example, ordinary line work in manufacturing, middle management and sales, and writing for a daily newspaper.

Sending more Americans to college is not the answer—degrees in the liberal arts are simply not as valuable today as 25 years ago, and many students are not suited to engineering and other technical disciplines. The workforce is well overstocked with business school graduates. The problem is not too few educated Americans but too few good jobs for most of them to do. ...

Heavier taxes on the wealthy to redistribute income won’t help. ...

[T]he United States can’t always dictate the terms of competition and continue to stand idle without more effective responses than bailouts for General Motors, subsidies for Solyndra and Social Security tax holidays, all paid by borrowing from China.

The United States must force open foreign markets or protect its own, or it will perish.

Spoken like a realist about human nature. 

We need more of that.

'Utopianism Attracts Goofballs as Light Attracts Moths': Occupy Wall Street's Anarchist Origins

Matthew Continetti here makes a persuasive case for the reemergence of the anarchist movement in Occupy Wall Street for The Weekly Standard:

When he looks at the world, the utopian is repelled by two things in particular. One is private property. “The civilized order,” Fourier wrote, “is incapable of making a just distribution except in the case of capital,” where your return on investment is a function of what you put in. Other than that, the market system is unjust. ...

If Charles Fourier emerged from a wormhole at the Occupy Wall Street D.C. tent city in McPherson Square in Washington, he’d feel right at home. The very term “occupy” or “occupation” is an attack on private property. So are the theft and vandalism widely reported at Occupy Wall Street locations. The smells, the assaults, the rejection of the conventional in favor of the subversive, and the embrace of pantheistic spirituality flow logically from the utopian rejection of middle-class norms. The things that Mayor Bloomberg found objectionable about the encampment in Zuccotti Park​—​that it “was coming to pose a health and fire safety hazard to the protesters and to the surrounding community”​—​are not accidental. They are baked into the utopian cake.

Michael Barone Joins The Liberal Chorus Attacking Progressive Taxation

You heard me right, the liberal chorus attacking the progressive tax code, in this case the progressive tax code's deductibility provisions which are . . . well, progressive.

Barone and other liberal Republicans like Pat Toomey, Gang of Sixers and Gang of Twelvers do it on the grounds that the deductions for mortgage interest and state and local taxes help the $100K+ set more.

Nevermind "the rich" already pay the vast majority of the taxes. They want to make them pay even more because . . . well, they don't really need the money, and government does! And maybe liberals will like us more.

Talk about ceding the moral high ground to the left. Who would want to go to all the trouble of becoming rich just so that they can have the privilege of paying even more of the taxes?

Nevermind that the poor own one of the biggest "tax loss expenditures" in the form of transfer payments for the Earned Income Credit and the Child Tax Credit: $109 billion. Compare that to the mortgage interest deduction's tax loss cost to the Treasury : $88 billion.

Here is Barone:

[T]he big money you can get from eliminating tax preferences comes from three provisions that are widely popular.

The three are the charitable deduction, the home mortgage interest deduction, and the state and local tax deduction. ...


[T]he vast bulk of the "tax expenditures" -- the money the government doesn't receive because taxpayers deduct mortgage interest payments from total income -- goes to high earners . . ..


Well why shouldn't they under a progressive tax system? 


There's really no difference between Michael Barone and Republican advocates for "tax reform" and Democrats like Peter Orszag, for example, who makes an argument for similarly flattening deductibility for the rich by limiting their traditional deductions enjoyed by everyone across the income spectrum. What this amounts to is an admission that the progressive deductibility which we have now does NOT go hand in hand with the tax code's progressive taxation.

The current arrangement may not seem fair to flat taxers, but it is internally consistent. If you pay progressively more in taxes, your deductions should justly be progressively worth more to you. And so they are. If you pay progressively less in taxes, your deductions should justly be worth less to you, progressively. And so they are.

Proposals to limit deductions for one class of taxpayers amount to destroying the internal coherence of the progressive tax code itself. It is nothing less than an attack on the idea of progressivity and its fair unfairness, all in the name of extracting even more from the pockets of successful people.

Sheer nincompoopery. 

Herman Cain's Plan For Your Money is 999, Obama's is Mine, Mine, Mine!

So says Kyle Wingfield here in The Atlanta Journal Constitution.

Glenn Greenwald Gets Hysterical About Law Enforcement Against Occupy Wall Street

Here.

Robocops. Sadists. You get the picture.

Never once does it penetrate that true believer's mind, the qualitative difference between Occupy Wall Street and the Tea Party. Everywhere the former goes there is crime; everywhere the latter went . . . nothing but law and order, followed by an historic electoral change across America and in the US House of Representatives.

Greenwald can keep repeating that OWS is about peaceful protest all he wants, but it isn't. And we're all tired of it and support the police in preserving the rights of all citizens to unimpeded access to all public places without fear of harassment and intimidation.

The denizens of UC Davis chant "Our university!" as if to say it's their turf and the cops are trespassing, but it isn't, and they aren't. It belongs to everyone, students or not. But especially to the taxpayers.

Winter's just a few weeks away, as is the 100th anniversary of Amundsen's spectacular south polar expedition.

The world could use more clear-headed achievers like Amundsen, but I doubt they'll come out of Occupy Wall Street, or UC Davis . . . or Salon.

An Irritable Mental Gesture of Liberalism Visualized:Only Resembling The Idea of Showing Respect

"In the United States at this time Liberalism is not only the dominant but even the sole intellectual tradition. For it is the plain fact that nowadays there are no conservative or reactionary ideas in general circulation. This does not mean, of course, that there is no impulse to conservatism or to reaction. Such impulses are certainly very strong, perhaps even stronger than most of us know. But the conservative impulse and the reactionary impulse do not, with some isolated and some ecclesiastical exceptions, express themselves in ideas but only in action or in irritable mental gestures which seek to resemble ideas." -- Lionel Trilling, 1950

Where The Money Is: America's Asset Allocation as of 12/31/10

Cash: $8.8 trillion (14.4 percent).

Stocks: $17.1 trillion (27.9 percent).

Bonds: $35.3 trillion (57.7 percent).

Tax Reform Should Come Off The Table: Spending Cuts Only Are Acceptable

To Sen. Reid and Pres. Obama, tax reform means tax increases.

So fuhgeddabowdit. 

Automatic cuts to defense and social spending it should be.

Ohio Repudiates ObamaCare Nov. 8th, Nov. 15th Obama Punishes Ohio by Stopping Gas Leases

'change we much'

As pointed out by an astute caller to Larry Kudlow's radio program today on WABC.

The Nov. 15 announcement by the USDA here means tens of thousands of jobs lost to Ohio and the loss of cheap natural gas for the country, according to this analysis by The Heritage Foundation.

On Nov. 8 Ohioans resoundingly rejected ObamaCare's mandate that Americans buy health insurance by a 2 to 1 margin, stating “In Ohio, no law or rule shall compel, directly or indirectly, any person, employer, or health care provider to participate in a health care system.”

'The Means of Government Oppression'

From Lawrence Hunter, here:

standing armies in peacetime;

the regulatory instruments of torture [politicians, bureaucrats and judges] use to command and control individuals’ behavior;

access to individuals’ pocketbooks and bank accounts by . . . the power of direct taxation.

Total Cash in Circulation at the End of 2010 was North of $0.935 Trillion

Per the Fed, here.

$1 billion

$1 trillion

h/t pagetutor

Talk About a Banking Farce: The US Federal Reserve System Itself is Currently Leveraged 53:1

As in $2.782 trillion in liabilities divided by $.052 trillion in capital: 

Have a nice weekend!

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The Farce of Letting Banks Simply Refigure Themselves to be Far Less Risky

From Jeffrey Snider's latest in a series of penetrating meditations on contemporary banking:

Basel II gives banks latitude in "modeling" the potential riskiness of each specific asset since banks long ago successfully argued that it was inappropriate to assign broad weightings and definitions to idiosyncratic assets.

So instead of selling stock into a bad market or engaging in asset fire-sales (concrete expressions of a "bad" bank), banks will simply refigure themselves to be far less risky, thereby increasing their capital ratios, "fixing" the problem without much fuss. Reality no longer has a seat at the banking table since it is a demonstrable fact that banks are holding far riskier assets than they estimated only a few months ago (just ask MF Global), especially since default risk is not the only concern.

To what purpose do capital ratios serve if they are to be so easily discarded by the farce of one-way "risk-weighted asset optimization"?

Internal Migration Hits Record Low, Down Over 75 Percent From 1985 Peak

Why don't you stretch out on the sofa so you can rest your government handicaps on a pillow?

CNBC.com's Diana Olick has the story here:

Just over 11 million Americans moved between March of 2010 and March of 2011, according to a new report from the U.S. Census. ...

The housing crash has left Americans stagnant, but even worse, it has left homeowners trapped. The decline in the mobility rate of those who already own homes was even more dramatic. Just 4.7 percent of homeowners moved in the past year, down from 5.2 percent the previous year, according to the Census. That translates into 9.7 million homeowners, again a record low.

The immobility of current homeowners is a huge drag on the economy.

It's not just malaise. It's sclerosis. 

The Big Fat Idiot Establishment Republicans Like Rush Limbaugh Won't Replace Your Tax Deductions

When deductibility of interest expenses in a wide variety of vehicles was eliminated for income tax purposes in the tax reform act of 1986 under Ronald Reagan, those deductions ended up being replaced by deductibility of interest if incurred through HELOCs (home equity lines of credit) shortly thereafter.

Deductibility of interest expense on consumer loans, car loans and credit cards went the way of the dodo, only to be shifted to HELOCs. It was a fateful decision which made overleveraging of housing as routine as taking out the trash. But that's an entirely different kettle of fish.

In 1987 Congress quickly acted to expand deductibility of HELOC interest expense because the 1986 act cut people off at the knees and they didn't like it one bit. It was a consumer society accustomed to deducting credit card interest, and it didn't like the new rules at all. The 1986 act quickly proved to be a futile attempt to curb consumer spending and encourage savings. The political fallout was so great that the interest expense from HELOC borrowing was dramatically expanded to fill the gap the next year.

I quote from The New York Times, here, February 2, 1988:

BORROWINGS AGAINST EQUITY: In addition, homeowners will be allowed to claim mortgage deductions for up to $100,000 in borrowings against the equity in their house - no matter what the loan is used for. 

A veritable chorus of voices today on the right and left, including Rush Limbaugh who is simply phoning it in these days, is appealing to this period to urge the country to get behind a Republican Super Committee plan to raise revenues by closing loopholes like the mortgage interest deduction for wealthier taxpayers, "just like we did in 1986."

Oh yeah? What's in it for us?

Once the camel gets its nose under this tent in the name of making the rich pay more, you can bet the precedent will be used down the road to deprive the middle class also of the deductibility of interest on a home mortgage.

And you'll get nothing to replace it except an empty promise to lower your overall tax rate, which the next Congress will rescind in a heartbeat. Few of you remember that the top tax bracket from 1988 to 1992 was 28 percent. Bill Clinton and the Democrats made short work of that.

Real conservatism is about using federal tax policy to promote property ownership, ordered existence and family formation. The current crop of establishment Republicans, including Rush Limbaugh, is a bunch of phonies. Rush can't even remember 1986:

The Republicans are offering a plan which would take away itemized deductions for anybody making over $174,400 a year. In exchange for that they would lower the top tax rate from the current 35 down to 28%. We've done this before. We did this in 1986. This was part of Reagan tax reform except the top marginal rate then was 50. Wait a minute. No. All itemized deductions for people who make the... Stick with me on this. All itemized deductions for everybody who makes $174,000 or more -- home mortgage interest, charities, all of that, gone in exchange for a lowered rate from 38, 28%. Now, we've done this before.  Back in 1986, top rate was 50, took it down to 28, there was a bubble of 31 percent for few people, and we got rid of some deductions.

There will be no future America without the traditional family.

Too bad Rush Limbaugh has never had one.

Iowa Republicans Fall Big Time For Fake Conservative Newt Gingrich

In a new Rasmussen poll, here.

They don't call them hayseeds for nothing.

Good Lord Jeeves. Surely not Newt!?

I'm afraid so, sir.

ObamaCare's Truly Amazing and Perverse War on Traditional Families

ObamaCare will require employees to accept single affordable coverage when offered, making their dependents ineligible for federally subsidized coverage;

that in turn will encourage divorce or shacking up so that dependents are, voila!, no longer dependents and thus qualify for federally subsidized coverage;

it will create a perverse incentive for such employees to seek employment in smaller companies with fewer than 50 employees which are not required to provide health coverage in order to qualify for federally subsidized coverage;

that will perversely affect employment growth because some businesses will want to stay lean and mean to avoid coming under ObamaCare's umbrella;

it will create a perverse incentive for employer coverage to be unaffordable in order to qualify employees for federally subsidized coverage;

and that in turn will make pay-cuts acceptable to employees whose employers must pay a fine for offering unaffordable coverage.

Read all about it from Diana Furchtgott-Roth, here.

Doh! Central Banks Are Supposed to Lend to Solvent Banks, not Sovereigns, Dummy!

"It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That's what lender of last resort means.

"That is a million miles away from the ECB buying sovereign debt of national countries, which is used and seen as a mechanism for financing the current-account deficit of those countries . . .."

-- Mervyn King, Bank of England, quoted here

Even Ron Paul Does The Mussolini

What Fun! Bailouts Crash! Treas. Dept. Says Autos Cost Taxpayers $80 Billion, TARP $57 Billion

So The Detroit News here:

The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion . . ..

In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion.

The Treasury now pegs the cost of the bailout of GM, Chrysler Group LLC and the auto finance companies at $79.6 billion. ...

[For TARP t]he government now expects to lose $57.33 billion, including the full cost of the housing program, up from $36.7 billion. The new estimate means the government doesn't believe it will make an overall profit on its bailouts.

In other words, the bailouts were a failure, and the taxpayers got stuck with the bill. But you already knew that.

With ObamaCare About to Pass, Elena Kagan Wrote to Harvard Plagiarist Laurence Tribe to Exult !!

She should recuse herself from hearing any case involving ObamaCare.

David Harsanyi weighs in here:

Nor, as we learned this week, is it reassuring to find out that while the House was debating passage of Obamacare, Kagan and well-known legal scholar Laurence Tribe, then in the Justice Department, did a little dialoguing regarding the health care vote, and according to documents obtained by Media Research Center, Kagan wrote: "I hear they have the votes, Larry!! Simply amazing."

Nothing says impartiality like double exclamation points!!

Private Equity Performance Proves Public Markets Are Not Efficient

So says Brett Arends, here:

If you’d invested $100,000 in the Standard and Poor’s 500 index 25 years ago, and stuck it out through all the turmoil that followed, you would have made about $800,000 in profits in return for all your trouble.

Sound good? Try this. If you’d invested in a typical basket of private-equity funds you’d have made $2.1 million. No kidding.

As ObamaCare Goes To The Supremes, Will It Stand Or Fall On Tax Grounds?

The individual mandate which is at the heart of ObamaCare insists that everyone buy health insurance in every state.

Once the mandate was challenged by opponents after passage, however, the Obama regime quickly began defending its penalties as a tax, which it was loathe to do in selling the law to the public for political reasons. While the law contains tax provisions, the penalty associated with not securing coverage is not a tax.

The tax argument raises important constitutional questions of fairness and substance. If the penalties really are taxes, aren't also the premiums, since the penalties take their place? And will everyone in every state pay the same premium tax for coverage? If some pay only the penalty, which is low compared to the premium, doesn't the law enjoin inequity?

Another question is whether anyone can avoid the tax. This in turn touches on the distinction between direct and indirect taxation. If the tax can be avoided, it is an example of indirect taxation which is permissible, but which must still be uniform. If it cannot be avoided, then the tax must be apportioned according to population so that everyone, rich and poor alike, everywhere pays the same tax, which would be easy for the rich, but not for the poor. But presumably under ObamaCare plans will vary from state to state as they do now, with premiums which vary according to coverage, so Americans will be forced to pay, and pay unequally.

Consider the income tax. If you take no ordinary income in the form of salary and wages, you are not liable to pay it. Wealthy individuals regularly take income in the form of capital gains, which is taxed under different rules with lower rates than ordinary income. The same avoidance obtains when taking income from municipal bonds and other tax-free bond investments. In important respects the federal income tax is thus indirect, and therefore does not need to be apportioned according to population.

Similarly with excise taxes. If you choose to drink wine over spirits the tax you pay per bottle will be substantially less for wine. You pay the tax on the wine, but you have avoided the tax on the bourbon. But if you drink neither at all, you avoid the excise taxation altogether. Hence the popularity of stills.

Some of these points get an interesting airing here as they apply to Obamacare:

The legal wrangling over whether a particular tax is direct or indirect, as Willis and Chung discuss, has been complicated and persistent for more than two centuries. In 1794, for example, Congress passed a tax on carriages, which opponents considered a direct tax and thus invalid because it was not apportioned by population. The Supreme Court found it was an indirect tax on the use of carriages, valid so long as it was uniform.

Obamacare imposes an annual penalty of $95 per adult, or 1 percent of income, whichever is greater, in 2014. The annual penalties are the greater of $325 or two percent of income in 2015 and the greater of $695 or 2.5 percent of income in 2016 and subsequent years.

Willis and Chung argue these are not indirect, but instead direct taxes, unconstitutional because they are not apportioned by population. It could also be argued, though, this provision is a mixed bag. The fixed annual penalty portion, for example, could be viewed as indirect and uniform and thus constitutional, while the income percentage amounts could be deemed direct but not apportioned and thus unconstitutional.

The tax could therefore be unconstitutional for those who pay income percentages but constitutional for those who pay a fixed penalty. This may be a ridiculous and unprecedented view, but it does illustrate the complexity of this issue—leaving us with a tangled legal web indeed.

The ruling of the Supreme Court is expected next June after oral arguments in March 2012.

Fireworks are expected.

Adam Davidson of NPR Wants to Increase Taxes on It, But What Really is The Middle Class?

In The New York Times, here, where he expansively defines the middle class as everyone making between $30K and $200K:

To solve our debt problems, we have to go to where the money is -- the middle class. People who earn between $30,000 and $200,000 a year make a total of around $5 trillion and pay less than 10 percent of that in taxes . . .. [M]ost economists acknowledge, and most politicians privately concede, that the middle class will have to give up some benefits . . . or it will have to pay more in taxes. Actually, it will probably have to do both.

It's a frequently repeated myth that the middle class includes many of the people in the top income quintile, that is, those making in excess of $100,000 per year, but it just isn't true no matter how often it gets repeated.

Richer men and women don't want to be called rich, of course, so they make believe they're just like the rest of us and call themselves middle class when they're anything but.

That this myth is getting repeated so often these days, however, and not just in liberal quarters like The New York Times but also in places like The Wall Street Journal, should make your antennae stand up.

I say this is all part of a softening-up operation to get the rubes ready for a big fat tax increase.

That uncomfortable feeling you get reading the article above might as well be because the author is using one of these to blow smoke up your rear end:

In all seriousness, though, the fact of the matter is that in 2010 there were 99.5 million wage earners making less than $40,000 a year, according to the latest information from Social Security, here. That's fully two thirds of all the wage earners in the country, and a long way from the earners in the top quintile.

The next tranche up from there, namely wage earners making between $40,000 and less than $80,000 a year, is really small by comparison, just under 35 million wage earners.

And fewer than 10 million wage earners inhabited the next level up in 2010, those who made between $80,000 and $120,000.

The $120,000 to $160,000 set is hardly a crowd by comparison, just over 3 million wage earners strong.

Between $160,000 and $200,000 there were 1.25 million people.

And beyond that: 1.75 million wage earners, making to infinity and beyond.

Asserting that middle class extends all the way up to $200,000 when nearly 90 percent make less than $80,000 a year is quite simply ridiculous. It's obvious that the middle is below $40,000 when the average wage of all 150 million workers in 2010 was $39,959. Worker number 75 million from the bottom made just $26,363.

A more meaningful metric for middle class is what kind of housing income can buy at that great dividing line of $40,000.

For example, when I bought my first real traditional home way back in the nineties, the seller's attorney congratulated us at closing by saying, "Welcome to the middle class." I might have said we'd never left it, seeing that we had been owners of other kinds of dwellings twice before, but the attitude represented the cultural consensus that single family home ownership with a lawn to cut defines the socio-economic middle. Being able to afford such a place has been synonymous with achieving the American dream since WWII, after a long period of economic upheaval which quite literally unsettled millions.

So who can afford what when it comes to housing today is an important measure for judging whether the American dream continues intact.

Consider that the median price of an existing single family home in the US stands at $165,400 in September 2011, according to the National Association of Realtors, here. The lowest median price is in the Midwest at $137,400, and the highest is in the Northeast at $229,400.

Assuming one can come up with the 20 percent down payment of $33,080, which is a tall order for someone making $40,000 a year in today's economy, $132,320 financed at 4 percent over 30 years means a principal and interest payment of $631 a month. Add $300 a month for taxes and insurance and the $931 monthly payment means, at a maximum percentage of income of 28 percent, income must be $3,325 a month, or $39,900 a year.

Another way to put this is that the maximum price of a home which can be afforded by a $40,000 income is the current median price of $165,400. Anything beyond that is out of reach.

So, for how many people is that out of reach?

Based on the numbers from Social Security above, for easily 66 percent of the workforce, or nearly 100 million workers who individually couldn't buy more home than the median priced home without more income. But of course many households have two earners who combine their incomes to do just that.

Nevertheless tax data from 2009 more than support the conclusion that a clear majority of Americans cannot afford housing at the median price level.

The latest information indicates that half of the country, nearly 69 million tax returns in 2009, had adjusted gross incomes of less than $32,396.

The next tranche up from there, consisting of 34.5 million more tax returns, takes us up to 75 percent of the whole country, and adjusted gross income of less than $66,193.

(And contrary to Mr. Davidson, the combined adjusted gross income of the first 75 percent of taxpayers is only $2.7 trillion. Of the first 50 percent, barely $1.1 trillion. The money is most definitely not in the middle. It's in the top 25 percent, with $5.2 trillion in AGI last year).

In other words, somewhere between 50 and 75 percent of the country would have to settle for housing which falls well below today's median price level if they had to buy today, despite the 16 percent decline in the median price from $198,100 reached in 2008.

Many who already own a home under these circumstances are desperately trying to keep theirs because they know their chances of being able to buy another one are not very good. Incomes are flat to declining and unemployment and underemployment are widespread. With home prices depressed, many who purchased during the bubble from 1998 to 2007 wouldn't walk away with enough from a sale for a down payment on another home. Some estimates put that number of underwater mortgage holders at 25 million, fully half of Americans with mortgages.

They dare not sell, because to do so is to leave the middle class.

Indeed, according to the Census Bureau here home ownership rates have fallen almost 4 percent from peak, back to 1998 levels.

And the liberals' solution to this middle class implosion is to raise their taxes.

It's not just crazy. It's mean, because increasing taxes on the real middle class will turn it into the working class, which, I gather, is the whole point of socialism.

Sharon Bialek Lived In Same Building As David Axelrod And Knew Him

An important article connects all the dots showing that the Herman Cain smear campaign bears all the marks characteristic of Obama's favorite m/o against political opponents and just happens to be centered in Chicago:

Within 24 hours of Bialek's press conference, friends and acquaintances of hers stepped forward to say that she's a "gold-digger," that she was constantly in financial trouble -- having filed for personal bankruptcy twice -- and, of course, that she had lived in [David] Axelrod's apartment building at 505 North Lake Shore Drive, where, she admits, she knew the man The New York Times calls Obama's "hired muscle."

Don't miss one word of it here.

What I See When I See Newt Gingrich

Don't Forget: To Newt Gingrich Paul Ryan's Budget Was Radical Change From The Right

When it was nothing of the sort:

"I don't think imposing radical change from the right or the left is a very good way for a free society to operate."

Gingrich made the remark last May, seen here, clearly attempting to mark himself out as the moderate voice of sweet reason between the extremes of the Obama regime and the House Republicans.

If he's treating his own party that way now, imagine a little presidential power behind that attitude.

Republicans would be nuts to go for Newt.

Democrat Dominated Coasts Are Most Debt-Ridden, Republican Heartland Least

So says Meredith Whitney, here:

Said Whitney: "You haven't seen anything yet in terms of selling (state and municipal) assets."

Alabama Municipal Bankruptcy to Surpass That of Orange County California

As reported here:

[C]osts ballooned as interest rates rose and since 2008, Alabama's most-populous county has teetered on the verge of bankruptcy. With more than $5 billion in total indebtedness, a Chapter 9 filing would surpass that filed in 1994 by Orange County, California.


At $3.7 trillion, the US municipal bond market is about 10.5 percent of the entire US bond market. The Alabama failure is barely over one tenth of one percent of the whole municipal market.

CNBC Won't Stream Tonight's Republican Debate Online

The Easiest Mortgage Loan Bailout Program Would Let Taxpayers Do It Themselves

According to the Federal Reserve's latest Statistical Release in September, here, the current value of all residential mortgages outstanding is $9.935 trillion.

That's down 5.8 percent from the 2007 peak of $10.542 trillion.

It is estimated that half of all residential mortgages are effectively underwater, meaning homeowners, if they could sell under current conditions, would not make enough from the sale to have 10 percent down for the purchase of a new home. This situation traps people in their homes, keeping them from moving to  take employment or retirement elsewhere.

The easiest solution to this problem is to allow holders of 401K, IRA and similar retirement accounts to withdraw funds without penalty, and perhaps even without taxation, if expressly used for the purchase of a new home, or for retirement of an outstanding mortgage or home equity loan. If not a complete tax forgiveness, government could settle for a flat tax at a low rate on such withdrawals in order to stimulate activity and help solve problems associated with indebtedness.

Holders of IRAs already know only too well that there are few exceptions to withdrawals without penalty. Perhaps the most useful of these few exceptions at present has been withdrawals permitted in certain circumstances for health insurance premium expenditures. Some people who have lost their jobs and their insurance have found this provision particularly helpful during this most severe period of unemployment since the 1930s. It has enabled them to purchase their own health insurance for themselves and their families with the funds.

The provisions permitting such withdrawals should be expanded to permit use of these funds to buy homes elsewhere, or pay off existing mortgages, which would do more than anything government has tried to do to date to stimulate velocity in the housing market.

People have saved plenty of dough to do it, too: $18 trillion.

Here's recent testimony about this from the Investment Company Institute:

Americans currently have more than $18 trillion saved for retirement, with more than half of that amount in defined contribution (DC) plans and individual retirement accounts (IRAs). About half of DC plan and IRA assets are invested in mutual funds, which makes the mutual fund community especially attuned to the needs of retirement savers.

Of course, not all of this money may presently be in the direct control of the individual taxpayers themselves to do with what they please, but a significant portion in IRAs and defined contribution plans, over $9 trillion, might very well be, according to ICI's latest data:

The risk to the retirements of people going forward if they are allowed to liquidate some of these monies is very real, but so is the prospect of a stagnant market of underwater mortgages devolving into bankruptcy, or even precipitating severe economic depression.

People should at least be given the choice under the current circumstances, perhaps with a sunset provision expiring in five years in order to spread out the effect.

A tip of the hat to John Crudele of The New York Post, who continues to argue for this solution in his columns.

Fortune Editor Geoff Colvin Thinks Flat Tax is Good Idea Which Need Not Be Partisan

As reported here:

[D]on't call it a flat tax. Call it a top-to-bottom overhaul that will put people to work, close loopholes that serve only certain corporations and the rich, make America more competitive globally, and improve life for people who work hard and save money. A flat tax, done right, can achieve all those benefits and more. Nor is it just theory. Several Eastern European countries have successfully used flat-tax systems for years.

Emphasize that it's a big change, bigger than most people first realize. Asking whether your taxes would go up or down under a flat tax is too small a question. Such a system would change your income, your taxes, interest rates, the value of assets, and prices of things you buy. All those changes combined would determine whether you'd be better or worse off. If it's done right, most people would be better off.

A flat tax can be a good idea. Let's hope it can escape the campaign war zone and get the serious attention it deserves.

New Losses at Fannie Mae and Freddie Mac Boost Bailout Total by Taxpayers to $169 Billion

With no end in sight.

Story here at Reuters.

Kathleen Willey Says She Believes Herman Cain's Denials

Just now on WLS AM 890 with Don Wade and Roma.

See some of her controversial history, here.

Tony Blankley Just Had A Bloody Mary on the Acela

He was on live with Don Wade and Roma on WLS 890 AM this morning, a Wednesday, at about 0915. A lousy Wednesday.

Out here in fly over country we at least wait until 1700 hours. 

Cain's Accuser Bialek Was Accused by Father of Her Son of Mental Problems

As reported here:

The father of Bialek’s now-13-year-old son sued in an ugly paternity fight to win sole custody of the child, accusing her of “significant mental and emotional problems,” court papers from 2000 show.

Cain Accuser Kraushaar Can't Remember Complaint Filed at Subsequent Job

As reported here:

Kraushaar said Tuesday she did not remember details about the complaint and did not remember asking for a payment, a promotion or a Harvard fellowship.

Underwater Mortgages: Effectively Half of All, or 25.5 Million, Says Mark Hanson

Because it's not just a matter of selling for a price which pays off the current note. It's a matter of also paying the realtor 6 percent and having enough left over for 10 percent down on the next purchase.

Half of all mortgage holders are in the situation where they would not have enough left over for 10 percent down on the next home. This is the key problem according to Mark Hanson:

"Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time."

Read the full story about negative equity from Diana Olick here.

Technically 14.6 million are in negative equity on the note alone, but that's only 28.6 percent of homes with mortgages. 50 percent is more like 25.5 million homes with mortgages which cannot be sold without bringing money to the table for the next purchase. People are quite literally stuck.

To paraphrase Jonathan Swift:


Mortgages, the lifeblood of the nation,
Corrupt and stagnate in the veins,
Unless a proper circulation
Their motion and their heat maintain.

Bill Bennett Should Just Shut Up About Herman Cain

What does he want Herman Cain to do? Some kind of magic dance to make the accusations stop? 

"Four women are not an insignificant number. One or two anonymous charges, perhaps. Three anonymous charges (where, as I understand the story, Cain knows of at least two of the women) plus one woman who went very public and opened herself up to all manner of investigation are a lot. It is no longer insignificant. Neither is it insignificant that the Cain campaign discounted the charges in the initial stories, saying they were based on anonymous sources, only to make a mockery by blaming other campaigns with less substantiation than the original stories."

It's all here, but I look in vain for a defense of the rules of evidence, fair play and the like, all of which one would expect one's allies to marshall at a time like this in defense of one of their own.

But Bill Bennett is not a reliable ally.

Democrats on the one hand know Herman is the real threat to Obama, not Romney. Moderate Republicans, on the other, know Herman is the real threat to Romney.

Their joint mission is to destroy the source of Herman's success, which is his likeability. Relentless below the belt stuff will be tried until something sticks. Herman isn't even that important. It's the Tea Party he represents. Dispirit that and you automatically depress the turnout. Meanwhile Democrats can count on the individualist vein in Republicanism to cause Republicans to hang Herman out to dry as a matter of principle, the last refuge of the scoundrel.

"A man big enough to run for president should be big enough to have a full and candid press conference on all of this."

One important difference between Republicans and Democrats is that when a Democrat gets attacked, Democrats circle the wagons around their wounded, but when a Republican takes a hit, Republicans either run and hide like sissies, or join in the attack.

The electorate respects party unity, not because it's often right but because it's logical and predictable. Republicans aren't unified and haven't been since Reagan, which is why no one trusts them. They're insane, and occasionally fly off the handle and hurt somebody in the process.

And right now it's Herman Cain Republicans want to hurt.

Red State's Erick Erickson Says Romney Will Be The Republican Nominee

Because Perry blew it on immigration and Newt and Cain blew it with women.

There are many money lines in the post, here.

Oh, and Romney will lose to Obama, and conservatism dies.

And that means now we should rethink . . . John Huntsman (!).

Doesn't that mean conservatism is already dead?

The real conservative in the race is Cain, who likes $400 wine and a national sales tax. Therefore the argument is social, that is, with the women, who gave us their opposites: Prohibition and The Income Tax. Real conservatives like Phyliss Schlafly support Cain's ideas to unleash American business.

What we need is more women like Phyliss Schlafly, and fewer like Ann Coulter.  

Gloria Allred, Representing Cain Accuser, Made Light of Sexual Touching by TSA

SEAN HANNITY, HOST: "Did they touch your body parts?"

GLORIA ALLRED: "Yeah, they did and it was a first time anybody touched them in a long time and frankly, I liked it."

Video here from November 2010.