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Debt Crisis Fantasy – Debt virtually free at today’s rates Gas is cheap and taxes are
06-26-2011, 10:15 PM
Post: #1
Debt Crisis Fantasy – Debt virtually free at today’s rates Gas is cheap and taxes are
Debt Crisis Fantasy – Debt virtually free at today’s rates
Gas is cheap and taxes are cheap for wealthy and corps

Virtually Free Money Available to large corporations and U.S. Treasury - With interest rates so low, Google sold its first-ever bond offering of $3 billion. Why take on debt despite an already huge cash pile? Because investors snapped up 3-yr notes from Google, IBM and Colgate-Palmolive, even though all were at a measly 1.25% rate.

With inflation at 2-3%, debts are repaid with cheaper dollars - virtually free if the interest rate is less than the inflation rate. Google can use the money to grow, further increase profits and hire more workers.
Treasury debt is also virtually free money with a huge demand for the safety of U.S. debt. Long-term the deficit has to be addressed, but today creating jobs and faster economic growth is much more a real “crisis” than debt at today’s historic low rates for Treasury borrowing - with 2-3 times more demand at most auctions than debt available for investors. Yields went negative by 0.2% on some short term Treasures due to desire for safety (WSJ 6/26/11).

Bond investors suffer losses in value when interest rates climb, but corporations and governments lock in today’s historic low rates on debts. The risk is higher interest rates when debt matures if has to be refinanced.

Investors may realize we have a low tax burden (both individual and corporate) compared to the rest of the world. Taxes could increase to more reasonable levels on corporations and the wealthiest to help solve the debt issue. The greater risk is spending cuts too soon, which could result in more job losses and slow the recovery.

Jobs Crisis is partly education related – Many available jobs do not have qualified applicants. PIMCO's Bill Gross says, “Our labor force is too expensive and poorly educated. If we are to compete globally while maintaining a higher wage base, we must train for ’middle’ in addition to ‘high tech.’ Philosophy, sociology and liberal arts agendas will no longer suffice. Skill-based education is a must, as is science and math. The private sector is the source of long-term job creation, but in the short-term, no rational observer can believe that global or even small businesses will invest here when the (skilled) labor over ‘there’ is so much cheaper.” (Government Should Do More to Foster Job Growth 6/21/11)
Gas "Dirt Cheap" in U.S. compared to most of the world - CNNMoney points out, "Most Europeans pay at least double what Americans do."
For example as of 6/27/11 unleaded gas in the U.K sells on average for £1.361/Liter or $8.28/gal. Some European countries pay even more. Much of the higher price is due to higher taxes (VAT).
U.S. Income Tax Rates also “Dirt Cheap” - The current top rate, with lots of deductions available, of 35% of taxable income over $379,150 compares to pre-Bush rate of 39.6%, and before that a whopping 70% for many years with a still-thriving economy.

Of the 32 wealthy nations that make up the Organization for Economic Cooperation and Development, U.S. corporations enjoy the lowest tax burden at only 1.8% of GDP - due to many deductions - so few pay stated top rates.. Revenue Statistics of O.E.C.D. Member Countries, 2010

U.S. tax revenue as a percentage of GDP is at the lowest level in 60 years. Chief executives at 300 large U.S. companies earned an average $11.4 million each last year - about 343 times average worker pay – the largest gap in U.S. history and by far the widest gap in the world. (AZ Republic 6/5/11)

In the U.K as an example, their top rate is 50% on income over £150,000 ($241,215). They have a personal allowance similar to the U.S. but phased out based on income, and no itemized deductions. In addition Brits have a value added tax of 20% on most goods and services.

U.K. inheritance tax is 40% on estates with a £325,000 exemption ($522,632) vs. the U.S. exemption of $5 million and top rate of only 35%.

Brits also pay a National Insurance Tax (somewhat like Social Security) of about 20% of income split between worker and employer (vs. 10.4% combined in the U.S. up to $106,800 and then zero, plus 2,9% for Medicare with no cap.)

British taxes also pay for a medical care system based on the idea that good healthcare should be available to all, regardless of wealth. Medical care in their view is too important to be profit centered. The U.K. system has no $million executive bonuses or the goal to maximize profits for shareholders. However, like in Canada a Brit may have to wait for certain procedures and may not get expensive treatments for marginal improvements in life quality. The United States health system despite being the most expensive in the world has not resulted in superior care by most heath studies.

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