I'm the CFO of a small manufacturing company in Brooklyn, NY. At our holiday party, a welder making a decent salary (60K per year) said he couldn't pay his rent last month. I don't know were his politics lie, but progressive messaging probably means little to him and doesn't help him better pay his rent or quell his concerns. The message we progressives offer is that the rich need to pay their fair share, its cruel to not extend food stamps, extend unemployment insurance or cut social security and medicare. All issues I agree with, want to see our government provide more of and because these policies can end the current recession or prevent a depression. However, the welder probably sees none of these policies as being important to him and just wants to pay his rent. He may be sympathetic to those who have less, but isn't motivated enough to change government policy.
None of which helps my fellow worker pay his rent. The sales tax in NYC is 8.875%. The banks, the 21st century oligarchs have probably raised his rent close to $2,000. His Federal tax is 23-25%, Sate taxes are 5-6% and fica and medicare is another 7.651% for a total of 38% in income taxes or $22,800. If his rent is $24,000 and taxes are $22,800 that's approximately $47,000 leaving him $13,000 a year out of $60,000 gross income to live. Say $,5000 or $6,000 of his spending is subject to sales tax, that's another $500 to $1,000 in sales taxes, leaving him with 20% of his gross income net of housing to live. In summary 40% is spent on housing and 40% is spent in taxes. The hard working welder and the rest of us are victims of debt deflation. Because his purchasing ability is so limited, he doesn't have money to spend to propel the economy so that other people who want to work are able too. The social security tax paid by the welder and the company which in turn lowers the wages the welder otherwise could be entitled too is 15.3%. The social security tax runs a surplus, so the welder gave the government of the richest country in the world a 0% loan to wage war in Afghanistan and Iraq. A good portion of the 25% federal tax the welder paid went to military spending where F-35's cost a 100 billion dollars a piece and to the banks who caused the debt deflation.
The building was bought by the highest bidder who got the largest real estate mortgage. The owner gets write offs for depreciation and interest, the net off which probably equals the cash flow in rent from the tenants which in turn is paid to the bank. The bank then uses the money it received to trade currency, derivatives or just uses it to meet capital requirements, productive purposes like funding a wind turbine are very few. Productive outlays to the productive economy are currently marginal. Governor Cuomo like many other Governors has capped property taxes so that our welder's quality of life from public goods will now decrease. The landlord surely won't pass any savings in real estate taxes from the capped property taxes when the increased cash flow allows him to either refinance the existing building or finance new properties so that the positive feedback loop contributing to debt deflation may continue. So my welder colleague will now have to deal with less in terms of public goods or capped property tax savings. The average homeowner also pays 40% of his income for housing which has the same debt deflation feedback loop as our company's welder. Shelia Bair tried to lower the front end ratio but was rejectecd by the banks and their lobbyists. She pushed for resolution of Citibank. FDR called them princes of real estate in addition to calling the oligarchs royalists.
The stock market rise is not an indication of gains in the "productive economy" but a cause of debt deflation. Stock values are based on future cash flows and high P/E's mean the slightest change in those cash flows can mean billions of loss in market value. If WalMart for instance decided or was required to pay $15 an hour to its workers, it would practically be meaningless to the current P&L, but if you extrapolate those wage increases over a number of years the loss in valuation to WalMart as well as other companies is significant. Analysts don't have the means of projecting the increase in spending those workers would have which would help the econonomy because of the lack of education at our business schools and belief in magic, neoclassical economics. Lastly, we all have to work harder to save because of a perpetual debt inflated stock market (The stock market is inflated becasue debt is cheaper than equity and companies borrow in order to pay dividends to ward off corporate raiders). The reason we all have to work harder is that compared to 40 years ago when a basket of blue chip stocks would yield a 5% dividend yield, today it is 2% which means the middle class has to work longer to save more, especially when you consider bubbles and their aftermath. The federal reserve has kept interest rates low so that retirees now have to invest in the stock market and hope they can time their trades to maintain enough wealth for retirement. CD's at 1.5% can't fund a 30 year retirement.
My son went to the emergency room and was told to purchase aspirin and a neck brace. No X rays, just a nurse visited with him for 20 minutes and the total bill to be reimbursed was $1,200, the copayment was $75. Every year, less and less people are enrolled in health insurance. The affordable care act will do little to change that projectory. Cancer, cardiac and other drastic disesase are still undercovered and will still be the major causes of bankruptcy. Because less and less people are enrolled in health insurance, then the only way to increase earnings, "future cash flows or EBITDA" is to increase the premiums which the welder's employer will need to pay in February of 2014. The welder's wage cost to a NYC manufacturer will increase so that health insurance executives can get bonuses and the shareholders will be able to keep their stock market value capitalization.
The oligarchs have taken over the purpose of government by making us all pay tribute by either working harder to live or even retire. Sales taxes and debt inflated asset keeps our welder down, from owning real estate of his own or having a disposable income which enables others to work.
I'm all for helping the most needy. If we say we are for fairness where welders pay less income taxes than a hedge fund manager, we'll win. We can win if we help our welder get a better deal in housing and health insurance. The natural price for real estate should be approximately 10 year or 120 months of rent. Greater values should be capped not by capping property taxes but by capping depreciation deductions as well as deductions for mortgage interest. The homeowner/renter/citizen unfortunately beleives they have control or are responsible over what they pay for housing and they are to blame when they can't afford housing, that's what propaganda serves to achieve. If real estate is valued over its natural cost, deductions for interest and depreciation could be phased out so that our welder has a fair shot at getting a decent place to live at a decent rent. The federal government can lower sales taxes by giving less aide to states that use them (Less military bases or other federal spending). The welder shouldn't have to give a 0% loan to the government to wage war but should be able pay social security taxes on a pay as you go system like Germany does. The company I enjoy working for would get a better employee because we wouldn't be merely paying compensating wages, but wages our welder can enjoy a good living with!
After we win over the working people, we can tax wall street and the oil companies to build wind turbines, solar panels and geothermal sources of energy to have full employment and a better world where energy and work is local. The welder would stand up for such a world. We'd then be able to extend unemployment insurance in a down economy, food stamps and increase social security benefits.
See: Michael Hudson's speeck on Italy: Debt Deflation