The occupant of the White House may have changed recently. But the amount of ill-advised ideology coming from Washington has remained constant. Obama's list of economic errors is long -- and continues to grow. The president may have changed, but the excesses of American politics have remained. Barack Obama and George W. Bush, it has become clear, are more similar than they might seem at first glance. US President Barack Obama has not been shy about public spending. Ex-President Bush was nothing if not zealous in his worldwide campaign against terror, transgressing human rights and breaking international law along the way. Now, Obama is displaying the same zeal in his own war against the financial crisis -- and his weapon of choice is the money-printing machine. The rules the new American president is breaking are those which govern the economy. Nobody is being killed. But the strategy comes at a price -- and that price might be America's position as a global power. In his fight against terrorism, Bush had the ideologue Dick Cheney at his side. "We must take the battle to the enemy," he said -- and sent out the bomber squadrons toward Iraq on the basis of mere suspicion. The result of the offensive is well known. Obama's Cheney Obama's Cheney is named Larry Summers. He is Obama's senior-most economic advisor, and like the former vice president, he is a man of conviction. The financial crisis may be large, but Summers' self-confidence is even larger. More importantly, President Barack Obama follows him like a dog does its master.
The occupant of the White House may have changed recently. But the amount of ill-advised ideology coming from Washington has remained constant. Obama's list of economic errors is long -- and continues to grow.
The president may have changed, but the excesses of American politics have remained. Barack Obama and George W. Bush, it has become clear, are more similar than they might seem at first glance.
US President Barack Obama has not been shy about public spending. Ex-President Bush was nothing if not zealous in his worldwide campaign against terror, transgressing human rights and breaking international law along the way. Now, Obama is displaying the same zeal in his own war against the financial crisis -- and his weapon of choice is the money-printing machine. The rules the new American president is breaking are those which govern the economy. Nobody is being killed. But the strategy comes at a price -- and that price might be America's position as a global power.
In his fight against terrorism, Bush had the ideologue Dick Cheney at his side. "We must take the battle to the enemy," he said -- and sent out the bomber squadrons toward Iraq on the basis of mere suspicion. The result of the offensive is well known.
Obama's Cheney
Obama's Cheney is named Larry Summers. He is Obama's senior-most economic advisor, and like the former vice president, he is a man of conviction. The financial crisis may be large, but Summers' self-confidence is even larger. More importantly, President Barack Obama follows him like a dog does its master.
The program is attractive to towns and cities because the federal government pays borrowers [read, bond issuers] 35 percent of the interest cost if they issue taxable debt instead of tax-exempt securities for capital projects. ... More than 110 borrowers from New Jersey to California sold the securities since the first sale in April. Strategists at London-based Barclays forecast about $150 billion [read, face value] in taxable municipal securities will be issued before the program expires at the end of 2010. Build America bonds are part of Obama's efforts to lift the economy out of the deepest recession since the 1930s. The government and the Federal Reserve have agreed to lend, spend or guarantee $12.8 trillion to support the financial system. ... The Treasury prefers the taxable bonds because tax-exempt debt mostly benefits investors in higher tax brackets, said Krueger [another Princeton economist], who also testified last month at a House Ways and Means subcommittee hearing on the programs. Taxable municipal securities are more "efficient" than tax-exempt, he said.
More than 110 borrowers from New Jersey to California sold the securities since the first sale in April. Strategists at London-based Barclays forecast about $150 billion [read, face value] in taxable municipal securities will be issued before the program expires at the end of 2010.
Build America bonds are part of Obama's efforts to lift the economy out of the deepest recession since the 1930s. The government and the Federal Reserve have agreed to lend, spend or guarantee $12.8 trillion to support the financial system. ...
The Treasury prefers the taxable bonds because tax-exempt debt mostly benefits investors in higher tax brackets, said Krueger [another Princeton economist], who also testified last month at a House Ways and Means subcommittee hearing on the programs. Taxable municipal securities are more "efficient" than tax-exempt, he said.
eh?
Individuals with gross incomes of more than $500,000 a year claimed 44 percent of the $72 billion in interest on municipal bonds that wasn't taxed in 2006 [?], according to the most recent data from the Internal Revenue Service. Of the 143 million household tax returns filed in 2007 [?], 6.3 million [4.4%] claimed they received $76 billion [?] in tax-exempt interest, up from 6 million and $73 billion in 2006. ... Fischer estimates the Treasury will pay about $240 million for the first $13.5 billion of bonds, subsidizing securities that have an average coupon of 7.5 percent and taxing that interest at an average 11 percent. Most of the buyers are institutions such as mutual funds and pension funds that don't pay taxes, he said. If sales reach $80 billion, the cost of the subsidies could exceed $1 billion a year, he said.
Fischer estimates the Treasury will pay about $240 million for the first $13.5 billion of bonds, subsidizing securities that have an average coupon of 7.5 percent and taxing that interest at an average 11 percent. Most of the buyers are institutions such as mutual funds and pension funds that don't pay taxes, he said. If sales reach $80 billion, the cost of the subsidies could exceed $1 billion a year, he said.
Eh?
Tax exempt interest is of disproportional benefit to high earners. An example would be UK government savings certificates, which are regularly recommended as an exceptional deal for higher rate taxpayers.
Taxpayer A holds tax exempt government bonds, paying 2% pa.
If he pays the lowest marginal tax rate on savings of 10%, his equivalent rate of return on the certificates (what he'd have to earn elsewhere to get the same cash return) is 2%/0.9 = 2.22%.
Taxpayer B is a higher rate taxpayer, and his marginal tax rate is 40%.
So his equivalent rate of return on the same bonds is 2%/0.6 = 3.33%.
Opportunitycost! In the US however the tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates: 0%, 15%, 25%, and 28%. The effective rate (0%, 15%, 25%, and 28%) is dependent on calculation of taxable adjusted gross income. IRS. The greater one's adjusted gross, the higher one's applicable rate on distributions. Tax owed on net gain (loss) is calculated and reported under separate cover.
I was expecting a simple example based on volume --purchase power and level of interest-bearing 'savings'. And perhaps effects of defined contribution schemes on adjusted gross income. That's the sort of financial incentive in play to increase investment participation among 'lower income' employees ...especially women. And that policy objective is a definingfeature of Obama campaign literature.
For example, Taxpayer A's gross income is $500K. Thanks to pre-tax payroll retirement plan participation, A contributes 15% of income to purchase Build America bonds. $75K
Taxpayer B's gross income is $125K. Thanks to pre-tax payroll retirement plan, B contributes 15% of income to purchase Build America bonds. $10.75K
Taxpayer C's gross income is $45K. Sadly, Taxpayer C's employer does not offer pre-tax payroll retirement plan. So C invests 15% of after-tax earnings in Build America bonds, paying, say, $5K online for 5 coupons.
Taxpayers A, B, C will each elect the 35% discount ("tax credit") of taxable BAB income and pay applicable tax rates (according to adjusted gross) on the remainder. Taxpayer C may well pay 0%, having collected the least amount of interest from the least amount of 'savings' at any rate.
Eh. The tax shibboleth avoided is two-fold.
(One broker's summary:) The first type of BABs provide a Federal subsidy to investors equal to 35% of the interest payable by the issuer ("Tax Credit BABs"). The second type of BABs provide a direct Federal subsidy that will be paid to state and local governments in an amount equal to 35% of the interest ("Direct Payment BABs"). Both types of BABs must be issued before January 1, 2011.
Note here that the issuer must choose either direct subsidy --or-- taxpayer discount. Further, AFAIKreadingIRSguidance, issuer is not prohibited in any case by fed PPIP terms from taxing interest earned by the bondholder. As if underscore the crucial benefit mechanism derives from defined contribution participation,
Build America Bonds are intended to expand the market for municipal bonds by attracting buyers that normally would not buy tax-exempt bonds [or taxable bonds]. Potential investors of BABs include investors in low income tax brackets, individual retirement accounts, public pension funds and foreign investors.
