Americans' Income and Spending Drop, Despite Stimulus
by: Mark Trumbull
The Christian Science Monitor: Friday 30 October 2009
Household disposable income stagnated in September, and spending fell
0.5 percent, the government reported. The figures call into question the
strength of the economic recovery.
American households cut spending and saw income stagnate in September,
despite a massive government stimulus program propping up their bank
accounts.
Personal disposable income decreased 0.1 percent, after adjusting for
inflation, the Commerce Department reported Friday. Personal spending fell
0.5 percent, after four months of gains.
The hit to household bank accounts would have been worse without the
massive federal stimulus program designed to prop up economic activity. The
nation's inflation-adjusted personal income has been sloping downward during
2009, when government transfer payments are subtracted out. But including
the transfer payments - which have risen because of the stimulus efforts
since February - total personal income is about where it stood early in the
year.
"Households are depending on transfer payments from the government just
to stay even," economists at the investment firm Goldman Sachs wrote in an
analysis of the report. "While the downward momentum [in wages] has abated,
it has not turned positive. Meanwhile, income on assets - interest and
dividends - continues to drop."
The report raises questions about the strength of the economic recovery
that economists believe is now beginning.
Incomes have fallen for many Americans because of unemployment, while
others have seen pay raises vanish. In this tough climate, consumers remain
reluctant to spend. The end of one government stimulus program - the "cash
for clunkers" incentive to buy a car - contributed to the overall weakness
in consumer spending.
The concern about consumers helped push stock prices down Friday in
morning trading. The news also came as the Obama administration released an
estimate that its $787 billion stimulus program has saved or created 650,000
jobs. Critics say the stimulus so far failed to create genuine job growth in
the economy.
Many of the stimulus provisions have bolstered disposable incomes,
however. Americans are paying less in taxes because of the stimulus, and
they are getting more money from programs like Social Security and
unemployment insurance.
"Only an increase in government transfer payments prevented an overall
decline in incomes," says economist Nigel Gault of IHS Global Insight, in a
written report Friday. "Consumer spending will probably continue to grow,
but at a more subdued pace" than the 2.6 percent annual rate seen from June
to September.
To some extent, transfer programs naturally go up during recessions,
and people naturally pay less in taxes. That's because of programs linked to
economic hardship, such as unemployment insurance, and because a recession
drags down taxable income for people who lose jobs or who have stock-market
investments. But the stimulus measures this year have added greatly to that
typical pattern.
***
http://www.socialistproject.ca/bullet/268.php#continue
Economic Crisis Hits States and Municipalities
"At a time of crisis, while the federal government injects unprecedented
stimulus (tax cuts and expenditure increases) into the U.S. economy, the
fifty states are doing the opposite."
by Rick Wolff
The B u l l e t: November 2, 2009
Crises expose the system's irrationalities and wasteful resource
allocations. For example, Madoff and his many, smaller imitators reveal the
tips of corruption icebergs. More important, the crisis-induced fiscal
emergencies looming in most of the 50 states demonstrate several absurdities
in our economic system.
The Center on Budget and Policy Priorities (CBPP) in Washington, DC monitors
and calculates the gap between the fifty states' tax revenues and
expenditures. The following recent *CBPP chart compares the total state
budget shortfalls in both the last recession and the current one. Today's
record shortfalls measure how many billions states will need to raise in
additional taxes or cut their expenditures (or combinations of both) in this
and coming years. (*The chart was 100kb's, too big for many on this list.
Much of the information is in the text below, or click on the URL -Ed)
At a time of crisis, while the federal government injects unprecedented
stimulus (tax cuts and expenditure increases) into the U.S. economy, the
fifty states are doing the opposite. State tax hikes and expenditure
reductions will continue to undermine or slow any recovery. Moreover, the
American Recovery and Reinvestment Act (Obama's stimulus program) has offset
only modest portions of the states' fiscal budget shortfalls for 2009 and
2010. The CBPP estimates that the worst of the budget crisis will hit states
in 2011 and 2012. The carnage will total a huge net $260-billion even after
allowing for the federal stimulus funds still available then to flow to
states. Another way of putting this is to note that the just released third
quarter (Q3) of 2009 Gross Domestic Product (GDP) number was lower than it
would have been without the depressing effect of the fifty states' tax hikes
and expenditure cuts. We saw states and municipalities spend 1.1% less in Q3
than they had in Q2, despite rising need.
State taxes are generally more regressive than the federal income tax and so
fall relatively harder on middle and lower income groups. Likewise, state
expenditures tend more immediately to impact those same groups since they
include major supports for public education and myriad social programs. The
negative economic effect of the states' fiscal crises will heavily impact
the mass of U.S. citizens already angered by high unemployment and
foreclosure rates as they observe trillions of bailout dollars flowing to
banks and corporations 'too big to fail.'
The CBPP also studied what kinds of budget decisions the states have already
made because of the crisis. Key findings include the following:
a.. 27 states have reduced health benefits for low-income children and
families;
b.. 25 states are cutting aid to K-12 schools and other educational
programs;
c.. 34 states have cut assistance to state colleges and universities;
d.. 26 states have instituted hiring freezes;
e.. 13 states have announced layoffs; and
f.. 22 states have reduced state workers' wages.
Since the worst of the states' budget shortfalls lies ahead, we can expect
all of these numbers to deteriorate further.
These state actions not only undercut the federal government's short-term
stimulus goals; they also impose long-term costs on the economy in the
diminished health and education of the U.S. workforce. Just when the mass of
Americans need more help and support from their state governments, our
economic system provides them with less. This raises the human and fiscal
costs of the crisis.
If the states represent a fiscal train wreck, then the nation's cities and
towns represent another train not far behind and hurtling toward the wreck.
The basic revenue for U.S. cities and towns comes from property taxes on
land, homes, stores, factories, offices, and automobiles. As the prices of
most of those properties fall, eventually the local property tax revenues
from them also fall. Reassessing those property values usually takes a few
years. Thus, the likely drop in tax revenues for cities and towns will only
hit over the next few years. Their fiscal distress will then pressure them
to raise tax rates, cut expenditures, or both. Doing so will counteract what
the federal government is trying to do for the economy thereby worsening
what the states are already doing.
The depth and duration of this crisis has thus only begun to bite deeply
into the economy. Its negative social consequences, in the short and long
runs, are rising fast. Recent GDP numbers point to the ability of torrents
of deficit spending (and a fall in the U.S. dollar's exchange rate with
other major currencies) temporarily to lift the total volume of sales.
However, the much touted GDP numbers for the second half of 2009 do not
represent beneficial economic change for the mass of citizens.
For those who are willing to look beyond the usual economic blinders, here's
an old suggestion that only seems new because of the effective ban put on
public discussion for so long. At the present time, the vast majority of
U.S. states and municipalities exempt intangible property from property
taxes. That is, stocks and bonds are kinds of property not subject to the
taxes on other kinds of property (land, houses, etc.). If we imposed a very
low rate of property tax on intangible property, it would cover the present
and anticipated fiscal shortfalls of U.S. cities, towns, and states.
Moreover, an intangible property tax would fall on those most able to pay,
those who fared best since the 1970s as the gap between rich and poor
widened sharply. If coordinated across all states and cities (perhaps levied
and collected by Washington and then returned to states and municipalities),
intangible property owners would have no incentive to move it from one place
to another.
In short, an intangible property tax is a logical as well as long-overdue
reduction in the unfairness of a property tax system that exempts just that
kind of property - stocks and bonds - mostly held by the richest citizens.
Indeed, an intangible property tax could exempt, say, the first $150,000 of
intangible property per person to avoid hurting small owners and compensate
by a progressive intangible property tax schedule for all the larger owners.
By falling most on the wealthiest among us, it would have a significantly
less negative impact on total spending than broad-based state and local tax
increases or public expenditure cuts. An intangible property tax thus
represents the best state and local response to the current crisis,
minimizing its long-term costs and bringing some justice to the tax
system. .
Rick Wolff is a Professor Emeritus at the University of Massachusetts in
Amherst and also a Visiting Professor at the Graduate Program in
International Affairs of the New School University in New York. Check out
Rick Wolff's documentary film on the current economic crisis, Capitalism
Hits the Fan, and his website at www.rdwolff.com. This article first
appeared on the MRZine website.
~~~~~~~~~~~~~~~(((( The B u l l e t ))))~~~~~~~~~~~~~~~
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