August, 2011 has been a rough month already for the U.S. economy, and we are only in the first week of the month!
Important Events That Affected The U.S. Economy During The Week Ending August 6, 2011
First, the Dagong Global Credit Rating Co, Ltd in China cut the U.S. credit rating from A+ to A because it was felt that the planned increase in GDP and tax revenues could not keep up with the expected increase in debt in the coming years. With China being the United State’s largest creditor, the news cannot be a positive for the U.S., and I wonder if more countries will follow suit.
Second, the stock market had it’s largest single day drop since 2008, and the S&P 500 was down more than 7 percent for the first week in August. There were various reasons for the stock market decline, including disappointing personal spending numbers, global economy worries, and fear a possible S&P downgrade of the U.S. credit rating.
Third, Standard and Poor’s went and reduced the credit rating for the U.S. from AAA to AA+. The reduced credit rating is not simply because our nation is overwhelmed with debt. It is also a reflection of the fact that our government couldn’t seem to come to a debt deal in a reasonable manner. As a matter of fact, John Chambers, the Managing Director at Standard and Poor’s, made the following statement to the Financial Times: “The political discourse has diminished the credit standing of the United States”. Actually, I find it interesting that it has actually taken this long for the U.S. credit rating to be lowered. Mainly because, if my personal balance sheet looked like that of the U.S., I would not expect to have a pristine credit score. As a matter of fact, I think I would be considered a credit risk. (Of course, Timothy Geithner would disagree with me…)
So, how does the United States get out of this mess? There are a million different opinions out there, some good and some crazy. One thought I have heard from many is that we just need to tax the rich, then everything will be great.
I Have An Idea: Lets Tax People ‘Fairly’
According to an article by the Associated Press in April of 2010, 47 percent percent of Americans pay zero Federal Taxes, and many actually get a refund because of all the tax breaks available. (Meaning, they get a full refund of what they initially paid in Federal Taxes through payroll deductions, plus a little extra!) In addition, the top 10 percent of wage earners provide approximately 73 percent of the Federal income taxes collected by the government. How can people legitimately say that the rich are not taxed enough? What percentage of income taxes should the rich cover? 80%? 90%? 100% Do people not realize that many of the rich actually stimulate the economy through investing, providing jobs, and spending? Keep taking income away from the rich, and you just might see other areas of the economy being affected. You can’t just expect one segment of the population to provide resources for everyone without consequence. (However, I am all for making the rich that evade taxes being held accountable, however, the current tax system that is in place makes it possible for those with income at any level to avoid taxes.)
I am not saying that the poor take on more of a burden. However, I a huge proponent of a flat tax that would apply to everyone at or above a certain income level. No ‘write offs’, credits, or anything else. Everyone would just pay their 15 percent or whatever the percentage is to the government each year. Can you imagine filing your taxes if this came true? Just state your income, calculate the percentage, and hopefully you will have the amount you are expected to pay already covered through the Federal payroll deductions that were already made with each paycheck. Plus, a flat tax would hopefully catch people that intentionally evade taxes through loopholes currently, and force them to pay what they rightfully should. However, I don’t think creating a flat tax will eliminate the deficit. I think the whole debt picture is much more complicated than that, and there are a whole lot of cuts that need to be made also, among other changes. However, I do think creating a flat tax would increase tax revenue, and would also reduce the amount of government money spent on the IRS each year.
What do you think? Will taxing the rich even more fix the ills of our economy? What would you do to reduce the deficit?