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The Best Thing to Happen to America in a Long Time

Bruce Krasting's picture




 

 

It’s hard to describe how happy I am to see Walmart facing a slump. I’m delighted to see that the cause of Walmart’s problem is the 2% increase in Social Security withholding taxes.

 

It’s not just Walmart that is feeling the pinch from higher payroll taxes. According to today’s WSJ (link) damn near every company that has a retail sales base is getting nicked.

 

wsj

BI

 

We are witnessing what happens when tax rates go up. There is (new) definitive evidence that raising taxes decreases consumption. That notion is an old one, but I think the reality that is now being proven out in real time has to make a difference in how people think about taxes, government spending and the real economy.

 

Who is responsible for the increase in payroll taxes that is causing all the damage? Don’t blame the evil Republicans for this one. The liberal wing of the Democratic Party INSISTED that payroll taxes had to go up on January 1. Want to blame someone for the slump in retail? Blame Harry Reid (D-NV).

 

Why would liberal Democrats want to whack their base with higher taxes? Easy answer. Because they love Social Security more than anything else. They would sacrifice anything, including the economy and their political base, to protect SS from the criticism that it was no longer “Off budget and self financed”.

 

What an idiotic position. And now those who fought to get the full 12.4% tax reinstated are going to have to pay the price. The evidence is overwhelming; higher payroll taxes hurt the economy.

 

I've felt alone the past 4 years while writing articles on a weekly basis trying desperately to make the point that SS is at the heart of America’s economic problems. I have been vindicated. The ranks of those who will point fingers at SS is going to swell. Those apposed are now going to include all of the big retailers (and their shareholders). That will be a tremendous boost for those who are crying for substantial changes in America’s biggest entitlement program. I can’t wait for ‘them” to publicly come on-board to the opposition.

 

We are living with a program that was designed 75 years ago. Everything has changed – but not SS. The assumptions that were used in the 1930’s are no longer valid today. The ratio of workers to beneficiaries has fallen by 70%. The ratio of worker’s income to GDP has fallen steadily (the rise of the robots). We have substantial changes in expected life. The most significant challenge to SS is the Baby Boomers. Not one of the Boomers was a twinkle in the eye when SS was created.

 

1935 Plymouth - the year SS was created

4513257586_80f5a825db_z

 

 

America is driving a 77-year-old car. The car is dangerous. It has none of the modern safety devices; it burns leaded gas and has asbestos brake pads. It weighs twice as much as a new car, and only gets 8 miles to the gallon. Yet a small portion of the Deciders in D.C. have blocked any chance of bringing SS up to date, and making it safe to drive for the next 20 years.

 

The Social Security Trust Fund has said that to “fix” SS would require an immediate and permanent increase in PR taxes of 2.2% (above the 12.4% today). Based on the evidence of the past few months it’s easy to conclude that a tax increase of that magnitude would push the economy into a recession – Once in a slump, the economy would be hard pressed to recover.

Not only would higher PR taxes kill the economy, it would hurt lower paid workers the hardest. The evidence from Walmart reconfirms the fact that SS taxes are very regressive. They hurt the base of people that the liberals claim they are trying to protect. How can Senator Reid defend that outcome? He can’t.

 

NYT

 

There is an alternative. It would mean that we would have to junk the old clunker and get new, safe, energy efficient car. The new car would be expensive, but the payoff would be worth it.

 

SS taxes can’t be eliminated. The program is too big and very hard to unwind and IT IS needed. But SS taxes could be reduced by 3% if changes were made (Employer taxes would remain the same, worker’s payroll tax would fall from 6 to 3%).

 

The changes required to achieve the reduction in taxes have been discussed for years. There has to be changes in age eligibility over a longer period of time. Changes to inflation adjustments have to be made. There has to be an immediate means tax on benefits to fill the Baby Boomer bucket. The means test HAS to be based on both income AND assets. You can’t be a multimillionaire and get SS checks. That has to stop. Now. SS is, and always has been insurance. If you don’t need the insurance, you don’t get paid.

 

IMHO if individual payroll taxes were cut 50% from the current level, the economy would prosper. Unemployment would fall, incomes would rise. Federal tax revenues would increase, in the process, the deficits would fall. A permanent reduction in payroll taxes is the only chance I see for a sustained expansion of the economy.

 

So to the Execs at Walmart, and all of those other retailers that are feeling the SS pinch, I say "Welcome to the club". You can be the wind behind the sails for the changes that are needed. Just this once I will say that what is good for Walmart, is also good for America.

 

 

Note: Stan Druckenmiller (ex Duquesne Capital) was on TV last night with Maria Bartiromo . Stan is a very sharp guy. He said the same as I have. It’s idiotic that he gets a check from SS. The $200k he might get back in his life is not going to change his spending one bit. But it would make a world of difference to those who are making $40k a year. The Zero Hedge link to the Druckenmiller interview: Link

 

Hope

 

&

 

Change

 

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Fri, 02/22/2013 - 12:56 | 3267274 lunaticfringe
lunaticfringe's picture

Tax refunds were unavailable and late this year. I think it is that simple.

Fri, 02/22/2013 - 21:37 | 3268906 John_Coltrane
John_Coltrane's picture

That's why I always make sure I owe them. Then I file at the last possible date, prepare electronically to save me time but print out and mail (to make them expend time).  That's what everyone should do-max out your W-2 deducctions and pay later.

Stave the beast as much as possible.  The ponzi (that's SS and all state welfare) will eventurally collapse and only those with real skills (tools, electrical, building, farming, hunting etc) will survive.  Skills to make yourself as independent as possible is your #1 asset after good health and good physical shape.  All require discipline and thus are always in short supply compared to demand.

Fri, 02/22/2013 - 13:10 | 3267326 wonderatitall
wonderatitall's picture

and he believes there is a recovery too and easter bunny. or he dont want to bre droned by king obama

Fri, 02/22/2013 - 12:55 | 3267273 adr
adr's picture

Bruce,

It wasn't just the extra 2% in SS taxes. Other taxes went into effect at the start of the year, property taxes, sales tax increases, health insurance increases.

Walmart's decline is from the middle income people that have lost hundreds of dollars per month at the start of 2013. The welfare class can not fully support current retail America. Walmart, Target, Best Buy and the rest still have too much inventory dedicated to middle class buyers.

I was hit with $80 per month with the SS tax increase, my property taxes went up $30 a month, my heath insurance increased $75 per month, and my local sales tax went up .25%. Basically $200 a month up in smoke.

Add in the increase in food and gas prices and I would say it costs $500 more per month in 2013 than it did in 2012. My salary didn't increase and my wife also got her hours cut in half. I need to make up that difference as well.

So, I am not buying anything. Think I'm alone in that?

Fri, 02/22/2013 - 15:10 | 3267690 Greshams Law
Greshams Law's picture

adr is spot on.

Not only am I not buying anything (except junk silver coins), I cancelled cable a year ago and use a $10/month flip phone. My new hobby is reducing my tax footprint. Uncle Sam got 60% less from me in 2012 than 2011. He will get another 30% haircut from me this year. I even sell plasma twice a week. It goes toward silver and ammo.

Increase tax rates all you want. You will get less and less from me. I'm a creative problem solver and take it as my sacred patriotic duty to starve the beast.

Fri, 02/22/2013 - 15:26 | 3267740 Things that go bump
Things that go bump's picture

Can I hear an amen?

Fri, 02/22/2013 - 15:19 | 3267720 fonzannoon
fonzannoon's picture

good for your gresham. Bruce wrote about the answer to your hobby a while back. It's red money. Good for you for going the silver route. People going to cash are going to be in a world of hurt.

Fri, 02/22/2013 - 14:37 | 3267581 fonzannoon
fonzannoon's picture

ADR my wife turned a clogged sink into a bathroom demo because she watches too much HGTVG and thought it was cute to have a "project". I made her borrow the money from her own 401(k) and told her she is fkin insane. This shit is going to cause a lot more problems than penny pinching in my house.

Fri, 02/22/2013 - 14:53 | 3267639 waterhorse
waterhorse's picture

"I made her borrow the money from her own 401(k) and told her she is fkin insane."

Why is she insane?  I think she's pretty smart to get to her own money before TPTB steal it from her.  Too bad she can't get it all out, without suffering major penalties.

Fri, 02/22/2013 - 15:27 | 3267715 fonzannoon
fonzannoon's picture

Well I agree about the 401k part and it was my idea to do that because of your line of thinking.

She is insane because we had a functional bathroom with a minor issue that she decided to turn into a several thousand dollar project with money we don't have because she sees our asshole friends digging their own debt graves and she was jealous.

Fri, 02/22/2013 - 19:27 | 3268568 Parrotile
Parrotile's picture

Debt is debt, whether it's private or public.

If it is in the interests of the Ruling Elite to "socialise" the private debt (in order to placate an unruly public for instance), then this will happen.

So you might as well "live large" now whilst you can, and let someone else pick up the consequences.

I suspect this is what will happen in many (if not all) the "Western" economies, and the consequences are going to be quite interesting.

Fri, 02/22/2013 - 14:15 | 3267515 Bicycle Repairman
Bicycle Repairman's picture

LOL.  Gasoline?  Minimum wage?

Bruce is a moron.

Fri, 02/22/2013 - 13:38 | 3267401 aerojet
aerojet's picture

Nope, dead on!  My cable bill just went up $27/month inexplicably.  I have to cancel it--going Galt on these assholes every place I can.  I need Internet for work and the kids, though.  For now.  I'm thinking I might start hauling my own trash to the dump, too.  Stick it to those fuckers as well.  What is happening to us right now is such bullshit--especially while Buffet and Soros are pocketing even more billions that they don't know how to spend.

Fri, 02/22/2013 - 13:12 | 3267333 Moe Hamhead
Moe Hamhead's picture

I live in Florida.  My property taxes doubled this year!

Fri, 02/22/2013 - 12:55 | 3267272 Dan The Man
Dan The Man's picture

Poor people...who cares

Fri, 02/22/2013 - 12:54 | 3267258 lasvegaspersona
lasvegaspersona's picture

Bruce

a guy with a million in assets is almost as dependent as the guy with none in the ZIRP world!

Yes one can slowly spend down the assets but for a guy who has played by the rules and paid in all his 50 working years who was planning on having the extra $2k/month, well he would be screwed by an asset assessment. Don't mention the horrible loss of liberty in having the government demand to know all of ones assets!!!!  Hell no!!!  Decisions were made, kids were born, colleges were attended and yes some money was spent on pleasure....because the $2k/month was going to be there.

Now you suggest a change?

Actuarily this has been known for years. None of this should surprise a guy who knows how to use a spread sheet and has access to life expectancy tables. I believe the correct way out is to fulfill the promises nominally and let people prepare for the hyperinflation that will eventually be caused.

The government always does this. It is the plan. Let it happen.

Fri, 02/22/2013 - 13:53 | 3267454 Winston Churchill
Winston Churchill's picture

Trouble is you are looking at  this thru' the prism of the last fifty years.

Those five decades were a historical abberration.We are reverting to the norm.

Work until you drop,except for a  lucky few,and I don't mean Govt. employees either.

Their promised pensions will never materalize except in worthless benbux.

We are in the endgame of the current system,hedge accordlingly.

Fri, 02/22/2013 - 13:52 | 3267451 chubbar
chubbar's picture

Cut the Military Industrial Complex by the amount necessary to fund SS. Case closed. I'm not agreeing to any fucking cuts on any safety nets until they get serious about reining in spending on all the non critical items currently in the budget. To include all the stupid, unnecessary jobs they've ginned up for jobs programs (cough, DHS, cough) these past couple of decades along with the unaffordable pensions they've granted to the folks doing the jobs, etc. We shouldn't be sending one fucking dime over to Israel and all the other countries and be having a conversation about cutting SS. I don't give a shit that TPTB say that aren't related, they are. They all come out of the same pile of money and for us to sit here and be diverted from recognizing this fact is one more way they keep us arguing amongst ourselves.

Fri, 02/22/2013 - 14:38 | 3267583 Omen IV
Omen IV's picture

"Cut the Military Industrial Complex by the amount necessary to fund SS"

TELL ME HOW MUCH OF THIS CRAP DO YOU NEED:

http://www.bloomberg.com/slideshow/2013-02-19/ten-giant-weapons-in-the-p...

Fri, 02/22/2013 - 14:49 | 3267618 TPTB_r_TBTF
TPTB_r_TBTF's picture

I need a tennis court,

so i'll take this "CRAP".

Fri, 02/22/2013 - 13:13 | 3267332 Vooter
Vooter's picture

Yeah, really! So let me get this straight, Bruce: You're going to means-test me now after I've been contributing to this thing for 35 years? And if I fail the test by having too many assets, you're going to tell me that all of this money that I've been putting aside FOR MYSELF should now simply be given to others? LOL...that sure sounds awfully SOCIALIST of you, Bruce! FUCK THAT--give me back my money...

Fri, 02/22/2013 - 13:56 | 3267462 bnbdnb
bnbdnb's picture

You going to give all the people who died before collecting their money back too?

Fri, 02/22/2013 - 14:46 | 3267607 TPTB_r_TBTF
TPTB_r_TBTF's picture

yes, if they request to get it back, then they should...

Fri, 02/22/2013 - 15:01 | 3267659 bnbdnb
bnbdnb's picture

....umm they are dead....

They paid for your benefits.

How is that fair?

Fri, 02/22/2013 - 15:41 | 3267795 TPTB_r_TBTF
TPTB_r_TBTF's picture

 

 

> ....umm they are dead....

so they donT need any payments.

> They paid for your benefits.

Nobody paid for my benefits.  There will be no SS when i am of age.

> How is that fair?

What planet are you from?

Fri, 02/22/2013 - 15:47 | 3267813 bnbdnb
bnbdnb's picture

I'm just pointing out the stupid argument that everyone should get what they paid in. Obviously not. People who die before they collect anything are screwed twice. They have their money stolen and they die early.

Fri, 02/22/2013 - 16:04 | 3267862 TPTB_r_TBTF
TPTB_r_TBTF's picture

Well then, during the coming die off, a lot of people will be screwed twice.

Fri, 02/22/2013 - 15:26 | 3267744 Vooter
Vooter's picture

Well, assuming they retired sometime in the decades after 1935 (or whenever SS began), THEY GOT PAID TOO.

Fri, 02/22/2013 - 15:45 | 3267810 bnbdnb
bnbdnb's picture

They died before they could collect.

Fri, 02/22/2013 - 13:41 | 3267413 Imminent Crucible
Imminent Crucible's picture

Vooter---you can't blame Bruce on this. The federal govt, the CBO, etc have always said that the payroll tax is a TAX, not a defined contribution to a pension fund. They've also said that SS is a "discretionary program that can be reduced or canceled at any time". And the SS program WAS instituted as insurance against penury in old age.  The problem is that the trash in Congress have always trained us to think of SS as an entitlement the way you do. It's a vote-buying scheme, and it always was. Like Sen. Proxmire said, "I've got over 600,000 constituents who are on SS. They're going to get their benefit checks. Whether they buy anything when they get them is another matter entirely".

Now, for Bruce: "The program is too big and very hard to unwind and IT IS needed."

Well, yes. It's needed for two reasons. The first is that a lot of people will refuse to provide for their old age no matter how many times you tell them that old age is not an unexpected crisis, it happens to everyone. So we HAVE to make sure they get a subsidized retirement so we don't have to see a bunch of old homeless coots starving on every city street corner. I don't know what to do about that, other than let them starve.

The second is, the program is needed because EVERYONE has been stealing us blind through taxes, fees, bank frauds, more taxes, bailouts, more bank frauds and CONSTANT currency debasement.  I can provide for my own retirement perfectly well as long as I don't have to pay for 37 senseless wars, giant pensions for fat desk sergeants on the police force, rescue the giant gambling houses on Wall Street while also funding Pat Schroeder's and Nancy Pelosi's retirements, not to mention Moochelle's London shopping sprees and Oskeet shooter's golfing vacations.

None of that is going to stop, and it isn't just SS that's going off the rails. It's our entire system, unless the looting and scamming stops yesterday.

Fri, 02/22/2013 - 16:01 | 3267855 g speed
g speed's picture

IC-- don't forget divorce and the corrupt lawyers/courts on the take.

Fri, 02/22/2013 - 15:29 | 3267750 Vooter
Vooter's picture

"The problem is that the trash in Congress have always trained us to think of SS as an entitlement the way you do."

Well, then, I guess they shouldn't have done that! But that's their problem, not mine...

Fri, 02/22/2013 - 14:49 | 3267621 waterhorse
waterhorse's picture

"The second is, the program is needed because EVERYONE has been stealing us blind through taxes, fees, bank frauds, more taxes, bailouts, more bank frauds and CONSTANT currency debasement. I can provide for my own retirement perfectly well as long as I don't have to pay for 37 senseless wars, giant pensions for fat desk sergeants on the police force, rescue the giant gambling houses on Wall Street while also funding Pat Schroeder's and Nancy Pelosi's retirements, not to mention Moochelle's London shopping sprees and Oskeet shooter's golfing vacations."

Thank you for that.  THAT paragraph is the crux of the problem.

Fri, 02/22/2013 - 14:09 | 3267501 suteibu
suteibu's picture

"The federal govt, the CBO, etc have always said that the payroll tax is a TAX, not a defined contribution to a pension fund."

Yes, and they continue to insist that the income tax is voluntary.  What the government says from a technical viewpoint does not change the belief of the population.  That's what you get from a system with tens of thousands of laws and a tax code that no one understands, including the government.

Fri, 02/22/2013 - 13:49 | 3267437 Vooter
Vooter's picture

I'm not blaming Bruce. I'm merely pointing out what's going to happen in this country in the coming decades...

Fri, 02/22/2013 - 14:04 | 3267485 fonzannoon
fonzannoon's picture

Vooter is right, but the more important comment is this one:

a guy with a million in assets is almost as dependent as the guy with none in the ZIRP world!

 

Fri, 02/22/2013 - 16:39 | 3267996 Imminent Crucible
Imminent Crucible's picture

I see your point, fonz. But at least the guy with a million in assets has better choices than the guy with none. If I had a million in assets, I'd unload it all and buy a little house in Baja Cal (just saw a new one a block from the bay for $49k) and park myself there in the sun on the malecón. Could I live on the $30k yield after putting the rest of it into the long bond? Heh--don't make me laugh.

Matter of fact, I'm going to do it without the million in assets.

Fri, 02/22/2013 - 17:49 | 3268293 fonzannoon
fonzannoon's picture

I hear you man. It's sad where we are heading.

Fri, 02/22/2013 - 13:32 | 3267388 Bruce Krasting
Bruce Krasting's picture

Tks for this Vooter. I'm (trying) to write a book. The Coming Age Warfare

 

Catchy title, no? I'm using comments from my many blog post on this topic to drive home the point that this is WAR.

 

I will use your words; they're perfect. "FUCK THAT--give me back my money..."

 

That could be the opening line of the book.

 

Vooter - you have to trust me on this - there is no money with your name on it. It was spent years ago. That's history. The question is, What are you going to do about it?

Fri, 02/22/2013 - 15:37 | 3267756 Greshams Law
Greshams Law's picture

"What are you going to do about it?"

Plan is already in place. It is my sacred patriotic duty to get back every nickel. Already have rental properties (in my children's names) established in an undisclosed foreign location. I'll have my weight in silver coins unfortunately lost in a tragic boating accident. Go ahead and means test me. I'll qualify.

Fri, 02/22/2013 - 17:15 | 3268145 Orly
Orly's picture

You should be ashamed of yourself.

Typical baby boomer.  All about ME.

That's just sad.

:/

Fri, 02/22/2013 - 17:41 | 3268248 Moe Howard
Moe Howard's picture

I think the collectivist Huffington Post is elsewhere.

 

Here individualism is promoted.

Fri, 02/22/2013 - 15:09 | 3267689 shovelhead
shovelhead's picture

Collect disability and SS checks until they run out of money!

Let the youngsters fight it out with the drones.

Fri, 02/22/2013 - 14:13 | 3267511 Bicycle Repairman
Bicycle Repairman's picture

You'll try to promote age warfare to keep the people divided.

You won't succeed, but that doesn't mean you aren't garbage.

Fri, 02/22/2013 - 14:09 | 3267503 Shameful
Shameful's picture

Bruce you see that the money was stolen, so in effect by trying to "fix" the system you are proposing robbing younger people.  Good thing the youth of today aren't burdened by massive student loans and horrible job prospects...Speaking as a younger guy I could give a damn about the elderly.  I'll do my best to take care of my folks, but the rest, they are asking me to work to fund their lifestyle, pass.

Fri, 02/22/2013 - 15:59 | 3267847 11b40
11b40's picture

Why is that?  They worked to support your lifestyle, you stupid little punk.  You think you were born in a vaccuum?  You picked a pretty good moniker for yourself.

Fri, 02/22/2013 - 16:55 | 3267982 Bicycle Repairman
Bicycle Repairman's picture

Shameful forgets whose property taxes paid for his "free" K-12 education.  OK, given his comments you might want to question the "education" he was provided.  I'll simply say that he might not have gotten the education "I" paid for.

But why educate little "Shameful" at all?  Is it because he is a "special snowflake" whose self-esteem should never be dented?  Maybe?  Or maybe it was so he could live a productive life and pay my SS.

Now, Shameful, buddy, if after K-12 (when I stopped funding you and making decisions for you) you took out loans to get an Art history major, you'll have to pay those off loans somehow.  And that does not absolve you of your obligations to me.  15%, starting with the first dollar.  Every paycheck, baby.  For 40+ years.

Fri, 02/22/2013 - 16:58 | 3268069 Shameful
Shameful's picture

So you are claiming because you paid property taxes that you have a claim on my labor?  How was this deal struck?  Can I go to a newborn offer it a shiny bauble in exchange for a lifetime of servitude?  No one who has any degree of intellectual honesty believes that minors and none rational actors can be bound to a contract.  So making the claim that there is an obligation created by providing something to a minor without their knowledge is completely off base in any moral system.  But I forgot you want yours and you would gladly sell all the young people into slavery to get it.

Be a real man come out and say it, you want your money and don't give a damn if it has to be extracted via force labor camps.  Sure you aren't to old to be one of the guards.

Fri, 02/22/2013 - 17:29 | 3268190 Bicycle Repairman
Bicycle Repairman's picture

So you are claiming because you paid property taxes that you have a claim on my labor? 

Not merely "claiming" it, pal.

How was this deal struck? 

Ask your parents.

Can I go to a newborn offer it a shiny bauble in exchange for a lifetime of servitude? 

The state will do it for you.  If you try it yourself, you'll be arrested.

No one who has any degree of intellectual honesty believes that minors and none rational actors can be bound to a contract. 

So it's a cruel, dishonest world after all.  That used to be a part of the K-12 curricula until some bleeding heart removed it.

So making the claim that there is an obligation created by providing something to a minor without their knowledge is completely off base in any moral system. 

All "morals" are relative.  Surely they taught you that?

But I forgot you want yours and you would gladly sell all the young people into slavery to get it.

Not complete slavery just 15%.  If you destroy a guy, then you can't juice him.  Did they teach you that?  The golden goose, right?

Be a real man come out and say it, you want your money and don't give a damn if it has to be extracted via force labor camps.

I'm secure in my man (person)hood.  Camps won't be necessary.  One IRS audit typically does the trick.  They called me in to ask me why I missed a deduction.  Crazy, huh?  Camps have been set up.  Beats me as to why.  If it worries you, keep an eye on them.

Sure you aren't to old to be one of the guards.

I'm retired, dude and I'm done baby-sitting you.  Just crank out that wage income and we can still be friends.

Fri, 02/22/2013 - 18:09 | 3268348 Shameful
Shameful's picture

You know what that sounds like a good plan.  I should get me on that SS disability and kick back and enjoy the decline with you.  We can share a brew and laugh at all the suckers who are working for a living.  So long as the state has guns them checks will roll right?  Hell no one needs to work they got a printing press and suckers to buy the debt, we should all go on the dole.  Get my money for nothing and chicks for free.

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