Hobos and welfare for America's Rich – Telegraph Blogs

Leave it to a British columnist to point out a potentially difficult social problem arises in America.

This from Ambrose Evans-Pritchard in the London Telegraph:

...Republicans on Capitol Hill who backed the mobilization of $3 trillion of fiscal and monetary support to bail out the financial system are now going to great efforts to prevent the roll-over of temporary benefits to 1.2m jobless facing an imminent cut-off.

I don’t wish to enter deeply into an internal US dispute....but I do think think that the American political class will have to face up to the new reality of a semi-permanent slump for a decade or more that will blight a great number of lives. The cyclical recovery that normally makes it possible for most Americans to find a job if they want one is not going to happen this time because the overhang of debt, fiscal tightening, and a liquidity trap have combined to jam the mechanism.

And Ambrose goes on:

At some point this will become very political. Everybody knows that the wealthy have in fact been bailed out. Part of the purpose of quantitative easing was to raise asset prices, in the hope that this would course through the economy – and ultimately trickle down. The rich have benefitted enormously from federal action...

...But once welfare has been deployed so generously for the rich, it cannot be denied so easily for the poor. This was the Faustian Pact.

Part of the American ethos, it seems to me, is a belief that if one works hard and plays by the rules they can realize a share of the American Dream.

This is the reason that most Americans don't begrudge somewhat becoming wealthy, since most of us believe that we, too, have the same opportunity.

But with real incomes stagnant for more than a decade, housing prices continuing to fall, and the broader measure of U.S. unemployment 16.5%, it is harder to keep the Dream alive.

Besides being of concern to us citizens, what kind of investment implications does all of this have?

For a start, I would think that tax rates on the wealthy might rise far more than many are anticipating. For example, most of my clients are assuming that the federal estate tax will be permanently moved to begin above $3.5 million, just where it was in 2009. However, I am beginning to think that it might just revert to $1 million, where it was in 2001, and where it still is in many states (including Massachusetts).

I am also thinking that the tax rate on dividend income might go to the maximum 39.6% compared to 15% currently.

More to follow.



Hobos and welfare for America's Rich – Telegraph Blogs