I usually don’t pay much attention to tax matters unless something really dramatic is going on. Well, it is right now.
For everyone who receives W2 income, the FICA – Social Security – tax will be 2 percent more. That’s just the first of lots of new taxes. Think of it this way: Suppose you’re a retired citizen who had been in the habit of putting his or her money in the bank. You’ve earned a few extra bucks by babysitting for the neighbor’s children.
You don’t earn much, but it’s been building up over the years. But starting a couple of years ago, the interest rate the bank has been paying you is not much above zero – that’s nothing. Assuming you get a W2 for your occasional work – and I realize that not everyone does – an extra few dollars will be taken out of your check. They also raised the level at which you must pay Social Security tax, which might easily come to an extra several thousand dollars a year.
Sure, we have a staggering deficit and something must be done about it. But this basketful of new taxes is at odds with what the Federal Reserve has been trying to do for the past several years. What good does a ZIRP do – that’s a Zero Interest Rate Policy – if the IRS or Congress is sucking more money from you than you might be saving with the extra-low rates on your purchases?
Interesting, isn’t it, that even with these near historically low mortgage rates, the housing market has shown just the smallest whisper of a recovery? There are several reasons for this.
The zoom that we experienced in the early 2000s fed on itself. Even with lower prices and much lower interest rates, the frenzy to own a new home isn’t there. Next, banks are simply not loaning money with the same looseness that they were before the bank and housing crash. In fact, the standards have become so tough that even a well-qualified borrower may be out of luck. That could be someone with an annual income of more than $80,000, a credit score over 700, 30 percent down and a fair appraisal.
There’s yet another reason for the listless economy. The unemployment figure has hovered just under or over 8 percent, almost double what it was for the past 100 years – with the major exception of the Depression – with no good solution in sight. Actually, the economy may be worse that it appears.
Not all companies are laying off workers because business is bad. Many companies are doing their best to automate work previously done by men or women. The kind of automation being introduced is not the type you’re familiar with. Picture the paint room in an automobile assembly plant. Ten or 20 years ago, you might have had six or eight arms spraying the final coat after the primer had been applied. Now, just one arm is programmed to do all the work in half the time. Fewer workers to guide the arms – in fact, none at all.
There was a story on the Allison Diesel – formerly, I believe, owned by General Motors – and the speed with which locomotives were assembled with only one or two workers in sight. It was staggering. I predict, modestly, that that particular company, along with Cummins or Caterpillar, are downsizing for good even as their production goes up.
We’re living in a new economy.
Bud Stevenson, a stockbroker, lives in Fairfield. Reach him at [email protected]