Bill Bonner

Bill Bonner Austerity comes to the USA? Not exactly. But The Wall Street Journal reports that taxes are set to go up: First, the top marginal personal tax rate rises to 39.6% from 35% as the Bush tax cuts expire at the end of 2012. Second, a limit on itemized deductions will add a further 1.2 percentage points to the top rate. Third, a new 0.9% Medicare tax on incomes over $200,000 gets imposed ($250,000 for joint filers). Fourth, the top 15% rate on long-term capital gains rises to 20%. Fifth, dividends will once again be taxed at ordinary rates — 39.6% for the top income earners. Sixth, a new 3.8% tax on investment income gets introduced for incomes over $200,000 ($250,000 for joint filers). Seventh, the top estate tax rate goes from 35% to 55% (60% in some cases). The estate tax exemption falls to $1 million from $5 million (the gift-tax exemption also drops to $1 million and the rate adjusts hither to 55%). Unless action is taken, these tax increases will take some of the metal out of America’s already-anemic ‘recovery.’ *** And here’s something else that’s blocking the path to genuine recovery: Young people no longer start off in life with a clean slate. They’re heavily burdened with debt. They can’t spend. They can’t buy.  Bloomberg reports: As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.  “Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”  The Fed’s white paper said 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011, compared with 17 percent 10 years earlier. “These data suggest a large decline in mortgage borrowing by potential first-time homebuyers due to not only weaker housing demand, but also the effect of tighter credit conditions,” the Fed said.  Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more [than] $25,000 each, which can limit their ability to qualify for mortgages even if they’re fortunate enough to land a job in a market with an unemployment rate of 9 percent for 25 to 34 year-olds.  Calling it a “student-loan debt bomb,” the National Association of Consumer Bankruptcy Attorneys warned Feb. 7 about the effects of rising student debt on recent graduates, parents who cosigned their loans and older Americans who have gone back to school for job training.  “Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future,” John Rao, vice president of the NACBA, said on a conference call. Normally, the housing ‘escalator’ works like this. Young people buy starter houses from older people. The older people move up to the family homes, buying the houses of people who are selling out so they can buy retirement houses. If the starter houses aren’t bought, the escalator stops. Young people can’t buy; so, older people can’t sell. The other part of the story — not widely reported — is the enslavement of the young to the old. In effect, instead of families paying for their children’s education, they force the children to borrow the money from the government. Then, paying it back, the money is recycled to old people — through Social Security, Medicare, and so forth. Meanwhile, the government borrows trillions more to fund their giveaway programs. In the US, the total is over $15 trillion and rising — most of it destined to pay benefits for people over the age of 50. And guess who’s supposed to pay for all this debt? The young, of course!  How long before they revolt? Regards, Bill Bonner for The Daily Reckoning