Listen. Hear the air blowing from the once huge bubble of U.S. home prices. It’s a multi-trillion dollar loss of wealth. This path of ruin is large and growing.
Part of that home wealth helped some working Americans with stagnant wages to pay their bills. The home bubble also boosted property and sales tax revenues for local and state governments to provide vital health, infrastructure and school services.
Now however, home prices are falling and mortgage foreclosures are rising. Together, they are weakening the buying power of wage-earning Americans, also paying higher prices for gas, food and health care insurance. Meanwhile, private-sector employers in various sectors are watching their revenues and sales plummet. Their response is to slash payrolls and cut output. Detroit’s Big Three carmakers are a large example.
At the same time according to the Center on Budget and Policy Priorities, “At least 29 states plus the District of Columbia, including several of the nation’s largest states, faced or are facing an estimated $48 billion in combined shortfalls in their budgets for fiscal year 2009 (which begins July 1, 2008 in most states.) Three other states expect budget problems in fiscal year 2010.”
These are grim trends for middle-income families. The trends look even worse to low-income Americans, the poor, who were 12.3 percent of the U.S. populace in 2006, using the official federal poverty measures from the 1960s. However, a new Labor Dept. working paper, by Thesia Garner and Kathleen Short, uses more accurate methods from the National Academy of Sciences to analyze and measure spending and income from 1996 to 2005. As a result, Garner and Short say that 17.7 percent of the American public lives in poverty, “families not able to meet basic needs.”
America’s poor, more than 50 million children, teens, adults and seniors, are on the front lines of policy choices for states with deficits. Their three options are: spend reserve funds, cut spending or increase taxes, according to the CBPP. Further, “The vast majority of states cannot run a deficit or borrow to cover their operating expenditures.”
That’s not all. Cutting local and state spending during the current home-bubble slowdown will have another outcome. That is to further destabilize the private sector, where most Americans labor.
Congress and President George W. Bush get that point and crafted a $150 billion fiscal stimulus recently. Yet it is not likely to be enough to offset the trillions of dollars of disappearing home wealth. But this federal stimulus points to the need to stabilize the U.S. economy and its blowing of asset bubbles from which flow tax revenues for local and state governments.
On a related note, we turn to Rick Wolff, a professor of economics at the University of Massachusetts at Amherst. To help solve the fiscal crises of U.S. municipalities and states, Wolff proposes taxing citizens “rich enough to own significant quantities of stocks and bonds.” The value of such financial investments is not subject to property taxation currently. The interest and dividends which big holders of stocks and bonds earn is taxable, but the actual value of these instruments isn’t, according to Wolff.
Take a rental apartment or home. Owners of them pay two forms of tax on their property. The first is the tax on the dollar value of the property. The second is the tax on the rent which tenants pay to the owners.
Wolff adds: “Owners of property in the form of stocks and bonds should be required to likewise pay property tax on that property instead of being exempted from property taxes.”
The current value of all stocks and bonds in the U.S. is $32.1 trillion, not counting government bonds, according to author and economist Dean Baker, co-director of Washington D.C.’s Center for Economic and Policy Research. A .0005 percent tax on the value of $1 trillion in stocks and bonds amounts to $500 million. That’s a day’s worth of spending on U.S. operations in Afghanistan and Iraq.
It is unclear how lawmakers would raise new taxes on stocks and bonds absent sustained pressure from low- and middle-income Americans. They are the people, least responsible for the nation’s economic downturn, who can supply the drive for such a policy to improve their lives by pumping new revenues into local and state government budgets.
Seth Sandronsky lives and writes in Sacramento [email protected]