Dmitri Lysenko
US news. US President Barack Obama has introduced to the Congress his detailed plan of creating jobs and increasing the profit of common American workers, representatives of small and medium business. It is a part of a large-scale plan to shorten the deficit of the country’s national debt in the nearest decade.
A week ago US President presented the key points of this plan. It is worth mentioning that the program cost has risen in 1.5 times in comparison with the initially announced one – from $ 300 bln. to $ 447 bln. One third of this sum ($ 140 bln.) is to be used for modernization of infrastructure and recovery of lost and creation of new jobs – for teachers, firemen, policemen, part-time and seasonal work for the youth, as well as for schools reconstruction, motorways repairing and construction, etc. A larger sum of $ 175 bln. is to be used for prolongation of tax incentives for common workers, and $ 70 bln. is aimed to support small business.
Not waiting until the President gives a speech, his political opponents-Republicans have already counterattacked. The Chairman of the US House of Representatives Budget Committee Republican P. Ryan has claimed that B. Obama “is provoking a class war”. What does this mean? The matter is that tax increase for the rich is a constituent part of the White House Administration plan. Republicans keep saying that the pressure of taxation on those who create jobs will in no way lead to the rise of national economy. P. Ryan supposes that small business will be called guilty for this.
Aren’t the Republicans cunning? They have neverconcealed the fact that large business is of top priority for them. How will the introduction of “the tax for millionaires” influence American economy, its investors, and, consequently, “the feeling” of American dollar?
Longstanding promises and dreams of the Democrats
The victory of the Democrats, headed by Barack Obama, at the presidential election in 2008 was largely stipulated by the desire of common Americans to change “the rules of game” in economy, which at that point were tightening a stranglehold over workers and small (as well as many medium) businessmen. This was the year when the global financial crisis started with the crash of mortgage market in the USA, and when the Democrat B. Obama was running for the chair of state, he was promising to lower taxes for the poor and raise them for the rich.
However, a kind of dual power started in the country: the White House became headed by the Democrat, and in the Upper House – the Senate – the majority also comprised the President’s party fellows. However, in the Lower House – the House of Representatives – the majority is made by the Republicans, who can block any initiatives of the President Administration, which they have successfully demonstrated when refusing to accept the suggestion of the White House to increase the national debt ceiling for six months.
Analytics of MIG Bank note that exactly one year ago, at the beginning of September 2010 B. Obama, expressing the nation’s concern about the long-lasting crisis, which the country has never experienced before, announced the initiative to raise taxes for the rich:
- tax incentives, which B. Obama’s forerunner-Republican George Bush Jr. has introduced to rich Americans, are to be abolished;
- in this connection, extra tax burden for the rich will not be so burdensome: a family with the income of $ 200-500 ths. yearly is obliged to pay to the state treasury… by 532 бакdollars more than during the preferential tax regime. There are about 3.8 mln. people that have such income in the country;
- US citizens, whose yearly income amounts to $ 0.5-1 mln., are obliged to pay the extra of $ 10 ths., which is neither critical to them;
- B. Obama’s suggestion would most of all touch the richest – the ones with the income of over $ 1 mln.: they would be obliged to pay the extra of about $ 100 ths. to the state treasury;
- as claimed by B. Obama, the state had to borrow $ 700 bln. in order to maintain tax incentives for the rich.
In general, the current President-Democrat has estimated the legacy of George Bush Jr. as a mere display, which showed the illusion of prospering amid real economic decline.
However, B. Obama had to recede from his position in the condition of dual power when the only way to reach an agreement was a compromise. Namely, last December he announced that tax incentives for the rich will be maintained for the whole period that has been set by George Bush Jr. Administration, in other words, till the end of 2011. In return, the Democrats Administration maintained the current scheme of unemployment payments and lowered wage tax by 2 percentage points.
What is the point of taxation for American rich people?
Not all rich magnates support the political line of Republican Party. The rich are also different:
- there are such as Larry Silverstein, the owner and the holder of the World Trade Center (WTC) towers, which were destroyed by Arabic (as supposed) terrorists on September 11, 2001, who did not care about the national tragedy, which has taken the lives of thousands Americans, and required DOUBLE insurance compensation, as there were TWO buildings – $ 7 bln. instead of $ 3.5 bln., which was specified in WTC insurance policy, received 1.5 months before the terroristic act;
- there also are such rich Americans as Warren Buffet and Bill Gates, who are among three wealthiest people worldwide, who suppose that it is immoral and ECONOMICALLY UNEFFECTIVE to maintain incentives for the richest. They have suggested the world richest businessmen to join into a club of conscious earthians, who will give the major part of their earnings not to their descendants, but for the welfare of all inhabitants of our planet.
One month ago W. Buffet, whose estate is estimated by the Forbes as $ 50 bln., in his column in the New York Times suggested American government to raise the taxes for the richest Americans:
- having paid only $ 6.9 mln. of taxes for 2010, the multibillionaire supposes that this is much less not only than the tax payments of all his colleagues in investment fund Berkshire Hathaway (W. Buffet paid 17.4% of all his investment profit versus 33-41% that his partners-investors had to pay), but also than the taxes of his personal secretary;
- for 60 years of his work with investors, admits W. Buffet, there were periods when taxation was heavier than B. Obama currently suggests; however, this has never withheld investors from investing into American economy – this thesis annuls one of the main bargaining chips of the Republicans.
Experts of MIG Bank admit that the USA has a very intricate system of taxation: the higher is the position of a company or a businessman, the more opportunities they have to benefit from numerous incentives. For example, the profit of American corporations that is received abroad does not undergo taxation. As a result, the “whales” of American economy fix their losses at the homeland, whereas their foreign profit sails past the state treasury. It is this practice that Barack Obama is currently trying to break.
The rich also have to cry!
In case the Congress supports the suggestion of the white House to raise taxes for the super rich, the state budget can count on the reduction of deficit by $ 3 trn. In this reference, the burden of taxation will influence less than 450 thousand taxpayers of the New World, which makes up 0.3% of all respectable Americans, who “pay their taxes and sleep tight”. In comparison with 46.2 mln. Americans, who last year lived below the poverty line, such sacrifice looks as a small blood drop nation-wide and is absolutely unnoticeable in world economy, which is still (and will last for many years) obliged to orient to the rate of American dollar.
Dollar rate: what will be the influence of economic stimuli?
According to the experts of the Department of Masterforex-V Trading System , US economic stimulation is first of all aimed at strengthening the dollar rate.
Technically, dollar index has finished 88.88-73.56 bear wave with a strong bullish wave, having broken sloping channel MF and pivot MF with the support of АО. According to the most recent technical analysis of Masterforex-V, the current bullish wave from 73.56 is insufficient to claim that the long-term tendency will change.
When the current wave finishes, which can happen at the nearest significant resistance levels – 78.04, 78.34, 78.64, bear wave is needed – “MF moment of truth”, which will show what happens to the long-term motion further.
The Editorial Board of “Market Leader” magazine, jointly with experts of Forex Academy and Masterforex-V Stock Exchange and Futures Trade, holds a questionnaire in the traders’ forum: will B. Obama’s Administration manage to win the approval of the Congress concerning the taxes for the richest and support the dollar rate by this?
• yes, although not to the full extent that is suggested by the Democrats, – being exposed to the possibility of the world crash, politicians will reach consensus, as it was with limiting the US national debt;
• no, even if the Republicans agree to compromise, it will be minimal;
• absolutely no – US monopolists will never agree to lower their profit, even if the entire world is falling to pieces.
Dmitri Lysenko
