Global Taxes and Other Affairs

Global Taxes as a Percentage of GDP [¹]
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By TheBigPicuture | 18 October 2007

Interesting graphic article today discussing tax rates in many developed countries, from the Organization for Economic Cooperation and Development. The general takeaway of the report is that taxes have increased globally— they now amount to 36% of Gross Domestic Product of the world's developed nations.

While we hear lots of noise as to the tax burdens in the U.S., let's see how we compare to the rest of the world. Look at how over-taxed we are in the United States:

So either the entire planet is vastly over taxed— or we here in USA, speaking relatively, aren't shouldering such a bad tax burden after all . . .

SOURCE:
OECD countries’ tax burdens back up to 2000 historic highs 17/10/2007
http://www.oecd.org/document/16/0,3343,en_2649_201185_39495248_1_1_1_1,00.html

Table A. Total tax revenue as percentage of GDP
http://www.oecd.org/dataoecd/44/41/39494985.pdf

Table B. Taxes on General Consumption as percentage of GDP http://www.oecd.org/dataoecd/44/43/39495009.pdf

Table C. Tax structures in the OECD-area
http://www.oecd.org/dataoecd/44/20/39495035.pdf

Taxes in Developed Nations Reach 36% of Gross Domestic Product
David Cay Johnston, NYT, October 18, 2007
http://www.nytimes.com/2007/10/18/business/worldbusiness/18tax.html



Real World Consequences of Core Inflation Focus

A pair of not unrelated stories:

First, today's Dumb Headline of the Day, is this annoying piece courtesy of the NYT:

Core Inflation Remains Steady, Presenting a Puzzle to the Fed http://www.nytimes.com/2007/10/18/business/18economy.html

The first few paragraphs mix assumptions, info and conjecture into, well, I really don't know what:

"Hopes that the Federal Reserve will again cut interest rates at the end of the month were further reduced yesterday after a report showed inflation holding steady in September. But a worsening housing slump and a mixed economic outlook could put the Fed in a difficult spot as it considers what steps to take in the months ahead. Prices of consumer goods ticked up 0.3 percent in September, a slightly higher-than-expected increase that reversed a 0.1 percent decline in August."

Slightly higher than expected? Consensus was for 0.2%— so this was only 50% above expectations.

Back to the stenography article:

"The Consumer Price Index’s core rate, a gauge of inflation that excludes relatively volatile food and energy prices, held at 0.2 percent, where it has been since June, the Labor Department said yesterday. The report suggests that pricing pressures have remained in check. But the Fed, always wary of inflation risks, prefers a slower rate of 1 percent to 2 percent. Overall inflation was up 2.8 percent compared with September 2006, its highest 12-month growth rate since March. Higher prices for rent, gasoline and food, especially fruit and vegetables, led the increase as consumers began to feel the effects of surging oil prices and a weaker dollar. The inflation picture, coupled with recent reports that have indicated a more resilient economy than analysts expected, makes it more likely the Fed will keep rates unchanged when it issues its decision on Oct. 31."

Note that Fed fund futures increased the odds of a cut at the October 31st FOMC meeting . . .

~~~

Next, we look at the real world consequences of this artificial self-destructive focus of inflation ex-inflation:

Social Security Checks to Rise 2.3% Cost-of-Living Adjustment Is SMALLEST Since '03 Payments to Social Security recipients and most federal retirees will increase 2.3 percent in January. It is the smallest cost-of-living adjustment since 2003, reflecting a lower rate of inflation [!?!] The adjustment will increase the average monthly Social Security retirement benefit by $24, to $1,079. It is based on the rise in the consumer price index in the third quarter, a figure the Labor Department released yesterday. The increase directly affects the finances of about 50 million people, including more than 31 million Social Security retirees and 11 million people who receive disability or other supplemental income from the Social Security Administration. It is also a significant number to the more than 4 million federal government and military retirees, about 500,000 of whom live in the Washington region.

So despite the enormous rise in the costs of energy, food, housing, insurance, medical coverage, education, we see that Social Security is barely budging.

When we said that "Inflation is the cruelest tax," now you know what we mean.

Y'all keep focusing on the core, now . . .

SOURCE:
Core Inflation Remains Steady, Presenting a Puzzle to the Fed
Michael M. Grynbaum, NYT, October 18, 2007
http://www.nytimes.com/2007/10/18/business/18economy.html

Social Security Checks to Rise 2.3%; Cost-of-Living Adjustment Is Smallest Since '03
Howard Schneider and Neil Irwin, Washington Post, Thursday, October 18, 2007
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/17/AR2007101700215.html



Property Worsens: Beginning, Middle or End?

A few quick words on yesterday's Housing data: Of course, it was god-awful. Despite the incessant bottom-calling by the clueless, spin-miesters, and industry insiders, we are nowhere near the end of the cycle.

If we are lucky, this is now the middle— as opposed to 2nd year of a decade long slump.

As to yesterday's data— it was a mixed blessing. The manifest problems in Housing are twofold: Prices are too high, and inventory is too great. These are of course, related. Once prices come down further, the supply problems will begin to clear up. So the enormous drop in permits/starts is, perversely, a good thing.

Let's go to the data:

• New construction of homes in the United States fell 10.2% in September (seasonally adjusted 1.19 million units) • The drop in housing starts was the 4th consecutive monthly decline. • We are now at the lowest level for new home construction since March 1993. • Starts of single-family homes fell 1.7% to 963,000 (annualized); • Construction of large apartment units plummeted 34.4% to 228,000. • Building permits fell 7.3% to a seasonally adjusted rate of 1.23 million— the lowest level since July 1993.

So there is no bottom anywhere in sight. The scary question is whether we are in the 5th/6th inning, or the 1st/2nd inning.

For a real good read, Dan Gross goes postal on Treasury Secretary Paulson: Dan claims that the subprime collapse didn't bother the Bush administration until Wall Street bankers started whimpering: Protecting Paulson's Pals.

Lastly, considering how much denial there was for the longest time, I found some of the Wall Street economists comments at Real Time Economic terribly amusing. This crowd has not yet begun to panic . . .

Housing Starts and Completions

Click Here, or on the image, to see a larger, undistorted image.
chart courtesy of Calculated Risk

SOURCES:
New Residential Construction
(Building Permits, Housing Starts, and Housing Completions)
http://www.census.gov/const/newresconst.pdf

New construction falls 10.2% to fewest housing starts since '93
Alejandro Bodipo-Memba, Detroit Free Press, October 17, 2007
http://www.freep.com/apps/pbcs.dll/article?AID=/20071017/BUSINESS07/71017022

Protecting Paulson's Pals
Daniel Gross, Slate, Tuesday, Oct. 16, 2007, at 5:52 PM ET
http://www.slate.com/id/2175724/

Economists React: ‘Horrific’ Housing
October 17, 2007, 10:25 am
http://blogs.wsj.com/economics/2007/10/17/economists-react-horrific-housing/

Standard & Poor's Ratings Services Reviews Ratings
on Certain U.S. Residential Mortgage-Backed Securities Issued in 2007 http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/10-17-2007/0004684220&EDATE=

  M O R E. . .

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