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metalsguru

NewsLetter on Jan 12th: Austerity?

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Austerity is a word that is being used to describe what some Euro-Zone countries have to do to comply with IMF and ECB loans. According to Wikipedia the definition is “In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided.[1] Austerity policies are often used by governments to reduce their deficit spending[2] while sometimes coupled with increases in taxes to pay back creditors to reduce debt.[3]” Now, however, it is being used to describe what is happening in Illinois.

 

I couldn’t disagree more.

Jan 11 (Reuters) – “A big income tax increase was poised to move to the floor of the Illinois House on Tuesday as Democratic lawmakers played beat-the-clock to get the measure passed before a new legislative session begins on Wednesday.

The bill would raise about $6.8 billion a year for the state's beleaguered budget by raising the individual income tax rate temporarily to 5 percent from 3 percent and the corporate tax rate to 7 percent from 4.8 percent.”

The Illinois House today passed the 66% tax increase, which now goes to the Senate. It will pass the Senate too, I’m sure. As you can see, in Illinois what comes first are tax increases, not last according to Wikipedia’s “austerity” definition.

 

“Revenue from the tax hikes would allow Illinois to sell about $12.2 billion of bonds to pay off a huge bill backlog and make a $3.7 billion fiscal 2011 pension fund payment.

Illinois, which faces a budget gap that could grow to $15 billion, is one of many U.S. states grappling with record budget deficits after the deep recession stunted tax revenue needed to keep daily operations running. It is considered one of the weakest states after years of what critics say was mismanagement of state finances.

Democrats control both chambers of the legislature and the governor's office, where Governor Pat Quinn is on board with the tax plan and spending cap, his spokeswoman said on Tuesday.”

According to Reuters (and the governor himself) the new tax revenue (if it materializes in the amounts believed) will be used to increase debt when Illinois sells another massive amount of bonds.

 

According to the Chicago Tribune “In addition, Quinn and lawmakers are looking at using the tax hike to spend more than $700 million more on education a year.” Unlike real austerity, you can see that Illinois will actually increase spending.

 

Moreover, a large portion of the increased debt will be applied to kicking the can further down the road since it will be added to union pension funds. Unlike real austerity, there seems to be no “reduction of benefits” to unions because, after all, they got Mr. Quinn elected.

 

In the Bill titled Taxpayer Accountability and Budget Stabilization Act I have to ask the following…

I have to start with the name: Are the taxpayers being held accountable for the brain-dead politicians that spent the state into insolvency because the average slack-jawed taxpayer voted them into office; or is this bill going to be accountable to the taxpayer? An odd name to be sure.

If it is the latter, just how is increased debt being accountable to the taxpayer?

If it is the latter, just how is increased spending being accountable to the taxpayer and stabilizing the budget?

If it is the latter, just how are pension benefits NOT being reduced being accountable to the taxpayer? Defined pensions have gone the way of the dinosaur in private companies because they are unaffordable. Of course, politicians spend/promise your money as if it were meaningless Monopoly money and couldn’t care less that they are the only ones foolish enough to still cling to wholly unaffordable defined pension plans. All public unions should have 401k accounts like the rest of us, and of course the state would contribute but not at a rate greater than the average corporation.

If it is the latter, just how is a massive 66% tax increase being accountable to the taxpayer?

 

We need the exact opposite of these so-called solutions. We need a real governor. We need a Governor like Chris Christie in Illinois! With the current lot in the capitol of Springfield, Illinois could rival the city of Detroit in short order.

 

This is not austerity but business as usual.

 

Trade well and follow the trend, not the so-called “experts.”

 

Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banksters.

 

Larry Levin

larrylevin@tradingadvantage.com

Trading Advantage

(888) 755-3846__

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