“The distance between top and bottom incomes in the United States is much greater than it was 50 years ago,” Gates wrote in a blog post reflecting on 2019 published Tuesday. (Indeed, American income inequality is at its highest level in decades, according to U.S. Census Bureau’s Gini index.)
“A few people end up with a great deal—I’ve been disproportionately rewarded for the work I’ve done—while many others who work just as hard struggle to get by,” he wrote.
To solve the problem, Gates said the U.S. government should raise taxes that affect the wealthy.
“I’m for a tax system in which, if you have more money, you pay a higher percentage in taxes. I think the rich should pay more than they currently do, and that includes Melinda and me,” Gates wrote, referring to his wife.
Specifically, he said there should be a higher capital gains tax (a tax on money made on investments), which would disproportionately affect the wealthy. None of the richest people in the world have made their fortunes solely through a salaried job, and for that reason Gates believes the government “should shift more of the tax burden onto capital” rather than labor.
“I don’t see any reason to favor wealth over work the way we do today,” he wrote. It’s “the clearest evidence I’ve seen that the system isn’t fair,” he said.
Billionaire tech entrepreneur and investor Mark Cuban has also highlighted how the difference between the investor class and paid labor is a factor in the wealth gap.
“If someone is only going to be paid by the hour…they’re always going to fall behind,” Cuban told Recode Decode in May. “And income distribution is … [the] disparity is going to get wider and wider.”
While Cuban has called paying taxes “patriotic,” he also suggests founders and owners should distribute stock in the company to employees to bring them into the investor class.
“We as entrepreneurs have got to make a point to give stock to everybody that works for us. Period. End of story. No exceptions, because that’s the only way people are going to get any type of equity appreciation.”
Cuban said he did just that with online streaming service Broadcast.com, which Cuban co-founded and sold to Yahoo in 1999 for almost $6 billion in stock. “Three hundred out of 330 [Broadcast.com] employees became millionaires” at the time of its sale, Cuban previously told CNBC Make It.
Gates also said in Tuesday’s blog post that the U.S. should have a higher estate tax, which would affect the rich.
“A dynastic system where you can pass vast wealth along to your children is not good for anyone; the next generation doesn’t end up with the same incentive to work hard and contribute to the economy,” Gates said.
Gates said it’s one of the reasons he co-founded The Giving Pledge with Warren Buffett (who has also said the rich should pay higher taxes). The Giving Pledge invites billionaires to commit to giving away the majority of their money to charity, and both the Gates and Buffett have made the pledge.
“I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy,” Buffett wrote in The New York Times in 2011.
“Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering,” Buffett added. “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”
Fundamentally, whether through taxes or philanthropy, extraordinary wealth needs to be reinvested in society, according to Gates.
“Melinda and I believe that driving progress is wealth’s highest purpose,” Gates wrote in Tuesday’s blog post. “Our wealth comes with an obligation to give back to society, and in 2020, we’re committed to continue living up to that obligation: through our taxes, through our foundation, and through our personal giving.”
The US will need to spend trillions more as economy takes until 2022 to fully recover: CNBC survey – CNBC
The economy could take one to two years to rebound to full strength and the Federal Reserve and Congress, having already committed historic sums to fight the coronavirus pandemic, will have to commit trillions more, according to respondents to the CNBC Fed Survey.
With the Federal Reserve’s balance sheet already at an unprecedented $6.45 trillion, the 36 respondents see it rising on average to $9.8 trillion. The additional trillions will be added by the end of the current quarter, the respondents expect. Congress, having already committed about $2.5 trillion, is seen putting in an additional $2 trillion.
“My guess is that the virus itself will largely disappear within a year, but that the structural social and economic impacts will be with us much longer,” John Kattar, chief investment officer at Ardent Asset Management, wrote in response to the survey.
Jack Kleinhenz, chief economist for the National Retail Federation, said, “The policy response has been appropriate, but policy takes time to work its way into the economy and targeted sectors. … Many small businesses stand at risk.”
Despite the massive relief, respondents still see the unemployment rate rising to 19%, hitting that level in August. It’s expected to decline only gradually, to 11% by December and to 7% by the end of 2021. That would leave it at about double the rate before the crisis.
Second quarter of 2022
“With spiking unemployment and rising business closures … the prospects of a sharp rebound (is) far outweighed by the more realistic prospect of a longer-term structural disruption,” said Lindsey Piegza, chief economist at Stifel.
A 33% plurality believes the economy won’t be fully restored until the second quarter of 2022. But 19% believe it will be back by year-end and another 19% believe it can happen even earlier, highlighting a wide range of views about the speed and strength of a recovery.
“During the pandemic, production and consumption have been largely deferred and not lost,” wrote Rob Morgan, director of market strategy at US Energy Advisors. “This leads me to believe the economy will experience a V-shaped recovery beginning in the third quarter 2020.”
On average, respondents see gross domestic product falling by 24% this quarter, followed by a rebound of 4.7% in the third quarter and another strong quarter in the fourth. It won’t be enough to make back the losses in the first half. For the full year, GDP is forecast to decline by 5%.
Mark Zandi, chief economist at Moody’s Analytics, said a vaccine is essential for the economy to gain traction. “Until then, any recovery will remain something of a slog, characterized by halting growth and high single-digit unemployment. And even then, the economy won’t be in full swing and fully recovered until mid-decade.”
The Fed funds rate is seen remaining at zero for the rest of the year and rise to 1.9% in 2021. The Federal Reserve concludes its two-day policy meeting on Wednesday. Answers for CNBC’s Fed Survey from investors and economists were collected Thursday to Saturday.
The S&P is forecast to finish lower on the year at 2,844 than Monday’s close, and rise to 3,141 next year for a 9% gain by the end of 2021.
“I think the risk markets are anticipating a faster return to normalized economic conditions than we are likely to see,” says John Ryding, chief economic advisor at Brean Capital LLC.
Among the risks: Respondents place a 61% probability on a second round of contagion in the fall and winter.
White House reportedly considering another round of stimulus checks – Atlanta Journal Constitution
As the U.S. economy slowly reopens, Americans across the country are still grappling with job loss, furloughs and economic uncertainty. To combat the continued financial struggles some are facing, a White House official says the administration is “studying carefully” another $1,200 payment to citizens.
White House economic adviser Kevin Hassett told the media the administration is determining whether to provide those who qualify another round of stimulus checks, according to NBC News reporter Geoff Bennett. The additional financial support could be included in a phase 4 deal.
No word on when the package would be presented the House, but, with the virus still looming, House Majority Leader Steny Hoyer told the media Tuesday that the House will no longer come back next week after speaking to House physician, according to a tweet by Politico congressional reporter Sarah Ferris.
“We made a judgment that we will not come back next week,” Hoyer told reporters.
While the new stimulus checks are being considered, some Americans have not yet received the first round of checks. The IRS began cutting stimulus checks in mid-April. As of this week, about 90 million people have seen the economic bump in their accounts, according to economic news site Market Watch.
The hope is that the checks, which average about $1,200 a piece, will encourage spending and quell the financial pressure to pay essential bills as the COVID-19’s impact has shuttered manufacturing plants, retail stores and limited business hours for dozens of companies.
The IRS had distributed about 88.1 million stimulus checks as of April 17 and paid out $157.96 billion, according to statistics released April 24. That’s more than half of the $290 billion put aside for direct payments to individuals in the $2.2 trillion bill called the CARES Act.
Consumer confidence is still low
The Conference Board Tuesday reported that its consumer confidence index tumbled in the month of April, as millions lost their jobs and others feared for the current and future work conditions.
The Conference Board said Tuesday that its confidence index plunged to a reading of 86.9, down from 118.8 in March. The index is composed of consumers’ assessment of present conditions and expectations about the future.
The present conditions index dropped from 166.7, to 76.4, a 90-point drop that was the largest on record. The expectations index, based on the future outlook, improved slightly from 86.8 in March to 93.8 in April.
The numbers in the present conditions index “reflects the sharp contraction in economic activity and surge in unemployment claims,” said Lynn Franco, senior director of economic indicators at the Conference Board.
Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said the confidence declines were worrisome because “consumers’ downbeat views about future income prospects can restrain consumer spending and the overall economy.”
Consumers drive about 70% of all economic activity in the U.S.
Many economists believe the country has already entered a recession that will be the largest economic disruption since the Great Depression of the 1930s.
The Associated Press contributed to this report.
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Goldman Sachs explains why stocks can keep rising even as a record-sized recession beckons – Business Insider
Drew Angerer/Getty Images
- Markets may continue to look past negative coronavirus news, especially if projections continue to show that the economy is expected to rebound after the pandemic, a Monday note from Goldman Sachs said.
- An analysis of GDP forecasts from the bank found that investors tended to discount the next two years of macroeconomic performance.
- Thus, metrics that focus only on growth over the next year “will overstate current valuations, given the large rebound expected beyond this year,” Zach Pandl, a cohead of global FX and EM strategy, wrote in the note.
- Read more on Business Insider.
Markets may continue to look past negative coronavirus news, especially if projections continue to show that the economy is expected to rebound after the pandemic, according to Goldman Sachs.
An analysis by the bank using changes to gross-domestic-product forecasts found that investors typically discounted at least the next two years of macroeconomic performance, a Monday note said.
That means that metrics that focus only on growth over the next year — such as multiples based on 12-month earnings expectations — “will overstate current valuations, given the large rebound expected beyond this year,” Zach Pandl, a cohead of global foreign-exchange and emerging-markets strategy, wrote in the note.
While the coronavirus-induced recession is set to be the deepest contraction in modern history, it’s also likely to be the shortest, Pandl said. Many economists expect that, after a dip in 2020, GDP will rebound in 2021 and 2022. By early April, consensus GDP forecasts incorporated a virus hit, down 4% this year. But forecasts are for 4% growth in 2021 and 3% in 2022 — an unusual pattern, Pandl said.
That means that more disappointing data in the near term may not weigh heavily on markets, as activity is expected to snap back “relatively quickly,” Pandl wrote. “The depth of the downturn matters much less than the duration of the recovery,” he said.
Goldman’s analysis came amid a stock-market recovery from March 23 lows. As US states weigh relaxing strict lockdown measures designed to curb the spread of COVID-19, stocks have slowly gained on optimism that the economy will soon reopen. From March 23 to Monday’s close, the S&P 500 gained about 29%, but it was down about 15% from all-time highs in February.
Still, many economists disagree that any rebound after the coronavirus pandemic will be a quick one. Instead of the sharp V-shaped recovery that Goldman is suggesting, many expect a rebound to take a softer U shape.
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