Higher taxes for Wealthy Americans

There is news that US President, Barack  Obama would be proposing what is being called as "Buffett Tax" on people earning more than $1 million a year as part of his deficit-cutting recommendations to the US Congress.

The purpose for such a tax is to bring the tax rates of the wealthy Americans in line with that being paid by the middle class Americans.  Warren Buffett had once famously said that he thinks that he, and other super-wealthy Americans, don't pay enough in taxes. He said his tax rate is 17.4% whereas most middle class Americans pay 30% or more in income tax. It’s really an irony that cannot be explained by simple economics!

No wonder Capitalist America took it so long to realize as to who needs to be taxed more and who less. Taxing the rich and leaving a little more extra cash in the hands of the middle class could definitely change the dynamics of local consumption significantly. It’s vanilla economics, that the marginal utility of a few thousand dollars in the hands of a middle class is much more than that in the hand of billionaire!

In his weekly radio address Obama said that Americans need to be ready to "pay their fair share" to narrow the U.S. deficit, previewing his proposals to Congress. Obama has repeatedly argued for the wealthiest Americans to face higher taxes with fewer loopholes and exceptions as part of the effort to ensure the U.S. debt-load remains in control. In addition to floating the idea of more taxes on the rich, he is also expected to propose companies getting some tax breaks.

It’s no wonder that the Republicans, who have raised the volume on Washington's fiscal problems as the November 2012 presidential election nears, see higher taxes on the wealthy as a problem for jobs, given that entrepreneurs and companies would be strongly affected. It’s really an unfair world where the rich would go to any length to arm-twist the government in preserving their wealth whereas the middle class has difficulty in even building a cushion for tough times.  

Why Government austerity measures are not a great idea

The current global crisis has given governments a new weapon to tackle the precarious situation being faced by them - Austerity measures. Financial times lexicon defines Austerity measure as "An official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend". But doesn't classical economics teach us that in order to come out of a recessionary economy there needs to be increased spending and consumption demand in order to stimulate industrial activity?

US President, Barack Obama announced a $ 447 bn package that would create jobs in the economy through infrastructure spending and government spending. This is definitely a step in the right direction, unlike what governments in Europe are resorting to. Cutting down government spending, pensions and salaries would see its repercussions over a longer period of time. It needs no economist to tell you that these activities would lead to lower local consumption, lower industrial activity, more job cuts and the cycle would get more painful with time.   

What really is needed is a change in habits of the people. Though a difficult thing to ask but then difficult times need difficult measures. This change in habits is something that would come with time. The concept of savings and spending within your limits is something the Europeans need to learn from the conservative Asians. Leverage and Debt is the single most important cause of all problems that the world is faced with now. Asians are known to be conservative investors and that has definitely helped them to sail through the current turmoil. Indians in general have a very high savings rate of 33% of their earnings. I think its not asking for too much if one is advised to spend within their limits. 

By austerity measures, governments are punishing the common man for the wrong doing of the politicians and the financial market culprits. People could also vent their anger through protests and strikes like the ones seen in Greece recently. These cannot be suppressed for long and has the power to topple governments. Instead of passing the buck of austerity on the common man in Europe, it is important to bring the bankers and financial engineers under some sort of regulation wherein a check must be kept on the leverage these guys are taking on their banking assets. Greed for higher returns and commissions has rocked the ship earlier and would do so again in future unless there is some check to keep these in limits. Investment bankers and Wall Street bonuses which defy gravity even in recessionary economy is a clear indication that the very systems which run and govern the Zillion Dollar global banking and financial markets have inherent flaws that is working in favour of a few and against the majority.

Deutsche Bank CEO Just Gave A Terrifying Speech In Frankfurt

http://www.businessinsider.com/josef-ackermann-euro-banks-speech-frankfurt-2011-9

Air India - a sick unit being kept alive on glucose

Every country has a national airline which projects the image of the country to the rest of the World. Some of the national airlines of the likes of Singapore Airlines, Swiss Air, etc have set benchmarks in customer service and quality of flight experience which many private airlines find it difficult to match up. But when it comes to the national carrier of India, we Indians shy away from even travelling in it, leave alone feeling proud of it. Once Air India and Indian Airlines were the only airlines and we didn't have a choice. Currently Air India and Indian Airlines combine have a market share of meager 15%. I don't think air travel in the country would be impacted if we really close down this ailing airlines. The private players would surely be more than happy to serve a larger customer base.

Both Air India and Indian Airlines have come a long way from their glory days. Now with both of them having merged, the mess this combined entity has got into is even bigger. Thanks to an extremely inefficient and bureaucratic way of running business, the national carrier of India is nothing more than a money guzzler. Never in the last decade or more, have I heard that the airline is not in some financial crunch! The airline made some aggressive purchases of new aircraft running into billions of dollars when it did not even have the capacity to repay any time soon. There has been a stage when the earnings from the running of the airline is just sufficient to pay the interest on the huge debt the airline has on its books. Every now and then the airline faces problem in even paying salaries to its employees.

Over the last 3-4 years, Air India has hired numerous consulting firms to advise them on how to "Turn Around" the sick giant. Interestingly the consulting fees paid by Air India for these assignments ran into several crores of Rupees without any meaningful implementation and impact on the fortunes of the airline. The people at the helm of the carrier seemed the least interested in making the unit profitable because the airline was more profitable for their personal gains. I don't want to delve too much into the personal integrity of anyone because sooner or later I am sure investigations would start into the dealings of the senior management of Air India.

Recently the government approved an additional capital infusion of some Rs 6600 cr! This is just one of the many events when huge cash was dolled out to the airline in the hope that things would turn around. But I feel, this is not an easy job to do as the Airline is run with the mindset of an old bureaucratic system.

I think the airline needs to change its policy of keeping employees till retirement. this builds a lot of complacency in the system. More professional and expert hands are needed to make the airlines competitive. I guess its time the government took a decision that does it really need to keep running a substandard airline because of prestige issues or close it down. If prestige issues really matter, I guess they need to really improve the flight experience and customer service at Air India. For the record, latest report from Aviation sector shows that Air India has the lowest on time flight performance in the entire industry. Whereas Jet Airways leads the pack with 91% on-time flight performance, Air India has the figure at a low 71%!! Analysts said Air India employees were slow in clearing and loading aircraft and conducting passengers to their seat....There is definitely lot of room for improvement and the Airline has a long way to go before it becomes the first choice for travelling within India.