Tax Truss Plan Protects the Wealthy While Pushing Borrowers to a Financial Cliff
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After falling to a record high against the dollar, the pound stabilized on Tuesday, rising more than 1% to $1.08.
But the economic policy that triggered the currency’s historic slide yesterday has not gone away. And that’s especially bad news for anyone who isn’t wealthy.
Here’s the deal: Millions of homeowners in the UK are about to see their monthly mortgage payments increase by hundreds, if not thousands of dollars, writes my colleague Anna Cooban.
Indeed, the Bank of England is now expected to raise interest rates even further to fight inflation which will be exacerbated by the government’s significant tax cuts. Many expect the borrowing rate to hit 6% next year, up from 2.25% previously.
And unlike in the US, where mortgages usually have a 15 or 30 year fixed rate, UK fixed rate loans have much shorter terms, say two to five years.
That means as many as 1.8million borrowers are heading for a financial cliff as they prepare to refinance next year, when the mortgage rate may well have doubled.
So much, let’s do a little math here (and by that, of course, I mean get an economist to do the math.)
Samuel Tombs, chief economist at Pantheon Macroeconomics, calculates that an interest rate of 6% on the average two-year fixed rate mortgage in the UK would drive up monthly payments by 73%.
In other words, the average homeowner paying around $920 a month would suddenly have to pay almost $1,600.
Meanwhile, the country’s wealthiest households are set to make huge gains. The policy set by Prime Minister Liz Truss’ administration eliminates caps on bankers’ bonuses and gives workers earning more than $1 million a year a tax cut of about $58,000. The vast majority (almost two-thirds) of tax gains go to the wealthiest fifth of households, according to a think tank estimate.
Naturally, people are already panicking. Online searches for “remortgage” more than doubled in the UK on Monday, according to analysis of Google search data by Loan Corp, a mortgage broker.
Investors have been baffled and consumers terrified since the Truss administration announced its sweeping tax cut plan, which it says will spur growth and mitigate an impending recession.
Few economists agree.
Citibank analysts called the move “a huge, unfunded gamble for the UK economy”.
Truss defended her plan, citing Reagan-era economics that she says will encourage businesses to invest.
But as my colleague Nicole Goodkind writes, Reagan’s tax policies were far from a slam dunk. According to the US Treasury, the tax cuts reduced federal revenue by about 9% in the first two years. However, Congress eventually decided that sweeping tax cuts were unsustainable and, with Reagan’s approval, raised taxes dramatically in 1982. And 1983. And 1984. And again in 1987.
Britain has its own historical lessons to draw on: the last time taxes in Britain were cut this much there was runaway inflation, a massive increase in debt and eventually an IMF bailout in 1976.
The housing frenzy triggered by the pandemic and rock-bottom interest rates is dampening almost as quickly as it started.
Home prices rose 15.8% in July from a year earlier, a jump well below the 18.1% growth seen in June, according to the S&P CoreLogic Case-Shiller Index. This marks the biggest downturn in the history of the index.
On a month-to-month basis, prices fell 0.2% from June.
Facebook says it shut down two separate networks of fake foreign accounts engaged in covert influence operations that spread pro-Russian propaganda and attempt to bait Americans on divisive domestic issues just weeks before the mid-elections. mandate,” reports my colleague Donie O’Sullivan.
Both networks were operated from Russia and China, according to Meta, Facebook’s parent company. But Meta has not attributed any of these campaigns to specific entities in China or Russia, or to the Chinese or Russian governments.
Why is this important: Like all social networks, Facebook has its good and bad sides. The platform is both a harmless space where our parents can coo at pictures of each other’s grandchildren and a cauldron of toxic disinformation that foreign adversaries are trying to arm to undermine American democracy.
Meta is working to counter these disinformation efforts, though critics tend to think it doesn’t do enough.
This particular pullout was significant because, according to the company, it undermined a Chinese campaign directly targeting Americans on domestic policy issues, such as abortion and gun control.
“The Chinese influence operations we’ve halted before have typically focused on criticizing the United States to international audiences, rather than primarily targeting domestic audiences in the United States,” Meta said.
Although notable given the timing of the US elections, the Chinese effort was relatively small – just 80 Facebook accounts – and apparently unsophisticated. The accounts failed to gain traction in part because they often messed up the English language while trying to pass themselves off as Americans, according to The New York Times.
Meta, which has nearly 3 billion users worldwide, said it was on high alert for foreign interference surrounding the US midterm elections and shared details about some of the suspicious accounts with the FBI.
The Russian campaign was “the largest and most complex Russian operation we have interrupted since the start of the war in Ukraine,” Meta said in a report on Tuesday.
The disinformation effort included a sprawling network of more than 60 websites that mimicked news outlets to advance a pro-Kremlin agenda, primarily aimed at audiences in Europe.
“You can actually sum up everything he said in 10 words: ‘Ukraine is bad. Russia is good. Stop the sanctions. Meta threats, to NPR.
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