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First Thoughts on Tax Compromise

Ed F Bias — Tue, 07 Dec 2010 13:49:19 +0000

When I heard that a compromise was reached, I expected to be disappointed. Disappointed that the GOP had caved. Disappointed that they did not hold their ground. This was not due to any leaks, just due to years of the same. In this case, I understand the GOP “excitement” in getting this done now. I am also heartened that even during the lam e duck session the President and Democrats seem to be listening to the American people.

“Everyone will find something in this compromise they don’t like”, never a truer statement.

The left will pick and choose at different tax cuts, and “breaks for the rich”. The GOP may have complaints over not being able to make these changes permanent. But my complaint is more on the overall package and the lack of clarity that it creates.

The first is the obvious temporary nature of the package. Any company sitting on cash, waiting for clarity in the economy and tax picture to expand or hire, has been given a small glimmer of light. But a two year plan is short-sighted and unlikely to create sustained growth. Short term goals can now be pursued and some projects scaled up and completed. But long term planning extends outside the two year window and still has long term risk. This pushes the tax fight to the next election cycle. Which I believe is exactly what both political parties wanted.

I understand the need to compromise and that in this session it is impossible to get a permanent extension of these tax cuts. But the side effect is that this compromise codifies the temporal nature of these cuts and leaves the overall economic picture a murky political football to be used by each party to manipulate the electorate and economy to their needs. This is not an environment for long term business planning. I believe that the GOP can solidify this win and get the American economy behind making these cuts permanent with a simple political maneuver.

Make the two year extension temporary but build in a permanent trigger. If this tax package does as the GOP expects, the economy will begin to grow and unemployment will drop and as a result tax revenues will increase, not decrease. The GOP should put this belief into writing and the law. If the tax revenues in all three categories (personal, corporate and capital gains) increases during the extension period (2011-2012)l; compared to the averages of 2009 and 2010; these rates become permanent. If, as the Democrats fear, these cuts hurt “cost us” tax revenue then a debate on the value of each should continue.

This trigger will signal businesses, large and small, that they once again are in charge of the economy and government is giving them the window they need to expand and turn this economy around.

The good and the bad

We seem to have unanimous agreement that increasing tax rates on middle and low income tax payers would be disastrous. What is even better is that we also have unanimous agreement that the Bush tax cuts were a huge benefit to low and middle income tax payers. The President even stated financial numbers confirming this. Democrats and the media that reveled in calling these “tax cuts for the rich” all through 2001, 2003 and up until 2010, have backed off their rhetoric. The GOP needs an “I told you so” moment, but I believe they are unwilling to do so and risk it being spun into sour grapes. This learning moment is likely to pass unfulfilled as so many are with these GOP lawmakers.

I was glad to hear the the “death tax” was included in this package. I was disheartened to hear the President’s disdain for families wanting to pass on their American dream as inheritance instead of as a government windfall. This tax is immoral anti-American and of all of the taxes this should have been made permanent.

I was not thrilled to hear of the extension of unemployment benefits. I believe we have simply turned unemployment into a replacement for the welfare state. We are paying people not to work. The longer they do not work the harder it will be get back into the workforce. How long until we have the debate about the fact that it is not enough money to live on, and the payouts must be increased? Unemployment is on track to become a working wage for those that are unwilling to work. That is a path to disaster. I understand that this and all social programs are a political third-rail and neither party is willing or able to discuss the social decay they themselves are creating. In the end, a growing economy and growing revenues will lessen the impact of these and give us the ability to roll these extensions back to a reasonable safety net.

I think the biggest and most necessary tax cut extension was captial gains. If this tax cut was going to expire, billions of dollars would have been removed from the market in the coming DAYS and the economy would have spiraled downward once again. This alone will solidify the gains in the market this year and allow those investments to continue to work for companies and individuals.

Those are my thoughts and first reactions to the stated compromise. I am interested in reading and learning from others as the debate continues. Let’s see where is goes in the next few days.

“Experts” still surprised at economy…John Galt was not

Ed F Bias — Fri, 05 Feb 2010 16:14:12 +0000

Yesterday…Yahoo!: “unexpected jump in the number of Americans filing for unemployment benefits”

Today…LA Times: The unemployment rate unexpectedly fell…At the same time, however, employers cut 20,000 jobs, more than the 5,000 economists expected…

From 50 years go…Atlas Shrugged [paper back page 1063] as spoken by John Galt.

“Only when men discovered that nature was a firm, predictable absolute were they able to rely on their knowledge, to choose their course, to plan their future and, slowly, to rise from the cave. Now you have placed modern industry, with its immense complexity of scientific precision, back into the power of unknowable demons-the unpredictable power of the arbitrary whims of hidden, ugly little bureaucrats. A farmer will not invest the effort of one summer if he’s unable to calculate his chances of a harvest. But you expect industrial giants-who plan in terms of decades, invest in terms of generations and undertake ninety-nine-year contracts-to continue to function and produce, not knowing what random caprice in the skull of what random official will descend upon them at what moment to demolish the whole of their effort. Drifters and physical laborers live and plan by the range of a day. The better the mind, the longer the range. A man whose vision extends to a shanty, might continue to build on your quicksands, to grab a fast profit and run. A man who envisions skyscrapers, will not. Nor will he give ten years of unswerving devotion to the task of inventing a new product, when he knows the gangs of entrenched mediocrity are juggling the laws against him, to tie him, restrict him and force him to fail, but should he fight them and struggle and succeed, they will seize his rewards and his invention.”

50 years ago Ayn knew it. Today the “experts” can’t seem to figure out such a simple concept. Or is it more likely that they know it and use such stories to keep you confused and in the dark? Are they they experts or are they trying to convince you that they are the experts?

A bit of perspective on the Obama budget

toyman — Fri, 05 Feb 2010 15:34:30 +0000

George Clooney had a telethon to raise money for Haiti. His telethon he organized raised something like 66 million.

George Clooney would have to have that telethon every day for 158 years to raise enough money to pay for Obama’s latest budget proposal.

Just to put it in perspective.

Median income (a reprise)

Ed F Bias — Thu, 28 Jan 2010 21:44:54 +0000

I have talked about the shaky statistics that make up the income gap and median income. I just ran across an interview with Thomas Sowell regarding his new book; Intellectuals and Society; that ads even more clarity to the point (in part 2).

Part 1 | Part 2 | part 3 | part 4 | part 5

His point is that following the pattern of the group gives a false impression of the movement of individuals. If median income goes down the goal is to convince you that people are losing money. But in point of fact, if you follow a single individual you will find that they have moved up into higher brackets. It is statistically more likely for someone in the top 5% to drop down then it is for someone to move up. Income of that level simply cannot be maintained consistently.

This generally supports my argument that newer and less skilled workers are entering the work force and bring down the averages. The supporting facts the single individuals move up the brackets (until the top) only ads additional strength.

I believe that Glenn Beck hits on this point in his new book Arguing with Idiots, as well.

Note: Part 3 is great as well and hits on one of my favorite points. The intellectual superiority complex.

Dear Mr. Obama: Interest is the “penalty” for borrowing money.

Ed F Bias — Fri, 15 Jan 2010 05:27:31 +0000

In President Obama’s push for a “fee” on banks to recoup losses from the TRAP plan. He and his administration continue to confuse economics and with wealth redistribution and to play pretty loose with the facts. Let’s look at this speech in a little more detail.

Losses in TARP plan.

These losses are not caused by the companies in question. The companies currently in the administrations cross hairs have paid back there TARP loans with interest…technically since they were forced to sell stock, the repayments are dividends (Nasdaq: Banks participating in TARP have so far paid the U.S. Treasury more than $4.9 billion in dividends). The loses in TARP come from the banks that failed, Fannie Mae and Freddie Mac and government take-over of the car industry. Charging these banks for those failed government investments is simply wrong.

According to the President’s argument, recovering from the brink, repaying your loan including additional dividends and then trurinign huge losses into profits, puts you in hot water. There was no mention of the failures and those still in trouble, especially those government run entities that continue to bleed tax payer dollars. If the bailouts were not supposed to help the banks get back on sound footing, why did the government force them to take funds? The logical conclusion from these arguments is that the bailouts were not supposed to fix the banking sector but only to provide the government control over the banks. Repaying the loan should have released the banks from their obligations and the control of their debtors. But it does not and new controls must now be out in place.

This kind of action would never be accepted in any private transaction. Imagine, once you have paid a loan in full and closed out you account, they call you back and let you know that they do not like you and have decided to reopen your account and start charging you fees. That your ability to repay the loan has proven to them that you are dishonest and these fees are needed to cover losses on other accounts on which they cannot connect.

That stubborn piece of paper.

That is exactly what the President is doing to these banks. But he goes beyond that and goes after other banks as well. Others that never took bailout. I would even wager some that were not involved in trading “toxic assets” in the first place.

Lucky for many, if they have the guts to fight, our founders had been fighting against just such political action. It is called a “bill of attainder“. A brief definition: A bill of attainder was a legislative act that singled out one or more persons and imposed punishment on them, without benefit of trial. Article 1 section 9 of The Constitution specifically states, “No bill of attainder or ex post facto Law shall be passed.”

These actions by the President mirror those of the King of England that we created a country to stop. He is charging them a fee for the perception of dishonest practice. It is simply political action to penalize a particular group for which he has contempt. I do not pretend that there is not a lot of contempt among many Americans as well.

As Washington stated, “We are a country of laws, not a country of men.” Our laws protect us from the emotion of a given time or given issue. The Constitutional protections have been used to protect U.S. protected citizens when congress made it a crime for members of the Communist party to serve as officers of a labor union. I find it ironic that the same protection that preserved the rights of communists is now needed to protect the rights of capitalists.

Conclusion

Those dividends and the loan repayment is the penalty paid by the banks to the US taxpayer. Our most sacred laws are the U.S. Constitution and if those can be ignored by the emotion of the situation we are all in trouble. We may distrust the bankers but unless we are willing to try them in court for specific or perceived crimes (i.e. Bernie Madoff), we have to let them move on with their business and we should get one with ours.

WSJ creates link between teen job loss and minimum wage.

Ed F Bias — Thu, 08 Oct 2009 03:26:34 +0000

The Wall Street journal had a great editorial on the link between teen job loss and minimum wage. Here is a supporting chart from the Bureau of Labor Statistics. This was completely predictable and was predicted by economists.. and here.

Somehow the AFL/CIO has miscounted the minimum wage earners by a meer 9.5 million or so. But their excitment over this “pay raise” shows their lack of economic understanding. What I found most amazing was that their take was that this was new money and woudl increase consumer spending. This is redistribution of wealth. No new wealth is created. With more than 300,000 job losses it is unlikley that this will increase any spending.

I know it feels good to pay people more as they start their careers. But “feel good” policies are crushing the economy and hurting the people they are supposed to help. But let’s look at some simple facts.

Just how much is that greater (the one that has a cart ready for you when you enter the store) really worth? If you ran a store would you pay someone $7.25 a hour to stand there? Maybe you used to pay then $5.50 and hour but the increasing wage from 2007 has demanded that you increase those rates. Add in the guys pushing hand-lifts around and stocking shelves at night, bagging your groceries, making your coffee and or ice cream. In short it is a tax on business; nothing more, nothing less.

Let’s say you run a store and have 10 employees at $6.00 a hour. Based on a full workload those employees cost (10*6*8hr*20days) = $9600 a month. They will now cost you $11600. No change in skills, no change in output, only an increase in cost. That is a $2000 a month tax ($24,000 a year). To a small business owner that may be making $75,000-100,000 a year running this small shop that is a increased tax burden of 25%. What would you do if you were just told you had to pay $24,000 more then you did last year? A few simple actions drop the two weakest employees ($2320 a month savings). Maybe you can cope with only dropping one employee. At the very least the idea of hiring another employee or two will be put on hold. I know, greedy shop owners. What about those greedy employees that were willing to put the ship at risk but provide no more value? We have created a hurdle to get started in the work force, resulting in more workers with limited experience and little skills to prove value to a potential employer. Experience of any kind shows aptitude and life skills that we are denying our teens in greater and great numbers.

If $7.25 feels good. Wouldn’t $10.00 an hour feel better? That would mean everyone was over the poverty level ($22,025 for a family of four). So there would be no poor. But as history proves and present facts have highlighted, it would simply mean less workers, less productivity and more poor, not less.

Something subtle may have been lost in the numbers above. The single person poverty level is 10,991. Not a workable value but let’s work it though. 11,000/40hours a week/50 weeks worked = $5.50 an hour. Note that those at this income level (up to $20,000) pay no taxes and receive additional funding from taxpayers. So based on the government’s plan there should now be no poverty in America.

Hundreds of thousands of first time workers will never get the chance to

“Feel good” now?

A response on Healthcare

Ed F Bias — Thu, 17 Sep 2009 19:17:12 +0000

This post is in response to a well written article/post from an obviously more liberal point of view. I recommend reading his thoughtful piece . His few pages are closer to a good legislative framework then our Congress and White House have come to in 1000s of pages across 5 committees As you may or may not know, I appreciate any-one’s point of view that is willing to talk and discuss with a mind towards an solution and not simply to try and score points. It shows a far greater understanding of this country (though it does include his mistaken views of GOP voters and the Tea Party crowds). But you know even that can be corrected.

My Response:

Derrick, I appreciate what I perceive as an honest and well thought out vision for health care. I am impressed that you avoided the blame game (mostly) and but forth specific points that create a basis for discussion.

I happen to fall in line with Steve, however. Our rights are God given and last I checked the bible did not mention insurance policies. At least not the paper kind. The constitution of this country was written to protect us from the government and insure our personal (civil) rights. We have gotten too far from that and allowed Washington to gain too much power (both parties).

I agree with most of your demands in general terms; if not their implementation. Let me speak to a major point of contention. You state that a government program will help break the Insurance monopoly and contain costs. You use the same, overheated, argument about Medicare and it’s lower costs. The problem with this line of thinking is that there is no requirement for them to break even. Sure they avoid the “evil profit” side of the equation. They do so by running billions of dollars in the red. Let me run a company that can lose billions a year and I could contain costs as well. The government option in any form (allowed to run in the red and/or tax to balance it’s budget) is unacceptable to me.

Do not fool yourself that, “it will be budget neutral.” You fall into a very simple trap that I used to believe. You ever wonder why, if this is so important and must be done now, it does not go into effect until 2013? There is a simple fact in Washington. Each Congress is independent. This Congress will pass a law, say it must be budget neutral and pass the implementation to the next Congress. The next Congress; being independent; is not subject to the restriction of “budget neutrality”. It would be “unfair” for one Congress to set forth rules and limitations on another. Therefore, like all other deficits, they will decline to take up the provision and just let the law run.

The only way to force budget neutrality and price control is by government action upon the private sector where costs must be balanced. With this known, many of your demands (though valid concerns) must take on a different focus.

…

Thanks again for the open discussion.

Gingrich vs Waxman a contrast in style (and position)

Ed F Bias — Fri, 22 May 2009 13:53:39 +0000

A contrast in style. Waxman makes himself an idiot. He never expresses an opinion or listens to the input. He only berates the messenger. This seems to be the standard Liberal argument to all opposition to the growth of government. It is tough to actually find the argument for these tax increases. I have no problem finding complaints about people that do not support tax increases on (100% of Americans). I wish they would defend their position on taxing every American and simply stand their ground.

I have to respect Newt’s reaction in simply sitting back and smirking while Waxman goes off. If you opponent is making and idiot of himself let him go. Newt has learned a lot since his time as speaker.
He does get a few nice points squeezed in their on the fundamental difference of using incentives for people versus penalizing people.

Taking in this context the basic argument from Waxman is that the government needs more money. How do you plan to give us more?! Never a brain cell thinking about the people, a complete view of everything from the government point of view.

Cap and Trade…aka… A Great BIG TAX!

Ed F Bias — Mon, 11 May 2009 03:10:12 +0000

Those are not my words but the words from Rep Dingell (a Democrat) that supports the concept. Even more interesting is that he even mentions that we examples of it being tried and it simply fails. So the answer, of course, is to do it anyway and tax on the other end as well.

As with many of these posts. The basic words are only the beginning but they are enlightening. Cap and Trade is not about the environment (not to Dingell) it is about Revenue. I will say for All Gore it seems to be more about the environment. And since he believes in this Carbon credits crap, I will at least give him credit for being honest. Even honest enough to mention his “world view” of taxation.

For the other side of this discussion… the Heritage Foundation has published a simple read about Cap and Trade. What I find most interesting is that both sides agree… that the American people to not understand that it is A TAX and a GREAT BIG TAX.

Now you do.

Obama’ … Just words. Just speeches.

Ed F Bias — Fri, 01 May 2009 20:19:33 +0000

Obama does such a great job of saying on thing and doing another. In blaming others for every ill . But is was he himself that said “Just words.. Just Speeches”. That actions are what matters.

He says he does not want the government to own banks or car companies. But his actions go beyond ownership, to management. He calls for the firing of the CEO of GM, refuses to let banks pay back their debts (unless he likes what they are doing) and forces a buyout of Chrysler. These are not the actions of someone that “does not want to be” in this role.

My mother once commented on an interview I had for my new boss. He had mentioned that he “did not like to be a micro-manager” but could “as needed” and felt that if was needed at “this time”. She told me at the time “WATCH OUT! If you can it is because ‘you will’… If you believe it is not the way to manage in your core you will always find another way. She was right, I dealt with micro-management, constant questioning of decisions and the continued misdirection of projects.

If Precident Obama truly felt government should not be in these role, he would be working to get them out, he woudl be working to create scenarios to limit government control or offer incentives for others to assist. None of that is occurring and is discouraged. These are not the actions of a President that does not want this control. These are the actions of a President that wants, desires and designs to gather and maintain this control.

Mr. Obama speaks as though he was dropped into Washington from Illinois and has no knowledge of such things. He seems to have forgotten he was a U.S. Senator. He voted for and approved the actions over the past two years that have lead to this problem. The budget deficits he “inherited” were the budgets he passed!!! The TARP and stimulus he fully supported.

This IS HIS ECONOMY. This is what he wants and the way in which he governs. His actions show this. Crisis shows the metal of a man (Biden say that?) and this man is crumbling.