Archive Issues - Economic

"The basis of our political systems is the right of the people to make and to alter their Constitutions of Government. But the Constitution which at any time exists, 'till changed by an explicit and authentic act of the whole People, is sacredly obligatory upon all."

George Washington, 1796, Farewell Address

COMMENTARY CONTENT

CI-E3. "Feel Like Starting or Expanding Your Business and Creating a Few New Jobs?" What Kind of Business Environment has the Obama Adm. Created
CI-E2. "We Know Not What Course Others Would Take, But We Would Not Throw In the 20 Billion!" British Petroleum's Course
CI-E1. "Liberals at it Again" Another $150 Billion State Bailout Proposed

CI-E3. Feel Like Starting or Expanding Your Business and Creating a Few New Jobs?
News Commentary, August 9, 2010, Revised August 22, 2010

Typical with most post recessionary periods private businesses have gone through a down sizing and consolidation process that has made them leaner, more productive and more profitable and ready and able to use their improved competitive positions to expand their businesses and create new jobs.  Ready and able, but not willing.

What kind of business environment has the Obama Administration and the Democratically controlled Congress created that is holding private businesses back from their traditional recovery period role in the exercising of their renewed financial positions, coupled this time with unprecedented low interest rates, from expanding their businesses and creating new jobs?

Newly Created or Exercised Powers for the Government Take Over of Private Businesses:

  1. Used Troubled Assets Recovery Program (TARP) funds to to purchase a majority ownership interest in American International Group (AIG).
  2. Used reportedly TARP funds to meddle in existing federal bankruptcy proceedings to purchase a majority ownership interest in General Motors (GM) and Chrysler while leaving bond holders with pennies upon the dollar owed.  (Somehow those that should have come first came last.)  The United Auto Workers (UAW) ended up with a minority ownership interest in GM.
  3. Exercised a complete take over of the student loan program edging out privately owned banks participation.
  4. Passed financial reform legislation 2010 giving the federal government the right to seize and liquidate any businesses believed to have "systemic risk" - risks that could threaten the economy or the financial system.

(Aren't these newly exercised government powers comforting to a business owner; are you sure you don't want to start your own business and create a few new jobs.)

New Taxes, Mandates and Regulations Already Implemented:

  1. Employers with annual payrolls greater than $250,000 are mandated to either pay a new and addition payroll tax of up to 8%, or else provide health insurance for their employees.
  2. Provided Health Insurance plans must meet minimum coverage requirements set by government, the plan a business was offering may now not be good enough.
  3. Businesses are mandated to report their paid portion of employee health insurance coverage as taxable income to the employee.  (The W2 will reflect the employer cost of the employee's health insurance.)
  4. A tax surcharge on "Cadillac" health care plans, punitive penalty for offering "too good" of a plan.
  5. Inevitable increase in Health Insurance premiums as mandates to eliminate annual medical coverage caps and exemptions from preexisting conditions coverage kick in.  (If the personal mandate that individuals either purchase Health Insurance or be subject to government penalty is found unconstitutional and struck down by the courts as is at minimum possible and perhaps likely, then the elimination of the exemption from preexisting conditions becomes untenable as individuals will wait until they're sick to purchase coverage.)
  6. For the first time, the combined employer-worker 2.9% Medicare rate extends beyond wages to interest, dividends, capital gains, annuities, royalties and rents for individuals with adjusted gross income above $200,000 and joint filers over $250,000.
  7. Tax rates raised on income earned from off-shore investments.
  8. Required 1099 filings by businesses to all suppliers of products or services exceeding $600 annually.  (Getting a few thousand additional IRS agents to shuffle the paperwork and harass businesses, what a nightmare.)
  9. Creation of hundreds of new advisory committees, agencies, boards, councils, etc., increasing the size of government and adding to the already burdensome government bureaucracy, largely in the Health Care and Financial reform legislation of 2010.  Reportedly 16,000 IRS agents alone will be hired.

(Won't these new taxes and mandates enhance the business experience; are you sure you don't want to start or expand your business and create a few new jobs.)

Tax Increases Waiting to Happen as the Bush Tax Cuts Expire December 31, 2010:
  1. The highest federal personal income tax rate will rise to 39.6% from 35%.
  2. Middle personal income tax rates, beginning lower to higher, will rise from 25% to 28%, 28% to 31%, and from 33% to 36% respectively.
  3. The lowest federal personal income tax rate will rise to 15% from 10%.
  4. The "marriage penalty" returns as couples filing jointly will get hit with a lower standard deduction.
  5. The child tax credit will revert from $1,000 to $500.
  6. The threshold for the Alternative Minimum Tax (AMT) will decrease.
  7. The highest federal dividend tax rate will pop up to 39.6% from 15%.
  8. Long-term capital gains will rise from 15% to 20%, and the 0% rate for those in the lowest tax brackets will be replaced by a 10% long-term capital gains rate.
  9. The estate tax rate arises from the dead for estates over one million dollars, to 55% from 0%.

(Presidential candidate Obama didn't lie, your taxes won't go up by a single dime. They'll go up by thousands and thousands of them.)

(Won't these tax increases be great for the bottom line; are you very sure you don't want to start or expand your business and create a few new jobs?)

Favored New Taxes, Mandates and Regulations:

  1. A Value Added Tax (VAT), a tax on the value added to the commodity at every production stage paid for by the purchaser.  (Could be though of as a consumption tax at the wholesale level.)  A hidden tax as the retail price will reflect the cost of the embedded taxes not seen by the customer.  The retail price of all goods produced in the U.S. will increase to compensate for the added cost of the VAT to the processor or manufacturer.
  2. Cap and Trade, taxes and fees on carbon and other "pollutants" exhausted during manufacturing or processing.  Proponents favor the selling of "carbon credits" to processors that can be bought and traded, allowing the processor to exhaust a carbon level equal to credits purchased.  Energy, transportation fuel and other costs to both individuals and businesses will skyrocket.  As the increased energy, transportation and other costs are added into every commodity processed, manufactured and transported the retail price of products will increase significantly.  (A version of this legislation has already passed the House of Representatives.)
  3. Card Check, a replacement of the secret ballot in unionization voting with "green card" submissions.  Would further open union drives up to coercion, bribery, intimidation and other strong arm activities greatly enhancing the probability of the successful unionization of businesses.

(Won't the combination of vast new taxes and fees, mandates and unionization be great for competitiveness with foreign markets; are you absolutely sure you don't want to start or expand your business and create a few new jobs?)

Present and Likely Long Term Consequences of Budget and Monetary Policies:

  1. Record (+$1.3 trillion) federal budget deficits beginning in 2009 and extending as far as the eye can see putting a strain on debt maintenance and monetary policy.
  2. The Federal Reserve put in the vicarious position of having to purchase our own National Debt as it is too large to be bought up by traditional domestic and foreign investors without dramatic interest rate increases.  (Our Federal Government is loaning money to itself!)
  3. Monetary policy creating the dollars necessary to finance record deficits putting inevitable pressure on higher inflation if the economy ever catches fire.
  4. Unsustainable Federal Reserve lending at near 0%, unprecedented (since WWII era) national debt, and higher inflation leading to greatly increased interest rates.

(Huh, maybe we should play it safe and solidify our holdings, hoard our cash, and wait to see what happens.)

CI-E2. We Know Not What Course Others Would Take, But We Would Not Throw In the 20 Billion!
News Commentary, July 06, 2010

On April 20, 2010 a Deepwater Horizon oil drilling rig in the Gulf of Mexico exploded.  Fifteen workers were injured and eleven died.  The Deepwater Horizon rig, owned by Transocean Ltd., was under contract with British Petroleum to drill the exploratory well.  Bp and Transocean were in the process of closing the well and returning it to commercial production when the explosion occurred.

The explosion and resulting fire toppled the drilling platform causing the well pipe to sever approximately one mile beneath the sea surface.  A blow out preventer (BOP) positioned on the ocean floor failed to properly function in sealing off the pipe.  Bp, the Coast Guard, the Environmental Protection Agency (EPA), state and local government resources and others are in the 78th day of dealing with the consequences of the subsequent crude oil gusher.

British Petroleum's course has been to:

  1. Try to stop the leak while collecting as much crude as possible through a makeshift pipe cap and hose.
  2. Drill two relief wells in hope of stopping the leak upon completion sometime in August.
  3. Use air and water craft to apply oil dispersant in the Gulf's waters.
  4. Contract with fishing vessels to string restraining boom and with skimming ships to corral and burn or skim as much oil off of the Gulf's seawater as possible.
  5. Work with state and local government agencies and officials on other methods of stopping the oil residues from reaching shore, and to mediate the harm to ocean and wild life and to sea and shore ecology.
  6. Hire cleanup crews to work the beaches and shoreline once contaminated by tar balls or oil sludge.
  7. Negotiate with local fishermen, restaurants and other businesses to compensate them for their financial losses due to the oil spill.
  8. Coordinate with the Coast Guard, the EPA, and other federal government agencies in all of the above.

Now Bp is turning $20B over to an independent administrator, Kenneth Feinberg, who just happens to work as Compensation Czar in the President Obama Administration; somewhat confusing the definition of "independent".  As far as we can tell the administrator is to use the $20B to fulfill step 7 above.  Does it pay for anything else?  We don't know.  One thing we do know, parties compensated with the $20B will not be required to agree to limit Bp's liability in return.

What course we would take:

  1. Continue everything Bp is doing with some modification short of the $20B to Feinberg.
  2. Concentrate on the work with state and local government.  These officials act like they want to help get something done instead of getting in the way and passing judgment.
  3. Improve the proficiency of the cleanup crews, hire cleanup management in every county seat along the effected and vulnerable shorelines.  Use base workers supplied by local temporary staffing agencies in the cities along the coast, not directly hired by Bp.
  4. Develop more than fair calculation standards for the compensation of businesses damaged in return for limited liability.  Get staffed up, get them paid off, and do it fast.  Spend what it takes here, businesses that want to hold out for more than what's fair, don't waste time and resources, let them go.  They'll either come back and settle later or file lawsuit.
  5. Shower the Coast Guard, the EPA, and all other federal government agencies with documented requests for assistance in all activities: suspension of the Jones Act, streamlining of EPA decisions on use of dispersant's, building of berms, etc., etc., etc.  Put them to work and keep them busy, document all request rejections and delays.  Prepare legal defense against inevitable lawsuits.
  6. Pay only a equatable percentage to the government, Transocean or other companies may be partially liable, of the up to $75 million limited liability for oil spills set by statute, no more.  Prepare for legal action.
  7. Prepare to tie all court action up for years.  Do not necessarily deny liability but argue that Bp did everything customary and reasonable within the scope of present day technology in response to the oil spill and that the totality of expense that they will have incurred (billions by trial time) to remedy damages to businesses and to the ecology is more than reasonable to fulfill their total liability.  Fiscally budget settlement of outstanding liability claims equatable with the original (more than fair) offer.

Three main problems with suppling the 20B to Feinberg:

  1. Bp will have to come up with the whole sum in just a few weeks.  Spread over time Bp may be able to largely use retained profits and loans to finance the incurred expenses and liability compensation associated with the oil spill, saving major disruptions to their assets and operating capability.
  2. Bp is not getting limited liability in return for compensation paid.
  3. Much of the 20B will be subjected to waste and abuse inherent in government bureaucracy.

Bp may have made the choice to supply the $20B to Feinberg hoping that it would moderate the U.S. Governments wrath against them.  They may be right, they may have gotten some assurances not made public, but probably a bad bet.  Why didn't they get limited liability in return for compensation rendered with the $20B?  Oh, we forget, the trial lawyers have to eat to.

CI-E1. Liberals at it Again
News Commentary, June 01, 2010

What's the current 2010 budget deficit estimate, $1.2 to $1.4 trillion, how about another 200B?

Democrat House Bill Proposal, $140 Billion:

  • Extend unemployment insurance (UI) and COBRA health insurance through the end of the year,
  • Renew a handful of tax cuts, for small businesses, families, and college students,
  • $23 billion to protect teacher jobs, and
  • $70 billion to avert States and Localities layoffs.

Democrat Senate Bill Proposal, $150 Billion:

  • $65 billion for extending current payments rates for Medicare doctors through 2012,
  • $24 billion for assuming a greater share of states' Medicaid burden,
  • $47 billion for extending UI and COBRA up to 99 weeks through November,
  • Extend tax cuts that would let tax payers continue to deduct part of their college tuition, property tax, and state and local sales taxes, and
  • Extend tax cuts for teaching and installing energy-efficient windows.

The House bill proposal doesn't include $65B for the Medicare doctors fix or $24B to relieve states increased Medicaid burden.  (Wonder where that "extra" State Medicaid burden came from, have You heard of Obamacare?)  The Senate bill proposal doesn't include $23B to protect teacher jobs or $70B to avert States and Localities layoffs.

We'll be lucky to get out of this for less than $200B.  State, County and Municipal governments will never get their budgets in order as long as liberals are bailing them out by picking dollar bills out of mid air like leaves falling from trees on a breezy day in autumn.  (Better make that a "windy" day in autumn.)

Contact your legislators beginning Monday, June 7; congress will be back in session and these bills will be most likely be brought up for debate and vote soon thereafter. http://www.usa.gov/Contact/Elected.shtml

"Justice is the end of government.  It is the end of civil society.  If ever has been, and ever will be pursued, until it be obtained, or until liberty be lost in the pursuit"

James Madison, 1787, Federalist No. 51

Will You Answer the Call?

Answer Call Page

Home Page