Michael Barone makes a great point in his Washington Examiner blog post with respect to the on-going debt ceiling arguments. The real issue is: What is the appropriate size of the national government.
Business & Economics
Spending Cuts vs. Tax Increases
The media is playing up the current debt cieling debate with the Dems and their media sycophants claim that you need to increase taxes to solve the problem. Well, let’s look at the two extremes of the argument.
As is quoted on a lefty blog Alternet, the net worth of the 400 wealthiest citizens was estimated to be $1.57 trillion. This would lead to a ONE TIME inflow to the Treasury of $1.57 trillion. The 2009 budget deficit was $1.4 trillion. This means that after barely covering the deficit for one year, the income taxes paid by these individuals would be $0 from that point forward. This would reduce the Treasury’s receipts increasing the deficit after year one.
Compare this to spending. If you did not spend anything, then current tax revenues coming into the Treasury was approximately $2.5 trillion which would be used to pay down the debt already incurred.
Obviously, by measuring the problem at the two extremes to determine where the problem is, we have a spending problem, because income is what it will be. There is very little control the government has over how much it will receive in taxes in any one year. There are many varilables that go into the equation. Spending is something that can be controlled.
Easy solution, we should limit spending in any year to the prior year’s tax receipts.
Solvency v. Liquidity
Michael Barone has an article in which he articulates a belief I have long held: We weren’t as rich as we thought we were prior to the current depression. The government tried all the tricks in the playbook to reinflate the bubble, the the good old market would have none of that. I submit that had we not tried all of those old tricks and just let the market fix the problems, we would be in a better position today and not another $5 trillion in debt.
We don’t have a liquidity problem. We have a solvency problem. Until the balance sheets of consumers and the federal/state/local governments get trued up, we won’t get out of this mess. Sellling this solution is difficult, especially with the economic illiterates on the Left and their voting block.
Too Many Laws & Regulations
Glenn Reynolds has a great Op-Ed in today’s Washington Examiner. His premise is that if you need a lawyer to figure out how to operate in a country’s economic environment, in all likelihood, the country will have limited economic upside. He cites Greece and the number of lawyers per capita and the 19th centry laws still on the books there.
I would extend this further to say this leads to black markets operating outside the legal and tax systems affording the participants therein with no protection from the very laws and regulations of the political establishment. It sets up the classic legal conundrum: how to I get my government/legal system to help me resolve an illegal contract?
The End Game to Democrat’s Healthcare Reform
If you needed any evidence that those of us who claimed the end game was to get rid of private insurance companies, you now have it. Bernie Sanders was on MSNBC, and the host asked: “Senator, how frustrating is this for you to see the bill tied up in a constitutional argument when the provisions that could have been in place, like the public option and other versions of the legislation that were rejected early on by the Democrat leadership, would not have posed any constitutional difficulties?”
Mr. Sanders responded “One of the ways I want to see it improved is to give states flexibility to provide health care to all people, maintaining very, very high standards but doing it in a more cost effective way. And in the state of Vermont, we are moving forward toward a Medicare for all single-payer system. And I hope very much to be able to get waivers from Congress and the White House in order to allow us to do so. Because I think at the end of the day if you’re gonna provide health care to all of our people in a cost effective way you’re gonna have to get rid of the private health insurance companies and put our money into health care, not profiteering, not administration, not bureaucracy.”
Mr. Sanders, instead of getting rid of, as you call it, profiteering, administration, and bureaucracy, you will instead get a bureaucracy that has no cost constraints, is politicized, is not responsible to anyone, can not be fired, and will reduce the quality of care. The healthcare insurance industry has a profit margin of only 6 percent.
Sorry, but I’ll stick with the private insurers. I can fire one and go to another anytime I want. Can’t do that when the government is in charge.
Green Jobs = No Jobs
Edward Glaeser has a column in the NY Times blogs discussing green jobs. This is a surprise? The exporting of manufacturing jobs for established products has been going on for years. Peter Drucker wrote extensively about it in his book Managing for the Future.
We can decide to develop IP or we can decide to manufacture products already developed. I believe there is an advantage to IP, and we should focus on math and engineering to maintain our standing as an economic power.
Get Ready….Inflation is coming
Daniel Oliver has a great article on Forbes wherein he likens the late 1960s today. He goes on to document some of the similarities between those times and today and the outcomes from the monetary policies of the time. All anecdotal to be sure. However, many of us have been saying for the last 10 years that the path the federal government is on will lead us to economic ruin. Well, I don’t think we’re too far away from that day. Keep an eye on commodity prices.
I Support Tax Increases….On Politicians
Since the political class is so insistent on raising our taxes, I would support the following tax increase:
– 55% of the increase in a politician’s wealth between his first financial filing at the time he was elected and that at his death is taken and used to pay for retirement and health care costs of all the current and retired politicians thereby keeping their costs off the government’s balance sheet and out of operating costs.
Since the politicians see their wealth increase so much during their tenure, why shouldn’t those of us who put them there actually benefit from this?
Warren Buffet and Taxes
Last week we heard from the Oracle of Omaha how thankful he was over the taxpayer bailing him out with TARP. As he said, because of TARP he’ll be celebrating Thanksgiving at his daughter’s house with a big turkey instead of McDonalds.
Yesterday, you have a Juliann Neher column in which she quotes Buffet’s statement that the rich should be paying more in taxes. I find this very odd given Mr. Buffet’s own profile.
Why do I find this odd? To understand, let’s look at the income levels that would be subject to the tax increases. As Juliann quote’s in her article, the liberals and many others would raise taxes only on the “rich” often quoted as those making more $250,000 per year if married or $200,000 if single.
We know that Buffet is a billionaire. How much would his tax rate increase? The answer might astonish you. But, that would be an increase of 0%. How can that be? Well, Mr. Buffett’s income from Berkshire is $175,000 per year. That’s right, $175,000 per year. Don’t believe me?
Well, look at page 7 of Berkshire’s Proxy Statement. The proxy shows Mr. Buffet’s income for the last 3 years which has been the same. Also, as is widely reported, Mr. Buffet is a big investor in municipal bonds. That would be tax-exempt municipal bonds. So, his interest income isn’t taxed, his income level would not reach the level of rich and he wants me to pay more in taxes.
Buffet is wealthy because he legally evades taxes. He invests in tax-exempt bonds and keeps his wealth in the form of untaxed capital gains.
Why don’t we let those that want a large federal government support it. Let’s see Buffet give the bulk of his fortune to the imperial federal government he supports and leave the rest of us alone.
After all, we all want to be rich like him.
Job Creation
Why do politicians promise to create private-sector jobs when they aren’t the ones who hire people in the private sector? How can a politician actually create a private-sector job? These are questions I ask people I know and people I run into. Their answers really demonstrate how little the average person knows about economics.
You’re seeing headlines in the MSM and quotes by the ruling class ridiculing corporations for holding vasts amount of cash and not spending it “to create jobs.” The answer is easy. To find the answer, don’t look at earnings reports showing glowing EPS growth. Instead, look at revenue and see if a companies’ top line is growing. If the company’s top line is not growing, i.e. more customers to serve, why would the business add costs?
The answer is: a business wouldn’t.
What is the reponse by the ruling class and MSM? Increase taxes on corporations and the rich because they can afford it.
Is their an answer that will cause businesses to increase their spending? Cut the size and scope of federal, state and local governments. Cut the regulatory burden (regulations only help governments and government employees).
The key words associated with the answer are cut anything government.