Saturday, February 28, 2009

One Month in and What do we have......

Well how about a string of broken promises (not really a surprise but we were promised change we could believe in) and a plan for a European style Socialist Government where every citizen will be cared for from cradle to grave on the backs of the taxpayers. This is the change that some in America voted for. Let me define why I say some. Of the people that voted for the President, very few knew that the ultimate goal of Obama was to push a socialist agenda that will ensure that more and more people will be dependent on the government and in their gratitude vote Democratic for generations to come. The vast majority that voted for Obama had no idea that this was the intention of their chosen one. Image the shock and horror of all the Hedge Fund managers, and Wall Street type that voted for Obama when he unveiled his budget and its intention to raise the capital gains tax and cut charitable donation deductions. I would say that many are having extreme buyer's remorse.

But Obama does not stop there; he plans on going forward with raising taxes on those making above $200K for individuals and $250K for families as outlined in his FY2010 budget summary. As was pointed out for all to hear during the campaign, many small businesses file taxes not as a company but as the individual owner(s). I believe the figure most sighted was 1 in 4 small businesses file this way and there are about 24.7 million in the US according to 2004 Census Bureau figures. By my rough math, that is 6.175 million small businesses that will see their taxes rise and cope with by either raising the price of their products, stop hiring and/or cut payroll by firing employees, or fail and go out of business. One of the first things learned when studying business and the economics of business is that small businesses create the overwhelming majority of new jobs in any economy. I surely would hope that the President or at least his "Dream Team" of economic advisers would know this. So if that is the effect of the President's plan to stifle small business and impede the upward mobility of every small investor and the entire Wall Street industry, one has to ask why?

The reasons for the President's pushing of a socialist agenda are many and varied but for my money it is the age old reason of class warfare and lack of faith in the American Dream. Obama was on the frontlines of class warfare as a community organizer and learned from such classic class warriors as Jesse Jackson. The cry of the ignorant poor has always been that the system is unfair and rich people get that way but exploiting the poor. "They got theirs, I gots to get mine", Obama suffered from a Robin Hood complex brought on by years of indoctrination of how unfair our economy is to poor people. The truth is that anyone of any economic or social status has more opportunity in this country than any other in the world. The road is not easy but the promise of a better life has always been available if one was willing to work hard to accomplish it. Notice that I said work hard. I choose those words deliberately because no one ever improved their life by sitting around waiting for government check. Unfortunately our new President is Hell-bent on changing that. I submit the old adage, "Give a man a fish and he will eat for a day but teach him to fish and he will eat for a lifetime". Perhaps these are words the President should take to heart.

My humble suggestion is to put more money into job training and education, not throw more money at those already living off the tax receipts of working Americans. If no incentive is given to get off welfare or unemployment then people will stay as long as possible, that is the easiest thing to do, the path of least resistance. Our country is the greatest in the world and if we want to stay that way we cannot go down this path of punishing success and glorifying failure. President Bush was wrong to dump money into companies that had made poor decisions, good money chasing bad results, and we have now seen that some of these companies have not changed their ways. I am not joining in on the piling on of corporate American but rather a realist. Sometimes the best decision a company can make for its future is to enter bankruptcy, clear the debt, restructure, and downsize. This has been the case for decades. And unfortunately sometimes a company has no choice but to just close up shop. This is reality folks, not the rose-tinted outlook that a great deal of people have nowadays. The decisions made by President Obama will be felt for generations to come and I am not just talking about the enormous debt we are incurring, that is another debate for another time. If this stimulus package fails to improve the economy, we will be lucky to endure a "lost decade" like Japan. We cannot continue to print money and throw it at a problem that is simply not the solution. This approach did not work during for President Johnson and it will not work for President Obama. We must take a targeted approach and be wise with the money we spend. I think that most Americans would be uneasy with the fact that China holds $681.9 Billion dollars of US debt (as of 2008 according to US Treasury figures) if they stopped to think about it. One has to wonder about the President's plan for spending when even the liberal bastion the New York Times questions the wisdom of his budget projections.

A targeted approach would cut spending by the Federal Government not increase as Congress and the President are planning. All non-essential spending should be cut or held immediately as this would pay for the increases that will be needed in the areas that will move this economy forward. I am not an economist but I do work for a small business and my customers are small businesses as well so I am very familiar with the reality on the ground so to speak. In a targeted stimulus plan, we would increase spending for infrastructure projects such as roads, bridges, airports, seaports, power grids and such. We would also need increase funding to job-skills programs and education in order to provide skill labor for the infrastructure projects. Rather than simply increase welfare or unemployment benefits, we must provide the tools so that people can work towards a better life. It has been my personal experience that when people are given money, property, even jobs it is not as valued as when those things are earned and I believe that to be a universal truth. These projects will create jobs but not right away, the full impact of these projects will be felt years from now but there are an important part of our economy that we have ignored for too long. We should include green projects as well in order to decrease our dependence on foreign oil imports but not at the cost of jobs and resources available today. What I mean is that we have many millions of oil available within our borders and just off-shore that can be utilized with little or no impact to the environment. Yes folks, our technology is just that good. Hell, we are the United States of America; we can do anything we set our collective mind to. The remainder of any stimulus should be targeted at real job creation and taxpayer relief. Give businesses incentives to expand and hire new employees, incentives to provide better benefits packages, incentives to be the best that they can be. We need to stop punishing successful businesses by applying the second highest corporate tax rate in the world, which stands at 35%. We should cut corporate taxes in half, provide deductions of up to 50% for new capital investment, and a health care deduction of 50% as well for the cost of providing full health care (medical, dental, eye) to employees. This will also have the effect of lowering costs for all businesses and consumers as businesses lower prices in order to complete in the marketplace. As for us lowly taxpayers, the tax credit for dependent children should be at the very least doubled to $2K, provide a tax deduction for all out of pocket medical expenses up to 75%, allow the 100% tax deduction of loan interest on new car purchases for the next 4 years, allow a 100% tax deduction on the down payment amount for new homebuyers (the thought being that if they can deduct 100% of their down payment then people will put more money down on a home and be less likely to buy homes they can't afford), suspension of federal withholding tax for the remainder of tax year 2009 (we would still pay FICA and Medicare taxes). I would also submit that Congress and the President need to take a long and serious look at the idea of a Fair Tax. Now as I said earlier, I am not an economist or an accountant so I honestly do not know how much these proposals would cost but I would be willing to bet one of my paychecks that it would be a great deal less then what has already been spent by this administration and how much they are still planning to spend.

The bottom line comes down to belief in this country and all of the opportunity she has for her citizens. I believe that this country will be great again without massive and wasteful government spending and without going down the road to a European Socialist style government. I am not a rich man but any reasonable standard, just a guy trying to do right by my family so many will say that Obama's tax and spend policies don't impact me. That could not be further from the truth. As I mentioned, I work for a small business that services primarily small businesses. If those customers of mine are squeezed by the government in the form of higher taxes then they have less money to invest in their business by way of purchasing my products and services. This in turn will lead to cost cutting measures by my company as our leadership are very sound businessmen. Those cost cutting measures could include reduction in benefits, elimination of 401K matching, no increase in pay or worse a reduction in pay. If these items come to pass I may be forced to remove my children from the excellent Catholic school they attend and place them in the sub-standard Chicago public school system which could diminish their future opportunities. These are only some of the direct effects upon me and millions of others in this country in similar situations. Those are short term issues and when we turn to long term issues the ugly specter of a lack of Social Security benefits, increasing medical costs, and higher cost of living stares us right in the face.

I am under no illusion that any of the money I have paid into Social Security since the age of 16 will ever find its way back to me and I am actually ok with that. I have planned for retirement by participating in a company 401K when and where available and put money aside in a private investment account. I will be alright because I will not rely on the government to care for me in my golden years. But this President is out to punish every investor regardless of size or scope by raising the capital gains tax from 15% to 20% and the rate goes as high as 39.6% for high income folks. Now, that 5% increase that I am going to see does not sound like much but if the tax rate stays at 20% or goes higher, that will be a large amount of money lost when I cash out in thirty-five years. For example, let's say that I am conservative in my investment approach and I only manage to receive the historical return of 7% (stocks and bonds) on my money. If I had started with $10K and invested it over 35 years, I would have $106,765.80 which at today's capital gains tax would cost me $16,014.87 in taxes but at the higher Obama rate of 20% would cost me $21,353.16 in taxes. That difference of $5,338.29 could be the difference in how I live once retired or how many medications I can afford for myself or my wife, or even whether I can retire when I want to. Did you get the picture? The more money I invest to provide for my retirement the more taxes I could pay if I am successful. Let that sink in a moment. The more successful I am at providing for my retirement, the more I am going to be "punished" by the government in the form of higher taxes. This is at the heart of the issue, punishing success and rewarding failure. I am 100% sure that this role of the government was not intended by our Founding Fathers. Putting aside the fact that a Capital Gains tax is a tax applied to money that was already taxed when originally earned; can you see where this is going? In the President's effort to "punish" Wall Street bankers and Investors, he has used too broad a sword and is applying his malice towards Wall Street to millions of small investors that are just trying to save for their futures. I personally think that capital gains should be completely eliminated for those taxpayers that have another source of income and for those who are only paid in stock options; it should be taxed at their standard rate and that standard rate should be no higher than 25%. Of course this debate is moot if we ever pass the Fair Tax and eliminate the personal income tax.

The path laid out by this President and his accomplices in Congress is not only wrong for this country at anytime much less a recession but is absolutely un-American in its application of deriding success and rewarding failure. Unless we see more protests like the Tea Parties held around this country yesterday and the absolute hounding of our representatives in Congress, we will end up living in a socialist America when government is the leading employer and granter of life, liberty and the pursuit of happiness instead of each and every American.


Anonymous said...

Very informed comments are laid out here. Many voters who elected BO cannot articulate any of his policies, or just what "change" was going to be coming. This blog should be required reading for all who are about to reach voting age.

The Mad Tech said...

Thank you. I just try to call it how I see it without worrying about Political Correctness.

Anonymous said...

Some of those who voted for Mr. Obama do genuinely have reasons to feel disappointed. But some on the other hand do have resonas to be genuinely happy.