Rewarding Michigan’s Failures

Posted in Activism on November 24, 2008 by poyers

It is bad enough that some of our government leaders are trying hard to support companies that are poorly run and inefficient with tax payer money (Detroit’s auto makers).  We have been facing that battle as constituents since the beginning; i.e. politicians looking out for their own special interests and considerations at the expense of the masses. 

Consider being a representative of Mississippi or Alabama where your domestic auto makers are bringing in solid revenues, represent a well managed and thriving business, and have employees being well compensated for their efforts.  You might be a little disturbed that the failures of the Michigan companies are being discussed but your successes are being ignored.  This is the essence of the pain behind the “spread the wealth” comments of Obama.  Success is punished by being taxed and regulated whereas failure draws out discussion of victimhood and reparations.  Why are we not going out of our way as a country to support winners and do everything possible to help them continue to be successful?

Further adding to the frustration is that the “leaders” of some of these places are being rewarded with high level positions in the forthcoming Obama administration.  Consider the promotion of Jennifer Granholm to Michigan’s economic team.  Her state’s failures has led Michigan to be the put of many jokes and punchlines about American woes.  Now, Obama wants to bring that nonsense to the country at large in recognition of her…success and brilliance.  Excuse me!  She has been an abject failure and done nothing but raise taxes and enforce penalties on every industry that is successful in the state.  She throws money at the Detroit school system that is the worst in the country but one of the wealthiest and most expensive.  There are huge burdens on the state and city governments because of the enormous costs of the bureaucracy and public employees with nearly 50 cents on the dollar in tax revenue going to pay employees.  A long list indeed.  And how is she rewarded for her failures…a job promotion.  Are we to expect the future of the country to be that of Michigan?

Alas, now we know why Michigan Gov. Jennifer Granholm is on President-elect Barack Obama’s economic policy team. Judging by Obama’s Saturday economic address, he plans to address the nation’s ills with the same inept policies Granholm has championed for the last six years here in Michigan.

Granholm and Obama have much in common: They are both young Democratic party protégés, both are charismatic personalities, and both are left-wing, Harvard-educated lawyers with little experience running anything prior to assuming office. Like Granholm, Obama appears to have little grasp of market economics, but prefers showy public-works programs and utopian visions of bridging a carbon-addicted America to a new green economy that will employ millions.

The similarities between Obamanomics (as outlined in Saturday’s radio address (http://my.barackobama.com/page/community/post/stateupdates/gGxtlN) ) and Granholmnomics (as outlined in her January State of the State address (http://www.michigan.gov/gov/)) are striking.

Obama:

“(My stimulus plan) will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels, fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.”

Granholm:

“I’m proposing a Michigan economic stimulus package — nearly a billion dollars for needed infrastructure and building improvements, creating upwards of 28,000 construction and other jobs over the next two years. A billion dollars in economic stimulus from new construction. But let me talk for a moment about one sector that has blockbuster potential for Michigan: alternative energy . . . . Because of the need to reduce global warming and end our dependence on expensive foreign oil, the renewable energy and energy efficiency industries will create millions of good paying jobs. I say we will win these jobs for Michigan and replace the lost manufacturing jobs with a whole new, growing sector.”

The echo is eerie.

And likely to get eerier still. How has Granholm gone about creating this new green economy? With mandates and targeted tax breaks — just as Obama will likely propose. Granholm spearheaded a state Renewable Power Standard that mandates 20 percent of Michigan’s energy come from wind power by 2020, and she has showered tax breaks on alternative energy companies. Watch for Obama to do both on the national level.

The result has been a Michigan economy that has drowned under Granholm’s watch, with unemployment tripling to a nation-leading 9.3 percent at the same time that Michigan’s debilitating economic fundamentals — high taxes and overgenerous concessions to organized labor — have gone unaddressed. Granholm, however, has missed few opportunities for photo ops touting the companies that have benefiited from her tax handouts or her road-construction spending.

And she has landed a key position in Obama’s transition team, where she and the president-elect apparently agree that Granholmnomics is America’s future.

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Mitt on the Auto-Bailout

Posted in Activism on November 19, 2008 by poyers

I was pretty low on MItt during the primaries as he led a horribly inept campaign and had so sense of story or message throughout.  That being said, I think that he is a very talented and capable man as an individual thinker and entreprenuer.

In today’s NY Times, he writes an awesome op-ed (http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2&partner=rss&emc=rss).

Some highlights:

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

Instead of a bailout, Romney proposes a sizable increase in spending on research that would benefit the auto industry:


 

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.


He alludes to a “managed bankruptcy.” And perhaps this is something the federal government can, in fact, help with. But a blank check – which is what the industry is asking for now – would be a waste.

The auto industry is headed for a shakeout regardless of whether the government intervenes or not. It can happen to the betterment of the industry by making it leaner and stronger, or it can codify failure. Romney’s call is clearly not to subsidize the losers.

Arizonans: Vote for Proposition 101

Posted in Activism on October 27, 2008 by poyers

Proposition 101, “The Freedom of Choice in Health Care Act,” would put the following language into Arizona’s Constitution:

“Because all people should have the right to make decisions about their health care, no law shall be passed that restricts a person’s freedom of choice of private health care systems or private plans of any type. No law shall interfere with a person’s or entity’s right to pay directly for lawful medical services, nor shall any law impose a penalty or fine, of any type, for choosing to obtain or decline health care coverage or for participation in any particular health care system or plan.”

Opponents of Proposition 101 are against what it would guarantee, including the right of individuals to pay directly for medical services without needing the permission of a third party. Proposition 101 would emancipate service providers from requirements that they either charge fees set by the state, or charge nothing.

Proposition 101 would prevent employer or individual mandates of the sort imposed in Massachusetts. That is, it would prevent “pay or play” systems, under which employers must either pay for employees’ health insurance or pay into a state pool that finances insurance for them.

In the name of cost control, but actually in the service of self-serving crony semi-capitalism, some opponents of Proposition 101 want to restrict access to alternative services. These opponents include some government bureaucrats who run Arizona’s Medicaid system, and some hospitals, established health insurers and physicians groups who understand that it is easier to lobby for government contracts than it is to persuade individuals to purchase this or that product.

Proposition 101 would protect Arizonans not only against abridgements of their liberties by their state government, but also perhaps against comparable actions by the federal government.

Now, Proposition 101’s language leaves ample room for litigation about what would constitute an impermissible abridgment of an individual’s right to “make decisions” about health care. Still, if Arizonans pass Proposition 101, residents of other states will have a template for resistance to contemporary liberalism’s next lunge toward its unvarying goal — enlargement of government supervision of our lives.

Is the Government Coming For Your 401k?

Posted in Activism on October 24, 2008 by poyers

From the Wall Street Journal (http://online.wsj.com/article/SB122477680834462659.html). 

Can you believe this?  The government is looking to find ways to take away tax benefits from 401k investments.  Maybe not looking at it deeply, but looking at it enough to give this person a platform to share her ideas in front of your representatives.

Increased Government Spending is NOT the Answer

Posted in Activism on October 23, 2008 by poyers

From todays WSJ (http://online.wsj.com/article/SB122471696933660407.html):

Below are some excerpts but please read the entire article.

On Tuesday Senator Obama said this spending would create millions of new jobs by closing a federal “investment deficit.” Over the past eight years the federal budget has exploded by more than $1.1 trillion, much of it for the very programs that Democrats want to spend more on. Let’s start with infrastructure. Three years ago Congress passed a transportation bill of more than $286 billion. The transportation budget is up 22% after inflation in the past eight years. Roads and bridges can help economic growth if they increase productivity by more than the amount they cost in higher taxes or borrowing. But not if they are bridges to nowhere as so many of these projects are.

How about aid to local communities? That spending has soared by 91% after inflation in eight years. The education budget is up 57%. Welfare programs are up 30%. Only two years ago Democrats were calling the Tom DeLay Republicans spendthrift. Now they say there’s an “investment deficit.”

Federal budget deficits are not something we obsess about, but eventually this new spending has to be paid for, and Barney Frank’s comments only underscore that big tax increases are coming. The prospect of these tax increases is now hanging over the economy like a pall, as investors and businesses wonder where and how heavily an Obama Administration and Congress would strike. The pall is likely to continue well into 2009, as millions of Americans delay their investment decisions until they know how much their after-tax returns are likely to fall.

If Mr. Obama really wants a “stimulus,” he’ll announce that given the condition of the economy he won’t raise taxes at all. Meanwhile, all of us are getting a preview of Obamanomics in action.

Capital Gains and the Economy

Posted in Activism on October 22, 2008 by poyers

Tax revenue is a vital part of the United States government. The income generated from taxes allows the government to finance public works programs, build infrastructure and maintain a military. When the government needs to raise more revenue it generally raises the tax rate to create more income. The idea of raising taxes to raise revenue generally works; however, history has show that more revenue is not gained from the capital gains tax. When the capital gains tax rate rises there is less revenue generated, investment capital decreases, and the economy slows.

The capital gains tax is a tax charged to the profit realized from the sale of an asset that was purchased at a lower price. Capital gains are commonly realized from the sale of stocks, bonds and property. A capital gain is treated as an income and like any income, it is taxed. Under current United States tax code there are two different types of capital gains, short term and long-term gains. A short-term gain is considered to be the purchase and sale of an asset for a gain in less than one year. Long-term capital gain requires a year or more between the purchase of an asset and the sale of the asset for a gain. Short-term capital gains are taxed at the ordinary income tax level of the investor, however; long-term capital gains are taxed differently. Currently investors in the 10% to 15% income tax range pay no long term-capital gains tax and everyone else pays a 15% tax on capital gains. (Beach, Hederman & Guinevera, 2008)

Economic growth in America is important and relies on the input of two factors: input of capital and labor, and the productivity of the inputs. For the economy to grow capital and labor in the market must increase or a more efficient way to produce products is found, or both situations occur. The need to invest in capital is directly related to the growth of the economy by increasing the amount of capital available in the economy and by enhancing labor productivity.  Labor productivity can be directly complemented capital in the economy for investment in more productive operations. (The Economic Effects of Capital Gains Taxation, 1997)

When capital gain tax rates raise the return on an investment is lowered and the cost to acquire capital increases.  When the return on investment is lower there is less investment and the amount of available capital in the economy decreases. The inverse to an increase in the capital gains tax would be a decrease to the capital gains tax. A decrease in the capital gains tax rate is believed to stimulate investing and the amount of capital in the economy by producing more profitable and successful businesses, because they are able to acquire the funds required to under go new potential income projects.  The trickledown effect would produce higher wages, raising the standard of living and create jobs. (Throning, 1995)

A recent study was conducted by DRI/McGraw-Hill it was estimated that the reducing individuals long-term capital gains taxes by 50% and corporations capital gains tax by 25% the level of business spending would have been $18 billion dollars higher than it was in 2007 creating the GDP of America to be roughly 0.4 percent higher. The conclusion of the study notes “the evidence suggests to almost all economists that a capital gains cut is good for the economy and roughly neutral for tax collections.”(Jorgenson, Dale, Yun & Kun-Young) The lower tax rate would only have positive effects on the economy such as higher standards of living, increased productivity and increased investment. A lower capital gains tax would increase individual wealth that could be re-invested or contributed to a personal savings account.

Over one hundred million Americans own stock, the majority of Americans that hold stock hold them in mutual funds. (Chait, 2008)  In 2007 mutual fund holders paid over $16 billion dollars in long-term capital gains taxes.  Congressman Jim Saxton, the ranking member of the Joint Economic Committee states: “…Under current law, if shareholders do nothing more than buy and hold mutual fund shares, they will be hit with taxes on long-term capital gains realized by the fund, even if they are immediately reinvested in the fund.”(Mutual Fund Shareholders Slammed Again by Higher Taxes, 2008) As stated that is capital transferred directly to the federal government rather than directly re-invested in the economy.  One recent study by the National Bureau of Economic Research stated that the each dollar in federal tax increase has led to an additional $1.07 in federal spending. (Tax Increase Would Damage Economic Outlook, 2008) 

The federal government requires large amounts of funds to continue operation and generally overspends, the current solution it to raise taxes to help pay for large expenses. Despite normal intuition a decrease in the capital gains tax rate has yielded higher tax revenues. Using historical evidence as proof that a lower capital gains tax increases revenue, in 1978 when the capital gains tax was lowered, tax revenue began to increase. When the tax was reduced again in 1981 tax revenue increased again drastically until 1987 when the capital gains tax increased and revenue began to decline. In 1986 the tax revenue generated from the capital gains tax at the lowest point it has been in fifty years, was over three times of that in 1977. The lower tax rate and higher tax revenue suggests that more investors are placing capital gaining on capital investments. With larger amounts of capital investments businesses are able to easily acquire working capital and continue operations. As stated earlier, more capital invested in the economy will increase the stand of living, increase income and lower unemployment. (The Economic Effects of Capital Gains Taxation, 1997)

An increase in the standard of living will allow households to purchase more good and good of higher quality. A higher standard of living allow for more money to be spent and an even larger inflow of capital into the economy. An increase in household income will allow for a larger household savings and investing rate. If households invested the extra income, there would be a snowball effect of new capital pumped into the economy. The circuitous effect of increasing capital into the economy would also result in a decrease in unemployment. Historically when unemployment is low, interest rates are higher, allowing for an increase in investor capital gains and one more stream for more capital gains tax revenue. 

A reduction in the capital gains tax could counter the lock-in effect, which occurs when capital assets are not sold because the gains on capital are taxed at a high rate. When investors lock-in the tax base for the capital gains tax is lowered. Unlocking assets allows holders capital to sell holdings and achieve desired returns.  It is estimated that there are billions of dollars of equity that are currently locked into assets.  (The Economic Effects of Capital Gains Taxation, 1997)

When a decrease in the capital gains tax yields higher tax revenue it is time to examine the position of the tax rate on the Laffer curve. It is reasonable to assume that when the tax is high it falls on the downward side of the curve. When the tax rate falls on downward side of the Laffer curve the government is limiting the revenue it can receive.  Investors are motivated to find ways to avoid paying the tax. To avoid paying capital gains tax investors could not enter into activities what will produce gains on capital such as stock ownership thus limiting the amount of capital in the economy available for companies to acquire. (Thorning, 1995)

With a very tenuous relationship between revenue from the capital gains tax rate and the level of investment based on the level of the capital gains tax rate and the effect on the entire economy it is important to look towards the future. With current capital gains tax law set to expire and rise by 2011 and a presidential election just around the corner, it is critical to know each candidates position on capital gains tax. What each candidate plans to do with the capital gains tax could have a critical effect on the economy.

On December 31, 2010, the tax rates on capital gains and dividends enacted in 2003 is set to expire. The current long-term capital gains tax rate of 15% will increase to 25%. With the tax higher a lock-in effect could occur where capital is not sold after January of 2011. Prior to the tax rate increase many investors will liquidate assets early to avoid paying the higher taxes.  Senator Barack Obama said that he would not renew the current capital gains tax rate and allow the tax to increase.  (Satow, 2008)  Senator John McCain has stated he want to keep capital gains taxes at current rats. With the current credit crunch and many businesses unable to rise capital from banks they must turn to investors. If investors are motivated not to invest capital back into the economy because of higher taxes, many businesses will fail. 

In all sectors of the economy there is a need for capital funding. Many businesses require funds to continue operation that are in turn repaid to the investor along with an incentive for taking the risk of lending money. When the capital gains tax rates are raised the incentive for taking the risk of investing is diminished.  When there is a lack of investors the ability to raise capital for industries becomes limited and very expensive so new projects are not taken further limiting the amount of capital in the economy.  When the taxes of investing are reduced it has been proven that there is more money into the economy and the government receives more from tax revenue.

Democrats want to start the spend frenzy!

Posted in Activism on October 21, 2008 by poyers

Suddenly, with Barack Obama pitching almost a trillion dollars in new spending, leading Democrats see nothing wrong with deficit spending. Why? Because the rich will pay for it, silly! Barney Frank explains that spending tons of money we don’t have now will be no problem, because he knows where to get it:

“I think at this point, there needs to be an immediate increase in spending, and I think this is a time when deficit fear has to take a second, uh, a second seat. I do think this is the time for a very important kind of dose of [unintelligible]. Yes, I think later on, there should be tax increases. Speaking personally, I think there are a lot of rich people out there who we can tax at a point down the road to recover some of this money.”

Frank and his cohorts in Congress ensured that we lost the money by blocking regulators from doing their jobs at Fannie Mae and Freddie Mac.  Frank himself kept telling us from 2001 to this year that Fannie and Freddie were solvent and that there wouldn’t be a collapse — and so we didn’t need to toughen oversight over their business practices.

Look at Frank grin while talking about all of the rich people he’ll soak with new taxes if given the chance.  Frank loves his class warfare.  He’s one of the architects of this financial collapse, and now he wants to make sure that the collapse is complete by confiscating the capital that would correct it.  I’m not sure if he’s insane or just stupid, but neither makes me terribly comfortable while Frank remains chair of the Financial Services Committee.