Monday, November 30, 2009

A Lesson for Congress: The Only thing Worse than Your Constituents Pink Slip Is Your Own!

With more than 10% of the workforce now Unemployed, and a greater number underemployed it's seems very odd to me that the Majority party has spent the last 10 months promulgating policies to reform nearly every aspect of the economy with the exception of those that would bolster economic growth and create jobs. Included in their "REFORM" of health care are the very tax policies that will stifle economic growth and Job creation. There is No Bigger Job Killer that I can think of , than their proposal to raise the capital gains tax rate.

The Capital Gains tax is a Success tax, and is only levied on economic actors who have risked their capital and succeeded. There is no federal tax on the loss of capital. The folks from whom these taxes are extracted are the people who have built or enabled others to build successful enterprises by providing the necessary capital. I like to call them the Job Enablers. They enable entrepreneurs to create wealth by creating jobs, a commodity that is in rather short supply lately.

Politicians like to pretend that the damage done by the Success Tax is limited only to the small number of people who actually pay the tax, but it is not. There are three other groups who pay an even greater price as the result of an increase in the Capital Gains tax and they are the very groups Congress pretends to champion. The first are the unemployed who will remain so. Their numbers are rising monthly and are easy to see. The second group are the Entrepreneurs who run small businesses and would provide the additional jobs needed except for the lack of available capital.They are not as noticeable, but are critical in relieving the problems of the first group. At his upcoming "Jobs Summit" the President would do well to understand this fact. It would give him another one of those teachable moments he's so fond of. Perhaps with his formidable skills behind the teleprompter he could persuade his democratic colleagues who are itching to raise this and other tax rates not to deploy this job killer of a tax.

Raising the tax on capital reduces it's supply, increasing the cost and availability of capital at the margin. It really is as simple as that. If there are five red balls on the table representing the total capital available to fund businesses and the jobs that go hand in hand with economic expansion and if the government confiscates two of them through increased taxation, it is clear to everyone that there are fewer red balls left to fund economic growth. Which brave politician wants to step up to the mike and make the argument that another dog park, or retrofitting a government building with green technology is more important than the real economic growth provided by this country's entrepreneurial class? When capital is made scarce through increased taxation it is the small and newer businesses, the country's job creation machines, who are left without capital as the government crowds them out of the market, not the politically well connected GE's and GM's of the country.

In their attempt to support a return to higher tax rates of the past, the Democrats frequently point to the boom years of the Clinton Administration as proof that higher tax rates promote economic growth. That they can make this argument with a straight face indicates how truly ignorant of economics and human behavior they are. It also reveals them to have an advanced degree of selective memory syndrome.

The Clinton Tax hikes came in 1993, and the boom years which they credit to those increased taxes didn't begin until 1997. Why was there a four year lag? If increased taxes are such a potent economic stimulus why didn't the boom years start in '93 or '94 or '95? Why was there only tepid economic growth? Their claim doesn't pass the smell test, especially when you consider the economy was coming out of a recession when growth typically is more pronounced. And Why did the more robust growth of the 90's come at what would normally have been the tail end of an economic expansion, which is usually when growth is more subdued? Finally, if as they claim tax increases are so good for economic growth, why wasn't that their first agenda item? Why wait to let the Bush era tax cuts expire in 2010?

What the few Democrats who understand economics, and apparently there aren't many of them, conveniently forget to mention in their "taxes are good for the economic growth" argument is that it was the significant reduction in the Capital Gains tax rate, from 28% to 20%, that was passed in 1996 and became law in 1997 that was responsible for the boom, not as they like to claim their 1993 tax hike. The last two times the Capital Gains tax was increased it was followed by sub par economic growth. The first increase was in 1969, which along with an inflationary dollar helped usher in the stagflation of the 70's, which is where we seem to be heading now. The second time the rate was increased was as a part of the 1986 Tax Act , which subjected Capital gains to the same tax rates as ordinary income.

Why limit the ability of successful investors to grow the economy by confiscating the capital needed to do so? There are some folks who defend the capital gain tax as a measure of fairness. What's fair about eliminating jobs? These are the people who fund expansions, and you want to slow them down? We can never know how many Microsoft- type enterprises, along with the jobs they produce, died in the lobbies of Venture Capitalist in the 1970's and late 80's, never making it to the board room and the decision makers as a result of dramatic increases in the capital gains tax.

Who is the third group that get's mauled when Capital and the jobs it creates are scarce? Just have a look in the mirror Mr. Congressman. Come next November when a sub par recovery has not produced the needed jobs, it might well be your turn to stand in the unemployment line. Good Luck with that, we'll see you next Fall!

Monday, November 23, 2009

Tracking Obama On The Way To His Own "Little Big Horn"

Senator Jim Demint earlier this year said that the Health-Care Bill would be Obama's Waterloo. I only partially agree with him. He's right that it will ultimately bring an end to his reign, but the Waterloo analogy doesn't begin to capture the scope of the defeat. At the battle of Waterloo, Napoleon, who like Obama was thought to be a genius, was defeated by conscripts of the combined armies who fought to protect their own nation states. During this era of warfare, armies fought in formations on either side of the "battle field" training their weapons on the opposing army's soldiers, and firing volley after volley until their opponents had either been killed or had broken ranks and fled leaving a bloody battle field strewn with dead and dying men. The Midterm elections in 2010 won't resemble that at all. It won't be near that pretty.

A better analogy might be Custer's annihilation by Sitting Bull at the Little Bighorn. The Democrats, as did Custer, will be fighting against the guerrilla tactics of the indigenous tribes: Custer the Sioux and Cheyenne; the Democrats the Tea Party Patriots and other conservatives who feel as the Indians did that their way of life is being taken from them. Custer and the Democratic Leadership both underestimated the strength of their opponents and overestimated their own resources, counting heavily on reinforcements that in Custer's case didn't and in the Democrat's case won't arrive. The real distinction between the two battles is that when Napoleon and his army were defeated at Waterloo he was merely banished to the isle of Saint Helena, while Custer and his troops were massacred by Sitting Bull and his warrior braves. They weren't given a Political time out. They were wiped off the map, and that is what is in store for the Democrats in 2010.

The big turn out at the polls that wasn't, by Obama's reinforcements, proves that they won't fight for any one but him and he isn't running in 2010. They didn't turn out in the Battle for Virginia and were also no-shows in the fight for the NJ Governorship. That's the problem with troops who are lead by the force of charismatic personality and not motivated by principal. The Democratic warriors fight only for an extra ration, while the Tea Party Patriots and Conservatives are fighting to protect their way of life.

There will be no Decisive Battle as there was at Waterloo and in the National Elections of 2008. Instead there will be, just as in the battle of the Little Big Horn, a series of smaller skirmishes. The battle fields will be the State and Congressional Districts; the battle will be fought by the voters who reside there, many of whom have changed sides in the past year. The voters who had sought hope and change in 2008 have now gotten a taste of that change and found it not to be the sweet taste of liberal progressivism they were promised, but rather the bitter taste of socialism and have lost all hope in The One. They've come to reject the promise of higher taxes on nearly everything and the greater government involvement in almost every aspect of their daily life.

The Democrats who will have been the Majority party for 4 years come next November's election will by then own the economy, along with at least one automaker and it's financial arm, the two mortgage giants Fannie and Freddie, several banks, the insurance company AIG and possibly a newspaper company or two. If they get their way with the health care bill, you can add your doctor's office and the local Hospital to a growing list of wards of the government.

To quote the Democrats very own savage pundit James Carville, “It's the Economy Stupid!” In the mid terms it's always the economy and a recession that was caused by bad government policies to begin with won't be cured by equally bad, but different government polices. With an unemployment rate that tops 10% and is rising, it won't be flesh wounds they'll be tending come November, it will be scalpings. Here's hoping that the government run health-care program they covet has plenty of sutures in the ready.

Monday, November 16, 2009

The Crony Capitalism Cafe..... Yes Senator I'll have the Free Lunch Also!!

Everyone wants a free lunch these days, and it seems that in the Cafe of Crony Capitalism, sometimes know as Washington, the free lunch special is being handed out as openly as the candy given to children who knock at the door on Halloween. But alas, not everyone gets a treat, because there really is no such thing as a free lunch. Someone has got to pay. That's why you, the taxpayer, are always the one who is tricked into picking up the tab.

Turns out you, the taxpayer, don't qualify for the free lunch. Just how does one qualify for the free lunch? Well, in this bold new era of hope and change "we all have embraced" it's nice to see that the more things change the more they stay the same. You need to be a Crony (one who plys Congressmen with cash) or you're going to go hungry.

How does one become a Crony with benefits? Is it based upon need, as in GE needs their $139 billion debt guaranteed or their profits won't look as good? Or is it based upon some other metric such as literally keeping the Gold in Goldman Sachs? It was the President of the New York FED who intervened in the negotiations between the two parties to a contract to ensure that the taxpayers ponied up enough cash to make sure Goldman Sachs got paid back 100 cents on the dollar on the bets they placed with their bookie AIG, and not just the measly 60 cents they were trying to settle their claim for. No, it's not based on need, it's pretty much just based on cash, it's campaign contributions that matter.

It seems that there are all sorts of companies that qualify for Crony Benefits. If you're an automaker and you run your business off the road and into the ditch you need to just wait patiently for the taxpayer tow truck to pull you out of the ditch, provided that is that your membership in the Crony Capitalist club is up to date and you have ponied up enough for the right campaigns. If you're a banker, it is a little trickier. Of course you need to start out the same way, by lending money to folks who won't ever pay you back, but you need to be very nimble if you want to end up like JPMorgan and not like Lehman Brothers.

If you are a professional Crony Player like the folks at Fannie and Freddie, you get to play by your own personalized set of rules where it doesn't matter how badly you have screwed the pooch, you still get to walk away with $90 million, give or take.

Even if your not a profit making Enterprise you can qualify to be a Crony with benefits. You can have the Attorney General of your state over-look your criminal activity and instead bring charges against the Whistle blowers, especially if that AG is Running for Governor of California and your fraudulent non profit is tight with SEIU .

The list of Cronies gets longer each day. Come to find out most of the jobs saved by the Gargantuan "stimulus" package weren't saved at all. They were there all along, but you got to give them extra credit when it comes to creative math skills, counting cost of living raises for State workers, and funding for undergraduate students to hand out pool cues in the college rec center as jobs created or saved!

Next week in the house you can watch the Democrats in control pay off the AMA with the so called doctors fix for Medicare. They will debate the $210,000,000,0000 bill for 1 hour, with no amendments allowed and then pass it on a purely partisan vote. Want to knkow who is going to pick up the check on this Free Lunch? Why you, the taxpayer are, of course! Not a bad payday for supporting the farce of a health care bill the President is so desperate to pass.

But take heart all you lesser folks who don't qualify for Crony benefits. At least this President and his advisors aren't making the same foolish mistakes that Roosevelt did when he was confronted with his Congressionally induced recession. Oh no, they've learned their lesson! This time there will be no run away spending programs in an attempt to prop up excessive wages, nor increased taxes and price controls. They're a thing of the past. You can also be confident this time they won't let the dollar go to hell. Please someone tell me they won't let that happen .Could you imagine where we would be if they made the same mistakes this time? This time is different, right? Someone please tell me it'll be different this time!

Thursday, November 12, 2009

Note to Unions... Don't Drink the Kool-Aid

In 1978, 913 followers of Jim Jones, the leader of the People's Temple Cult sipped on what they thought were cups of Kool-Aid, and died in a mass suicide. Their deaths were the tragic result of believing so completely in a leader who proclaimed to have their best interest in mind. The recent actions of unions across the country make me wonder if they don't share the same total belief in their leadership as the followers of Jim Jones. Could it be in their DNA?

With unemployment at near record levels in the modern economy, the unions are gulping down the sugary sweet promises of their leaders, not realizing these promises are economic suicide.

Last week, the Transportation Workers in Philadelphia went on strike. It seems they and their leaders wanted more of just about everything. They wanted more than the 11.5% pay increase offered over 5 years. They'd rather have 20% and a $1250.00 signing bonus. A signing bonus? Isn't that precious? Who do they think they are? They wanted bigger pensions than what they were offered and they didn't want to have to contribute any more to their health care insurance payments than they already did, which by the way is 1% of their salary. With an average salary of $52,000.00 per year that's $520.00 per year for healthcare, or $10 bucks a week. Can you understand their outrage now? Neither can I!

With a recently announced unemployment rate of 10.2%, you'd think the union leadership would be smarter, wouldn't you? Their actions betray a sense of privilege, not very much different than that of Marie Antoinette who exhorted her subjects, starving due to a shortage of bread, to "Let them eat cake." With the private sector continuing to hemorrhage jobs, and health insurance premiums increasing by double digits, these folks seem to claim rights once reserved only for Royalty.

The Unions are demanding superior pay for inferior performance, an unfair arrangement in any employment environment, let alone one with better than 10% of the workforce looking for jobs. As more and more unions show their true colors and seek to claim privilege over their private sector counterparts, they run the risk of a public execution, similar to that which befell the former Queen of France.

Their reckoning won't come at the hands of an Executioner and his Guillotine, but rather in secret ballot votes like the one that de-certified the Union at Boeing's North Charleston plant in South Carolina. If you think the 20 point swing in the vote in the recent Virginia elections was sending a message, how about the 199 workers who voted to kick the union out, compared to only 68 members who voted to continue union representation.

It's no coincidence that the announcement to locate the second assembly line to produce Boeing's 787 in that North Charleston plant, and not the Union shop in Seattle, came only 48 day after the vote de-certifying the Union. It aint Kool-Aid guys!

Tuesday, November 3, 2009

It's a Surreal Day in the Neighborhood ... How Do You Like My New Car?

It certainly is a surreal day in the neighborhood and I don't think it has got anything to do with Rush Limbaugh criticizing the President, as David Axlerod, one of the President's advisor's would like you to believe. What I find surreal is all the attention being paid to the Public Option as well as Al Sharpton's assertion on This Week with George Stephanopoulos that Liberals are the real conservatives. Yes, he actually said that with a straight face. That line was about as surreal as it gets, boys and girls.

Back to the Public Option. The public option argument is no different and just as silly as me arguing with my wife that the pin-stripping should be gold and double lined on our Ferrari Enzo. What makes these arguments different is my wife and I both know we joking, whereas Al Sharpton's conservative wing of the Democratic party is deadly serious. What makes the argument surreal is that we know we can't afford what we want and so do they, but that is not stopping Al's pals.

It gets even funnier when they begin to explain how they will afford the unaffordable. They want you to believe that they are going to cut Medicare. Let me say that one more time, only slower.
The Democrats in Congress lead by the President are going to cut Medicare.
The idea that this Administration is going to cut spending is laughable. The notion that they will take a meat cleaver to Medicare and hack 50 billion dollars from it's budget each and every year for the next ten years is a side splitter. A solemn pledge of fiscal prudence from the leader of the gang that is projecting Trillion Dollar Deficits for as far as the eye can see isn't all that reassuring. But it's comforting to know that their lack of fiscal discipline has some limits, or does it?

Their spin on the deficit is every bit as surreal as their foolish public option debate. The President says he won't sign a bill that will increase the deficit. That's pretty rich, don't you think? What he means to say is get ready for big tax increases, both the direct and indirect kind.

Forcing, excuse me, mandating (that's more PC) that everyone must purchase health insurance while at the same time imposing a tax on medical device manufacturers is merely a stepped transaction. It is a tax increase disguised as a fee extracted from the medical device manufacturers, which they pass on to the insurance company in the form of higher prices, who then passes it on to you through higher insurance premiums. Raising the top marginal rate by 5% is well, it's just a tax increase. Hey good thing that recession is over and the economy is surging ahead, cause we all know that raising taxes in a recession is a recipe for disaster!

What they want you to believe and what is reality in this debate occupy positions that are polar opposites on the reality continuum!

Reality: government programs always cost more than originally projected. Congress has an abysmal record when it comes to cutting spending and raising tax rates, never produces any where near the amount of tax revenue that Congress believes it will.

Surreality: Congress can provide quality health care for everyone without bankrupting us all along the way.

Congress should do what I did when I realized that I couldn't afford the $1,000,000 Ferrari. I settled for just the pinstripes instead. Now I'll be the first to admit they don't look as good on me as they would on that Ferrari, but they don't look that bad, and on the plus side I won't have to hire a bankruptcy attorney.