Jobs for America

A recovery without people working is not a recovery for Main Street. This country needs to focus on the kind of recovery that creates a long-term, stable recovery that is not dependent on government programs. What we need are Jobs for America.

To create jobs in America we must first understand where jobs are created in our economy. The fact is that small businesses in our country create about 75% of all new jobs in America.

So if we know where jobs come from, what can we do in this economic climate to create them?

The answer is very straight-forward: make it easier and less expensive for small business to do business. If we reduce the risk that entrepreneurs take when they start a business by removing barriers to profit, we can create more jobs. Unfortunately, this is the exact opposite of the action being taken by our current congress. Health Care Reform, Cap and Trade and excessive government spending all conspire to discourage small business growth and job creation. It also does no good to propose providing money from the Troubled Asset Relief Program to loan to business. First of all the TARP funds are not in a “lock box”. They are additional debt the government will have to incur. Secondly, an environment where businesses want to borrow from that source or any other source must be created.

The proposed Health Care reform and the Cap and Trade legislation will make it more expensive for businesses to operate and to hire employees. Contrary to the claims that these bills are budget neutral, costs are going to go up as a result of these acts. It is impossible to insure 31 million more people and not pay more to do so.

Excess government spending makes capital more expensive and leads to inflation in the long run. We are going to see higher inflation and higher capital costs in the future – there is simply no way to avoid it given the current actions of our government.

All of this will require higher income taxes, including stealth taxes and fees which of course make it more expensive to operate a business and create jobs.

Given this simple economic lesson, another important economic fact is that the purpose of a business is to generate a profit for its owners. All of the actions discussed above increase the cost of operating a business and thus the cost of creating a profit. Therefore, in order for a business to be profitable it must 1) increase prices for its goods or services, 2) decrease costs or 3) go out of business. Option 2 usually results in the loss of jobs and option 3 guarantees the loss of jobs.

Businesses do not pay the taxes or the increased cost forced on them by government. Their customers pay them through increased price or reduced service, their employees pay through decreased benefits, decreased pay or lost jobs, or the business closes down and all jobs are lost.

How do we then remedy this? The answer while complex is also very straight-forward: reduce taxes and governmental intrusion and the added costs government imposes on businesses.

A smaller tax on a broader base (more businesses and more jobs) is much more effective than a higher tax on a narrower base (fewer businesses and fewer jobs). The tax code is the most effective tool for government to get the results it desires. We need to structure tax legislation to encourage desired results not to punish and discourage those who are successful and create jobs, and most definitely not to redistribute wealth.

The confiscation of income and assets by government through taxation is the greatest detriment to the creation of wealth and job creation in America. Jobs can only be created if wealth is created.

The economic decline of the past two years is still fresh in the public mind not the least because many are still suffering. There is a great outcry for reform and government regulation. However, this devastating economic decline was largely the result of government regulation and mandates imposed on the banking industry.

Oversight is needed. But government does not need to tell banks who they will lend to and under what terms. Government’s role is to provide protection to consumers and markets from excess not to mandate how the private sector will operate. History has proven that private industry is much more efficient and better at creating wealth and jobs than government. Our government needs to let private industry do what it does best, create wealth and jobs. Through economic growth not government confiscation wealth is spread.

I applauded President Obama’s Afghanistan troop decision

The big questions in the Afghan war are:

1. Is this a war we should/need to fight?
2. If we should/need to fight shouldn’t our goal be to win as quickly and decisively as possible?

Mr. Obama appears to believe that we do need to fight this war. Answer to question 1:
YES.

Mr. Obama’s answer to question 2: By committing at lease 30,000 more troops Mr. Obama is backing up his decision with action. His speech in Oslo also demonstrates that he is willing to stand fast on the security of the United States and our allies.

However, shouldn’t we err on the side of overkill if we are going to err in the conduct of this war? A minimalist approach is not the appropriate approach when you are spending the taxpayer’s treasure and the lives of young Americans. It appears that we are yielding to the more liberal element of congress in this surge. This wing of congress is complaining about the cost of sending troops to shore up our defense and to, hopefully, further limit the loss of our troops and speed up their return home. This is the same group that has no problem increasing the government debt cap to trillions of dollars, most of which will be wasted if the stimulus package is to be an example.

We must fight this war for a multitude of reasons not the least of which is that we have become perceived as a country that is weak and does not follow up on our commitments. Additionally, there is a clear threat to our national security posed by allowing terrorists to have bases established in Afghanistan. Walking away is an unacceptable choice.

What most on the left do not appear to understand is that we do not get to define what strength on our part is: our enemies get to define what is perceived as strength on the part of the United States.

If we must fight, let’s fight. Commit the troops and resources necessary to win in six months not eighteen. Be decisive, finish the job and bring our troops home.

We must also have a plan for after the fighting is over. This has been missing from the beginning; otherwise, we would not still be there. We won this fight once, now we have to win it again. The idea of announcing we will start a troop draw down at a set date is a mistake. That is like telling bank robbers that you are going to leave the vault open and unguarded at a particular day and a specific time. What do you think would happen then?

The administration would take some heat from most in the Democratic Party for taking this strong stand. Mr. Obama will, however, earn his Peace Prize and reap much more in accolades for the victory and in establishing a stable friend in Afghanistan.

This is still the greatest country and the greatest military power on earth. Why do our representatives in congress appear so determined to lower each to the level of the rest of the world?

The health insurance reform we need

What our health care system needs is repair not a complete overhaul. We need to make the free market and competition a central part of reform. We do not need more government intervention and control. After all when has the government ever run anything as well as private industry? Can you name one instance? I did not think so.

We need to take a 4 step approach to reform

1. Tort reform. It is estimated that huge awards from legal suits and malpractice insurance add $700 billion to $1 trillion annually to the overall cost of medical care. This represents the entire cost of the proposed overhaul bills! Doctors are forced to practice defensive medicine to stay out of the court room. After all it is much easier to second guess decisions made in a time of crisis than it is to make them, and that is what is going on far too frequently. There should be penalties for negligent actions but those costs and the determination of negligence should be decided by a panel of medical professionals not the average lay person.
2. Increased competition among insurance companies. Why does Polsi/Reed, and apparently our current representative, fear true competition? A government run insurance company will not be competition for private sector companies. A government insurance company will result in a monopoly in time. Insurance companies should be allowed to compete across state lines. We do not need different policies for each state as now exists. There should be standardization of the policies offered on a national basis. By increasing the competition between the companies and reducing tort costs prices will come down.
3. If we must overhaul the entire system the only reasonable and fair way to pay for it is to tax insurance benefits. It is time that we recognize that health insurance benefits are income when provided either partially or in whole by the employer. People who work for large organizations and the government receive a huge amount of tax free income that the rest of the country does not. We should tax the benefit and make it 100% deductible for everyone in the country. This would put every taxpayer in the country on the same footing and allow everyone to participate in the cost of healthcare. Likewise everyone should be required to have insurance. By forcing the healthy to have insurance the risk is spread even further and costs are decreased. The only function government should have in health care is to levy a cost on those who do not voluntarily participate, either through a tax penalty or through reductions in subsidies received. These funds would be turned over to the insurance companies who participate in the pool discussed below. Also anyone who managed to slip through the cracks would have any tax refunds due them confiscated in an amount sufficient to cover their costs just as we currently do for student loans. This would apply to non US citizens as well. Non US citizens who utilize the health care system without owning insurance would be subject to having their assets seized and deportation.
4. There should be a nationwide pool, shared equally by all insurance companies, that insures the now chronically uninsured and those who do not voluntarily participate by purchasing insurance (funding is discussed above). Because this pool would be made up of healthy young people who chose not to purchase insurance as well as the currently uninsurable and because the pool is spread among all insurance companies the cost could be minimized.

This is not a complicated approach to reforming our healthcare system. The problem is that our politicos do not have the guts to put something like this in place. It would mean that everyone in the country would pay for coverage in one way or another. A minority of taxpayers who produce would no longer be supporting the majority (almost 50% of the people in this country do not pay any federal income tax). It would provide a way to reduce the unwise deficits now being run up and make it fair for everyone. Income taxes would not have to be increased across the board (you increase revenue in two ways; increase the tax rate, which usually reduces revenue, or increase the tax base (tax the insurance premiums paid by the employer). This would be a cost neutral measure for the government, and would actually increase revenues.

The Courier Journal would not publish this letter

Yarmuth Wrong Again

Upon reading Congressman Yarmuth’s (D KY) letter in the Friday July 3rd Courier Journal two things are apparent. The first is that Mr. Yarmuth has no clue as to the economics of the American Clean Energy and Security Act that he so proudly touts. Likewise, he appears to have no clue as to the economics involved in “shipping American jobs overseas”.

It is acts like the American Clean Energy and Security Act that cause the loss of jobs not the creation of jobs. This act is nothing more than a stealth tax on all of the American people. The Congressional Budget Office estimates that the direct cost of this bill will be $175 for each American. That translates to $700 for a family of four. This cost pretty well wipes out President Obama’s short-lived and unwise “Making Work Pay” credit, which is actually a reduction in Social Security and Medicare taxes withheld from pay checks, two programs already teetering on the brink of bankruptcy.

The Congressional Budget Office estimate does not include the additional cost that will be passed on to consumers as the cost of all energy goes up. Everything produced or consumed in America will increase in price. It will cost more to make products, to transport products and to provide services. This increase in cost will largely go to the government, thus the stealth tax increase I mentioned above.

The cost of state and local government will also increase as energy costs increase across the board. This will necessitate increases in state and local taxes and fees for services.

As to the economics of “shipping American jobs overseas”, as costs increase companies generally have two choices. First, pass along the increased cost of operations to the consumer. Or second, find a way to decrease cost. The cheaper environment overseas (where labor costs less and cap and trade is not a consideration) makes exporting manufacturing operations attractive in order for businesses to be more competitive, not only here but around the world.

This bill will make American companies, primarily manufacturing, less competitive worldwide. The net effect will be a decrease in American jobs as companies seek lower-cost environments to produce their products.

Mr. Yarmuth seeks to control our economy. It appears to me that government control over our economy is what has put us in the position we are in today. More government control is only going to make us less competitive and cost jobs as operating costs for businesses continue to spiral upwards.

Our only hope is that this legislation can be killed in the U.S. Senate. It is your responsibility to contact your Senator and voice your opposition to stealth taxes and the long-term exporting of American jobs to lower-cost environments.

How can we expect businesses to grow and start to hire here at home if congress is continually telling businesses “We are going to make it more expensive for you to operate”. Whether the increase in cost is through Cap and Trade or Health Care Reform, these bills will lead to less employment rather than more. Businesses will be forced to decrease the work force and increase the prices they charge the consumer to counter the increased cost of operations.

It is time to let Mr. Yarmuth know that we want a representative who supports what is good for America not what is good for a particular party’s agenda.

Brooks Wicker
Louisville, KY 40207

Put midyear tax planning on your summer agenda

Summer’s here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there’s little time for changes to take effect. But if you take the time to plan now, you still have six months for your actions to make a difference on your 2009 tax return. With the recent tax changes, planning for the reduction of your 2009 taxes is more important than ever. Here are some suggestions to get you started.
 Pull out your 2008 income tax return, and review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year’s income below the threshold?
 You might want to schedule home improvement projects to benefit from the tax credits available for energy-saving expenditures on your principal residence.
 Evaluate your investment portfolio. If you have been avoiding the disheartening news, now is the time to reassert control over your investments. Review your holdings to see if you should take some losses to offset other income. If you’re considering investment purchases, analyze the type of income you’ll be receiving from the assets you buy. Then stash the investment in the proper account (taxable, deferred, or nontaxable) to achieve maximum return and tax savings.
 Adjust your retirement plan contributions. Are you still making contributions based on last year’s numbers? Maximum amounts have increased for some plans in 2009. You can contribute up to $11,500 to a SIMPLE, up to $16,500 to a 401(k), and up to $5,000 to an IRA. Remember to add catch-up contributions if you’ll be 50 by the end of December.
 Factor two recent tax changes into your planning for retirement fund withdrawals if you’re 70½ or older. First, the option to make a direct nontaxable donation of up to $100,000 from your IRA to a charity has been reinstated. Second, the requirement to take a minimum distribution from your retirement plan is waived for 2009. This applies to 401(k) plans, 403(b) plans, certain 457(b) plans, and IRAs.
 Now is the time to do tax planning for the upcoming fall college expenses. Check out the various tax breaks, including the new, enhanced Hope credit (renamed the American opportunity credit).
 Do some business tax planning, too. Plan your equipment purchases to benefit from the extension of 50% bonus depreciation for new equipment and up to $250,000 first-year expensing for new or used equipment.
 Mix business with your summer vacation and you might be able to deduct some of your travel expenses on your 2009 tax return. To benefit, the primary reason for your trip has to be business.
Making time for 2009 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it’s especially effective at midyear.

The Government to own 99% of GM?

Now we are going to have a national car company. GM’s proposal was for the US Government to own 99% of the company. Why don’t we also buy Chrysler and then keep the best of both? We could also revive the old name of American Motors for the combined company and in the process drive Ford out of business by the unfair position it will be put in. The only auto company that is actually working will be at such a competitive disadvantage that it will not be able to compete with a national company, and the bottomless funds the government is now throwing at GM and Chrysler, that hopefully will not be run like our government. The Government will have even greater ability to tell them what kind of cars to build regardless of whether the public wants them or not, as the administration said. Isn’t that what caused the problems they have now? They built cars no one wanted to buy at costs that were not competitive with international manufacturers.

This is a stupid idea. If they can not survive with out Government ownership then they should fail.

I just know that I want to put in a sell order on my shares (after all we will all have an ownership stake in GM right?) of $5.00, even though with Government ownership I never hope to see that price. Since the Government will own 99% will the stock even trade? Or will it be considered a private company where the Government can hide how badly the company is fairing much the same as details of the famous Stimulus Package are now hidden from review by the American People?

Finally some sanity out of Washington

The Obama administration announced today that GM and Chrysler had 60 days to get their act together. Not likely to happen, they have been around for decades and have not been able to do it in that time.

He said bankruptcy was the best solution. What took so long? Most of us knew that months, if not years ago.

The market did not like the announcement but they had just been asleep at the wheel for a while. This will eventually make the market and GM stronger. Not so sure Chrysler should not just go away.

AIG bonus tax

Ok, this blog was not intended to be a political rant. There is just so much stupidity going on in Washington that I just can’t refrain from commenting. I had hoped to use this space for some good financial common sense, to address questions my clients ask, to address tax issues and the overall economy. But Washington is like that tooth ache that will just not go away. It’s a pain that keeps you up at night and invades every aspect of your life. What ever happened to the land of the free?

The proposed tax on bonuses will assure that banks and other institutions that need help from the government do not take the funding and that the talent that is desperately needed at these institutions will hit the door at the first opportunity

Once again, this is bad law. This is a terrible precedent to set for two reasons: First Congress rushed to approve law that granted the bonuses, and then acted outraged when the bonuses were paid. If we do not honor these bonuses we will turn contract law on its head. It is also unconstitutional to not honor the contracts. Second, if congress will not stand behind contracts that it endorses with the legislation it passes what are our treasury securities worth? NOTHING!!! Who is going to buy them? “China, we will pay you 12% interest on these bills, but we are going to pass a law after we get your money to withhold 90% of the interest as a tax.” Who will trust our government? “The US government will enter into a deal with you but we are going to figure out how to take it back after you have done what you agreed to do?” Come on, the ire should be directed at congress not the poor saps at AIG that entered into legally binding contracts. That may have been stupid but it was not criminal (I must admit that at this time of year I have not researched this point beyond what I have seen in the media). What congress is doing should be criminal.

Congress should have broken this company up and not put a penny into it from the beginning. Keep the profitable units, provide guarantees for the junk and let them go. I do not believe in the too big to fail bunk. Failure does not mean it is going to go away; just that it will have a different structure.

What troubles me most is that I am not sure if congress is this incompetent or if what they are doing is intentional so they can act outraged and pass more bad, (read socialist) tax law. I fear it is the former.

Enough already

A quick review of the broad stock market performance from Election Day, November 4, to March 6 shows a decline of 31% on the DOW and a 32% decline on the S&P. The markets are an indicator of future results not just a reflection of the current day news stories. You hear the national media outlets quote a decline of 20% since inauguration but the true reflection of Mr. Obama’s policies on the economy should be reviewed from Election Day.

After absorbing all of the bad news of September the market fell to 8,176 on 10/27/08 and then climbed to 9,625 on 11/4/08 an increase of 18%. So the markets open on election day with optimism. The instant it was assured Mr. Obama would be the new president the markets started to fall.

As I said previously everytime the new administration comes out with a new policy proposal the markets sell off. Fortunately the US economy is historically robust and will survive even Mr. Obama and his wrong headed policies. The question is how strong a recovery we will experience. If we keep on the track we are now on, the recovery will be weak. If the new administration will take note of what not only the US market is telling it, but what the world markets are telling them we will have a robust recovery.

We already have some bad law to absorb with the latest stimulus plan. The make work pay credit is a terrible idea. What this credit does is refund social security taxes on the first $6,452 of wages for what the administration claims will be 95% of all taxpayers. What this means is that we are going to take funding from a program that most would agree is already almost bankrupt. Not only that, we are doing this as the largest demographic in our country, the baby boomers, are approaching retirement age.

If that was not bad enough I do not see anywhere in the legislation where the 95% of Americans who will now be paying less into the social security system will have a corresponding reduction in their benefits. How does Mr. Obama propose to pay for this? There is no direct source of funds to social security for the reduced funding. However, he does propose to offset the reduction in revenue by implementing a cap and trade system. This stealth tax will more than off set the cost to taxpayers. We will see everything we buy go up in price. Our utility bills will most likely increase more than the $400 credit the legislation gives us.

This provision of the bill alone should have been enough to cause it to fail. Mr. Obama claims that there will be no off budget items, yet I have not seen this disclosed anywhere. Nor have I seen any one show a calculation of how much the cap and trade will cost hard working American families who are already stretched to meet their monthly obligations.

This administration is employing smoke and mirrors with great skill. We must look behind the curtain. The policies being proposed will create more poor people and make everyone poorer. The unemployment rates will sky rocket and we will have more people dependent on the government. Could that be Mr. Obama’s desired end result?

Obama fans: Had enough yet????

 

Every time the Obama administration makes a proposal about the mortgage mess the markets go into free fall.  That should tell them something about their approach.

 

Most people in this country do not want to become France lite. 

 

The socialist policies being espoused by the Obama administration will put us on even footing with most of Europe. 

 

Is that where we really want to be?

 

Europe’s economies are dependent on the US’s economy.  If we become equal with them who is going to be the engine of the world economic train?  China!!

 

No one should be surprised with what we are getting.  Mr. Obama told us exactly what he wanted to do if he was elected.  Every proposal he has made is either a disaster or will be a disaster.  The markets are a good gauge for what will happen if we implement these risky proposals.  Generations of Americans will be paying for this debacle.

 

It is up to us to make sure this does not become law.  Contact your representatives and senators (www.usa.gov/Contact/Elected.shtml) today and every day until this is defeated and the administration gets the message that we are not going to just give away our country, much less our wealth. 

 

Mr. Obama’s policies will create more poor people in this county.  Perhaps that is what he wants, more poor people means more people dependent on the government and more votes for his party.

 

Wake up before it is too late!  It is time for some good old American common sense in Washington (notice I did not say European common sense, because there is no such thing).