cosmoscon

Several weeks ago I thought Occupy Wall Street was just a spontaneous gathering of spoiled college graduates who can’t find work now that they’ve completed their Greek Literature degrees.  A quick reading through the forum section on their website would lead you to believe this is true, but now I think the protests might be directed by either Barack Obama or someone close to him who wants to deflect negative attention from the failures of the President.

Obama is in trouble.  The economy is still on life support and as the WSJ pointed out, the recovery from our last big recession (early 80’s – Reagan) isn’t being realized from this one.  Solyndragate is not going away and might cost Eric Holder his job.   Fast and Furious is looking more like an Iran-Contra “lite” and the administration still has questions to answer about who know what and when.  Obamacare is very unpopular and his Jobs’ Speech and plan are seen as political grandstanding.  He is generally seen as someone who is not capable of the office of President. 

So what is a community organizer to do when faced with such dire circumstances?  Turn to Saul Alinsky.  What Obama needs is a crisis to divert America’s attention from his incompetence.  Alinsky has 13 tactics that can be used by the Community Organizer to further his agenda.  Let’s see how some of these are realized in the Occupy Wall Street movement. 

Tactic 4 – Make the enemy live up to its own book of rules.  The Occupy Wall Street clan is spreading the meme that they are just a left version of the Tea Party.  In 2009, a true grass roots movement came into being to protest the overreach of Government and those protests sprung up all over the country.  Tea Party supporters exercised their 1^st amendment rights and changed the political landscape and now the Left is saying they deserve the same rights.  While they do deserve the same 1^st amendment rights (and I fully support their rights to peacefully assemble) they hardly have the same coherent message of the Tea Party and thus can’t be taken seriously.

Tactic 5 – Ridicule is the man’s most potent weapon.  The Occupy Wall Street meme states that they represent 99% of America.  They hope to ridicule those who work hard, take risks and generate wealth and pigeon hole them into a small minority.  Of course this is not true as I’ve shown in the following post.  34% of Americans (those making over $50,000 per year) pay 94% of all Income taxes and I’d bet that 99% of the people at the Occupy Wall Street protest pay NO federal income taxes. 

Tactic 6 – A good tactic is one your people enjoy.  The vast majority of the Occupy Wall Street crowd have no job, love to generate chaos and have no real purpose other than to take money from others.  They are made for this type of protest and can do this indefinitely since they have no other responsibilities. 

Tactic 7 – A tactic that drags on too long becomes a drag.  As I stated above, they are in this for the long haul and hope to escalate the emotions to reach a tipping point where police lose their cool and meet the protests with excessive force.  The Tea Party protests were never more than a day or weekend because these people had jobs and families to support so they were not interested in causing riots but focused on getting their message out. 

Tactic 9 – The threat is usually more terrifying than the thing itself.  One common theme with Occupy Wall Street is removing Capitalism and replacing it with Socialism.  Of course the majority of Americans would never agree to this but the thought of this strikes fear in most Americans and with good reason.  There are no examples of countries that have adopted Socialism and went on to provide a successful environment for their people. 

It is not outside reason to think that the Left is funding and supporting these protests to divert attention from Obama and redirect blame to the ‘rich’.  Adbusters is behind this movement since they are listed on the Occupy Wall Street website and I wouldn’t be surprised to see MoveOn.org and Soros also behind the funding and organizing of these protests.  Obama never left his Community Organizer roots so he’d not only encourage this movement but welcome it since this is an operating mode he is most comfortable with.    

The Occupy Wall Street group is really just a pawn in the uber rich Left and this hypothesis is proven by the fact that Michael Moore (net worth $50 million) and Susan Sarandon (net worth $50 million) have been two high profile celebrities to join them. 

As a final comedic parting thought – I saw the following video that seems to characterize what it feels like to try and debate the Occupy Wall Street cult on the issues. 

With Palin, Ryan, Rubio and Christie all declining to throw their hats into the Republican Presidential ring, Herman Cain appears to be the big winner.  Currently, the top three candidates are Rick Perry, Mitt Romney and Herman Cain and while Perry figured to garner the lion’s share of Tea Party support, his missteps in the last two debates as well as plenty of smear from the Left here and here, have left the Tea Party shaking their heads and awaiting another candidate to enter.  With the aforementioned people declining to enter, Herman Cain appears to be the recipient of all the Tea Party love. 

Herman Cain started to get more attention with his 999 plan and then built on that momentum by a strong showing in the Florida debate and winning the Florida Straw Poll.  Now the spotlight will be much brighter on Cain and the Left will start their attacks.  His lack of political experience is both a negative and a positive but with regard to the Left Main Stream Media that is a positive because there are no voting records or policy initiatives that can be debated so that area is off the table.  He has nothing but success in the business world so the Left will be monitoring his words carefully to see if there is any minutia that they can sink their teeth into.

Part of Cain’s appeal lies in the details that he has proposed with his 999 plan.  Other candidates have not been able to provide these details or, in the case of Romney, provided a 160 page plan that was so complex that it can’t be articulated in a debate forum.  I have yet to see detailed evaluation of the 999 plan to see what that would mean with regard to tax revenue and what this would mean to lower, middle and upper class tax payers but I’m sure as the weeks go on there will be plenty of analysis for us to digest.   

The 999 plan is basically the first step to a Flat Tax plan which promises to simplify the tax code and eliminate the IRS almost entirely.  Basically, the 999 plan claims to set Corporation tax rates, Personal income tax rates and National Sales taxes at 9%.  I’ll step through the high view of each of these three components below.

Corporate tax rates would be lowered from basically 35% now to 9% and this would have a huge benefit for corporations and working Americans.  One of the main reasons for companies to move manufacturing to a foreign country is due to these high corporate taxes so with lower tax rates the incentive to move to low cost manufacturing would be almost eliminated (there is still labor rates which would also incentivize companies to move out of the US).  Current personal income tax rates are progressive and are based on income and they vary from basically 0% (for those with incomes less than $30,000 per year) to 35% for the highest income earners.   The 999 plan would make everyone’s’ tax percentage 9% and while I can’t find specifics on this, the tax on lower income earners should still be close to 0% since a tax on those income demographics cuts into a larger percentage of their required expenditures (food, gas, utilities, etc.).  Since people would have more “take-home” money, this would spur consumer spending which is lacking in our current economic malaise.  To make up for this tax revenue shortfalls, the last part of the 999 plan would institute a 9% national sales tax.  Sales taxes are the most fair of all taxes because this would eliminate loopholes for the wealthy.  The super wealthy in America don’t pay a high tax rate because they make most of their money from investments which are taxed at 15% but they do buy cars, boats and other luxury items and the national sales tax would level the playing field.  No details are given but I’d assume that items such as food and gas are exempt from this national sales tax.  This plan would have to be phased in, as Cain’s website explains, so that the economy would have to recover and unemployment drop so that more people are employed and a more Americans are earning a good wage so that the poor and middle class aren’t punished by this national sales tax. 

Again, the details need to be worked out before I embrace this fully, but on a high level this seems like a great plan to rescue our economy, restore the principles of the Free Market, increase manufacturing in the US and make our products more competitive on the World stage.  Cain is the front runner now and it is up to him to earn that moniker. 

A recent article from The Economist was written to refute claims made in a Vox article related to the best course of action for Greece.  I think the Vox article is right and I won’t get into those details in this post but I think the Economist article gives us a rare view into Liberal Group Think and I’d like to take a detailed look at that.

The Vox article made a great case against more bailouts for Greece from the EU banks and referenced a similar situation in Mexico during 1994.  Mexico was in a very bad situation in 1994 and while they had other countries help them out, Mexico (unlike Greece) didn’t increase their domestic debt (social programs) and didn’t prolong the inevitable and sure enough they entered a very deep and painful recession in 1995.  But in 1996, the country rebounded, exports increased and their Current Account Deficit improved.  Greece, on the other hand, is using the bailouts to prop up its social programs and avoid a very painful recession.  The Vox article sums it up best here: 

It is time to address Greece‘s economic policy options in a holistic manner, and stop the emergency measures that only provide Greece with another lifeline. Greece’s fresh financing needs are much larger than those considered in the Greek rescue package. The financing gap has been covered with de jure revolving loans from European central banks to the Greek central bank, that de facto have become long-term debt. This backdoor financing, however, cannot go on indefinitely. Jurgen Stark’s resignation should help concentrate minds in finding a long-lasting solution. 

The Economist takes issue with this in their article but I paid the most attention to the last three paragraphs of the article (emphasis mine). 

Of course, Greece’s adjustment has been delayed by the expanded credit offered by the Bank of Greece. That credit has kept domestic demand above the level to which it might otherwise have fallen. That, in turn, has slowed deflation and the process of adjustment.

In the authors’ view, this seems like a bad thing. Yet it’s hard to imagine a better alternative. To achieve the crash decline in prices needed to facilitate an adjustment in the current account equivalent to 12% of GDP, the Greek economy would be plunged into a deep depression. Unemployment might well rise to 30% or more, and the political environment, already touchy, would be downright poisonous. To prevent the dissolution of the state, the Greek government would probably need to eject itself from the euro zone, thereby touching off a nasty round of financial fall-out.

The pressure of adjustment will find an outlet. If that pressure is not vented through emergency lending to the Greek central bank, it will burst out, perhaps violently, in some other way. It’s easy enough for economists to talk about the need to rip off band-aids and deal with adjustments promptly. But societies have their limits; they can only be pushed so far before they break down. And it is a very good thing that, so far, Europe has not pushed Greece very much farther.

The Economist is frightful of Unemployment rising to 30% and I agree that the thought of that is indeed dreadful but it doesn’t mean the end of civilization and not even the end of Greece.  The US (and most of the world) went through a Great Depression starting in 1929 which lasted over 10 years and saw estimated unemployment at 20%.  I think it would benefit The Economist and the rest of us to browse through the economic and social conditions during that time and see really how bad things were.  For the US, industrial production dropped by almost 50%, unemployment increased over 600% and foreign trade dropped 70%.  Those are absolutely horrific to think about now but these conditions really happened and while it is hard for Liberals to admit, the US (and the rest of the world) survived.  Nobody wants this type of medicine but remember that actions have consequences and we must learn from our failures.  Greece embraced the Socialistic form of government and now they are reaping the fruits of those labors.    

It appears that The Economist is not disagreeing with the Vox article on Economic principles but instead on touchy-feely reasons.  They admit that the bailouts have prolonged the process of adjustment but they “can’t imagine a better alternative.”  They are afraid the people can’t survive high unemployment or a “poisonous political environment.”  They are afraid to push Greece much farther because they might have a break down. 

Their objections to avoiding the inevitable get to the heart of Liberal Group Think.  Liberals have no faith in the Human spirit and their policies seek to lower our expectations on what we can do and what we can endure.  Liberal policies have always been about reducing the freedom of citizens and increasing the power of government over the people.  They don’t think people can take care of themselves and therefore it is up to the government to develop programs and handouts to help the poor souls which amounts to slavery.  We can’t reduce or alter Welfare, Social Security, Unemployment Insurance or Healthcare without seeing some bleeding heart story on the news which ends in demonizing the other side as ‘heartless’.  On the contrary, I view Liberal policies as heartless because they always result in less Freedom for the people.  

In case you don’t know, the US is on the same path as Greece and thankfully we have a majority of citizens rising up and saying that we are willing to take the medicine and endure the pain for the long term good of our country and providing a better future for our children.  We live in tough times that call for tough actions and we’ll get through it because humans are tough.  The Human Spirit is relentlous and we are here because Evolution has given us the DNA to adapt, change and overcome.  All we need is Freedom and we can accomplish anything.

Traditional thinking says the US government has two tool boxes that can be used to prevent or lessen recessions and inflation.  The Legislative Branch tool box is labeled “Fiscal Policy” and it contains two drawers and the Federal Reserve (Fed) tool box is labeled “Monetary Policy” and it contains just one drawer.

Fiscal Policy

The first fiscal policy drawer is labeled “Discretionary” and the two primary tools in this drawer consist of tax rates and public works expenditures.  Tax rate increases can be used to slow the amount of money in an overheated economy and help avoid inflation and during times of recession tax rates can be lowered to give people more money to jump start the economy.  Public works expenditures are what we like to call “Stimulus” and are aimed at using the government to provide an influx of cash in the construction industry that will have ripple effects across the nation.

The second fiscal policy drawer is labeled “Non Discretionary” and the two primary tools in this drawer consist of progressive taxes and unemployment compensation.  These tools are sometimes called automatic stabilizers since they are designed to help keep the economy in control and prevent wild swings.  During boom times, people have lots of income that is being taxed and loaded into government coffers such as Welfare, Medicaid, Social Security and Unemployment Insurance.  During a recession, income taxes decrease but then those social programs are supposed to provide a helping hand to people until they get back on their feet and the next boom occurs. 

During times such as now, the discretionary tools must be used to help jumpstart the economy and early in 2009 we saw a massive stimulus package that demonstrated the attempted use of that tool – although the ARRA’s goals were not met).  Normally tax rates would go down as well but there has been very little of this over the past 3 years because of two reasons – 1) Democrats who are addicted to taxing and spending controlled both houses of Congress for most of this period and 2) The US Debt to GDP ratio is 100% so many in Democrats in congress favor taxing the rich to help reduce that debt.  So we have seen that the Government has exhausted the use of these tools with little effect on our economy but yet President Obama has suggested another plan, called the American Jobs Act, which is really just another round of stimulus and tax increases on the ‘rich’ to help us out.   Bottom line – This tool box has been used but the economy is still in terrible shape.

Monetary Policy

The drawer of this tool box has three tools that the Fed can use.  The first two tools are aimed at manipulating interest rates and are called the discount rate and the open market operation.  The Fed sets the discount rate which banks borrow money and this in turn sets the rate that consumers are charged for loans for cars, homes, business, etc.  The Fed can also buy and sell federal treasury securities on the open market to influence short term and long term interest rates.  The Fed has another tool which it can use to mandate how much reserves that banks must keep on hand and this is a tool used to either stimulate the economy or keep it from overheating (inflation).  This tool was also used but it was implemented to make banks more financially sound in the wake of the financial crisis in late 2008. 

To the Fed’s credit, it has used all of these tools and they have been very successful at keeping interest rates at all time lows.  Over the past few years, the Fed has dropped the discount rate, bought treasure securities through Quantitative Easing (QE) 1, QE2 and now Operation Twist and indeed interest rates are extremely low.  See here a graph of the 10 year Treasury Note and it is extremely low. 

Based on accepted economic principles, this is what the Fed should do to stimulate a stagnant economy because the theory goes that people will be motivated to purchase a new house and companies will be motivated to add capital if the cost of borrowing money is low.  The interest rates are now so low that money is basically ‘free’ to consumers and companies but sadly, like the fiscal policy tool box, all the tools have been used by the Fed and we are still in a malaise in the US.

So all the tools in both tool boxes have been used but the economy has still not recovered.  What are we to do now?  I think we should look for a third tool box that, until recently, has been irrelevant.  I like to call this tool box “Expectations” and I’ll explain why it contains one tool that has been sadly over used but also has many other tools that are rusting from lack of attention.

Expectations

In today’s world, news reaches us at light speed.  We see news on Twitter, Facebook and thousands of news sites on the web.  We are awash with information that bombards us daily with events that affect the economy.  From that information we draw conclusions about the economy and set our expectations about the future.  If our expectations are high we spend, invest and do things that are generally good for the economy.  If our expectations are low we save, delay purchases and horde money to save for those bad days that we expect to be on the horizon.  It is my opinion that most Americans expect the economy to be stagnant for quite some time and are acting in ways that countermand the results of the traditional tools that have been put to work over the past three years.  We need to pull that tool of positive expectations out and use it but let me first tell you how we’ve overused the other tool in this box to lower expectations.

Obamacare hangs like a sword of Damocles over every business and they are preparing for the worse.  They are paring their workforce to the bare minimum and looking for ways to push healthcare costs back to employees.  Some industries, like medical device manufacturers, are preparing for higher taxes on products they make that will start in 2013 and this extra tax must be offset by something and that is accomplished by limiting growth and hiring.  People see what a mess government sponsored healthcare made in other countries like England and they are scared of what that will mean for the US.

Government agencies have accelerated regulation that is stifling business.  The DOJ raids on guitar maker Gibson for using wood not processed according to Indian laws are one example.  The DOJ has also entered into a lawsuit against hospitals because they feel that they have implanted Implantable Cardioverter Defibrillators (ICDs) in patients who don’t need them.  Sudden Cardiac Arrest kills close to 900 people each day in the US and ICDs could save their lives but the current lawsuit has hastened these implants because doctors and hospitals are wary of this lawsuit.  The FDA appears to be intentionally holding up product approvals across the board and preventing growth in the medical industry and preventing US citizens from receiving much needed care.  The EPA has instituted so many new regulations that they recently said they would need 230,000 more employees to handle the paper work. 

So my contention is that all the added regulations, which were implemented by the Obama administration, is stifling the economy.  The tools in the standard tool boxes have not worked because the increased regulation has dropped expectations so low that we can’t get out of our own way.  It’s like we are in a car pressing on the accelerator but we don’t move because the parking brake is on and our other foot is pressing the brake pedal to the floor.  It’s time to let the economy and the Free Market work but we have to release the brake.   If we continue to stifle corporate growth through over regulation, the traditional tools will have no effect on the Market and we are seeing that play out right now.  

My recommendation is to put down the tools I like to call ‘over regulation’ and pick up the tools I call ‘free market’ and watch the economy take off.  We also need a President who will foster a culture of optimism but instead we have a community organizer who is intent on confrontation, unwilling to admit his failures and refuses to compromise.  Unfortunately, we’ll have to wait until 2013 when we remove President Obama and have a Conservative majority in the Senate because the Democrats have shown that they are hell bent on punishing corporations with higher taxes and increased regulation. 

Remember last week that there was another impasse on a continuing resolution to keep the government open.   The whole disagreement hinged on $3.65 billion spending increases for FEMA (disaster relief) and the Republicans in the House offset a portion of that with $1.0 billion spending reductions on Democrat pet green projects (like Solyndra).  The Democrats in the Senate (and sadly many Republicans) voted against it because they are no longer following the paygo strategy that was promised during Obama’s presidential campaign.   

Now the situation has changed and it turns out that FEMA will have enough money to get them through the next budget cycle (which ends this Friday) as long as we don’t have a national catastrophe in that time period.  Today, the Senate passed an overwhelmingly popular continuing resolution and since it didn’t require an additional $3.65 billion (and its corresponding $1.0 billion offsetting cuts) it should pass the House quickly tomorrow.  Whew, that was close, right?  Well, not really.  Before we move on to the next crisis du jour, let’s see what we can learn from this one.

I think this past week highlighted a major problem with our current government fiscal policy – Requests for increased funding are not challenged by anyone in Washington.  When the Obama administration made this request for more funding I don’t recall hearing any member of Congress calling up FEMA and requesting clarifying information.  Did someone ask FEMA to reveal their calculations that prove they would run out of funding?  Did FEMA have other accounts that could be used for the next week to get them through?  What services would be impacted if this increased funding is not approved?

I’ve worked in private industry all my career and spent it mainly in manufacturing environments and when new capital projects or spending increases are requested there is a fairly lethal gauntlet that I had get through to prove I really needed the money.  Will the project improve quality?  Will the project reduce long term costs?  Will the project satisfy a market need?  Did I have existing funds that I could use for this project?  This is standard practice and businesses don’t have the luxury of printing money to finance all request so that forces them to be good stewards of their capital and use that precious resource to fund projects that have a positive impact on the business.  This is apparently not so for our Federal Government.   

I think Mitch McConnell said it best today, “This entire fire drill was unnecessary.”  The past few days have been nothing but political theatre and gave politicians on both sides to posture and bloviate their talking points.  It is now obvious that FEMA didn’t need the extra money so I’m curious as to what changed in the past few days.  Did FEMA uncover an unknown source of money that they had overlooked?  Were their original estimates wrong?  Did requests for assistance drop off?  I think it is important to know why this request for additional funding suddenly was reversed.

Whatever the answer and no matter how you feel about the bickering and logjams in Congress right now, the bottom line is that the latest impasse in Congress saved the tax payers $3.65 billion.  And while this is only 0.1% of the total outlays of the government in 2011, it makes me wonder what other savings we could find if we took the time to ask basic questions.  Should there be more inaction in Congress to reveal other wasteful spending that isn’t needed?  Shouldn’t our paid representatives be asking these questions to show us that they are good stewards of the money we give them?

The goal of Liberal policies has never been about helping the poor but instead about getting American citizens hooked on the free government handouts and then using that group to keep the Liberals in power so more freebies can be distributed.  This is not a desired path for a country because it stifles entrepreneurship and leads to Socialism which has been proven time and time again to fail.  Bill O’Reilly wrote a piece on Human Events that states this much better than I can but let me expand on his article and paint a picture of our future as we try to correct these mistakes.

Liberal social programs really just create slaves to the government and eventually those programs will crumble under their own weight because we’ll run out of tax revenue to sustain the programs.  When an entrepreneur loses the ability to make a profit (through high taxes and over regulation) he realizes that it’s not worth the risk so new businesses and new markets are never realized.  Without innovation and new markets the economy collapses, more people lose their jobs and the government loses the ability to make payments to its social programs.  This is happening now and is a major reason why our national debt is over $14.5 trillion.

Let me state that a modern civilization should and must take care of its citizens who can’t take care of themselves.  So I’m not advocating removing Unemployment Insurance, Welfare and Social Security because these programs are needed for those who face hard times and need help while they get back on their feet.  But these programs are not being used as safety nets because Welfare, Medicaid and Social Security represent 45% of the total outlays of our 2011 budget or $2.17 trillion.  Our budget deficit for 2011 is $1.65 trillion so there is obviously no way we can sustain this level of spending and do the things that government was meant to do as outlined in the Constitution.  When our Founders mentioned “provide for the general welfare” I doubt they envisioned almost half of our Federal budget going to social programs that pay people not to work.  Something has to give and the Tea Party movement has started a renaissance in America that is slowly but surely replacing Congressional representatives with those that are committed to fiscally responsible actions.  2012 promises to provide a major shift in Congress and the White House that will give us the votes to make meaningful change and get our country back on track.

But what will happen in 2013 when the conservatives in government start reigning in spending and cutting social programs like Medicare, Welfare and Social Security?  As luck would have it, we have a crystal ball so let’s take a look at what is happening in Greece, Spain and all of Europe this year.  The governments of these countries have realized, like we have, that rampant social welfare programs are unsustainable and they are taking actions to cut those programs to save the existence of their countries.  And are the people rising in mass to say thank you and applaud those tough decisions?  No, the people who have grown accustomed to the handouts are biting the hand that used to feed them because the governments are taking it away.  The Unions and protesters are spouting the same memes starting in the US by the president and other Liberals – the rich need to pay their ‘fair share’ and we need to adopt a policy of eating the rich.  I’ve shown in another post where the rich already pay twice their fair share but that won’t stop the Liberals and their paid henchmen, the Unions, of spreading this propaganda over the coming months and years.  The little campout of rich college graduates who were too lazy to get a job, otherwise known as the Day of Rage, was only a drop in the bucket of what we’ll see over the coming 4 years as major changes are made in our government.  Be prepared and don’t be surprised. 

The House and Senate are again involved in a budget impasse on the latest stop gap measure and this time the crux of the differences is a sad commentary that reveals what is truly wrong with Washington.  The current bill passed in the Republican controlled House but was voted down today in the Democratic controlled Senate 59-36.  The reason Democrats in both the House and Senate didn’t like it was because of a $3.67 billion disaster relief spending increase that was offset by budget cuts in other areas.  The Democrats didn’t want to offset the budget increase with cuts so we can now say that they don’t subscribe to pay-as-you-go.  This is truly startling and shows what our problem is in Washington. 

$3.67 billion is a lot of money to me but to the US government it represents only 0.1% of the total expenditures for 2011.   So this would be analogous to a family who makes $75,000 a year struggling to figure out how to pay for an emergency that costs $75.  When faced with this problem, a vast majority of American families would cut out discretionary spending (such as dining out or a haircut) to pay for the emergency and then move on.  It might take 5 minutes of deliberation but our paid representatives see this as impossible to overcome and resort to politics and blaming the other side for shutting down the government.  It comes down to this – The Democrats in Congress are drug attics and they are addicted to our money. 

But there is a side note to this Senate vote.  If 59 senators voted against this bill that means Republicans had to vote against it as well.  And sure enough 7 conservative Republicans voted against the House bill.   It appears that the Republican senators who voted against it did so because the bill increased overall spending too much and they felt the bill didn’t go far enough to address our current budget woes.  They were hoping for more budget cuts and a bill that focused on the longer term.  While I support that, I don’t know if we’ll ever obtain that objective with the current mix of Democrats in both the House and Senate.  Perhaps we should take small wins in the coming year and then go for larger wins once the Republicans control the House, Senate and White House.    

I am a big fan of the Economist and even though they are Left leaning for sure, I enjoy reading their insights and learn something almost daily from them.  But even I was surprised when I read the following post outlining a road map for the US that is very close to something most Conservatives could embrace if they took the time to look at the proposals with an open mind.

The article starts by saying it’s insane to think we can tax your way out of a deficit and they point out that the ‘rich’ already pay twice their ‘fair share’ when comparing their percentage of the tax revenue to their percentage of the income.  I pointed this out a few days ago in the following graph and this should be used the next time anyone on the Left says the wealthy should pay their fair share.  They hit the nail on the head and crystallize the whole issue with the following paragraph:

 “The question of whether to tax the wealthy more depends on political judgments about the right size of the state and the appropriate role for redistribution.  The math says deficits could technically be tamed by spending cuts alone – as Mr. Obama’s Republican opponents advocate.  Class warfare may be a loaded term, but it captures a fundamental debate in Western societies: who should suffer for righting public finances?”

The article does outline three [3] reasons to raise taxes on the wealthy and if you read them with an open mind you’ll find they make sense. 

First, any tax increases must be matched with spending cuts that are four [4] times that amount.  If President Obama and the Democrats would adopt that mentality then the ability of Congress to reach a compromise would be much more attainable.  Right now the only plan coming from the Left amounts to tax increases which mean we have a revenue problem instead of a spending problem.  That is ridiculous and the Left weakens their argument when they lead with this.  Walls immediately come up on the Right and intelligent debate is stifled because the Left is seen as hell-bent on redistribution of wealth and marching toward Socialism. 

Second, they make the point that the spending cuts will most likely hurt the lower end of the Income spectrum since these cuts will be in Social programs (Welfare, Social Security, Medicaid, Unemployment benefits, etc.) so to show that we are all in this together the upper echelon of the income spectrum must make sacrifices as well.  Once we adopt this approach, the Left will be unable to foster the meme that the budget deficit solutions are falling on the poor and not the wealthy. 

Third, and this is the one I like the best, the tax increases must be coupled with tax reform.  It makes no sense to increase the income tax on the wealthy since the wealthy make most of their money from investments and not from a weekly paycheck.  Capital gains taxes are much lower than Income taxes and this is good because we need to incentivize people to invest in companies to spur economic growth and raising capital gains taxes will put the brakes on Corporate America.  But imagine a tax system which simplifies the code, eliminates deductions but also eliminates double taxes on investment by lowering Corporate taxes to zero.  Corporations would react to that by moving more manufacturing back to the US and this will stimulate the economy better than any ‘shovel ready jobs’ stimulus that the President seems to be fixated on.  More people working means less Government spending on social programs and increased tax revenue through income taxes. 

If we adopt these measures and add to that reductions in regulations from the EPA, DOJ and FDA as well as repealing Obamacare our economy will sky-rocket and lead the world out of this malaise. 

Today my 7 year old son learned that you can’t continue to tempt fate and win every time.  Sometimes you lose, like today when he fell out of a tree and broke his wrist.  My son is like most 7 year old boys – reckless, adventurous, daredevil and laughs in the face of danger.  There is a good reason for that; he has never suffered such disastrous repercussions of his actions before today.  Prior to this accident he had a very narrow world view and saw himself at the center of the Universe and thought nothing bad could happen to him, no matter what actions he chose to take.  Now don’t get me wrong, we punish our kids for their wrong doings around the house but timeout, removing access to TV, Video Games, iPods, etc. hardly compares to fracturing a bone.  The prior punishments were temporary and lasted hours or days not weeks and months.  But this is part of the growing process for him and it will guide him on the path to thinking like a responsible adult and this won’t be the last course correction he’ll encounter.  In the Emergency Room tonight he turned to me and said “I don’t want to climb trees every again.”  This was a natural reaction to such an epic failure but I corrected his declaration and told him that if you lived in fear of getting injured you’d never experience a full life and instead he should choose his adventures wisely and prepare himself for them so he doesn’t get hurt.  When I saw that change in his daredevil attitude I thought back to a book I read and how it continues to parallel our own political and financial situation.

Ayn Rand wrote a book in 1957 called Atlas Shrugged and if you haven’t read it yet, you should do it now.  I won’t spoil it for you here but basically the plot centers around an era in America when the Government has taken over so much of private industry, implemented too much regulation and marched ever so close to Socialism that the whole economy is about to come crashing down.  As this WSJ article states, one resounding theme permeates through the book – “When profits and wealth and creativity are denigrated in society, they start to disappear – leaving everyone the poorer.”  In the book, a group of business leaders in the country make the conscious decision to ‘disappear’ and surrender to the regulation machine of the government and let America come to a grinding halt to teach it a lesson.  I wrote a post on this website last week stating that the Republicans should adopt a similar stance on the American Jobs Act (AJA) and at the time I believed this was what we needed to do politically to ensure the White House and Senate get back in Republican control in 2013.  But since that time, Obama has released a new tax plan to pay for this (instead of cutting from entitlement programs) and I must change my mind on the AJA.  Increasing taxes on Corporations and the ‘wealthy’ will not create jobs but instead that policy will push us closer to the edge of the cliff of collapse.  This is not a work of fiction we are living through so we can’t roll the dice and see what would happen if we let the ‘children’ make all the wrong decisions only to see them learn the error of their ways because the country would be destroyed in the process and contrary to the novel, America would be so crippled that it might never recover.    

We must dismiss both the AJA and the tax increases proposed this week and give reasons to the American people that they can understand (tax increases on Corporations will not incentivize them to hire people or expand in an already over regulated environment).  Then Republicans in the House should propose and vote on legislations that will improve the economy (such as the Path to Prosperity , Roadmap for America’s Future or Cut, Cap and Balance) and watch the Democrats block them in the Senate or Veto them in the White House. When Barack Obama runs on the ‘do nothing congress’ in 2012 the republicans can run on the ‘do nothing Democrats’ and let the American people decide who is right.  It should be stated that the House has already pass Cut, Cap and Balance but that bill didn’t pass in the Senate so we already have that one checked off the list.  The House should pass other smaller bills to limit regulation, limit entitlement programs and stimulate the economy through Corporate and Individual tax reform.  The American people will see these bills passed with regularity in the House only to fall on deaf ears in the Senate and then the President’s ‘do nothing congress’ meme will not resonate with most of America. 

Hopefully the American people will see the folly in Liberal policies and Keynesian Economics and say in a resounding voice in 2012 – “I don’t want to climb trees ever again.”  We had to go through Carter to get Reagan and we had to go through Obama to get……

And before you say I’m being too hard on President Obama, treating him like a child – take a look at the following photo. 

Obama stated today that “This isn’t class warfare, it’s math” so let’s check the President’s math.  Obama’s plan is to raise taxes on the super rich in hopes of bridging the budget deficit because he thinks they need to pay their fair share.  The deficit that we are trying to overcome this year is a staggering $1.3 trillion according to the Congressional Budget Office so keep that in mind and I’ll get to that later.  The fair share for everyone would be realized easily enough if we adopted a flat tax system since that would mean everyone pays the same percentage.  If your income demographic accounted for 20% of the total income in the US then that same income demographic would account for 20% of the total Federal Income Tax in the US.   So let’s look at the latest IRS numbers from 2009 that show what percentage each income demographic pays in Federal Income Taxes.  This link can be found here if you want to double check my calculations.

The full chart is pasted below but here is the major takeaway – People making $1 million and higher accounted for 9.5% of all Adjusted Gross Income (AGI) in 2009 and that same group paid 20.5% of the total Federal Income Tax.  Which means that group paid TWICE their fair share!  And according to the American Jobs Act, Obama proposed limiting deductions on those households making over $200,000 per year so they will have their effective tax raised as well.  And in case you were wondering, people making $200,000 and higher accounted for 25.8% of all AGI and they paid 50.2% of all Federal Income Tax.  Again, this group pays twice their fair share.  And if you just look at those having annual AGI between $200,00 and $500,00, that group accounted for 11.9% of AGI but they paid 20.4% of the Federal Income Taxes – again, about twice their fair share. 

So to check Obama’s math, let’s pretend that we tax those making over $1 million at 100% – something that even Liberals would not propose.  That income demographic had a total AGI in 2009 of $726.9 billion and that amount doesn’t come close to the $1.3 trillion budget deficit for 2011, much less make a dent in the over $14.6 trillion national debt.  And we all know that people who are millionaires will find other ways to shield themselves from income taxes and capital gains taxes.  The extra tax revenue from this group will have a minimal effect on the deficit and hurt the economy by discouraging investment in the Stock Market (avoiding higher capital gains taxes).  If you really want a tax increase to reduce the deficit, you have to go after the middle class.  Those making between $50,000 and $200,000 have AGI equal to $3.94 trillion but we all know how unpopular and stupid from an economics standpoint that idea is.

There is another graph that is very telling with regard to ‘fairness’ in AGI percentages versus Federal Income Tax percentages.  The graph below shows the percentage of AGI for each demographic group in blue and the percentage of Federal Income Taxe Revenues in red.  You’ll notice that at the $100,000 AGI mark the trend shifts from higher AGI percentage vs. Tax percentage to higher Tax percentage vs. AGI percentage. This means that those below the $100,000 AGI level don’t pay their fair share but those above that level pay more than their fair share.

Here is another way to see this graphically.  The graph below plots the income demographics on the X-axis as a percent of AGI and their corresponding share of the total Tax revenue is plotted on the Y-axis.  Those making up just 25% of the total Income in the US in 2009 (which included individuals making over $200,000 per year) paid 50% of the total tax revenue. 

Yes Mr. President it does come down to math but unfortunately the math is not on your side.   

On Monday the President revealed his job plan (called the American Jobs Act) and as was expected, this is really just a toned down version of the Stimulus passed early in 2009.  Remember the Obama administration told us that stimulus was needed to keep unemployment below 8% but we all know how well that worked out.   You can see page 4 of the following document that proves the Stimulus of January 2009 was touted to keep Unemployment below 8%.  Since the definition of Insanity is doing the same thing and expecting different results, this Stimulus 2.0 should be dismissed immediately since it won’t help the economy. 

But when you dig into the deatils you’ll see that this new bill will be worse than the first stimulus.  The AJA will create two new bureaucracies – The American Infrastructure Financing Authority and the Public Safety Broadband Corporation.  These new bureaucracies will be like Fannie Mae and Freddie Mac and are permanent!  Is that really what we need?  More government agencies to regulate Infrastructure programs and Broadband internet access?  This bill will also pay for these new projects by increasing taxes on anyone (including small business owners) making over $200,000 which is not what we need right now (or ever).  Even a NY Time columnist and Harvard profession doesn’t like the plan and economist Richard Posner shows why stimulus 2.0 won’t work.  

So, with all that going against it, there should be no reason why Republicans should vote for it, right?  On common sense, economical terms I’d agree that this should not be passed but on political terms I think Republicans should vote for it.  What?  Am I crazy?

 
Here’s why.  Next year, the economy will either be experiencing flat GDP growth (like now) or worse be in a double dip recession and this will happend with or without the AJA.  If Republicans block the AJA then the Community Organizer in Chief will be talking daily about the ‘do nothing congress’ and why the current economic woes should be blamed on Republicans.  If the Republicans pass the AJA, Obama will then own 100% of the economy and won’t be able to blamestorm Congress or the Republican nominee for President.

Republicans can vote for the bill but all along make sure that the American public knows they don’t think it will work.  They can say that the President will veto any of the other plans presented by Republicans so this is all they can do now.  They might even use it as a bargaining chip to get Obama to back off regulation from the DOJ and FDA over-regulation that is stifling business.   They can really have fun with this and put the ball back in the court of the Democrats in the Senate to hitch their wagon to this dog of a bill.  When Republicans take back the Senate and White House then we can repeal the AJA when we repeal Obamacare and we’ll have suffered for only a year.

 
As a parent, sometimes I have to watch my children do something that I know will harm them in order to teach them a lesson.  The Liberals have not listened to our calls that Keynesian Economics doesn’t work in our current situation where our national debt equals our GDP.  It’s time to let them stick their fingers in a flame so that everyone can see how much it hurts.  We had to have Carter to get Reagan and now we had to have Obama/Pelosi/Reid to get……

The Solyndra story just isn’t going away and might well be Barack Obama’s Watergate but we’ll have to wait and see what comes to light as people dig deeper.  I really get upset when I think about our government wasting $535 million on a company that the Administration knew was going to fail.  I’ll be really upset if the investigation shows they did this only to payback a major contributor and appease the Green factions of the Left – essentially playing political games with taxpayer money and worsening the Economy.  But what really upsets me is to think of all the automatic weapons that could’ve been bought and shipped to Mexican drug lords with the money we wasted on Solyndra.

As Conservatives across the nation are now entering the vetting process to determine our candidate for President in 2012 we must remain focused on the objectives. The 2012 elections are crucial for our country and this may be the last opportunity we have to get American turned in the right direction. The failures of Barack Obama are legion and have been outlined thoroughly here by Senator Paul Ryan and here by Peter Wehner. If we have any hope of reversing the damage done to this country over the past three years, we must take back the Executive branch and the Senate.

Starting in 2013, the goals of the new President and Congress should be centered on two main themes: increasing GDP and applying fiscally conservative tools to reduce our debt. Any arguments presented by the Left or the Main Stream Media that don’t affect those two themes should be treated as Strawman topics and dismissed out of hand. A Strawman argument is used by an opponent in an attempt to divert the conversation away from the primary subject and it is easy to fall prey to these arguments and burn valuable fuel in an attempt to debate them. When we are vetting our candidates for President someone might bring up topics like evolution and gay marriage. Neither of these topics impact the solutions to our current problems so they should be dismissed and tabled for another day. It will take the new President and Congress the full 4 years to undo the damage that has been done to this country so these Strawman issues only divert from the task at hand.

Do we really think that setting the Evolution debate or having our Federal government weigh in on gay marriage will solve our current economic problems? These issues are not trivial and need a national conversation and debate but at this point our Republic is hemorrhaging and debate on these issues only distract from the important work that needs to be done now.

The path to obtaining those two goals and restoring our country to a position of leadership are well known and numerous – repeal Obamacare, reduce the government regulation that stifles business, lower corporate tax rates, balance the budget and cut spending on entitlement programs such as Welfare, Medicare and Social Security. It can be argued that the mighty Roman Empire fell because it lost sight of its main problems and instead focused on sideline issues while the Empire crumbled. Remain focused on the goals and we’ll win big in 2012 and prevent the United States of America from becoming a history lesson for future failing Empires