I nearly did not read this book by Matthew Miller after reading the introduction. I reacted that the author was saying the problems of the country would be solved if we just spent more on government. The subtitle “Fixing American’s Problems in Ways Liberals and Conservatives Can Love” made me decide to give it a try. The start of the book made me wonder whether I had made a bad decision. The book was published in 2003, and the first issue taken on was health care. That outdated chapter wasn’t encouraging, but I tried to plow ahead. I eventually ran into thoughtful discussions of the problems about failure to educate our children and the huge problems created by refusing to do something about the unfunded obligations for Social Security and Medicare. There are also interesting discussions of the failure of politicians to address problems because of unyielding ideologies that continue to get them reelected and the failure of the press to provide news that might actually educate readers about the problems. Continue reading
Category Archives: Economics
AARP and Social Security
Vincent Carroll had a wonderful opinion piece in the March 17, 2013 Denver Post about the powerful organization’s adamant resistance to doing anything to change Social Security. I suggest you read the entire article. It was inspired by the flood of radio ads bought by AARP to oppose a suggested change in the way cost-of-living increases are calculated. Mr. Carroll points out that the change would have reduced the growth of a $1,000/month benefit that began in 2002 from the current total of $1,309/month to $1,263. Continue reading
Outsourcing Entrepreneurship
It seems that companies aren’t alone in noticing that people in other countries are willing to do the same amount of work for smaller salaries. The practice of “outsourcing” or “off shoring” has cost large numbers of U.S. employees their jobs. Now there is a evidence at least one, U.S. employee found a way to benefit from the practice. A Los Angeles Times article by Alana Semuels describes how one Verizon employee relaxed and enjoyed his day watching cat videos and dealing on EBay while someone in China did his work. The Chinese person was paid a salary of $50,000 a year while the U.S. employee enjoying his “work day” was being paid much more than that. Continue reading
Sequester and Social Security Withholding
Politicians are howling with threats about how bad things will be if the sequester legislation actually goes into effect two days after this posting. I can’t possibly list all the threats, but they include layoffs of first responders, teachers, air traffic controllers, and homeland security screeners. The President has warned that the unemployment rate will increase and the economy will suffer. All of this hysteria is over a cut of 85 billion dollars out of an annual budget of about 3.6 trillion dollars. We are being warned that the government cannot possibly manage a slightly smaller budget without draconian reductions in essential programs and harm to the economy. The same politicians issued barely a squeak of protest about the impact on families when they passed legislation that included an increase of two percent withholding from paychecks for Social Security. It would seem our legislators think citizens can easily adjust family budgets to deal with having two percent less money in their paychecks while the government cannot possibly find two percent of spending that is nonessential or at least less essential.
Where did the sequester idea originate? There is an interesting back and forth going on between Bob Woodward of Watergate fame and the White House. Mr. Woodward writes in his book “The Price of Politics” that sequester proposal originated within the White House. He adds that President Obama and the soon-to-be Treasury Secretary Jack Lew incorrectly accused during the campaign that the sequester proposal originated from House Republicans.
The White House first disputed Mr. Woodward’s version, but it seems they have decided they can’t dispute the facts. They are still arguing against the additional charge that “Obama is moving the goal posts by requiring that additional revenues be part of a sequester substitute.” The White House protests this assessment by saying the President has always considered that additional taxes must be part of any negotiations on budget issues. I’d say I agree with the White House, because President Obama’s campaign speeches, and all of his speeches are campaign speeches, have always advocated more tax income is needed. The Republicans mention that more tax income was added by the bill that avoided the “fiscal cliff.” Mr. Obama must think that bill that he signed into law didn’t add enough taxes.
Politicians will always think raising taxes is preferable to reducing the growth of government. They will also think the optimum amount of money they can spend is the current amount plus some additional amount. A slight reduction is enough to cause them to act the way they are now acting.
Social Security Projections
The U.S. deficit continues to grow out of control, and there should have been actions taken to address the problem long before now. However, President Obama’s comments that the deficit is not a short term problem indicates to me we won’t do anything about the deficit for the next four years. Much of the problem is caused by “entitlement” commitments, and President Obama said in his inaugural address that he has no intention of doing anything about those either.
I’m baffled how the American people and the media are going along with the “don’t worry, be happy” approach. Looking at Social Security alone is frightening. A recent article by Chuck Saletta on the Motley Fool points out that each new analysis finds that the program will reach “financial unsustainability” sooner than the previous analyses. The Social Security Trustees reported in 2008 that problems would not be encountered until 2041. The date has now changed to 2033, and that is going to continue to move closer.
Money taken from employees and employers is invested in bonds, and bonds that mature must be replaced with new ones. The older bonds were yielding much more in interest than the ones currently available. The program is projected to earn $5.4 billion less in bond interest in 2012. The fact the Federal Reserve has recently said they are going to artificially keep interest rates low until the unemployment rate begins to drop means the revenue is not going to improve. Continue reading
Fiscal Cliff Shenanigans
President Obama has repeatedly talked about imposing a “Warren Buffet Rule” for income taxes, which refers to the outrage he is said to feel that his wealthy supporter pays a lower income tax percentage than his secretary. Drilling down into the recently passed “Fiscal Cliff” bill that Mr. Obama signed into law reveals some curious aspects that don’t seem to be consistent with that position.
An article by Brad Plumer of the Washington Post gives a good start to understanding how much our elected leaders care about fair taxation. Section 322 provides a $9 billion tax break to manufacturers such as General Electric and big banks for what is called “active financing.” That section allows deferring U.S. taxes on overseas income. I’m not against helping U.S. companies be competitive in the global market. However, I recall Mitt Romney was chastised by the media for not pledging to end the provision which President Obama has now quietly signed it into law.
There are other aspects of the law that are even more curious. “Carried interest,” which is the share of profits paid to private equity and hedge fund investment managers are not taxed at the same rates as salaries. The new law will allow those payments to be taxed at a top rate of 20% for individuals earning over $400,000 or $450,000 for joint returns. If that one doesn’t bother you, how about a100 % exclusion on gains from qualified small business (QSB) stock held for at least five years. How many middle class Americans will benefit from that or have even ever heard of it? Continue reading