by | ARTICLES, BLOG, BUSINESS, ECONOMY, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
Back in 2008 when Obama was debating Hillary Clinton on national TV, Obama discussed with the moderator how raising the capital gains rate would likely reduce federal revenue collections, but he insisted it was good policy anyway — because it was a policy of “fairness”.
Why would raising the capital gains tax be a revenue loss? The effect of higher taxes slows the economy because those paying the higher capital gains have less money to invest. Unfortunately, such a policy was implemented in 2013 when capital gains went from 15-20% and was coupled with the new 3.8% surtax on investment income to pay for Obamacare, making the rate 23.8%.
Now he wants to tax, yet again, the very type of taxpayers who have money to create jobs and/or invest, by raising the capital gains rate up to 28%. This is essentially about an 18% tax hike on high income earners — two years after the last capital gains rate increase. That’s practically doubling the rate in just a few short years. And during this time, the economy has remained sluggish.
It’s a shame that Obama continues to push for policies that would have a negative effect on jobs and the economy in an effort to promote “fairness through taxation” and pay for his pet projects (such as free community college!). The concept of an American President continuing to go after people making a lot of money it is particularly loathsome; it also displays an absolute lack of familiarity with and respect for how people get wealthy — he just wants their hard-earned money.
Back in 2008 during that same debate, Obama claimed, “What I want is not oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But what I also want to make sure is that our tax system is fair and that we are able to finance health care for Americans who currently don’t have it and that we’re able to invest in our infrastructure and invest in our schools. And you can’t do that for free.”
But with Obama, you can do it by wealth transfer.
by | ARTICLES, BLOG, BUSINESS, ECONOMY, GOVERNMENT, OBAMA, POLITICS, TAXES
The question of raising the minimum wage keeps getting pushed at the federal level, as well as across many states. If we are to educate the populace on the pitfalls of arbitrary “minimum wage” hikes, we must be sure to argue the inherent flaws of suggestion that minimum wage hikes help some people and therefore are good for everyone.
This was illustrated recently on an episode of CNBC’s “On the Money” with Becky Quick. On one side was Dan Mitchell of CATO, who has done admirable work on fiscal policy and economics over there for many years. Opposite him was Jared Bernstein, a former Chief Economist and Economic Adviser to Vice President Joseph Biden. Mitchell’s appearance on the show, however, was a bit of a disappointment on the issue of minimum wage.
There were two major points he seemed to miss. The first was in regard to the effect of a minimum wage hike on workers. Mitchell pointed out, correctly, that 500,000 people would lose their jobs, to which his opponent, Jared Bernstein, countered that 24 million people would gain more money (“get out of poverty” per the CBO), and therefore, quantitatively, people would benefit in a 50-1 ratio. But that is wrong!
Those 24 million, though they may benefit from a raise, will really one see a few cents more an hour. Those that lose their jobs, will lose not only $7.50 an hour in comparison, but also the opportunity to learn working skills and actually have a job from which they can advance in the workforce. Even if Bernstein’s figures were perfectly accurate – which they were not – having 24 million people earn a few more cents per hour versus the entire loss of jobs and livelihood do not make raising the minimum wage worthwhile.
But that point is secondary. The primary issue – and the one that Mitchell (as well as all of us who understand the economics of minimum wage) seem to be unable counter to the Jared Bernsteins of the world – relates to the economic cost of a minimum wage. He needed to explain to Mr. Bernstein that the apparent extra money going to those getting the higher minimum wage is, in fact, detrimental to the economy as a whole, and therefore ultimately to even those people it was intended to help.
Economics 1a would explain (looking for “what is unseen” ) that the extra money going to those benefiting must be coming from somewhere (though providing no extra result). It is coming from either a) lower wages paid to other employees, b) lower profits to the business, which lowers rate of return directly reducing new investments in that business and reducing the likelihood that new businesses will be started, or c) higher prices to the consumer, which (Economics 1a again) shows will reduce total sales volume, and therefore GDP as a whole..
Though Mitchell did successfully argue the merits of how minimum wages certainly shouldn’t be a federal law, but rather a state consideration, he missed entirely the ability to counter the false argument concerning the minimum wage altogether. If we don’t oppose and expose the core flaws, we will certainly continue to lose in the public square on the issue of minimum wage.
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If you plan to tune in tonight to the State of the Union, I’ll be running an Open Thread over at Bearing Drift, Virginia’s premier conservative media group. Join me over there at 8:45 to discuss Obama’s proposals.
The main theme of the evening is “middle class economics”. These include:
–raising “$320 billion over the next 10 years in new taxes targeting wealthy individuals and big financial institutions to pay for new programs designed to help lower- and middle-income families”.
–raising the capital gains and dividend tax rates to 28% on some higher earners
–creating a “fee on the liabilities of about 100 big financial institutions”
–tax credits to small businesses to help “cover costs” of requiring “employers without 401(k) plans to make it easier for full-time and part-time workers to save in individual retirement accounts”
–expanding tax credits for child child care
—expanding paid sick leave and “to fund Labor Department feasibility studies on paid leave”
—providing two years free of community college tuition for up to 9 million students
You can join in tonight as I comment and engage with other like-minded folks. See you there!
by | ARTICLES, BLOG, ECONOMY, FREEDOM, GOVERNMENT, OBAMA, POLITICS, SOCIAL SECURITY, TAXES
Last week, the Washington Examiner did a nice job covering the growing Social Security Disability Insurance (SSDI) crisis, and Congress’s recent response to it. The issue at stake is the 2016 benefit adjustment, which would cut 20% of benefits for more than 10 million SSDI recipients:
“Many Democrats want to sweep the problem under the rug with an accounting gimmick that would merge the disability trust fund with the general Social Security trust fund, which, on paper, isn’t expected to be depleted until 2034. But House Republicans passed a rule [Tuesday] to protect the broader Social Security program from being raided.
In 1994, the payroll tax rate was reallocated between Social Security’s two trust funds to avoid depletion of the disability insurance fund, but another reallocation would ignore Social Security’s long-term funding issues.”
The idea for reallocation came from the bleak 2014 Social Security Trustees report, which described, “Lawmakers may consider responding to the impending [Disability Insurance] Trust Fund reserve depletion, as they did in 1994, solely by reallocating the payroll tax rate between [Old-Age and Survivors Insurance] and DI. Such a response might serve to delay DI reforms and much needed financial corrections for OASDI as a whole. However, enactment of a more permanent solution could include a tax reallocation in the short run.”
The reallocation response would be merely a bandaid, ignoring the overall Social Security funding crisis, which is why the House passed a rule prohibiting reallocation unless it is combined with “benefit cuts or tax increases that improve the solvency of the combined trust funds”. That is to say, there must be some act of long-term reform.
Apparently, the Left was having none of that; responses were swift and sharp. The LA Times headline screamed, “On Day One, the new Congress launches an attack on Social Security”. The paper further described how,
“The rule hampers an otherwise routine reallocation of Social Security payroll tax income from the old-age program to the disability program. Such a reallocation, in either direction, has taken place 11 times since 1968, according to Kathy Ruffing of the Center on Budget and Policy Priorities.
But it’s especially urgent now, because the disability program’s trust fund is expected to run dry as early as next year. At that point, disability benefits for 11 million beneficiaries would have to be cut 20%. Reallocating the income, however, would keep both the old-age and disability programs solvent until at least 2033, giving Congress plenty of time to assess the programs’ needs and work out a long-term fix.”
Clearly, Democrats doesn’t see the irony of having to reallocate 11 times already as an major fiscal problem. I’m betting that every time there was a reallocation, it was to give Congress “plenty of time to assess the programs’ needs and work out a long-term fix.” In other words, kick the can again because the issue is politically unpalatable.
The Washington Examiner spoke to Charles Blahous, a Trustee of the Social Security and Medicare Trust Funds, about the Social Security situation. Blahous described how “the problem is not that disability needs a bigger share of the overall payroll tax than it now has, but that Social Security as a whole faces a financing imbalance that needs to be corrected. The single most irresponsible response to the pending [disability insurance] trust fund depletion would be to do nothing other than paper it over with a reallocation of funds, delaying meaningful corrective action as long as possible.”
You can be sure the Dems will use this issue as a way to stir up the base between now and 2016. Kudos to the new Congress for being willing to discuss and tackle the insolvency problem instead of moving funds around automatically.
by | ARTICLES, BLOG, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, OBAMA, POLITICS, RETIREMENT, SOCIAL SECURITY, TAXES
As a CPA, it is frustrating to hear Social Security repeatedly being described as a pay-as-you-go (“PAYGO”) system, which gives credence to something that is terribly incorrect. PAYGO is not a system at all; rather it is a method of reporting that hides earned realities, making it totally unacceptable to accounting professions, the SEC, and virtually everybody outside the government.
The fallacy of calling it PAYGO is that, in reality, the cash includes everything we are getting in, while the cash out doesn’t include the responsibilities due to come. The cash out formula specifically excludes the trillions promised to existing workers in the future, (while their Social Security tax is being collected today). It doesn’t really describe, as part of the expenses being incurred this year, the amount of future retirement benefits being earned and promised.
In contrast, if you give an insurance company today $100,000 to pay you a retirement pension beginning when you retired at the age of 65, the insurance company (logically and legally), the insurance company would report this as an asset offset by a liability to provide $100,000 of payments in the future. The Social Security system, however, reports that as $100,000 of profits in the year received, while the obligation to account for and provide future benefits is incredibly ignored.
When the cash in is received, that money egregiously goes into the government’s general tax revenue account and not in any Social Security Fund (anymore). The Social Security Administration merely collects and records the gross Social Security tax receipts, while the net amount, after deductions, is sent to the IRS. Yet the gross amount recorded is the amount spent by the government, resulting in the staggering deficit we face today. Therefore, it is outrageous for anyone to say that accounting for the system can be done simply by looking at the cash in-cash out.
The biggest problem with this arrangement is that it puts the burden on the wrong people. We have a growing population of retiring taxpayers and the current generation is paying off the obligation the older generation never paid for. It is a Ponzi scheme in which, depending on how you play it, you manipulate who is paying whose obligation. Therefore, the PAYGO method doesn’t work because the government takes 100% of the money they receive and they do not put away; they need it to pay today’s debt to another taxpayer, while today’s payee is stuck holding the bag.
For several years now, the Social Security trustees reports have noted Social Securities unfunded liabilities – those promises made to individuals solely in exchange for amounts they have already paid for – to be trillions in deficit. Social Security in its present form is unsustainable.
The term PAYGO is used for the lay person; cute semantics – but misleading at best, willfully dishonest at worst. It mischaracterizes the program for the political purpose of allowing politicians to declare that Social Security does not contribute to the deficit, and therefore, should not be overhauled in any major way. But until we agree to start recording Social Security (and Medicare) in budgets in actuarially sound way, we will never be able to honestly and effectively deal with their fiscal crises.
How we talk about and understand Social Security and its funds needs acute attention because we face another looming crisis of funding: Social Security’s Disability Insurance (SSDI). SSDI benefits are slated to be cut by 20 percent near the end of 2016, at the same time that SSDI has seen a massive increase of recipients in the last few years. This is certain to be a major issue for the Presidential elections.
Already the Democrats are stirring up the base on this issue. Last week, Sen. Elizabeth Warren claimed that “The GOP is inventing a Social Security crisis that will threaten benefits for millions & put our most vulnerable at risk”. Obviously this is patently false. The entire Social Security program needs massive reform instead of incrementally kicking the can further down the road to avoid making difficult, but necessary changes for the long haul.
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Obama increasingly keeps blathering about the Keystone pipeline in an increasingly negative way, such as how it isn’t economically sound or how it won’t do much for the US soil industry, and so forth. But does he have any idea how ridiculous his protests are, especially considering how both the House, and now the Senate, have given bipartisan approval for the pipeline?
The most egregious aspect of this whole situation is that Obama makes it sound like Keystone is some sort of government project or a part of some government infrastructure or action and therefore needs his blessing. Remember folks; this is private. There are exceedingly high hurdles to cross when it come to private sector projects — and Obama knows this. Keystone has met them. And yet, for six years, Obama has been “reviewing” the project; even the latest cautionary “pause” in the review process was just given a green light a few days ago by the courts (probably much to Obama’s chagrin).
Everyone recently seems to have lost sight of the fact that this isn’t a government project and no government funds will be spent to build it (except those currently being spent to carry out the six year “review”). Obama just needs to get out of the way, and let the private sector project — supported by Congress and 60% of the people — bring some much needed prosperity and opportunity.
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, NEW YORK, OBAMA, POLITICS
Is it any wonder why it’s so difficult to stay in business in New York? In exchange for eliminating one onerous compliance requirement with regard to wages, a new law simultaneously created more liability and penalties for businesses to actually stay in compliance with wage and labor law.
First, the positive. The new law terminates the yearly requirement for New York employers to provide annual wage notices to their employees each January. This burdensome paperwork is no longer a mandatory filing for all current employees; new employees, however, will still be expected to receive their notice.
The relaxation on the notice requirement, however, is in appearance only. The law sharply increases associated penalties for failing to provide the requisite wage notices to applicable employees. The penalty jump from a mere $50/week to $50 per day per employee and doubles the cap from $2500 to $5000. What’s more, for businesses failing to provide sufficient wage statements per law (different from wage notices), businesses will be docked $250/day, up from $100/per week, with the cap on that penalty also doubling to $5000 per employee.
The Department of Labor (DOL) certainly can’t be left out of their cut either. The new law allows the DOL to issue excessive civil penalties for wage and hour violations — doubling the amount from $10,000 to $20,000. The penalty increases help fund a new honey pot for the DOL called the “Wage Theft Prevention Enforcement Account”, created to help the DOL examine a full 6 years worth of time prior to the alleged violation.
However, the most egregious portion of the new law is the concept of ‘successor liability”, which essentially allows the possibility of a business being held liable for the wage of hour violations of its business predecessor. The law describes a business successor to be the “same employee” under these conditions: “if the employees of the new employer are engaged in substantially the same work in substantially the same working conditions under substantially the same supervisors” of the previous employer and has “substantially the same production process, produces substantially the same products and has substantially the same body of customers.” Thus, a business faces being penalized for violations committed by a prior business entity.
Finally, the law extends the scope of culpability for wage and hour violations. Previously, the top ten shareholders of corporations faced liability; now the top ten members of ownership (percentage-wise) in an LLC can also be found in violation.
In sum, while the new law reduced one burdensome regulation for business owners, it was replaced with more stringent rules of compliance, coupled with stiffer penalties to be meted out to violators of wage and labor laws. The increased threat of non-compliance and fines is just another example of the suffocating, anti-business environment that plagues New York.
For more details on the law and its affects, go here.
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Thank goodness for CNS News. They continuously number crunch federal numbers so that we can keep apace with the ever-growing national debt. The bottom line? Debt has increased $7.5 trillion since Obama took office.
“The federal government drove $789,473,350,613.20 deeper into debt in calendar year 2014, an increase that equaled $6,875 per household, $7,458 per full-time year-round worker, and $8,853 per full-time year-round private-sector worker.
According to the Treasury, the debt started calendar year 2014 at $17,351,970,784,950.10 and ended it at $18,141,444,135,563.30.
When Obama took office on Jan. 20, 2009, the debt was $10,626,877,048,913.08. Since then, it has increased $7,514,567,086,650.22–which is $65,443 per household, $70,985 per full-time worker and $84,266 per full-time private-sector worker.
In 2013, according to the Census Bureau there were 105,862,000 full-time year-round workers in the United States. The $789,473,350,613.20 increase in the federal debt during 2014 worked out to $7,457.57 for each of those full-time year-round workers.
Those 105,862,000 full-time year-round workers included 16,685,000 federal, state and local government workers and 89,177,000 private-sector workers.
The $789,473,350,613.20 in new federal debt in 2014 equaled $8,852.88 for each of the 89,177,000 full-time private-sector workers in the country.
As of December 2013, there were 114,826,000 households in the country, according to the Census Bureau. The $789,473,350,613.20 in new debt equaled $6,875.39 per household.
Ten years ago, at the end of 2004, the federal debt was $7,596,142,802,424.14. Since then, it has grown by $10,545,301,333,139.16—an average pace of $1,054,530,133,313.92 per year.”
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Everyone knows that Greece is so far in debt that it is actually impossible for them to ever repay it all. France, Spain, Portugal, Italy, and most of the rest of the EU is not much better. Even worse than Greece is Japan’s debt; at over 200% of GDP — and growing — it seems hopeless, despite some reputable economists thoughts that since a large portion of the debt is owed by one branch of their government to another, it is somehow not all that bad.
The U.S. debt is now $18 trillion and still growing at a rate higher than it ever was before Obama took office (Obama and Democrat protestations being wrong). We recently issued $1 trillion in new debt just to pay off old debt, despite bringing in record revenues. And when unfunded promises to pay for Social Security and Medicare benefits are factored into our liabilities, this debt becomes more than $100 trillion – an amount that has no more likelihood of being paid than Greece’s debt.
Yet all of these countries are fighting over the same issue. Every country knows that its debt was honorably borrowed, and needs to be repaid. One would think that, like an individual or family that incurred too much debt, government spending needs to be reduced to below the level of income, with the excess going to pay down debt. A program to stabilize must present itself as fiscally sustainable so businesses, citizens, and creditors can have renewed confidence.
But the Keynesian mentality – which would argue that such austerity measures would contract the size of the economy, thereby making it even more difficult to pay down debt – is unfortunately winning the day.
I do not believe that many honorable and intelligent people actually believe in this Keynesianism. It is just so much easier politically to tell your constituents that government handouts don’t need to be cut — because in doing so, you risk losing reelection. And populist leaders have a great time casting their (responsible) opponents as scrooges, taking advantage of the lesser educated and poorer individuals who will ultimately be hurt most by these irresponsible, spendthrift policies.
Why do I believe that the Keynesian theory is wrong? Not because of some sophisticated economic theory, but rather some simple history and logic, in no particular order:
1) Government spending wholeheartedly crowds out private spending, substituting inefficient political and crony-based spending for free-market, give-the-public-what-they want spending.
2) After World War II, government spending (military, etc.) dried up overnight. But a free-market, non-coercive environment at the time, allowed private investment to flourish and more than make up for the decline in government spending.
3) The outrageous level of U.S. spending in the last six years has resulted in the poorest recovery since the New Deal; FDR’s meddling only prolonged America’s anemic recovery. But the current sluggish economy should not be surprising either, since Obama’s policies are taken directly from FDR – raising taxes, bad mouthing as well as over-regulating businesses, giving organized labor excessive power, instituting policies that discourage people from working, and hurting international trade.
4) There is no evidence, in the last 50 years, that Keynesian theory worked in the real world. On the contrary, one need not look too far to Northern Europe vs Southern Europe — Latvia compared to Greece — to see the results of strict austerity measures vs fiscal tepidness, and each government’s current level of sustainability. Keynes fails wholeheartedly.
The bottom line is, if you borrow money, you have to pay it back. Just because you irresponsibly spent the money does not give you an out. Just because you can think of reasons to delay repayment, doesn’t mean that you should. Just because you are a government doesn’t mean you are exempt from your fiduciary responsibilities. Historically, the only countries to get their debt under control have been those that have cut spending.
Get spending under control and start paying down the national debt!
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The Wall Street Journal unveiled the existence of a new investment plan that was created without Congressional approval. To be fair, we first heard about it during last years State of the Union address in January, 2014; Obama announced that he would instruct the Treasury to craft a new retirement plan, which the WSJ noted “was puzzling because such plans are normally created by law, not Presidential order”
Sure enough, Obama kept his word. It’s called “myRA”, and it is a retirement plan that invests solely in government debt. Here’s more:
“A form of Roth Individual Retirement Account that allows people to save after-tax dollars and watch them grow tax-free until retirement, the new myRA offers a single investment option. It’s a private version of the G Fund that is available to federal workers and has lately been delivering annual returns of about 2% on its portfolio of Treasury securities.
Intended for those who haven’t started saving for retirement, don’t have a retirement plan at work, and make less than $129,000 per year ($191,000 for married couples filing jointly), the myRA requires no minimum investment to open an account and promises no fees for investors.”
There are no other investments except in Treasury bonds. No stocks, no corporate bonds. Just Treasury bonds. And the Treasury department is funding the program.
The WSJ confirmed that the Treasury Department didn’t actually receive any authority to start his program. Instead, it is using the budget from the “Bureau of the Fiscal Service” to do so. “The assertion here is that existing law allows this part of the Treasury to hire financial agents as part of its mission to efficiently finance the federal government.” In order to manage the new program, the Treasury hired a group called Comerica and its partner, “Fidelity National Information Services”.
The WSJ raises some good questions pertaining to the existence of the program, its purpose, and its funding:
“[F]ar from delivering efficiencies for the taxpayer, this program is designed to subsidize the investors. Not that a low-yielding Treasury securities fund is the right move for these first-time investors. But this is a deal they cannot find in the marketplace because it would be unprofitable for any company to offer it, given that the investor pays no fees and can contribute as little as he wishes in regular payroll deductions. Taxpayers are covering the costs, though their elected representatives in Congress never voted to create the program. So far Treasury also hasn’t told us the fees it is paying Comerica.
The subsidies in myRAs are likely to be small at first, but the history of government programs is that they expand over time. And if such a subsidy scheme can be enacted administratively, does anyone think this will be the last time such power is exercised?
New investors should be encouraged to consider ways to build wealth beyond simply lending money to the feds. And if politicians want taxpayers to support another retirement program, they should do so through law, not White House whim.”
You can read more about myRA by going to the Treasury page. myRA is touted as “a simple, safe and affordable retirement account created by the United States Department of the Treasury for the millions of Americans who face barriers to saving for retirement.”
All this program seems to do is create another fund that is guaranteed by taxpayers, whose accounts invest in a government program — the Treasury Bond — essentially acting like a prop. How much it will cost the taxpayers remains to be seen.
