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Weak Business Investment a Result of Unrelenting, Anti-Business Policies

Earlier in the month, Steven Russolillo correctly reported on weak business investment as a key reason for poor economic growth. However, it was incredibly frustrating that as an economic writer, Russolillo, could actually suggest this was a surprising phenomenon. It’s not surprising. In fact, it’s downright predictable. The Obama Administration has been steadily undermining businesses for years and this is the fallout of their policies.

Even though Russolillo should have known this, he could have also easily interviewed any number of business owners for his article; if he did, he would have found a multitude of reasons for weak business investment, including 1) anti-business attitudes; 2) threats of higher taxes; 3) actual higher taxes; and 4) increased government regulations. Instead, Russolillo made the rookie mistake of only talking to fellow economists, the ones who look at data and trends instead of actually being in the trenches of everyday business activity.

Russolillo acts as if low rates are the only key to business spending; they’re not. Businesses won’t spend if they continue to feel the threat of the government’s heavy-hand. Better to keep the company stabilized than attempt to stretch and expand and invest; you have no idea what new regulation or new tax will continue to wreak havoc on your long-term business plans and cash flow — they way this administration has done for the last seven years.

Businesses are tired of being treated as an both a source of extra government revenue and a playground for intrusive, burdensome policies that hurt, rather than help, our economy. It’s a no-brainer to anyone who is anyone in the business world why businesses are hesitant to invest; it’s a shame that more economists don’t know how to engage in critical thinking and basic journalism.

The Treasury is Offering a New Investment Plan, Created Without Congressional Approval


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.

The Lost Art of Investing in Our Future

10-Tips-for-Investing-in-Green-Art1

It seems like the White House and media these days are spending a lot of their energy discussing disparity between the haves- and have-nots. The phrase “income inequality” is especially being used more frequently as a means to continue the class warfare rhetoric and is absolutely certain to be a major theme of Obama’s State of the Union Address this month.

Many explanations are bandied about in an attempt to show that “devious policies” are causing the wide gulf between higher and lower income earners. They include the vague and general terms such as “special tax benefits for the wealthy”, “corporate welfare”, and a “tax system that favors those with higher incomes”. Though these targets are great for talking points, they fail solidly on substance.

There are no virtually no special benefits for the wealthy — only higher tax rates, phased out tax deductions, and added surtaxes that lower income earners do not have to contend with. As for corporate welfare, though it does exist, it only affects a few crony capitalist-type industries and companies out of the millions of small businesses which form the backbone of our economy (think: GE, green energy, electric cars). What’s more, the tax system clearly favors those with lower incomes, not higher, with lesser rates and more deductions and tax credits available. It has been shown clearly and indisputably that the US has – by a large margin – the most progressive taxes in the world (yes, far more progressive than even Europe and the Scandinavian countries). Though there is income inequality in America, why it exists is not what you think.

The simple reason is this: unlike people in the fastest growing countries, and unlike our own citizens in prior generations, the current middle and lower income classes in America have lost their inclination to personally invest in their future. I would argue that much of this is because the growing government welfare system is stripping individuals of their need to prepare and plan ahead, and a wide safety net also exists. For the most part, it is only the upper middle and higher income individuals — those who are not the beneficiaries of government welfare and those with more entrepreneurial orientation — that are forcing themselves to save and put this money at risk into investments for their future.

Much of China’s current economic success can be directly attributed to the financial attitude of their citizens with regard to investing. Almost all earners, including and especially the middle and lower income ones, keep a certain amount of income each month and invest it in both entrepreneurial endeavors and the existing equity markets. It is common for even the minimum wage earners to save at least 10% of their income! Large or small sum, they regard investment as a priority and a path to prosperity.

I have a close relative who is an owner and executive of a substantial manufacturing operation that he started in Shenzhen, China because of its business friendly environment. I’ve heard from him many times that he went into business, not to comply with government regulations, but to make things. And part of that business friendly environment is the people. He has been pleasantly surprised by the careful frugality of the owners and their passion to invest and grow– a sentiment extends to, and is practiced by, even their lowest paid workers.

Contrast this to the present state of affairs in our country. We have not been saving– we have been borrowing for more than a generation now. Citizens have mortgaged their future by consuming continuously — while investing nothing — and passing on that example to the next generation. We are turning into a country where people will begin to wonder why they should invest, if it’s just going to be taken away from them in the long run by those who do not, or go into a market that is wholly unstable.

People are encouraged to spend as if consumption is a good thing , but truly, it is investing that is far better for individuals and for the economy as a whole. When our government pushes measures such as extending unemployment benefits, food stamps and other welfare programs, it reinforces prolonged financial dependency. It is government policy aimed in the wrong direction as recipients have harder, not easier, obstacles to overcome.

The biggest problem that this country has to deal with regard to moving people away from a culture of dependency is that it continues to be demagogued by the Left for the precise reason that it easily mischaracterizes those who might being against such policies as “insensitive” and as being against the “less well off”. But many who are opposed to such policies merely recognize that success of investment, independence, and upward mobility are making other countries greater while we persist our slide into wider dependencies and economic decline.

In order to get the middle class back on track, we must focus our efforts and rhetoric on reminding ourselves that this country was built upon those who were willing to invest their time and money to become great. It is the true source of upward mobility – and those that do not do their fair share will be left behind by those who do. This is what truly drives at the heart of income inequality in our country.

Investment is what made our country thrive and it is the only thing that will properly sustain our country’s financial future.

_________________________
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Free Will and Capitalism

The question of additional taxes on the wealthy is really a liberty and equity issue, impinging on the very entrepreneurial environment that made our country great. At the heart of any monetary decisions should be free will, not a free lunch.

Stop and think about it for a minute. In my adult life, in a free country such as ours, it is entirely my judgment as to whether or not I want to work hard and try to earn a lot of money, and/or risk my money via investments. Such choices are made only after careful deliberation. And one of the factors going into that decision is how much tax I will pay on my winnings, my successes. That is why it is unequivocally immoral that our government – or any government – should feel it has the place and authority to come along after I earned my success and basically declare that because I have done well for myself, I should have to pay more to that government. This is legal plunder.

I have right and the liberty to factor into my decision making process what the government states I must owe under law, and decide whether that amount and calculation would be amenable to my overall situation and goals. The government has no right to retroactively come along and declare that I must detract from my commitment to invest in my self, my education, my career, or anything else because it needs a greater revenue stream. Why should I, who have proven myself to be successful (according to the government) have to give my success over to people who have proven to grossly mismanage our country’s finances?

When people say things such as Exxon makes X so many billions of dollars a year and therefore they can afford to pay more, such a statement only reflects the gross naivete and ignorance of basic financial rules. Without a frame of reference, unless that number is coupled with how much money was invested or needed to be invested in order to earn that earnings figure, such a statement is worthless rhetoric. If a company makes $10 billion, but has $100 billion invested in the company (which is quite typical for major corporations), that would be a 10% return.

When put into that perspective of how much was invested to get that ROI, 10% isn’t quite so much. Would you invest millions or billions for the risk of a 10% return or the risk of losing it all? Most would not. If you have money invested in something like a bank that is a very safe investment, but you also get a pretty low return. If you are investing in something in which you have the chance of losing, you risk everything hoping to get that 10, 15, 20% return. With any investment, be it oil or a bowling alley business, you would not have access to that kind of risk capital unless it was strongly anticipated to get that larger-than-safe-return: you risk losing it all. And yet, many companies and individuals still make the investment. Good for them.

So then with those who were able to make a decent return on investment, Obama’s tax policies are simply a death wish for our country. If we go out in the free market looking at companies and individuals investing millions and billions a year, and the government leaves alone the ones who do poorly on their investments but leeches onto the winners, the successful ones, this is what it essentially tells them: you were so successful, we want and deserve a piece of your success. We are happy, though, to allow you to lose your money alone.

Doesn’t everyone see the lunacy and disingenuousness of going after the oil companies when oil is $100 a barrel but ignoring them when oil is $20 a barrel? Or screaming about their 4% profits yet say nothing about the government’s gas tax of about 18 cents per gallon? This type of targeted hypocrisy only supplies us with 1) more political posturing and talking points and 2) attempts at additional revenue streams.

Having a policy to target the winners with an additional tax after they become winners will eventually destroy those winners because no one will want to invest or earn over a certain threshold. This will stymie and financially ruin our country, founded upon the backs of small businesses, hard work, entrepreneurship, free minds, free society, and free economy.

Those who are prosperous should be given the same liberty to manage their success as any other citizen, not additional tax penalties. How can we honestly and morally take extra money from those taxpayers who have been able to create wealth and employment successfully and give it to the government and politicians who manage to continuously and egregiously squander income?

Investing in the Future


It seems like the administration and media these days are spending a lot of their energy complaining about the growing disparity between the haves- and have-nots. Many explanations are bandied about in an attempt to show that “devious policies” are causing the wide gulf between higher and lower income earners. These devious policies include special benefits for the wealthy, corporate welfare, and a tax system that favors those with higher incomes. But there are no special benefits for the wealthy;  corporate welfare, though it exists only affects those few crony capitalist type industries and companies; and the tax system clearly favors those with lower incomes, not higher. Then why this imbalance?

The simple reason is that unlike people in the fastest growing countries, and unlike our own citizens in prior generations, the current middle and lower income lower classes have lost their inclination to invest in the future. I would argue that this is because the growing government welfare system is stripping individuals of their need to prepare and plan ahead. For the most part it is the upper middle and higher income individuals — those who are not the beneficiaries of government welfare and those with more entrepreneurial orientation — that are forcing themselves to save and put this money at risk into investments for their future.

China’s current economic success can be directly attributed to the financial attitude of their citizens with regard to investing. Almost all earners, even the middle and lower income ones, keep a certain amount of income each month and invest it in both entrepreneurial endeavors and the existing equity markets. It is common for even the minimum wage earners to save 25% – 50% of their income! Large or small sum, they regard investment as a priority and a path to prosperity.

Contrast this to the present state of affairs in our country. We have not been saving– we have been borrowing. Citizens have mortgaged their future by consuming continuously, while investing nothing.  We are turning into a country where people will begin to wonder why they should invest, if it’s just going to be taken away from them in the long run by those who do not.

In order to get the middle class back on track, we must focus our efforts and rhetoric on reminding ourselves that this country was built upon those who were willing to invest their time and money to become great.  It is the true source of upward mobility – and those that do not do their fair share will be left behind by those who do. Investment is what made our country thrive and it is the only thing that will properly sustain our country’s financial future.