Have we forgotten about the Pay Czar? Ken Feinburg’s activity during the early part of the Obama administration certainly had some troubling components. Chief among these was the basic fact that this “pay czar”, as he was dubbed, was technically acting independently of any authority in this role. Dana Milbank aptly pointed out that,“he was neither confirmed by Congress nor accountable to President Obama”. And even after he was replaced, no one has still answered the question — who does the Pay Czar answer to?
Equally disturbing is the fact that the Pay Czar makes unilateral decisions about the compensation of private businesses — something that is certainly not within the realm of the government’s constitutional authority. Yet Obama’s rationale for delving brazenly into the private sector remains largely undiscussed in any substantive media outlet.
The role of the Pay Czar, according to Obama, is to have the government beat up and chop up the (large) compensation practices of the companies whom the government bails out, under the guise of fairness and necessity. In truth, the companies have almost all paid the bailouts back and it hasn’t cost the government too many millions except, perhaps, with AIG who hasn’t returned all of their funds. Nonetheless, we were told it was essential to have this agent put in place to handle this dire problem.
This begs the question: if the government is so intent on bullying the compensation of those “overpaid” for their services, why then are they not doing the same for the public sector? Now there’s a real place which could stand more than a mere trimming. Such cuts, in the form of reduced compensation and decreased pension plans, would serve to keep our government and public service unions at least a little less bloated.
Certainly, if the Obama administration were to follow its self-avowed principle to scale back organizations that are overcompensated, they should look no further than the government itself. Considering our staggering deficit situation, as stewards of the taxpayer’s money, the public arena should be — must be — drastically reduced to be in line with the private service sector.
by | ECONOMY, GOVERNMENT, TAXES
As the deficit talks ensue, Obama continues to blather on about eliminating tax cuts for the wealthy. In fact, this is shaping up to be a major theme of his reelection campaign as well. Thankfully for the Republicans, this position serves to highlight his continued economic incompetence.
As a practicing CPA for nearly forty years, my clients are mainly those that fall under the category of “wealthy”. They may make the most money, but they are assuredly the ones paying the most taxes. These people in the highest tax bracket basically fall into three categories: 1) Small business owners (200-2000 employees); 2) Executives working for a company; and 3) Wealthy individuals by inheritance or investment. Allowing the tax rate to rise affects each of these groups differently, but the economy and its recovery will be stymied nonetheless.
With the first group, most small business owners are arranged as an Scorp or LLC, which means they pay tax rates at the individual level, not business. Raising the rate to 39.6% raises the rate on these businesses. Most of the money made by these owners is reinvested in their company. They basically take out enough income on which to live and anything more gets put back into their business. So, if you increase their taxes, there is less money to reinvest in their company and back into the economy. This is an important point because spending money as a means of coaxing a recovery is much, much less effective and stimulative than any investment is.
Regarding the second group, most executives working for a company enjoy a large salary; however, much of that salary is fueled by stock options which make their taxes larger. Quite typically, the proceeds of that income is returned the company via more stock, which funnels growth, or cash is reinvested as needed. An increase in taxes will decrease their ability to best allocate their business returns.
Although the third group of individuals often have a lifestyle that is inherited, more money that is taxed out of that lifestyle means there is less to invest in appropriate economic endeavors – i.e. hedge funds, equities, and high risk funds. Those very investments are responsible for an enormous amount of the entrepreneurship in this country. Taking away available capital via tax increases reduces innovation in the economy.
In a time of a recession unprecedented since the Great Depression, economic improvement is crucial. Inflicting tax increases on the segment of the population most able to invest in our economy and businesses will only slow our sluggish recovery. Trying to punish the taxpayers for the sake of campaign sound bites and political gain is both reprehensible and repugnant.
by | ARTICLES, ECONOMY, GOVERNMENT, TAXES
Charles Krauthammer has an interesting strategy for debt negotiations — short term solution now to avoid default, which will give a both sides a little extra time to formulate a long-term plan. The intriguing thing to me about this approach is that it forces Obama to make hard decisions during his campaign season. Would Obama stand and do what is right for the budget and economy regarding entitlement reform and tax increases, or will Obama push any major reform initiatives to the Republicans — and then swoop in to protect certain important voting blocs from any proposed big bad cuts? Would such a strategy hurt or help Obama when most of the country wants to reduce the size and scope of government. Read Krauthammer’s essay about Obama’s failure to make any substantive changes thus far and what this could mean for both sides in 2012.
by | ARTICLES, ECONOMY, OBAMACARE, POLITICS, TAXES
The WSJ had a fantastic piece today, reminding us of the new taxes yet to come, signed into law under Obama. And he wants MORE tax increases as part of this deficit negotiation?
Go read the full synopsis right now. Some of the additional taxes are listed below
• Starting in 2013, the bill adds an additional 0.9% to the 2.9% Medicare tax for singles who earn more than $200,000 and couples making more than $250,000.
• For first time, the bill also applies Medicare’s 2.9% payroll tax rate to investment income, including dividends, interest income and capital gains. Added to the 0.9% payroll surcharge, that means a 3.8-percentage point tax hike on “the rich.” Oh, and these new taxes aren’t indexed for inflation, so many middle-class families will soon be considered rich and pay the surcharge as their incomes rise past $250,000 due to tax-bracket creep. Remember how the Alternative Minimum Tax was supposed to apply only to a handful of millionaires?
Taxpayer cost over 10 years: $210 billion.
• Also starting in 2013 is a 2.3% excise tax on medical device manufacturers and importers. That’s estimated to raise $20 billion.
• Already underway this year is the new annual fee on “branded” drug makers and importers, which will raise $27 billion.
• Another $15.2 billion will come from raising the floor on allowable medical deductions to 10% of adjusted gross income from 7.5%.
• Starting in 2018, the bill imposes a whopping 40% “excise tax” on high-cost health insurance plans. Though it only applies to two years in the 2010-2019 window of ObamaCare’s original budget score, this tax would still raise $32 billion—and much more in future years.
• And don’t forget a new annual fee on health insurance providers starting in 2014 and estimated to raise $60 billion. This tax, like many others on this list, will be passed along to consumers in higher health-care costs.
by | ARTICLES, ECONOMY, GOVERNMENT, TAXES
Over at the Weekly Standard, Stephen Hayes gives a cogent summary of Obama’s flip-flopping on raising taxes during a recession. When pushing for his stimulus package in 2009 and again on his bipartisan relief effort in December 2010, Obama stated that raising taxes would be difficult on the economy and small businesses.
Now when he’s running for president, to heck with the economy. Taxing the wealthy is popular and necessary in order to avoiding entitlement spending cuts — as a means to gain leverage with voters and his own party. Clearly, as POTUS Obama’s going to say and do what’s best for Obama, not America, first.
Do yourself a favor and read Hayes post in its entirety.
by | BUSINESS, ECONOMY, OBAMACARE, POLITICS, TAXES
The current assertion that we are in a recession because the wealthy companies haven’t put money back into the system is just plain wrong. But even our president is peddling this idea. Last month, Obama chided businesses to hire more workers. Specifically, he said “it is time for companies to step up. American taxpayers contributed to that process of stabilizing the economy. Companies have benefited from that, and they’re making a lot of money, and now’s the time for them to start betting on American workers and American products.”
The problem with such a statement is the fact that although some companies are profitable, it doesn’t mean that they can afford to increase their hiring. Yelling at businesses to do so only makes him look like a petulant child.
The reality is that Obama’s unfriendly business policies have substantially contributed to the present uncertainty in the business world regarding long-term planning. The economy works on a set of facts; the existing tax rates have been in place since 2003 and there have not been higher rates since then. Making large changes, such as tax increases– as has announced he plans to do — will most certainly affect the economy, because there will be even less capital for companies to maintain and grow their enterprises.
In addition to tax rates, increased regulation and new regulation due to Obamacare are all causes for concern to businesses. Entities such as the EPA, SEC, NLRB and Dodd-Frank all have their hand in the pot. With pressure to keep up and comply with government’s nanny state, business owners are hesitant to invest. Unless changes are made to allow companies more freedom, they will hold on to their money. Other decisions, such as not pushing a Free Trade Agreement, and an enormous increase in spending since FY2008 all feed the hesitation and money pinch that the businesses feel.
Without true business-friendly reform, entrepreneurs will look elsewhere — namely abroad — to fund their ventures where businesses are welcomed, appreciated, and cultivated.
by | BUSINESS, ECONOMY, GOVERNMENT, HYPOCRISY, TAXES
It is truly embarrassing for the businessmen in this country to have a president who makes such economically incompetent statements and gestures. Speaking to the U.S. Chamber of Commerce a couple of months ago, our president effectively rebuked business success. He suggested that “if we’re fighting to reform the tax code and increase exports to help you compete, the benefits can’t just translate into greater profits and bonuses for those at the top. They should be shared by American workers”. This is a blatant example of wealth redistribution.
In a free economy, employee wages are such that an employer willingly pays whatever it takes so that the amount paid to an employee is less than what can be earned from them – i.e. they have to be able to produce. Take, for example, someone who sweeps floors. If you are in need of a floor sweeper and the benefit of sweeping is worth more than the sweeping costs, then you hire the floor sweeper. If not, then you leave the floors dirty.
The same principle has always applied – albeit on a grander scale– in the United States. We see this currently in manufacturing which is at an all time high, but the number of manufacturing employees is a lot less. Workers are so productive with technology and capital, they can be – and it’s worth it for them to be – paid more.
On the other hand, if a company pays its worker more than the worker is actually producing, then the worker will become wholly uncompetitive. It is not better for a worker to be paid more than he is worth, because at some point, he loses the capability to independently support himself. The scenario becomes not what his labor is worth – but instead that he has been given a gift. This takes away the incentive to produce and earn. It goes against what has made our country thrive, which is hard work and an investment of time and talent.
By publicly and strongly suggesting that employers unfairly and extraordinarily compensate their workers in an attempt to level the playing field, Obama has effectively shown his true colors regarding his attitude toward businesses and their operation. Private businesses in the country, unlike the government, do not have the luxury of spending without consequences. Attempting to coerce fairness instead of cultivating a free market, Obama has strongly disadvantaged this country to the rest of the world.
