Unemployment levels are still high at 8.6% and the government should consider how it might facilitate the creation of new jobs given the present political environment. Republicans believe that one should not tax the rich because they are the ones who create jobs. I suggest we put this to the test. The government should consider letting the rich invest in new businesses and allow them to write off the startup losses for say five years against their ordinary income. Currently such losses are considered passive losses and may be written off only against subsequent passive income.
There is no logic in taxing dividends at less than ordinary income rates. Why should society value a person's labor at less than his/her money? To avoid double taxation, paid dividends should not be taxed on corporation income. If dividends were taxed at ordinary income levels, there would be more incentive for rich to invest--given the incentive of the first paragraph--without increasing the tax rates.
Wednesday, December 28, 2011
Wednesday, December 21, 2011
The payroll tax cut
The payroll tax cut to the employee is a nostrum that giving money to people helps the economy. If it worked, we should do more of it and this would become an absurdity. Giving money away by the government does not improve the economy. All it does is take money from the social security trust fund which is essentially equivalent to raising the public debt. That some Republicans would support the continuation of this cut is astonishing. It is mere politics to curry voter favor. We should be concerned with those who don't have a job and not those who do.
Cutting the payroll tax to the employer in these times of high unemployment is a poor incentive for the employer to hire. As above, it also increases the national debt. A better incentive, which has zero initial cost, would be to give the employer a holiday on his unemployment tax rate. In other words, he could take the risk of hiring somebody and if business demand did not pick up and he had to lay that person off, the action would not increase his unemployment rate.
Cutting the payroll tax to the employer in these times of high unemployment is a poor incentive for the employer to hire. As above, it also increases the national debt. A better incentive, which has zero initial cost, would be to give the employer a holiday on his unemployment tax rate. In other words, he could take the risk of hiring somebody and if business demand did not pick up and he had to lay that person off, the action would not increase his unemployment rate.
Monday, November 14, 2011
Does Spending Help the Economy?
The typical economist viewpoint is that 70% of the US economy is driven by consumer spending. I find fault with the words "is driven." When the economy is doing well, we may very well see 70% of the GDP coming from consumer spending. The point is that demand drives both production and consumption. However, Politicians and some economists do not appreciate this. Consequently we see government offers to put money into consumer's pocket and deemed efforts to help the economy. If you think such offers help the economy, then logically we should do more of it. Doing so would quickly reach absurdity. I gave examples of such spending in the immediately preceding post. I would classify extending unemployment benefits to two years to be in the same category. We know that most persons appear to find work near the end of their unemployment benefits. I have personally observed many examples where the person is content to stay out of work and receive the benefits. In essence, they are being paid not to work. I suggest unemployment benefits be for six months, enough time for people to make the transition from the income of their prior job. The Wall St Journal recently ran a series of profiles on person who had lost their jobs and how they reacted to it. Impressive among those profiles was how most adapted to the change--hard as it was--and did their best to seek work and keep their families together.
I thought it appalling to see on television some Chrysler employees being paid by their company not to work while their employer was facing imminent bankruptcy. General Motors had been coerced by the autoworkers union into a similar arrangement. What a wasteful loss of both labor and company funds! For the union to be rewarded in the subsequent bankruptcies is a disgrace.
The question facing the country is how to create meaningful jobs. Simply adding to government (federal, state or local agencies) employment rolls does not help the economy. Republicans are incorrect in saying that the government cannot create jobs. One can simply look at the great depression era to see how such jobs were created to construct the Hoover, Bonneville and Grand Coulee dams, tame the floods in the Tennessee Valley, construct roads, bridges, locks and levees. Currently, the USA funds only two percent of its GDP on infrastructure while western Europe spends some five percent. Our bridges, roads, airports are crumbling and need upgrade and maintenance. If president Obama cannot get these funded by a tax on the wealthy, he should consider getting them funded by an increase on transportation fuels, a tax that has not been changed for over fourteen years and whose doubling would still leave fuel cost at less than its peak in the past three years. Further funding might come from reducing the length of unemployment benefits. These kind of jobs would greatly help the construction industry which has born the brunt of the recession.
The biggest problem in increasing demand has been that consumers are highly indebted and are using discretionary funds to reduce their debts. The same situation existed in 1930. The government's priority should be to encourage efficiency and improve productivity. There are various ways to do this as follows:
1) Fund research at universities, especially those which partner with industry. This has the added virtue of keeping more students out of the current depressed labor market.
2) Provide faster write offs of research in private industry instead of requiring such costs to be capitalized and amortized.
3) Provide an example to congress and industry by improving government efficiency in its delivery of information and services. Reward management when it can do more with less. Outsource where practical and economical. Cancel the system where agencies are encouraged to spend all their budget to avoid having it reduced the next fiscal year.
It is worth noting that a recent survey by the US Bureau of Labor Statistics found that 0.3% of employees were laid off by government regulation/intervention while 25% were lost due to lack of demand. This clearly challenges the Republican belief that less regulation will stimulate the economy and the government needs to do nothing to stimulate demand. Remember, higher productivity leads to cheaper or better quality goods and services.
I thought it appalling to see on television some Chrysler employees being paid by their company not to work while their employer was facing imminent bankruptcy. General Motors had been coerced by the autoworkers union into a similar arrangement. What a wasteful loss of both labor and company funds! For the union to be rewarded in the subsequent bankruptcies is a disgrace.
The question facing the country is how to create meaningful jobs. Simply adding to government (federal, state or local agencies) employment rolls does not help the economy. Republicans are incorrect in saying that the government cannot create jobs. One can simply look at the great depression era to see how such jobs were created to construct the Hoover, Bonneville and Grand Coulee dams, tame the floods in the Tennessee Valley, construct roads, bridges, locks and levees. Currently, the USA funds only two percent of its GDP on infrastructure while western Europe spends some five percent. Our bridges, roads, airports are crumbling and need upgrade and maintenance. If president Obama cannot get these funded by a tax on the wealthy, he should consider getting them funded by an increase on transportation fuels, a tax that has not been changed for over fourteen years and whose doubling would still leave fuel cost at less than its peak in the past three years. Further funding might come from reducing the length of unemployment benefits. These kind of jobs would greatly help the construction industry which has born the brunt of the recession.
The biggest problem in increasing demand has been that consumers are highly indebted and are using discretionary funds to reduce their debts. The same situation existed in 1930. The government's priority should be to encourage efficiency and improve productivity. There are various ways to do this as follows:
1) Fund research at universities, especially those which partner with industry. This has the added virtue of keeping more students out of the current depressed labor market.
2) Provide faster write offs of research in private industry instead of requiring such costs to be capitalized and amortized.
3) Provide an example to congress and industry by improving government efficiency in its delivery of information and services. Reward management when it can do more with less. Outsource where practical and economical. Cancel the system where agencies are encouraged to spend all their budget to avoid having it reduced the next fiscal year.
It is worth noting that a recent survey by the US Bureau of Labor Statistics found that 0.3% of employees were laid off by government regulation/intervention while 25% were lost due to lack of demand. This clearly challenges the Republican belief that less regulation will stimulate the economy and the government needs to do nothing to stimulate demand. Remember, higher productivity leads to cheaper or better quality goods and services.
Sunday, November 13, 2011
Will I vote for Obama next Election?
I voted for Mr. Obama in 2008 because I was dissatisfied with the Bush administration and because I was impressed with Mr Obama's intelligence and speaking skills. I also felt that voting for a black man would further enhance racial equality in the USA. I am now disappointed in President Obama's performance for the following reasons:
1. I think he wasted enormous political capital in the Health Care bill and it showed in the elections of 2010. In something as important as this, it would have been imperative to enlist Republican support instead of ramming it through congress. That ramming process was I believe the single most cause of Republican intransigence. I regard the outcome as merely a bill to protect the health insurance industry. The issue of employer paid health benefits being tax free to the employee should have been addressed. A simpler approach would have been to extend medicare to children up to 26 years old. The cost would not have been great and it would have been a start to a single payer system such as that enjoyed by members of congress, the armed forces and the VA. The Obamacare requirement forcing all to buy a commercial product (healthcare insurance) or pay a fine is contrary to the American sense of individuality and a stretch of the commercial clause in the constitution.
2. I dislike his kowtowing to unions. The bankruptcy of General Motors and Chrysler came largely from auto union greed. Their wages and benefits were greatly higher than at competing foreign plants in the US who were able to survive the economic downturn. Yet in the managed bankruptcy, secured creditors were denied their security, and unsecured creditors including the GM retirees health plan were placed ahead. Further, the union was given a role in the new GM management, and Fiat, which had no skin in the game, was awarded control of Chrysler.
Mr. Obama sat for three years on three trade agreements with South American Countries which would have expanded our exports and reduced our trade imbalance because the unions wanted protectionist provisions added to the treaties.
His Labor Relations Board has filed a suit against the Boeing Company because the latter has constructed a factory in a right-to-work state in the south and plans to put some of its Dreamliner production there even though there will still be additional manpower required at its Everett Washington plant. Boeing would like access to the cheaper and less ready-to-strike labor in the south. I think the law that says it is illegal for Boeing to do this is wrong and should be challenged in court.
3. Job creation will be the most important issue at the next election. The Obama administration did a poor job in its prior job act which was poorly focused and gave the idea of using government resources to create jobs a bad name. It should have emphasized increasing productivity only. The philosophy of giving tax money to help spend our way out of this recession is ludicrous. This includes the bonus to social security recipients, the extension of unemployment benefits beyond six months--most find jobs close to the expiration of the benefits--, the reduction of employee payroll taxes. The ban on all new oil well drilling in the gulf was a further example of over reaction to the BP oil spill and the creation of further unemployment.
1. I think he wasted enormous political capital in the Health Care bill and it showed in the elections of 2010. In something as important as this, it would have been imperative to enlist Republican support instead of ramming it through congress. That ramming process was I believe the single most cause of Republican intransigence. I regard the outcome as merely a bill to protect the health insurance industry. The issue of employer paid health benefits being tax free to the employee should have been addressed. A simpler approach would have been to extend medicare to children up to 26 years old. The cost would not have been great and it would have been a start to a single payer system such as that enjoyed by members of congress, the armed forces and the VA. The Obamacare requirement forcing all to buy a commercial product (healthcare insurance) or pay a fine is contrary to the American sense of individuality and a stretch of the commercial clause in the constitution.
2. I dislike his kowtowing to unions. The bankruptcy of General Motors and Chrysler came largely from auto union greed. Their wages and benefits were greatly higher than at competing foreign plants in the US who were able to survive the economic downturn. Yet in the managed bankruptcy, secured creditors were denied their security, and unsecured creditors including the GM retirees health plan were placed ahead. Further, the union was given a role in the new GM management, and Fiat, which had no skin in the game, was awarded control of Chrysler.
Mr. Obama sat for three years on three trade agreements with South American Countries which would have expanded our exports and reduced our trade imbalance because the unions wanted protectionist provisions added to the treaties.
His Labor Relations Board has filed a suit against the Boeing Company because the latter has constructed a factory in a right-to-work state in the south and plans to put some of its Dreamliner production there even though there will still be additional manpower required at its Everett Washington plant. Boeing would like access to the cheaper and less ready-to-strike labor in the south. I think the law that says it is illegal for Boeing to do this is wrong and should be challenged in court.
3. Job creation will be the most important issue at the next election. The Obama administration did a poor job in its prior job act which was poorly focused and gave the idea of using government resources to create jobs a bad name. It should have emphasized increasing productivity only. The philosophy of giving tax money to help spend our way out of this recession is ludicrous. This includes the bonus to social security recipients, the extension of unemployment benefits beyond six months--most find jobs close to the expiration of the benefits--, the reduction of employee payroll taxes. The ban on all new oil well drilling in the gulf was a further example of over reaction to the BP oil spill and the creation of further unemployment.
More on Libya and Obama
The US government did not appear to want to get involved in the freeing of Libya when I posted my first blog in March, 2011. I am glad I was wrong and the US government helped NATO to overthrow the evil Gadafi regime. At this point in time (November, 2011), it would be appropriate to send aid to the rebels in Syria, also a repressive regime run by a brutal minority, especially since the Arab League has denounced that country and since many soldiers--rank and file mostly--are deserting the army. Does this mean we should always interfere in other countries where rebellions take place? No. We should look to see if we can effect an outcome that would be supported by the country's neighbors that would not involve our ground troops. in other words a risk reward relationship. Many worry that the regime changes in Libya, Tunisia and Egypt will lead to governments hostile to our allies there, especially Israel. Each new democracy will work to further its own interests. Our allies should understand that and respond accordingly. The wonderful thing about the period we live in is the bounteous and free flow of information over the Internet where assertions and policies may be readily challenged.
Sunday, March 13, 2011
LibyaSituation
The rebels in Libya deserve US support, albeit indirectly.They are fighting against a tribal-type dictatorial leader, Quaddafi, who has brutalized his people, quashed dissent and has funded terrorism. Britons will not forget his sending explosives and funds to the Irish Republican Army. The US should not forget the destruction of the plane and lives over Lockerbie. Yet the rebels are not likely to be a match against Quaddafi's military, its planes, its equipment and its better trained soldiers. The US does not want to be drawn into another Iraq or Afghanistan, but we can assist the rebels by one or more of the following means:
1. Establish a no-fly zone. (The Arab League has already requested this, a de facto authorization from Libya's neighbors)
2. Provide military equipment, tanks, artillery, anti-aircraft missiles
3. Ask the Egyptian army to train the rebels. We give Egypt about a billion dollars each year as it is for military purchases. We could pay them more to make sure a democracy arises in Libya. Consider that we spent ten billion dollars each month for eight years in Iraq to achieve a very tenuous democracy. The price to achieve democracy in Libya would be much lower and would involve no US ground troops.
1. Establish a no-fly zone. (The Arab League has already requested this, a de facto authorization from Libya's neighbors)
2. Provide military equipment, tanks, artillery, anti-aircraft missiles
3. Ask the Egyptian army to train the rebels. We give Egypt about a billion dollars each year as it is for military purchases. We could pay them more to make sure a democracy arises in Libya. Consider that we spent ten billion dollars each month for eight years in Iraq to achieve a very tenuous democracy. The price to achieve democracy in Libya would be much lower and would involve no US ground troops.
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