The 47% comment comment...the truth hurts

If you are part of the 47% that were insulted by Romney's comments in May, take a minute to think about this for a moment...what if Mitt Romney was right?  I'm not talking to you if you are on unemployment or social security or if you are in the Armed Forces, I'm talking to those who get goodies from the government, but still earn a living wage.

If you receive the Earned Income Tax credit, and still make a living wage would you go without it?  Would you fight against someone who tried to take it away? 

In order for the government to be solvent, you need at least 2 and 1/2 wage earners to pay for one person receiving a government goody.  If you received more back from the government than you paid in, you are not one of the wage earners paying into the system, even if you are earning money and receive no other federal assistance.

Here is the real challenge facing the US Congress in the next 2 to 4 years.  Reduce the number of people who pay no income taxes to 30% from the current 49%.  Then ensure that the 30%-tile of wage earners in this country is receiving a living wage.  Right now, people at the 30%-tile need to earn about 8,000 more per year than they do now.

No politician can promise you a 34% wage increase.  Fortunately, neither major party has been that bold.  I do not excuse what Mitt Romney has said.  It may go down as the biggest blunder since Walter Mondale's promise to raise taxes in 1984.  However, what is being lost in the message is this: Let's build the economy so that fewer people need government assistance.

Congress can pass laws ensuring that a higher percentage of the people pay taxes.  This would not be very popular in a recession and not popular at all if people making between 100,000 and 250,000 per year are getting a tax cut.  So, even with republicans in office, that 47% is probably going to remain.

If anyone is to reduce to 47% down to 30% one has to focus on improving the economy and creating jobs.  There are only 2 sure-fire ways to see wage inflation.  First is to flip the supply/demand equation on jobs.  Right now, with unemployment so high, there is downward pressure on wages.  If employees are in demand, and there are more jobs than people to fill them, wages will increase.

After the flip, then the debate about where the limit for the EITC should be can begin.

But the economy is the most important thing right now.

The Myth of the Career Poliltician and the presidency

If you ask many people what the problem with the American Government is today, there is a good chance that that person will say, "Career Politician."  Are career politician really bad for the US?  The argument is that Career Politicians have to spend an inordinate amount of time raising money for their next campaign and that it makes them more susceptible to influence from those who fund their campaign. The answer to all of this is term limits. I hope that I have been consistent in this blog...that term limits is not a panecea to fix problems in Washington.  But here is another argument against term limits, and that is to dispel the myths of the Career Politician.

Ask the person to name the best and worst US President in their lifetime.  For the worst president, a democratic leaning person will probably name George W. Bush as the worst.  If they are old enough, they may name Richard Nixon.  If they are a Republican, they will likely name Barrack Obama or Jimmy Carter as the worst.  For the best president, a Democrat will probably name Bill Clinton as the best president, while a Republican will likely name Ronald Reagan.

Do you know that some of these presidents were "Career Politicians" before they became president?  Every President since the Civil War, expect for Grant, Hayes and Eisenhower served at least 4 years in some elected office before becoming president.  Some worked their way to the top.  Let's take a look at all of the offices which the Presidents since the first World War held before becoming president.  I think that one will find that there is no correlation between "Career Politician" and what kind of President they were.  I would define a Career Politician as someone who served more than 2 terms in one office, or more than 20 years in politics before becoming President.

Woodrow Wilson--Before becoming President, he served a term as the Governor of New Jersey.  Before that, he was President of Princeton.  Before that, he practiced law.  Can't be classified as a career politician and generally considered to be a good president.

Warren Harding---Before being elected in 1921 served as a US Senator from Ohio, as the Lieutenant Governor of Ohio and in the Ohio State Senate.  He was a newspaper publisher before being elected to the Ohio Senate in 1899.  I would not define Harding as a career politician because he only served one term in each office and was out of elected office between his stint in the Ohio State Senate and his election to the US Senate.  From 1906 to 1915, Harding was running Marion Daily Star and not in political office at all.  He is considered to be a poor president.

So far--2 non-carreer politicians, 1 good president and 1 poor president.

Calvin Coolidge assumed the presidency in 1923 upon the death of Harding.  Coolidge first ran for office in 1898 in the city council of Northampton, Massachusetts and worked his way up the ladder to become the Governor of Massachusetts in 1919.  Prior to that, he was the Lieutenant Governor of his state.  Although he never served more than 1 term in office, he was in politics for more than 20 years before becoming the Vice President and was therefore a career politician.  He is considered to be a good president.

Herbert Hoover was definitely not a career politician.  The presidency was his first elected office.  He was the Secretary of Commerce for 8 years prior to running for the White House.  He was successful in the field of mining around the turn of the century to world-wide acclaim.  He gained fame in World War I for his humanitarian efforts to bring aid and relief to many victims of the war, beginning with the repatriation of Americans who were in Europe when hostilities began.  He is considered to be a poor president because the Great Depression began when he was in office and for all his brilliance, he could do nothing to stop it.

Franklin Roosevelt began is political career in 1911 and was elected to the Presidency in 1932.  He was a career politician.  He is considered by many historians to be a good president.

Harry Truman was first elected to office, as a Jackson County Missouri judge in 1922, but only served one term.  But he returned to public office in 1926 transforming Kansas City into the city it would become.  He ran for the US Senate in 1934.  He was an upwardly mobile career politician and considered to be a good president.

Eisenhower was not a career politician before becoming the President.  He was the senior commander in the European theater in World War II and the Vets loved him, even if his presidency was not as effective as it could have been.

Kennedy served for 3 terms in the House of Representatives and was in his second term in the US Senate when he ran for the White House.  That fits the definition of a career politician.  Reviews on his presidency were mixed.

Lyndon Johnson was in Congress before World War 2 began.  He volunteered for the Navy during the war, and when he nearly became a POW, President Roosevelt ordered all members of Congress who were also in the Armed forces to choose one or the other.  Johnson chose to remain in the House and resigned his Navy commission.  As such, he fit the description of a Career politician.  He was an effective president, but decided not to seek another term in 1968 due to the unpopularity of the Vietnam War.

Richard Nixon was also a career politician, serving in one office or another from his days at Whittier College.  He was elected to Congress in 1947 and service in office until 1961.  He is considered to be a weak president.

Gerald Ford was elected to Congress in 1949 and served there until he became the appointed Vice President in 1973.  He was considered to be an ineffective president.

Jimmy Carter was only in elected office for 8 years before becoming the President of the US.  He served 1 term in the Georgia State Senate and 1 term as the Governor from Georgia.  Not a career politician and not considered to be an effective president.

Ronald Regan served 2 terms as Governor of California before becoming the President.  Not a career politician and considered to be an effective president.

George HW Bush Served in Congress for only four years, but was in a slew of appointed offices throughout the 1970s before becoming Reagan's running mate.  I will consider him a career politician and a mostly ineffective president.

Bill Clinton was first elected to office in 1977 and was only out of office for two years...1981 to 1983...before becoming the President in 1992.  He served 5 2-year terms as Governor of Arkansas.  We will call Bill Clinton a Career Politician and an effective president

George W. Bush only served as Texas Governor for 6 years before becoming president.  He was not a Career Politician and not an effective president.

I will not evaluate Barrack Obama for this exercise.

Here is the grid...

Career Politician, ineffective president...

George H.W. Bush
Gerald Ford
Richard Nixon
Lyndon Johnson

Non-career Politician, ineffective president

Jimmy Carter
Lyndon Johnson
Herbert Hoover
Warren Harding

Career Politician, effective President

John F. Kennedy
Harry Truman
Franklin D. Roosevelt
Calvin Coolidge

Non-career Politician, effective President

Ronald Reagan
Dwight Eisenhower
Woodrow Wilson

The conclusion is that for those who served as the President of the United States, spending a career in politics is no predictor of their quality.  Chances are you will find similar results in Congress.  This is really an argument against those who say that career politicians are bad just for being career politicians and use it as a justification for term limits.

Now that the conventions are over.

Here are some things to keep in mind...

1.  The budget is set by Congress and not the president.  While you and your friends are debating, here is the truth about the deficit that may have escaped you.

In the late 1990s, the US had a surplus...meaning more money was coming in than going out.  Today we have a huge deficit.  About 1/3 of this was caused by a Republican-controlled congress...from 2000 to 2006.  1/3 of this was caused by a Democratic-controlled Congress...from 2006 to 2012.  About 1/3 of this is tax revenue lost because of the poor economy. 

2.  The US is part of a global economy.  Much of what can happen in the economy is outside of the control of anyone in the US government.

3.  You and you alone decide if you are going to be happy.  For me, no matter who wins on Election Day, I am going to go on with my life and live it the best that I can.

4.  If the economy grows to 1998 levels, and programs designed to stimulate the economy since 2007 are allowed to be phased out, the federal budget will be balanced with no additional taxes or spending cuts.

Some things to keep in mind.  Share with all of your friends.

Is Corporate Welfare a Good Use of Tax Dollars?

The question we should ask about Corporate Welfare is: why?  There are many different reasons why this happens.  First, it depends on the type of business that is receiving an incentive from the government.  A suburb may give a property tax rebate to a Wal-Mart Super Center because that expenditure will be offset many times over by an increase in sales tax revenues.  A city like Salt Lake City may give a tax break to Microsoft because there will be an increase in tax revenue in other area.  If there are people coming to town for jobs, houses are going to be built and stores are going to sell goods.  It increases the overall health of the economy.

The other reason why government at all levels gives tax breaks to firms is because it is a common practice world-wide, and it is a competitive world.  If your town is not willing to give a tax break to bring some business to town, someone else is.  That becomes a lost opportunity.

This usually works all fine and dandy until the company begins to have trouble and then begins to lay off employees.  Let's say the corporate tax break in your town was given to Widgets are US because of a military contract.  Your town gave them a 50% discount on property tax because the new factory would bring 2,000 jobs to town that did not exist before.  Your town has put in the streets, street lights, sewage, water, electricity and gas into new subdivisions to make way for the new hoses.  They have bonded for new schools and parks.  The town has incurred tons of new debt in hopes of increases the tax base in town by 2,000 new households.  They have also zoned for new shops and other commercial development.

Right before Widgets are US breaks ground on their new factory, Congress cancels the contract.  Then the town is out all of the investment that they put into the project.  The new subdivisions remain vacant and the new stores never come to town.  What has been lost?  The money put into the anticipated new development.

What some people call Corporate Welfare is really a gamble.  But the most important thing to remember is the way that Corporate America plays the game.  When they want to build a new plant, they will shop it around to several communities to see who will give them the best deal.  That has been going on for a long time and it is not likely to stop unless congress makes it illegal.

But what would happen if America outlawed corporate tax subsidies.  Would that put the United States at a bigger disadvantage than they already have?  Would that mean more jobs going overseas? The answer is yes to the first question and maybe to the second.  Companies will not completely leave the US until there is no longer a market for their products in the United States.  But it will cost this country jobs.


It would be unwise to spend money on projects that are going to be in your jurisdiction anyway.  For example, if Winco is opening a store in either Layton or Kaysville, why would the State of Utah bother to incentive-ize one city of the next?  But if the company is considering Layton instead of Wendover, then I would want those jobs to come to Utah.

At the federal level, the government may want to give businesses incentives to expand and hire people.  Column A is people who have jobs and pay taxes.  Column B is people who lack jobs are receive government assistance.  The federal may spend millions as an incentive for Apple to open a new plant in Indiana.  But that is worth it if the government can save millions more in welfare payments.  It is worth if Apple is going to not build the plant for 2 or 3 years.  It is worth it if Apple may build the plant in Mexico.  It is worth it if the plant is going to revitalize an economically depressed area of Indiana instead of a affluent community in California.  It is not worth it if none of the above applies, because any of the above options could save the federal government millions in social welfare payments.

A positive example is the government spending millions to provide incentives for companies to take over a closed military base or auto plant or steel mill.  These programs will save taxpayers money as federal safety-net programs are allowed to recoup funds and people are removed from the sting of welfare.  Hud sells houses and business properties.  The city has the tax funds to repair their infrastructure.  It's a win/win.

It goes too far when one member of congress uses federal funds to take a proposed projects away from the district of one of his colleagues.  Then it simply becomes a bidding war, buying votes and everything else that is said negatively about it.  Is there a fix for this?  Yes, this is the type of problem that could be resolved with a line-item veto and someone sensible enough to use it the right way in the White House.

The bottom line is this: even though Corporate Welfare sounds bad, it can bring positive results when used correctly.  It is not Corporate Welfare or Social Welfare, it's using corporate welfare to PREVENT the use of Social Welfare.

5 Step Plan to Fix the US Economy...Step 5 Outsourcing and the Proper Example

In this presidential campaign, outsourcing has become an issue.  Why should it not be something that we speak about, many people have lost jobs to overseas competition.  Yes, Bain Capital has outsourced jobs overseas.  But the Federal Government, under the watch of President Barrack Obama has done the same.  No major large business has clean hands when it comes to sending jobs overseas, and that includes the Federal Government and many state governments as well.

Outsourcing is really importing.  Instead of importing cars, oil or other goods, we are importing white collar labor.

This blog is not against free trade, and believes that the reversal of trade agreements will not resolve the outsourcing problem.  Outsourcing is beyond costs and profits.  Let's pose a question to all of our readers, why do companies outsource?  The one obvious answer to that question is cost.  Labor costs are cheaper in overseas markets, and that is why companies outsource.  But the answer is not that simple.  It goes beyond cost.  If outsourcing is the answer to the labor costs question, why don't smaller companies do it?  In fact, if outsourcing is the answer, why not move your entire operation overseas?

According to Forbes, the number one reason, and perhaps the only reason for some companies, to outsource jobs is to open up markets for their products.  In other words, if I am Company X, and I want to sell my good and services in Renovia...then I am going to move jobs to Renovia so that barriers that the Renovian government normally puts in my way will be removed.  The number one reason why companies outsource is to remove trade barriers.

There are other reasons, besides costs, behind outsourcing.  They include the lack of labor unions in other countries, the willingness of governments to foot the costs for retraining employees, access to a younger workforce, lower health care costs, access to a specific labor pool and to avoid some of the regulation that the US government and many states have.

But there is a cycle, and eventually there will be little advantage to outsourcing other than to open up markets.  Remember Back to the Future Part 3?  There is a scene in that movie where the 1985 Marty is speaking to the 1955 Doc.  Doc says to Marty, "here is the reason why this car broke down, all of your electronic parts were made in Japan."  Marty's response is, "Doc, all of the best stuff comes from Japan."  In 2012, many of those same parts are no longer made in Japan, but in Korea, China and India.  In 2035, we may be buying electronic parts made in Costa Rica, Brazil, and Chile.

When a nation first enters the world market, it's products are of low quality and low price.  Then the quality improves, but the price remains low.  When the countries economy improves and inflates, the prices increase.  Finally, the quality decreases.  Just like we have already seen in Japan and Western Europe.  We are getting to the point where India is no longer the hot spot for outsourcing, it is being replaced by The Philippines and by Costa Rica.

Can the trend for overseas jobs be reversed?  Not completely, but it can improve for the US.  The Federal Government can take two steps in order to reverse the trend.  First, set a proper example.  Second, strengthen the US dollar.

The US government and many state governments are as guilty as Bain Capital when outsourcing work.  Very few US jobs have been directly outsourced, if more were, the AFL-CIO would raise a royal stink about it, even with Obama in the White House.  But the contractors that the US and many states hire are some of the biggest outsourcers of work.  This could be stopped with one stoke of Barack Obama's left hand.  Simply adopt a policy that disallows government contractors from outsourcing.  The reason why government contractors outsource is that they are trying to win contracts with foreign governments by showing what they can do with US taxpayer dollars.  It is completely uneccisary and it will probably backfire.  If I can outsource US government work with how strong US labor unions are, I can outsource the taxpayer dollars from other countries as well.  It is not a good practice.

The second policy that could curb outsourcing is to strengthen the US dollar.  A stronger dollar takes away some of the financial benefit for sending work overseas.  This is where US public debt, especially the debt held by overseas nations, hurts the US economy the most.  The more debt the government has, the weaker the dollar.  It's a supply and demand issue.  Dollars have to be printed when the US goes into debt, that means a higher supply of dollars.  A higher supply means a lower price.  Getting the government financial house in order will lower the supply of dollars available, and that means a higher price, or a strong dollar.  That means less incentive to outsource work and less incentive to import goods.

Taking these steps will not stop outsourcing.  There will always be the factor of opening up new markets and reaching new customers.  That factor should not be taken out of the question.  We should not attempt to stop US companies from expanding overseas.  But we can take steps to remove the cost benefit by reducing some of the financial incentives.  Our children will thank us if we do.

Step 1--Fix the corporate tax structure.
Step 2--Interest rates and lending
Step 3--Energy
Step 4--Legal Reforms
Step 5--Outsourcing