Obama’s New Tax Increase

Obama has tried numerous strategies to try to gain favor and/or bad mouth Mitt Romney in the past months.  It is has been mildly impressive that they have a new attack every week that is completely random, usually not true, but very distracting.  However, last week President Obama got back on what appears to be one of his key messages, that the rich people need to pay their “fair share” and actually presented a policy stance: raising taxes on the “wealthy.”

President Obama said that the Bush tax cuts need to expire for those making more than $250,000 for couples and $200,000 for individuals.  His proposal is a one year extension, just enough to get him through the election.  One of his main arguments was that he wants to return to the same tax rates as the Clinton era.

However, in 2001 (Clinton’s last year as President), the federal budget was $1.9 trillion.  In 2011, President Obama’s federal spending was $3.6 trillion.  In ten years, our government has nearly doubled in size and the President’s tax plan does not get us close to a balanced budget.  Further, I feel his tax plan of increasing taxes on small businesses will be a job killer.  A small tax increase can take away the revenue needed to pay someone’s salary.

The Republicans and Mitt Romney argue that tax cuts are the key to recovery, based on what Reagan did.  The reason it worked for Reagan is that he brought tax rates down by over 40 percentage points, which is a big change that did spur economic growth.  However, all of the Republican proposals I have seen have been less than 5% points, which will not be significant enough to catapult our economy.  As much as I believe in tax cuts, we need to get our spending house in order before we get too aggressive with cuts.  If we cut taxes too much before reducing spending, it could hurt our deficit so much, that it will slow economic growth instead of spur it.

As I have always said, this blog is about solutions.  There are a lot of things I would do such as repeal Obamacare and cut spending drastically.  However, I would go after two things first that are a little less political and could have the biggest initial impact for our economy.  The first thing we need to do is gain some stability, so I would try to get permanent income tax rates versus continually extending Bush tax cuts one year at a time.  Permanency gives stability to small businesses, thus allowing them to plan and hire.  Because this would not be easy, here’s my compromise: make the Bush tax rates permanent, but close loop holes.  The rates keep taxes low, but closing loop holes increases revenues, making both parties happy.  While Republicans may argue that closing loop holes are a net tax increase, I have a different opinion altogether.  Loop holes are, in my mind, unintended tax breaks that lawyers took advantage of, which is not congruent with the original intent of Congress when the code was created.

The second thing I would do is permanently cut the corporate tax rate in half.  Right now, the United States has the highest corporate tax in the world.  Our corporate tax revenue is only 8% of the U.S. total revenues (approx. $180 billion), so it’s impact financially for the government would be small, but the impact for the businesses would be large.  Cutting the rate in half does three key things:

  • It reduces the cost of doing business in the United States, helping jobs come back home from overseas.
  • It increases the ability to hire people and reduce unemployment.  Further, when the money goes to individuals’ income vs. corporate income, it will still be taxed, thus roughly breaking even on net revenue.
  • Last, this concentrated radical change would be just big enough to spur change in our economy.  The tax cut would essentially increase the profitability of every corporation in the United States and help the stock market as well.

The key to problem solving is to start with high impact, low effort solutions (i.e. my two ideas).  Afterwards, you look for high impact, high effort solutions (i.e. solving social security and healthcare).  The two simple ideas I proposed would be easy to understand, quickly implemented, and highly effective in spurring economic growth.

How Republicans Win 2012 – Options

For my 100th blog post,  I decided to let you in on how the Republicans can create a strategy that will improve our system and economy, resonate with voters, and defend against Democrats.  It all comes down to one thing, giving citizens options.

I love having options, it is essentially a form of freedom.  I believe Republicans need to develop programs where people can choose between the current system and a new system.  Giving citizens the option between old and new eliminates the fear of the new.  Further, Democrat’s entire election campaign is around generating a fear of the Republicans.  For example, they have commercials of a Paul Ryan looking figure pushing granny off the cliff.  Just this past weekend, David Axelrod labeled Republicans a “reign of terror.”

I want to give a you few examples of options:

  • Social Security –> the Chilean model essentially privatizes gains and socializes loses.  Basically, people would be given the option to stay with the current system or invest a portion of their social security dollars (instead of paying the full tax) to a private investment.  If the private investment does not meet the payout they would have received with the government social security check, they are paid the difference by the government.  It benefits the citizen because people typically get paid more privately than with social security, less money is paid out to citizens because their investments worked, preventing the system from going bankrupt, and there are still people paying in for those who want to stay on today’s version of social security.
  • Medicare –> Did you know it is cheaper for us to pay citizens about $15,000/yr. for them to get their own private insurance than it is for them to be on medicare?  If we give people the option to do the private version, we would save money, even if only 10% did it.  Further, insurance is all about risk for the insurance companies.  If they have a larger pool of people paying in, it reduces the risk for them, increasing their ability to make insurance more affordable..
  • Tax Code –> What if we had the ability to choose between the current tax code and paying a straight 20% of earned income without any deductions? If I had the option of paying a straight 20% instead of going through the confusion of our current model, I’d probably choose the easy path.

Obviously, the examples I gave are extremely complicated.  However, I wanted to illustrate some ways that we could create platforms that provide options.

I believe Republicans are trying to convince the American people that we need massive changes.  However, people do not like change, especially big change.  The public opinion of an entire nation cannot turn like a speed boat, it is more like a massive air craft carrier that takes miles to slowly turn around.  By offering options, it allows people time to get comfortable with big ideas.  The great thing about the private options presented is they will naturally become popular because they will typically put more money in people’s pockets.

Romney and Republicans need to market options more than the big ideas.  They need to tell Democrats, “If you like the current system, keep it.  Meanwhile, us 50% of Americans (the Republicans) will take the private options, make more money, and help cut the national budget.  You’re welcome Democrats…you’re welcome!”

Debt Ceiling Increased – the Wins and Opportunities of the Bill

The House and Senate have voted to increase the debt ceiling.  The bill that passed was definitely a compromise. Before I get into the wins and opportunities of the bill, let me just take a second to clarify what is worst about the outcome of this bill and what the democrats stood for in this debate.

The saddest thing about this deal is that we could have saved trillions of dollars against the baseline by simply freezing our budget. Instead, they assume about a 7.5% annual budget increase and their “cuts” are against the 7.5 increase baseline.  As my father said once, “you can never ‘save’ money when you are spending it.”  If you buy a $100 sweater for $75, you did not save $25, you spent $75.  You may have paid $25 less than the proposed value, but you still spent $75.  The United States may have ‘saved’ a few trillion dollars in this debt deal, but they are still spending many more trillions!

The democrats did not support balancing the budget, they wanted to increase the debt limit with no restrictions. People may think I am mean because I am a republican who wants big budget cuts, but I’d rather be mean than reckless.  Democrats ASSUME that we will always be able to borrow money, but would you borrow to someone that owed over $14 trillion and was borrowing roughly $100 billion more every month?  Do you really feel like someone in that much debt is going to pay off their debt?

The reason our credit rating is potentially going down is because we are not a great investment and it does not appear that we are going to pay our debts back.  Our economy grew 0.4% last quarter.  That is not the kind of return you are looking for as an investor.  Russia’s leader called the United States a parasite on the world economy today.  If countries stop borrowing to us, we’ll either have to stop paying for medicare and social security, because we will not be able to afford it, or we’ll have to print money and have massive inflation.  I feel the RESPONSIBLE thing to do is to make the tough decisions now, to avoid a crisis tomorrow.  Wouldn’t you rather see someone get 90% of medicare for the rest of their life than 100% for two years and then 0% afterwards?  I am not mean, I care about those people that are relying on a promise that may not be kept.

Hopefully this debt deal is a really small step in the right direction.  Below are some of the wins and opportunities of the bill.

Major Wins:

  • America did not default on paying the bills.
  • There were no tax increases.
  • President Obama did not get a blank check.
  • There are some measures in place to look for more cuts.
  • There will be a vote for a balanced budget amendment (which was previously tabled by Senate democrats).
Major Opportunities:
  • The cuts weren’t large enough – from what I read, there will only be $7 billion in cuts in 2012 and $3 billion in cuts in 2013 (less than 0.1% of the budget).  I could cut that in the blink of an eye and no one would even notice!
  • The debt ceiling increase was one of the largest, if not, the largest in United States history.
  • President Obama will not have to talk about it again before the next election because of the large increase to the ceiling.
  • Spending is still increasing, as was explained earlier.
  • There was no transformation on the way Washington works or views taxation and spending.
  • We are still the laughing stock of the world (seriously think about watching this from the outside – we are a smart nation who has elected leaders that do not believe in having a balanced budget, despite massive debt!).  They are looking at us like I look at Greece!
The Tea Party did some great things to make this an issue.  The Republicans were in a tough spot and because of their commitment to their beliefs, the democrats knew they had to give in if they were ever going to pass a bill.  So, it was the convictions and principals of  the tea party candidates that made this a better deal, not their politics.  The deal is not even close to perfect, but I hope all of the attention on the debt ceiling puts pressure on candidates in the fall of 2012 to pledge that they will balance the budget.

How’d We Get into this Budget Mess?

Making a budget is kind of like trying to lose weight.  If you have ever tried to lose weight, you will find there are a million ways to do so.  You can try this work out or that, this diet or that, or this tool (such as a lap band) or that.  Because all these different options make different people money, the options become more complex.  However, the equation is pretty easy: if you burn more calories than you eat, you’ll lose weight.

Just as money confuses losing weight, politics/power ruin efficient and effective government in Washington.  Government budgets are easy – spend less than you receive.  There are a lot of ways to do that, but we’re still not there.  Instead, games have been played by the Democrats to force Republicans to make the cuts so the Democrats can brand them as the bad guys and try to keep the power through irresponsible governing, inaction, and deceit.

Luckily, there are conservative blogs like this one that tell you the real story about the budget!

Let me walk you through how we got into this budget mess:

  • Federal Gov’t’s fiscal year is October-September.  Last year, the Democrats (who owned the House, Senate, and Presidency) did not pass a budget before the year started.
  • After Democrats lost the election, they passed a budget during the lame duck session (time between election and when election winners take office in January), but the budget was only to last until March 8.
  • When Republicans took over the House, they passed their own budget for the rest of the year that had $61 billion in cuts to discretionary spending (which had seen an 83% increase under Obama).
  • The Senate is supposed to either pass it or pass their version of it and send it back to the House (to begin the negotiating process).  After about 1.5 months, the Senate didn’t pass anything.
  • Approaching a deadline, Republicans in the House extended the budget for another two weeks to give Democrats time to either pass their budget or create their own budget.
  • The Republicans made an offer, but Democrats didn’t like it.
  • President Obama sends VP Biden to met with the House leadership – Biden has one meeting and then leaves the country for two weeks.
  • Approaching another deadline, the Republicans extend the budget another 3 weeks.
  • This Friday, we are now facing yet another deadline and the Democrats still haven’t proposed anything.  There is even Democrat leaders on record saying they are hoping for a shut down to make Republicans look bad.
  • On Tuesday, President Obama had one meeting to discuss the budget and then he left town.
  • Today (Wednesday), most likely bothered by the bad press, President Obama decided to come back and now had another meeting tonight.  Earliest reports indicate they didn’t reach a decision and are talking about another extension to give them more time to figure out the budget.

A few facts to think about:

  • Republicans’ $61 billion in cuts proposal in a $3.5 trillion budget is about 1.7% of the budget.
  • The $3.5 trillion budget has a $1.65 trillion deficit – $61 billion is about 3.7% of just the annual deficit.
  • It took 3 deadlines before President Obama decided to step in.

Democrats have had every opportunity to make a budget and they have not.  If there is a shut down, it is the Democrats fault.  It is amazing that the Democrats still own the Senate and the White House and we don’t know their plan.  Even more amazing is that instead of the Senate passing their own version and starting the debate publicly, 3 people (Obama, Boehner, and Reid) have to sit in private to negotiate a $3.5 trillion budget.  Where are the elected officials from other states?

On the bright side, although the Democrats did not pass a budget on time last year, Republican Paul Ryan has already proposed a budget for next year that actually tries to curb spending.  I am still waiting to hear a real Democrat plan…if they have one.

Spending Cuts in Washington – It Has to Hurt – Part 2

My last article talked about why we need to make cuts that hurt.  This article takes another look closer at where the revenue comes from and how our government spends their money.  When you want to solve a problem, the first step is to figure out the “as-is.”  In short, understand the situation and the problem before you make decisions based on feelings rather than factual information.

I want to show you where we get our money from and how we spend it:

File:U.S. Federal Receipts - FY 2007.png

File:U.S. Federal Spending - FY 2007.png

What you need to know:

  • In 2010, our government spent $3.456 trillion and had $2.162 trillion in revenue, creating a $1.294 trillion deficit.
  • To break even, we would’ve had to reduce our spending by 37% or increase our revenue (taxes) by 60%!
  • Social Security/Social Insurance revenue is $865 billion and spending on Social Security/Medicare/Medicaid is $1.494 trillion, creating a $629 billion shortfall in those few programs alone.
  • Medicare/Medicaid spending in 2007 was $599 billion and in 2010, it was $793 billion, a $194 billion (32%) increase in just 3 years.
  • When Social Security started, there were roughly 30 employees for every retiree, and now there is approximately 2 employees for every retiree, creating budget shortfalls.

Now that you understand the problem a little bit more, do you believe President Obama’s spending freeze is going balance our budget?  Even if we froze our discretionary spending, the increases in Medicare/Medicaid alone are going to bankrupt us.

As you look for 2012 Presidential and Congressional candidates, look for those people that are saying outrageous things because they are probably the ones that really get it.

The Struggles of Cutting the Budget

Talk to anyone and they say, “We need to cut spending!”  If everyone agrees, why doesn’t it happen?  I believe it is a struggle to cut the budget because our governmental system has compartmentalized our citizenry.

When our government started, it was simple.  Tax revenue went towards things like roads, standing army, police, and a judicial system.  All of these benefits were accessible to all citizens equally.  Everyone could use the roads, was protected by the army and police, and got a fair day in court.  Now, however, there are numerous entitlement programs and tax incentives for various groups.

Over time, our politicians have tried to protect/bribe different classes of people.  If you earn a lower income, you don’t have to pay taxes and you get welfare.  Elderly citizens get social security.  If you own a business, you get to write off a ton of expenses.  If you are married, you get an extra tax break.  If your income is from capital investments rather than a paycheck, you pay less taxes.  There are many little discrepancies in our confusing budget and tax system.

Have you ever noticed that the debates are seldom on whether we should cut or raise the budget or taxes?  Rather, they debate on who should get the budgetary cut or who should get the raise in taxes.  The reason it is tough to cut the budget is because you have to single out a certain group to reduce the budget.  That group will then say that they are being “targeted” or that it is “unfair.”

If Republicans try to cut welfare, Democrats say they are being mean to the poor.  If Republicans try to cut Social Security, Democrats say they are mean to the elderly.  Because politicians are more concerned with getting re-elected, it is not worth it for them to single out a big class of people.

Further, this compartmentalizing has trained people to vote for the person that is going to get them the most stuff.  Did you know that 40% of adults last year did not pay income tax?  Why would those citizens vote for a candidate that is going to make them pay taxes?

I do not believe politicians should have the moral authority to determine which class of people deserve extra benefits and which ones do not.  I do not believe that our government system was based on treating everyone different, but rather treating everyone fairly and equally under the law.  I do not believe these things because I want to protect the “rich,” but because I want to protect everyone from an unfair system that will ultimately hurt the entire citizenry of the United States.

In the next session of Congress, don’t listen to the lies and politics.  Be understanding that tough decisions are going to have to be made and certain groups may have to take more of a hit because of our current system.  Continue to vote for the conservative candidates that wish to make our government simpler and smaller.

2010 Election – One for the History Books

Many conservative blogs are going on about the Republican’s victory in the 2010 elections.  I completely understand the excitement and am pretty excited myself.  However, I want to focus more holistically on the four things that I feel really matter in elections: the people, the ideas, the results, and the warning.

The People: The best thing about democracy is that the power is really in the people’s hands.  Government has gotten out of hand but through the political process, the people stood up against the government and won.  People sometimes forget what an awesome right it is to be able to be involved politically.  In this election, the people did not like what they were seeing from their elected officials and fired many of them!  In this blog, I have said repeatedly, get involved, talk about politics at the family dinner, talk to your neighbors, co-workers…people did start talking and their voices were heard.

The Ideas: Before the election results were in, conservatives had already won the election.  It was funny to watch many democrats that voted for Healthcare talk about how much they hated the bill, or see all of them try to distance themselves from Pelosi or Obama.  Regardless of who won the election, all candidates were trying to run on conservative principles – decrease spending, keep the Bush tax cuts, lower the deficit, etc.  In this, conservatives and ultimately, Americans, won long before the election results.

The Results: It was a historic election as far as results go.

  • U.S. House: Republicans picked up at least 60 seats (potentially 63 or 64 after recounts), the biggest gain since 1938.
  • U.S. Senate: Republicans picked up 6 seats
  • State Legislatures: Republicans picked up at least 19 chambers (some votes are still being tallied – could be as high as 23) – Republicans have the most state seats since 1928 (according to NCSL).
  • Governors: Republicans picked up at least 10 governor seats.  There are still some states that are undecided.

The Warning: In the United States, the political pendulum swings left to right, left to right.  There are two popular sayings about power: “Power Corrupts,” and “With great power comes great responsibility.”  It would seem that the only ideology used in Washington is, “Power Corrupts,” because every time a political party gets control, they think the citizens of the United States have given them to green light to be reckless and do whatever they like.  Republicans must act responsibly that the great citizens of the United States have given them.

The Republicans took a positive first step with new House Speaker John Boehner’s address after the big Republican win, stating “Because we are humbled by the trust that the American people have placed in us, and we recognize that with this trust comes the responsibility to listen, and listen we will.  Let’s start right now by recognizing that this is not a time for celebration, it’s a time to roll up our sleeves and go to work.  We can celebrate when small businesses begin hiring again, …”  The Republicans must do what they have been asked to do: reduce spending, reduce the deficit, and create a friendly environment for businesses to succeed (and thus, create jobs and boost the economy).  IF they try to complicate their message or their actions, the pendulum will just keep swinging until a party does act responsibly.

For now, I feel this is a victory for America…only time will tell if I am correct.

House Increases Debt Limit

Today, the House voted to raise the debt limit by $1.9 trillion, up to $14.3 trillion.  In other words, Congress is saying, “It is okay for us to go into debt, so long as it isn’t more than $14.3 trillion.”  I, along with many Americans, am not comfortable with that kind of debt!  Our debt in 2001 was $5.7 trillion, but has increased due to massive spending by the Bush and Obama administrations.  Yes, BOTH parties are at fault in this case.

I am extremely proud of the Republicans on this issue because when the Senate passed the bill in mid-January, the vote was 60-40 with every Republican voting against it.  When it passed today in the House, the vote was 217-212 with every Republican voting against it along with 30+ Democrats.  For the Republicans to truly be the party of fiscal discipline, they need to walk the walk and have done so on this bill.

The main idea is that once we hit our upper threshold, they will have “PAYGO” rules where any legislation they pass would have to be budget neutral.  I like this concept in that it prevents deficit spending; however, the risk is if you are at the ceiling and want to implement tax cuts and do not have a Congress willing to cut spending, you will not get a tax cut.

Democrats who passed this bill stated that they needed to increase the debt limit so they could pay for Social Security and Medicare.  Instead of hitting their current limit and using “PAYGO” rules, they just increased the debt limit (the easy way out).  I did want to acknowledge that Obama’s budget does contain cuts, terminations, or reductions to 126 programs, mainly in arts and museums.  However, with his budget proposals producing deficits in the trillions, we have a long ways to go.

With our overall debt so high, tax increases are not going to catch us up quick enough (so don’t buy that rhetoric).  We need to drastically cut spending, so that we have surpluses every year to cut down our debt.

Truly Out-of-Control Spending

President Obama is now proposing $3.8 Trillion in spending for his 2011 budget.  We are currently projected at a $1.6 trillion deficit for this fiscal year and $1.3 trillion for 2011.  Many have been upset with the out-of-control spending by the Obama administration so far.  Obama tried to address critics of his proposed budget by announcing there would be a spending freeze on a portion of the budget.

President Obama’s plan puts a 3 year freeze on discretionary spending, but is that enough?  The freeze would essentially cover about $15 billion per year, which is about 4% of the budget.  Net-net, the budget is not frozen at all and this is essentially just for show.

The freeze does not include defense, national security, social security, medicare, and medicaid (the fastest areas of growth in the budget).  Minnesota Governor Tim Pawlenty stated this about Obama’s spending freeze: “It’s kind of like somebody eating three Big Macs and then deciding they are going to control their weight by ordering a diet coke.”

I like a freeze vs. increased spending; however, I am typically against a spending freeze because it does not involve the government asking, “What areas are we wasting money?”  It is a temporary political tactic to get people to feel good about the budget. Freezing implies that there is no area that can be cut or more productive.  I believe freezing the budget is cowardly, especially when Obama is only freezing a little area.

Many do not remember this, but when Obama was beginning to campaign for president, he was able to make all of these promises because he was going to raise capital gains taxes, corporate taxes, and taxes on the rich.  However, then the economy tanked and raising capital gains and corporate taxes would be economic and political suicide.  So, President Obama has decided to go forward with his spending spree without the additional revenue, putting us deep into debt!

Deficit, Deficit, Deficit, …

The Obama administration recently elevated their projected deficit for 2019 from $7.108 trillion to roughly $9 trillion.  Yes, they were off by about $2 trillion.  The root cause was the recession taking longer than planned leading to decreased revenue due to job loss, etc. that comes with the recession, and the low expectations for economic recovery after the recession.

The federal deficit this year alone will be an estimated $1.158 trillion ($3.653 trillion spent minus $2.074 trillion in revenue).  Bush also had a deficit last year (so it is a problem for both sides), although it was about three times less than it will be this year.

Also, our debt is at $11.7 trillion – the difference between debt and deficit is that our debt adds in our past debts, while our deficit only looks at current book-keeping.  So, the $9 trillion projected deficit is assuming that based our current spending patterns and revenue coming in, we will spend more per year than revenue coming in, that will add up to $9 trillion in the next 10 years.  Our public debt is projected to reach $17.5 trillion by 2019.

This is important to understand because the bigger our debt gets, the larger our interest payments become.  Look for Congress to do one of a couple things: increase spending and taxes, raise taxes while cutting spending, lower taxes while cutting spending.

My guess is that they will continue to raise taxes because they’ll use the deficit as an excuse.  While it may sound risky, I hope they lower taxes and cut spending.  If history has taught us anything is that it worked with Ronald Reagan.  Either way, this has to be a focus of our politicians.  If your politician is not talking about his or her plan for the deficit in the next election, call him or her out on it!  Reducing our deficit will increase the value of your dollar, which is good for our economy, your retirement, and foreign vacations!!!