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.

The Nanny State is Hurting America

I am opposed to Nanny State policies (policies that are uninvited state intervention) it for three main reasons: it takes away personal freedoms by getting involved in areas unnecessarily, because arrogant politicians think that they can run my life better than I can and mainly, it produces no consequences.

Government Gets Involved in Areas it Does NOT Need to be:

This past week, it was announced that cigarette packs are going to have graphic pictures to deter people from smoking. Do people not know that smoking is bad for you?  What percent of smokers are going to see the picture and be shocked by the possibility of poor health caused by cigarettes?  This example shows that the government assumes that we are all 10 year olds that could be influenced by a picture.  Here are more examples of the government intervening on daily decisions:

In New York, they have talked about removing trans fats and/or salt at restaurants.  There has been talk of a “fat tax” in some places around the country, which would be a higher sales tax rate on foods that are high in fat.  Medicare recently decided to cover obesity, which mean American tax payers could be paying for obese people’s stomach stapling surgeries, diet plans, and nutritional counseling.

In San Francisco, they are looking to ban people from getting circumcised and ban gold fish ownership within city boundaries, being that it is mean to put gold fish in a bowl.

Every state but one requires you to wear a seat belt.  Every state but three requires a helmet for some or all people on a motorcycle.  In 2000, the Consumer Product Safety Commission banned a certain car seat not because it wasn’t safe, but because it was too safe and they argued it could lull parents into a false sense of security.

Many cities around the country have banned smoking in restaurants.

We have federalized airport security with TSA agents (who will be voting to unionize soon, so don’t expect that line to be moving any faster anytime soon).

We are forced to pay social security taxes, but have no say on how the money is invested (mainly because it is not invested).

Arrogant Politicians:

Why do our politicians think they know how to live our lives better than we do? Why do they think their job is to tell us what to eat or what kind of car to drive?  When I see politicians like Anthony Wiener, I wonder what makes him think he can run my life if he cannot run his own!

No Consequences:

In short, people should have the right to be stupid and the right to fail, so long as they have to face the consequences of their actions.  Right now, 49% of Americans do not pay federal income tax, many because they are “poor.” So what are the consequences of being poor right now in America, according to government reports on people classified as “poor” by the Census Bureau:

Looking above, over 50% have two or more tv’s and over 50% have cable!  I am pretty sure having cable television isn’t a right protected in the Constitution.  In a typical poor family, the family works 16 hours per week.  If they were able to move it up to 40 hours a week (or 2 parents at 20 hours each), 75% of poor children would officially move out of poverty.  Nanny State policies, although many well intentioned, have unintended negative consequences.  When an item is free that others have to pay for, more and more people will gravitate towards the free item.  Why work 40 hours when you can work 16 hours and get the rest of the money from the government?

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.

Revolutions Around the World

There are some amazing things going on right now around the world.  Young people everywhere are standing up for their rights.  President Bush once said, “I believe all these things because freedom is not America’s gift to the world, it is the Almighty God’s gift to every man and woman in this world.”  I believe people around the world have an innate longing for freedom.  They are sick of being told what to do, sick of being oppressed, and sick of not having a voice.  The big question for us is, “What is America’s role in this?”

It is very difficult to understand what we should do because truthfully we don’t know a lot about the groups that are revolting and what they stand for.  You can listen to the media, but a lot of their information has been formulated in the last few weeks as they try to figure out what’s going on over there.  From everything I have read, the only common denominator is that people in these countries were miserable and decided to demand change.

Some conservative blogs say we need to get in there and make sure we get the “right” leader.  The United States is already gearing up militarily to enforce a no fly zone in Libya.  However, no revolution will be as genuine and hold as much historical value if the revolution has a “Made in the USA” stamp on it.  Like capitalism, sometimes you have to go through some bad times to get to the good times.

So what should we do?  I think we need to be prepared to partner with any leaders that can overhaul a government and be ready to talk about democracy.  Too many times we’ve been too involved in trying to prop up the “right” leader who will work with us.  The problem is that power corrupts, so even if they are working with us, it doesn’t necessarily make them the best leader for their country (take Egypt for example).  The only thing that we can do is hope for, push for, and help promote democracies.

Imagine a radical Islamic group is part of democratic process.  As radical as they may be, as soon as they have to start negotiating with those people they disagree with, certain successions begin to happen.  People complain about our democratic system as being slow at times, but all the checks and balances prevent radicalism and promote conversation and the open discussion of ideas.

Our goal should not be to prop up the “right” leader but to promote democracy and shake the hands of those brave enough to stand up for what they believe in.  Obviously, this subject is much more confusing than this small article gives it credit, but history has taught us that we haven’t been successful when we try to prop up the “right” leader, getting involved militarily costs us a lot of money [that we don’t have], and revolutions have more impact when there is sacrifice.

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:

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.

Spending Cuts in Washington – It Has to Hurt

Really…are we still talking about the spending in Washington?  I know it is more complex than this, but essentially we are spending more than we are earning.  There is fear of a government shut down in early March because we are running out of money because Democrats aren’t willing to make tough cuts to the budget.

On February 5, 2010, I wrote an article with a catchy name, “House Raises Debt Limit” that discussed how Congress raised their debt limit to $14.3 trillion (only a year later, Democrats want to increase it again).  When Congress voted for it last year, every Republican in the House and Senate voted not to increase the debt limit in addition to the 30 Democrats in the House that didn’t want to raise the debt limit.

The Democrats had an entire year to figure out a budget that would not cause a shut down, but they refused to do so.  Instead, they decided to make Republicans offer budget cuts and then attack them for being mean or unfair.

In 2001, our debt was $5.1 trillion – in just 10 years, our government has essentially tripled our debt.  President Obama’s response – a spending freeze.  When he first got into office, he ran a massive deficit and now he wants to freeze the spending at a level that adds $trillions to our debt every year.

Looking at our budget, 63% of our budget is Medicare, Social Security, and Defense.  Even if our government cut all discretionary spending, with the increases in Medicare and Social Security alone, by 2020 we’d still have a $600 billion annual budget shortfall.

The government has to attack all areas, but no one wants to make cuts.  Agriculture wants to keep up their subsidies, Education always says they need more money, Social Security doesn’t want to stop paying people, and the list goes on.  Spending cuts are not going to be easy – you know we are going down the right path when the spending cuts hurt because to get down to where we need to be, it is going to have to hurt!

How Should People Be Taxed?

In my last blog posting, “The Struggles of Cutting the Budget,” I had someone ask if I supported fair tax.  Because I want my conservative blog to be about answers and not just complaining about our political system, I thought I would write a post about it.  In short, I support the concept of a fair tax, but there are some cons to consider.  My overall tax solution is one that you do not hear many people talking about.

Essentially, if the United States were to adopt a fair tax, it would eliminate income tax and implement a national sales tax.  The idea is that it would be more fair because everyone would pay the same rate vs. our current progressive system.  Wealthy people would still end up paying more taxes, presuming they bought more.

There are four main benefits in my mind:

• Simplicity – our tax code is literally thousands of pages.  The fair tax would get rid of that big book, as well as get rid of loop holes.
• Fair – I do believe it would be more fair to tax people through consumption rather than through earning.  Further, this way EVERYONE is paying taxes (including illegals) vs. 49% of citizens not paying income tax in 2010.
• Incentive – currently, there is a disincentive in our tax system to make money.
• Less Corruption – our current tax system is convoluted, giving certain incentives to certain classes of citizens.

However, there are a few things that would have to be considered:

• How do you motivate people to give to non-profits?  I personally would like to see less money spent on social programs and trust non-profits to do the social work, but a lot of charitable giving is because of the tax incentives that come with it.
• At what point is the sales tax (fair tax) so high that it deters buying?  Right now, the sales tax would have to be around 30-35% to account for all of our spending.  Imagine paying 30-35% tax on a car in addition to the state and local sales tax?
• What would happen to the large industry of accountants that do people’s taxes?  I am okay getting rid of the IRS jobs, but there are a lot of people who would lose their jobs with the new tax system and I believe we would have to consider them.

So what is the solution?  I believe there should be a hybrid of the fair tax and the flat tax.  A flat tax rate would be one straight income tax rate vs. the progressive tax rate.  I believe we’d earn the same revenue as today if we had a flat tax rate of 17% because 49% of Americans that don’t pay income taxes would then have to pay.

I would have to do the math, but the hybrid would be a flat tax rate (income tax) of roughly 8-10% and a fair tax rate (sales tax) of roughly 10%.  This would allow us to give incentives for non-profits through the flat tax, it would be a minimal payment for those that poor, it would be a low enough fair tax so as not to deter purchasing items, and it would remain fair and easy to understand.

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.