Tuesday, March 31, 2009

“Fat, Drunk and Stupid Is No Way to Go Through Life, America!”

Between 30-65% of the cost of health care in America would disappear today if we had all heeded the admonitions of the esteemed and venerated Vernon Wormer, Dean of Faber College in 1978.

Not that any of us actually graduated from Faber College…we have just seen “Animal House” so many times that we think we did.

Two of the leading authorities in health care confirmed to me during my days in Washington that anywhere between 30% and 65% of all health care expenses in America today can be attributed to 4 things we Americans are doing to kill ourselves:

1. Over-eating
2. Smoking
3. Drinking too much
4. Not getting enough exercise

Let’s see…just 50% would be approximately $1 Trillion of annual savings in the national health care economy. 50% savings from the costs of Medicare and Medicaid would be approximately $300 billion saved in the federal budget this year alone.

Deficit? What deficit? In a ‘normal’ year, $300 Billion in budget savings would be enough to throw us into a budget surplus.

Dean Wormer had it right on target. 66% of us are now considered overweight, obese or “morbidly obese”, the highest in recorded history. We all know smoking is not a ‘health food’. Drinking too many alcoholic drinks every day can pickle your liver like a…well, like a pickle, come to think of it. And, if we did not have a remote control for our 72” plasma HDTV, we would at least get some exercise getting off the couch to change the channel every now and then and leave the Cheetos and Krispy Kremes behind.

Here is what the doctors tell us all of these bad habits cause: 1) high-blood pressure; 2) diabetes; 3) heart attack; 4) stroke; and 5) cancer. That is a ‘Murderer’s Row’, if ever there was one.

What does this mean to you as an American taxpayer? It means that you are subsidizing the poor eating, drinking, smoking and living habits of the entire nation, including yourself, unless you are in perfect health and don’t have any vices.

Although remember what Mark Twain once said: “I have not a particle of confidence in a man who has no redeeming vices.”

What we have done with our health care system in America today is no different than what Wall Street has done to us lately. We have ‘privatized’ the upside fun of eating, drinking and smoking too much (“It is my individual right to do so!”) but we have ‘socialized” the cost of paying for all of the expensive, mind-boggling modern science procedures to “the rest of us”.

To use a NASCAR analogy, it is sort of like driving your car around the track in a reckless fashion only because you know someone else in the stands will pay for the repair job, not you or your crew team.

Whether it is through federal programs such as Medicare or Medicaid or through the private health insurance system, we are all paying for the poor eating and living habits of way too many Americans nowadays.

Would it be so hard and too difficult of a sacrifice that we could return to the days where we were all conscientious and responsible about taking care of our own health first and then use the hospital system only when absolutely necessary?

If we don’t, then we are heading towards a time when geometrical growth in the cost of health care in general, and in Medicare and Medicaid in particular, are going to bankrupt us as a nation. This eventuality will put the current financial bankruptcy on Wall Street to shame.

And then Dean Wormer’s final admonition to Flounder that “being stupid is no way to go through life, son!” will have been proven by America on the international stage for all to see and for history to read about. (see 'Animal House')

Friday, March 27, 2009

Waddya Mean "I Am Not Going to Get My Social Security Benefits When I Turn 65?”

Even though many people continue to defend age 65 as the Holy Grail of retirement eligibility for Social Security and tell you that 'any politician who dares to touch it will die!', the threshold has already been crossed and is now going up even as you read these words.

If you were born after the year 1938, you are going be older than age 65 to qualify for full Social Security (SS) benefits. It is now just a question of: "How much older?"

If you were born before 1938, you can sit this one out, please…you are safe and don’t have to even think about this ever again. Let the Baby-Boomers fight this one out since that is one thing we are really good at.

Senior Citizens of today, this is not your fight.

In 1983, a very clever, well-intentioned bill was passed in order to ‘Save Social Security’. President Ronald Reagan signed it; Democrat Senator Daniel Patrick Moynihan of New York advocated for it strongly and Senator Bob Dole of Kansas helped push it through. Truly a bi-partisan effort, if there ever was one.

A provisional ‘time-bomb’ was inserted in the bill to start increasing the retirement age eligibility for full benefits to begin in 2004. And to think that no one believes Congress can perform some long-term planning! 21 years into the future, even!

The thought then, which has only been exacerbated today by our increased longevity expectations, was that the retirement age had to go up or else SS would go broke again in a matter of a few decades. We are told that Social Security is ‘actuarily sound’ until the latter part of this century. However, that is not the problem. The problem is that when Social Security is combined with its entitlement cousin, Medicare, those two programs are going to eat up every available tax dollar sent to Washington in the year 2040.

With net interest and Medicaid thrown in, all four massive programs consume the entire revenue pie by the year 2024 or so, just 15 years from now.

Put that into your own personal time frame to see how short of period that is really. You might have: 1) teenagers in your household; 2) kids going to college; 3) kids getting married; 4) grandchildren on the way or 5) you won’t be buying green bananas any longer…take your choice of life situations.

Anyway, in 2004, you had to be age 65 plus 2 months to be eligible for full benefits. In 2005, 65+ 4 months; 2006, 65+ 6 months; 2007, 65+ 8 months; 2009, 65+ 10 months and now in 2009, 65+ 12 months or 66 years of age. If you were born in 1943, you are in the first age cohort to have to be fully 66 years of age to qualify for full SS benefits.

So we have already torn down the Berlin Wall of Age 65 and no one seems to have been too upset about it…yet.

Remember, nothing has changed at all for the eligibility age for Medicare. It is decoupled from the age escalation in SS and remains at 65. Or else any other potential savings would be absolutely stratospheric.

And then the age for SS stays there at age 66 for the next ten years for some reason, let’s call it a “66-year old plateau”. It can and should continue to go up in this interregnum in 2-month increments as it has been for the past 6 years. This is where we can get some significant future savings if we accelerate the increase in retirement age.

And then possibly keep on going until it hits age 72…each month it goes up saves millions and then billions and then trillions of tax and/or debt exposure for your kids and grandkids and beyond.

You still qualify for so-called “early’ benefits at age 62, but at a much lower rate than if you wait until age 66.

(Here comes another ‘notch baby’ issue for those of you who are familiar with that interesting quirk of SS history) This early retirement age has to be increased as well in conjunction with the full retirement age going up or else we won’t save much money because everyone will opt for early retirement.

Why? Because you just never really know when your number comes up, now do you?.

The CBO does not offer hard-and-fast budget estimates past a 10-year time window but they do estimate that the net effect of raising the normal retirement age on a stepped-up basis would save the federal budget approximately 1% of GDP by the year 2050. They also estimate that it could save up to 20% of the total expected cost of the entire SS program alone by 2075.

The expected 2050 GDP, assuming we have fixed the banking system by then, could be anywhere from $35-40 trillion, depending on the continued capacity of the American economy to innovate, grow and thrive. A 1% GDP savings due to a higher SS retirement age would save close to $400 billion to the US budget alone. A 3% GDP savings would be over $1 trillion less that would have to collected in taxes and spent at that time.

It is either accelerate the rise in retirement age eligibility or have your kids pay roughly 40% more in payroll taxes for the rest of their lives, which I doubt they will tolerate very long as an active voting age generation.

Or, one other alternative that no one has really talked about yet is that through some sort of natural law, Malthusian population control mechanism, we all just happen to die the day before we are eligible for full, or early, SS retirement. In which case, all future debt obligations and pressures on our kids from SS and Medicare would evaporate overnight.

“I think I will take the higher retirement age behind Door #1, please, Monty!”[1]

[1] Tribute to one of the all-time great games shows in television history, “Let’s Make a Deal!”, hosted by Monty Hall.

Thursday, March 26, 2009

“Making the World 'Safe' for Tax Increases?”

“The task of those who genuinely care about deficits is to make the world safe for tax increases.” E.J. Dionne, Washington Post, 3/26/09

This statement, quite honestly, is one of the more inane comments by anyone who has ever written about, covered or thought about the U.S. federal budget.

And E.J. Dionne is supposedly a great guy and a smart and diligent writer for the Washington Post.

It comes across as a statement from someone who has never read the entire federal budget stem-to-stern; has never sat in hundreds of budget hearings; has not listened to or read testimony or seen any long-term charts; and someone who clearly has a bent to never cut any spending program and would rather raise taxes because “it is so much easier to do.”

Raising taxes is not easier to do than cut spending and it won’t solve any of the deficit-spending problem.

The truth of the matter, ladies and gentlemen, is as follows:

1. You could take a very sharp ax and chop the 1500-page federal budget book in half and keep the top part, throw away the bottom half and run the government pretty effectively. It would still be a $1.75 Trillion budget for FY2010.

2. We are never going to collect any more than an average of 18.3% of GDP in all taxes paid to Washington, D.C. In some good economic years, it might approach 20.5%; in bad economic times like today, we are going to be lucky to collect 16% of GDP in all forms of taxes: income, payroll, excise and capital gains (not many of those this time around, now is there?)

What the Big Government/Nanny State crowd always forgets is this very important and critical fact: The U.S. of A. basically has a “volunteer” tax code, not unlike the ‘volunteer’ army and navy we now have in place.

If you don’t want to serve in the military, you don’t have to.

If you don’t want to pay taxes to the extent Mr. Dionne or President Obama or Vice President Joe Biden thinks you should, bottom line is that you really don’t have to.

The truth of the matter is that we have over 140 million tax returns filed each year. Close to 50 million of those do not pay any federal income tax any more so 90 million actually do. Out of those 90 million income tax-paying returns, less than 1% of them are audited each year, mostly from very high net income wage-earners who file by themselves without the aid of a professional tax accountant (how they do it, I do not know)

The IRS can never, repeat NEVER!, have enough people and resources to audit every single tax return every single year. Maybe 900,000 people will be audited this year and a small percentage of them will be socked with a major fine or tax hit when all is said and done.

The only question every taxpayer would then have to answer each year would come from Clint Eastwood’s character, Harry Callahan, who memorably said in the movie, “Dirty Harry”: "You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya, punk?"

So, basically, the US government is dependent upon the faith, trust or fear of every taxpayer to pay what the government has decided is their “fair share”. Most of the US citizenry is compliant and docile enough to just let their companies quietly claim their withholding every other week from their paychecks and surreptiously deduct the onerous-sounding “FICA” taxes with nary a thought of fear of being audited by the dreaded IRS.

What would happen if every American decided to increase their deductions to say, 50, and then choose to make a one-time, lump-sum tax payment on April 15 each year? The government could never make sure everyone paid what they thought was owed to Washington.

But a person who is making over $100,000, $250,000 per year, and most certainly over $1 million per year in earned income and investments, these people basically can “choose” how much they want to send to the government each year, regardless of what President Obama and Veep Joe Biden think they “should” be sending to Washington. These people can afford to pay very well-trained and excellent tax attorneys and accountants sufficiently high fees to help minimize their tax exposure to a level they consider ‘fair’ to pay, not the federal government.

The top 1% of the individual income wage-earners already pay over 40% of the entire income tax as it is now. If someone who is very wealthy does not want to hide or shelter any income and just wants to pay the whole tariff without question, they are free to do that. But they won't get any credit from anyone for doing it either....they are just 'lazy, rich people' in the minds of many.

My father knew a guy who made $10 million selling a company that made railroad cars back in the 1970s and when he asked this guy what he did with all that money, which was really big at the time, he said:: “It is all in municipal bonds, earning tax-free interest”. When my dad asked him why, he said: “Because that way I know that the federal government will never be able to get their hands on any of my money ever again!”

So there is a very simple way for the wealthy to shield their income from Messrs. Dionne, Obama and Biden, assuming anyone can find a safe municipal bond to invest in nowadays with rumors abounding that they are the next shoe to drop in this economic downdraft.

The takeaway point is this: Even if the dreamy-eyed apologists for the Nanny State such as Mr. Dionne want to “make the world safe for tax increases (from you!)”, it will not solve our spending problems! We are spending money right and left that we do not have!

To solve our spending problems, we have to stop spending more money! How much more simply can it be stated?

Tuesday, March 24, 2009

“You Say You Want a Revolution? Well, You Know, We All Want to Save the World!”

If you are a member of the Great Baby-Boom Generation, you surely recognize these lyrics from The Beatles song, "Revolution".

Here is your first chance to help “Save the Republic”, at least, in terms of alleviating the future crushing burden of debt we are now laying upon our children and grandchildren.

Tell your Member of Congress and both U.S. Senators that you are willing to work past the age of 65 before you are eligible to qualify for full Social Security and Medicare benefits.

After all, you are probably going to have to work a couple of years more anyway to rebuild your retirement funds after the market debacle of the past 2 years.

This one act of noble and genuine sacrifice, this one statement of selfless behavior on the part of every American below the age of 63 today, will do more to help save the future of the American Republic than any other gesture you can do right now in our history.

It will help save your children and grandchildren trillions of dollars in future obligations that will mean their debt and tax burdens will be greatly reduced.

Here’s the great thing about it: The upward revision in the age 65 retirement age for Social Security is already underway and you haven’t felt any pain yet, have you? (Stay tuned for future posts to learn more about the truth of Social Security and Medicare)

So when you see politicians hold their breath and turn blue, rant and rave and stomp their feet and scream at the top of their lungs: “You Can Not Raise the Retirement Age for Social Security!”, you can kindly tell them to please keep it to themselves because it is already happening, even if they don’t know it yet themselves.

Let’s cut to the chase: We all know that Americans are living longer each year, women more than men. The average life expectancy for men is now 75 years; for women it is now approaching 81. There are discrepancies for African-Americans and Latinos and based on socio-economic factors across the board but the fact is that we Americans are living a lot longer than we were back in the day.

Like, in 1935, the numbers were 60 for men and 64 for women. Current life expectancy rates represent a 25% increase in the life expectancy of Americans over the past 75 years, thank goodness.

If the Social Security retirement age had been indexed to be equal to what it represented in 1935, the retirement age would be 81 today. So you are still getting off “easy” when compared to past generations.

The retirement age of 65 was selected for Social Security in 1935 when FDR got it passed, primarily as a way to encourage older Americans to retire so more younger people could be hired to alleviate the joblessness of the Great Depression. It was also intended to be a supplemental income program to help people get through the “Real” Great Depression, not to serve as a de facto ‘permanent’ pension program.

Government programs have a strange habit of starting as “temporary, emergency bills” and morphing into massive perpetual programs.

Watch what comes out of this most current economic crisis in terms of ‘permanent’ programs.

One of the urban legends on Capitol Hill was that when FDR and his advisors were looking for the “right” age to peg for full retirement benefits under Social Security, they looked to the venerable Count Otto von Bismarck, also known as the ‘Iron Chancellor’, who helped unify the German Republic in 1871.

Supposedly, as part of the deal to unify the German Republic, the Iron Chancellor advocated a national retirement benefit program to all German citizens who reached the age of 70 that was finally implemented in 1880.

At a time when the life expectancy of the average German at the time was only 45 years of age, by the way.

That may or may not be exactly true, like so many other things that have helped create our current government edifices but, like that country song says, “That’s my story and I am sticking to it!”

Bismarck apparently was clever enough to use the ‘carrot’ of universal retirement benefits to entice the populace to support the unification of Germany. He was also smart enough to know that at age 70, the average German had been long dead.

The average American in 1935, male or female, only lived to be 62 years old. So FDR and Bismarck shared the same ability to promise full retirement benefits to mollify a nation while at the same time not spending much money to do it.

We are going to spend a lot of time over the next several weeks parsing out the almost unbelievable and magnificent details of how much money can be saved by making seemingly minor initial changes to both Social Security and Medicare at this time in our history so stay tuned.

The thing to remember from today is this: You have it in your power today to tell your friends and neighbors from the Baby Boom generation, the generation that was “born to “change the world”, to contact your senators and congressional representatives in Washington and tell them you want them to raise the retirement ages for Social Security and Medicare now. You can do that right now by clicking on the link to the Senate or the House on the right side of this column, find your elected representatives in a matter of 30 seconds or so, click on the “Contact Your Senator/Congressman” button, enter your name and address and send in your message.

They will get your message, believe me. Every day, the computer administrator downloads a list of all the incoming emails received from the day before, broken down by issue area, pro and con, and gives it to the chief of staff, the legislative director and the elected official. If a lot of people suddenly start swamping them with messages about raising the retirement age, they will take notice. But if no one contacts them, they will keep doing what they have been doing for decades as the problem deepens…nothing.

Your input will help save the republic, it will help save your kids and grandkids from crushing debt loads and tax rates and you can feel good about doing something, finally, to 'make this world a better place, if you can’ as Diana Ross sang about.

What an idealistic generation we Baby-Boomers we used to be!

Now we can do something that will make our parents’ generation, the ones who fought in World War II against Nazism and Japanese Imperialism and suffered through the “Real” Great Depression, really proud of our sacrifice for the nation.

Sunday, March 22, 2009

“Washington…We Have a Problem!”

CBO, the non-partisan Congressional Budget Office, just announced late Friday afternoon that the Obama budget proposals would add an additional $2 trillion to the national debt over the next 10 years.

On top of the $8 trillion that is already expected to be added to the national debt.

CBO confirmed that the Obama budget proposals would cause $1 trillion in deficit spending per year for the next ten years.

Astronaut Jim Lovell, who was piloting the Apollo 13 spacecraft to the moon when it blew a canister, memorably said: “Houston…we have a problem!”

They had an easier time getting back home to Earth safely than we do if we go down this debt-forsaken road.

I was willing to give the new Administration and this Congress the “benefit of the doubt” simply because of the dire economic situation we are now in and the fact that the last Administration and Congresses from 2000-2008 failed to deliver in any fiscal discipline area. But the CBO announcement of the $2 trillion upward revision in the national debt over the next 9 years because of these policies is simply too enormous and scary to give anyone the benefit of the doubt any longer, even if they have only been in office less than 60 days.

The first order of business is to simply not pass this enormous, overly-ambitious budget. There are two rules everyone has to understand when it comes to understanding how to budget at any level really:

1. Stop digging yourself deeper into the hole .
2. Never forget Rule #1.

We have already put forth a much less costly way to rejuvenate the nation’s economy in the near-term: abolish the corporate income tax code. That would ‘cost’ less than 22%, in terms of deficit-creation, for the national treasury than the Obama approach for the next decade. So, we are on solid economic and budgetary ground there to begin with.

We are leaving the banking problems to others more adept at solving that labyrinth of problems but that has to be done concurrently with re-energizing the economy.

But the next step towards financial independence is far more difficult, especially when the electorate is not educated about true facts and figures that lie behind the budget spin thrown out by both parties in Washington. That is what we will try to focus on for the upcoming week and weeks and weeks to come. It is a long process to learn but not difficult to understand once you get the facts straight and without political biases attached to them.

How many of you intend to work for maybe a couple of years longer now that your retirement portfolio has been decimated over the past year? (“Decimation” is an interesting word…see derivation below [1]) Perhaps most, or all, of you and your friends and neighbors have determined that you will work a few more years in order to build up the savings you need to retire in the way you desire.

Keep that thought in mind as we go through the coming weeks of deficit-reduction spending options. If you are willing to work a little longer to provide for yourself, wouldn’t you be willing to work, in some cases, a few months, or a couple of years longer if it took the burden of enormous future debt and interest payments off the backs of your kids and grandkids, assuming you are healthy enough to do so in mind, body and soul?

If you are not willing to do it for your kids and grandkids, then do not read ‘Telemachus’ any further. The only way we are going to truly take care of these problems in the future is to look the facts square in the eye and say that we are prepared to undergo a little sacrifice now in order to provide a better future for our families and our country.

John F. Kennedy famously said in his 1961 inaugural speech: “Ask not what your country can do for you---ask what you can do for your country!”

And less than 10 years later, America landed the first man on the moon, even if Apollo 13 had trouble getting back there.

We can surely solve the long-term debt problems facing America in the next 10 years if we do “the right stuff”, oddly enough, which is what the first Mercury astronauts had to accomplish their mission.

[1] “Decimation” (Latin: decimatio; decem = "ten") was a form of military discipline used by officers in the Roman Army to punish mutinous or cowardly soldiers. Normally, 1 out of every 10 soldiers were executed by sword or bludgeoning. The word decimation is derived from Latin meaning "removal of a tenth." (Source: Wikipedia)

Friday, March 20, 2009

Isn’t the Obama ‘Tax Break’ for New Business Like Being ‘Half-Pregnant?’

I am a little confused.

Does the Obama Administration believe in lower taxes to stimulate economic growth or not?

On the one hand, we keep hearing about how they want to raise taxes on the top 2% of the income wage earners in this country by allowing the Bush tax cuts to expire on their own in 2010. More corporate tax hikes are in order from the Obama Administration and Congress, especially on large companies but also on small businesses to the extent they are exposed to estate tax hikes and the like.

Oh, and don’t forget, they want to tax everyone with the proposed (indirect) tax on carbon. If adopted, that tax will increase the cost of food, gasoline, home heating oil, electricity generated from coal, (most electricity), and all the products that are produced using carbon-generating energy, as well as the cost of products moved by ship, rail, and truck.

But on the other hand, we hear this week that that they are offering significant tax breaks such as allowing small companies that earn up to $15 million to write off losses for the past five years in the current tax year; write off up to $250,000 in investments; take higher depreciation deductions within the first year of property purchases and the kicker: a 75 percent capital gains exclusion for those who invest in small businesses.

Isn’t that like saying you are just a little bit pregnant?

The problem is the discrimination between raising taxes on large corporations because they are inherently “bad” for some reason -- almost always political, not economic -- versus cutting taxes for small businesses because they are ‘good’ by comparison.

What gives? What makes it the duty of the federal government’s Chief Executive Officer and Congress to make such a Solomonic decision? If the President thinks it helps stimulate economic activity to reduce taxes on small business (and it does), why hinder economic activity by increasing taxes on those with the funds to invest and the corporations that engage in international trade?

We have been offering the concept that now is the time to abolish the corporate tax code completely, which would totally remove the levers that politicians push to their advantage to get elected or stay elected.

Businesses should be started and sustained by economic decisions based solely on the fundamentals of the business and industry in which it participates, not because of a tax advantage they received by getting something through Congress.

There is nothing about being “half-pregnant” if the corporate income tax is just abolished.

Thursday, March 19, 2009

Double the Dow Overnight: Abolish the U.S. Corporate Income Tax Code

Last week, we made an impassioned plea to “abolish the entire U.S. corporate income tax code” as a primary way to jump-start this moribund economy and resuscitate the investment “animal spirits” as Adam Smith noted in 1776.

The banking system has to be fixed first and that is beyond the scope of the mission of Telemachus. We will leave that Herculean task to others more adept at understanding those mammoth problems.

But now we have academic support for the abolition of corporate income taxes from Dr. Alfred Rappaport.(1) Professor Rappoport conducted a study in the late 1990’s as part of his work into the area of merger and acquisitions. For some unknown reason, he decided to run some numbers on what impact a 0% U.S. corporate income tax code would have on the intrinsic value of corporations, both private and publicly-traded on the New York Stock Exchange and elsewhere.

To no one’s surprise, the valuations rose. But the amounts they went up were staggering. He estimated that the value of every corporation would rise by at least 50% overnight. There is no telling what the stock market would do after that. It could double, triple or quadruple in short order, depending on expectations of future inflation risks; price/earnings multiples compression or expansion; surprise terrorist attacks; oil supplies at risk or running out; all valid concerns for any investor.

But all things being equal, as scientists and professors are required to say, there is no downside risk to abolishing the corporate income tax code in America today. In all probability, it would increase the value of everyone’s stock holdings, 401(k) plans, IRAs and pension-related investments.

After losing 50% of the value of your stock portfolio since last year, doesn’t that make you feel better?

Can you imagine the economic swirl of activity such a repeal of the tax code would unleash in America?

* People could start businesses knowing that their hard work and effort would only be taxed one time, at the personal level, instead of once at the corporate level and then later in the form of dividends or distributions.

* Businesses would invest in new plant, technology and equipment, most likely concentrated in a lot of “green technology” to update their older equipment which would help solve some of the global-warming fears out there.

* Companies could hire back the workers they laid off in this crushing economic downturn and probably move plants back from overseas since the tax differential had been removed from the return-on-investment (ROI) calculations.

* It would do far more to make the U.S. more competitive globally and create more jobs here than any trade restrictions or jobs retraining program ever could.

Such a proposal to remove corporate income taxes from the necks of American-based corporations could not have seen the light of day in the 1980’s or the 1990’s or even last year. Why? Because the perception was that we needed the tax dollars to pay for the programs everyone wants.

But things are different now. Abolishing the US corporate income tax code today would actually be a “net saver” in terms of controlling the deficit. It only ‘costs’ the Treasury 1/5th as much as the current stimulus/budget plans proposed by President Obama and the Democrat leadership in Congress.

During the campaign, I saluted the comments by then-candidate Senator Obama and Speaker Nancy Pelosi for their support of the so-called “PAYGO” mechanism to enforce budget discipline.

In a very odd, twisted sort of way, abolishing the U.S. corporate income tax code today would save us over $1.3 TRILLION in a PAYGO comparison to the Obama/Congress proposals in this year alone, 2009.

Probably would save over $1 trillion in new debt in 2010.

Contact your congressional representative and senator today and tell them you want them to consider this option and do something about it. You can send them an email in about 30 seconds if you just click on the links in the right column and the Congressional websites will take you from there.

This idea is not as “nutty” as it seemed in the last century, especially not now in these troubled economic times.

(1) Dr. Rappoport is the Leonard Spacek Professor Emeritus of J. L. Kellogg Graduate School of
Management at Northwestern University, developed the idea for the Shareholder Scoreboard, published annually by The Wall Street Journal. He is co-founder and former Chairman of the Board of The Alcar Group Inc., whose consulting and education practices are now part of The LEK/Alcar Consulting Group, LLC

Wednesday, March 18, 2009

Should Wall Street Take Real 'Leadership' Lessons from General William Tecumseh Sherman?

'War is Hell'-William Tecumseh Sherman
It seems as if they adopted his “scorched earth” policies to pick the nation clean through their clever use of sophisticated derivative instruments and subtle, if not overt encouragement of the sub-prime loan disaster.

It has “only” cost the US taxpayer of the future at least $1 trillion in “Reconstruction-type” costs so far in terms of debt incurred. God only knows how much future inflation, currency devaluation and destabilization and less-than-optimal growth rates in standards of living have been unleashed as well.

But the Wall Streeters, and, while we are at it, the Detroit auto people, sub-prime mortgage brokers, home speculators and Fannie Mae folks, just to name a few, forgot to read the whole book about Sherman’s tactics. If they had, they would have done something so unbelievable, so startling that the American public might salute them today instead of condemning them to the 8th Circle of Dante’s Hell reserved for the “Fraudulent and Malicious”.

They would have personally promised to pay off these debts caused by these implosions and bailouts if it takes them the rest of their lives.

Sherman did that before the Civil War when the bank he was working for in San Francisco collapsed during the eerily similar Panic of 1857. Many of his army friends had trust accounts at Lucas, Turner and Company, totaling over $130,000 in exposure that the bank was not legally obligated to cover. $130,000 then would be close to $3 million in today’s dollars.

Sherman personally guaranteed that none of his men would lose any of their investments they had made because of his personal connections with them; he ‘stood some of the loss’ out of personal savings while he worked diligently to sell bank assets to make these investments whole. (a)

For that one act of duty and honor alone, he deserves at least some deference and a seat in the First Circle of Dante’s Inferno, not the deepest region as many in the South would relegate him to.

Union General William Tecumseh Sherman was the 19th century equivalent of the atomic bomb. His relentless pursuit of a ‘scorched earth’ policy of total warfare brought the Old South to its knees in a matter of months after 3 long years of fighting in the Civil War.

Sherman is known for two of the greatest quotes in history; "There is many a boy here today who looks on war as all glory, but, boys, it is all hell!” he said in an 1880 speech.

But his best quote was in 1884, when he was approached to be a Republican candidate for president, he memorably said, “If drafted, I will not run; if nominated, I will not accept; if elected, I will not serve."

Lord, let it be that there are more Shermanesque statements like that from professional American politicians in modern times!

Now he can be known also as a meticulous man of his word when it came to money matters. All without a federal bailout, a tax increase or any sort of government intervention. At all.

General Sherman could have walked away from those soldiers and left them hanging. He had no legal obligation to make things whole.

But he didn’t and for that one reason alone, he should be a model for the modern chief executive, at any level of business, government or academia.

It is just not American what has been done lately.

(a) Sherman: A Soldier’s Life—Lee B. Kennett, 2001, HarperCollins Publishers, Inc, NY

Tuesday, March 17, 2009

The Way to Prevent AIG “Bonuses”

Everyone has a right to be very angry about the bonuses given out to executives of AIG and any other large financial house that has received TARP bailout money.

There is a simple way to fix this from ever happening again:

• Consider any company’s execs who receive taxpayer-supported bailout money as “public servants” and pay them accordingly.

Before you think this sounds like a draconian proposal (which it is intentionally), let’s think about the mechanics behind such a policy:

  1. Any American is free to set up their own business, hire people, and invest their life savings in an uncertain enterprise. Anyone.
  2. This same person is ‘entitled’, by our very own Declaration of Independence and U.S. Constitution, to work as hard as they want and, if their business succeeds in meeting a need in the marketplace, make as much money as possible.
  3. Aside from having to pay taxes and abide by certain regulatory standards such as environmental protection, OSHA or ERISA, this person/company has the freedom to make as much profit as humanly possible.
  4. And in the process, provide jobs for the rest of us to raise our families on.
  5. But the moment that a company such as AIG and their executives take $1 US Dollar in taxpayer-supported and guaranteed bailout money, they should be regarded as “public servants’ in the strictest sense of the word.
  6. They no longer are completely free and independent businesses because they have used the taxpayer protection afforded them through the federal government to socialize their losses amongst the rest of us.
  7. Therefore, they should be allowed a total compensation package not to exceed that of our federal elected public servants in Congress until every cent is paid back to the government. And they should operate under a contract, if any, that only makes incentive payments for exceptional performance, subject to renegotiation each year.
  8. And then, they can go back to making as much money as they want, given they have the trust of the marketplace in which they compete.

Perhaps there are some contractual obligations that are currently preventing companies such as AIG from not paying bonuses to their executives from the work they did in 2008. Some divisions of AIG must have had good years in some aspect of their business.

But when a company reports a $61 Billion loss in one quarter, the last 3 months of 2008, the largest one quarter loss in the known modern business history, and then runs to Congress for help, then something “draconian” has to be put in place to prevent it from ever happening again, or even reverse what is happening now.

And when a chairman of a company begs for ‘forbearance and understanding of why we have to pay these enormous bonuses’ on the pretext of “having to keep and retain good talent”, your ears should shoot straight up in the air like Mr. Spock’s on “Star Trek” as you ask: “What good is great talent when you lose $61 billion in a quarter?” And in today’s financial world, able and honest people would line up to take replacement jobs on terms the situation demands.

That’s a little like the Yankees telling their fans year after year that we have to spend the most amount of money on our players in order not to get to the World Series ever again. And then, when we don’t win, we will reward the manager regardless.

Draco was an Athenian law scribe who issued overly severe penalties for seemingly innocuous minor crimes.

This one policy change by Congress would vindicate Draco by saying overly severe crimes will be treated in the future with the ultimate penalty these Wall Street and AIG executives could ever imagine: Being paid what a U.S. Congressman is paid and subject to “re-election” at least every two years in terms of staying employed at the damaged firm.

Then, maybe they would never make an overly risky, highly leveraged investment ever again with someone else’s money.

What Do We Believe Here at Telemachus?

This is not a website dedicated to being an “attack dog” on President Barack Obama’s policies.

Although it could be considered an attack dog on the inertia of Congress to deal with the major issues of our times.

This is also not a website dedicated to be an apologist and advocate for Republican policies.

What is there to be an advocate for since the GOP abandoned their core principles of small, self-government, balanced budgets and fiscal responsibility somewhere between 2000 and 2006, the time the GOP held 100% control of the White House and the US Congress?

This is an interactive site where people can get facts and figures so they can engage in the public debates over budget, taxes, and federal spending. There might also be a few tangential zigs-and-zags along the way pertaining to history, philosophy, religion and maybe a few sports analogies here and there.

We intend to present the cold, hard, stonecold facts with the links to sites to back them up so any person can become conversant in these complicated but very hugely important issues now staring us in the face as a nation, society and economy.

Before changes can be made, the citizenry of this nation have to become educated on the issues and don’t expect the politicians to “spoon-feed” the truth to you. They want you to believe “their side of the story” so you will keep voting them back into office again and again and again.

And look at what we have gotten as a result.

Albert Einstein supposedly once said, (but it can not be fully attributed to him so we are still trying to get the facts), “Insanity is doing the same thing over and over again and expecting a different result.”

Don’t you think we have been doing the same thing a couple of times too many by now?

Take a look at Telemachus, use it to get the pertinent facts and figures, subscribe and forward on to your friends, family and colleagues. Great things happen in American politics when people get educated and mobilized and then register to vote and actually vote.

Monday, March 16, 2009

The Ultimate “Waste” in Federal Spending

We are “wasting” $500 billion in your hard-earned taxes nowadays for something that doesn’t do anything to improve productivity, create permanent jobs, solve global warming or destroy the terrorist network around the globe.

But it is impossible not to keep shelling out $½ Trillion per year for the foreseeable future to keep the US from really going under.

$500 billion is about the amount of gross interest we pay each year on the burgeoning national debt, now at $11 trillion and counting.

We have to keep paying it to keep our financial “integrity” for the bond/credit rating agencies so people will keep buying our bonds. But interest on the national debt is also a number we can eliminate totally if we put our minds to it and do something “truly crazy” like pay off the national debt.

It can be done and has been done many times in our history, most notably after the War of 1776, the War Between the States from 1861 to 1865 and after World War II. If we can do it after major conflagrations like those, we can do it today.

Let’s put that absolutely monstrous number into perspective: $500 billion this year is;

* More than what we pay in Medicare
* More than what we pay in Medicaid
* Slightly less than what we pay for National Defense
* Slightly less than what we pay in Social Security
* More than we pay in every other federal government discretionary spending
program added up in total!

Think about that for a moment over your Cheerios in the morning. More than the total amount of federal tax money we pay, good and bad, for global warming remediation, education, transportation, welfare, foreign aid and sending probes into space to see if there is any signs of intelligent life out there.

I guess we have to do that because when it comes to being fiscally responsible here in the United States, there are no signs of it here either.

Wednesday, March 11, 2009

The President and Congress Claim to be Looking for Waste in Government. Hint: Look Under the Big Rocks.

(This posting is from a subscriber who has been a philosophical leader and inspiration to us all in Washington over many years, as you can tell by his pseudonym at the bottom of the reading. Anyone interested in posting a similar rumination is more than welcome to do the same...we have all the great names from history reserved for you under which you can express your ideas, thoughts and, most importantly, some smart, effective and salient solutions to our nation's huge problems)

Public officials repeatedly called for the elimination of waste in federal programs. That’s a good thing. Yet, the budget just submitted to Congress calls for the biggest waste of your tax dollars ever committed. That’s a bad thing.

If Congress agrees to abandon the Yucca Mountain project, a $13.5 Billion project that has been underway since the mid-1980s, kiss goodbye to hundreds, if not thousands of jobs, the near-term hope to reduce energy dependence and tons and tons of your tax dollars. Under a number of presidents and under both political party’s control of the Congress, Yucca Mountain has been declared by the US Congress to be the ideal permanent storage place for spent nuclear fuels.

For almost two decades, research and preparations have been underway to make Yucca the burial place for nuclear waste. Now, without new evidence to show it is not desirable or anything else to justify the decision, the Obama Administration comes along and scraps $13.5 Billion worth of work already paid for by your tax money.

Some cynical types might think that the Administration’s action are related to the fact that Yucca Mountain is located in Nevada, the home of Senate Majority Leader Harry Reid. Would they be so crass as to think that Mr. Obama is trying to curry favor with the Senate Majority Leader?

In the meantime, unemployment and the housing bust now drowning Nevada gets one more punch in the eye as the employees and corporations dedicated to making Yucca work get the rug pulled out from under their feet. Oh, and by the way, all of that talk about building new nuclear energy plants all over the country as part of the plan to develop energy independence from foreign oil, well, it was just talk. Now, there is no storage plan for the spent nuclear rods. So, the probability is no new nuclear plants.

And, so, unless the Congress rejects the Obama budget recommendations, these spent nuclear rods are going to be left in your back yard by the thousands instead of in one safe repository specifically built to handle them.

The whole thing is just yucky, if you ask me.


The Hazards of Taxing Too Much

Everyone knows that when people are taxed too much, they do something rash.

The Boston Tea Party in 1773 is perhaps the most famous action against excessive taxation by the British authorities. Without that one act, we all might still be drinking tea as our main hot beverage of choice, rather than coffee which the public switched to during that time.

On a more civil note, one of the first rebellions against excessive taxation organized solely by women occurred in Edenton, North Carolina in 1774 when Mrs. Penelope Barker got 51 women to boycott tea forever. That got the attention of the English press…what would the British tea industry do if every American woman boycotted the purchase of their tea?

But when it comes to taxing people or producers of wealth too much, nothing beats the story of Mithridates, King of Pontus in what is now the modern country of Turkey.

The Roman Empire was losing its hold on the region and Mithridates, who claimed to be a direct descendant of Alexander the Great, sought to break their reach completely.

In retaliation for excessive taxation from the Roman authorities, Mithridates ordered the execution of Manius Aquillius, the Roman commissioner.

“Falling ill at just the wrong moment, the unfortunate Aquillius was captured and dragged back to Pergamum, shackled all the way to a 7-foot barbarian. After tying him to an ass and parading him through jeering crowds, Mithridates next ordered some treasure melted down.

When all had been prepared, Aquillius’s head was jerked back, his mouth forced open and the molten metal poured down his throat. ‘Warmongers against every nation, people and king under the sun, the Romans only have one abiding motive---greed, deep-seated, for empire and riches”(a)

This had been the verdict of Mithridates on the republic and now, in the person of her legate in Asia, he exacted symbolic justice. Manius Aquillius choked to death on gold”.

(p.45, “Rubicon”—Tom Holland, (a) footnote from Sallust, Histories, 4, fragment 67)

Earmarks, Schmearmarks…..

Nothing gets the citizenry more distracted than the issue of congressional “earmarks’.

Just mention the “Bridge to Nowhere” or the Lawrence Welk Museum and people go nuts. As they should; they are colossal wastes of taxpayer money.

But mention to the same person that we will have a “$1.7 trillion budget deficit” and watch their eyes glaze over like that second eyelid dogs have to protect their eyes. They just get cloudy-looking and say, “Yeah, ain’t it terrible!”

People can relate to the waste of $650,000 to study beaver dam construction (real-story) and even a $398 million bridge in Alaska. But $1.7 trillion deficits, $3.5 trillion budgets and an $11 trillion national debt seem to be so enormous that our minds just can’t take it all in.

So politicians take advantage of that weakness and use it to keep on doing what they have been doing for 50 years…spending more money than you can possibly imagine recklessly.

In Estonia, they don’t even have a word for “trillion”, or at least not when I went there in 1995 to talk to them about how we run the federal budget. (Don’t laugh…it was not a comedy show) The translator had to call a trillion a “black million”; it was so large of a number that it was “inconceivable to the average Estonian.”

We Americans must think of our federal budget as a “black trillion” then.

As to congressional earmarks, this most recent bill had close to 9000 of them in there, roughly 59% from Democrat Senators and 40% from Republican Senators, the exact proportion of the current makeup of the US Senate. I guess that means the Independent Socialist Senator from Vermont, Bernard Sanders got the last 1% of the earmarks.

The total cost of the 9000 earmarks? $7 billion. Horrible. Shameful, Despicable.

That was 2% of the overall $409 billion spending bill.

Here is what the most depressing part of the whole thing is. President Obama ran on a platform of “eliminating earmarks from our congressional budget and spending process forever!” I believed him as well as millions of other people who believed him and then voted for him with the hopes he would be a truly “transformational” President.

All it would have taken would have been one stroke of the presidential veto pen.

To be “transformational”, a leader has to do something that is unexpected. In this case, he could have vetoed the entire bill time and time again and waited for 2/3rds of the Senate and Congress to override his veto. His veto would have been upheld every single time.

He would have been like President Reagan who early in his first term, fired the PATCO air controllers who threatened to go on strike during a bruising recession and put our nation’s flights in jeopardy.

But President Obama chose not to “rock the boat” because congressional and senate leaders told him it was probably “too difficult” to rip all of these earmarks out of the bill.

Earmarks are made to be “ripped out” or “put in” bills pretty easily. In 2003, the day when Senator Elizabeth Dole was sworn into office, we were called by the Senate Appropriations Committee staff who said: “We are re-programming $10 billion in projects in a pending omnibus appropriations bill because the Republicans won a majority in the 2002 elections. Tell us how you want to split up $1 million into 2-3 projects and get back to us by 4:00 pm today.”

Which we did and the people in those 3 North Carolina communities were grateful for the assistance. It went to help the North Carolina community colleges in selected areas around the state. It was either that or the $1 million was going back to Pennsylvania or some other state, not to deficit-reduction or to pay off the national debt.

So to some people, that was a “good” earmark. To others, it was “pork”.

But if you are going to campaign against them and don’t veto the first bill that has 9000 of them in it, then you are asking for trouble on the next spending bill, and the next and the next.

And distracting everyone from dealing with the really huge problems we face in entitlements and interest costs.

Saturday, March 7, 2009

Commit These Charts To Memory

These might be the most important charts you will ever see.

(Charts courtesy of the Peter G. Peterson Foundation....see link on right side of column for more information)

You can almost bet whatever is left in your stock portfolio or 401(k) plan that revenues sent to Washington in the future will never exceed 21% of GDP, regardless of any new tax scheme that might be thought of or passed in Washington. It has never happened in modern times since at least 1970.

This second chart pretty much sums up the difficulty we are going to have as a nation going forward unless we do something dramatically different today with regards to the long-term structural problems inherent in the way we deliver services and payments through Social Security, Medicare and Medicaid. Net interest is a growing problem due to the enormous amount of debt we have run up since 2000 and will increase by close to 50% more in the next 4 years.

Commit these charts to memory and keep them close at hand and readily accessible as you wade through the daily news, television and radio broadcasts and talk shows.

If they aren't talking about how to solve these issues, then they are just blowing smoke and avoiding the really huge problems we face. The more they fixate on the issue of the day, the less they will have to do to their homework and help figure out what we are going to do as a country to solve these problems for us and for our children and grandchildren.

As important and critical as the issues might seem today such as the War in Iraq or Afghanistan, banking bailouts, economic stimulus plans, global warming and climate change legislation or the housing bailouts, none of them compare with the magnitude and the scope of the problems we are now facing with regard to the tsunami coming at us in terms of being able to pay for the entitlement programs in the future.

The day of that reckoning might make this current economic crisis look like a walk in the park, without trying to be overly alarmist about it. Economic forecasting experts and Federal Reserve chairmen from Paul Volcker to Alan Greenspan to Ben Bernancke have said as much for the past 30 years in testimony to Congress in their typically understated manner, so as to not roil the markets at the time.

Since the markets have already been "roiled" lately, ("roiled" being a great word of unknown origin meaning 'to stir up sediment or dregs in a turbulent, violent way'), we might as well face the facts and deal with the problems head-on, like Americans have always been able to do so in the past.

Now is our time to deal with a huge national issue with intelligence, honesty and truth. From our citizens as well as our elected leaders.

Thursday, March 5, 2009

Why Making the United States a Corporate Income Tax-Free Business Zone Makes Immediate Sense

Consider these valid business and job-creating reasons why repeal of the U.S. corporate income tax code makes enormous immediate sense:
  1. Corporations, both large and small, will invest in more plant and equipment immediately.
  2. More jobs will be created in the United States immediately.
  3. Allow more marginal start-up companies to be funded due to lower thresholds required for return-on-investment (ROI) calculations
  4. Jobs currently overseas will likely be shifted back to the United States due to lower costs of doing business domestically.
  5. Immediate increase in stock prices and corporate value due to projected higher earnings (EBITDA)
  6. Prices should fall somewhat due to lower costs of doing business in the US
  7. US products become more competitive around the globe versus products
  8. produced in countries with high corporate tax rates
  9. Immediate restoration of some proportion of the lost value in 401(k), IRA and pension plans caused by the recent stock market crash
  10. Allow for more rapid investments in new “green” technology and business creation
  11. Redirect money now wasted on efforts to avoid corporate income taxes, possibly into research and development of new technologies

Repealing the U.S. corporate income tax code as a way to stimulate the economic recovery we need and want may sound like a “radical” concept. But just how “radical” of an idea is it to deficit-spend over $1.7 trillion in this year and probably close to $1.5 trillion in 2010 on traditional Keynesian federal spending programs reminiscent of the 1930’s?

One key advantage of the corporate tax repeal is that it could be immediate and go into effect tomorrow if President Obama and Congress acted as swiftly as they did when they passed the recent stimulus bill.

The second advantage is that the cost of the corporate tax repeal would be roughly 1/5th of the cost of the Obama packages in 2009 and 2010 in terms of its impact on the deficit. Corporate tax repeal would mean roughly a $370 billion per year hit in terms of “revenue foregone” to the US Treasury for each of the next five years or about $1.8 trillion. The accumulated deficits from the Obama proposals could reach over $5 trillion when all is said and done.

If we are going to “deficit-spend” our way back into prosperity, give me the $1.8 trillion dollar figure over the $5 trillion hit any day of the week.

And if those are not enough reasons to abolish the corporate tax code, consider lots of other “unintended consequences” of repealing the corporate tax code, almost all of them positive, which is unusual for any federal legislation since it usually goes the other way in terms of “bad consequences”. Consider, for example:

  • No corporate tax code means no more loopholes for corporations to exploit.
  • No more loopholes means no more reasons for lobbyists to curry favor with elected officials.
  • No more corporate lobbying for tax breaks means tremendously reduced amounts of fundraising or PACs to support Members of Congress or the U.S. Senate.
  • No more fundraising removes the amount of time our elected officials have to waste on raising money for the next campaign (it is incessant and never-ending now)
  • No more fundraising means a much lower amount of campaign commercials every 2 years.

In fact, the only downside that could come out of the repeal of the U.S. corporate tax code would be an economic depression in the lobbying community on K Street in Washington, D.C.

So don’t let those clever lobbyists defeat corporate income tax repeal!

Wednesday, March 4, 2009

Apples and Oranges: Spending Bills and Tax Repeals

What large component of the US tax code could be repealed today for about 1/5th of the cost to the Treasury of the combined Obama stimulus and budget proposal for FY 2009 alone?

I asked several people this question yesterday, just to get a feel for the public’s appreciation of the magnitude of the problems facing us as a nation today.

One response was the capital gains tax, another suggested the excise tax. A couple mentioned the double taxation on dividends at the individual level and one other guessed the estate, or “death” tax.

The answer is the entire U.S. corporate tax code could be repealed tomorrow for about 1/5th of the cost, in terms of increased deficits, of the Obama stimulus and budget packages presented for this year.

There could not be two more starkly different approaches to stimulating the economy than these two choices. Repealing the corporate tax code would remove layers upon layers of complicated tax law scar tissue from the necks and shoulders of American corporations, both large and small. Business people, engineers and factory workers would be able to do what they do best and like to do the most…make great quality products and produce helpful services to the American consumer and around the world.

The Obama/Congress stimulus and budget packages have some tax relief in them for targeted individuals and small businesses but it is laden with hundreds of billions of dollars targeted for old-fashioned, 1930’s-style infrastructure programs and other federally-directed spending programs.

Which approach did you think has the greatest potential to unleash the creative spirit and energy of the American worker and business-owner and encourage them to invest, expand operations and hire people back to work at this critical juncture in our nation’s history?

Here are the facts, plain and simple. You can go to the link on the right side of this column marked “CBO” or click on www.cbo.gov and go to “Historic Budget Data” under “Budget and Economic Information” on the right side of the home page and see them for yourself in plain black-and-white:

* 2007 Tax Receipts from US Corporate Income Taxes--- $370.2 Billion

* Expected Costs Of Obama/Congress Stimulus/Budget Plan for FY2009 alone?
$1.7 Trillion to $2 Trillion (details forthcoming on a daily basis)

For about the one-year cost of the entire stimulus/budget packages now proposed or passed, we could “pay for” the repeal of the entire US corporate tax code for the next five years: $370 billion times 5 years or $1.85 billion.

These are extraordinary times and extraordinary times command extraordinary thinking and action. We are already doing many things that no one in their right mind would have even dreamed of talking about in polite company even 5 years ago.

There is probably not a computer on earth that could precisely predict just how many jobs the repeal of the corporate income tax would generate over the coming years. But we know from history that corporate tax rate cuts lead to rapid increases in investment and job creation because marginal projects and businesses all of a sudden become viable and productive without the excessive tax harness around their necks.

Remember: corporations don’t pay the corporate income tax…you pay it in the form of higher prices you pay for their goods and services. A repeal of the entire corporate tax is a tax cut for you on a scale unlike the $400-$800 proposed in the Obama budget and will generate an explosion in the American economy for the long-run.

It might not happen this year in this climate due to the mismanagement of the American banking, automobile and real estate industries over the past decade but it took awhile for Galileo and Copernicus to convince the “established authorities” that the earth moved around the sun, not the other way around.

The US economy does not have to revolve around Washington, DC either.

Tuesday, March 3, 2009

Corporate Tax Loopholes, the ‘Fosbury Flop’ and Economic Growth

Are you tired of seeing the big corporations and banks and investment bankers on Wall Street get all the corporate tax loopholes and special deals from Congress insiders?

Maybe the time has come for a sure-fire way to eliminate all corporate loopholes once and for all. Oddly enough, at the same time, this one proposal could provide the shock treatment we need right now to resuscitate the economy and create millions and millions of new jobs for the foreseeable future.

Did you know that in the most recent tax year, corporations were able to avoid paying over $104 billion in corporate income taxes to the federal government? Through amendments and legislation that thousands of lobbyists have helped get through Congress over the last 50 years or so, both large and small corporations have managed to avoid paying at least that amount to the U.S. Treasury.

The total amount of money paid to the US Treasury in 2008 by U.S corporations was $370 billion or about 2.7% of GDP.

The corporate tax code is bringing in somewhere between 50% and 70% of the potential revenues it was designed to generate each year, depending on the reports you read.

Maybe it is time to consider abolishing the corporate tax code completely.

Yes, you read that correctly. Any time something is working at less than 70% efficiency, perhaps it is time to can it and try something else that might work better. Getting below a 70 on any exam is an “F” in anyone’s book.

If we are going to run massive deficits anyway over the next 2 years to get out of this recession, why not do something so dramatic and “shocking” that it changes the rules of the game forever?

To use a sports-related analogy, Dick Fosbury one day figured out that he could not increase his leap in the high jump with the traditional “Western roll” technique he had been taught since his youth. He decided to jump over the bar backwards with his head first, won gold at the 1968 Olympics and revolutionized the high jump forever.

No one does the ‘western roll’ anymore…every high jumper in the world uses the “Fosbury Flop” in some version or another.

If we repealed the corporate tax code today, the rules of investing in new plant and equipment in the US would change forever. We could see a massive effort to move operations back to the United States and trillions of dollars of new investment flow into the stock and credit markets to take advantage of the new “corporate tax-free zone” called America.

Here’s the most critical thing to remember about corporate taxes: Any tax paid by a corporation at the state or federal level is passed along to consumers in the price of the product or service.

And if there is no corporate tax to pay anymore, there are no “loopholes” for lobbyists and corporations to try to insert into legislation any longer. Talk about killing two birds with one stone.

There is nothing magical that makes corporate taxes “different” from personal income taxes, excise taxes or capital gains taxes. Every tax paid in this country comes from inside your pocket some way or another, either directly in taxes paid, taxes withheld, or in prices paid for products.

On top of that, corporate taxes are typically taxed twice…once at the corporate level and then second at the individual level when dividends and interest are paid to investors who own mutual funds or stocks.

Somehow we take for granted the notion that corporate taxes will always be collected. What happens in a year like 2008 and now 2009 when many corporations won’t make any profits to be taxed on in the first place? The level of expected corporate tax receipts at the federal level should be far below the anticipated level of over $400 billion based on recent trends.

Large deficits are in store for the next several years anyway…why not abolish the corporate tax code in its entirety and see what happens?

Don't Ever Give Up Hope like Porcia

The austere and virtuous Porcia was the daughter of the true 'first citizen' of Rome, Cato. After the victory of Octavian Caesar at the final civil war battle of Phillippi:

"When (the news) arrived, and she learned that both her brother and her husband, Brutus, were dead, she slipped free from the grasp of her friends, who had feared what she might do, ran to a brazier, and swallowed burning coals. Women, after all, were Romans too."

(from Rubicon, The Last Years of the Roman Empire, by Tom Holland, p.351)

Who was Telemachus?

Telemachus was a brave, elderly monk who went to the Roman Colosseum in 404 A.D. to observe the gladiatorial Games in its splendor. Upon witnessing the gruesome spectacle of men slaughtering other men for the pleasure of the crowd, Telemachus scaled over the wall onto the Colosseum floor to stand in between two combatants. He shouted three times: “In the name of Christ, forbear!” The gladiators separated but the crowd stood up and stoned Telemachus to death because he had interrupted their entertainment for the afternoon.

Once they recognized what they had done to the elderly man, the crowd became quiet and slowly filed out of the stadium in silence.

When the good emperor Honorius heard of the heroism of Telemachus, he put an end to the gladiatorial games forever and Telemachus was designated as a saint for his heroic stance for humanity and truth.

Sunday, March 1, 2009

Don’t Associate the Obama Budget with “Deficit-Reduction”

President Obama presented his first budget outline to Congress and trumpeted that it will “cut the budget deficit in half, down to $533 billion by the end of his first term”.

Is that anything to be proud of nowadays? A $533 billion budget deficit in one year is something to brag about?

The problem is, based on current assumptions, the projected budget deficit for 2012 is expected to fall to $264 billion all by itself due to a presumed economic recovery and legislation already on the books.

How can that be?

Put another way, if President Obama and Congress went on recess for the next four years, the deficit would fall by over 75%! Since the Obama Administration says that a 50% reduction in the annual budget deficit is good, wouldn’t a 75% reduction be truly great?

The problem has been, and continues to be, congressional and Administration docile acquiescence when it comes to limiting the overall growth in federal spending. It is the same problem that existed under President George W. Bush and Republican and Democratic Congresses over the past 8 years and 37 of the last 40 years under all combinations of shared power in government.

The Obama Administration and this Congress don’t appear to be any different in this important regard, at least based on this initial budget out of the gates.

We can’t tax our way out of this mess any more than you can magically conjure up more salary income for yourself, unless you own your own business and decide to fire people and take home more pay. The very wealthy people targeted by this budget to pay more in taxes have already taken legitimate tax and estate planning steps to minimize their tax exposure. And unless the economy rebounds swiftly and powerfully, tax receipts from all sources are likely to be way below the levels envisioned in this budget.

CBO and OMB tax revenue estimates are notoriously volatile simply because it is next to impossible to accurately forecast economic decisions made by 310 million American consumers any more than a few months into the future at best. During the late 1990’s when the revenue numbers were at their highest percentage ever relative to GDP, revenue forecasts were typically $100-$200 billion below what actually came into the federal treasury, because no one came close to predicting just how many stock options were going to be exercised during the internet boom that was underway at the time.

We won’t have to worry about underestimating projected capital gains taxes or even corporate taxes for the next several years for the obvious reason that capital gains and corporate profits are not expected to be very high for the near future, unfortunately.

On the spending side, we have close to $1 trillion in proposed new spending in this budget. The potential savings attributed to the lower defense costs associated with pulling out of Iraq were already counted in the CBO projections of January, 2009. The assertion that hundreds of billions of dollars will be found each year from rooting out “waste, fraud and abuse” is an old budget bromide that rivals the search for the Holy Grail in the sense that people know it exists but they just can’t seem to find it anywhere for sure.

The Obama budget seeks to be a benevolent arbiter of economic justice and fairness for all people, except for the top 2% of income-earners in the country, while making a legitimate attempt to deal with the massive banking and economic dilemma we face as a nation.

Don’t be deceived by its alluring attributes.