Tuesday, December 7, 2010

Tax Hike....Punt!

In case you haven't heard, President Obama is willing to make a deal on "tax cuts." Basically, when one looks at it, the deal is nothing more than a punt, for both Republicans and Democrats. To begin, what are some of the major economic negatives in our country right now:

1. Deficits in the trillions of dollars (few countries even have a GDP of 1 trillion, and we have a deficit of 1 trillion).
2. Unemployment of 9%+ (or 17%+ depending on which figure you want to use).
3. Anemic job growth (in spite of the stimulus spending which saved or created 3 million jobs).
4. Social Security in the red (i.e. it pays out more each year than it takes in).

So the Democrats and Republicans are worried about a tax hike, which they both contributed to 10 years ago. Funny how those things come back to bite you. And in an election year no less. At least they managed it in the mid-term election year rather than the presidential election year (then again, I'm not sure they had a choice in the matter). And after much bickering and whining we get this:

1. No increase in the base rates for two years (in other words, the vote will be to increase your taxes in two years). Why President Obama would agree to this (as opposed to a three year moratorium), I have no idea. Unless perhaps he is sick of the whole thing and wants to get back to being a Community Organizer. Two years puts the tax increase right back in an election year, except that this time, the Presidency will be up for grabs and the Senate in a big way (I think the Democrats will be defending 20+ seats in 2012, while the Republicans only have 10 seats to defend). If recent history is any judge, then having a tax fight in 2012 won't go any better than it did in 2010.

On the other hand the economy may turn around. Except that one of the reasons that the economy hasn't turned around is the uncertainty in the tax situation. What does a two year moratorium on the increase do? Not much. Businesses don't usually operate on a one or two year plan. In my current position, I have things planned out for 25 years. Hiring new employees (i.e. creating jobs) is usually a multi year commitment. You have to train them before you can begin to get your investment out of them. If they are not going to make your company more money than what you pay them (salary, benefits, and taxes), then you don't hire them. If you do, you are stupid and will be out of business soon enough.

So not only will the two year moratorium on tax increases just delay the fight until another election year, it is not going to do anything to spur job growth. But that is OK, because we have...

2. Extension of unemployment benefits by 13 months. I'm not sure of the details, but this may just be an extension on top of the 26 weeks that the States provide (at the direction of the federal government), or it may be an extension of the 99 total weeks that the States and Federal government had been providing. If it is the latter, then that means unemployment benefits are going to last for three years. If you know that you will get a check each week for three years, and you are just the slightest bit lazy, what incentive do you have to even bother being serious about looking for work during weeks 1 through 104 (i.e. first two years). As near as I can tell, this unemployment extension is not being offset by any spending cuts, so that means the deficit problem we had above is going to grow.

But Nancy Pelosi says that every $1 in unemployment returns $2 to the economy. Really? Where does that $1 come from in this case? Oh yeah, the economy. So if we get the $1 for $2, why not double the amount in each unemployment check? Oh there are diminishing returns? Why didn't you mention that. Does it work the opposite way? So if we cut unemployment in half do we get $4 returned to the economy for every $1 in unemployment? Why not do that? $4>$2. Do you mind showing me how you come up with the $2 figure anyway, and show how leaving that $1 in the economy in the first place wouldn't have created $2 or more by its own.

3. A decrease in the payroll tax of 2% for 1 year. Why just 1 year? Oh, yeah, so we don't have to have this fight in two years during an election. Also, it appears that the cut will be in place of President Obama's signature making work pay tax credit which applied to most everyone equally, whereas the payroll tax "disproportionately" helps the wealthy. From a personal standpoint, I am all in favor of this. Social Security is a scam (government run mind you, but still a scam) and I don't expect to see any of the money that has been confiscated from me for it.

From an economic issue (particularly in regards to the problems listed above) I am torn. More money in the hands of consumers (all consumers, even the really rich ones) is a good thing. And Social Security is the largest tax payment that most Americans pay (particularly when you consider the "matching contribution" from your employer). On the other hand, Social Security proponents have prided the fact that up until last year, Social Security was a self sustaining program, it covered all of its expenses each year (and lent the excess to the goverment to spend at their leisure). Now we are going to take away 1/6 of the Social Security taxes (approximately $100 billion) in a year when Social Security is already in the red. That is going to decrease the solvency of the "trust fund" further, and add to the deficit. And since it is only for 1 year, it won't help create any jobs. (On the other hand, I may be able to convince my wife that I can use that extra $2000 in 2011 to go towards purchasing a Barrett .50 BMG or we could just put in a new shower in the bathroom. Tough choice!).

And then there is some other froo froo stuff. The funniest thing of all, if this passes. It will be in a House, Senate, and Presidency that is all controlled by the Democratic party. Since it has no provisions that will create jobs (it encourages stagnation), cut the deficit (actually it will increase the deficit), or shore up Social Security (it does the opposite) and it puts these same issues off to be fought over again in 2012, barring any major change in the world (which always seems to happen anyway), the Democrats will have voted on their own demise from the Senate and probably the presidency and solidify the gains that the Republicans made in 2010 in the House (although redistricting will accomplish most of that anyway).

Never let a crisis go to waste. But if your going to, make sure you waste it in spectacularly stupid ways.

BTW, I have no love lost on the Republicans punt of this issue. They have no power other than the filibuster, yet are still getting basically what they want.