Who's the One AIG Executive??

It's been splashed all over the news today that 9 of the top 10 highest paid AIG executives have given back their bonuses.

I want to know one thing: Who's the one guy who DID NOT give back his bonus?

That's the guy I'd like to interview. That's a guy with some leadership qualities. As said by Jim Calhoun, coach of the University of Connecticut men's basketball team, if I were an AIG executive and I was asked to give back money, my response would also be "Not a dime!".

The government got themselves into this mess. It's similar to loaning money to your dead-beat cousin, then being shocked when he wastes it on booze and gambling. HOPEFULLY the Obama administration has learned something from this. Government should not butt into private industry in this manner. Government should not dump tax money into a failing private enterprise. The failing enterprise is failing for a reason. The market is more than capable of making the necessary corrections without saddling generations of US taxpayers with enormous debt amassed in the name of bailouts because certain institutions are arbitrarily deemed "too big to fail".

It's a fool-me-once-shame-on-you-fool-me-twice-shame-on-me situation. Liberals never learn, so I won't hold my breath.

Why Taxes Matter -- The Perfect Government Stimulus Plan

I work for a large international manufacturing company (one of the largest in the world) with manufacturing plants across the globe. In 2008, an unexpected Brazilian tax law revision changed the tax rate on a product we manufacture in Brazil from 8% to 20%. In 2009 a project is being executed to move production of that product out of Brazil.

I give this example to demonstrate the impact of government rules and laws on business, and how quickly businesses react. In the example above, the project to move the production location was actually started in 2008, the same year the tax law was changed. Taxes are not just a nuisance with which businesses must deal -- they drive decisions. In this real-life example, the Brazilian government's tax increase has led directly to job losses. Politicians take note.

The opposite can also be true. Businesses don't just react to raised tax rates. They also react to lowered tax rates.

If the US government is serious about stimulating the economy and creating real, long-term job growth, the solution is simple: lower corporate and business taxes. Based on the latest pork-filled "stimulus" bill, I fear that the government is not serious about stimulating the economy. They are more concerned with petty politics. However, that's a subject for another day. Getting back to the subject at hand...

Surprisingly, to the credit of the main-stream media, it's been well publicized that the United States has the second highest corporate tax rate in the industrialized world. Only Japan has a higher rate (see chart). It should be noted that Japan is just now starting to come out of a decade long recession.

Remember my example above -- businesses react to tax changes. Imagine the stimulation to the economy if the United States were to lower their corporate and business (taxes on manufactured goods need to be considered as well as corporate tax rates) tax rate to be the second lowest instead of the second highest. Even better, what do you suppose would happen if the United States eliminated the corporate tax altogether. Businesses would flock here to set up shop! Businesses want to do work in the US already. The US has the best educated, most productive work force in the world, but as it stands now the financial numbers don't add up. The movement to the US would be quick and dramatic if the government could set up the proper tax incentives.

What would be the impact of corporations moving business to the US? Jobs. Production. Income. Wealth. Instead of exporting jobs, the US would import jobs. In addition to the incentive for non-US companies to set up shop in the US, the benefit to companies already in the United States would be enormous. Imagine the programs corporations would tee up with a new-found store of cash. In the small division of the company I work for, we have several proposals for new product introductions that can not be started at this time. That would change immediately if tax reductions were made to free up cash. Projects that have been on the back burner would immediately be green-lighted. Instead of a disadvantage, US companies would have a distinct advantage on the global stage. This would drive innovation and growth.

The cash freed up as a result of a significant corporate tax rate cut would give the short-term injection the economy needs now. The job creation from international businesses setting up shop in the US would provide the long-term boost to sustain the economy.

Of course, this plan would cause the government to lose significant tax revenue. The government is now trying to spend somewhere in the neighborhood of a trillion dollars on a stimulus package with dubious potential for job creation. You tell me which approach would be a better way to spend a trillion dollars.

Some people have a knee-jerk opposition to lowering taxes on businesses, especially larger corporations. This is plain foolishness. These people suffer from class envy, as they mistakenly think corporations represent rich "fat cats". Quite the opposite is true. Successful businesses are the foundation of a healthy middle class.

So far, the government has considered no other ideas except excessive pork spending. A truly bold and effective economic stimulus plan would include dramatic corporate and business tax reduction.

Bristol, CT -- Another Example of Government Waste

The city of Bristol, CT has enhanced the quality of life in town by flooding a sand volleyball court in a municipal park to create a small ice skating rink. The rink is nothing fancy, but it's a good use of a town park during winter months when it mostly stands dormant. However, Bristol takes it a step further by posting a town worker at the rink to over see activities. Keep in mind this is a pile of sand with ice on it, not an NHL hockey rink. So, some town employee is paid to sit there are watch people (mostly kids) skate. Why is this necessary? Why is this necessary, especially considering the budget constraints under which the city is operating? The answer is that it's not necessary. After all, the town does not post a worker at the park during the summer months to supervise volleyball, basketball, softball, or the playground. Why are these summer activities any different from a small skating rink in the winter? I know many smaller towns that have made similar rinks. They leave the rinks open to public enjoyment. No supervision required. In order to save money (and common sense) Bristol should do the same, and get rid of the unnecessary "supervisor" at the town rink.

A Classic Tax-n-Spend Liberal – That’s Change?!

It’s just over a week until Election Day, and I’ve resigned myself to a Barack Obama victory. Obama has run a campaign with the theme of “Change”. Change you can believe in. Change we’ve been waiting for. (Note: Both of these Obama slogans end in a preposition – a grammar no-no. I hesitate to point this out because I’m no grammar expert. I’m sure to have grammar faux pas in this very post. However, I’m not running to be leader of the free world, with millions of dollars at my disposal.). Change for America. Change the course of history. Change the rising tides of the seas. Change, change, change, blah, blah, blah.

Oh, there will be changes, but they won’t be the kind of changes Obama supporters are hoping.

If you think the economy is tough now, wait until Obama wins.

Despite all his grand talk, Obama is nothing more than your classic tax-and-spend liberal. A fact that cannot be disputed is that Obama plans to increase the level of federal budget spending. This is not my opinion, or some Conservative attack. It’s simply fact. Obama’s social programs, particularly his health care plan, will increase the federal budget. Even with an end to hostilities in Iraq, an Obama administration plans to increase spending. The argument here is not whether increasing federal spending is good or bad. I’m simply pointing it out as fact that spending will increase under the Obama plan. That’s the “spend” part of Obama–the-tax-and-spend-liberal.

As far as taxes go, yet another undisputable fact is that Obama plans to increase taxes. OK, one can argue that he plans to raise personal income taxes on only the top 5% of Americans (More on that later), but regardless of who will be paying the taxes, the fact remains that he certainly plans to raise taxes. When the government plans to take a higher percentage of available income in taxes, no matter who’s paying, that’s a tax increase. That’s the “tax” part of Obama-the-tax-and-spend-liberal.

Let’s delve a little deeper into Obama’s tax increase plan. In addition to raising the personal income tax on the top 5% of wage earners, Obama plans to let the Bush tax cuts expire. Regardless of his campaign rhetoric, this will certainly impact some of that precious 95% that Obama claims will be unaffected. On top of these taxes, Obama’s plan is to raise the capital gains tax as well as taxes on corporations. Such tax increases are indirect taxes on individuals. They don’t show up on your 1040 form in April, but they certainly impact you, whether you notice it or not. These hidden taxes play well with the populace because they tap into people’s intrinsic jealousy. They fan the fires of class envy, and eventually get passed on to the “little people” anyway.
Senator Fred Thompson used an analogy of a pool to help explain Barack Obama’s tax plan. Imagine our economy as a big pool. We are all in that pool together; corporations, working people, rich people, unemployed people, retired people – all together. So, if the corporations are on one side of the pool, and Obama takes water away from them, what happens to everyone else in the pool? The water level does not just go down on the corporation’s side; it goes down for all.
Obama is under the impression that an increase in the corporate and capital gains taxes will not have impact on most Americans. Well, again to steal a concept from Fred Thompson, raising the corporate tax will have no impact on you as long as you don’t work, invest, or buy anything from a corporation. Unlike government, which continually runs on deficit, the bottom line is not a moving target for a corporation. If the government takes away more money in the form of taxes from a corporation, that corporation will have to take actions to make up for this loss. Those actions could come in the form of tightening their corporate belts, but it can also come in the form of layoffs, reduced spending and investment, and the passing on of costs to consumers. Corporations are already meeting to layout plans for cuts to offset the Obama tax increases.
Obama likes to say that we are all in this together. In his now famous lecture to Joe The Plumber, Obama said, “spread the wealth”. Obama needs to understand that when it comes to taxes we are also all in this together. Once again, liberal policy will fall victim to unintended consequences, and instead of “spreading the wealth” the Obama tax plan will most certainly spread the pain.

Democrat Bail Out Logic Fails

No MBA. No PhD. Just a citizen with a belief that there has to be a better way.

Follow the logic here...


Throughout this campaign season Democrats have been claiming that this is the "worst economy since the great depression" for the working and middle class Americans that make up the majority of the populace. Democrats further claim that if we do not pass a $700 billion dollar economic bail out package, Wall Street will collapse resulting in a severe drop in stock prices. Given these two premises I pose the question: Why would a drop in stock prices hurt the struggling "little guy"? If the working and middle class are doing so bad, how would they be able to own significant amounts of stock? Using the Democrat's logic, working and middle class people are in such bad economic shape that they could not possibly afford to own significant caches of stocks. Therefore, again using Democrat logic, a stock market crash would have no impact on working class people!


Ahh, but you counter by saying "A crash on Wall Street would trickle down to Main Street." I heard this line over and over again in the first presidential debate. Wait a minute! According to Democrats there's no such thing as trickle down economics! How can this be?!

Ignoring this incongruity in Democrat economic dogma, let's suppose that a Wall Street failure could indeed trickle down to the working class, and eventually cause mass unemployment. Although highly unlikely (boardering on impossible), let's even go as far to assume that it could cause Great Depression-level unemployment. If that's the case, then why would we not let the free market purge Wall Street through the natural market forces, then set the $700 billion aside for the "little people" in anticipation of the great mass of unemployment and hardship that could follow? Let's assume the $700 billion doesn't make it to Wall Street and an economic meltdown follows. Let's do some math, using approximate numbers and some general assumptions, to see what $700 billion could do:


There are approximately 300 million people in the USA.
Out of those 300 million, about 70 million are children.
About 50 million people are already retired.
That leaves 180 million people.
There are about 14 million non-working spouses (a.k.a. stay-at-home moms/dads)
That leaves 166 million.
Out of that 166 million, let's assume 5% of the people are unemployable in any economy.
That leaves us with about 158 million workers that have the potential to lose their jobs if massive Great Depression-like job losses were to occur.
Jobless rates during the Great Depression reached into the 30% range.
30% of 158 million means that we are looking at a potential pool of 47 million unemployed workers at absolute worst case levels.

Even at those crazy-high, sky-is-falling, end-of-the-world-as-we-know-it rates, $700 billion would be enough to give about $15,000 of benefits to each and every one of these unemployed people.

Now, $15,000 would not be a fortune, but remember it would be $30,000 for 2 income families. With the median annual family income in the US at about $50,000, this $30,000 could possibly keep a family afloat for nearly a year assuming they tightened their belts (which is not an outrageous assumption considering they are out of work). Also, consider that this money would be in addition to any state provided unemployment insurance that currently exists. Needless to say, even in this economic Armageddon situation, the $700 billion would go a long way in getting a family back on their feet.

Being more optimistic, assume that instead of 30% the unemployment level would double to about 12%. It sounds low compared to the 30%, but it would represent a huge economic issue in the US.

12% of 158 million is about 19 million workers.
With 19 million unemployed, the $700 billion could provide a whopping $38,000 in benefits per person. A 2-income family would get $76,000. That's $26,000 more than a median income family would make working for a year! In other words, their share of the $700 billion would be a raise.


That's the numerical look.


So, what's my point? Do I really believe the government should hold $700 billion in anticipation of 30% unemployment levels? Of course not. Do I think the government should lay back and just let the economy collapse? Definitely not. My point is that $700 billion is a lot of money, there are a lot of ways that $700 billion could be used. However, the only option being discussed is a Wall Street bail out.

Our government leaders should use this No-vote as an opportunity to reevaluate their approach. Maybe I'm dreaming, but wouldn't it be nice if the so-called economic experts came up with some innovative alternatives for $700 billion besides a Wall Street bail out? In the end, a Wall Street bail out may still be the best option, but is it too much to ask for our leaders to come up with some alternatives to at least consider?

As much as I believe it makes sense to now consider other alternatives, I my expectations remain low. After all, how can I expect anything other than a Wall Street bail out approach to the current economic slide when the Senate Banking Committee Chairman is in the back-pocket of the Wall Street banks. See the graphic below courtesy of The Hartford Courant showing the top 20 donors to Senator Chris Dodd. Jeez! Money drives behavior. With that list, why would we expect anything different. It's been said that the definition of insanity is to continue to do the same thing and expect different results...

Spending Taxpayer Money Is The One True Bipartisan Issue

Citizens constantly hear the call for bipartisanship from whinny politicians looking to divert blame away from their culture of do-nothingness, and from a left-leaning media hoping Republicans, which they view mostly as irrelevant, kooky pests, will come over to the left side of the aisle in the name of “cooperation”. But, as much as we hear these misguided pleas, gridlock and personal-attack politics between Democrats and Republicans mostly remain the standard of the day…except on one issue -- spending taxpayer money.

As congress contemplates a $700 billion bank bailout, there has been little quibbling between the parties. The Democrat-controlled congress seems to be in unprecedented agreement with the Republican Bush administration. Oh, there have been a few descending voices, especially from the right, but for the most part both branches of the government are eager to write off an jaw-dropping chuck of taxpayer money. Never before have we witnessed such a love-fest between Bush and the liberal-controlled congress.
To put $700 billion in perspective, the national debt is about $9.2 trillion. We spend over $400 billion per year servicing interest on the national debt. This bail out would be equal to 8% of the enormous national debt that has been built every year since the 1970s. The federal budget is about $2.9 trillion dollars. The $700 billion bail out would be equal to about 24% of the federal budget.
To put the proposed bailout into individual terms, if you have a total personal debt (mortgage, car loans, credit cards, etc.) of $250,000 (this is reasonable since the median home price in the US is about $212,000), the bail out would represent a one-time payout of $20,000. I don’t know about you, but I think most middle class families would have a tough time dumping $20,000.
Thinking of the bailout in terms of income, the median household income in the US is about $50,000. If you had a $50,000 household budget, this bailout would be the equivalent of dishing out $12,000.
Whether the number is $12,000, $20,000, or $700 billion, the point is that it’s a big number relative to US government finances. Republicans and Democrats both belly-up-to-the-bar when it comes to spending taxpayer money. Republicans claim to be fiscally conservative, but seem to rarely live up to their tough talk in practice. George Bush, a supposed conservative who’s run up record spending and record deficits is a great example of the lip-service-only philosophy politicians of both parties seem to exhibit towards fiscal responsibility once they get to Washington. When it comes to politicians in practice, there seems to be no such thing as fiscal responsibility, regardless of party. Democrats don’t even bother to pretend to have fiscal responsibility. Their party platform for years has been based on reckless spending and redistribution of wealth in an attempt to buy votes with give-away programs. Their party-first philosophy gives no thought to the ramifications of their actions on the welfare of the nation. I’ve come to expect fiscal irresponsibility from Democrats. However, I expected more from our so-called free market-loving, fiscally conservative Republican leaders.

An Observation on Immigration Policy, Globalizaton

Newsweek magazine's non-election feature article this week had to do with how the United States is prepared to compete in the global market. As China and India continue to grow, how will the United States continue to stay on top economically? Will the United States be able to stay on top economically?
One of the points made in the article was that India and China are greatly outpacing the US in producing engineers and other technical professionals. According to the Newsweek article China and India now graduate 5 times more engineers than the United States. At this rate, by 2011 90 percent of all engineers in the world will be in Asia.

With that in mind, I'm forced to consider the demographics of the technical and medical majors in American universities. The engineering departments are filled with Asian students. Most of these students come to the United States on student visas. They get educated in the American universities, then many return to their home countries without ever contributing to the American economy.

In light of the continually rising global economy and the pressures US businesses are facing from all over, why does the US government continue to allow these student visas? Americans are essentially training our competition, and if these students are being trained in public universities, Americans are using tax dollars to do it. Americans are essentially subsidizing the weakening of any US technical advantage.

Why?

There was a time when a high number of foreign students in US universities did not pose a threat. Perhaps that time has passed.

I have a suggestion. Instead of limiting student visas, the State Department will still allow student visas, but with one stipulation. If you take advantage of a US education, post-graduation you have to work at least 7 years in a job within the United States or if working outside the United States it would need to be for a US company. I suggest this stipulation should be required for all foreign students looking to take advantage of the superior American university system, but especially for students looking to go to a public university.
Why did I pick 7 years? As a engineering degree-holder myself, I know that the first two years on the job are mostly training. I figured that 5 solid years would be a fair contribution. Therefore, you need 7 years; 2 for training, 5 for production.

What would be the result of such a policy? I suspect the number of student visas would go down. Universities would not like it because they make a lot of money off these students tuition. Supply and demand would dictate that Universities might actually have to lower tuition, or at least slow the tremendous growth of tuition. Is that such a bad thing? Secondly, demand for engineers and professionals may increase in the workplace. Therefore, there would be more incentive for US students to fill the gap.

I'm not suggesting that we should keep foreign students from our universities. We should accept the best qualified students regardless of location, but is it too much to ask for a little bit back in return?

A Rarity: School Board Pulls Off Budget Surplus

I've been especially tough on school boards and school administrators in this space in the past, especially the school board of my local town of Bristol, CT. Since I've been so tough in the past, I found it only fair to give credit when credit is due. The Bristol, CT Board of Education announced this week that they ended the fiscal year with a surplus of nearly $800,000.

I send my kudos to the Board of Education and administrators of all Bristol schools that made this possible.

This demonstration of efficiency and fiscal responsibility in the face of rising costs (energy, food, etc.) should be applauded. The effort will go a long way towards increasing the trust of the local tax payers in the school system management.

I don't know all the details of what created the surplus, but I'm taking this one at face value.

Great job BoE and thanks for looking out for the local tax payers! Keep it up.

Ever Wonder Where Your Local Property Taxes Go?

A Redding, CT non-partisan action group has created an on-line calculator to demonstrate how the town spends local property taxes. In the state of Connecticut nearly all local government is funded by one of the highest property taxes (taxes on real estate and registered vehicles, i.e boats, cars, motorcycles, etc.) in the nation.
Although the distribution of expenses in your town will not be exactly the same as Redding's, the calculator still gives you a general idea of what the budget requirements are for a typical town.

The calculator can be found at the following link:

http://betterredding.org/html/taxspending.html

One thing that is noticed immediately is that 71.4% of the town budget is spent on the public school. This is again typical of a Connecticut town. Connecticut spends more per pupil on public education than any state. Despite this spending, Connecticut remains in the mid-30's in standardized test scores, including SAT scores.

Thanks NABR for bring transparency to taxpayers with regards to local government spending.

Exercising Civil Disobedience While Paying Property Taxes

July and August is the time when vehicle property tax comes due in all 169 Connecticut municipalities. As if the property tax Connecticut residents pay on their real estate is not enough, like many states, Connecticut residents are also taxed on all registered motor vehicles including cars, trucks, campers, boats, and even trailers.

This summer, the tax payers here at Liberty Alert (i.e. me) used the opportunity to let the town of Bristol, CT know what we really think of their tax collection. See the attached picture. Each tax bill was separately mailed with a special label for the tax collector on each envelope.

Now, I fully understand that the tax collector does not determine the tax rate or tax system. However, this small act of civil disobedience was done not just for the benefit of the tax collector. Those envelopes will be seen by multiple post office employees, and likely some town hall staffers on the way to the tax collector. The envelopes may even draw enough attention to get the mayor or some council members in the act. The point is, this small act of rebellion could get noticed, and help encourage some civil disobedience in others. Is it a bit childish? Perhaps. But, in the spirit of Henry David Thoreau, a little civil disobedience is a good thing. Humor and satire can be a strong tool to get your point across. I look at it more like playing a prank on a good friend. You like the friend, but it's fun to see them go through a little harmless suffering. Don't let the government off the hook. It's ok to give the government a hard time once in a while. The government is not above being harmlessly punked. Remember, the government should fear the people, not the other way around!

Incidentally, Civil Disobedience by Henry David Thoreau is an American classic that I highly recommend. The essay inspired such leaders as Martin Luther King and Gandhi. It is a quick read, and can likely be found at any local library. It's a must read. Look for a future book review of Civil Disobedience on Liberty Alert.

What the US Government Should Do About High Oil Prices -- Nothing

Nearly everyone in the US is struggling with the high price of gasoline driven by the recent run up in crude oil prices. Rightly so. In the United States, gasoline is closer to a utility service than a luxury item. The layout of the country requires gasoline to drive the economy. Where in Europe their transportation infrastructure was built upon rail travel, the United States has the greatest car-based infrastructure in the world. To get to the point, the US needs gasoline. So naturally, when prices go up, people look for relief. The question to ponder is; should US citizens look to government for that relief?
The US exists in what is supposed to be a free market economy. A free market has proven to be the most successful economic system. When government gets out of the way, the natural ambition of people is able to thrive. One needs only to look at the recent rise of the Chinese economy after the government loosened the reigns and moved towards a free market system to see the power of a free market economy. A free market is intended to be just that: free. Free from government meddling. Given time, free economies have been able to correct themselves. The forces of supply and demand are powerful. Perhaps even more powerful than anything the US government can do.
However, it's an election year. Candidates love to make promises to people. Republican or Democrat alike rarely miss an opportunity to promise government action to alleviate any ill. And what is government action? Essentially it's spending money. What is government money? It's our money! Spending money to try to save money does not make sense, especially when you consider the device spending the money is the highly inefficient government machine. Regardless, this does not stop the pandering from politicians. I'm reminded of the old saying "When your only tool is a hammer, every problem looks like a nail." Government seems to believe that more government is the only solution to any problem. Perhaps even more troubling than the political pandering on the campaign trail is the citizenry demand for government action. The victim-mentality of a large segment of the population constantly looks to government to solve every problem. This fuel that drives the growth of Big Government. Unfortunately, the price of that fuel seems to be all too low these days. Let it be known that although the Democrats are synonymous with Big Government, the Republican party is hardly innocent of the recent build up of Big Government.
I urge people to have a little patience and a little faith. Understandable that can be difficult, but it's necessary. I'm right in the high gas price fox hole with the rest of you. But I have faith in the free economy. Without any government action whatsoever, the price of oil has gone down for 2 weeks in a row. Again, the forces of supply and demand are at work. The market could not sustain such high gas prices. People are changing their habits. Americans are using less gasoline. Demand is down. Prices have followed. All this with no government action. I'm hardly naive enough to believe that were are out of the high-oil woods. The price can certainly spike back up. It can continue to climb. And if that happens, the free market will again react. Technology will step in. New technology that we have not even yet anticipated would eventually come to fruition. It might not happen over night, but I have the highest faith that the market would certainly respond quicker and more effectively than any government action.
So, is there anything the government can do? Certainly there are actions the government can take to promote beneficial behaviors. First and simplest, they could reduce regulations on drilling, allowing for more drilling. This is a great example of how government intervention staggers a free market economy. Loosening the regulations would allow the free market to respond to the natural market demand. I'm also open to hearing about potential government economic incentives. Perhaps tax breaks on alternative energy companies or users. However, beware of government intervention in the free market! Ridiculous ideas like a "wind-fall profits tax" is one of the scariest things I have ever heard escape the lips of a politician. What's even scarier is that when those words were uttered, the crowd cheered.