Obama and the economy

It is so easy to blame our economic woes on Obama.  He is our president, and he is the most powerful single person in the US.  There are many things Obama and his cabinet have done (or haven't done) which annoy me; but I should point out our current economic woes are, for the most part, not his fault.  Yes, I know our budget deficit has skyrocketed over the last several years.  I remind you Obama's been in office only a year and a half.  Further, a great deal of the overspending we're seeing under his administration falls into three categories.

1. Paying for the Iraq and Afghanistan wars.  Neither of these were his doing, they belong to the Bush years.  You cannot blame those staggering costs (nearly $1 billion a year) on Obama; he didn't start the wars, he's stuck with them.
2. Paying for the bailouts of banks and automobile companies.  Most of both of those policies were decided before Obama took office in January of 2009; besides, they would not be needed if the Republican congress under Bush had not repealed most of the banking regulations between 2000 and 2006.
3. Stimulus packages.  In this case Obama had little choice:  either let a failing economy continue to fail or inject some cash into it.  Also, the stimulus bills are not his; while he urged Congress to come up with something and he did sign them, he did not create them.

Again, let's be clear here.  I do not think Mr. Obama is completely blameless for our continuing economic woes.  However, one cannot expect him (or Congress, mostly) to fix in two years a mess the Bush administration (and his Congress) took six years to create and another two years of apathy from Democrats and resistance from Republicans and Mr. Bush himself.

What I'm hearing from people is disingenuous at best, hypocritical at worst.  If Obama and Congress let the Bush tax cuts expire, they'll be blamed for raising taxes; if they extend the tax cuts, they'll be blamed for worsening the economy.  The way I see it, the Bush tax cuts need to expire.  Further, regulations protecting consumers from the runaway profiteering from banks and corporations must be reinstated; those regulations brought tax income into the economy.

For those of you who think Bush did the right thing with his tax cuts, consider this:  he said it would make the economy better and help the middle class.  Well, did they?  We've had eight years to find out.  I think the answer is obvious:  we (the lower and middle classes) are not better off now, we're much worse off.  And before you blame Obama, consider this:  economists agree it takes at least two years for an economic policy to take effect, and Obama hasn't been in office that long.  Further, conservatives (mostly Republicans, and some Democrats) have been fighting Obama every step of the way; how can we know if Obama's policies would work if they aren't passed?

Final thought:  keep in mind our economy is not Obama's only worry.  Historians agree almost unanimously Bush was the second-worst President we've ever had, particularly concerning foreign policy.  Not only does Obama have to fix Bush's mess at home, he has to fix it across the entire world.  Our reputation among the world's governments suffered horribly during Bush's eight years, and the eighteen months since Obama took office is hardly enough to fix that.

The people really responsible for our continued economic problems are Congress, who cannot agree on anything, primarily because many Republicans seek to discredit Obama at every turn.

If you think I'm making this up, please see the memo sent by Republican leader Michael Steele and other strategists to Republican members of both Houses (CBS news at http://tinyurl.com/26mmnrc).  This is public information now; in the memo, Republicans are given various parliamentary and other strategies to stop any legislation proposed by Obama (primarily health care but also other proposed legislation), with no consideration whether the policy is any good or not.  Also see the Facebook group "Stop Obama" and the group StopObama,org, among others.  I cannot remember any worse vitriol directed at our presidents, ever.

In short, I don't see how we can blame Obama for our current mess because a) he hasn't been around long enough to fix pre-existing problems, and b) nor has he been around long enough to create any new ones.  What we can blame him for is not keeping some of his campaign promises, a big one being more transparency in government.  Where is that?

If I were President: ! TAXES !

Every time I think about taxes, taxation, and the IRS I think of something new. In some ways I think a flat tax would be a lot cheaper to manage, but if a flat tax is installed one would have to count all income. The example I used was Lee Iacocca in the 1970s with Chrysler. Mr. Iacocca took a salary of $1 for the first years of his contract. Under a flat tax on income, should Mr. Iacocca have gotten the same servies as others in his neighborhood who make $20,000? $40,000?

All wage statistics are taken from the US Department of Labor.

Interesting poverty statistic: 25% of African-Americans and 20% of Hispanics are living in poverty. The overall rate is 12.5%. I do not believe this means whites are better workers or that non-whites are lazy. I do believe this is a subtle form of racism (more on the negative affects of this in my next post).

Suppose I install a flat tax of, say, 15% on all income. To be fair (see the Iacocca question), all income must be taxed, including dividends and capital gains. Welfare and unemployment insurance is not income, nor is Social Security above a certain minimum (more on that in a bit). Currently capital gains are taxed at 15%, so its inclusion as income would have no effect on investments.

Interesting poverty statistics: for one person, the US defines the poverty level as roughly $10,500 per year. For a married couple with no kids, the level is $13,500, which isn't much of a gap. For a married couple with two kids (my situation), the poverty level is about $20,500. Now, for a rent of $900 a month (a typical two-bedroom apartment in a suburb), that means roughly one-half of the family's income is spent on shelter. This to me seems unreasonable; it certainly puts home ownership beyond the means of most people.

Some people say taxing dividends as income amounts to double taxation. They're right; a company pays dividends out of its profits. Profits are taxed, and then the dividends are taxed again as income when a person declares them on their income tax. I can say three things in response to that. One, that is the current situation; making dividends subject to a flat tax doesn't change the current tax structure. Second, companies routinely make more money than their profit margins appear to be, as they get tax breaks we individuals do not get. I am not personally against these tax breaks; their purpose is to encourage businesses to keep doing business where they are rather than move to a cheaper location. However, it does weaken the argument over double taxation because not all company income is taxed. And finally, it is reasonable to ask companies employing thousands of people and making millions of dollars (sometimes billions!) to pay more taxes than does a single, four-person family. This is one of the reasons I sometimes lean toward a flat tax on everything.

Interesting poverty statistics: a minimum-wage job at the current US minimum wage is $6.55 (it is different in different states, so I'll use the overall average), which amounts to a salary of $13,600 per year. This is not substantially above the poverty level; an extra $3,000 a year is only $58 per week. You can barely buy a decent pair of sneakers for that. If a family has children and they both work, where can they find daycare for $115 a week? If they alternate shifts, one parent will not see the other except on weekends. That's almost like having a divorce. They might be able to save a few bucks on daycare, but then they need insurance... and what if they do not work for a company providing insurance?

One last flat tax comment. This is how it would work. I have not checked these calculations with an economist, so I have no idea if it would work; this is just a "fer instance" exercise. My "flat tax" would have the following attributes.

• 15% tax on all income (dividends, capital gains, salary, commissions, everything).
• Below two and one-half times the poverty line (based on filing status and indexed to inflation) the individual will pay no taxes at all.
• Social security income over five times the poverty line (again based on filing status and indexed to inflation) would be taxed at normal income rates.
• Personal deductions will remain for one home, one home equity loan, local and state tax payments, day care expenses (say, $7,000 per year per child under 15, indexed to inflation, limited to $28,000 per year), student loan interest, and certain savings programs (with an upper limit on income to be eligible) such as 529 plans.
• Paycheck deductions for 401-K, 403-B, and other retirement and IRA will remain as well.
• Tax credits I have yet to work out, but at least one would be for teachers spending their own money for school books etc.
• Company profits will be taxed at the same 15% rate, with certain (to be worked out) deductions for R&D. Further, money paid out as dividends will not be taxed.

There are some incentives to work out. I would like to see people work for a living and not be on welfare. I think I stated (in an earlier post) I would create a federal jobs program. I would like to see everyone be able to afford housing, food, clothes, and companionship (essentially Maslow's basic needs). I would like to cut down on corporate welfare; they don't really need it. It does not seem fair for the US government to limit profits or prices; however, it is perfectly fair (and expected!) to collect a fair and reasonable share of the companies within its borders. Governments exist for the good of all, not just the good of corporations.

Interesting poverty statistics: a person in the US cannot get insurance unless that person is rich or working. This means a large number of people in the United States cannot get health care of any kind. To me this is backwards; the people most in need of preventive care are the poor. Health insurance should be a basic right, not based on your job.

It's probably hit you already: I said I was going to tax Social Security income. To clarify, I am going to tax some Social Security income. This is to prevent people who earn a lot of money and collect Social Security from gaming the system. In addition to the above taxation, people earning Social Security with additional income greater than five times the poverty level would have their Social Security checks reduced by 5% for each multiplier they are above the poverty line. For example, today five times the poverty line is $67,500. If a person was receiving non-Social Security payments totaling, say, $95,000, they would receive 85% of their expected social security check each month (five percent times three). Naturally all of this would be indexed to inflation.

If a flat tax can't fly, then we need to revamp the current system. Did you know the IRS rules now run to over 1,500 pages? Are we kidding? Many of those pages are tax loopholes or outright breaks for corporations, or limits on income so individuals cannot get tax breaks they may need. I'd certainly roll back some of the Bush tax cuts; re-evaluate the business tax situation; install a higher Federal minimum wage (starting at, say, $10 an hour) and index it to inflation; and look to overhaul the government's budget through GAP (general accounting practice) and the GAO (government accountability office).

One last comment on taxes. These sound like either really good, or really bad, ideas. The big problem I see is politicians are now so concerned with getting re-elected they will never vote to raise any taxes, or even talk about it. As I said in my first post, when I pick my cabinet members I will make sure to immediately start a knowledgeable task force to study our current tax and budget situation to improve all of our standings relative to the companies and their CEOs making astonishing amounts of money most of us can only dream of.