Category Archives: Obama

October 14, 2011 · 3:04 pm

Driving to Reelection?

With Michigan becoming a political battleground in the 2012 election, President Obama gave a speech at an auto plant, and brought South Korea’s President with him to the Wolverine State. The free trade agreement Congress passed opens up business with our neighbors to the east and both president’s gave a speech at the plant explaining how the new trade deal will benefit both countries. But wait, I thought American manufacturers were hesitant about free trade agreements because they don’t want to lose their jobs? It turns out American’s are much more sensible than that.

In a story published in the Birgmingham Patch, the United Auto Workers local leader Louis Rocha said many of the plants employees were excited to see the President, and when it comes to the new trade agreement; “This is supposed to bring some more jobs here back to the country. … There’s a lot of good opportunity for growth here in Michigan.” Autoworkers have good reason to trust Obama, they won’t forget the auto bailout that saved thousands of jobs which helped today’s auto industry to thrive.

In January USA Today and Gallup asked Americans if they favor approving a free trade agreement with South Korea, and 41 percent were in favor while just 22 percent were opposed. While there have been many stories about factories closing because the companies decided to export those jobs to China, the International Trade Administration reported that U.S. “exports rebounded to near-2008 levels and contributed significantly to the United States’ overall economic recovery. U.S. exports of goods and services totaled $1.83 trillion, supporting millions of jobs.” Many Americans have felt this impact by understanding the cars they are building are sent abroad, and that the company they work for may make things in Asia but sell the items in North America.

You can give credit to Eminem, or maybe it is because their sports teams are doing well, but economists will tell you Detroit is doing well because of their ability to export their products. All three major auto industries have revamped their product lines and are reporting strong sale records. While the unemployment rate is still one of the highest in the nation, the good news is a recent report showed that jobs are coming back to Michigan and more jobs are available today than in 2009 when economists said the state hit rock bottom. But the question remains if Obama can show the American people they are better off with him than without him.

This is obviously going to be a tough sell. With unemployment hovering around 9 percent and U.S. GDP barely in positive numbers, many families are still struggling and want a different direction. Both Obama and now Senate Republicans have offered jobs plans that will go nowhere. But in this climate it looks like it is better to have plan then not. When Rick Perry said he would unveil his jobs plan in the last debate he got hammered. Even while policy wonks have been analyzing Herman Cain’s and Mitt Romney’s jobs plan, and pointing out its flaws, they still seem more prepared and ready to take the helm than the other candidates.

Obama also has a basic economic problem. Just because the auto industry is doing well does not mean the rest of the economy will start to roll again. That means the people who do not have the skills to work for Ford can still fall behind. This obviously is not Obama’s fault but he could take the blame for it. In the mean time he should be calling to put more money into Research and Development, allow colleges to start programs that will train people to enter new areas of industry, and despite the Solyndra scandal put money into companies that will help America continue to be a leading producer in the world. Some of these policies have already taken place such as with battery powered cars and increasing broad band accessibility.

None of the candidates are going to be able to prove one way or the other if their plan will actually work. While acknowledging more work still needs to be done the auto industry is one area Obama can tell a success story. Conservatives will argue that it has no chance of passing Congress (which it doesn’t), but when was the last time getting anything through Congress was easy?

The polls currently show a close race between the President in head to head competitions between some of the GOP candidates. As Obama is making the political rounds I can’t remember the last time he invoked any of his possible challenger’s names. The election is still a long time from now and the way Obama will be forced to defend his record will determine whether he will win or lose.

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September 19, 2011 · 12:50 pm

Obama Going Big On Taxes

President Obama unveiled his tax reform plan in a speech today in the Rose Garden. It was a populist message that called for raising taxes on the wealthy, and reminded everyone of his jobs plan he sent to Congress last week. Obama said the plan has “two dollars in cuts for every dollar in revenues” and that he would not have had to propose these cuts if the Republicans did not walk away from the debt ceiling talks.

Overall there are a lot of good ideas in the plan, most notably raising taxes on the rich along with closing corporate loopholes in order to help pay down the deficit. The spending cuts are from the military draw downs in Iraq and Afghanistan and areas to Medicare and Medicaid that will take place in 2017. It is meant to cover the $447 billion jobs plan and reduces the countries debt by $3 trillion over ten years.

This is a very populist proposal that will rally his base and has no chance of passing Congress. It helps Obama with liberals because he is raising taxes on the wealthy and not raising the age when people are eligible for Medicare or Medicaid. Nancy Pelosi and other Democratic members of Congress have already praised the proposal mainly because of its emphasis on taxes and that it does not make changes to Social Security.

We have already seen early signs these ideas are putting Republicans on the offensive. GOP elected officials and pundits have already said these ideas are “dead on arrival” because they have already been voted down. Some of the new revenue comes from tax increases from the Bush tax cuts that were meant to expire at the end of the year, making it harder for Obama to take credit for “changing” the tax code. Those are also cuts Republicans have staunchly defended in the past.

Republicans have been calling these ideas “class warfare” because Obama is targeting the rich. It is true that these ideas have been proposed before, particularly in the intense debt ceiling debate, where everyone wound up looking bad. To say this is class warfare though is a hit below the belt. If it is good policy to cut benefits to the poor like food stamps and other unemployment benefits, why is that not class warfare too? Most Americans have common sense and realize it simply is not right to put all the burden of fixing the economy on one group.

That is why there is a chance Obama can reach Independents and Moderates with his new proposals. Most Americans already believe increasing taxes on millionaires is a good idea. In a poll conducted recently by Zogby, they found 46 percent of American’s agreed with the statement “Modernize the nation’s infrastructure and help pay for it by ending the Bush tax cuts for households earning more than $250,000 and closing tax loopholes for large corporations.” That includes 48 percent of Independents (the poll release does not say how many people said they could not decide). It is not a majority but it is strong a start.

One thing to keep in mind with deficit reduction though is that these spending cuts could hurt job creation in the short term. Many economists have been sounding the alarm because many states have been cutting spending, which has lead to less construction projects and not as many new jobs for teachers and other areas in the public sector. You also lose revenue for those social programs everyone wants to save, and when it comes to the state sales tax; if people do not have a job and are spending less money, you lose revenue their too. That is why, while I am glad Obama is talking like his old self again, I know in the back of my mind the policy recommendations he is putting out there could be stronger.

The jobs plan, and today’s deficit reduction plan, are good steps in the right direction to getting this economy going again. It focuses on big and important changes that need to take place. It starts honing in on areas that effect every day Americans who are struggling to find a job and pay the rent. It also helps the middle class by securing a stronger future for their children by investing in education and other programs now that will create jobs for them later on. And of course, they will not be solely responsible for paying back the debt.

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Filed under Economics, Obama, taxes

August 18, 2011 · 8:37 am

Remember Jobs?

It’s been two weeks since Congress extended the countries debt ceiling, and out of the 435 members in the House, there have only been six bills introduced that have something to do with creating jobs. Three of which have been introduced by New York Democrat Representative Paul Tonko. It would be really easy for me to go through each bill and say why they are good or bad. But apparently the President is going to put out his own job plan in early September, and at the end of the day that’s what will be the base for future job creation policies.

In an interview with Chuck Todd, White House Press Secretary Jay Carney said that the President’s plan is a two step approach that is linked with the deficit commission that will start its work when Congress comes back. While looking for cuts in the budget, Obama is going to give recommendations that will no doubt be included when members introduce job bills when they get back to Washington. One of the policies is to extend the payroll tax cut for small businesses, and other ideas that are “totally consistent” from the negotiations that took place with John Boehner which included new revenues.

I wouldn’t be surprised if we saw more funds or tax incentives to build or repair roads across the country, research for clean energy initiatives (Obama has already called for a carbon tax), or incentives for banks to give businesses money that would create job training programs. It would be surprising if he calls for reforms to Social Security again being this close to the election and the Democrats left in Congress have no appetite for it.

Politically, this move has more advantages than disadvantages for the President. If Republicans are still willing to say no to anything Obama wants, the President can dub them the Do Nothing Congress in 2012. The flip side is if they do pass some of the ideas he proposes, he can say that he signed a bipartisan piece of legislation into law that will create jobs.

After he comes back from Martha’s Vineyard Obama will be recharged and have the energy necessary to push his ideas. He won’t win any political points by standing on the sidelines working the phones. He needs to play hardball with Republicans, and remind the American people they have done absolutely nothing to create jobs since they have taken control of the House.

Of course that’s easier said than done. In the interview, Carney told Todd that the policies the President will be calling for are “things in a normal universe should have bipartisan support.” But as we’ve seen Washington is nowhere close to the Milky Way galaxy. These are the most partisan times in our nations history and it’s disgusting. That’s not Obama’s fault, but while he positioned himself as the adult in the room he lost control of what was going on.

This is a safe win win move for Obama, and look for anything he proposes to be promoted as a big idea. But if the policies he proposes are passed and are substantial, it could be even bigger for the American people.

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Filed under Economics, Jobs, Obama

August 9, 2011 · 8:16 am

Obama on the Political Fence

I always get yelled at for being an Obama apologist, and after writing this article it’s not going to be any different. CNN came out with a poll that was conducted over the weekend that had President Obama’s approval rating at 44% with 54% disapproving of his job performance. But seeing who is disapproving of the President is telling, and shows us the type of voters Obama need to reach in order to win reelection in 2012.

Having commented on liberal blogs, I try and reason with those who say the President is trying to take away their health care, or Social Security. Of course this isn’t true and is actually what Republicans would like you to think so liberals stay home on election day. Fortunately most liberals don’t believe the hype.

In the CNN poll it showed while most people aren’t thrilled with Obama, he still has strong support with liberals (70%) and Democrats (77%). Among people who said they disapprove with Obama’s performance, only 16% said it was because he was not liberal enough. That it is a seven point jump from May, but not enough to cause serious panic for Obama’s prospects in 2012. Those are the people who Ralph Nader attracted when he ran for President. No matter what Obama does they will never be happy with him. In 2012 they will either stay home, or vote for him because they don’t want to take the risk of having another President like George W. Bush.

Not surprisingly it’s the exact opposite for conservatives. 87% of those who identified themselves with the Tea Party disapproved of the way Obama was handling his job. Virtually the same amount of Conservatives disapproved at 79%, and Republican’s at 88%. Again, they were never going to vote for Obama just on general principle.

What concerns me about these numbers is with the Independent and Moderate voters. Just 36% of Independents approve of the way Obama was handling his job. They don’t have a political affiliation, don’t believe one party is better than the other, but they are politically active. They will be voting in 2012 and even though they take forever to make up their mind, they are paying attention. While people who said they were moderate gave Obama a 54% approval rating, these voters are less likely to go out and vote.

There has been some good analysis by smart people recently. The first by Stanley Greenberg who argued Democrats need to start talking about jobs. The other by Drew Westin who said the President needs to stop telling people what he’s doing and show them. Greenberg’s argument is so obvious I’m not going to bother to say why. But Westin has a more interesting one. He’s arguing that now that Obama has been on the podium more recently, he needs to start doing a better job describing his policies. Most political scientists don’t think it’s that big of a deal and point out not everything he describes in his piece is correct.

Even so I think it still has merit. We can all agree Obama was not exactly screaming what he wanted during his first two years in office. It annoyed the hell out of me because he should have been more active to get his policies achieved. Even though he’s done a lot of good, I can’t help thinking he could have done more. He has even admitted during town halls that he should have done a better job explaining his policies more so people actually know what he has done for them.

But he does have to explain those policies in the right way. As the leader of a country he needs to have a vision of where he wants to take it and be able to explain it to the American people what that vision is. I was happy to hear the President say on Monday that he would be recommending policies to the Super Committee that will be formed to reduce the nation’s deficit. Even though it won’t result in any short term spending, Obama is showing he has ideas that he believes will fix the country and move it forward. That’s what people want out of him. Not rhetoric, but ideas. Change was a good slogan during a campaign during frantic times, and while out of office he wasn’t held to as high of a standard. They assumed he knew what he was doing and had ideas on how to fix the economy. But he didn’t even propose his own health care bill, even though it’s more popular title is now Obamacare.

Maybe he’s learned that as President whatever comes out of Washington is his fault no matter what. While people can criticize the ideas he comes out with, as President it’s a lot easier to fire back. Having ideas on the table will allow him to control the debate. Instead of randomly deciding what to threaten to veto, Congress knows what he wants. If members of the Tea Party try to send him something that’s different it will be a lot easier to explain why it won’t help them, and how his policies will. It’s really not a hard argument.

While S&P’s reason for downgrading the U.S. was faulty, it’s easy to blame their reasoning on the Tea Party. S&P wasn’t worried about America not being able to pay back its debt, it was worried that there was no political will to figure out a way to do it. While, according to John Boehner, the Republicans got 98% of what they wanted by walking away from the table(not once, but twice) and refused to compromise. It caused the stock market to lose all the gains it made the last two years, along with $3 trillion dollars worth of people’s 401k’s. Now, we’re back at square one.

It wasn’t just enough that I said in the last paragraph the Republicans have ruined the economy. I explained why and described it in a way people can visualize the downfall. Square one tells people in a easy way where the economy is, reminding them of 2008 when Obama was elected. It shows what was gained in Obama’s first two years, and what we lost when the Tea Party took over the House of Representatives. It was the same way Change was able to give people a vision to let people know what Obama was about while keeping their attention for the short amount of time they look at the TV.

So fine, blame me for trying to help our President out. Tell me I don’t know what I’m talking about and Obama is going to ruin the country and destroy our social protection programs. I still think you’re wrong and it’s better the devil you know. All politicians play politics whether you like them or not. Their goal is to win the middle and stay in office. The next election will be decided on the state of the economy, and the CNN poll showed he’s losing that battle with virtually all major demographics. As the election gets closer the people paying close attention are going to be looking for ideas that will help them and their families. Obama is on the political fence when it comes to people who sway on the political scale, and if he wants to win reelection he’s going to have to start now in order to sway them his way.

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July 27, 2011 · 12:20 pm

Are Third Party Candidates Practical?

After Thomas Friedman’s article on Sunday, there has been a lot of talk about a third party coming into the fold of American politics. American’s on both sides of the aisle are disgusted at what they are seeing. While all polls show people want a compromise on the debt ceiling, plans are being rejected on the left and right while the Congressional Budget Office is saying those plans won’t do any good anyway. So why can’t a third party break into the system?

One problem is money. Running races are expensive, particularly if you plan to go nationwide. In New York a candidate running for state Senate has to raise around three hundred thousand dollars just to be considered a serious contender. That’s not easy to get, particularly in the beginning when chances are not a lot of people have heard of you.

Getting the right people to run can also be hard. One of the reasons why the Tea Party was successful in the last election is that they ran candidates who were known in the state or district, had respectable jobs, family, and could stick to talking points. When new party’s come into play they are always coalesced around people on the extremes who are passionate about what they believe. Being an outsider is always good because you can say what the people want to hear without having any real responsibility. It also keeps the energy going because you are around people with similar views, and would probably be friends with them even if you met them another way. However, being too extreme can lead to political gaffes (i.e. Sarah Palin) that can swing the race.

Democrats and Republicans are also already very entrenched within the system. Here in New York, there is the Working Families Party (WFP) which has been around since the early 1990’s. They run grass roots campaigns and have a line on the election ballot. But in order to maintain a strong premise within the state, they work with Democrats. After going door to door for a few months telling people about the candidates they have endorsed, the people who said they would vote for that candidate are reminded about voting on WFP’s line. The more votes they garner the more political influence they have. The Party then tells the elected politicians how many votes they got for them and how many in their district actually favor more progressive policies. But that politician is still a Democrat, and probably wouldn’t be in office if he/she wasn’t because of the money raised to pay the people to go knock on doors.

I don’t think the Tea Party is as a powerful force in American politics as they claim to be. They got their candidates through primaries in more conservative areas, not to mention that the two extremes are the ones who show up for the primaries. Combined with a low Democratic turnout in the general election, they were able to get more seats then they probably should have. I’m not saying they didn’t run good campaigns, but their timing couldn’t have been worse for Democrats.

The internet is one of the major reasons people are excited about something new coming to American politics. It has made it a lot easier to organize and get messages out to the public, and quickly. It has also helped with fundraising efforts for political and grass root campaigns. But the messages that are sent out only goes to those who want to hear what these groups or individuals have to say. And obviously the money being raised is from people who would be donating anyway. But if it’s a local campaign or issue that is being funded by outside influence, it probably means you’re not reaching the people you need to.

What must frustrate political insiders though is that there hasn’t been a way to figure out how to reach those independents that can make or break issues. Eventually, politicians and interest groups are going to want to find a way to do it, especially as social media will become a part of our everyday lives. Someone is going to be willing to spend money to hire a smart programmer to create an algorithm that will find those independent voters. This is going to bring privacy and freedom of the internet issues to a whole new level.

The fact is no one is going to win politically over this debt fight. Both sides look incompetent and unable to lead. But the Tea Party/GOP are the ones who look extreme right now. Even though
Democrats are playing to the middle, that’s where most American’s are, and ultimately they are the ones who will decide the election. They won’t be voting for someone who seems too ideologically driven. Plus, with Obama back on the ballot, there is going to be a lot more people who are going to want to vote for him no matter what. Liberals will not like any of the other candidates, but times are too important for people to not want to participate.

Plus, whoever runs on this third party will need to be the right person. None of the Tea Party candidates can be taken seriously for President because they are too driven by ideology, that’s one of the reasons why we see the libertarian Ron Paul getting a lot of attention but going nowhere in the polls. Obama was the right person for the Democrat party in 2008. But remember, he played the game well.

So, are third party candidates viable? Not yet. It’s going to take a lot of effort by a lot of smart and talented people who can figure out a way to balance the energy to fight the man, along with promoting policies middle class American’s can agree to.

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July 26, 2011 · 1:31 pm

A mailbag, sort of…

The last post I discussed why liberals should be giving Obama a break. Mainly because even though we did not get everything we had hoped for, about 75 percent of it is still there. Just today a story came out in the New York Times about how the federal government is going to start regulating health care prices in ten states, lowering the price for millions of American’s.

 

I got a lot of responses to this one, mostly via LinkedIn, and thought it would be better to respond to some of the comments here. Most people agreed with my assessment of the liberal take and why they are upset with Obama. What they disagreed with though is giving him a break. They brought up some good points such as a single payer system would be cheaper. But for the most part their arguments rely on facts that just aren’t true.

 

For instance, one person said “without a individual mandate there is no reason to pass anything in regards to health care. The went on to say Medicare has nothing to do with our debt. But the Affordable Care Act will lower prices not just because the insurance companies are taking in more money, but because of the regulations that will be enacted. And yes, Medicare has a huge part to do with our debt. Because of the lack of price controls it was costing American’s thousands out of their pockets, and (because the program subsidizes those costs) added enormous amount to the debt. One of the main arguments used by Democrats was when the CBO estimated it would lower America’s deficit around one hundred billion dollars. It’s not great, but it’s a start and better then leaving more people without coverage.

 

The main theme I kept hearing though is that they don’t like the way Obama has governed. With this, I absolutely agree with them. When Andy Borowitz writes about how Democrats are looking for the guy who ran in 2008, you know you’re in trouble. Whether the policy is good or bad, or you agree or disagree, President Obama has not had that same fire as he did on 2008. People voted for change and want to see an aggressive president make them. Whether trying to reach the middle or not, the bully pulpit shouldn’t be used as a threat against the opposing party. It is the stick that all Presidents use to focus the debate and get their legislation passed. Obama didn’t do this during health care and he almost didn’t get anything through Congress.

 

The left is lacking this leadership right now and it’s frustrating. Many people, including myself, voted for Obama thinking this was our moment to make serious changes to Washington, and yes believed it would happen faster. But change takes time, no matter who is in office. And I would still rather have a moderate Democrat who needs to appease me, then a moderate Republican who needs to appease the opposition.

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April 10, 2011 · 8:47 pm

Did The Republicans Really Win?

Like all political junkies, I wake up early on Sunday’s to watch the political talk shows to see what news, if any, is going to be made. This week consisted of the budget battle and the last minute deal that was reached on Friday. So I’m watching Meet The Press and This Week, and the consensus among the reporters was that because the Republicans pushed the Democrats around, and got the cuts they were asking for, they were the winners. But then I wondered: what else is new? While getting an agenda through Congress can sometimes equal a political victory, this policy victory won’t equal a political victory for the GOP.

Collectively, Congress has always had low approval ratings. It doesn’t matter what they do, people watch the debates on C-SPAN and see the overblown rhetoric used by politicians on the news, and guess what..they don’t like it. It gets to a point where both parties are looking like they are trying to save face (which they are) and really aren’t doing what they were elected to do, represent the people. The way the negotiations took place this week didn’t give American’s any more confidence in their government, and instead, showed both sides to be spoiled brats.

We still don’t know what the particulars are of the $38 billion that was cut, but who cares?! All the Republicans cared about was appeasing the Tea Party and cried for more cuts after getting what they originally asked for. I’m sure when John Boehner met with Harry Reid and President Obama at the White House, it was pointed out to him that polls consistently showed the majority of Republicans wanted a compromise. But all we got was more rhetoric and statements that argued for more cuts because it will help the economy or because abortions are bad. Both arguments are the crutch Republicans turn to when they know they reached too far, and people are sick of it.

The Republican’s also liked to say elections have consequences, which is true. If the Democrats kept the House last year none of this would have happened. A Continuing Resolution would have been passed to keep spending levels where they were and no one could have complained. It’s been done many times before. Even though they got their sound bites out there, the GOP never came up with one policy solution to help end the situation. If the government shut down it would have been their fault because they are the ones complaining.

In the meantime, Democrats looked like they didn’t even know what they stood for. Even though they still control the Senate and White House they weren’t able to get a strong message out. The way Boehner was acting was a gift for them. When he says that Government is the problem, Democrats should have reminded him of TARP (which he was in favor of) and how the program has actually earned America money. It was probably just easier for him to support it while George W. Bush was going to have to sign it into law. While Democrats can’t totally claim it was their idea, there is no reason they can’t use it to argue against Boehner’s assertion that government programs were hurting the economy.

I’m not going to go as far to say the Democrats won, but it’s hard for me to believe the Republicans took the trophy. American’s want to see their government work for them, and when they see both sides bickering over an issue that really isn’t going to help anyone, it makes them feel they don’t have the right people representing them. As both parties tried in the aftermath to position themselves as “winning” they need to realize at some point they are going to get booed off the stage.

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Filed under Budget, Congress, Harry Reid, John Boehner, Obama, Politics, Triangulation

March 22, 2011 · 8:05 pm

No Traffic Light Ahead

President’s have always justified using force in different ways, whether for humanitarian, economic, or to protect the country. But when the decision is made to use the military, there needs to be clear goals. If you are positive military action is necessary, it should be obvious what you want to get out of it. In Libya though, no one seems to know when the strikes will stop or what will be accomplished by them.

As a communist country, Libya has been a thorn in America’s side for decades. The jabs have been over its nuclear weapons, and the times Qadhafi tried to take over other countries in Africa. But recently things were going well. Just a few years ago Qadhafi decided to let inspectors to look at his nuclear facilities and accepted responsibility for the
Lockerbie bombing. But then he started killing innocent protestors.

I can’t help but remember what President Obama said during his speech when he accepted the Nobel Peace Prize. “To say that force may sometimes be necessary is not a call to cynicism — it is a recognition of history; the imperfections of man and the limits of reason.” With all the protests going on in the Middle East and North Africa, it was only a matter of time before it became violent, and in Libya’s this case the military was needed.

While agreeing to use the military, what bothers me is that there does not seem to be an end in sight. General Ham, who is in charge of this operation, has said there are no plans to go after Qadhafi and its mission is to protect the civilians. But how do you protect civilians without attacking the person who is trying to kill them? At one of the daily briefings, the UN spokesman said they have not decided whether the rebels were going to be considered citizens or casualties of war, because, technically, this isn’t a war.

One of the country’s leading military experts, (and one of my former professors) Michael O’ Hanlon, told me in an email that “I don’t know where it ends but I don’t favor a military operation to overthrow Qaddafi”. He also pointed out that the mission has already gone beyond a no fly zone because Libya’s tanks have been taken out. But even without tanks, the government forces are much better armed than the rebels fighting them.

It is also unclear how many people are actually fighting against the government. While next door in Egypt the military held a non-violent coup, there have only been a handful of military officers who sacrificed themselves and chose not to fight. But if Qaddafi is going to be forced from office, the majority of the Libyan people are going to have to sacrifice the most.

Qadhaffi has shown no signs of slowing down and has placed his troops on the country’s borders where thousands of civilians are trying to escape. To make matters worse, UN workers are not able to get into the country where there are even more displaced people who need help.

There doesn’t seem to be much middle ground anymore. At this moment, both sides seem to be waiting for the other to stop, and no one is putting on the breaks. That’s why the coalition supporting this operation is going to have to decide whether or not to try and find Qadhaffi or pull out.

 

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Filed under Libya, Michael O' Hanlon, military, no fly zone, Obama, Qaddafi, resolution 1973, United Nations

March 16, 2011 · 1:14 am

Add Value To Your Buck

It’s almost that time of year again, tax season! OK, maybe I’m exaggerating on how exciting this is. The US tax code is longer than War and Peace, but just like the classic book, almost no one can understand it, and almost no one today has read it. But someone has to read the code in order to figure out how much money people owe their government. If only there was a simpler way…

Debating tax policy is almost as bad as actually paying them, but here I go. The last time any serious tax reform occurred was during the Reagan administration. The Tax Reform Act of 1986 reduced individual and corporate taxes almost by half, and indexed those standards for inflation. The number of tax brackets were also reduced. But the Act also included the Alternative Minimum Tax (AMT) which only complicated the code more. The more complicated the code became, the more loopholes were there for people to take advantage of. While less money was coming in, the government was spending more, which increased the national debt. The code has become so complicated, and hard to enforce, only 47% of American’s who file for federal taxes actually pay them.

President Obama has said he wants to reform the tax code to make it easier for Americans. But what’s the best way to do this? There are a lot of ideas out there. Some say there should be a flat tax where everyone pays the same amount. But that’s not progressive. It can also hurt those who do not have a lot of money, while people who earn more won’t be paying their fair share. Another idea is to eliminate loopholes and certain credits. This could work, but doesn’t go at the heart of the problem, which seems to be the way we calculate how much American’s need to pay.

One idea that works for forty other countries (mostly in Europe) is the Value Added Tax (VAT). Instead of pushing a sales tax onto the consumer, items are taxed at a percentage as the product is put together. So if the VAT was 10% it would work like this:

– The manufacturer pays $1.00 for the raw materials, certifying it is not a final consumer.

– The manufacturer charges the retailer $1.20, checking that the retailer is not a consumer, leaving the same gross margin of $0.20.

– The retailer charges the consumer $1.50 + ($1.50 x 10%) = $1.65 and pays the government $0.15, leaving the gross margin of $0.30.

The government gets paid each step of the way, and it is clear how much everyone owes so it is easy to enforce. Overall this reduces the costs to the consumer because they don’t have to pay so much at the end. The French implemented a VAT in 1954 and today it counts for half of the government’s income.

But there are opponents. People argue implementing a VAT can cause large amounts of fraud such as false claims. There have been instances where the individual or business argues that they did not know they had to pay a tax on a certain item. Then of course there is the old fashion “hidden sale” where the consumer is charged something that is completely made up.

Despite those concerns, studies show that if a 5% VAT was implemented, and covered 80% of goods people consume, it could generate roughly $260 billion. The Virginia Tax Review estimates that a VAT of 25% could pay for health care reform, exempt millions of American families from income taxes and still raise the revenues necessary to cut into the budget deficit.

One of the reasons American’s are less inclined to pay taxes now is because we became a individualistic society. When FDR was President, there was a “we are in this together” philosophy. But that has gone away. The book Bowling Alone explains it pretty well. But when you are paying taxes, you are paying for the freedoms that people in the Middle East and North Africa are fighting for. Whether you are rich or poor, everyone benefits one way or another, and those who don’t pay their taxes are cheating their fellow citizens.

Just because something is European doesn’t make it scary. Paying taxes is important. It goes to Veteran Hospitals, public parks, schools, and keeps our food and water clean. But paying for these services doesn’t have to be a burden. Instituting a VAT could bring in more money for areas that all Americans use, and everyone could get a bigger bang for their buck.


 

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Filed under Economics, Obama, Public Policy, taxes, Value Added Tax, VAT

February 2, 2011 · 1:08 am

Place Your Bets (carefully)!

What probably should have been bigger news than has been reported is the Consumer Price Index (CPI). It’s fascinating! Really! Just hear me out. The CPI comes out every month from the Bureau of Labor Statistics. It is a short term indicator on how strong or weak the economy is. The Federal Government puts out household surveys around America asking them what they bought in the past month, compares it to last month, and sees which prices rose and which ones fell. Economists need this information to determine the inflation rate, and people on Wall Street need it so they know what areas of the economy to bet on.

When the Obama administration enacted a new stimulus package in the form of tax breaks, I wrote a post explaining why stimulative was too strong of a word. The reality was that Americans were going to use the tax breaks on the basic items that they have to pay for like rent/mortgage, health care, and food. Spending is a major part of America’s economy, especially since we are not building as much as we used to. While the tax cuts will help the overall economy because people will be spending money, the important thing is people won’t feel they have to choose between the items they need to live. Last month the CPI rose 0.5 percent, and the three main areas where people put their money was on energy (to heat their homes), food (to put in their stomachs), and health care (so they won’t get the flu).

When stock brokers look to make money, they look to invest in areas of the economy they think people will be spending their money. Some of these areas are obvious. As the weather gets colder people are going to heat their homes. Since the employment rate fell more people could afford to buy health insurance, and while people always bought food, the reason why the amount of money people spent on it went up is because the price of food went up. But sometimes it’s not so obvious, and looking at a short history of the CPI you can see why.

The chart above shows the average change that the CPI occurred every year from 2000-2010. What sticks out to me here is how volatile it is. From 2002 to 2003 there was a full percent increase, and in real monetary terms we are talking about hundreds of millions of dollars. The highest point, probably not coincidentally, was in 2008, before the financial crisis in 2009, where the CPI turned negative. While the CPI isn’t the only analysis Wall Street looks at, it is an important one. The figures they see here are what give them the confidence to bet with people’s money. But as you can see, because the consumer market is so volatile, it is hard to guess which areas of the economy will be earning money.

Now people may argue the turn of the century is an unfair time to use because the economy wasn’t strong. So let’s take a look back when America turned to Nirvana, the 90’s.

 

Today, the stock market ended on the highest note in the past two years. That tells me people who look at this data feel confident that the economy is going in the right direction. Otherwise, they wouldn’t be so willing to invest so much money, in any area. Markets went up because they saw overall manufacturing go up, which means there is a high demand for products and more people will be spending money. Now, it’s just matter of figuring out where.

What gets me is how some conservatives argue that the better the Wall Street is doing, the better America does. That simply isn’t true. If you are lucky enough to have the money to buy stocks right now, yes, you are doing well. But millions of American’s don’t and are choosing to keep a roof over their families, get their family food, or give them health insurance. Fortunately last month, according to this CPI, most families were able to do all three.

The truth is some people are better than others determining which stocks are worth your money. Anyone who tells you they know exactly what will happen in the future is lying. There were people who knew the financial crisis was coming, but even those people couldn’t say when. As the market has been fluctuating since Washington bailed it out, it is important to remember to learn the game before you play, to do your homework and then place your bets carefully.

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Filed under America, Consumer Price Index, CPI, Economics, economy, Obama, President Obama, Wall Street