Month: July 2005

Today, President Bush announced good news for the Federal Budget. It looks as though the budget deficit will be almost $100 thousand million less than expected, because the government is taking in more tax money than expected. Now, keep in mind, they are still going to spend $333 thousand million more than they intend to take in, and add that $333 thousand million to the national debt, which currently stands at $7,843,596,586,237.71. With a population of 296,608,542, that brings your personal share to $29,092.54. If it helps, think of the national debt as representing a nice mid-sized sedan for each and every man, woman, and child in the country. With the magic of compound interest, if we wait much longer to get serious about paying down the debt we will be talking about large luxury sedans.

Mr. Bush cautions that we are on track to reduce the deficit — not the national debt — by half before 2009 but only “so long as Congress holds the line on spending.”

There’s a little problem with that.

No, it isn’t the “Tax and Spend Liberals” in Congress, who to their credit understand that you really ought to have money before you go spending it. Nor, really, is the problem the side order of pork that gets stuffed into the federal budget. Pork costs us a lot of money, but it still accounts for less than a third of the budget, and grumble it does at least get spent in local communities stimulating local economies. I am not saying we shouldn’t demand Congress moderate the pork, but I’m saying there’s a bigger budget buster to consider.

The problem is unfunded mandates, unpaid commitments, and upcoming expenses.

Strictly speaking, an unfunded mandate is when Congress says that state/local governments or private businesses must do something, and then does not put enough/any money in the budget for it. The net effect is that in order to do what must be done, your state or local government must put it in their own budget and raise your taxes accordingly — most states don’t have the option of deficit spending. The deed is done, Congress pats itself on the back for keeping expenses low, and you have a cow when your state income tax, sales tax, and property taxes go up. In the case of a private business, they have no choice but to suck up the costs of compliance and pass the expense on to their customers, resulting in inflation. Wikipedia cites No Child Left Behind, the Emergency Medical Treatment and Active Labor Act, and the Americans with Disabilities Act as examples.

Needless to say, nobody outside Congress likes unfunded mandates. In some cases, such as NCLB, there are lawsuits over the unfunded mandate. Opponents reply that it isn’t an unfunded mandate, just a condition of receiving money and if you don’t like it you can leave your federal education dollars on the table and go. Bottom line on that one is that Ted Kennedy was promised full funding for NCLB, and I don’t know of any Congressman who wants to run for re-election in 2006 on the platform of “less money for public schools.” There’s $40 thousand million that might be tacked onto the budget, a bit less than half the reduction of the budget shortfall that Mr. Bush announced today, in one line-item.

On to unpaid commitments, by which I mean money that has been promised that has not made it into the budget. Sure, we could probably continue to blow off these expenses, but we shouldn’t. Things like the $15 thousand million President Bush promised to send as aid to Africa. Or the $1300 million the United States owes the United Nations. Or worse yet, those War on Terror expenses that seem to be shunted off into “supplemental spending” measures.” The last of these measures was $82 thousand billion and a side order of unfunded mandate Real ID, demonstrating that Mr. Bush’s estimate of reducing the budget deficit at all is predicated on no more military spending. It isn’t that Congress isn’t aware that we are “at war,” but rather that funding the war is like having a teenager who asks you for spending money at every opportunity.

And I didn’t even have to mention that the Veteran’s Administration could sure use another $975 million, minimum.

The final problem with “congress holding the line on spending” is the future. We know that there will be certain expenses in the future. We know we will need to spend more on Social Security benefits, and Medicare benefits. This issue is still thrashing around Capitol Hill, but the bottom line is that if the problem is Social Security not having enough money, they will have to cut benefits, increase taxes, or reduce the number of eligible people.

We also know that we will need to spend money upgrading and repairing highways; this is a vital issue to the American economy, since as one friend puts it, “If you’ve got it, a trucker brought it.” You should be aware that highway spending has remained unchanged since 2003, because Congress and the President cannot come to any kind of middle ground. This is despite the fact that our roads are getting older, our highway expenses are getting higher, our population is getting bigger and more dense. The day will come, soon, when we can no longer put off a real highway bill.

Let’s not forget the money that will be needed to overhaul this nation’s newest executive branch department, the Department of Homeland Security. We need better border security, and that will cost money. If an illegal immigrant can find work cleaning highrise office buildings and processing this nation’s food, then so can Al Qaida operatives. Yeah, I’m willing to pay a bit more to know my food has been processed by legal American workers earning a decent wage. We also need better port surveillance, and to do that right will cost millions if not thousands of millions of dollars.

And just think, that’s only the money we know we need to plan on spending. It does not account for disasters, emergencies, future economic difficulties, or any other thing that might come up.

Let’s not count our reduced budget deficit for the year 2009 just yet.

In closing, I bring you Why Costco is Better than Wal-Mart, the fight to renew the Patriot Act, and Molly Ivins points out that regulations were imposed because they were needed.

Once more, the rhetoric has turned to the Estate Tax. When we last checked in on the Estate Tax, opponents were calling it the “Death Tax,” a way of framing the issue which erroneously gives the impression that average Americans are taxed for the act of dying. Back at the beginning of the Bush Administration, a phase-out of the Estate Tax was put into the Tax Cuts For The Wealthy That We Hope Will Trickle Down Act of 2001. The Estate Tax itself will be gone in the year 2010, but because the tax break was “only temporary,” the Estate Tax will be with us again at year 2000 levels unless Congress can pass a bill (and get it signed) to make the tax cut permanent.

This brings us to the present day, when some Senators are being pressured to vote “the Right way” on permanent repeal of Federal Estate Taxes.

The most important thing to remember when we are talking about the Estate Tax is that, at year 2000 levels, the first million dollars is exempt. Your estate consists of a $250,000 house and a five-digit bank account balance? Your estate owes no taxes! None! Be honest, do you have a net worth of over a million dollars? The fact is that 98% of Americans are never effected by this tax.

And as for those of you that do in fact have a million dollar plus estate, there are plenty of ways to see to it that the taxes are paid without undue stress on your widow. If you are worth a million bucks and can’t afford a couple grand for estate planning, you have much bigger problems than what happens after you are dead.

Opponents of the Estate Tax — the sort of people who insist on calling it the Death Tax — say that the real problem with it is that there are “many” small businesses, farms, and ranches that have big assets on paper, but on the death of the owner will have to be sold to pay the taxes. I have three things to say about that. First, a few hundred bucks thrown at a company like The Company Corporation solves that problem by making the company a separate entity. Likewise, an estate planner can put together an insurance package designed to pay the taxes on your estate upon your death — there are two types of people, people who can’t afford an estate planner and people who can’t afford to not have an estate planner.

Second, some of the Senators in question support a bill that would exempt $100 million on the estate of “small” businesses and farms. Sheesh, that’s $100,000,000. I’d like to be that sort of small business owner!

And lastly, if there are so many family businesses, farms, and ranches being put out of business, how come President Bush can’t find one to put in the balcony of the House and talk about in the State of the Union when he talks about “why we need to repeal the Death Tax permanently”? Because they are very, very rare. They would have better luck trying to find a Unicorn breeder to put in the balcony.

The other “argument” against the “death tax” is that it is “double taxation.” The reasoning is that Granddad paid income tax on that money when he earned it, and that makes it wrong to tax it again when he dies and Junior gets the money. If we applied this standard broadly enough, no taxes would ever be paid on anything. The nice folks at Tom the Dancing Bug drew a nice picture to explain how many times the same dollar gets taxed. His point was regarding dividends, but the same logic applies here. You earn money and pay taxes. You buy something and pay more taxes with already taxed money. The store owner pays taxes on his profits from selling you stuff. The guy that wholesaled the stuff pays taxes on his profits. The employees of the store, the wholesaler, the manufacturer, the shipping company all get paid and all pay taxes on their income. Rinse, repeat. This whole double taxation thing makes a good soundbite, but is empty noise.

So why exactly should your Senator support repealing a tax that few people pay, and that there are many ways to get around paying it anyway?

In closing, I bring you some light reading for the weekend: “Who’s Watching the Watch List,” How exactly does one lose track of $8800 million dollars and — literal light reading — Congress is talking about making it legal for electricity to be controlled by a small group of companies. It’s as if they forgot Standard Oil and why trustbusting happened.

How many horror flicks have you sat through where some problem started out small, but by the middle of the film grew to terrifying proportions?

A little business news story from the Associated Press was released this morning — a Saturday morning on a holiday weekend — letting us know that profit growth at America’s largest companies is just not going to be as big as expected. Guess what, there’s only so many quarters that a company let alone a group of companies can deliver 12-20% year-over-year increases in earnings. That’s only about three to five times the growth of our entire Gross Domestic Product. Now please keep in mind, nobody is talking about these huge companies losing money, nobody’s even talking about them making less money than last year. We are talking about the fact that they maybe only grow profits by 7-8% over last year. That’s a little less than twice GDP growth.

Now, how can these companies grow so much faster than the economy in general for so long? Accounting regulations have firmed up enough that we can — crossing our fingers of course — assume no Enronian fraud in the numbers. And these are not tiny startups that have relatively small, easily increased profits. These are huge corporations, 500 of the largest businesses and employers in the nation. The money certainly isn’t coming from overseas trade, since we yet again have a record trade deficit: more American money is being spent on foreign goods than foreign money is being spent on American goods. I believe CAFTA will not improve this situation.

But wait a minute, maybe the profits of these companies are bringing the GDP up. Maybe the high-lfying profits are the only thing keeping “Supertanker America” afloat. If that is the case, the rest of the economy really stinks.

Where is the money coming from and where is it going?

The short answer that it is coming from us and going to them.

We are spending the money that results in these companies having earnings, and frankly a lot of us are borrowing money to do so. There are signs this may be slowing down. In any event, it’s a dangerous game to keep running up debt in a nation where rules for getting out of debt are tightening and the number of debtors may be shrinking. (For the record, I think that Band of America buying MBNA is a bad idea and shouldn’t be allowed to go through. I also thought this about B of A buying FleetBoston, the Chase/J.P. Morgan deal, and the Citibank/Traveller’s deal. My opinion clearly carries no weight over at the Federal Trade Commission.) This is an even bigger deal if there is anything to yesterday’s news item that 15 states representing 35% of the American economy are vulnerable to a housing “correction.”

This wouldn’t be such a bad thing if the money these companies were earning went on to be paid to employees, or spent with other companies (that have employees) that in turn would stimulate the economy. However, if this were the case, the money in question would be an expense, not part of the profit. Accounting wonks will note that if money is spent on capital expenses — big ticket items like manufacturing equipment that helps a company make money in the future — has to be depreciated; only a portion of the expense can be claimed each year the equipment is in place. That still doesn’t account for the long term profit growth in question.

Since dividends — money a company pays to it’s shareholders — can only be paid from profits, it is reasonable to expect that some of this money will be paid out as dividends. Needless to say, this only benefits people who own shares of companies that pay dividends. Since on the whole, rich people own more stock than middle and lower class people, any dividends paid will mostly benefit rich people, who by the way are getting a tax break on the deal too.

And to top it all off, a lot of these companies are laying people off. Remember, it isn’t that these companies are losing money, it’s that they are not earning as much more money than last year as they thought. Companies that provide “good jobs with benefits” like Ford, GM, Lear HP, IBM and others. Even “new economy” Silicon Valley feels the crunch of businesses getting bigger, but few additional jobs being created.

So now you see why the economy looks great from Wall Street and kind of anemic from Main Street.

In closing, I don’t want to say much about the esteemed Ms. O’Connor’s resignation, but she has been a pretty decent Supreme Court Justice, and I would hate to see her replaced by someone like, oh, Pricilla Owen. I recommend reading and acting upon this list of suggestions from Daily Kos. As Ms. Marcotte at Pandagon points out, “Women are 50% of the population. People who know women are 100% of the population. Women’s rights are not a minority issue.” We need a Supreme Court nominee who will apply the Constitution, the Law, and his/her Conscience, in that order.