Reforming Taxes

Probably the biggest news for this week is the anticipated vote on Tax Reform that the House has already passed and the Senate is currently considering.  Restructuring taxes is something that is probably supported by most Americans, assuming the outcome for every American is the same -- that our particular tax bill will be lower than it has been.

Obviously reducing everyone's tax bill is not possible.  While some people's tax bills will definitely go down, others will undoubtedly go up, but not necessarily in ways that will be obvious to everyone.  For example, eliminating the deduction for home mortgage interest while raising the "standard" deduction may look like a wash but the only way to be certain is by comparing your particular situation from last year with what the potential outcome will be with the change.  That is difficult to do since the information on the bill that has been released so far does not contain specifics that one can apply to an individual situation.  In short, we probably won't know the benefits (or harm) until the measure is passed into law.  That's not very comforting.  One has to wonder why the Senate would operate under such conditions.

The other portion of the proposed Tax Reform bill is for corporations.  The current tax rate in the United States on corporation is 35%, which is the third highest in the developed world.  And business owners have fought against this every way they can, as one would expect.  Tax incentives abound for corporations and those savvier CEOs take advantage of every one they can.  With the proposed reforms, the tax burden of these companies would go from 35% down to 20%.  While that won't make America's tax rate for corporations the lowest in the world (Ireland and Great Britain, for example, are both lower than 20%), it would make this country more favorable to doing business here, and, the argument goes, increase the ability of all companies here to offer more and higher paying jobs, expand their operations in America and increase needed research and development.

All of these are good arguments and points that most Americans can support.  The problem is, they just aren't factual.  This last August The Institute for Policy Studies released their 24th annual report on Corporations and those corporations' current role in the tax paying drama.  The study looked at 92 publicly held American companies that a) reported profits every year from 2008 through 2015, and b) paid less than 20% in federal income taxes (less than the corporate tax rate proposed by the House and Senate Tax Reform bills).  Their findings don't give weight to the argument that cutting taxes increases job growth, expansion or research.

The median job growth between 2008 and 2016 of these companies was a negative 1 percent.  Among US companies as a whole in that same period the growth was 6%.  While 6% is not a large number, at least it's a positive.  For these studied companies, there was an overall job loss.

48 of these 92 companies (52%) eliminated a total of 483,000 jobs during this time period.  That hardly suggests job growth.  If these companies are paying less than the proposed new tax rate, why did they cut jobs?  Remember these companies posted profits EVERY YEAR.  Where is the job creation?  What did they do with those profits?

The average pay for the CEO of these companies increased to $13.4 million.  That's an 18% increase.  That compares to a 13% increase for CEOs in the S&P 500 and 4% in the private sector.  And for the CEOs of those 48 companies that slashed jobs, they enjoyed a pay of $14.9 million on average.

But those increases are worth it if these companies are expanding and doing research (since we know they are not using their profits to increase their workforce).  But, that doesn't appear to be the case.  In fact, the top ten companies that cut jobs also spent $45 billion EACH buying back their own stock.  Which is money well spent if your goal is to make it appear that your stock is worth more than it actually is but does nothing to add to the job market.  

Then what can be done for tax reform?  For corporations, tax reform does not appear to be necessary.  Looking at the information above, 92 companies made profits every year for the past decade yet paid less than 20% in taxes.  They are already paying below the level that the Senate is proposing, so unless the tax incentives remain, these corporations will wind up paying more than they have in the past.  Given the current political climate in Washington, I highly doubt that this is the intended outcome.

Instead of rewriting the tax code, I would suggest passing two simple pieces of legislation.  The first is very simple; no publicly traded corporation in America is allowed to buy back its own stock.  This would eliminate the possibility of a company artificially inflating its stock price and in the example above, would have provided $450 billion for job creation, expansion and research.  

The second piece of legislation would change who can take advantage of tax cuts.  Put simply to qualify for any tax breaks a company cannot pay its highest paid employee more than eight times what it pays its lowest paid employee.  "Pay" would include all forms of compensation, including benefits, stock options, etc.  If, for example, a corporation pays a receptionist $20,000 annually, and values that employees benefits package at an additional $20,000, the total compensation for this position would be $40,000.  That would allow the corporation to pay its CEO $320,000 in total compensation.  If the benefits equal the salary, then the CEO would be paid $160,000 annually.  That's a far cry from the $13.4 million that the CEOs of the 92 companies above are paid (on average) and much less than the $14.9 of the 48 CEOs who cut nearly half a million jobs.  But look what this legislation would do for our workforce. If the CEO wants to keep earning $14.9 million (assuming this is total compensation), then the receptionist must be paid nearly $1.9 million.  This is probably not going to happen, but the lowest paid salary can certainly be increased while CEO pay is decreased to level out somewhere closer to the middle.  Offering salary and benefits totaling $80,000 to the lowest paid employee would make that position livable (and using my ratio of equal pay and value of benefits, this salary of $40,000 would essentially be an hourly salary of $19.24 (roughly)).  As an entry-level position or an unskilled occupation, that salary would certainly appeal to most job-seekers.  In this scenario the CEO would earn $640,000 annually, or $320,000 salary and $320,000 in benefits.  Most Americans would agree that this is certainly a livable wage.

This is reform that would actually make a difference.  While the current proposed legislation will make the rich richer, my scenario would lower the wealthy to a still wealthy position, just not as high while raising the lower paid positions to something that would benefit the people who truly need it the most; the rank and file who do the work that makes companies profitable.  And by cutting the executive salaries to something reasonable, there will be more money available for creating more jobs, expanding businesses and conducting research.  Under this proposal, there are more winners.

For anyone interested in reading the full report referenced above, a copy of it can be found here: http://www.ips-dc.org/wp-content/uploads/2017/08/EE17-final-embargoed-for-August-30.pdf

How To Be A Great President

Since the days of Harry Truman, presidential administrations have been ranked by their approval, expressed as a percentage.  Looking at the approval rating of all presidents from that time forward as they left office, only two were higher than 60%.  As far as greatness goes, these two men can truly be said to have been great presidents.

Ronald Reagan left office with the highest approval rating to that date, at 63%.  During the eight years he was in office, the cold war ended, tax cuts for individuals increased, nuclear arms were reduced worldwide, the war in Afghanistan ended (that didn't last very long), the first female Supreme Court Justice was appointed, the Air Traffic Controllers who went on strike were fired (they would have cost the tax payers $700 million had they received their outrageous demands), a successful rescue mission was launched in Grenada and the Strategic Defense Initiative was implemented.

When Reagan left office, the country was prosperous and at peace.  The Dow Jones Industrial Average stood at 950.68 on the day Reagan took office.  When he left, it was at 2,235.36.  

While Reagan's 63% approval rating certainly sounds impressive, and it especially is when compared with the 34% that both Jimmy Carter and George W. Bush had when they left office, or the pitiful 24% that disgraced Richard Nixon's administration.  But impressive as 63% is, it was not to remain the highest.  That title is currently held by William J. Clinton who left office with a 66% approval rating.  Highlights of the Clinton years included an impressive 115 months of economic expansion, 22 months of job creation, the highest home ownership in American history, the lowest unemployment rate to date, the lowest crime rate in 26 years, the smallest welfare rolls in 32 years, the lowest poverty rate in 20 years, the first female Attorney General and the first female Secretary of State and the conversion of the deficit to a surplus.

When Clinton left office, the country was again prosperous and at peace.  He took office with the Dow Jones Industrial Average at 3,241.95 and left when it was a staggering 10,578.24.  

These two men have one very important fact in common, and it is this commonality that made them great.  Reagan was a Republican, but the House was controlled by the Democrats.  The Republicans held a slim control of the Senate, which they lost in 1987.

Clinton is a Democrat and his first two years saw him with a Democratically lead House and Senate.  That reversed in year three when the Republicans took control of both houses and that control remained until the end of Clinton's presidency.

What each of these men had to do was work with the opposition.  No president runs this country on his own.  They all have to have the backing of the other elected officials in order to be successful and the truly great know that in order for this country to excel, no one political party can ever have its way to the detriment of the other party.  There has to be a negotiation where each party gets some of what it wants but neither party gets it all.  When we have this balance, when we work together, we are truly the United States of America and our history shows that when this happens, we can achieve greatness.

Campaign Reform

There are several issues currently gripping our country that the majority of Americans oppose, yet our elected officials are not listening.  The main reason they don't listen is because their supporters, although in the minority, contribute large sums of money to their campaigns and therefore, the politicians listen to them over their constituents.  To eradicate this discrepancy in our system, I propose the following campaign reform:

All campaign contributions are limited to $100.00 per contributor per candidate per election.  This means that everyone, including the candidate themselves, can only contribute $100.  This would not limit the number of contributions, only the amount.

In other words, in the next election, I would be allowed to contribute $100 to a senator, $100 to a congressman, $100 to a county official, $100 to a mayor and so on.  Every election would start over but all contributions would be limited to $100.

For PACs (Political Action Committees) and corporations, the same $100 limit would apply, which is only fitting given that the United States Supreme Court has ruled that corporations are people too.

The second would deal with anyone who wishes to spend more than $100.  The campaign reform would limit the amount that can be contributed to a campaign but that would not stop someone from putting up their own billboard.  This cannot be stopped as to stop it would be to violate their right to free speech.  It can, however, be regulated.

Any advertisement not paid for by the candidate's campaign fund must have the following disclaimer on it: "This advertisement is neither paid for nor endorsed by any politician or their campaign but is wholly funded by XXX."   "XXX" would obviously be the name of the person or organization who foots the bill.  Additionally, this disclaimer must appear prominently on the ad using a font twice the size of the largest font used in the ad.  For radio and television ads, the disclaimer must be read at a normal reading speed and at the same volume as the rest of the ad at least three times.

This is very simple reform but it would take back our government from the special interests who fund the politicians.  One additional stipulation would probably not be possible to be made into a law but could be an agreement.  Only vote for candidates who agree that they will NOT meet with lobbyists.  They should be dealing with their constituents, not with the special interests.

What do you think?  Comments are always welcome.

My Retirement

Tomorrow is my 50th birthday. As I sit here I can't help but wonder what the next third of my life will be like. I also have to start thinking about retirement, and what the economy will be like in my future. Many pundits tie the economy in this country to the office of the president, and there might be some merit to that. While the president certainly cannot single-handedly change the economy, he (or one day she) does have influence over it.

I was able to find historic Dow Jones Industrial Averages going back to when Jimmy Carter first became president, and the numbers are quite interesting. When Jimmy took office the DJIA was at $962. When he left the White House the Dow had dropped to $950. Granted this is a slight drop in the Dow, but it's still a loss.

Ronald Reagan took over from Jimmy and his presidency saw the Dow increase from 950 to $2,235. This is a sizable increase, and over the entire term of his presidency it averages an increase of $160 each year.

George Bush, Sr. increased Reagan's $2,235 to $3,241. Since Bush was only in office for one term, this equates to an increase of $251 per year, which was even better than Reagan's impressive increase.

Bill Clinton took office in 1993 when the Dow was at $3,241 and left in 2001 when the Dow towered at $10,587. His presidency saw the Dow increase an average of $918 each year of his presidency. This is more than George Bush and Ronald Reagan combined.

George W. Bush was sworn in on January 20, 2001 and left office on January 20, 2009. He took Bill Clinton's $10,587 and reduced it to $7,949 or a loss of $329 per year average for his eight years in office.

What does this mean for my retirement? It means if I invest in the stock market I need to hope for another leader like Bill Clinton if I want to be able to enjoy my golden years. Another George Bush, Sr. or Ronald Reagan would allow me to retire with security, although I might not have extra money. Another presidency like George W. Bush means I won't be able to retire until I'm well past my 100th birthday.

Let's see what Barack is able to do.

Update; October 10, 2013 - Well, so far Barack is doing just fine.  The $7,949 when he took office has grown by 90% to 15,126.  Since he's been in office less than five years, that's a staggering $1,435 increase per year, better than any other presidency in this survey.  And all of this in spite of the fact that he has to deal with a majority in the House who refuse to work with him.

No wonder the American people love him so much!

George Bush's Report Card

As a tax paying citizen of the United States, I am the employer of George W. Bush. Not just myself, of course, but all citizens like me and as such, we should certainly have the right to evaluate the performance of anyone in our employ, and Bush should not be an exception.

When I was a child, one of the areas that appeared on my report card was "Plays Well With Others" and in this category, I have to give little Georgie a solid F. Now, if the category were "Plays Well With Others Like Himself" he would do much better, as he has clearly demonstrated a love for his own kind, but that's not the name of the category.

Last week George signed the new FISA legislation into law. This legislation was opposed by Democrats, yet enough of them changed their vote to allow the law to pass. Why they were willing to do this I can't answer. In particular, why Obama would cross the aisle to vote for this piece of crap is beyond comprehension, but I can only imagine that he's fully giving in to the lure of evil that comes with politics and is selling his soul. That's a shame. He might find use for it as some point in his life, but what can you do?

So, the garbage law passed and George signed it and now we're stuck with it until 2012 (which is oddly enough how long we'll be stuck with the next president. Coincidence?). What this shows is that the Democrats were willing to make concessions to the president, which means on their individual report cards under "Plays Well With Others" they get high marks.

But back to Georgie. Another legislation is working its way up the hill, that would stop a 10% cut to doctors under Medicare. George has vowed to veto that bill, even though the votes are already there to override such a veto. This shows that Georgie has no intention of working with this congress. He wants everything his own way.

George is the boy with the ball who wants to make his own rules and if he's not allowed to do that, he'll take his ball and go home. My question is, why don't we just let him? We don't need his ball. We have plenty of balls of our own. What good is a congress without balls?