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Monday, December 20, 2010

 

the difference in taking and borrowing

A lot of people have associated the current and former administrations approach to dealing with failing industries with communism; or complain about the socialist aspect as if it is anything new. Loaning General Motors $50 billion on behalf of the American people is intrusive and evokes feelings of being robbed by the politicians that approved such measures. The people in Detroit and other towns with GM plants may feel differently. While Americans complain about government support, in this case the majority ownership, of a private company, the people of Venezuela lose entire private companies to the government without payment. This expropriation is in the name of productivity. The latest victims are two construction equipment manufacturers, who were reportedly not productive. In the face of current floods and mudslides, many people have been displaced and need new shelter. The government is claiming they can use the existing capital to be more productive and provide a better service to the public under the control of the government. Some would say there is only a difference in the degree of taking in the US ownership of GM and what the Chavez regime's latest taking of the two manufacturing companies. The American anger stems from fears the money they loaned GM will disappear. Where the US seeks to sell their share of GM, the Chavez regime has no intentions of returning their 100% share of these expropriated companies back to the private market. The problem in Venezuela illustrated the typical communist taking of private companies to plan inputs and outputs in the name of public good. The US temporary ownership of GM represents the mixture of markets and government involvement, described by Olsen as necessary in a modern economy. The US policy is opposed by a large number of taxpayers who, in their opposition must assume their tax contribution would be better spent in another program are not affected by the policy, while a very small number of people support the policy because they benefit directly from the policy. In Venezuela, a large number of people support the taking of ranches and private business because they see the quality of life benefits associated with it, while the small number of ranch and company owners strongly oppose the taking. The former describes the luxury to oppose policy for personal reasons. The latter illustrates the shift of incentives, as Venezuelans now associate taking with a higher quality of life and those would be future ranchers will not be as productive in fear their life's work will be expropriated.

http://www.bloomberg.com/news/2010-12-19/chavez-orders-takeover-of-2-construction-suppliers.html

http://www.reuters.com/article/idUSTRE63K56920100421

Tuesday, December 14, 2010

 

what is a small business, and why lowering taxes on the top bracket largely benefits wage earners, not "small business" owners

The government only taxes income, after business expenses deducted, over the $200,000/$250,000 for couples, in the top tax rate. This means the gross income minus all business expenses, including labor. If the government allowed the Bush tax cuts to expire for the top tax bracket, only 2% of tax payers who reported incomes from a business would see an increase in their taxes. This means only 2% of "small" business owners net over $200,000 a year. Reducing the tax rate for income earners below $200,000 would lower the taxes for the other 98%. Furthermore, 32.5% of those in the top tax bracket earn at least 50% of their total income from a business type source. So the other 67.5% earn the majority of their income in another way. None of which creates the need for employees directly. The thought process that leads one to believe a small business would apply a government stimulus, oops, I mean a reduction in taxes, to invest in his/her company by hiring more workers, would only lead one to believe those who make the majority of their income from, say, capital gains to invest in their portfolio. This too does not directly create jobs. Lastly 75% of the top income earners report income from s-corps. These income earners can be one of many, but less than 100, shareholders or the sole benefactor. Those who make their income from s-corps, forgo corporate or business taxes and penalties for breaking tax code. If there are five shareholders and their business nets $999,999, that income, if it were their only source of income, would not be taxed in the top tax bracket, but the next lowest. The extreme example would be a s-corp with 100 shareholders; their business would have to NET over $20,000,000 to for each individual's share to be taxed with the highest tax rate. $20,000,000 in profits is impressive, but you would have a hard time convincing anyone it is a small business. I do not know the average number of shareholders in a $999,999 a year s-corp, but if it is more than five, then those shareholders have another source of income and giving them a break on that income has no way of creating jobs. Once again lowering taxes for the tax bracket below the top tier would be more appropriate if real small business owners were your concern.

http://www.politifact.com/truth-o-meter/statements/2010/jul/27/stephen-hayes/so-called-wealthy-are-actually-small-business-owne/

Wednesday, December 01, 2010

 

EU or EW?

Germany cannot be blamed for not wanting to bail out all of Europe. They had a stable and strong currency, and now the Euro may not be so stable and they have to bail other countries within the European Union out. While we cannot know for sure what would have happened if Germany did not change to the Euro, their frustration is certainly warranted. While I was reading the article all I could think was that this was just an extension of everything that Olson was talking about. The European Union is simply a large group, and they are increasing the regulations on all of the countries involved, and slowing down all processes. It will be interesting how this will end up playing out. It is hard to think that it will follow the same pattern as a country, however it could be possible. I think it mostly depends on how far the European Union goes in regulating the countries involved, however it is certainly something to keep your eye on.


 

Unemployment

There are about 2 million Americans who will be losing their unemployment checks at the end of December once the current benefits are no longer in place. Right now, jobless workers are receiving 99 weeks of unemployment benefits, but this would be reduced back down to 26 weeks. The National Employment Law Project (NELP) estimates that it would cost approximately $56 billion to extend these benefits for one year and economists say that the benefits to the economy outweigh this cost because for every dollar that is spent, about $1.6 is put back in to the economy. There will be a major trickle-effect because holiday sales growth is expected to decline by a large number and general economic growth is expected to decline by .3 percent, therefore, about a million jobs could be lost in the next year. So we obviously see there are some serious negative side-effects to this, but do we want to continue adding to the gigantic budget deficit? There are certainly other ways to fund and help the unemployed (at least the ones who are actually making a true attempt to find work.. Even if it is minimum wage or part time -- better than nothing!)

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