FOOL'S GOLD

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Barack Obama's Administration and the Chair of the Federal Reserve continue to pursue the sort of "supply-side"/"free-market capitalism" nonsense that has slowly but surely screwed the US and world economies into the dirt over the past 30 years or so. The latest example was reported by the NY Times this October 4, 2010 expressing shock and dismay that US corporations have borrowed, at little or no cost, monies "intended" to help the economy recover then bank the money rather than to spend or "invest" it, thereby reaping big profits on mere savings.

Well, Duh!

What in the world should anyone expect a fairly well-educated managerial group to do? OF COURSE they are going to bank the money rather than to spend it (or "invest" it at risk). That is merely sound business practice, unless otherwise required to do something different, which they were not.

This demonstrates a fundamental flaw in the widespread expectation that, somehow, inanimate corporations should manifest altruism and helpful deeds for the "good of the country." This absurd expectation has driven a lot of really stupid policy among both sanctimonious Democrats and protective Republicans. The flip side of this nonsense is the assumption that government oversight of large corporations is somehow unnecessary and debilitating to economic growth. As both of these concepts rest upon the assumption that corporations respond to the "marketplace" (they control) and ARE (or ought to be) inherently altruistic, neither the "socialists" nor the "good capitalists" will disparage that assumption, as it serves the warped viewpoints and vested interests of each side in the debate. And so, because the debate is always absurdly dominated by merely two sides, nothing changes.

I would propose that voters and thinkers (not that they should be considered as separate functions) stop moralizing and fantasizing and then recognize that corporations are NOT inherently altruistic, but that they are (and should be) purely profit-driven entities. Acceptance of that reality would serve to clear up a lot of nonsense that otherwise gets blathered about.

And, because they are purely profit-driven entities, any altruistic influences must come from a governmental structure exclusively dedicated to (1) protecting true competition in the markets, (2) protecting the taxpayers' "investments" in corporate America, and (3) eliminating needless meddling in small businesses. These policies are exactly inverse now. No government--state or federal--protects competition, they protect big business FROM competition. In fact, the states are utterly unequipped to properly monitor the activities of big corporations. Their legislators are easily bought and paid for. And, governments meddle needlessly in small (mostly local) businesses because they must appear to be doing something, and they suffer from misdirected focus and resources which should properly drive oversight of big corporations instead. The laissez-faire "itch," if it must be scratched, should benefit local businesses instead.

The low/no-interest loans made by the Fed to the banks and/or the large corporations should have been made with more strings attached, if made at all, and the extent of that is very much doubtful. Had some of those dollars been instead directly spent by the US government in the rehabilitation of infrastructure, public health and education, the "return on investment" would be manifest in the form of more jobs, EVEN IF the deficit would have been enlarged, which is the problem anyway. President Obama and Fed Chair Ben Bernanke decided, instead, to follow the usual supply-side/top-down model of economic recovery by shoveling practically all of the taxpayers' money out to the large so-called "Wall Street" firms, expecting it to eventually "trickle down" to the benefit of the vast unwashed masses. Right.

President Obama wonders why all that did not work. He wonders why jobless rates are still nosebleed-high. He can blame his own inclination to follow absurd Republican supply-side crap like the good little puppy-dog he is.

THE SOLUTIONS:

(1) Immediately cut the combined FICA tax to 10%. An unknown Republican congressman first suggested this idea, and it would leave more spending money in the pockets of workers as consumers. That, in turn, would allow those workers to spend some money DIRECTLY into local economies which, in turn, would allow local (small) businesses to post some profits and possibly hire more workers. The widely embraced fantasy that Social Security is going broke is not true. A careful reading of the Social Security Trustees' Report from last year would reveal as much. I have read some of it, and I refuse to witlessly parrot the breathless conclusions of the Trustees in their Summary as so many other "experts" have done. Pumping up the payrolls might be enough to keep Social Security IN SURPLUS, AS IT CURRENTLY IS, despite the me-too message of the Chicken-Littles running around worrying about the coming imaginary demise of Social Security.

(2) Revoke the second-home deduction for higher-income brackets and allow, instead, workers to write off apartment rents. That so-called "second-home" mortgage interest deduction has driven the purchase of beach cottages, yachts, mountain cabins, RV's and other nonsense by higher-income taxpayers, all of which qualify as "second homes." Allowing workers to write off apartment rents instead would benefit the lower-bracket taxpayers directly AND it would revive the moribund multi-family housing construction markets, which might create some construction JOBS!

(3) Redirect government regulatory focus away from smaller, local businesses toward larger businesses instead. NOT BECAUSE government is good at business, but because businesses ARE purely profit-driven, and any other influences in the marketplace (like antitrust enforcement) should come from the sector (government) responsible for exerting those influences. Let businesses do their jobs (and expect no more), and let government do its job, which is primarily protecting consumers from hazardous products and practices and monopolies. Democrats, especially, ought to get off the insane merger-&-acquisition trolley they have been seduced into riding for 30 or 40 years now. Our economy does not need less diversification wrought by mergers and acquisitions, it needs much MORE.

(4) Raise income taxes on higher brackets. Let the so-called "Bush" income-tax cuts expire. Why? Because the federal government needs the money, and the rich can afford to pay it. That is it. It has not one damned thing to do with "morality," "fair shares," or "soaking the rich." Wealthier taxpayers do not pay FICA on any salaries above $110,000 nor on dividends, interest or capital gains, capped instead at a measly 15% income-tax rate. Lower-income wage earners pay not only income taxes in excess of 20% on most wage-dollars earned PLUS 6.2% FICA directly (not deductible), and their hapless employers must pony up another 6.2% on every employee's wage or salary under about $110,000, and THAT arguably influences employers to lay off people and buy machines instead. The present REGRESSIVE income-tax structure is an abomination, where wealthier individuals and households are keeping an absolute larger PERCENTAGE (not just dollars) of gross income after taxes and ordinary living expenses than workers. The gross median household income in the US is about $65,000 annually. That is, in most cases, two adult workers per household making less than $35,000 each. That means that HALF of all American households are below that line! Why are we wringing our paws over people making as much as $250,000 annually paying more taxes? The prevailing debate is absurd beyond belief.

(5) Preserve the Estate Tax on estates of $1 Million or more. A $1 Million tax-free estate is more than enough wealth to transfer to those of us who did not earn it. There is no such thing as the cleverly-named "death tax." There is no tax for merely dying. That is ludicrous. Estate taxes are paid with our parents' stupendous wealth. We beneficiaries got our money the old-fashioned way: we inherited it! It might be appropriate to raise the exemptions for individual recipients, and it might be appropriate to lower the brackets, which now start around 45%. If the Estate Tax is preserved, those options should be explored.

(6) Divert remaining TARP and bailout funds toward infrastructure and other make-work projects. We have already seen that individual wealth accumulation does NOT stimulate job growth, as has been argued against raising taxes on wealthier individuals. Income tax brackets were a lot higher when Bill Clinton was President, and the "Bush" tax cuts did not stimulate diddly over the past 9 years or so. Investment stimulation is not what is lacking. Look at General Motors, for example. There is no shortage of capital investment in General Motors, but they are STILL struggling to sell their products. More capital investment in General Motors is NOT going to induce more people to buy their cars, if those people have no jobs and no spending money, not even if they can get zero-interest loans! The workers are NOT going to borrow money to buy stuff. Those days are OVER! What General Motors (as do other large corporations, the real estate markets, and local businesses) all need is more BUYERS with more spending money in their pockets. That is the ONLY way that real job growth is going to happen. The true remedies are bottom-up, not top-down.

(7) There may be a valid point to eliminating corporate taxation, because it is persuasively argued that taxes on all corporations become a pass-through expense, a rising tide that lifts all corporate "boats" and are passed on to consumers. Corporate-entity taxation was, at one time, regarded as a proper trade-off for the guarantee of limited liability for investors. Just ask the hapless partners who invested as such in the famous insurance company, "Lloyd's of London," when there was a capital call on all partners a few years ago for money to cover excessive claims paid. Lloyd's was not incorporated back then. Today we have "S" corporations and limited-liability companies that effectively evade the so-called "double-taxation" issue faced by with "C" corporations, where net profits earned are taxed, then paid out as dividends and taxed again to the individual recipient. But the "double-taxation" issue is a bogus issue, because most gross income received by a taxable entity is paid out in wages, salaries, loan interest or capital investments, all of which is allowed either a direct deduction or a depreciation deduction. Only non-deductible dividends are again subjected to individual income taxes, yet those other deductible expenditures are mostly taxable income to those recipients as well! A better course of action might be to examine possible income-tax-exemption of ALL businesses, regardless of form, and to tax all net receipts therefrom at full individual rates.

(8) Instead of cutting taxes on capital gains when prior investments are liquidated, it might be better to allow a sliding-scale-refundable tax credit on capital investments. Repeal of the long-term capital-gains tax rate should be considered, replacing it instead with a capital-investment incentive that would be recaptured at ordinary income-tax rates if the investment were liquidated prematurely, using a sliding scale that would penalize earlier liquidations more than later liquidations. An immediately recognizable tax credit for capital investments could completely avoid recovery by taxation if allowed to remain in place for a designated period of time, like seven years, with ordinary taxation of the entire amount of capital gains levied anytime, and recovery of the previously allowed tax credit required on a sliding-scale percentage if liquidated in the interim. Certain exemptions for liquidations mandated by such matters as health crises or payment of estate taxes could be incorporated.

There are ways to address our economic problems, but the present course of action being pursued by the Obama Administration is doomed to fail. Workers need good jobs, and this is no secret. The Obama Administration has been mining fool's gold, trying to make the old nonsense work. That is because the same Usual Suspects remain in Washington to give bogus "expert" supply-side advice to succeeding administrations, as presidents come and go. President Obama needs to find some new blood, some totally new thinking, and jettison the Usual Suspects.