Archive for the ‘government’ Category

THE “MILLIONAIRE TAX” CANARD

Tuesday, July 17th, 2012

So here are the latest numbers I have heard. In February the President said his budget proposal would entail an annual deficit of $900 billion. (I heard him say this on TV, but I don’t believe he ever submitted this as a budget). Recently he said on TV that his millionaire tax would raise $66 billion in taxes in the coming year.

So is it that difficult to do the math with these two numbers? It is clear that the millionaire tax the President proposes does little to address our national debt issue. If you don’t think our national debt is an issue that’s another problem, but even then you will have to agree that monies raised by a millionaire tax do little to address our financial needs. Right? $900 billion deficit, $66 billion tax receipts.

The other side of the coin, of course, is what this tax might do to job creation. In a $15 trillion economy, a one per cent drop in economic activity computes to a loss of $150 billion per year. Will the diversion of $66 billion from investment to taxes cause economic activity to slow a bit? Or do you believe that the government is responsible for creating economic activity and thus jobs?

And whatever you believe, the numbers seem to say that the millionaire tax would be a small part of a plan to put our national debt and thus our financial stability on a long term sustainable basis. Where is the plan for that?

to The Editor of the Seattle Times. Fixing the Federal deficit.

Saturday, November 26th, 2011

Your Nov 25th editorial says “the solution to multi-trillion dollar [federal] deficits has to be a mix of revenue and spending cuts . . .” Like most people, it appears you do not do math. Here it is, briefly. These numbers are from the N Y Post article of August 28, 2011. The President wants a 13% tax increase (from 35 to 39.5%) on rich people. In 2009 people reporting over $1 million in taxable income paid $200 million in taxes. Static analysis computes a 13% increase as bringing in $26 million – a bit over $2 billion per month. From other sources I believe the same analysis of incomes over $250,000 brings in some $6 billion per month. The deficit in August was $160 billion. Average for the year is expected to be roughly $130 billion per month.

So let’s see. Will $6 billion be an important part of reducing a monthly deficit of $130 billion? That doesn’t even pass the smirk test. But here is the important part. In a 15 trillion economy ($15 billion times a thousand), even a small decrease in economic activity arising from this tax increase could have much greater impact than the $6 bil a month collected and recycled by the government.

So Obama’s tax increase will have little effect on deficit reduction, but a potentially significant impact on GDP if it motivates wealth to sit on the sidelines. Of course the entire analysis assumes that you understand government recycles money but does not create jobs. If you on the other side of that assertion, then you have a lot more math to do.

Jim Hirshfield

The Present Debt Crisis

Wednesday, July 27th, 2011

When I was in business, I used to have a cartoon I would post in the office from time to time. It showed an anguished face, literally pulling his hair out, and was captioned “Oh no, you did just what I told you to do”. The point, of course, was the folly of putting together a solution before defining the problem.

In today’s government debt “crisis”, the parties seem to suffer from the same affliction. What problem is this “crisis” supposed to solve? The media says we are trying to avoid default, but that is silly. We should all understand that it would be difficult to default on existing debt unless done so willfully. Government commitments could not be met, but the debt part of it is fairly easy. So what is going on?

Simply put, the problem to be solved is “What portion of GDP should the federal government spend?”. The President seems to want 25%, the House Republicans 18%. Historic tax income has broadly been in the 18 to 19% of GDP range. So how do you spend 25%? Raise more tax revenue. The President’s prescription for this is to tax “wealthy” people at a higher rate, and thus bring an increased percent of GDP into federal coffers. The opposition says that this will not raise more revenues, as people will avoid paying more tax at the cost of economic activity and jobs. Their argument is that if economic activity slows due to rate increases tax revenues will go down, not up. The President says this is not the case, that economic activity will continue regardless of changes in the tax rate.

So draw your own conclusions. But do so in the context of the actual problem being discussed – not all the silliness you see on TV and in the papers these days. What portion of GDP should the federal government spend?

Jim Hirshfield

The Emperor’s New Clothes

Saturday, July 9th, 2011

Editor:

Ok, I am calling BS on the silliness of the debt limit “debate”.. We are told that our nation will default on its debt if the limit on the amount of debt allowed is not raised. Why would that be so? We could continue to borrow up to the present limit, so there is no need to default on repayment of principal. And interest? It presently constitutes less than ten per cent of annual expenditures. Why would the government fail to pay interest due? I guess because they are already borrowing 40 cents of every dollar of government expenditure, and they would elect to default rather than pay interest. But that’s a choice. As to default being the consequence of failing to raise the debt limit? It’s another story of The Emperor’s New Clothes.

QE II – WILL THIS SHIP STAY AFLOAT?

Friday, November 12th, 2010

Let’s see if I, as a small business man, understand this further monetary easing. Our government is going to add $600 bil to the monetary supply by buying federal debt instruments from banks. This on top of $300 bil quantitative easing last spring. The stated goal is to put cash into the banking system so banks can lend it to small businesses.

Fallacies? I’ll list a few:

1. What will prevent the banks from simply buying back more federal debt, vs. making loans? Oh, that’s right, some bureaucrat has thought of that and we shouldn’t worry about it.
2. Will the continuing explosion of federal debt cause buyers of those instruments to demand a higher coupon rate, which would also have the effect of making it even more advantageous for banks to reinvest in them? That is, while deflation is the present concern, when will we “snap over” from worrying about deflation to dreading inflation?
3. Will this QE money, the potential inflation it brings, and potential higher interest rates per 2 above, cause businesses to be even more cautious in committing to hire people and make investments to expand their businesses? Note I did not say that it will cause inflation. Just that it increases the risk.
4. Just what is the nature of the risk small businesses perceive now, the risk that is causing them to be very conservative? My answer: they do not know what the rules are.
5. What will encourage small businesses to go in to the bank and try to borrow? I mean, those small businesses that a bank might think has a reasonable chance of repaying their loans. Of course: put a definition on the unknown risks they fear.

So great idea, government. Don’t do what has always worked – making the business environment more certain and more attractive. Go with the stuff that has not worked last year, the year before, or a number of times in the past. Go with an agenda for redistribution, not for growth and job creation.

Jim

A FORMULA FOR GOVERNMENT SPENDING

Saturday, March 20th, 2010

Some bright economist ought to give us a formula with which to analyze how much wealth and income can be taken out of the productive economy and used to deal with non-economic needs in a society. It seems obvious that any country has enough wealth to do a bit of non-economic investing, such as defense, justice systems, and welfare. The issue is to define the “sweet spot”.

While any country can do a bit of investing to satisfy other needs, it also seems logical that for each country there is a point at which such investing takes enough resources away from the productive economy that not only will the productive economy decline, but with this decline the availability of monies to do those unproductive but necessary things will shut down as well. This is what I call the “sweet spot”.

It is a complicated and, for that reason, a fun problem. For one, you could not create this formula with an analysis fixed in time, as governments seem to be good at borrowing against the future. So you would have to consider the cumulative effects over time, and the sweet spot would be defined not only as a per cent of GDP and a per cent of accumulated wealth, but also as a place in time in the future.

A second interesting consideration is how much of the non-economic funding is to be done by government vs. by the productive (i.e., private) sector. This would involve a whole sub-formula, it would seem, and a “loop” that analyzes whether to maximize the public or private sector funding of these needs first, using the other source as an alternative once the primary source stops growing.

But what a great tool it would be! We could see when things are projected to shut down per the formula, and then just argue about the assumptions shaping the inputs. I see that as a lot more clarity of discussion than we have now in our society. And that would be good!

Jim Hirshfield

THE SILENT MAJORITY

Tuesday, December 22nd, 2009

Silent Majority” is a term we have been hearing for a long time. It identifies a sometimes large group of citizens who do not involve themselves in politics until some major issue comes to the fore. Does this group exist? I think so. Why are they silent? Easy. They are too busy raising families, working hard to make ends meet and to execute their life plans, to become involved in public issues. Or so they think.

If one does not plan to have a career in politics or public service, it is all too easy to fail to put anything about politics into your life plan. This is a mistake. What goes on in the world of politics affects all of us. As someone said, elections have consequences. But sometime, when people rise up, become vocal, and express their concern about what is happening in the country, those in the political world are surprised. They shouldn’t be.

So take a look at your life plan, and see what it contains regarding politics. Don’t have a life plan? Make one. My book will help, if you want help. But do it. Avoid being an eternal member of the silent majority by putting into your life plan the need to understand and respond to things political.

Jim