GE Pays No Federal Income Tax

In this time of economic austerity, I am seeing a lot of weeping and wailing, and not enough facing the issues and moving forward to fix them. The deficit continues to grow and Congress continues to tinker with “cuts.” There aren’t enough “cuts” in the entire country to take care of the budget which is beyond fixing…or is it?

I read in several different articles that General Electric paid no income taxes on a profit of $4.5 billion. How did dey do dat? The easy answer is Jeff Imelt, GE’s illustrious chairman, has his head so far up Obama’s ass it would take the jaws of life to pull it out. Crony capitalism is rampant in Obama’s Washington. But that is the easy answer. The truth is more systemic as corporations at all levels have successfully lobbied Washington to reduce their total share of the tax revenue pie at the expense of individual taxpayers. Fully 42% of all U.S. companies pay no income taxes. And 25% of the largest companies pay no taxes including GE and ExxonMobil.

It’s easy to jump onto the let’s tax the evil corporation bandwagon. The truth is that there any number of reasons why this happens. ExxonMobil pays no taxes in the United States, but it pays half of its net income in taxes to other countries. The tax rate in the United States is 35%. ExxonMobil operates in countries where the tax rates can approach 50%, and pays through the nose there. The US Government gives it credits for those taxes, which sops up anything that might be owed to our government. Those kinds of issues are political issues that extend way beyond simple tax policy…and should be addressed at many levels.

GE is another story. Much of GE’s income is made outside of the United States, and that income is not taxed until it is repatriated to the United States. GE also employs some of the most effective lobbyists in the country, and successfully turns green energy, for example, into tax credits promoting environmental policies being pushed by the United States government. That is one of many of its tactics.

At the end of the day, the lack of corporate taxes coming into the government is embedded in our screwball tax code. Corporations scream about level playing fields with other countries whose tax rates may be lower, but that would ring hollow if the United States were to revamp its tax code and take politics and ideology out of consideration relying purely on economics and sound business principles. There are a whole slew of alternative ways to tax in America other than an income tax. There is the VAT, a national sales tax, the FAIR tax…all of which could form the basis of a tax system that would generate more revenue, allow corporations to sell our goods overseas without having to pass on income tax costs to foreign customers, and actually tax foreign companies that come into the United States to do business. It would allow corporations to repatriate foreign reserves adding a new base of capital which could be reinvested in the American infrastructure.

Congress needs to stop belly aching and look at creative measures to solve our problems. The anti-tax right and the progressive income tax left need to shed the rhetoric, and look at some of these alternative ways to fund our government if we are to survive and escape the turmoil that was evident in Britain this past week, and other parts of Europe. All they need is the guts to do it. But don't bet the rent!

What - Me Worry? The Coming VAT Tax

You don’t have to be a math wizard or an accountant or an economist to know that sooner or later when you owe money, you are going to have to pay it back. If you spend more than you take, eventually you will go broke. We all learned that when were kids…and in our adult life as more and more of us visit the local bankruptcy court as we fend off foreclosure actions. Somebody always has to pay!!

So I have a hard time understanding what our government is doing with ever increasing deficits. Who is going to pay for all of this spending? That is a politically neutral question. There are two ways a government can pay what it owes. It can print money, devaluing the currency thus cutting what is owed by the amount of devaluation; or they can raise taxes and take what you have to pay what they owe. Those are the only two choices. There are no others.

So it is with a degree of bewilderment that I have watched the government continue to spend, spend and spend. As I watch the figures pile up, and watch Barack Obama pay lip service to deficit reduction, but continue to spend with almost drunken abandon, I wonder what I am missing? Does he really not care that he is spending us into the poor house in ways this country could not possible imagined even as few as three years ago? He can’t be that stupid?

Then while watching a morning news show today, I had an epiphany. He isn’t stupid. He is clever…and has a plan. He’s not worried about the deficit and the amount of spending that is going on because he plans on paying it back exactly using the two ways I mentioned above…devalue the currency and raise taxes.

The Federal Reserve is taking care of the currency devaluation part of the plan. It has been pouring money into the economy like a tsunami over the past two years. Are you watching food prices go up? That’s why. When money is pushed into circulation, it has to land somewhere. It has landed in commodities like wheat and corn and oil and sugar…and the prices are going up at a rate not seen since 1974.

But it’s the tax part that is interesting. Everyone agrees that something has to be done with “taxes”, whether it is to raise them or lower them or change them. Underneath all of the rhetoric looms the biggest tax hike of them all, the Value Added Tax. Republicans are for it. Democrats are for it, and Obama’s advisers have quietly given it the old wink and nod because it is a hidden tax. It is one they can raise, and you won’t know it!!!!

A VAT tax is a tax that is levied on goods as they are in being produced. Every time a nut gets screwed on to a bolt, value has been added and that value added will be taxed and paid by the company who screwed the nut on the bolt. Think of all the steps that go into making a car, from the production of steel all the way to the showroom floor where the dealership does the final prep for delivery to its customer. Think of taxes on all of those steps…and you as the consumer…don’t see it. But you as a consumer will pay for it!! It’s not like you would see a Vat tax hike like an increase in property or a sales tax, or as you are moved up into another income tax bracket. It will just seem like the price of whatever it is your buying is somehow more expensive.

It is a regressive tax…which is exactly what is needed to fix the revenue portion of government finances when more than 50% of Americans pay no income tax…and 70% of Federal income taxes are paid by the top 10% of wage earners. It can’t go on like that forever. To quote Margaret Thatcher, sooner or later you run out of other people's money. With a VAT, everybody pays based on what they spend rather than what they earn.

The debate on VAT will begin in the 2012 election. The debate won't be whether there will be a VAT, but how it will be implemented. Republicans want to scrap the IRS and all of its associated costs, and mover all Federal taxation to a VAT or a FAIR Tax (Fair Tax is a national sales tax). Democrats, on the other hand, want to keep the income tax, and add this hidden tax so they can tax some more and you really won’t know it. I don’t have tell you which end of the argument I am on.

Nonetheless, it is coming. You will see it implemented right after the next presidential election. Obama knows it, which is why he has that “What? Me Worry” look on his face most of the time.

There are a lot of good things about a VAT or Fair Tax, and both are certainly worth considering if done right. On the other hand, unless there is proper implementation, it can turn into a cash cow with endless milk that you will be producing.

In the meantime, watch your wallet.

Social Security Means Testing: A Bird in the Hand is Worth Two in the Bush!

In one of his first initiatives as President, George W. Bush proposed privatizing approximately 3% or less of an individual’s social security contributions to relieve pressure on the social security system in the future. These were to placed into one of three different funds operated by private investment companies but the nature and contents of the funds regulated by the government.

THE DEMOCRATS HOWLED!! People would fritter away the money, they said. They would be coming to the government for reimbursement if they lost the money, they said. Private investment firms would rob them of the contributed funds, they said.

Fast forward to 2010/11! Social Security, the single biggest entitlement for which the government in on the hook, is broke. The government smashed the lock box, stole the money, frittered it away and robbed those who contributed to it. Now the government has to put the money back...and surprise of surprises…it doesn’t have money. And now we are broke. Guess what…the government can’t bail us out. Isn't that what they were supposed to save us from?

Social Security is the single most popular program ever instituted by the government. Originally intended to supplement the retirement income of depression era pensioners who had already lived past life expectancy, everyone contributed to the system, and everyone withdrew from the system based on what one contributed.

But as in all things government, the program grew and expanded, and many people came to view social security as their total retirement, which it never was intended to be. The system was not an annuity type system, but a giant Ponzi scheme, wherein those who contributed to it previously were paid their share out of those who were contributing to it currently. That was fine as long as the baby boomers were working to support those above then. But now the triangle is reversing, making it impossible for those coming up to support that massive demographic bloat on top of them. And the government spent the money anyway…all that is in the system is a bunch of IOU’s that government can’t pay back. And the Democrats were worried about George Bush’s privatization plan? Hello!!!!

Couple that with people living into their nineties, and 75% of those eligible for social security take early retirement at age 62, instead of currently waiting for full benefits at 67. As the insurance commercial says, a bird in the hand is worth two in the bush.

President Obama’s blue ribbon panel made several recommendations to save social security, including raising the retirement age to 70, increasing contributions…and using means testing as a prerequisite to receiving any benefits. Translated, if you are wealthy, notwithstanding how much you paid into it, you ain’t getting’ a dime out.

This proposal is being supported by Republicans and Democrats alike. Here’s the problem. If the government does this, the fundamental nature of the program will change. It will just become another welfare program. They tell you now that it would only effect the uber wealthy of the country. After all, why should Bill Gates or Warren Buffett get a social security check? They obviously don’t need the money.

On the other hand, government welfare programs always experience government creep. First, it will be the very wealthy..then the wealthy…then the upper middle class…then the middle class who will be determined to be too wealthy for Social Security. Why should anyone save for their old age if they know that the social security withholding from their paycheck every other week will be going to someone else who didn't save?

Means testing for Social Security is a dangerous game. The government might just end up with a bunch of totally broke senior citizens who decided better to spend the money while they can enjoy just so long as the government will use somebody else’s money to support them. After all, a bird in the hand is worth two in the bush.

The Awakening States

Obama will go down in history as a weak president. When the Democratic Senator from West Virginia asks his President to please lead…you know there it trouble. Not to fear, the number one rule of Political Science is proven again. In politics, there is never a vacuum. The states are rushing in to fill the void.

The concept of states’ rights is something we learned about in school not fully comprehending what it means. It was argued at the signing of the Declaration of Independence. It was enshrined in the Articles of Confederation, and compromised in the Constitution. Seventy years after the signing of the Constitution, America fought a civil war in which 600,000 Americans died to redefine the rights of the union vs. the rights of the states.

In his book entitled Lincoln and the Decision for War, Russell McClintock examines the development of two different views of the United States. In the north, the Union was sacrosanct. In the south, it was viewed as a voluntary association. How, he asks, did the north develop that sense of a non-dissolvable union…and why were northerners ready to die for it? This in light of historic compromises over the years to appease southern sensibilities and protect the institution of slavery not only vital to the southern economy, but to the northern businessmen who fed the horrible beast.

People who are fifty and older have a strong sense of union. Forged in the hardship of the great Depression and honed in the tragedy of World War II, the issue of states’ rights was not within the realm of daily discourse. As the civil rights movement rose to the surface beginning in the late 1950’s and moving forward, America wasn’t shocked when the Federal government once again sent troops into the south to enforce civil rights legislation. The trend toward centralized Federal power marched unyieldingly forward, and we accepted it.

Reagan tapped the brakes, but he didn’t come close to stopping it. More and more programs came out of Washington. More and more spending came out of Washington. More and more regulation came out of Washington. Then America was faced with ultimate conundrum. If the Federal government was so powerful, if the Federal government had all of our financial institutions regulated to the hilt, how in the midst of all of this centralized bureaucratic authority did our economy nearly self destruct in 2008? And if the government was looking out for our welfare…how is Social Security about to go broke?

Obama got elected by a fluke, and his answer was more government and the enactment of the single biggest entitlement in the history of the Republic. It is so cumbersome and so complicated, even Obama can’t comprehend its dire consequences as he and his administration continually hand “exemptions” to states and corporations to prevent it from collapsing the economy and our health care system.

So the states are turning away, and once again the role of the states is being examined by a public who has turned its back on a non-responsive, corrupt Washington. Obama is President of the United States…but nobody is listening anymore. The power has shifted to the states and the governors.

Today, John Kasich gave Ohio’s State of the State address in Columbus. Not once in my entire lifetime have I heard anyone discuss the Governor of Ohio’s State of the State of address. Not once in my lifetime have I heard anyone discuss the importance of state government and our identites as Ohioans. Not once have I heard the welfare of Ohio being pitted against other states, unless it was in football, and I don’t intend that to be a joke. All of this was heard today.

Whether you agree with Kasich or not, he certainly has raised the stakes for state government in a period where federal authority is collapsing. And it is happening in New Jersey, Pennsylvania, Indiana, Illinois, California, Wisconsin…all across this great country people are looking to the states instead of the Feds for answers.

Does Romneycare work in Massachusetts? Can we set up state clinics here in Ohio to relieve the burden from hospital emergency rooms? How much of state government functions should be privatized? What is the relationship between state government and state employees? How does Ohio tax structure need to be altered to compete with Kentucky? What about redefining school districts and school consolidation to cut administrative costs?

Never did I think I would live to see the day when these types of mundane state issues be the topic of conversation at the water cooler. Never did I ever think that being an Ohioan is actually important, and we need to redefine ourselves in terms of our state.

Maybe Obama will go down in history as a great President...the one who re-awakened the concepts of statehood and states’rights. Perhaps America is too big and unwieldy for a one size fits all federal solution to our problems. The founding fathers gave us the answer. Let’s hear it for the states.

Kasich's Gamble With America's Future

Leaving behind the policy merits of SB 5, Governor Kasich is making the gamble of his political life that may affect the national political scene for the next several years. Going into this winter, momentum at the national level clearly belonged to the Republicans. The abuse of power and sheer disregard for the will of the American people exhibited by the Democrats propelled them right into the muck in one of the biggest political losses in recent history. Left to stand by itself, this momentum was sufficient to carry over to the 2012 election in which the Republicans could retake the Senate and Presidency. It could be the political stunner of the millennium, relegating the Democrats to minority status for the next twenty years.

Enter Wisconsin and Ohio and the very public fight with the public employees unions. Both of these states have huge Republican majorities in the legislatures with Republican governors that aren’t afraid to use them. And use them they are pushing forward to effectively neuter these unions into irrelevance.

Elections have consequences, and both candidates clearly indicated that the end of public employee collective bargaining would be a priority in their administrations. But just because you can do something doesn’t mean you should.

Nothing motivates a constituency like defeat. The success of the Tea Party movement is an example as it reacted to the health care reform act in ways unprecedented in our history. Never before has the nation seen a grass roots movement surface so quickly with absolutely no central leadership. However like all such movements, there are still a fair amount of true believers still around and doing a great job, but the fringe of the group falls off as the motivation for the movement wanes. With grass roots movements, success often spells the end of the mass appeal of the movement. The Tea Party has been successful, no doubt about it.

But that momentum has shifted to the unions, and they are suffering what can be described as nothing less than humiliation at the hands of Republican legislators and governors. Not that turn around isn’t fair play. The Dems did the same thing in Washington before the Republicans took over the House.

Unfortunately for the Republicans, the motivation for revenge is now with the unions, who will continue to enjoy energetic members, strong political know how, and unlimited amounts of money…in states that matter in the 2012 Presidential election.

Ohio in particular is the prize. No Republican has won the White House without Ohio. Kasich himself won the governorship with a 2 point margin. There is a strong chance that a referendum on repealing SB 5 will be on the 2012 ballot jeapordizing an almost sure Ohio victory for the Republican Presidential candidate in a wave in motivated union and Democratic voters out for revenge. What is he thinking?

This only goes to show that good policy does not always make for good politics. In the case of SB 5, Kasich could have taken a more surgical approach to the problem. He chose not to, and ended up not only poking the sleeping union lion, but alienated some southwest Ohio Republicans with a fair measure of union constituency. He even removed one Republican from the Senate Committee marking up the bill because he was going to vote against it.

Add to the mix that this is a bad bill. Just as Obama and his Democratic cohorts passed a badly crafted ideologically based health care bill that more likely than not will be declared unconstitutional; Ohio Senate Bill 5 may face the same fate! In particular, the portions of the law that says teacher salaries are to be based on “merit” are vague to the point where it may violate the Equal Protection provisions of the United States Constitution. With no specificity as to what constitutes merit, what lies ahead is a plethora of sex and age discrimination suits as some school boards define “merit” as who is sleeping with the Principal; who is flirting; who is attractive vs. unattractive; maybe they want a “younger” staff….you get the picture. This bill is a lawyers dream, and school systems better get their checkbooks ready to pay some hefty legal fees.

As a Republican who is not a fan of any unions both by ideology and personal experience, this bill is a humdinger. Kasich should feel free to gamble with his own political fate, but to me there is no more important political goal than to rid the nation of Barack Obama and his leftist cabal. Those are the stakes in 2012.