Sunday, November 30, 2008
Obama simply wants to return the county to the tax structure that we had under Clinton. Back then the economy was in prosperous and surpluses instead of debt. As many people know that Obama’s tax policy gives away more money than will be generated by this massive tax increase. This is also a big increase on business owner to either pass along those tax increases to consumers in the form of higher cost for the goods or for those business owner will be force to lay off employees. This could drive the business to move to another country for cheaper cost.
Obama wanted to increase taxes on the rich people but there not that many rich people in the United States. Beside that, I found that it was kind of ridiculous that the rich should be taxed a higher percentage than the rest of the middle class but there are a pretty high percentage (roughly 30%) of the people out there who don’t even pay taxes. This idea of taking money from those who work hard and earn it, and giving it to those who don’t work, just encourages those who do work to work less. As for those who don’t work not to try and work more.
As for our city of Colorado Springs, has been using over the funds though sales and tax collections. According to the Gazette, our city and county has been cutting back on services such as city buses, park maintain, programs for adults. Our city sales and use tax collections in the month of October were down to 8.62 percent from a year ago, this is the lowest in 5 years. Our city does need some funding but sales tax hikes will not work. As for tourism, they only drive them outside of area to purchase expensive items. Property tax hike will also bring funding, but it also currently unoccupied pays a higher property tax than those that are. Can this be done without increasing tax? The taxes would return to normal levels once the property is occupied.
First Hand Intervention
“Society in every state is a blessing, but Government, even at its best state, is but a necessary evil; in its worst state an intolerable one: for when we suffer, or are exposed to the same miseries by a Government, which we might expect in a country without Government, our calamity is heightened by reflecting that we furnish the means by reflecting that we furnish the means by which we suffer”
Thinking about Paine’s quote I again think about the intervention in our lives, and how in its worst state, government is intolerable. Recently, I presented an economic analysis to Tom Perkins, owner of Perkins at Motor City Dodge. This presentation that I made talked about the affects of the current financial crisis that the automotive retailers face. I was reluctant to talk about government intervention, however in the owners comments back to me, I learned that government intervention is the main cause of the automotive production turmoil. PEVA an organization owned and run by the fed, demands that automotive manufacturers produce and average gas mileage production, where each and every models is averaged and totaled together. This average must be at or above the government regulatory amount. What does this do to the production cost and price? Well the cost is affected because the average is ever-increasing, and this causes the technology to ever-increase, pushing costs up. Price wise, when the auto maker is forced to produce a bunch of cars that get un upwards average to offset the big trucks that they do sell (Perkins), the small economical cars sit and loose value. And since the cost was higher to produce them anyways, the prices rise and the automakers/sellers end up eating the loss. Tom Perkins is a first hand example of how government interference screws the economy. His answer is plain and simple; government needs to remove some of the barriers to do business.
My Economic Stimulus Plan
The latest figures being thrown around by Congress for the economic stimulus package are somewhere in the $300 to $600 billion range. To help put this in perspective, you need to realize that $600 billion is more than the federal government spent in social security payments to retirees and the disabled in the 2006 tax year. I believe the most efficient and expeditious method would be to temporarily cut Social Security taxes from 12.4% to 6.2%. This would provide approximately $400 billion in stimulus to American workers and businesses over the next tax year. Of course, the US government would have to borrow additional money to make up for the uncollected revenue, but they are planning on borrowing that money anyway for their multi-billion dollar stimulus plan, and this method is much cheaper – there is no need to hire additional IRS agents to sift through 140 million tax returns or buy $42 million in postage stamps. The tax cut also could be effective immediately, instead of 6 to 9 months from now when the stimulus checks would finally be mailed out.
Not only would this plan be much more efficient, but the effects would be felt immediately as employers would see savings of 3.1% in their payroll costs and employees would immediately see a 3.1% raise. For each American worker earning $45,000 a year, the employer would see a decrease in their portion of the payroll tax by $1,395. That means for a small business that employs 50 workers at an average wage of $45,000, they would have an additional $69,750 in profit for the year. The business could use these additional profits to: A) hire more workers B) lower the price of their product to capture a larger share of the market C) keep the extra revenue and invest in capital to grow their business or D) take the additional revenue as personal income and spend it in our rapidly shrinking economy…buying new automobiles, laptop computers or video games. Unemployment levels have been rising rapidly lately, so this form of economic stimulus would have the greatest impact on unemployment numbers, as employers would immediately have more cash to spend to hire additional workers.
An average American worker earning $45,000 a year would have $1,395 more in their pocket at the end of the year, which means they could stash some of it away in a savings account or CD – this would give the banks the liquidity they need in order to start lending again. Hard working Americans would also invest greater amounts into the stock market as bargain shoppers seek to take advantage of stocks that are currently priced almost 45% below their previous values, and consumers would once again head to Circuit City and Best Buy to spend their new found wealth. The positive effects of this stimulus would also be felt over a longer period of time, as workers receive the extra cash each pay period rather than in the form of a one-time refund check.
"His administration should also be suspicious of trying to pick economic winners and losers with subsidies, taxes and regulation. It doesn’t work. Ask the Japanese, the Koreans or the Europeans. Instead, the government should set general goals for the environment, energy and health care — and then let entrepreneurs, investors, venture capitalists and consumers decide how best to achieve them. No policy that cannot be commercially sustainable in the long run makes sense.
Any tax increases should be delayed until the economy has recovered. Raising tax rates is rarely a good idea, but it is especially foolish in a deep recession. On the budget and spending, he should try pilot programs to test his ideas. If they work at sensible cost, he will get broad support to expand them. If not, he should jettison or reform them."
I agree with his analysis that it is not a good plan to pick winners and losers, and then tax or subsidize them according to congressional incentives, but rather, it would be better to provide goals in the concerned fields and then provide incentives for entrapaneurs to reach them. This will prove to yield less government induced market failure, and more competition in the fields concerned.
Saturday, November 29, 2008
Monday, November 24, 2008
Sunday, November 23, 2008
Tuesday, November 18, 2008
There are many reasons why a bailout of the auto industry would be a bad idea, but I will focus on just two:
1) If these auto industries are so interdependent that they sink or swim together, doesn't that raise some questions? Isn't the essence of a strong market a "survival of the fittest" through competition? It seems that in a normal market, one auto company would be rooting for the other to fail so it could snatch up the extra business. The auto industry, as it stands, is an oligopoly at best and a monopoly at worst. So if the government bailed it out, it would be doing the economy two disservices. First, it would be propping up an industry that obviously can't compete in the market, and secondly it would be supporting an oligopoly. It seems ironic that if the government decided to bail out the automakers, it must think the bailout would be good for the economy, yet by bailing it out, it would be supporting a market failure, which is bad for the economy.
2)As painful as it may be for Detroit, the failure of the auto industry would not be "catastrophic" to the economy. Sure it would hurt, maybe for a while, and certainly it would hurt much more for some than for others. But catastrophic? I don't think so. The economy is by far more service oriented than manufacturing oriented. We have seen this trend away from heavy industry towards service for the last several decades. So the failure of the auto industry is just the effect of the natural progression of our economy and our GDP. If we bail them out now, we are just delaying the inevitable.
Tuesday, November 11, 2008
The invisible finger
In addition to the invisible hand created by free markets; we have the invisible finger created by governemnt. The finger of government is much like the finger of a child. The finger of the child often finds its way into places it shouldn't be; like going into the mouth after going inside the nose. The finger of government also goes into places it shouldn't, like intervening with free markets. Children have a hard time leaving a scab alone when it is so tempting to pick at it. Governemetns expereince the same temptations and just like a child, they can't resist. The difference between a child and a goverenment is the child has parents that tend to know whats best for the child, and through the efforts of the parents the child's scabs eventually heal. The government however does not have parents looking out for it. A government has its people whom, unless they were all economists, do not know how to heal the nations wounds (an economic recession). So the goverenment tends to act in a way a child would act without her parents; she gives into temptation and picks her scabs. America picks her scabs through $600 stimulas packages, $700 billion bailout bills, and even more recently, plans to try and save the american auto industry, and even worse, speculations have surfaced about a new stimulas package (I guess the original package was so successful, they figured they would try it again). So America's wounds continue to bleed as the scabs are repeatdly torn open through an interventionsim based governement.
As history shows us, economies will rebound after a recession. Just like a scab will eventually heal even if it is picked, but it is my opinion that the scabs of an economy will heal like those of a child in that the best way to heal them is to simply leave them alone.
Sunday, November 09, 2008
US Dumping Ground
mercury, nickel and zinc. It is estimated that 40% of all heavy metals in household garbage comes from electronic equipment. Although the metals, glass, and plastic in electronics are recyclable, more than 70 percent—or 3.2 million tons—of the electronic waste stream ends up in landfills. ( http://www.tchd.org/pdfs/electronic_waste.pdf).
On 9, November 2008, 60 Minutes, dicussed a story in regards to US technology waste (CRT's) and where this waste was going. Apparently to Hong Kong , according to 60 minutes, to sit outside on a land fill among many living habitants( pictures right and below of trash heaps in Hong Kong).
More than 42 companies were exporting American Cathrode Ray Tubes, that contain large quanities of lead and other computer related trash, that apparently was tracked from several locations like Denver. In our economics courses we have discussed the market externality of public garbage as far as "Dumping"on other countries. Like Pollution the public contributes individually to a cumulative waste that the market doesen't completly take care of. So in this case,does the US have an efficient level of waste? - Yes we have waste efficiency if the US continues to dump on other countries ( even if there is still a political problem about dumping). IF the US does not dump ;however, the US does not have waste efficiency (especially waste that has related chemicals that may or may not decompose in landfills). I am not sure how one could measure the efficient level of pollution i.e. numerical value for waste is just as difficult in determining. There are recycling plants such as NCER ( National Center for Electronics Recycling) , and LG Recycling ( partnership of LG electronic and waste managment inc. - Has expanded this program to Denver and other cities-), Electronics Recycling in El Paso County off Wahsatch Avenue ( 719- 219-3996), and El Paso County Hazardous Waste Recycling Center on MarkSheffel Road ( 719-520-7878).
Like pollution I would assume especially for Eubanks class that we would create a corrective tax to fix this market externality of waste. I think that this tax should be a flat tax on the consumption of a electronic product. This tax should be the same for each electronic device that is consumed intially so that people would be less likely to want brand new equipment and hold their existing devices for a longer duration ( since waste is created because many consumers want the latest technology and quickly discard a working electronic device). I think that by creating this tax on a newly produced good would create incentive for two things: Preventing more waste by wasting working electronic devices and 2) creating more income for recycling plants