March 30th, Cut Cap and Cosolidate

Opinion Editorial by Terence Rosenthal

Good news, the United States could once again prove to be the largest oasis of resource abundance in the world. Will America allow itself the opportunity to take advantage of its vast supply of resources, or will its economy keep operating with one hand tied behind its back? Currently, there is a boom taking place in the field of American natural gas production as well as the production of other fossil fuels. This is advantageous for industries ranging from steel production to transportation, shipping, and even healthcare. Imagine the inventions that can be created as inventors, scientists, and doctors burn midnight oil in their labs and hospitals without fear of dwindling fuel supplies. This is possible if America does not have to contend with a federal government which regulates itself away from prosperity.

As the U.S. Supreme Court discusses key aspects regarding what is and is not constitutional under the Affordable Care Act, and the largest piece of federal legislation in American history is under review, citizens are sitting on the edge of their seats. As with other countless federal reforms and mandates, Americans should be asking themselves two questions. Should the Federal Government be able to force its citizens to enter into a market where they are required by law to buy a specific product? And, how much authority should be allocated to federal law versus state law? Variations on these two questions could be applied to many other current legislative topics. The Affordable Health Care Act raises other questions regarding legislation and budgeting. Citizens need to ask what is to become of the $500 billion set to be transferred out of Medicare, and how will states accommodate for the added cost they will have to cover if The Affordable Health Care Act is passed?

Health care is not the only sector under attack by federal overreach. There is the potential for far more sweeping federal legislation in regards to U.S. manufacturing and energy sectors. It is fair to say that most Americans want a cleaner planet, and are willing to accept some level of regulation so that they are guaranteed drinkable tap water, and relatively clean air no matter what part of the U.S. they are in. There is evidence to suggest that since the early 1800’s, after a mini ice-age, the global temperature has increased .8 degrees. However, scientific theory regarding climate change and Co2 production does not match what is actually happening in the atmosphere. This does not give license to drop all environmental regulations and merrily pollute soil, rivers, and streams. But one should question regulations that will be imposed on citizens and industry by way of Cap and Trade, and Agenda 21.

America’s citizens currently living in the largest economy in the world need to consider how industries related to fossil fuels are being overregulated, and how employment and market pricing will be affected. For example, a new piece of legislation being drafted by the EPA entitled Tier 3 proposes to reduce sulfur emissions. There is, however, no proof that Tier 3’s goal will produce environmental benefits. Tier 3 could increase the current price of gasoline, which is at approximately $4 per gallon nationally, by as much as 25 cents per gallon. Similar legislation is being considered regarding the coal industry. Currently in Montana, 3 coal plants may be forced to pay a combined $90 million in upgrades. Common sense says that if this legislation is implemented, it will translate into higher energy prices, and lost jobs for Montana residents.

What gives the Federal Government the right to determine all regulations for the states? How in touch are the people working on Capitol Hill with the needs residents living in each state, and the prosperity which their businesses generate for America? The fact is, every state has unique resources, industries, and individuals that contribute to the U.S. economy as a whole. What determines quality of life and prosperity for people living in Kansas may not be that important to someone who lives in California. The preferences of a state’s population are revealed in their local and statewide elections. This does not mean that all federal laws are an infringement. It means that people who move to a certain state do so with the knowledge that each state presents a unique set of positive and negative circumstances to its residents. If Washington DC continues to create legislation in a vacuum, businesses will have less freedom to create prosperity, and the American economy will lose.

Citizens need to consider the amount of overlap which exists regarding federal programs and departments. Though the tasks of each of these offices are very important, our present level of debt suggests that they need to be fine-tuned and possibly consolidated. For example, if one was to research all of the federal agencies related to environmental cleanliness, they would discover that there are at least six agencies which are similar in title and function. Maybe these six agencies could be consolidated into two, with some of the responsibilities given to state officials. After all, many state offices have the same title and function as these federal agencies. Imagine how much red tape, overregulation and over-budgeting could be avoided with taxpayer dollars if the Federal Government focused on limiting excessive legislation, consolidating its own agencies, giving more power to the states, and giving businesses more freedom to chart their own paths? America is at a crossroads between two directions which are presently at odds with each other. One direction is growth, and the other is reform.

March 21st, Simplifying U.S. Taxes!

Overstimulation of the budget and the dollar           

Should major banks and economies have to pay higher interest rates based on the amount of debt and risk they incur? Would charging a higher interest rate on high risk countries tamp down big business, or would too big to fail be averted? In an article written in the Financial Times on March 2ndentitled “Draghi’s cash tonic makes banks smile” the possibility is presented that bonding banks to governments could prolong the European debt crisis. This article highlights six major European banks refinancing over 200 billion dollars with the help of the European Central Bank. Similar trends have happened in the United States with the financial bailouts, and quantitative easing. As a result, more dollars are being circulated, de-valuing the dollar.

 

Debt, more tax-friendly than profit?  

Companies and other commercial bodies in America are currently able to incur debt, and declare debt to the IRS for tax write-off purposes. This in itself is not necessarily a bad thing in that companies take risks and could be waiting for returns that heavily outweigh their debt. However, if debt status is overly encouraged, companies as well as economies can make dangerous choices resulting in bankruptcy. In the New York Times, an article entitled “For corporations, the U.S. Tax Code Adds to Debt’s Allure” reveals that the interest corporations pay on their debt is deductible on federal taxes. With personal finance, taxpayers do not have this option. Is more oversight the answer, or is it possible that companies who are the best at managing their finances can be rewarded? This relates to another ongoing problem, and that is the government frivolously betting on winners and losers. If a culture of responsibility was encouraged, maybe the government would put their heads before their hearts regarding ultimate losers like Solyndra. Withdrawing all government subsidies may not be the answer. No one in America enjoys the current gas prices. However, without subsidizing of oil, the price for gasoline could be much higher than its current rate. Many Republicans and Democrats would agree that greater fiscal responsibility, as well as better analysis on how government investments are being allocated is a good thing. In other words, if there is no real alternative to a fossil fuel powered infrastructure, the government should not throw taxpayer money to ideas that may have positive effects twenty years from now. This said, there is some value to research and development, but not at hundreds of millions of dollars per company in government allocation. 

 

American Corporate Taxes, do they encourage investment?           

Currently, the U.S. corporate tax rate is 34.6%. America has the 5th highest corporate tax rate in the world. The average corporate tax rate in the world is 18.6%. Taxation is extremely complex especially in America. Many financial experts would argue that even though the American corporate tax rate is 34.6%, after companies claim deductions, or receive subsidies and credits, the actual tax rate paid by many companies is quite different. There is one trend that currently favors less corporate taxes as a means of generating more business. In Investor’s Business Daily, an article written on March 1st entitled “High Business Taxes Hurt Jobs,” states that have the lowest tax rates have been creating over 50% more jobs than states with the highest taxes. Since the recession ended in 2009, states like Wyoming, Georgia, and Ohio enjoyed employment rising 1.14% while states like Hawaii, Kansas, and Rhode Island, who have among the highest business tax rates had payrolls that grew by an average of just .75%.Imagine how much greater the potential for business development could be if corporate taxes in America were set at the average world rate. Group this with a simpler tax code regarding subsidies and deductions, and an atmosphere encouraging balanced books and low debt, and there is no telling how much better business could be in America. Would it not be better for American business, as well as the U.S. treasury if the tax code rewarded companies that were more fiscally responsible?

 

Incentivize Enterprise

More than tax-breaks, and favorable tax rates, a precedent needs to be set that encourages people to work hard, be ambitious, and challenge the limits of the free market. This applies to the Generation Y student finishing college, entering the business world. Business entrepreneurship and exploration needs to be encouraged by reducing red-tape and government limitations placed on small business start-ups. Would Steve Jobs have started Apple in his garage if he knew he had to sift his way through the multiple levels of government regulation just to get started? What about the Generation X-ers who are re-entering the job market, and trying to reinvent themselves as professionals? A precedent needs to be set where people are encouraged to pool talents and resources for small business to thrive. The less additional costs added to existing overhead, the better it is for small business. Tax codes regarding freelance work, and independent contractor status need to be more favorable. And last, for the Baby Boomers, a culture of investment needs to be maintained. Many Baby Boomers are of retirement age, and should have favorable terms for their investments which they’ve spent a life time achieving. Would it be very encouraging for people to invest in new economic enterprise if they knew that they would be penalized for doing so? In order to grow American enterprise, people need to be rewarded for investing. 

 

Freedom of Choice Regarding Taxes

Is America ready to completely revamp the income tax code for individuals? There are many differing opinions. However, many in the middle class would argue that they are dwindling in number. It is also a fact that the vast majority of American associates work for small businesses. The best way to offer individuals favorable tax plans is to offer choices. If Americans like the existing Standard Deduction method of taxation, they can pay income taxes at their current rates. One thing is certain, for the U.S. economy to flourish, greater wage earning needs to be encouraged. It may more favorable for those in the middle class to choose a simpler tax plan, with a standard amount annually per individual such as a $10,000 to claim as deductible expenses.  My example:

-$12-49,000 per year in wages would pay 10% in taxes annually

-$50-79,000 per year in wages would pay 18% in taxes annually

-$79-100,000 and over per year in wages would 25% in taxes annually

-Over $100,000 and over per year in wages would 28% in taxes annually

 

Conclusion

Many would consider the Ryan Plan for reporting annual income tax to the IRS too severe. But one can merit Paul Ryan for providing a much simpler, cohesive alternative to existing tax methods. I present a clear cut, 4 tiered system that many would agree is favorable to all levels of wage earners. For many, especially in the middle class, there is great hunger for simpler financing and taxation which rewards hard work, risk, and enterprise. There are many potential problems that come from unaccountability in terms of how money is spent. The U.S. Government is a complex entity which is responsible for many functions, and should not be reduced in a cavalier manner. This said, it has been many years since the Federal Government has had a balanced budget. The main reason could be that in the government’s benevolence (with tax payer dollars), a hand was lent to Americans via housing, and currently via healthcare. Other than a safety net in existence for the very needy, one has to ask if this is truly necessary? There are ideas to reduce the size the government by an annual percentage until it is of the size that does not abuse taxpayer money. This is a good idea if executed correctly. However, the most important thing America can do now is create an atmosphere which rewards hard work, investment, ambition, independence, and risk. Many argue that currently, these elements are not flourishing, and the result is the current economy, which is barely getting by.