The war on the working class continues

I personally hate conspiracy theories. like most, I hear such and my eyes begin to glaze over and I eagerly wait for the person to stop talking so I can move on to another conversation. However, there is something about the Obama administration that makes it very difficult to not question the intent, as well as the consequences, of their policy choices.

Recently Eric Holder, the Attorney General of the United States, gave the commencement address at Boston University at which he told the students about the wonderful and "progressive" reforms that came out of bad economies. Essentially, he is arguing that major actions by government can only happen under the worse possible economic circumstances, because people are otherwise fine with the status quo. Holder's remarks reminded me of White House Chief of Staff Rahm Emanuel who quipped, "You never want a serious crisis to go to waste," Emanuel then went on to discuss the major changes you can make in just such an environment.

Essentially these high ranking public officials are sounding a mantra of more problems leading to more change. With such a philosophy, it should not be a surprise that we continue to see policies that are contributing to the continued destruction of the economy. Unemployment is at the highest level in over a quarter of a century, the national debt is growing at over $1 trillion dollars a year (in the early 1980s the accumulated debt of the US government was only making that mark for the first time), and inflation looms around the corner as cheap money is being produced to pay for this massive government expansion.

Particularly harmful will be the President's far reaching health care reform legislation, which will require small businesses to provide health insurance to their employees. It is being marketed by the administration as having a minimal adverse effect because this burden will be offset by a tax credit for each of the covered employees. Without such, it is unlikely the bill would have ever navigated through the Congress. However, with the federal government's incredible appetite, that will like be modified as the law is implemented. Even without a single change in the current law, the present credit is already arbitrarily reduced as a business grows, essentially discouraging employers from hiring more workers or increasing their salaries. Devon Herrick and Pamela Villareal (both of the National Center for Policy Analysis) have noted that this bill is going to clearly undermine job growth and be particularly harmful to higher paid workers.

The tax credit is suppose to be helpful to small firms. Businesses in select industries that have 25 or fewer employees will quality for a tax credit worth up to 35 percent of the employer's contribution to health insurance during the period of 2010 to 2014. After 2014 this is how the picture looks:

• Although employers may qualify for a 50 percent health insurance tax credit for the first two years, they must pay for at least half of the expense.
• Employers will have to make these purchases through newly formed "health insurance exchanges" in order to qualify. It is yet to be seen if these will be competitive. Since they are largely government controlled (and potentially monopolistic), it is highly unlikely.
• Than the law begins to get sticky and companies will likely slip through the tax credit cracks when it comes to being qualified as employers must have fewer than 11 workers, earning an average of $25,000 or less, in order to qualify for the full tax credit. Therefore the law is punitive towards individuals who make more than $25,000 a year. This is not affluent by anyone except the government.
• Finally, the credit is not available to sole proprietorships and their family members, yet this is one of the most common type of small business in the United states.

The policy implements an ugly trade off for firms that would like to do more for their employees. As the company's average pay goes above $25,000, the credit is withdrawn at a rate of 4 percentage points for every additional $1,000 in average pay. Eventually it is completely withdrawn once the average pay reaches $50,000. In addition to this, the credit is also incrementally withdrawn for each increase in the size of the business beyond 10 workers (regardless of average pay), and it disappears once the firm reaches 25 workers.

Therefore this legislation will mandate businesses to pursue low wage workers and avoid those who enjoy better skills and typically receive higher pay. It may also simply force employers to avoid the costs of having many employees by choosing technology over workers (which has a higher initial cost, but would clearly become cheaper over time in the new health care environment). Another option could find companies pursue vendors (particularly overseas) in order to avoid these prohibitive employee costs entirely.The war on the working class continues.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

A Tale of Twenty States

Our story begins with Twenty states. In the last decade ten became richer and ten became more poor. The question that matters for policy experts should be "why?" Ten states enjoyed an upward economic and population trend between 1997 and 2007, ten others saw serious decline in the same time period. The American Legislative Exchange Council recently published a study (Rich States, Poor States) written by economists Steve Moore of the Wall Street Journal and Arthur Laffer, most famous for being behind the development of Ronald Reagan's economic agenda. These two economists have gone "under the hood" to determine why some states are prospering, while others suffer.

The Winners

The states that have enjoyed the most prosperity over the last decade, according to the study, are Utah, Colorado, Arizona, Virginia, South Dakota, Wyoming, Nevada, Georgia, Tennessee, and Texas. On average, these ten states saw an 85.1% increase in the states' gross state product growth, an 87.9% increase in personal income growth, a 55.9% increase in personal income per capita growth, and a 20.4 percent increase in population growth.

The Losers

On the other end of the spectrum you have Hawaii, Pennsylvania, California, Illinois, Ohio, New Jersey, Maine, Rhode Island, Vermont, and New York. These unfortunate ten states saw an 59.3% increase in the states' gross state product growth, an 60.7% increase in personal income growth, a 52.3% increase in personal income per capita growth, and a mere 4.4 percent increase in population growth.

The Similarities and Differences Between Winners and Losers

The similarities between the winners is fairly obvious geographically -- they are in a similar geographic area -- a collective of states in the South and West, with the only exception being South Dakota. Meanwhile, the losers are heavily concentrated in the economic black hole of the Northeast (with the exceptions of Illinois, Ohio, Hawaii, and California).

Geography, however, is not nearly as important as policies, when it comes to the differences between the winners and losers. For example, all but one of the winners are Right to Work states (Colorado). Meanwhile, all of the losers are under force unionism. When unions (and their higher benefits, wages, and other labor expenditures) are a fixed cost of doing business, those states are simply less attractive.

It doesn't stop with unions. The ten losers are noted for having excessively high taxes on businesses and high income earners. In other words, they are attacking the geese that lay the golden eggs. When these income earners feel such pressure, they know they can't always or quickly "fight" the policies effectively, so they take "flight" to states that are friendlier to business and wealth creation. Furthermore, the losers are known for more excessive regulations than the winners, another cost in time and money in building a business. Finally, these losers often have crippling licensure laws that undermine entrepreneurship and economic activity.

Laffer and Moore's study goes much further by examine several "principles" of effective taxation and shows huge disparity between the winners and losers. Some of those include:

• The more you tax something, the less you get of it



• Taxes create a wedge between the cost of working and the rewards of working



• If you tax too much, revenues can decline, because the incentives to produce decline (or those who are being taxed move to places that are more tax friendly)



• An economically efficient tax system has a sensible, broad tax base and a low tax rate



• If there are two locations for decision makers to choose and one has significantly higher tax rates, those decision makers will typically choose the other location.

It is not surprising that the winners fall squarely on one side when it comes to the above principles and the losers fall on the other. The results of the states who ignore the ability of businesses and the affluent to flee such policies has led to a huge decline in both prosperity and even population growth in the "loser" states. The study should be read by policy makers, business owners, and individuals who want to live in states of prosperity and not poverty.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Ronald Reagan and Economic Freedom

One of my biggest frustrations is the reckless abandonment by politicians when it comes to articulating the importance of economic freedom. In fact, I haven't heard a Presidential candidate build a message on this theme since Ronald Reagan and I believe that Gov. Sarah Palin may be the first national candidate to do such in her Vice Presidential bid.

On the eve of the Fourth of July, 1987, President Ronald Reagan delivered an address entitled "America's Economic Bill of Rights." This was an important time for our Republic, because in addition to celebrating the birthday of the Declaration of Independence at this time, we were also celebrating the 200th Anniversary of the United States Constitution on that year. I cannot think of a better time or make such an address.

Reagan stated right from the beginning what he believed about the Founding Fathers view of economics and noted that the American Revolution had a central theme against "No taxation without representation" and that they "knew that the right to earn your own keep and keep what you earn is central to America’s understanding of what it means to be free. This country was built by people seeking to support themselves and their families by their own labor, people who treasured the right to work and dispose of their earnings as they saw fit, people who were willing to take economic risks." In making his case, Reagan focused on "four fundamental freedoms" and he bolstered these with several guiding principles.

Those four freedoms are, according to Reagan:

The freedom to work.

The freedom to enjoy the fruits of one’s labor.

The freedom to own and control one’s property.

The freedom to participate in a free market.

These four principles were fundamental in the building of this country and they have been under attack before Reagan went into office and are all the more so today.

In order to secure these rights, Reagan advocated ten different initiatives to reach these objectives that included:

• "Reduce subsidized government competition with private citizens." Whenever government could use private companies to do government functions, it should, in order to foster real job creation and to reduce bureaucracy.



• "The Freedom to Enjoy the Fruits of Your Labor: You have the right to keep what you earn, free from excessive government taxing, spending, and borrowing." Now more than ever, this fundamental right is endangered.



• "To protect you from overtaxing by the Government, I will propose as part of the balanced budget amendment submitted to Congress, a requirement for a super majority vote by Congress before your taxes can be raised." I think this was one of the most bold and creative initiatives ever proposed by a President. Unfortunately, it never became a reality. It is needed now more than ever.



• "To protect your right to own and use your property, my administration will pursue our successful efforts in the courts to restore your constitutional rights when the government at any level attempts to take your property through regulation or other means." I don't think Reagan even fully realized how far the reach of government would go in this area. Today, malls are developed in the name of "imminent domain" and people are removed from their property because of birds and "wetlands."

Reagan went on to address welfare reform years before Clinton, the need to strengthen intellectual property rights, and more. The entire speech deserves to be read in its entirety. In our current times, all of our freedoms are endangered in a way we had not seen historically. In a time such as this, we need to be reminded that our economic freedoms matter.

Kevin Price is Host of the Price of Business, the longest running show on CNN 650 (M-F at 11 am), AOL Radio, and CBS Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

The More You Tax Something, the less You get of It

From the time I was 16 I was passionate about the future freedom of our country. Early on I came across a book entitled An American Renaissance, by then Congressman Jack Kemp. Kemp was an early architect of Reaganomics and an important soldier in the "Reagan Revolution."

One of the concepts conveyed in that book is that "the more you tax something, the less you get of it." Also, "the more you subsidize something, the more you get of it." Those simple words are at once a "no kidding" moment and, at the same time, really quite profound. That philosophy was being thoroughly violated in the world of Government in the 1970s under Jimmy Carter and it is all the more so the case in the world we live in today.

The New York Times Headlines states that "Jobless Rate Hits 8.5% as March Payrolls Fall by 663,000." This headline has followed months of business owners voting with their pink slips at the election results of last November. This is due to the fact that candidate Barack Obama made it perfectly clear that he intended to raise taxes on job creation.

Because of the Democrat's control of the Congress and the position of Obama, President Bush's tax cuts were not renewed. Those cuts had a direct effect on those who create jobs. Because of the failure to renew those cuts there was a marked increase in the Capital Gains tax, which will significantly undermine the economic activity that leads to more jobs. Than there is Obama's own proposal to dramatically increase the taxes of those who make $250,00 or more a year -- the very people who create most of the jobs. Add the many other taxes and regulations (which are very similar to a tax in their results) they are adding on the economy and we have a government waging a war on employment.

So Obamanomics are increasing unemployment by penalizing job creation, so what is it subsidizing? A great place to look is Obama's recent pork package also known as "stimulus" and the impact it would have on the various states, such as Mississippi. According to Fox News, Obama's measure would force states to allow people to receive welfare, even if they are not willing to work. For example, Barbour noted, that if the state of Mississippi wants to receive $54 million in increased unemployment benefits, they will have to expand the benefits to those not actively looking for employment or willing to take employment if offered. Barbour's decision not to take it led the state to receive less than $4 million of the expanded benefits.

In sum, Obama is taxing employment and subsidizing unemployment. The current headlines could be many things, but not surprising.

Kevin Price is Host of the Price of Business, the longest running show on CNN 650 (M-F at 11 am), AOL Radio, and CBS Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com.

Lessons About Taxation Remains the Same

Recently someone sent me a copy of a speech I gave around fifteen years ago in Warsaw, Poland. It appeared in Vital Speeches of the Day. It was funny, "Kevin, did you see this?" Yes, I'm familiar with it, after all I wrote it. His enthusiasm compelled me to sit down and to review to see if there were any lessons garnered then that would be useful now.




The basic thesis of the speech was that freedom works and I pulled many examples from both history and current circumstances (at the time). One lesson that stood out in particular was the miracle story of Japan. At the time I gave that speech in the early 1990s, Japan was the poster child of economic freedom and had one of the fastest growing economies in the world following infrastructural and economic disaster after World War II. The reason for that phenomenon, at the time I gave that speech could be summed up in three things about Japan:

• Japanese management and workers cooperate as a team to succeed in the market place, rather than oppose one another as in the case of labor unions. This is reflected in the fact that the Japanese have company unions rather than labor unions. Company unions are inclusive, when they say "us against them" they mean competitors. When labor unions say "us against them" they mean management. These subtle differences are crucial in the success of Japanese corporations.


• There is great emphasis on savings and investment. The typical Japanese laborer in urban areas saves approximately 20 percent of his income.


• Finally, the tax system encourages economic growth by staying very low. In fact, their taxes are the lowest of any industrialized country in the world.
  

Those who monitor current affairs know that Japan is now known for its economic stagnation and has suffered such for over a decade. Why the change in fortune? One does not need to look any further than point number three. Today, Japan has the highest tax rates of any modern economy. Meanwhile a European economy known for perennial economic weakness -- Ireland -- is one of the fastest growing economies in the world. The reason for its success is due to Ireland reducing its tax rates to among the lowest in the world.

Nothing is more effective in attracting capital and stimulating economic growth than lower tax rates. If the United States is serious about fostering economic growth and prosperity, it will demonstrate such by competing with other countries for businesses and jobs through lower tax rates.


Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

April 15: Countdown to T-Day

It is that time of the year again when business owners acquire ulcers, CPAs go underground, and all of us largely lose our cool. The reason for it is April 15th, which is tax day! The day that all our procrastination and failure to plan come back to haunt us. I have friends that I don't even talk to between now and around a week after the big day. They are either too miserable to deal with or are completely detached with what is going on around them. I'll wait until after the tax season for them to check back in.

Wouldn't it be great if April 15th was just another day? That is the exact objective of an organization called Americans for Fair Taxation, which wants to replace our current income tax system with a sales tax. Take note, the word is replace, not supplement. This is an idea that I have supported for quite some time and commented on it often in this blog. The advantages to it are numerous and significant:

* It would dramatically reduce the cost of doing business, making the US a magnet to attract companies from around the world that is comparable (or greater) than the affect that cheap labor has had on the world economy.

* It would greatly reduce tax fraud and would force criminals and illegal immigrants to contribute to our tax system through their purchases.

* It would get more Americans participating in the tax system than the current system that is punitive on those who are the most productive. However, it also has mechanisms to protect those who are truly poor.

* It curtails the abusive powers of the IRS.

* It would lead to enormous economic growth in virtually every area, including for those many believe would suffer if the income tax system was eliminated. Home building would explode and CPAs would be needed to plan business growth and expansion instead of mere defensive measures.

The time to change the system is now. The reasons to do so are really unlimited.

India Needs to Remember How It Became a Player

India has become a major economic power because it has recognized how the world has become very "flat" indeed. Our ability to transport, inform, relocate, and communicate at very low (and in some cases, no) cost has made it possible for almost any country to become a major economic player. This has depended, of course, on their ability to create an economic environment conducive to attract business.

Recently, India has gotten higher marks in these areas. Lower taxes in many areas, very competitive labor in terms of quality and cost, and easier to understand business laws have made India a better place to do business and has led to an economic explosion. But everything isn't perfect in the economic world of India.

Michael Dell (above, telling it like it is) of Dell computer is taking the Indian government to task for the level of taxation on PCs. In a recent Forbes Magazine article it was pointed out that "Michael Dell told India on Tuesday that it needed to cut tariffs that hike the cost of computers by 20% to 25% if it wanted to attract more foreign investment, particularly from his company." The message that Dell is sending to India and any other country interested in investment is simple (this would include the US): "if you want more business, make it as affordable as possible to do business in your country."

If India won't lower the tariffs, some other country likely will, in the on going quest that companies like Dell pursue in order to make computers as affordable as possible. Many will argue that the government needs some revenue in order to conduct its activities, and there is no doubt that is true. But every government is going to have to learn the lesson that Walmart has learned in conducting its business: earn a little off of every activity and watch that activity explode (remember, pigs get fat and hogs get slaughtered). Walmart has among the lowest profit margins per item sold of any company in the world, but it is also among the most profitable. It is the amount of business that Walmart does that keeps it profitable. If governments took that approach in taxation, they would become business magnets and still generate huge amounts of revenue. Such an approach isn't only good for business, it is good for government, consumers, and everyone involved. India has become a major player by eliminating barriers, it clearly needs to remember that fact.

Saturday Morning Talking Heads

I typically watch Fox News every Saturday for their block of "Cost of Freedom" programs and I clearly see why it is the most watched two hours in business talk. Although I don't always agree with all the participants, they are very entertaining and many provide the best thought in business and the economy in the media.

A few observations from this week's programs:

* Social Security tax increases are still tax increases on job creation. We continually hear that Social Security is in a crisis and the answer to such always seems to be to raise taxes. If increases of taxes on income hurt the economy, so will Social Security taxes. In both cases it makes it difficult for the business owner to hire employees. Let's fix Social Security, but let's do it without hurting the economy.

* Let Wal Mart go into banking. The retail giant is interested in creating retail banking options at very low costs to consumers, and critics are concerned about their ability to do such. One commentator actually said "they don't know how to do it, so they won't do it well." Give me a break, as if Wal Mart won't hire the best people they can find to protect their assets and their customers. Wal Mart won't compete against the vast majority of banks, but make it possible to attract customers who have never had accounts, pumping huge amounts of money into the economy to be leveraged in a way it could never be done in a cookie jar, like many of these potential customers are doing now. If it is legal and Wal Mart wants to do it, I bet they will figure out how to do it well.

* Taxes on wealth creation must remain minimal in order to compete in a global economy. This may have been the smartest thing I have heard all day. How has Ireland, India, China, and other historically weak economies turned things around in recent years (two of these becoming economic powerhouses)? It isn't merely cheap labor, which India and China has had for years, but a tax system that puts the burden increasingly on consumption and a way from wealth creation (the source of jobs). If the US wants to compete on the international scene, they need to reduce or eliminate as many taxes on wealth creation as possible. Now more than ever they should consider eliminating income tax and replacing it with a consumption tax.

* How Tax Cuts Increases Revenue. Ben Stein is known by many as a TV and even movie personality (remember the history teacher in Ferris Bueller's Day Off?), but he is also quite brilliant when it comes to understanding the economy. One area he has come up short on, in my opinion, is understanding the power of the tax cuts in eliminating the deficit. On the news today he said that the increase in revenue the government has seen has been due to "business cycles" improving, which naturally generate higher revenues and not due to cutting taxes. Yet, I have also heard him state that the economy responded favorably to tax cuts and created a positive economic cycle. In other words, Stein has created a sequence of events in his mind but fails to see the bridge between the positive business cycle and higher revenues. That bridge was the tax cuts.

Some of these issues deserve, and will receive, more attention later, but I wanted to get them down as soon as possible. There is some excellent intellectual capital when it comes to business information available, one simply needs to know where to find it.