Tuesday, August 10, 2010

When exactly does “Recovery Summer” begin?
The administration is telling us things are getting better but they’re not

WASHINGTON, DC—“Recovery Summer” seems to be out of synch with the calendar. According to long held belief, summer is wedged between spring and fall, occurring from June through August. But August is here and the last two months haven’t shown us recovery.

The latest figures out aren’t encouraging or supportive of the administration’s schedule. The Washington Times puts those numbers in perspective:

“From a peak annual growth rate of 5 percent last autumn, the measure of gross domestic product slid to 3.7 percent in the first quarter of 2010 and was down to 2.4 percent by the end of June.”

2.4 percent? That’s anemic at best with a growth rate of 5+ percent needed over at least two to several quarters to pull the United States out of recession. So the administration is doing what it can to fix the problem—the problem of taking responsibility for the recovery summer non-start.

Treasury Secretary Timothy Geithner told Good Morning America’s audience to go back to sleep and wait for the worst to be over, when you wake up in a few months (or years) the economy will be roaring again. Meanwhile his boss blamed the failed policies of the past administration and lambasted republicans for not having any new ideas—that should get the economy back on track.

Tuesday, August 3, 2010

Economists predict double dip recession
Leading indicators point toward an extended downturn

WASHINGTON, DC—The Associated Press is reporting economic forecasts for 2011, and they are bleak; citing a continuing high unemployment rate, weak GDP growth, lack of consumer spending, and a anemic housing market:

“The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists.”

Growth predictions are estimated to be 3 percent or less in the first and second quarters of 2011, with the country needing 5+ percent growth—led by consumer spending—over at least two quarters in GDP to lift out of the extended recession. But according to the AP, that spending will be absent:

Consumers aren't leading this rebound, as they usually do, despite ultra-low borrowing costs. Their spending growth will weaken in the second half of this year and strengthen only slightly next year, a majority of economists said.” 

That lack of consumerism is a drag on consumer confidence and on retailers and small businesses, which make up 70 percent of the economy.

Tuesday, July 27, 2010

Obama to raise taxes on small businesses
Another campaign pledge goes bust

  • The Obama Administration and Congressional Democrats have said that they want to raise taxes in the top two income tax rates in January 2011.  Under their plan, the 33 percent rate will rise to 36 percent, and the 35 percent rate will rise to 39.6 percent automatically in January.  These rates affect families and small business owners earning at least $200,000 per year
  • Unlike corporations, small businesses usually don’t pay their own taxes.  Rather, business profits flow through to the business owner.  The business owner pays taxes on her small business by adding the profits to her income tax form.  Therefore, personal income taxes are the same thing as small business taxes.
  • According to the IRS, most small business profits pay taxes in households making more than $200,000 per year.  The IRS keeps track of two types of small business income: sole proprietors, and “pass-through” entities like partnerships and S-corporations.
  • All small businesses.  There were 30 million tax returns reporting small business income in 2008.  On net (profits reduced by losses), these owners reported business profits of $981 billion.  A large chunk of this net profit--$488 billion—faced taxation in households making more than $200,000 per year.  A majority of small business profits will face a tax rate hike under the Obama-Pelosi-Reid plan.
  • Sole proprietors.  There were 22 million tax returns reporting sole proprietor income in 2008.  On net (profits reduced by losses), these owners reported business profits of $264 billion.  A large chunk of this net profit--$90 billion—faced taxation in households making more than $200,000 per year.  34 percent of sole proprietor profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.
  • S-corporations and partnerships.  There were 8 million partners and S-corporation shareholders in 2008.  On net (profits reduced by losses), these owners reported business profits of $717 billion.  A majority of this profit--$398 billion—faced taxation in households making more than $200,000 per year.  55 percent of S-corporation and partnership profits will face a tax rate hike under the Obama-Pelosi-Reid tax hike plan.

Tuesday, July 20, 2010

Splitting Apple in two
Yet another example of how the media turns the ordinary into a scandal

SAN FRANCISCO, CA—Apple CEO Steve Jobs fired back last week about the reported problem with the iPhone 4 stating, “This is life in the smartphone world; phones aren't perfect. We haven't figured out a way around the laws of physics yet."
This so-called “news story” reminds KP contributors of comedian Louis CK’s observation about modern technology and people. In a bit he relates the story of a fellow airline passenger complaining about losing his WiFi signal while in mid fight. Mr. CK’s take is, “How are you not amazed…like, oh my God, I’m flying through the air in a chair.” His reaction was to tell the passenger to take it in stride; after all, “The signal has to go to space” and back.

A couple of months ago it was Toyota that took a media lashing, which led to a congressional tongue lashing, but that story has gone aside for now, BP took its place. Now, the Gulf Oil spill is a legitimate news story and to an extent, so is the iPhone. But at a return rate of a meager 1.7 percent—under the industry average—why so much coverage? One thought: Mr. CK is right, we don’t find technology amazing, even when experiencing the most technological breakthroughs of all time.

-- Killswitch Politick

Tuesday, July 13, 2010

More burdens on small business means less small businesses
New requirements will have millions more tax forms pouring into the IRS

WASHINGTON, DC—A full forty million taxpayers, twenty-six million of which are sole proprietors will be met with a new challenge when filing their federal taxes come 2012. The new regulations mandate that taxpayers who receive income via a business provide a 1099 Form to any vendor who supplies more than $600 worth of goods and/or services.

In a press release written by the Taxpayer Advocate Service, the watchdog group predicts more trouble for small business’ to abide by the new tax rules…..

"The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance."

The measures are meant to close what the feds deem as a “tax gap” between what businesses and individuals owe and what they pay—traditionally resulting in a $300 billion per year underpayment. The light at the end of the tunnel is the regulations are exempt from debit and credit card purchases; businesses owners aware of this work-around may not be able to exploit it as each credit card purchase costs 2 to 3 percent per transaction. Instead, businesses will reduce the number of vendors they get inventory and supplies from—less business means less private sector growth—negatively hampering any economic recovery.

-- Killswitch Politick

Tuesday, July 6, 2010

Jobless rate drops slightly as more Americans stop looking for work
Despite spending $787 billion, the economy and unemployment lag

WASHINGTON, DC—The Bureau of Labor and Statistics released June’s unemployment numbers, recording a drop in the jobless rate from 9.7 to 9.5 percent. Good news right? Not so fast. While President Obama and Vice President Biden continue their “Summer of Recovery” fantasy tour, the jobless rate fell because more people have given up looking for work, without those to count into the U-3 index (652,000), the unemployment rate dropped.

Private businesses added 83,000 jobs in June, but the government dropped 225,000 census jobs, bringing the total to 7.9 million jobs lost since the Great Recession began in December of 2007. Though counterintuitive, the unemployment rate drop comes as the BLS reports a net 125,000 jobs were lost in June—again, thanks to those poor U-6 schlubs that have become so discouraged, they’ve stopped looking for work (the U-6 rate stands at 16.5 percent, unchanged from June of 2009).

The president though has a decidedly different take, call it suspension of disbelief, while touting his stimulus as saving the economy in Racine, Wisconsin telling a crowd suffering an unemployment rate of 14 percent, “…every economist who has looked at it has said that the recovery did its job…”

-- Killswitch Politick

Tuesday, June 29, 2010

Quarterly growth revised downward by Commerce Department
Economic growth was weaker in the last quarter than previous quarters

WASHINGTON, DC--The Commerce Department revised the first quarter's growth downward from 3 percent to 2.7percent. Economists state that quarterly growth should be at least 3.5 percent to keep up with job losses and keep the economy from faltering further. In order to outpace the recession, growth needs to be at least 5 percent on a regular per quarter basis, but in order to out grow the recession, quarterly growth should average between 7 and 9 percent (the same rate sustained for 15 months in the 1980's).

U.S. economist with Capital Economics, Paul Dales, said, "Overall, the U.S. economy may be performing much better than those in Europe, but this is still the weakest and longest economic recovery in U.S. postwar history." By contrast, the economy grew 5.6 percent in the last quarter and most quarters have averaged approximately 3.5 percent, which could be an early indicator the economy is entering a double-dip recession or a W-shaped recovery.

-- Killswitch Politick

Tuesday, June 22, 2010

Jobless benefit claims rise (again)
12,000 new claims put May’s adjusted total up to 472,000

WASHINGTON, DC—Revised unemployment numbers have been released showing a net spike in initial projections of jobless claims for the month of May from 460,000 up to 472,000—undermining recovery projections of the US economy as consumer confidence slides downward.

Economists expect the trend to continue until first-time jobless claims fall below 425,000 per week. 4.57 million Americans continue to claim unemployment benefits but that figure does not include the 5.2 million Americans who are claiming extended unemployment benefits. The most recent data from May 29th shows that 9.7 million Americans claimed unemployment benefits.

Only 41,000 private sector jobs were created in May (down from 218,000 in the month of April), while the federal government added 411,000 in the form of temporary census worker jobs. Economist Jennifer Lee with BMO Capital Markets said, “We've definitely seen the economic recovery hit a wall.”

-- Killswitch Politick

Tuesday, June 15, 2010

Retail sales fall to lowest in eight months
The federal debt grew $2.4 trillion since Obama took office

WASHINGTON, DC—More evidence of a double-dip recession comes on the heals of a Commerce Department report showing retail sales fell to their lowest level in eight months. Retail sales fell 1.2 percent in May, with auto sales falling 1.7 percent. The last slump came in September 2009, when retail sales fell 2.2 percent.

With consumer spending accounting for about 70 percent of economic activity, the decline leads analysts to believe the recovery may not only be jobless, but slip into another downturn, resulting in a W-shaped recovery, something economists having been debating. The two schools of thought are divided between a U-shaped recovery, which early indicators seemed to prove, but more recent events such as the European debt crisis, the Gulf of Mexico oil spill and the early health care reform measures are dragging the economy back down, creating a W-shaped recovery.

Department store sales fell 1.8, but gardening and building material stores took a 9.3 percent hit while the economic growth rate remains under three percent, estimated to be about 2.75 percent by Philadelphia Federal Reserve President Charles Plosser—well under the normal rate of growth to carry a country out of a recession—which would be about 3.5 to 4 percent.

-- Killswitch Politick

Tuesday, June 8, 2010

Federal debt exceeds $13 trillion amidst jobless recovery
The federal debt grew $2.4 trillion since Obama took office

WASHINGTON, DC—A June 1st Treasury Department report shows the federal debt reached $13,050,826,460,886.97; nearly 89.4 percent of the Gross Domestic Product, making each American family’s share $42,000. The debt has grown just about $5 billion per day since January 20th, 2009—the day President Obama was sworn in.

To put these numbers in perspective, if a person was to spend $1 million dollars a day every day for 2,010 years (since the birth of Christ), you would have spent $733,650,000,000 or $733 billion, which falls $267 billion short of one trillion dollars.

This unprecedented spending took place during an economic downturn that began in October of 2008 when unemployment was 6.5 percent and the U-6 unemployment number at the end of September 2008 was 11 percent. The current unemployment rate is 9.7 percent, with a U-6 rate of 16.6 percent.

House Minority Leader John A. Boehner (R-OH) reacting to the report said, "A $13 trillion debt is an alarm bell and a wake-up call combined, but Democrats are not even trying to pass a budget. How out of touch can Washington Democrats get? Instead of continuing to pay lip service to this issue, President Obama should call on congressional Democrats to pass a budget that provides the fiscal discipline economists say is needed to create jobs and grow our economy."

The only White House response to the report was an unofficial statement, “[The administration] is committed to restoring fiscal responsibility.”

-- Killswitch Politick

Tuesday, June 1, 2010

Government payouts rise, private pay shrinks
Q1 2010 government benefits reach record high

WASHINGTON, DC—Private pay reached a historic low of 41.9 percent in the first quarter of 2010 while government benefits were paid out to 17.9 percent of Americans, up from 14.2 percent in December 2007. Commenting in USA Today, Economist David Henderson of the conservative Hoover Institution stated a transition from private wages to government benefits depletes the economy of dynamism. "People are paid for being rather than for producing."

The underlying problem with this trend is tax receipts to the Treasury suffer even as federal spending continues to rise. Government benefits either carry a low tax burden or are returned in their entirety to the beneficiary in the form of tax refunds; which in turn means the Treasury collects less as it pays out more. Greece is an example of the result of such policies and Spain and Italy are the next to suffer the same Greek tragedy.

Germany has the same model and is publicly forecasting a wish to abandon the Euro and return to the Deutsche Mark. Upon the news, the Dow went into a free fall and the international markets suffered losses. Europe is full of top heavy governments all sick with the same illness and the American left is happily infecting the United State’s government while watching Rome burn all the while.

-- Killswitch Politick

Tuesday, May 25, 2010

Home foreclosures break record in Q1 2010
Foreclosure rates have risen 5% since Q4 2009

WASHINGTON, DC—Mortgage delinquencies and foreclosure actions rose from 4.58 percent to 4.63 percent from the end of last year to March, 2010. The five percent rise translates to one in seven homes being delinquent or in foreclosure.

And these numbers are directly attributable to the unemployment rate, which rose again in April 2010 to 9.9 percent, with the U-6 rising to 17.1 percent:

In April Arkansas's Unemployment Rate Remained At 7.8 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, California's Unemployment Rate Remained 12.6 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, Colorado's Unemployment Increased From 7.9 Percent To 8 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, Indiana's Unemployment Rate Increased From 9.9 Percent To 10 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, Nevada's Unemployment Rate Increased From 13.4 Percent To 13.7 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, Oregon's Unemployment Rate Remained At 10.6. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

In April, Pennsylvania's Unemployment Remained At 9 Percent. (U.S. Bureau of Labor Statistics, www.bls.gov, Accessed 5/21/10)

These numbers come after the administration had publicly stated that passing the Stimulus Package would keep unemployment under 8 percent. But despite the stimulus package, the economy continues its anemic pace. The Wall Street Journal is now forecasting a double-dip recession or "W" shaped recovery.

-- Killswitch Politick

Tuesday, May 18, 2010

Federal deficit soars in April
The federal deficit expanded over two times as much as estimated

WASHINGTON, DC—The US Treasury Department stated April’s 2010 federal deficit numbers were $82.69 billion, more than twice a projected $40 billion. What’s more this is among only thirteen Aprils in the past 56 that has not shown a surplus and the US debt is 53 percent of GDP—on pace to rise to 140 percent by 2030 (to place that number in perspective, Italy’s debt to GDP is 125 percent, while Greece is 115 percent.

Historically, federal spending has ranged between 18 to 22 percent of the GDP. Beginning with Bush 43, that was increased to nearly 21 percent of GDP and during President Obama’s first eleven months, federal spending increased to 24.7 percent. Making 2009 the highest level of federal spending since World War II.

Per household, federal spending has risen since the recession began as of October of 2008 it was $24,000, under the Obama administration, that number will reach $36,000 per household by 2020. These figures are simply unsettling to say the least. But Congress and the White House seem undaunted by the reality that spending more will not lead to prosperity.

-- Killswitch Politick

Tuesday, May 11, 2010

Latest economic forecast shows recession lingering on
A new normal for unemployment?

WASHINGTON, DC—The latest unemployment numbers show the jobless rate has crept up from 9.7 percent to 9.9 percent. While an initial reported 290,000 jobs were created in April, but that number is subject to revision. What’s more, 66,000 of those jobs or nearly 23 percent are temporary Census jobs.

It seems the rise in unemployment numbers are due to approximately 195,000 formerly discouraged workers that were part of the larger U-6 measure (which likewise increased to 17.1 percent from 16.9 percent) again beginning to look for work. The American people were assured that passing the stimulus bill would keep unemployment under 8 percent, yet the unemployment rate has remained largely unchanged at just over or just under 10 percent.

So what has America got to show for $787 billion stimulus? Apparently more government workers, according to Gallup, the government is outpacing private sector hiring 40 percent to 28 percent. Even state and local governments combined are hiring 2 percent more than the private sector but are actually letting more state and local employees go simultaneously.

The effects of stimulus chiefly helped states (for a time) and large corporations, but has not curbed the recession—once again proving Keynesian economics simply don’t work, nor put people to work in the private sector.

-- Killswitch Politick

Tuesday, May 4, 2010

Getting real about the national deficit?
The Fed Chair is telling Washington the Reagan model was the right model

WASHINGTON, DC—Ben Bernanke, the Federal Reserve Chairman has told a White House debt commission the United States needs to seriously begin deficit cutting which currently stands at $1.4 trillion. Mr. Bernanke went on to urge an engaging, sobering reevaluation of the US Tax Code but made no specific recommendations.

Rudy Penner, a former director of the Congressional Budget Office under Ronald Reagan told the debt commission, "I think it just screams out that we do something about this tax code." 

Conservatives have long argued that cutting marginal tax rates as well as reducing capital gains taxes and corporate taxes will bring more money into the Treasury via tax revenue and indeed, the three times rates were reduced by Presidents’ Kennedy, Reagan, and Bush 43, tax revenue increased substantially. But tax cutting is only one part of the equation—federal spending must be cut as well, not just minor percentage cuts in the rate of growth.  

Liberals have argued against this method (and history) and against cutting federal spending—demonizing the first as “tax cuts for the rich” and the latter is “draconian cuts in Medicare and Medicaid”.

-- Killswitch Politick

Tuesday, April 27, 2010

The Obama presidency’s fiscal reckoning
America faces a 250 percent increase in the national debt over the next decade

WASHINGTON, DC—According to an article by Roger Altman, Clinton’s Deputy Treasury Secretary, the latest numbers released by the Congressional Budget Office put the US debt on a path to 90 percent of gross domestic product.

Mr. Altman’s concern, along with 58 percent of the American public, is the country is on its way to a Greece style default—spending far more than it takes in tax revenue and leveraging debt against the GDP to the point its AAA Moodys’ credit rating might be reduced to AA. While many economists doubt the credit downgrade will actually occur, there is real concern among the international community that America’s debt will no longer be a sound investment.

The United States isn’t the only country that has been borrowing against its future, most European countries with cradle-to-grave health care systems and mandated weeks-log holiday breaks have put them on an unsustainable course.

The president’s pledge that HCR will actually reduce the deficit is dubious at best; every rational person knows the government cannot add tens of millions of citizens to the public dole and expect costs to go down.

While Iraq and Afghanistan will certainly be measures of Mr. Obama’s presidency, his greatest gamble lies in the belief that government can create wealth by taking it from the wealthy and eventually, the middle class.

-- Killswitch Politick

Tuesday, April 20, 2010

The ghosts of Bush’s TARP
President Obama isn’t to blame for falling incomes, but he soon will be

American’s real personal income fell 3.2 percent over the last year. While many conservatives will be pointing their finger at the 44th President, they should first wag it at the 43rd. President Bush began the latest experiment with Keynesian economics—a theory that purports mass government spending will lead to reciprocal private sector spending and boost the economy.

While it is true Mr. Obama signed the stimulus package, the damage was coming long before he put ink to paper.

The lesson of other countries doesn’t seem to daunt modern day politicians. Republicans—traditionally spending hawks—has crossed over into the FDR way of thinking. It was a republican president that signed the Toxic Asset Relief Program and practically every GOP seat-holder supported it. What followed were massive bailouts of corporations that were failing not because of actual market forces, but market forces created by bad paper that was pushed by a congress eager to make homeownership access more accessible to borrowers that would not otherwise qualify.

Just around the corner is more fallout and Mr. Obama will certainly own it. The economy is not improving enough to move out of recession and with the administration’s current spending, taxes will continue to rise and inflation will inevitably set-in; that means less real personal income.

So, the federal government will be taxing its citizens more on less income.

-- Killswitch Politick

Tuesday, April 13, 2010

VAT: No value for consumers
A value added tax will be a regressive tax

There has been much talk of late about a coming federal tax known as a value-added tax. Much of the European countries have a VAT in place. Theoretically, VATs are cash cow revenues (theoretical being the operative word). But once implemented, consumption on some goods magically decline in sales and items of necessity also see less consumption.


Take for instance examples set in California and Maryland. In the 1990s, the Golden State faced deficits and budget shortfalls, so the state legislature passed tax increases on upper income earners to raise much needed revenue. But those taxpayers found a loophole in the new tax—they moved out of the state.

Maryland tried a similar tax implementation called a “millionaires tax”. As a result, 33 percent of the millionaires left the state in less than a year.

Moreover, value added taxes are regressive taxes, meaning lower income households pay more percentage wise than wealthy households. Moreover, taxing value increments means passing those costs on to consumers. A drop in consumption will follow and only items deemed as necessities will remain in demand while items not necessary will drop in demand, a cause for downturn in those industries.

And while a federal VAT won’t have the same U-Haul loophole but consumers will have a choice which products they will deem necessary. For consumers it is a permanent artificial devaluation of their earned income as a sort of inflation or pay cut. In either case, it becomes a decision the government has made about your income.

-- Killswitch Politick

Monday, April 5, 2010

Going postal
The postal service is widely out of control

If you were made a proposition back in the late 1700s to be given a monopoly organization that was the sole provider of mail services to a nation that would grow to a population exceeding 300 million, you would have thought it was a lock. But as with most monopolies, no competition means never having to bend to market forces.

The US Postal Service is seeking to terminate Saturday mail service in an effort to rearrange deck chairs on a ship that hit an iceberg 30 years ago.

The long and short of it is the USPS is upside down in its legacy costs and will lose a projected $7 billion this year alone. That figure doesn’t include the $13.2 billion debt already on the books and is a pittance of the $230 billion projected red ink that will paint the postal service in just a decade. By 2020, the USPS is on track to lose $35 billion a year. Termination of Saturday service will save an estimated $2 to $3 billion per year—do the math $35 billion minus $2 to $3 billion doesn’t begin to stop losses.

Since unionized, the USPS must dedicate over 80 percent of its budget to 581,070 workers (which doesn’t include the $51.9 billion in unfunded legacy costs).

Over the past few years, snail mail has seen a 20 percent reduction as technology has outrun the low geared Grumman LLV. Meanwhile, FedEx and UPS dominate the package delivery market; perhaps its time to let competition to deliver first class mail and see what Brown can do for America.

-- Killswitch Politick

Friday, March 5, 2010

Unemployment rises to 16.8 percent, private sector employees earn less

Washington DC—New unemployment numbers have been released; the U-3 unemployment rate held steady at 9.7 percent in February but the larger unemployment, the U-6 (which includes unemployed, underemployed, and those discouraged from seeking work) rose to 16.8 percent.

The new figures represent a trend that may raise future employment figures to be adjusted upward. At the present time, full employment is 4.7 percent U-3, but that percentage might be increased relative to the long term recession and high trending unemployment numbers.

Amidst the new jobless rate is an administration that is myopically focused on health care reform. In the latest bid to pass the Senate’s HCR through the House, key Lower Chamber members have been given assurance that the bill need only pass in its current form to lay the foundation for an eventual public option.

Public polling still shows a majority of Americans are opposed to HCR and place the economy and jobs as the highest priorities facing the nation. But the White House has sent clear signals that it intends to stay focused on HCR regardless of the state of the economy. The onslaught of government spending has led to the outpacing of government employee salaries to exceed those in the private sector $67,691 to $60,046.

-- Owen E. Richason IV
Chief Editor, Killswitch Politick

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