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