GM Bailout, the golden goose?

GM Bailout

I see that congress it about to charge us $15billion to be sure the highest paid workers in America can keep their level of earnings. The concept is that if we don't give them money GM and Chrysler will have to declare bankruptcy. Now I am certainly not an advocate of bankruptcy in general, but let's consider the situation. If GM goes into bankruptcy then they will be rid of the ruinous obligations that currently prevents them from competing in the marketplace. Now as for who this hurts, the investors have already taken a bath in the market with the precipitous drop in GM stock prices. They'll lose more, but not that much more. The main loser will be the unions and their overpaid members. The fact of the matter is that they have killed the golden goose with ridiculous contracts. Toyota pays it's workers about $45 per hour including benefits and GM pays $75 or so. Hmmmm. http://www.heritage.org/research/economy/images/wm2135_chart1.gif
The unions have been robbing us for years through shoddy merchandise at excessive prices and now they want to rob us again. Why on earth should our elected representatives be considering such a thing? It's all about votes and money. The unions have lots of money from years of robbing us and now they use that money against us to try and steal more from us. It seems obvious that a particular job, especially a simple assembly line job, has some specific value. Not whatever you can extort out of management, it has a real dollar value. When a company pays more than the job is worth, it's just a matter of time. Normally this process would be self-regulating. If you pay too much for labor and you can't raise prices for your product because others compete at lower prices, then eventually your bad business model forces you out of business. The problem comes in when government interferes with this natural process. Let's use our heads for a change and keep the government out of this one.
By the way, I drive a GM car and a Chrysler car. I have an elderly aunt who lives on GM pensions and benefits. I'm not unsympathetic, I'm just a realist.
That's how I see it, how about you?

The Social Security Debacle

Social Security today

There is an amazing amount of misinformation floating around this election year about Social Security and it's future. I think I'm going to stray a bit from my usual policy of presenting only my own opinions to publish a few historical facts.

First off, let's discuss the SS Trust Fund. Social Security started in 1935 and was intended as an insurance system to protect senior citizens from poverty. This was during the height of the “great depression” and during the rise of centralization or people deserting the family farms for the cities. Prior to that time, most people lived on farms in multi generational family groupings and children grew up and took care of aging parents. That may be why we had much larger families back then.

Anyway there was no trust fund, the SSA simply collected taxes and paid it out in benefits. Things continued in this vein until 1983. In that year a commission was created headed by Alan Greenspan to look into the future of Social Security. The concept was that with people living longer eventually taxes at the rate current in 1983 wouldn't be able to pay out the benefits in existence in 1983. The result of this “dilemma” was the creation of the “Trust Fund”. The idea was to create a reserve to carry us through the time of the retirement bubble of baby boomers.

The result of this plan was that we now have $2,000,000,000,000 in this fund. That's $2 trillion, please check my zero count. Under current tax law that fund will continue to increase until 2016 at which time the payouts in benefits will start to catch up with the income in taxes. Then, around 2041 we will have exhausted the excess and be back to pay as you go financing like we were from 1935 to 1983. One note of opinion here, I don't see how that's a BIG problem. It worked for nearly 50 years.

Now, there are as many “solutions” to this “catastrophe” as there are politicians running for election. Here's two likely possibilities.

First, we now stop charging FICA tax at an annual income of $102,000. BTW, that tax is 6.25% for employees. If we remove the cutoff, we will never hit the deficit problem at all. That is NOT Mr. Obama's play. His plan calls for a “donut” solution where we stop charging FICA at $102k and start back at $250k. That plan does NOT recover enough money to fix the problem. It only covers about 38% of it and requires more band aid approaches to the problem.

Idea number 2 calls for raising FICA taxes from the current 12.5 % (6.25% to the employee) to 14.5% (7.25%) to the employee. That one also means we never hit the deficit thing at all. I'm not sure who backs this idea, if I did I'd vote for him.

How about Idea number 3? This one is mine. Why not return to the system in place from 1935 to 1983 where we adjusted taxes each year to pay for the benefits paid that year? The trust fund in place would mean we didn't need to change taxes at all for the next thirty odd years, and long before then we should be into the time when the smaller generations are retiring. The baby boomers will be mostly expired and no longer receiving benefits.

Last note, I am talking only about Social Security here. This is an entirely different situation from Medicare and Medicaid. Perhaps I'll research those subjects and discuss them in a future column. The Internet makes this a wonderful time to be retired with time on your hands.

I encourage those with differing or even similar ideas on this subject to comment. I'll publish anything that is fit to print whether you agree with me or not. All the ideas I express or my own, but they are subject to being changed with new information.

Management qualifications?

Many years ago (too many!) when I was in the navy, the most formidable weapon known to man was the aircraft carrier. This was a floating city with 5000 to 6000 people and 75 to 100 airplanes on board. The weapons I won't even hint at. One aircraft carrier would be more than a match for almost any country of the world! The navy had a policy that the man who had command of all that air power should be a pilot. To reach the rank of Captain in the navy, a man had to not only be the cream of the crop, but had to put in 22 years in the service. Those years were spent flying navy airplanes and fighting wars all over the planet as well as commanding groups ranging up to squadrons of aircraft.
If a man was selected to command one of the carriers (there were 7 back then I think) he was first sent to a deep draft support ship such as an oiler or Submarine tender. These were the biggest ships the navy owned other than aircraft carriers. Once he had completed a successful tour of duty commanding one of the giant ships, a man could take on the awesome responsibility of commanding an aircraft carrier. Imagine the power in the hands of one individual!
Now imagine the power in the hands of the President of the United States! We just placed a man in charge who had never commanded anything higher than his personal secretary. This is a man who had never been in charge of anything. How did this happen? Don't get me wrong now, the other guy wasn't much better qualified. How did it come down to these two? There is nothing wrong with our system of government, it's the party system that is broken. Does anyone think these two people really represented us? They represented what a group of professional politicians offered us. If you don't want this to continue, we must take charge of the political parties and force some common sense there. We need to elect people who have at least enough qualifications to hold a middle management job.
I don't think this two party system makes any sense, personally, but we have to work with it in order bring about change. Two years from now we will see what a Democrat controlled government has done for us and vote accordingly. It won't help at all to elect more politicians just like the ones we have now. We need to have candidates available who really are interested in the public good. We need candidates whose only skill is not how to get elected. We won't get them by sitting here and complaining. We only get real solutions by stepping up to the plate and being counted. I vow to offer myself for election to some office, and I promise to support any candidate who truly represents the public. How about you?

Why Change?

Why Change?
I keep hearing the candidates scream about how we need change, change, change. As far as I can tell, the only reason either candidate is running is to create change. Now I can’t see what change the government can make that is good for ME? How about you? Let’s face it, income tax isn’t going away. What other change can the government make that would benefit you?
Now I think the war in Iraq was poorly planned, and I think the total lack of control on petroleum is a mistake. BUT, I’m not in Iraq, and the US Military, who is there is overwhelmingly Republican. And, the Republicans seem to take a less precipitous tack on Iraq. Where’s the logic there? As for the petroleum problems or energy in general, it seems strange that I haven’t hear a single concrete proposal from either camp. Everybody is for Mom and apple pie and the New York Yankees, but what does that have to do with this change thing?
I keep hearing how they are going to increasing spending and cut taxes. Hmmmm, I want to know how I can apply that logic to my own budget. Cut my income and increase spending. Sounds good! Now that I think about it, that’s how this mortgage crisis came about, isn’t it? I’m not picking on the Dems, here because it appears that the Republicans are preaching the same thing. They just have a different package they want to spend on and different tax cuts. The net result seems to be the same impossible scenario. I read recently that poor people have voted overwhelmingly Democrat for 50 years and they’re still poor. The only point there is that voting for just change isn’t helping anyone.
So far as I can tell, most of this “Change” seems to be aimed at producing some way for the current younger generation to avoid having to work for their retirement like I did. I planned for retirement including planning for health care. It didn’t hurt me all that much, and I don’t see how it would hurt anyone else. So think about change. Is there really a change that would benefit you that can actually happen? As far as socialized medicine goes, let me explain this way. One way or the other you have to pay for medical care. Now you can pay as you go, you can pay ahead (called insurance) or you can pay for it through taxes. The government has NEVER shown an ability to run anything at lower cost, so it seems obvious to me that paying through taxes would be the most expensive way to go. Don’t forget that we already have socialized medicine. It’s called Medicare. Before you try to extend it further I invite you to do your own research as to how well that works. Once you turn 65 you MUST pay something like $96.40 per month for the “cost share” portion of Medicare. Now I’ll know more about Medicare next year so I won’t evaluate it now.
So what am I recommending? I’ll tell you. I don’t think it matters among the current candidates who is in the white house. I think it does matter who controls Congress. SO, I don’t know who I will vote for at the top of the ballot, but since I don’t like what Nancy Pelosi is doing I will be voting for Republican candidates for all other positions. If I thought that McKain could get elected I would reconsider that opinion. Think about what is really important and vote your considered opinions.

Don't Fence Me In

A Fence??? Whose idea was that?

As I understand it, there are several reasons we need to do something about illegal aliens. Those reasons include the cost of providing services to them including free medical and schooling, etc. as well as adverse effects on the job market. Then there is the security problem associated with terrorists gaining easy entry into the country.
Now I don’t know how to solve all these problems, but I don’t see a stupid fence as even a small step in the right direction. I don’t think I even need to mention the many things wrong with the fence idea or why it isn’t workable. Instead let’s consider alternatives.
Starting with motivation, illegal aliens invade from Mexico largely to gain access to free services and better paying jobs than they can find in Mexico. Now these are certainly understandable objectives, but our intent here is to find a way to stop this. Well, it seems painfully obvious that the sensible answer is to remove the incentive. It would be very simple to just stop giving free services to illegal aliens. Wow, what a concept, huh? Another problem is the silly law that says if you can make it illegally into the country just as you are giving birth then the baby is an American citizen. Come on, Congress passes silly laws all the time, how hard can it be to pass a law repealing the law that makes this possible? Emergency medical services? Certainly we’re going to provide them, it’s the American way. On the other hand, INS should be called immediately to see that the patient and family is deported as soon as they can be moved.
But none of that is the big picture solution. The big picture solution is to take legal action against employers who hire these folks. They aren’t that hard to catch and it would be a lot cheaper to hire more enforcement people in that area than to build this ridiculous fence. When any employer hires someone he must file a form W4 with the IRS which shows the employees SSN. That immediately tells the IRS that the employee is an illegal. The only way an employer can avoid that is to not file. If he doesn’t file that seems an appropriate time for criminal action. If the employee gives a phony number, then the IRS will see it as soon as the form is filed and be able to take action against the employee. Actually, I assume they would pass it to INS for enforcement

Now if our illustrious congress does pass some sort of amnesty bill for illegal aliens, and it certainly looks like they’re determined to, then what? Well, for legal American employees, employers are so supposed to pay 12.4% social security taxes and 1.9% medicare taxes. They are supposed to withhold half of that from the employee’s wages and pay the other half out of pocket. This is in addition to the 20% or so that is withheld for income tax. It is also in addition to the unemployment tax that the employer has to pay out of pocket. That is somewhat variable, but generally 6.2%. So, altogether on an employee making $1000 per month the employer should be sending $405 to uncle Sam. Now this is legitimate workers we are talking about. On a legitimate worker, for every $1000 he is paid $200 is withheld as income tax, $62 for social security and $9.50 for Medicare. Then the employer must contribute $62 social security, $9.50 Medicare and $62 for FUTA. The legal employee actually receives $727.50 and the employer is out an additional $133.50 himself. Now if the employee is an illegal being paid “under the table” the $727.50 only costs the employer $727.50 and that’s assuming he is being paid the same as the legal employee. (Unlikely) Now we know why the employer likes illegals.
My suggestion is this. If we are going to allow illegals then let’s tax the employer appropriately. Let’s just require the employer to pay the same amount he would have sent to the IRS and social security et al into a special fund to cover some of the costs brought on by illegal aliens. And, I believe an additional amount on the order of 20% should be reasonable.

That’s how I see it. How about you?

You will never believe this from CNN!

I'm not much of a tv fan, and particularly not of CNN but someone sent me this video that is just breathtaking.

We Don't Need No Stinkin Tax Cuts!

We don’t need no stinkin tax cuts!
No, we just need to fix the stupid tax code. 2005 is the most recent year for which the IRS publishes statistics but it has certainly gotten worse since then. In 2005 134 million returns were filed for income of $5,137,165,874 ,000. After the adjustments and deductions that we are all familiar with the total tax liability was $990,151,766,000. But wait – there’s more. There’s this thing called tax credits. Now we know about some of these, like foreign tax credits where you get credit for taxes you paid to foreign countries. These are to avoid double taxation you say. Well, in some cases. In others they are government handouts. Some of these giveaways seem to replace the old welfare systems and go to low income taxpayers. Way too many others just go to middle income tax payers. Now I’m all for everyone paying as little tax as possible, but when I was in the work force we all paid our own taxes. To me, taxpayers making $50,000 adjusted gross income (NO, not total income) shouldn’t be getting government giveaways.
What are the “credits” you say? Well, first off you must understand that I’m not talking about deductions that reduce your taxable income. Oh no, these credits are just like a check written to you and in many cases they are exactly that. Child care sounds like a reasonable deduction, and it probably is. BUT, this isn’t a deduction, it’s a credit. That means in effect the government (you and I) are writing a check for the amount of the child care bill. How much? In 2005 it was $3.5 Billion dollars. Yep, Billion with a B. But wait, there’s more. In addition to that credit we have “Child Tax Credit”. That’s just free money for having children. This is in addition to the usual deduction that everyone gets. How much? How about $1000 per child. 26 million returns received $32 billion in free government money. That’s about $1230 per return.
But child tax credit can’t reduce the tax liability below zero. So, some folks couldn’t take all of the free money. What then?? Well, we have – wait for it – “Additional Tax Credit”. That means we just give them the rest in cash. How much? 15 million returns received a bit more than $15billion dollars in free government money. That’s $15,495,160,000.
How about education? Well, 7 million returns picked up another $6Billion dollars there. Remember, we’re not talking deductions, we’re talking free money.
Another cute one is called “Saver’s Credit”. For this one eligible tax payers can put money into savings instead of paying taxes. They don’t have to leave it there, just put it there. In 2005 5 million folks put $950 million dollars there instead of paying taxes.
Now we come to the classic. Officially it’s called “Earned Income Credit” but unofficially it’s “Unearned Income Credit” because it’s the classic free money. This one is so classic that you don’t even need an income, you just have to claim you had one. I heard of a case where an unemployed young lady said she cleaned some houses for about $15k for which she had no records. She of course paid no income tax on this money. After filing her return she got “back” $3500 in free money. This is one of the taxes you can get back without ever paying anything in. For 2005 it was $42,000,000,000.
So what am I trying to say? I’m trying to say that the IRS gave away $92 BILLION in “tax credits” in 2005. How much did the old welfare system cost? Now to me, the IRS should not be in the welfare business. To understand how widespread this practice is consider that 134 million returns were filed in 2005, but only 90 million of those returns paid any taxes at all. I’m not talking about balance due instead of refund returns, I’m talking about NO TAXES period. The problem with our income tax is not the tax rates; it’s the complications like tax credits.
Now you can find statistics somewhere on the net to say anything you want to. Who was it that said “There are three kinds of lies, Lies, Damned Lies, and statistics?” You can undoubtedly find statistics that vary somewhat with those I quote above. However, can you find anything that differs from the general gist of this dissertation?
This is how I see it. What do you think?

Disclaimer, all the above is opinion. Mine.