"Restarting America's Economic Engine"
In the early days of America, small business owners served their country in elected positions; however, these men were anxious to return to their farms and shops because they only served out of compassion for country. In today’s time, those elected to preside over us are "career politicians" that are out of touch with the true economic engine of America – small business. The storm clouds over small business from this economic crisis are troubling, but consider the fact two-thirds of employment growth and 50% of GDP originate from small business, I believe more aid is needed to restart America’s economic engine.
The more known and commonly discussed challenge is the lack of credit to business owners. Of course, this is squeezing business owners from two sides, because the lack of credit is causing consumers to stop consuming. Owners have to make adjustments in their operations to align inventories and capacity with demand. In addition, they are managing balance sheet issues due to either a reduction in availability of credit or tightly constrained cash reserves from a drop in revenues. All of this is causing our unemployment lines to swell with workers from manufacturing, technology, financial services, and a host of other industries.
I give kudos to the Obama administration for some of the provisions in the Stimulus Bill. More specifically, increasing SBA guarantees on their famed 7(a) loans along with expanding the number of years to claim NOL losses are to be celebrated. In addition, some companies might benefit from the provision that accelerates depreciation on capital purchases; however in the current climate I do not expect many companies to invest in new equipment. I argue that a substantial reduction in payroll taxes or a "payroll tax holiday" for a defined period would have done more to stimulate the economy and help owners to save jobs.
No economist will disagree that America has a fight with inflation coming soon. The overnight rate charged to banks on loans or the FED Rate is currently zero percent. The FED is able to do this because inflation is well contained since the battle with exploding energy prices last summer. Future inflation will come from current adjustments in monetary and fiscal policy that have expanded the monetary base significantly. The challenge for the FED is not as great because they can contract the base through an increase of interest rates or through selling various assets to soak up excess cash in the system. When the fight with inflation arrives the FED will raise interest rates and that will cause growth to slow from credit becoming more expensive to businesses and consumers.
Now let us explore the fiscal policy side of the equation. Money injected into the financial system through fiscal policy is not as easily extracted and in all cases will lead to inflation – a hidden tax on the poor. The crisis in our economy has not stabilized and once it does we can expect a period of stagnate growth. This slow growth economy will produce less tax receipts to the Treasury and tax rates will increase to pay the debt service on all of this spending. President Obama recently announced he would raise taxes on earnings $250,000 and above or in other words - small business. Owners will finance the recovery package through a higher levy on their income, but there are virtually no solid provisions to bailout small business in the bill.
Factor in the challenges at the state level and the outlook is grim. In North Carolina, Governor Perdue recently announced state tax revenue was down over $260M and conservative economists are now predicting a budget shortfall of $3B at a minimum. Undoubtedly, the $6B from the stimulus bill over the next two years will prove helpful. However, this fiscal year is not complete and I expect that revenue will continue to decline and expand the projected deficit. The moving revenue target will cause trouble for a governor that is trying to prepare her first fiscal budget. Without question I believe Governor Perdue will have to search for other revenue sources, which will include new taxes on services, more taxes and fees related to transportation, and there is a strong reason to believe that she will have to pitch North Carolinians on a bump in the sales tax.
Any new fees or higher taxes during a time of slow growth will desperately harm consumers and the business climate. Is there any other way? Perdue or Obama will not be able to cut enough programs to plug large holes in their respective fiscal budgets and will have no other alternative to generating more revenue in a time of slow growth to maintain core operations. Sounds familiar, but business owners cannot readily demand more money from their customers to plug holes in a time of crisis. The critical need for government is to defend responsible and fair trade while implementing policy that will encourage economic growth for its people. Consumers and owners desperately require "true" tax relief and expanded freedom to utilize talents for the creation and sustainment of private enterprises.
Categories: Politics, Business, Economy
Tags: algenon cash algernon algonon algnon north carolina
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This is spot-on Algenon. It's mind-boggling that we hear more solutions and common sense from those who aren't making policy than from those who are.
If we have a health problems from a poor diet, for many, it takes a major health crisis to finally make changes. Similarly, in our country, our spending and consumption diet has needed correction, from top to bottom; government, consumers, wall street... everywhere we look.
Many don't realize that when they say, "The government should provide xyz..." what they're saying is that we--our neighbors, our relatives, etc., should pay for these things for us. For that IS who pays. The more we want from the government, the more it costs all of us. Every penny of government spending comes from "we the people".
We do not choose which government programs to support; but our money gets spent. 8,570 earmarks in the bill Obama passed when in January he said there would be no earmarks. Something is very wrong with a government system that is using taxpayer money to gorge its already bloated body.
An ancient "class envy" has been stirred up in this administration also, where the term "the rich" sound vitriolic and evil. So, the "rich" are attacked and people lose their jobs; jobs that can no longer be paid for because of the government playing Robinhood. We all loved that childhood story... and of course the "rich" were portrayed as the bad guys.
Well, a skip into history reveals that in all societies past and present, in every social strata and every ethnicity there are the good and the bad. Good and bad is a human condition, not an economic one.
But, in the current economics, all will suffer and it's so important that you spell it out Algenon: "inflation – [is] a hidden tax on the poor.
We're all in this together. That which negatively impacts some of us, impacts all of us, and not just nationally. The world scene, which we generally see very little of in our news system is also struggling. When the rich are attacked, it affects us all. When America--the richest country-falters, it affects the world.
The most successful amongst us, do not attack those more successful; they learn from them. What might it look like if there was no "class envy" or vilification the the haves by the have-nots?
In the "old days" communities looked out for each other. That means that people within neighborhoods helped each other. There was no government bailout or rescue.
If our economy crashes in a major way, and government shrivels with it, well, perhaps there could be a phoenix to arise from these ashes, if indeed "America is burning".
When we're kids, we live under the provision of our parents: their money, their roof, their rules. If we do not put a cog in the wheels of government as it rolls toward socialism at an alarming pace, we will be as children under our governments roof. More provision means less freedom.
May American mature through these growing pains.
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Algenon,
Your assessment is right on target, however, the present political leaders do not seem to understand what makes the clock tick.
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Algenon,
Your article is insightful as usual...and adds to my ability to navigate these troubling times.
As a response however...my sentiments lie with a small excerpt garnered from a piece in the "Democratic Left" publication at www.dsausa.org. You may not agree with the assessment...but it fits more to my viewpoint:
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The Obama administration will have to remind the American public that Ronald Reagan ran deficits equal to seven percent of the GDP in each of 1981 and 82 (or the equivalent of $680 billion per year [!] in today’s dollars), in the face of a much less severe recession. In addition, the Obama administration must press Congress to implement a major anti-foreclosure program (similar to FDR’s Home Loan Corporation), as the income stream from homeowner payments on refinanced, affordable mortgages should significantly increase the value of the toxic assets of “securitized mortgages.” The Bush administration’s failure to protect the foreclosed (particularly those who could pay a reasonable renegotiated mortgage rate on a readjusted home value) explains in large measure its utter inability to improve the balance sheets of major financial institutions.
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But how to pay for all this?
The Obama administration should reverse not only the Bush tax cuts, but also the Reagan cuts in marginal rates on high-income earners, which would each return some $300 billion in revenues to the national fisc. In addition, abolishing the preferential 15 percent tax rate on hedge fund and private equity managers’ earnings could garner another $100 billion in annual revenues. Truly ending the war in Iraq should save $100 billion per annum; a 1/3 cutback in United States military bases abroad and an end to Cold War era plans to build a next generation of fighters and an anti-ballistic missile defense could save $216 billion in federal revenue per year.
The military budget is hideously oversized for a nation that claims armaments are necessary for defense and not defense of empire. One fights terrorism by intelligence and espionage cooperation among states and via a multilateral diplomatic strategy that provides hope for the billions who still live under authoritarian governments and in extreme poverty.
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Only an economic system that invests in production for human needs – such as renewable energy, mass transit, and urban infrastructure, school, and housing construction – can generate a sufficient number of “good jobs at good wages.” The infotainment, finance, and service model of “post-industrial” capitalism is vulnerable to continuous speculative bubbles because it does not produce sufficient real value to sustain mass middle-class living standards. (excerpt by Joseph M. Schwartz / "Does Obama's Election Mean Real Change?)
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The idiots are running the asylum. If they would leave it alone it would correct itself.
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Good article. The remedy for our ailing economy is certainly complex and I am not sure that anyone has a silver bullet for it. But being a free market conservative I do not believe that we can tax or spend our way out of it. This mess was not created overnight and will not be fixed overnight. Your point about our leadership is valid, they no longer are in touch with day to day main street America. In large part the long term solution is a return to integrity in business and politics. In the short term we have to find ways to restore consumer confidence and find some success stories to balance the steady diet of gloom and doom we are getting from the media. A wise colleague of mine told me several years ago and I believe it be true "When thing are good they are never quite as good as you think they are and when things are bad they are not as bad as you think, but somewhere in the middle lies the truth".
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BRAVO!
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Great article!!
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As strange as it sounds to me, I whole-heartedly agree with everything you have said in this article. I voted for President Obama, however, the more I begin to really understand the country's economic condition and the plight of the business owner, my perspective is slowly but surely changing. Even though, I still have a problem infusing all that money into big banks. Keep up the good work.
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Great commentary!
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