Spending Too Much or Taxing Too Little?

“You can't tax your way out of a spending problem, you've got to stop spending” New Jersey Governor Chris Christie.
In a nutshell, this is the essence of fiscal responsibility.  It works at all levels.  Whether you are an individual, a family, a company or a government.  Unbridled spending does not lead to successful operations.  This is the essence of the case made by Peggy Noonan in her column yesterday.  It is a winning argument that Republicans can and should be making everywhere.
I have seen this first hand.  Several years ago, I had the opportunity to work for a novel company with a brilliant approach to health care prescription management.  Despite the fact that the idea had enormous value, the leadership of the company spent enormous amounts of money in acquisitions, out of proportion to the revenue that we were generating.  So, in spite of the fact that during my time there, we doubled sales revenue, spending increased by more than 5 times. 
There came a point when the investors stepped in and said “Enough”!  Drastic measures were taken.  Approximately 70% of the staff was let go, much of the leadership was replaced and the company took off in a new direction.
That was personally tragic for me as I was part of the 70%, but in the end, it worked out as the company was focused in a specific area, had modest success and then ended up being acquired by another company with the breakthrough technology being adopted by the acquiring company.
The point is, nothing can exist forever with an imbalance between the revenue coming in and the expenses going out.
Our current government does not seem to get this.  Or if they do, the answer seems to be, “Well let’s raise the revenue”.  Yesterday’s lead editorial article in the Washington Post seemed to imply this with their recommendation that we raise taxes.
The problem with this is captured clearly by Governor Christie.  This situation is a result of unprecedented increases in spending without regard for the revenue to pay for it.  Simply raising tax rates may or may not have the desired effect because as Arthur Laffer continuously points out, raising rates do not necessarily lead to a commensurate increase in revenue.  The reason is that taking revenue from the economy, especially when the economy is fragile, often leads to less investment and less economic activity. 
Lower economic activity leads to less prosperity, less prosperity leads to lower tax revenue.  It is a question of simply math, I mean which would you rather have 15% of $1 Million dollars or 20% of $300,000?  If you need help in answering this question, please ask the citizens of California where they took a “soak the rich” attitude to taxation years ago and when the rich stopped being so rich, the entire state became a poster child for lopsided taxation policies combined with spending commitments held hostage by out of control public unions.
The solution is to bring spending under control, encourage the creation of prosperity by adoption of policies that encourage private investment and regulatory policies that encourage individuals to make those investments here, in America.  This is the way to create meaningful jobs that provide dignity and hope.
Let Freedom Ring.

Raising Taxes in a Fragile Economy

In today's WSJ and other publications it was reported that our economy slowed in the 2nd Quarter of this year.  According to the WSJ "The Commerce Department Friday said U.S. gross domestic product, or the value of all goods and services produced, rose at an annualized seasonally adjusted rate of 2.4% in April to June. In its first estimate of the economy's benchmark indicator, the government report showed growth was lifted by business investments and exports. Consumer spending, a key growth engine for the U.S. economy, made a smaller contribution to growth."

Reading some of the comments associated with this are fascinating....

Peter Klientje wrote: "I don't understand.... Where did it go wrong?


We all know that Socialism works. It works in Cuba, it works in North Korea and it did wonders for the people in the former Soviet Union. Socialism works every single time it is tried.

Why then is Socialism not working in the USA? We have the perfect shepherd for us, the sheeple; obama. We have the smartest, the most inspirational leaders in the House and Senate, pelosi and reid....

We have honesty and integrity in our government; rangel, geithner, sebelius, kerry...

And yet, despite all these blessings, there is no spark, no jobs, no economic growth. How can this be? July is practically over, when will the Summer of Recovery start?"
 
Jim Altfeld wrote:  "The administration can say and do anything it wants, but when it comes right down to it, nothing they are doing is working. It's a lot like building a bridge. It's hard to hide your mistakes when it's out there for everyone to see. More taxes can only lead to more government spending. Less taxes takes money out of government's pockets and puts it back into the pockets of corporations and We The People!! If turning this economy around will be done on the backs of the people, then let the people determine when and where they want to spend their money. Hey Government: Stop spending and stop taxing. You cannot and were never meant to cure all the ills that go on in our country."
 
Attorney General Ken Cuccinelli pointed this out recently at a fund raiser for Patrick Murray.  This is backled up by a recent remarks by Ken Walker, CFE, chairman of the International Franchise Association and chairman and CEO of Driven Brands. 
 
His remarks included the following:  "Uncertainty is the theme for franchise businesses this summer. Uncertainty about new government regulations, uncertainty about availability of capital, and uncertainty about how quickly the economy will truly recover is stifling job and business growth.


Of course, there are many reasons for the current wave of uncertainly, but as Dallas Fed President Richard Fisher recently said, “Congress and the government have inhibited growth by creating uncertainty about business costs. We need clarity. You can’t eliminate uncertainty, but you have to reduce it as much as possible.”

As job creators, franchise business owners remain in the crossfire of a political agenda that increasingly threatens to stifle economic growth even further. Potential new taxes on both personal and business incomes, a continuing array of new regulatory burdens from health and energy reforms, and the failure to invest in common-sense solutions to help small businesses grow will certainly hamper job creation.

For example, we know that tax paperwork and compliance are already major expenses for small businesses, but buried in the new health-care law is a requirement for small businesses to report every business-to-business transaction that involve property and services in excess of $600 annually.

This would trigger the requirement to file a Form 1099 with the IRS and furnish taxpayer identification numbers (TINs) for all businesses and persons involved." (more)

The point is the that this uncertainty and additional burdens being placed on small businesses may be contributing to the drag in the economy.  That drag and the policies of the current administration and congress are making it increasingly difficult for businesses to create jobs and hire people.  It points them in the direction of seeking labor saving solutions overseas and in technology rather than hire people here.

What is needed is stability and policies that do not discourage businesses to invest and hire domestically.

My Thoughts, What are Yours?

Let Freedom Ring