About Me

In writing the "About Me" portion of this blog I thought about the purpose of the blog - namely, preventing the growth of Socialism & stopping the Death Of Democracy in the American Republic & returning her to the "liberty to abundance" stage of our history. One word descriptions of people's philosophies or purposes are quite often inadequate. I feel that I am "liberal" meaning that I am broad minded, independent, generous, hospitable, & magnanimous. Under these terms "liberal" is a perfectly good word that has been corrupted over the years to mean the person is a left-winger or as Mark Levin more accurately wrote in his book "Liberty & Tyranny" a "statist" - someone looking for government or state control of society. I am certainly not that & have dedicated the blog to fighting this. I believe that I find what I am when I consider whether or not I am a "conservative" & specifically when I ask what is it that I am trying to conserve? It is the libertarian principles that America was founded upon & originally followed. That is the Return To Excellence that this blog is named for & is all about.

Thursday, September 29, 2011

Responses - Coke CEO Confirms Schiff Testimony - China More Business Friendly Than America

Below are two responses that add to the discussion re the original subject message.
---Response #1---
Doug - again thanks for exposing these critical facts impeding job growth. Let me also add the impact Dodd Frank bill is having on further weakening US investment banking industry. Combo SOX and Dodd Frank is major factor in US loss of traditional investment banking to Asia.

Our solution remains consistent: take every opportunity to counter socialist leaning myths with the facts.
---Response #2---
Doug - Actually, it is a pretty simple principle. Socialism will never work as long as there is a country fostering a free economy because that is where all global investments will go. This, I believe, is at the root of our economic and political problems.

Tuesday, September 27, 2011

Coke CEO Confirms Schiff Testimony - China More Business Friendly Than America

As a follow up to the Coca-Cola CEO telling the Financial Times that China is more business friendly than America please click on this link of Peter Schiff testifying before the House Of Representatives Subcommittee On Regulatory Affairs, Stimulus Oversight, & Government Spending (sounds like something right out of Atlas Shrugged doesn't it?).  In the first video on the link Mr. Schiff explains that he has been fined thousands of dollars by regulators for hiring too many people & then was told to stop hiring all together.  In the second video Mr. Schiff explains how government regulations suffocate free markets.   Many of you saw Mike Huckabee listen incredulously to this account on his Huckabee TV show last weekend.

Anyone who watches both of these videos will not have to wonder what is happening to the American economy.  If BO wins his reelection bid the policies he will continue & new ones he will put in place will  ensure that people over 50 who are or who will become unemployed will never work again – the economy just will not recover in time for them.

Sunday, September 25, 2011

Responses - The FairTax & The 16th Amendment

Below are two responses to the subject message.  The first response takes up my challenge to those of us who know the benefits of the FairTax for America to get behind it & spread the word with no quit or fatigue – the point to be careful of is that you don't wear yourselves out contacting worthless politicians but rather spend your time finding new ones who will make a difference.  The second response amplifies the importance of learning the principles of the FairTax properly.
---Response #1---
Yes Doug - we all must work extra hard; however we have very strong arguments. Push the FairTax relentlessly while arguing the IRS is obsolete with today's retail and sales technology.  Challenge the socialist leaning politicians to answer how a cost of $430 billion a year adds a single dollar to GDP.  Clearly it subtracts substantially from GDP growth.  This is $430 billion cost in complying with our lobbyists' corrupt tax code.
In a town hall or other encounter I would love to confront Senators Menendez or Lautenberg as to how they justify the IRS and the $430 billion subtraction from GDP?  I will write to them again today demanding a specific response and not a canned tax policy response.
---Response #2---
Bravo ! I'm so glad you sent this so quickly. I should have realized you would. So many who claim to be familiar with the working of the FairTax haven't actually studied it and are not aware that the repeal of the 16th Amendment and the passage of the FairTax are not simultaneous. Your message made that clear to one and all. Thank you

Friday, September 23, 2011

The FairTax & The 16th Amendment

The recent messages re Herman Cain resulted in many questions concerning the connection between the FairTax & the repeal of the 16th amendment.  Below is a simplified explanation of this connection – in summary the 16th amendment does not have to be repealed before the FairTax legislation is passed under HR 25.

The FairTax can be enacted by a simple majority of Congress & signature of the President or a veto proof majority of Congress.  This action repeals the income tax system & abolishes the IRS after a transition period that will be used to clean up old tax business.  The FairTax becomes the law of the land effective January 1, 2013 as written in the current bill.

With the income tax system & the IRS both dismantled we are not in danger of either coming back quickly - the longer they are gone the harder it would be for them to return.  It is the FairTax itself that leads to the 16th amendment being repealed.  The FairTax lapses (sunsets) seven years after enactment if the 16th amendment is not repealed by then @ which time we have no tax system in place – the income tax does not automatically come back.

The point is that the benefits of the FairTax will sell themselves to the citizenry making the repeal of the 16th amendment not as hard as it could be without the above approach. You only need a simple majority of Congress & a president who will sign the legislation to get this started. You will never get this with the current Congress or President – this is why I keep writing about a needed change in mindset.

Now I don't minimize the work involved to achieve the above process – it is obviously quite extensive but does not require a constitutional amendment to get the FairTax started.

If you think it won't happen & don't do anything to help it won't happen.  On the other hand if all of us who know about the benefits of the FairTax for America get behind it & spread the word with no quit or fatigue whatsoever it will pass in five minutes.

Wednesday, September 21, 2011

Responses - WSJ Letter Published In Opposition To Herman Cain's Tax Plan

Below are three responses to the subject message that add to the discussion.
---Response #1---
I, too, am disheartened that Cain abandoned the FairTax. However, the 9-9-9 plan is still a far better solution to what we currently have. I believe the anti- FairTax crowds, on both sides of the isle have poisoned the concept to a point where it does not stand a chance. Not unlike the unending assault on Palin. For the FairTax to be viable, it would require the repeal of the 16th Amendment. It would be virtually impossible to get the necessary support in Congress to pass, not to mention the 2/3 of the states. There are too many vested interests in government. Even if you could, it would take years to pass. I don't think we have that long to wait. Cain's idea would be a great first step towards FairTax without having to take the 'leap of faith' it would require. Might it go to 29-29-29? Possibly. Would the 30% get bumped to 40 or 50%? Possibly, depending on circumstances. Once you raise it, it won't come back down.
---Response #2---
Happy to see you letter today - short and spot on. Yes - no precursors to High European income tax - consumption tax debacle.
---Response #3---
How disappointing. Mr. Cain was the only candidate that was championing the FairTax and it looks like he has abandoned it. The idea of retaining the income tax and adding a sales tax is repugnant. Add that to the state income and sales taxes and we will be in worst shape, and we have no guarantee the rate will not go up in time or that the loopholes will be removed.


Tuesday, September 20, 2011

WSJ Letter Published In Opposition To Herman Cain's Tax Plan

Below is my letter that was published in Tuesday's WSJ that was written in opposition to Herman Cain's recent op-ed in which Mr. Cain presented his tax plan (9-9-9) as part of his program for reviving economic growth – a 9% corporate income tax, a 9% individual income tax, & a 9% national sales tax.  It is most disheartening that one of the (former?) biggest proponents of the FairTax would not only abandon the FairTax but that he would come up with a plan that has so many flaws.  I describe many of these flaws in just two sentences below.
Dear Editor,
Herman Cain's September 15, 2011 op-ed entitled My Plan To Revive Economic Growth brings about one of the scourges of any tax plan that should be feared – both an income tax & a national sales tax simultaneously in effect.  Mr. Cain's plan has all the potential to make his 9-9-9 Plan a 29-29-29 Plan following the European welfare state.

Sunday, September 18, 2011

Social Security - A Ponzi Scheme?

Rick Perry made a splash in the recent presidential debate & in his book with his claim that Social Security is a Ponzi Scheme – like the fraud that Bernie Madoff ran & wound up in jail for. There are also many pieces I have received travelling around the internet making people erroneously feel that they are entitled to Social Security & Medicare benefits just because they had money withheld (e.g., – "I've been paying for it all my working life") from their paychecks when they were working or because they are now paying premiums, deductibles, & coinsurance in the case of Medicare. Exacerbating the situation is that the internet pieces take offense @ the word "entitlement" & believe that employers paid an equal share of the payroll taxes for both these programs.
The reality is that all of the proceeds collected from people make up about 25% of the cost of Medicare Parts A, B, & D – this is why they are going broke & also why senior citizens like the programs so much.
As for Social Security benefits – they are not guaranteed.  Just like all entitlement programs, they can - & have been – changed by Congress. The Social Security administration itself says so & so did the Supreme Court when it ruled, in Fleming v. Nestor, that workers & retirees have no legal claim to benefits, regardless of how much in taxes they have paid into the system. For example, people who found their benefits taxed in 1983 & those who had those taxes raised in 1994 can not feel that there is a guaranteed benefit amount.
Also we should dispel the illusion that companies pay half of our Social Security & Medicare costs.  If employees' productivity did not cover these costs the company would go out of business in direct proportion to the size of their workforce. Each of us pays the full 15.3% of payroll taxes – half out of our salaries & the other half out of our productivity. The companies pay nothing.
A Ponzi scheme is an operation that pays returns to its contributors by subsequent contributors (if any - or certainly less contributors in the case of Social Security), rather than from any actual profit earned.  Such a scheme is destined to collapse because the cash flow, if any, becomes less than the payments of the original contributors.  This is the standard definition of a Ponzi Scheme & it defines Social Security to a tee.  Further, when Social Security began in the 1930s life expectancy was 64 years – meaning that someone in their twenties, thirties, or forties who originally paid into the system to help the elderly would actuarially not live to collect any benefits themselves.  This not only takes the term "Ponzi Scheme" to another level but shows the fraudulent premise this government program was founded upon.
It is important for seniors to understand what is happening to their Social Security & Medicare benefits.  Finding & voting for the right presidential candidate in 2012 could not be more important if you are totally dependent on these programs which far too many seniors are – 18% of seniors only source of income is Social Security.  To further help I present below my letter published in 2005 on this subject.  Please note that the references I made to year 2018 now are closer to 2015.  Also please note my reference to a Ponzi Scheme in describing Social Security – long before Madoff or Rick Perry.

June 22, 2005


Dear Editor,                                                                                                                                                   


In Martin C. Stark's letter to the editor in the June 16, 2005 Reporter he relies on the Social Security Trust Fund to fund any shortfalls between incoming FICA taxes & the outgoing beneficiary payments after 2018. 


We should understand that this trust fund is nothing more then a stack of IOUs that is not backed by real assets.


Tracking the current Social Security surplus you will find that the money is received in a Social Security surplus account, from which it buys the Government bonds that make up the trust fund.  From there it is moved to the general treasury from which it all has already been spent financing roads, foreign aid, & other current government consumption.


There is no real money in the trust fund so that when 2018 comes & we call on the trust fund to support the actuarial shortfall we will have to sell the bonds (but to who?) or print more money thereby causing inflation.  The other choices are to raise taxes or lower benefits.  Social Security cannot continue under the current system based on this information. 


The Social Security solvency problem can very easily and fairly be solved by replacing the wage index formula for calculating benefits with the CPI formula – see Susan Lee's Wall Street Journal article dated November 23, 2004.


Mr. Stark claims that benefits are guaranteed for life – this too is not true.  Quoting from the aforementioned Susan Lee article – "Social Security benefits are not guaranteed.  Just like all entitlement programs, they can - & have been – changed by Congress.  The Social Security administration itself says so & so did the Supreme Court when it ruled, in Fleming v. Nestor, that workers & retirees have no legal claim to benefits.  Regardless of how much in taxes they have paid into the system." 


For example, people who found their benefits taxed in 1983 & those who had those taxes raised in 1994 can not feel that there is a guaranteed benefit amount.


Mr. Stark asks, "What type of social security insurance system do we want…?"   My answer is that we want a system of me taking care of my retirement & him taking care of his.  FDR created Social Security to help the elderly after the Great Depression because the elderly had no time to recoup their loses from that terrible economy. 


We should not have private accounts because of any Social Security system solvency problem but quite simply because they are a better idea in a free enterprise capitalistic country.  Young people should be learning to take care of themselves since they are the only ones they can really count on anyway, as they will find out as they go through life.  In every plan presented to date each person has the option to remain in the current system. 


However, someone with a personal account will have real assets in an actual account with their name on it for retirement & also will have the ability to leave these assets to their heirs - both unlike in the current system. Personal responsibility is the virtue - not looking for government guarantees in a system that is just a Ponzi Scheme waiting to tumble as described before.


Finally, Mr. Stark is correct when he states "If it (personal accounts) runs out, its your problem" – and that is exactly as it should be.  When people realize that they are responsible for themselves & will not be taken care of by some government program, they will work, save, & invest to make sure that they do not run out & they & the country will be much better off for their efforts. Social Security should be there only for the needy as FDR intended. 


The incentive should be to not want to be one of the needy but rather one of the self-sufficient.  I believe that this is where President Bush is trying to lead us on the Social Security issue.




Wednesday, September 14, 2011

Answers To Question Re Trade Off Between Job Creation & Deficit Cuts

Thanks to everyone who responded to the request for help by a long time subscriber – his concern is the trade off between BO's current emphasis on creating jobs & what he perceives as the Tea Party & Republicans focus on deficit cutting.  He feels BO's jobs' position is a political winner & the Tea Parties' deficit cutting position is a political loser between now & 2012. 
I am gratified that our subscriber looks to us for an answer to his question because he could get opinions from any news source he wants.  His faith & trust I do not take lightly & neither did the eleven people who took the time to respond.  I sincerely thank everyone who wrote a response.  They are excellent & not one of them is the same.
Frankly, they are too much to read & digest in one sitting so I have posted all of them, including mine, on ReturnToExcellence.net.  Just click on this blog & go to the subject posting dated September 14, 2011.  Reading them will be well worth the effort & a small one compared to the time & thought put in by the writers who tried to help a friend.

Monday, September 12, 2011

Responses - An Analysis Of BO's Speech

Thanks to everyone who sent responses to the original subject message.  Below are four that add to the discussion.  A special thanks to Responder #4 who did his own analysis of BO's speech & asks for insight from all of us so please provide your own thoughts in answering his question.  I will post your comments for all to see or for those who prefer will send them to him privately.  He is asking for help.
---Response #1---
Doug – thanks for specifying very overlooked aspect of BO Job Plan - most of BO jobs will disappear in year or 2. Furthermore it will enlarge our debt and risk economic disaster due to increased reliance on China and Saudi Arabia financing our debt.

The private economy creates most long term jobs which in turn create additional new jobs, companies, and industries. Why? because these jobs meet the supply and demand criteria - they are real and supported by the populace.

And yes – we who champion capitalism must work harder in advocating our positions of economic prosperity principles. Too many Americans have become 'soft' and dependent on welfare and entitlements. This complacency or 'laziness' may be a factor also in the development of a serious obesity epidemic which significantly has increased US health care costs.

I believe we can still regain that mindset of empowerment and that entrepreneurial spirit that created the greatest economic power ever. Those of us who believe in American exceptionalism will not rest until we regain and expand it to new heights.
---Response #2---
I was afraid this might happen.  New poll by AP shows Americans plenty angry at Congress – Republicans will suffer including Boehner and Tea Party.  Many people are willing to accept higher taxes to help bring down deficit.  But they do not want government messing with Social Security or Medicare like Ryan proposes on Medicare.  People want compromise between the parties.  People blame Republicans for not doing it.  One good thing – Republicans have a year to improve their ratings with the people.
---Response #3---
Doug - I found your "An Analysis Of BO's Speech" very insightful and of course educational. I also believe nepotism has deteriorated the quality of congressional leadership. Nepotism advances the inferior.
---Response #4 - An Analysis & Request For Insight Re Trade Off Between Jobs & Deficit Cuts---
You have to give BO credit - he is going "all out" for his program and will travel to various states to push it telling people to call their congressmen to support his program.  Remember when you give people freebies they will do your bidding.
The #1 issue is jobs - deficits take a big hit - people will support jobs programs and vote down limiting deficits.  They will OK large deficits if they are promised jobs. That will be a big problem for Tea Party and Republicans.
Tea Party came in promising to limit deficits. Times have changed since then. More and more people do not have decent jobs & layoffs are increasing.  What these people decide to do will have a bearing on the election.
If Republicans & Tea Partiers still want large deficit cuts at the expense of jobs – Republicans have a good chance of losing election.
What are the views of your readership?

Sunday, September 11, 2011

An Analysis Of BO's Speech

The above table (click on it to enlarge) provides all of the conventional reasons (#s 1 – 8) why BO should not be reelected & the two (#s 9 & 10) why he will be if people of substance do not double or triple their efforts to unseat him between now & November 2012.  Numbers 2, 3, & 4 from the table cut both ways.

For several reasons BO's long awaited speech on jobs & improving the economy that was aired pre-prime time on TV to a joint session of Congress last Thursday night offered no help to the 25 million people who are either unemployed, underemployed, or discouraged & have stopped looking for work – the speech unveiled BO's plan he called the American Jobs Act that he intends to send to Congress. 

First, BO's repeated calls to Congress during the speech to "pass this jobs bill" ignored the fact that no bill exists.  No legislation. No amendment to existing law. No package. Nothing on paper – just a White House "fact sheet" which puts the price tag of the President's proposals at $447 billion.  Source Congressman Frelinghuysen. 

Second, the last part of the speech shreds the Constitution that BO swore to uphold in the oath he took (twice). 

Excerpts from the speech – "a belief that we're all connected & that there are some things we can only do together...a nation with responsibilities to ourselves and with responsibilities to one another...just because it violated some rigid idea about what government could or could not do...that's not who we are. That's not the story of America..."  The country was founded on the principles of limited government, self responsibility, & free market capitalism – not the stuff from the foregoing excerpts that only lead to both government control & dependence which of course is BO's plan & he is executing his plan this time by pretending he is all about creating jobs.  Any jobs that will be created as a result of BO's plan will disappear shortly after the next presidential election.

Third, BO said during the speech – "Yes, we are rugged individualists.  Yes, we are strong and self-reliant."  Just ask yourself how rugged, strong, & self-reliant the 47% of Americans are who collect government welfare? – see point #10 in above table.  How much higher will this percentage be in the next 14 months?  This can be reversed but it will take a change of mindset & a return to the original self-reliant incentive of our founding.

Fourth, BO said "Some of you sincerely believe that the only solution to our economic challenge is to simply cut most government spending and eliminate most government regulations."  Too bad he is not one of them.

During the speech I looked @ BO & the Members of Congress he was addressing – I saw people with no practical experience for the most part, many aged people who should have retired decades ago, & some obese people who could barely move.  Are you waiting for these people to solve your problems or would you rather do it yourself?  I thought of the conceit & arrogance that these people have to think that they are the answers to our prayers – what we need is for them to get the hell out of the way. 

The central concern of this blog has always been about answering the question - how much room, if any, do individual rights leave for the state?  The answer of course is found in the Constitution that is ignored more & more every day despite some of us trying to hold off the last stage of Death Of Democracy.




Thursday, September 8, 2011

The National Debt - Are You Talking To Me?

With BO's intentional continuous destructive increases of America's extensive debt volume I thank our SC businessman for both his timely writing of the debt message below & attaching the Visual Guide illustrating the enormity of our national debt problem – this link provides an excellent pictorial illustrating the amount of money involved & includes the famous national debt clock.  I always appreciate when people send me articles they write themselves.  He also included separately this link of a government house call that I named “Are You Talking To Me?” .

I add only the following:

1.  The above does not include the off the books $7.5 trillion debt that Fan & Fred (& therefore the federal government) are responsible for – this brings the total to $22 trillion instead of the $14.5 trillion shown in the first link above, &

2.  Professor Antony Davies of Duquesne University points out that the federal government's debt-to-income ratio is 635% meaning that the government debt is like a household with a $50,000 income having a $320,000 credit-card bill.  The debt-to-income ratio is substantially different from the rest of the measures in this posting that present debt-to-GDP ratios.  Decide for yourself which is the more important one to follow.

In line with this topic I also include below John Steele Gordon's op-ed from the August 29 WSJ entitled A Short Primer on the National Debt – it offers an excellent explanation of many debt-deficit terms. Just let me know if you have any questions & I will get you the answers you need.

---Debt Message From SC Businessman---

The above link is a rendering of what our national debt really looks like.

You might note that the claimed debt is currently $14.5 Trillion.  However, when you add in all the unfunded liabilities that have been promised (Social Security, Medicare, pensions [the other 500 pound gorilla no one is talking about] and more) the total is $100 Trillion more.

As many of you know, I have been trying to get people to obtain a copy of Generation Zero (www.GenerationZeroMovie.com) for a year. It explains what & why the true debt is, what it is and details the 50 year run up of how we got into this mess (actually, I think the groundwork was laid earlier with Woodrow Wilson).  Both political parties can and should be blamed.

The question is how can we escape a total collapse of the world economy?

A Short Primer on the National Debt

With a return to 1990s growth rates, the debt-to-GDP ratio could drop to 56.7%, about where it was in 2000, in just one decade.

With the national debt certain to be a front-and-center issue in the 2012 campaign, it is important to understand the true measure of its size. That size seems to vary considerably in news reports. Some news organizations use the debt held by the public, others use total debt. Still others report total future liabilities of the federal government, without making clear what, exactly, that means.

So, a few definitions. The total national debt of the United States is the sum of all federal bills, notes and bonds that have been issued by the Treasury and not yet redeemed. The publicly held debt is the sum of the Treasury securities held by individuals, financial institutions and foreign governments. (That's not just the Chinese, by the way. Both Great Britain and Japan are also major holders of U.S. debt, as are many other countries in lesser amounts.)

The intra-governmental debt is the sum of Treasury bonds held by agencies of the federal government, principally the so-called Social Security Trust Fund. The liabilities equal the future pensions, health care, Social Security payments, etc., that are promised under current legislation.

But while the Treasury securities bear the full faith and credit of the United States and any failure to pay the interest or redeem the principal in a timely fashion would be a default, the liabilities are liabilities only so long as current law remains unchanged. If, for instance, Congress were to adjust the formula by which Social Security cost-of-living increases were calculated or change the age of eligibility, future federal liabilities would shrink by trillions of dollars instantly.

Should the intra-governmental debt be counted when discussing the national debt? I think the answer is yes. As the Social Security surplus disappears (it did, at least temporarily, in 2010) as the baby boomers increasingly retire, the Treasury will be asked to redeem more and more of these federal bonds.

Congress will then have three options: cut spending elsewhere, raise taxes, or borrow the money in the bond market, thus converting the intra-governmental debt into publicly held debt. The last of the three options is the only plausible one and so the intra-governmental debt should be counted as though it were publicly held debt, as that's exactly what it will be in the fullness of time.

In absolute numbers, the total public debt as of Aug. 11 was $9.924 trillion, and the intra-government debt was $4.666 trillion, for a total of $14.587 trillion. That's well over 300 million times the country's median household income. Stacked as dollar bills, it would reach 920,953 miles high, almost four times as far from Earth as the moon.

But while these numbers are fun to play with, they don't mean much. It's the debt's size relative to gross domestic product that matters, just as personal debts must be measured against a person's income before they can be properly evaluated. The GDP of the United States was $15.003 trillion at the end of the first quarter in 2011. That makes the public debt equal to 66.1% of GDP and the intra-governmental debt 31.1%. Total debt is now 97.2% of GDP and climbing rapidly.

And it's the climbing rapidly part that is worrisome, not the debt's current size relative to GDP. Indeed, the debt has been substantially higher by that measure in earlier times. In 1946, in the immediate aftermath of World War II, it was 129.98% of GDP. But while the debt had increased enormously during the war (it had been 50% of a much smaller GDP in 1940), it did not increase substantially over the next 15 years. It was $269 billion in 1946 and $286 billion in 1960. The American economy grew so much in those years that the debt, while slightly up in absolute terms, was down to only 58% of GDP by 1960.

The debt grew to $370 billion in the next decade, but again economic growth (and, towards the end of the 1960s, inflation) continued to reduce it relative to GDP. In 1970 it was a mere 39%, the lowest it had been since the depths of the Great Depression. And while the debt nearly tripled in the 1970s (to $909 billion), the raging inflation of that decade caused the debt to continue to decline to 34.5% of GDP.

When the Federal Reserve under Paul Volcker broke the back of the 1970s inflation, the debt relative to GDP began to soar. Why? Because Washington continued to increase spending faster than government revenues increased (and revenues increased a whopping 99.4% in the 1980s thanks to the great boom that began in 1983). The debt was 58.15% of GDP in 1990, a full 24 percentage points above its 1980 low. It continued to increase dramatically in the early 1990s, reaching 68.91% of GDP in 1994.

But then a Republican Congress was swept into power that year, the first time the GOP controlled both houses of Congress since 1954, and President Clinton tacked sharply to the center. In the next six years, while revenues increased 61%, federal outlays increased only 22%. The years 1998-2000 actually showed the first surpluses in the federal budget in 30 years. And the debt, relative to GDP, declined between 1994 and 2000 to 57.3% from 68.91%.

That decline ended in 2001 following the collapse of the dot-com bubble and rising unemployment in the resulting recession. By 2003 the debt-to-GDP ratio had risen to 61.7%. Many blame the Bush tax cuts for adversely impacting federal revenues, causing the debt to spiral upwards. But that is just not true. Federal revenues declined by almost 12% in the early years of the decade, but when the tax cuts fully kicked in in 2003, the economy began to grow strongly again and federal revenues increased 44% in the next four years, while unemployment fell to 4.2% from 6.2%. Federal outlays in those four years increased by only 26.4%, and while the debt-to-GDP ratio increased to 64.8% by 2007, that was still well below what it had been in 1994.

Only with the severe recession that officially began in mid-2007 did the debt-to-GDP ratio begin to soar once more. It reached 67.7% by Oct. 1, 2008, near the end of the Bush administration. A year later, under President Obama, it was at 84.4%, a year later still 93.8%. It is headed quickly towards 100% and beyond without fundamental change in how Washington handles the public fisc.

But a president and a Congress committed to reforming Washington's ways face no insuperable problem getting the debt under control. No one expects the United States to pay off its debt (as we did in the administration of Andrew Jackson, the only time a major country has ever paid off its national debt). Even in a best-case scenario, the absolute size of the debt will not get smaller. But if we can summon the necessary political will, we can dramatically affect the measure of the debt burden that matters: the debt-to-GDP ratio.

Just do what we did after World War II, a period that saw its share of recessions and wars, both hot and cold: stop adding to the debt and let the growth of the GDP bring down the ratio.
If the country can experience GDP growth equal to what we had in the 1990s, the debt-to-GDP ratio would drop, in just a decade, to 56.7%, about where it was in 2000.

But that can only happen if the American electorate sends an unequivocal message in November 2012. Voters did exactly that in November 2010. Will they do it again?

Monday, September 5, 2011

Responses - Analyzing CEO's Pay & The Corporate Income Tax

Below are two responses to the subject original message that add to the discussion. Both concentrate on GE's accountants & 24,000 page corporate income tax return. The first presents the answer to both our jobs & economic problems while the second shows we have an opportunist in our readership – @ least in another life.

---Response #1---

Doug - After reading Analyzing CEO's Pay & The Corporate Income Tax from September 3, 2011 I am reminded of "The Accountants' Creed". It is not how much you earn but how much you keep that counts. If only we all had GE's accountants, who knows, maybe the government would be forced to create another tax scheme. FairTax!

---Response #2---

I have to hand it to you - by doing your homework and taking time to do it.

Who makes the money? - high priced accountants and lawyers.

Re: 24,000 pages for GE tax return. Who has the time to read that many pages?

Multiply that firm by hundreds/thousands of other large firms, and you will see federal government has to have an army of federal tax reviewers, who I would say "do not read the entire returns", as it would take up a lot of time to read.

That is good for these people, as it creates high price salaries for those "reviewers" - and they would not be unemployed.

In my "next life" I am taking up accounting and going to WASHINGTON for a job.

Saturday, September 3, 2011

Analyzing CEO's Pay & The Corporate Income Tax

Thanks to a long time member of our group for sending along the article below re twenty five public corporations who paid more money to their CEOs than they paid in federal corporate income taxes.  This article plays right into the class(less) warfare being promoted by the hostile anti-American media & motivates the wealth envy that is destroying America.  The article presents all of the wrong incentives for going forward, unless being presented for a nation that has accepted stagnation & decline.  The economics presented are woeful.  We need to return to being a country that is based on individual achievement & not one with a goal of making everyone a government dependent – the path we are flying down.  BO leads us down this path by design. 

With regard to CEO pay - any company should be able to pay their employees whatever they want.  In the case of crony capitalism if the stockholders are so disinterested (like the majority of Americans are about politics) then the operating officials & Boards really have temptation put right in front of them (like politicians do every day) & most would conclude they were fools not to partake of the spoils.  How many people do you know, including yourself, if only given that opportunity would refuse to play this game?

Most of you know I was in the engineering-construction business for 33 years building chemical plants all over the world.  In my company the first project undertaken after I retired suffered a $25 million overrun not to mention the lost revenue of market share of products produced later than scheduled.  Now had I stayed with the company & been paid $5 million per year the company would have come out way ahead from what happened had I delivered the project on time, within budget, & for the technical integrity specified as I had every project I ever started – so who is to judge what is the proper compensation especially when it is no ones' business except the owners of the company.

Gary Schwartz explains class envy when he writes "How many of us seek wealth but condemn those that have it?  Think back to the Panic of 1907. JP Morgan (who pledged large sums of his own money – note from me), in a sense, bailed out the nation , but was the nation grateful?   Far from it -- the public wanted Morgan pulled down to size."

With regard to corporate income taxes it is important to understand that people pay the corporate income tax – not corporations.  Let's start with the most basic of finance & accounting equations: Revenue – Expenses = Profit.  Now in order to pay tax on profit corporations must first collect revenue so that if the corporate income tax is derived from revenue it is the consumer who pays this tax when he buys the product – this covers the revenue part of the equation.  If employment or wages are reduced to cover the corporate income tax then unknowing workers pay the corporate income tax – this covers the expenses part of the equation.  If neither of the foregoing is immediately possible then the share holders, including individuals & pension funds will have reduced payouts of dividends or capital gains which covers the profit portion of the equation.  It is amazing to me how many people I know bad mouth corporations like Exxon Mobil but receive a portion of their retirement income (pension) from the company – talk about not knowing what is going on.  But please understand that in no case will the corporation pay any corporate income tax – only consumers, employees, or shareholders do.

Let's illustrate the above principle by reviewing GE's much maligned corporate income tax return this past April that resulted in GE paying no corporate income tax – a fact that infuriated many people starting with Bill O'Reilly.  GE's tax return totaled 24,000 pages which in & of itself tells you quite an expense & effort went into preparing it.  It should not make you happy, but please be assured that we did pay the compliance cost of the lobbyists & tax attorneys who prepared GE's monstrous return (these cost were embedded in GE's products' prices) - people who were paid to create (with the help of Congress) or find the loopholes that let GE not pay any corporate income tax in America. It is just that GE found paying the lobbyists & tax attorneys more advantageous & less costly than paying the corporate income tax – a sound business decision & one that saved every consumer, employee, & pension fund holder money as described above.

Professor Frederic Jelen, in his (my) classic textbook entitled Cost & Optimization Engineering, explains the problem with all of the above that is a product of our income tax system when he gives the following example regarding depreciation accounting – "How depreciation is determined over the years influences the apparent profit for the individual years.  This is true for other expenses that can be allocated over the years.  For example, one power company lost an entire generating station because of a landslide @ the river edge.  Instead of taking the entire loss in one year, the company preferred to allocate the loss over a number of future years.  This decision affected the apparent profits for many years ahead."

Peter Drucker summed all of this up as follows: "What it (earnings per share) really represents is 'taxable earnings.' It is what is left after all the charges that the tax collector accepts as deductible. But this figure is a purely arbitrary figure that has little or nothing to do with business performance."

Professor Drucker went on to say "it is not the company that makes a profit that rips off society but the one who doesn't."

Top CEOs Earn More Than Their Firms Pay in Taxes

Posted 8:00AM 08/31/11

Twenty five CEOs of America's top companies earned more money than their companies paid in taxes last year, according to a report by the Institute for Policy Studies Executive Excess. The think tank "researched the 100 U.S. corporations that shelled out the most last year in CEO compensation. At 25 of these corporate giants," the Institute "found the bill for chief executive compensation actually ran higher than the company's entire federal corporate income tax bill."

Companies on the list include Verizon (VZ), International Paper (IP), Prudential Financial (PRU), GE (GE), BNY Mellon (BK), Boeing (BA), Marsh & McLennan (MMC), Stanley Black & Decker (SWK), Chesapeake Energy (CHK), and Ebay (EBAY).

The report also challenged the gap between CEO pay and those of the average workers at the companies they run. "The gap between CEO and average U.S. worker pay rose from 263-to-1 in 2009 to 325-to-1 last year."

The report was particularly hard on companies that use tax-avoidance techniques such as money held "off shore" to "accelerate depreciation." GE has already been criticized in the press, particularly by The New York Times, for the level of taxes it has paid in recent years.

The Institute for Policy Studies report says that Congress must take action to close the tax loopholes that allow companies to pay low taxes in comparison to their earnings and even listed potential government remedies to corporate tax dodging. They include: closing "numerous loopholes that facilitate tax dodging through abuse of tax havens" and mandating "that corporations take the same deduction for stock-based executive compensation on their tax returns as they do in shareholder financial reports." Legislation has already been introduced in Congress on both matters.

The Institute also said that laws which give shareholders little voice in corporate governance shield CEOs from questions about pay packages. But because the companies are public, one of the most important opinions should be those of the shareholders. GE shares, for example have underperformed the S&P 500 during the last year. But, shares in eBay and Verizon have done better by the same measure. The stockholders of the firms that did outperform the market may not care about what the companies in which they own shares paid to Uncle Sam.