I just have to get this off my chest, because it really irritates me. Obama has used the talking point that Romney was a return to the failed policies that got us into this mess in the first place. I agree. Here's why: In a free market society business is cyclical. That means it is good and it is bad. When it is good it is real good and when it is bad it is real bad. These cycles serve as a pressure valve and control mechanism. When a business cycle is good, say for cars, new companies pop up, existing companies expand and much more money is invested in R&D. This is where the gains happen, the huge leaps in progress will be found here. Unfortunately when times are good companies also get sloppy. There business model suffers, they loosen control on spending, have a tendency to take unnecessary risks, and often quality control suffers.

If a company goes too far in an up cycle, when the cycle turns down they go out of business or file bankruptcy. During a down turn a company tightens up and doesn't invest in R & D as much. The down turn gets rid of any company that does not have a good business model, requires companies to increase their quality control, and gets rid of excess capability in the market. Without the down markets the excess capability remains. This is not good for whatever sector is experiencing the over supply. An over supply results in not being able to charge as much for an item lowering margins and making investing in R & D less attractive. A perfect example is the airline companies. There are so many airlines that none can make a profit. If there were fewer airlines then they could charge more and their profits would go up.

So what does this have to do with Obama's statement? Easy, the free market gives the best up markets. Unfortunately they also gives bad down markets. If you do not invest wisely and take protective measure during the up market, you will crash and burn during the down market. If you invest wisely in the up market you will position yourself nicely during the down market to make a lot of profit. By attempting to control the markets like we have been doing, the up markets are not as high and the down markets are not a frequent and not as low. This sounds great, except when it all comes to a boil like it recently did. Eventually the market will right itself (it always does) and cause the excess capacity to be eliminated, like recently happened. This causes a problem is because the up markets are not as high it is almost impossible to prepare for the down markets. This is what Obama proposes. During the next down market, which I'm not convinced the current market is in an upswing, fewer people will be adequately prepared and the people taking it in the shorts will be the middle class. Sadly the president in the White House when this happens will take the blame. Kind of like Bush is taking the blame for this one. If you read about the markets prior to the crash, the driving force behind it was the real estate market and bad mortgages. Alan Greenspan warned of froth in the real estate market early in 2005. That froth was the result of laws passed in Clinton's administration, by a Republican Congress. All of that froth did not get there in four years. It took almost 10 years for the froth to develop and another three to blow up.

 

Correct and well stated. What most don't realize is that big gov't does nothing but hinder free markets from self-correcting. When the gov't interferes, they create bubbles. Such as the housing bubble and debt bubbles. When they pop, you have recessions/depressions.

All taxes and regulations should not be eliminated, obviously, but vastly reduced if we want job growth. That's not going to happen now. China is a Communist country, but they have freer markets than the US. Many do not want to understand this or refuse to understand this, but it is just the truth.

Retire debt if you can. That's my best advice.

 

A couple more things I've seen in the news that just isn't so. I've heard many liberal economist tout the 91% tax rate of the 50's and almost seem to want to go back to those times. That's fine, but what they don't say is back then there were many, many more write offs. Those write offs were eliminated by Reagan in the 80's. Did you know at one point you could write off the interest from your consumer debt. That means you could write of the interest from your credit card and car loans. That was stopped. The tax code was much more complex then than it is now. That was a time when you had to have an accountant or lawyer to figure out your taxes for you. Now it is pretty much straight forward, by comparison. So yes there was a 91% tax rate, but at the same time the wealthy could take advantage of many, many more write offs so their tax rate was far less than that. Back in the 70's I knew many people who would incorporate themselves. This did a couple things. They didn't own anything. They rented their house from their corporation. They rented their car from their corporation. Since everything was owned by a corporation they were eligible for many more deductions. Things like house and car repairs were suddenly tax deductible. Insurances were now deductible. Yes they paid income tax twice, but the decrease in income from the various deduction resulted in a lower tax bill overall. What the liberals seem to fail to understand is one of the basic principals of a free economy and that is business will find the most efficient manner of making money. This is being seen right now with the Obamacare layoffs and hour reductions. If something as simple as hiring 25% more employees so they are all under the 30 hour minimum will save hundreds of thousands of dollars, guess what is going to happen.

I recently read many articles about how the rich need to have their dividend income taxed at the same rate as ordinary income. That is foolish and here is why. A corporation pays income tax on all income. Let's say they pay roughly 20% tax on all profits. Those profits are then sent out as dividends to share holders. If that share holder is wealthy they will pay another say 30% on it due to it being treated as regular income. Their income tax is much higher since it is going to go up to 39% I assuming they are able to deduct enough to lower their tax rate to 30%. That is a feat since many of their deduction are reduced due to making too much money. Now add on top of that another 3.8% tax for Obamacare. That means the profits of the corporation are being taxed at roughly 53.8%, and that is just federal taxes. Add in state taxes and that number goes up to 53.8% or as high as 63.8%. To see how ludicrous these taxes are, many, if not most, people have some sort of direct deposit of their paychecks. Imagine if you were taxed to have your money deposited into your checking account, then taxed again to have your money withdrawn from your account. That is essentially what is happening with the corporate and dividend taxes.

Warren Buffet, has been against borrowing money for most of his investing life. He recently came out and said running a constant deficit is not a bad thing. This got me to wondering how it can be good to run a constant deficit. He is correct, but in very limited circumstances. If your business (and economy for that matter) is expanding then you can run a constant deficit. There are two problems. Your deficits have to be lower than the rate of growth. So if you are growing at say 3% per year, then your deficit spending has to be growing slower than that. The easiest way to think of this is say you have earnings of 100k. You spend 101k after figuring all of your expenses. That includes expiring old debt. Next year you have earnings of 103k (3% growth rate). You have essentially erased all of your new debt from the previous year. Where this will bite you is when you have several down years. That is where we are right now. We are having several down years and it is biting us in the butt. If your deficit is expanding more than the your company or economy is then you have serious problems. The US economy has been there for a very long time. The Clinton balancing was nothing more than smoke caused by the tech bubble. When it popped just before he left office, all of the surplus went with it.

 

FWIW, that 91% was the marginal rate on taxable income above $400,000, after all of the numerous deductions which you described later in your post.


I am a little distressed that the liberals touting high federal tax rates...

a) Never tell the whole story about deductions
b) Don't have any problem with the government taking 91% from a fellow citizen

This theme of class warfare by the media and liberals (including the president) against 'wealthy' business people is quite alarming to me.

I'm certainly not wealthy, though it feels like the government thinks I am, with how many taxes of all types I pay. When the inflation hits, lots more people will see their incomes rise to higher tax brackets. That's going to hurt a lot of people who live a middle class lifestyle.

It is clear to me that the government just can't tax their way out of this. We need economic growth and reduced government spending. Raising taxes will hurt economic growth, and will be used as a license by the liberals to just spend more money.

Unless they get serious about spending cuts SOON, we will be in a debt spiral where we can't afford the interest on what we already borrowed.

 

Remember the other thing that the liberal left preaches. Government is always right and private business is always greedy. So, to keep the greedy businesses in check, we need government to regulate them. Otherwise, business will make too much money off the poor, dumb public.

Unfortunately, government isn’t always right and businesses aren’t always greedy. Much of the economic mess we’re still trying to claw our way out of was caused by the government wanting everybody to own a home – aka “the American dream.” So conditions were created by the government that would never have existed in a free market. (Who would loan money to people with absolutely no means of repaying it?) When the bubble finally did collapse, the government (never wrong) pointed the finger at the big bad banks (who were basically forced to lend money to folks who would never repay it) as being at fault. Who’s at fault here?

I may be crazy, but I believe the American dream should be available to anyone who wants to work hard and long enough to attain it. I worked my butt off for everything I own and made sure I didn’t live beyond my means at any point in my life. I’m by no means wealthy, but I am fairly comfortable after many years of hard work. But seeing ads that promise to forgive $25,000 in credit card debt (for folks stupid enough to load that much on a credit card) or loan you large sums of money with no credit check (because the government says so) just turns my stomach.

 

I read an article the other day concerning the "fiscal cliff". Basically the assumption was the the Obama administration was in the cat-bird seat. They don't care if we go off the cliff, because after the new Congress is seated they will simply propose a bill to allow middle class tax cuts. Most on the GOP side will not oppose those. It's a catch 22 really. If they oppose them, then they will be very vunerable the next election. If they go along with them, then they can be framed as being more loyal to the party then the country and not working hard enough to stop the "fiscal cliff" because they didn't break from the party and vote for tax increases for the wealthy.

As far as the cuts go, the Dems will most likely propose a bill after the fact lowering the amount of cuts for the welfare state many on the GOP side will oppose them, but if it is coupled with the tax cut it will pass. The truly sad part is there is so much fat on the bone that a lot of money can be saved by simply looking at the government and how it is set up. I see it every day in my job where we do things simply because that was the way we always did them back when we didn't have good reliable computer systems and networks. Some will say we keep hard copies in case we are ever audited. With the improvement of the computer systems we really don't need the hard copies. Almost everything is backed up some place. In the old days when there really wasn't a well established network system, then absolutely we needed to keep hard copies of everything. Now, not so much. It is costing the government millions in overhead simply to keep antiquated processes in place. Not to mention the billions in wasted revenue on duplicative programs, that nothing has been done by the administration to correct.

 

Nothing is going to be done with the budget until the American people learn what a budget cut really is. As long as people buy the lie that a 3% increase instead of a 6% increase is a 50% cut we will continue to have money problems. A real budget cut is spending less this year than was spent the year before.

Every day I feel more like I'm living on Animal Farm!

 

"Two feet BAD!!! Four feet GOOD!!!"

 

I hate these posts but can't help but read them. I don't understand why Obama can get free air time and say that all the GOP has to do is agree to tax the wealthy. Taxing the 1%, (now I am hearing 2%) won't get us out of the problem Google the US budget. Look at how the money is being apprpriated to the "biggest three" or "biggest 4".

Google how long will taxing the top 1% run the government. Sad.

Here is a interesting article which addresses Obama's plan to cut expenses. I have removed some non-essential lead in. Tuesday, May 29, 2012 A Personal Sacrifice by Al Thompson – Torrance, CA USA with kudos and thanks to Allen M (TX), Elizabeth O. (Southgate, CA) and an unknown contributor.

Obama recently ordered the cabinet to cut $100,000,000.00 ($100 million) from the $3,500,000,000,000.00 ($3.5 trillion) federal budget.....

Obama's impressive $100 million cut in the $3.5 trillion federal budget appears to be a bold and decisive move by the president. In fact, I am so impressed by Obama's $100 million budget sacrifice that I have decided to do the same thing with my personal budget.

In an effort to make this simple so most Americans can relate to the personal financial sacrifice I plan to make, I will say that I spend about $2,000a month on groceries, household expenses, medicine, gas, utilities, etc.. It is now time to get out the budget cutting axe, go through my expenses, and cut back on my expenses. My patriotic duty is to cut my expenditures the same percentage as Obama's $100 million budget cut to the federal budget.


I'm going to cut my spending at exactly the same ratio (1/35,000) of my total budget.

After doing the math, it looks like instead of spending $2,000 a month, I'm going to have to cut that number by six cents ($.06) per month. Yes, I'm going to have to get by with $1,999.94, but that's what sacrifice is all about.

I'll just have to do without some things, that are, frankly, luxuries – six cents worth. I call upon all Americans will do the same and do their part to help our great Constitutional Republic survive the remaining few months of this incompetent administration.

by Al Thompson – Conservative Patriot, Torrance, CA USA - Email: ThompsonY3K@att.net.
Kudos and "Thanks" to Allen M. (TX), Elizabeth O. (South Gate, CA), World Net Daily, CBS News 'Political Hotsheet' and an unknown contributor for figurative segments in this article.


Back to me: Welfare fraud is out of control. Go talk with liquor store owners about their customers. You will get an eye opener. Social entitlement programs need to be scaled back,not by 1/35,000th but by 25%. The kids won't starve, they are obese beause of SNAP. Google Snap and see what you find. Pathetic. The government feels that if cuts to entitlement programs is enacted, we will have riots in the inner cities, looting, burning of stores etc. WE ARE BUYING THEIR COOPERATION. We need to make them stand on their own feet, become responsible for their actions. Make them take a drug test to get any benefits.

 

I used to work in a gas station. Of course we had the typical gas station food and gas station food prices. It used to really irritate me to see these people drive in and do their grocery shopping at the store. They could have easily spent half what they did and get twice to food, if they had gone to a grocery store (that was literally 3 miles away). Now it down right pisses me off. The representatives are saying we need to cut this and we need to cut that, but there is no mention of cutting the people who are not providing anything to the economy.

Government spending is 1/3 borrowed money. Nobody can survive financially with those spending levels. This government cannot survive with those spending levels, but nobody in D.C seems to want to do anything about them. It is not long for us to go the way of the Soviet Union and not be able to pay our bills and defend this country.

 

If you want to be more like the government, don't forget that each year, you get an automatic 6% or so increase in spending. So your baseline was going to increase from $2,000 a month this year to $2,120/month next year.

So due to fiscal crisis and impending bankruptcy, you will need to 'cut' your spending from $2,000/month this year to only $2,119.94/month next year.

 

If only 1/3 of what the government spent was borrowed! What an improvement that would be. If you count printing of money as borrowing from the future, I believe the current rate is about 46% of federal government spending is borrowed.

If we get another economic downturn, I can envision them borrowing/printing 50% of what they spend.


We aren't going to cut spending. We are going to keep on this path until we can't go anymore. What happens then will be ugly, as the bills will come due.

 

I was going on revenues generated minus the expenditures. So yes printing is included. The revenues for FY2012 were approx 2.47 trillion while expenditures were approx 3.80 trillion. Granted this was from Wiki, but I really didn't feel like going to all of the government sites and compiling the data as a form of recreation where exact data isn't really necessary.

I agree that this will continue until there is nobody willing to loan us money. We will then have no choice but to print a lot more money leading to runaway inflation. I have lived in countries that had 300% inflation over the course of a year. Their economy was not good. If China is interested in completely destroying us they will dump the US bonds they own on the open market below fair value just before anybody decides to not loan us money, which would further destabilize our economy and hasten the decline.

 

Using those figures, for every $1.00 the government collects, it spends $1.53.

Or we borrow $0.53 for every $1.00 we collect.

And that $1.53 in spending does not include unfunded entitlements, such as commitments for social security, medicare, etc....

It's like if I own home, and I know I need to replace the fence and the roof every 20 years, at a cost of $10,000. I should be setting aside $500/year to pay for that. Even if I break even on my income vs. expenses, I'm really going $500 into the hole each year if I don't earn and set aside those funds.

We are spending $1.53 for every $1.00 collected, and we are not setting aside funds for known (very large) future expenses, as the baby boomers hit retirement.

 

I agree with what you are saying. Since nobody knows when many of the large expenses are going to hit I try not to dwell on those, but you are correct they do need to be considered. It can get a bit more complicated in the figures if they are included and once it gets complicated people's eyes start glazing over and you lose them. Once that happens arguments like, "you're just racist." or "you watch too much MSM/Fox news." start coming up. It is very difficult to argue with the fact that we are actually spending roughly 33% more than we take in and that is an unsustainable path.

This has nothing to do with our conversation, but does have everything to do with the original intent of the thread: I've heard over and over these last few months that the workers are angry because the pay for executives has gone up drastically, while theirs is pretty much stagnate. Did any of these people ever think that it could be because the responsibility of these executives has gone up drastically. In the 50's (when many on the left tend to compare incomes with today) most companies were local or national in scope. We had very few international corporations. Many of the few international companies were only on this continent and not world wide. Now this is not true. Most of the large corporations are international in scope and world wide in responsibility. So these "overpaid" executives are responsible for making jobs around the world. How exactly has the responsibility of the line worker increased in the last 60 years? It hasn't. They are still responsible for the one or two things they've always been responsible for and that's it. Their job does not affect the global profitability of a company as much as it used to. So in essence their importance on the bottom line has decreased. Since their importance has decreased shouldn't their pay, as a portion of the expenses also decrease? This doesn't mean a real world pay cut, but it does mean their pay as a total percentage of pay expenses should not be going up as fast.

Take Ford, for example. Alan is responsible to the shareholders for the American, African (if they have one), European, and Asian markets. The guy turning a wrench putting together the F-150 is responsible for the turning of the wrench on a truck that will most likely only effect Canada and America, that's it. In the last 60 years Ford was not a large presence, if any at all, outside North America. If Alan was CEO for the entire time shouldn't his pay have gone up dramatically along with the drastic increase in world presence?