BUD BREWER
One Man's Opinion
Obama: “You Mean there’s No such Thing as a Free Lunch?”
Brad Schiller is an effective professor of economics at the University of Reno, Nevada’s College of Business. I say this because like most people, during my 50 years in the financial services business world, I have lost much respect for many teachers in our Universities twisting the minds of students about how the world really works. But Brad Schiller is an exception to that belief and in a column, written in of all places, the Reno Gazette Journal, Reno’s daily voice from the left. Professor Schiller hit the legendary nail on the head with his explanation of why Mr. Obama’s claim that his Bill to provide National Healthcare for everyone at zero increase in cost is and always was flawed. Take a moment to paste this to your URL line in your Browser and read it. http://www.rgj.com/apps/pbcs.dll/article?AID=20102030407
It seems clear to me that the rising disappointment in President Obama’s leadership is being caused in large part by the slow but steady realization by his most ardent supporters that this brilliant orator has little understanding of how a free market capitalistic based economy operates, let alone what the Government’s role should be relative to the nurturing of its growth. Let’s take his latest comments that he is going to increase employment by giving a $5000 tax credit to small businesses that hire another employee. Incentives are an important ingredient in the decision making process exercised by a business manager. But a one shot credit or even a one shot cash payment mean little to whether or not the hiring of that person will add to the success of that small business. The factors considered by managers to determine if hiring another salesperson, receptionist, service agent or where house employee, etc., are more likely to be based on whether or not his hiring will add value to the firm’s ability to increase revenues and improve profits. On the other hand, if the local or Federal Governments decide to eliminate a restrictive and costly regulation affecting his business or to reduce or eliminate annual fees or taxes on the business revenue, the manager may decide to invest the increase in resulting profit margin (cash flow) by adding personnel to open a new branch, or add new products or services for which there is a growing market. But a one shot tax credit of $5000 to employ one of the unemployed is not a real job creator.
If President Obama thinks his plans for increasing taxes on small businesses earning over $250,000 per annum (a figure that includes individuals organized as an S corporation, LLC, etc., the profits of which are taxable to the shareholder as ordinary income) will result in rising employment and economic growth, he needs a refresher course at the Harvard Business School (or maybe it should be somewhere else). President Bush’s “Tax Reduction for the Rich” legislation of 2002 did much to get the business community, big and small companies, to commit capital to exploit opportunities perceived to be available. The fact that both he and the Republican Congress from 2002 to 2006, urged on by the Democrat minority did little to reduce discretionary and entitlement spending in order to pay for the war in Iraq and neither the Federal Reserve, Security Exchange Commission, members of Congress nor the large underwriters on Wall Street recognized the risks developing in the Sub Prime Mortgage disaster, is not a basis for concluding that the 2002 “Tax Act” in and of itself was unfair or prevented the funding of in place entitlements for the poor and disadvantaged. In fact the Federal Personal Income Tax revenues increased from $1.8 Trillion to $2.25 Trillion, an increase of $400 Billion in the first two years following the across the board tax rate reduction and continued to increase at that rate until 2007.
Today’s economy, having been buffeted by the near financial meltdown and the Government’s action to keep large (Too Big to Fail) banks afloat with almost $800 Billion dollars to shore up their balance sheets, is suffering from a “deer in the headlight syndrome” of its small business sector. Big companies are generating cash by reducing inventory and aggressive cost cutting but the engine of the U.S. economy is the small, creative and dynamic businesses where the large majority of new jobs are created. Those managers that I speak with are reluctant to employ their remaining capital and their business plans project questionable profit potential given the uncertainty of Federal and local tax policy changes being considered.
In order for this economy and its interrelated parts of the global market to get back on tract, President Obama and the Democrats are going to have to give up on their plans to enact legislation designed to redistribute the wealth of this country’s most successful investors, entrepreneurs and businessmen. Fair taxation, yes but redistribution, no. He must give reasons for the consumer to once again develop a sense that the strength of our business community and a new found fiscal wisdom by our government will enable them to regain enough confidence in that government to begin investing again.
One Man’s Opinion – Bud Brewer
Hey Pop, I noticed you put a link at the end of this post. You can actually hyperling the text by highlighting it then selecting the link icon on the Kitchen sink that looks like a chain link and typing in the http://www.rgj.com/apps/pbcs.dll/article?AID=20102030407 after where you will see http//: