new dog old trick

Raising Taxes Will NEVER Help Reduce Deficits

Anyone who thinks that raising taxes is going to help reduce our massive government deficit needs to read this article in today's Wall Street Journal.  It reports research that shows that increases in tax revenue were ALWAYS accompanied by slightly larger increases in spending. 

The top line summary:

Using standard statistical analyses that introduce variables to control for business-cycle fluctuations, wars and inflation, we found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in—and a little bit more.

All of those inside-the-beltway types who are addicted to funding from the government purse (i.e. the taxpayers) and who are arguing that we need to raise government revenue to unprecendented levels relative to GDP are lying.  Plain and simple.  The lack of natural market disciplines on government spending, the types of discipline that eventually force unprofitable companies to either rethink and restructure (think everything from the Lou Gerstner rethink at IBM to the belt-tightening that millions of small businesses have done over the past 2 or 3 years), means that government will endlessly expand if left to its own devices.  It may temporarily discipline itself, but as soon as the electorate looks elsewhere it will revert to expansion and spending. 

We need to devise policy mechanisms that effect the same types of continuous review and evaluation on government programs as are inflicted on businesses by the "creative destruction" of markets.  There is a reason only a handful of Fortune 500 companies from 1950 or 1960 are still on the list.  Yet government programs, once established, never seem to shrink or disappear even when the original reasons for the program are gone.  We need to start blowing up entire government agencies that were established to meet the problems of the 1920s and 1930s and 1960s and see if anyone other than the civil servants who work in those agencies miss them.  If they do we can figure out what needs to be put in place to meet the needs of today's world.  We need to rethink our government safety nets and entitlement programs to put them on long-term sound financial foundations.  And we need to realize that anyone we elect to office in Washington D.C. will eventually "go native" once they spend a few years inside the beltway unless we hold them accountable and not let them bribe us with our own money:

The grand bargain so many in Washington yearn for—tax increases coupled with spending cuts—is a fool's errand. Our research confirms what the late economist Milton Friedman said of Congress many years ago: "Politicians will always spend every penny of tax raised and whatever else they can get away with."

I Voted - Did You?

Just got back from voting.  A bit of an odd ballot with only about four positions (Governor, U.S. Representative, and two state legislative posts) and one state constitutional amendment on the ballot.  The two state races were uncontested so it meant only two real decisions to make.  Not like the situation that voters in so many districts find themselves confronted with.  Nonetheless it felt good to vote.  It's an essential part of all of our roles as citizens in a democratic society to vote for those who are going to represent us and to hold our elected representatives accountable for the votes they take while in office.  I think maybe a lot of us have been back-sliding a bit on our responsibility but I think this election that won't be so much the case. 

I hope you all voted too.  At the end of the day, we may disagree on who should represent us but we all need to let our voices be heard. 

Setting the Stage for a Value Added Tax?

I hate to be cynical and distrustful of my government. But lately it seems to be the only attitude that makes sense. The latest reason - the new rules buried in the ObamaCare legislation requiring 1099 reporting of any business transaction over $600. You don't suppose these rules have some purpose beyond "healthcare reform" do you?

Jeff Cornwall posted yesterday about this issue. This is a huge change in the use of 1099 forms and will generate millions of 1099 forms to the IRS. As Jeff says ...

There is a change coming in 2012, that could drown small business under a sea of paper work. It involves a huge expansion in the requirements to file 1099 forms. Historically, 1099 forms were used by the IRS to capture income paid to freelance workers and other independent contractors. But not anymore. Now 1099's will need to be filed for hundreds and even thousands of transactions entered into by small businesses.

Jeff's post points to some other sources if you want more detail on the regulations.

But my question is WHY! Why has our governing class imposed this new regulation on business? What purpose is served? What purpose is served by the additional costs on businesses of all sizes to conform to these new regulations? What purpose is served by the additional governmental costs associated with processing, auditing, etc. these regulations? And what the heck does it possibly have to do with ObamaCare and the "reform" of the American healthcare system? How is healthcare improved by forcing me to tell the IRS that I purchased $1200 in tea from a wholesaler in Oregon or paid $3000 to a web design firm in Franklin, TN?

Again, I hate to be cynical, and I'm usually the first to make fun of conspiracy theorists, but it seems to me that one distinct possibility is that this regulation is intended to help set the stage for a Value Added Tax (VAT). There has been a lot of buzz out of Washington about the need to generate more revenue to pay down the massive increases in the federal deficit being generated by the Obama administration and its friends in Congress. The favorite means for raising that additional revenue is a VAT. A Value Added Tax works by adding a layer of taxes on top of goods and services at each step in the value chain. For a VAT to work, the tax authorities must have documentation on all of those transactions from business to business to business all along the path to the ultimate final consumer. And what does this new 1099 regulation do? It creates exactly such a paper trail.

If one were distrustful of the motivations of our governing class, one might suspect that having mandatory tax paperwork for every meaningful business-to-business transaction was setting the stage for introducing a VAT at sometime in the near future. If such reporting, or some meaningful subset of such reporting, is already mandated, the government can show how little incremental cost impact the VAT would have on businesses. But one would have to be very cynical and distrustful of our government to believe such a thing. Of course, one also has to believe that our government can think that far ahead on anything, so there is that factor working against my theory.

Feds look to further suppress start-up job creation

Today's Wall Street Journal has an editorial blasting the proposed federal regulation of angel investors included in Senator Dodd's financial reform bill. This proposal has received significant discussion in the tech and venture capital blogs over the last couple of weeks and now the WSJ chimes in. Here's a taste from the editorial.

Senator Chris Dodd's 1,400-page financial reform bill contains many economic land mines, and here's one of the worst: Provisions that would make it harder for business start-ups to raise seed capital.

Currently, wealthy individuals who want to invest directly in a new business can do so with minimum interference from regulators. The law requires only that the investor be "accredited" by meeting thresholds for net worth ($1 million) or income ($250,000). Entrepreneurs depend on these "angel" investors, since many new businesses lack the collateral for bank loans and are too small to interest venture capitalists.

Amazon, Yahoo, Google and Facebook all benefited from angel investors, who typically target companies under five years old. According to a 2009 Kaufman Foundation study, such firms are less than 1% of all companies yet generate about 10% of new jobs. Between 1980 and 2005, companies less than five years old accounted for all net job growth in the U.S. In 2008, angels invested some $19 billion in more than 55,000 companies.

Mr. Dodd's bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn't need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.

What the heck is the purpose of this proposal? It is ridiculous to include this in a regulatory bill aimed at preventing systemic collapse of our financial system. Angel investors constitute a systemic risk? Yeah, right. Ridiculous. But also dangerous - yet another proposal from Washington that will suppress the creation of jobs and the growth that we need to get our economy back on track. Plus it puts the federal government in the middle of yet another aspect of our economy. Of course, to the D.C. crowd that's a feature, not a bug.

This VentureBeat post contains links to more opinions and information on this stupid and damaging proposal.

Father Robert Sirico at Belmont

Yesterday Father Robert Sirico spoke at Belmont University (where I teach entrepreneurship as an itinerant part-time adjunct professor). I attended his public speech and also was invited to sit in on a faculty roundtable discussion with Father Sirico. Father Sirico is co-founder and President of the Acton Institute. He gave a bracing speech titled "A Moral Analysis of the Economic Crisis". Even though I've been aware of Fr. Sirico since he first spoke at Belmont back in 2005, I must admit it is still a bit unsettling to see and hear a Catholic priest giving an unapologetic, intellectually rigorous, and energetic defense of free markets. Aren't clergy all supposed to be closet socialists?

I wish I more often heard our President or others in our political leadership give such a clear and reasoned defense of free markets and so many of our founding ideals. Even more, I wish they acted on such beliefs.

I really enjoyed the opportunity to hear Father Sirico. And thanks to my friend Jeff Cornwall for inviting me to the faculty roundtable.   

Rep. Paul Ryan, Impressive American

One of the few positive side effects of the ObamaCare debate was that I became familiar with the ideas of Rep. Paul Ryan of Wisconsin. This is an impressive young man.

I'm darn near as disgusted with the Republican Party as the Democrats; however, to the extent that Ryan is representative of the next generation of leadership of the Republican party, that party will be seeing much better days soon.

Here's a video of Rep. Ryan speaking as an American and a patriot. Worth listening to.

Michael Lewis on the financial crisis

I just finished reading Michael Lewis' new book on the financial crisis: The Big Short. I thought I had understood generally what went on with mortgages and mortgage-based derivatives but once I read Lewis I realized that my knowledge was incomplete. This is far from a complete history of all aspects of the recent financial melt-down but it does a great job explaining the mortgage-based financial instruments, and the ways in which they were traded, that helped to create the whole crisis. Lewis understands Wall Street and the trader mentality well and writes about it better than anyone else that I can think of.

I thought that I was cynical enough about Wall Street after experiencing a small slice of its amorality, arrogance, and greed during the process of taking a company public and then running a public company during the end of the high-tech bubble of the 1990s. After reading Lewis I realize that I was nowhere near cynical enough. If you aren't angry after reading this book, you aren't paying attention. If Bernie Ebbers and Jeff Skilling belong in jail for their misdeeds in the late 90s then there are dozens of executives at Goldman Sachs, Lehman Brothers, Bear Stearns, Merrill Lynch, Citigroup, and on and on that also belong in jail. The damage these greedy, stupid, immoral, and/or amoral shits inflicted and were allowed to inflict on our economy is far worse than anything anyone did in the late 90s. And this book doesn't even begin to touch on the other amoral, stupid, greedy folks at Fannie and Freddie and Congress and the Fed and the SEC that also have fingerprints all over other dimensions of the crisis. Nor, for that matter, does it touch on all of us that leveraged ourselves way beyond our ability to pay and our responsibility towards the crisis as well.

Here's what will really help to create some jobs

Mark Cuban with a very simple message regarding what government can do if it really wants to help create some jobs...

Here is a hint. If you want to see more jobs created by Small Businesses and entrepreneurs REDUCE the amount of paperwork required. Dramatically simplify the tax code. In other words, if you REDUCE THE OVERHEAD of small business, you effectively create capital for them through reduced costs. Not only do you improve their financial position, but you reduce that great big time suck known as dealing with your accountants and lawyers. The more time wasted with “professional services”, the less time spent doing your job. This seems to be a concept lost on government.

Of course, when you have a government and legislature full of lawyers, doing something to lower demand for their services isn't first on their lists of obvious things to do...

Great Advice on Keeping a Positive Mindset

My friend Jeff Cornwall has a great post this morning on his blog The Entrepreneurial Mind. It is titled Seeing Things "Half Full" is more Important Than Ever!

This post really resonated because it hit me right where I have been feeling a bit sensitive. I realized a week or two ago that part of what has been holding me back from posting on my own blog is the fact that I've been paying too much attention to the "half empty" negativity associated with so much of what is going on right now, especially in Washington. It seems like the D.C. crowd has tapped into a never-ending stream of policy decisions that have nothing but negative implications for entrepreneurs, small business owners, job creation, and much of what matters to me as a blogger, entrepreneur, and citizen. I don't really want to post about what goes on in Washington but I do want to post with a positive attitude that is hard to muster right now.

Jeff's post was a useful kick in the butt. I shouldn't ignore what's going on in D.C. but I need to tap my deep-seated optimism in the power of mainstream Americans to use free markets, innovation, and the strengths of our system and culture to continue to create vital and growing new businesses even in the fact of (hopefully) misguided policies. Besides, that's the only way we're going to put the economy back on a growth track - it can't and won't happen through centralized decision-making in Washington.

ObamaCare Legislative Follies

Watching the slow-motion train wreck that is ObamaCare has been instructive regarding the state of our republic in the early 21st century. And what it tells us is not good. How in the world can we be at the point where supposedly there is an agreement in the Senate on health-care reform when there isn't actually a bill to read, and the CBO hasn't scored it, so nobody actually knows what's in it or what it will cost, and yet supposedly 60 Senators have signed up to vote for it? The world's greatest legislative body in action? Only in bizarro-land.

Washington D.C. is broke folks. And only we can throw the bums out. All of 'em. Democrats and Republicans. Elephants and Donkeys. Start over. This has been building for over a decade but the time has come to break the iron triangle of Big Government - Crony Capitalism - Main-stream Media/Academia.

Anyway, here's the article I was reading this morning as I was catching up on my blog reading after a week on the road that prompted this little rant... The Health Care Bill No One Can See.

Two-thirds of a year into our intense national debate, and it’s pretty amazing that there are no details for the public to read, analyze, or debate on health care reform.

So without a real bill, senators have been reduced to shadowboxing over the complex 2,000-page bill that doesn’t exist. The process is such a non-process that it has produced a surreal environment.

and more from the article...

After eight years of screaming about President Bush’s secrecy, it is interesting that the mainstream media is largely mum about the legislative abuse now underway.

Even in small town city councils, most bills have to be read three times and public meetings convened before a bill becomes law. This principle has died on the national scale.

For PJTV, I tried to pin down where the secret Democratic Senate meetings were being held on health care. They turned out to be a movable feast. Some were announced; many never were. No one knows who sat in what meetings and on what topics.

We don’t know how AARP fared in influencing details of the bill. Or how SEIU shaped the bill. Or what Big Pharma was promised for its endorsement of an early Obama plan.

Citizens cannot see who authored which provisions, who won big federal favors, or who will get new privileges in the Brave New World of Big Brother delivering health care.

No one knows … yet.

A penchant for secrecy is a style of governing that is well known in many authoritarian countries. We don’t have to stretch our imagination to see these governing styles on display in Iran, China, Venezuela, Cuba, and North Korea.

Thankfully America isn’t Venezuela. And Obama has not become Hugo Chavez.

I suspect the face of authoritarianism here may arrive with more benign faces. It may emerge with subtle velvet hands like those used by regulators out of the European Union’s faceless bureaucracy. There, regulations are hatched in private among elites, then paternalistically dispensed to their citizens. The EU model is driven by an impenetrable bureaucracy that has little accountability, protects special groups, and informs the public in a genteel way about what it is they can and cannot do.

This may be more in tune with the Obama administration and so-called “progressives.” As they stand in awe over Europe for its many “superior” ways, they may be looking at a neo-European governing style as a role model.

Rather than assume their penchant for secrecy with the health care bill is an aberration, this could become their governing norm.