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Archive for the ‘Taxes’ Category

I have a few serious questions about the government takeover of GM and Chrysler. First, how can a government that owes so much debt to Japan keep objective in its ownership of the US automakers. The push back could go like this:

  1. The transportation secretary tells people to stop driving Toyotas, and the government starts investigating the brakes on the Prius.
  2. People listen to the regulatory chatter coming out of Washington when they are looking for a new car. They end up buying from a car maker other than Toyota.
  3. Japan pushes back on our debt obligations and threatens to stop buying our debt without concessions as a retaliatory measure against the unfair advantage that GM and Chrysler have.

My real objection here is that US meddling in the auto industry could have serious financial ramifications.

Second, as the stakeholder in these companies, the US has a vested interest in how they perform. How then can the public, and investors in banks, Ford, Honda, etc. not recoil at the unfair taxation that is being proposed to prop up the automakers and AIG. Unbelievably, the banks will be taxed, (because that is ok with the public) to pay back the debts of GM, Chrysler, and AIG, which the government benefits from. In the end, the government gets its money and their companies don’t have to pay. What other companies have these amazing benefits?

In the end, if this isn’t corruption it sure smells of it.

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The populist outrage over the banks has reached a fevered pitch in recent weeks. While I understand the outrage over bonuses and executive compensation, the banks are not the real problem. The President and Democrats have continually decried the lack of government regulation, but in reality, it is the government itself that is the problem.

Forget about blame, forget about party affiliation, forget about denials to the contrary, the government is the source of the disease that we find ourselves afflicted with. Allow me to explain.

Fannie Mae is a strange compilation of government and corporate elements that purchases and guarantees home mortgages. This process has been going on for a long time. The reason that this presents a problem is that the markets view these GSEs (Government Sponsored Enterprise) as implicitly guaranteed by the United States Government. While they are publicly traded companies, they were created by the government and supervised by a board that includes 5 members appointed by the President of the United States. In addition, at their creation the government allowed itself to purchase securities to a certain limit as a guarantee against default. All these are reasons why the markets trust these companies.

Over time, the executives of Fannie have accumulated mortgage positions that have caused the debt to asset ratios of the company to balloon to ridiculous levels. The banks continued to write mortgages to high-risk mortgagees because they knew that Fannie and Freddie would buy them on the secondary market, thereby reducing the risk for the bank. If the bank does not have to assume the risk, of course they will continue the profitable practice. This government induced mortgage frenzy is responsible for the glut of debt from which our country is desperately trying to keep from drowning. Without reform of these government companies, our market will continue in the death spiral started decades ago.

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Yesterday, President Obama spoke to Senate Democrats about their questions and concerns. During the one interesting exchange with Arkansas Senator Blanche Lincoln, President Obama offered a summary of his response to her question. Here is that summary;

So the point I’m making — and Blanche is exactly right — we’ve got to be non-ideological about our approach to these things. We’ve got to make sure that our party understands that, like it or not, we have to have a financial system that is healthy and functioning, so we can’t be demonizing every bank out there. We’ve got to be the party of business, small business and large business, because they produce jobs. We’ve got to be in favor of competition and exports and trade. We don’t want to be looking backwards. We can’t just go back to the New Deal and try to grab all the same policies of the 1930s and think somehow they’d work in the 21st century.

I just have a few points on this loaded paragraph. First, what is the deal with “like it or not”? Who would not like a healthy and functioning financial system? Who is the President assuming would not like it?

Second, if we can’t be demonizing every bank out there, why is the President demonizing every bank out there? The bank tax he has proposed, and the populist anger of the State of the Union address belie the fact that he is doing the opposite of what he is suggesting.

Third, the sentence, “So the point I’m making — and Blanche is exactly right — we’ve got to be non-ideological about our approach to these things. We’ve got to make sure that our party understands that, like it or not, we have to have a financial system that is healthy and functioning, so we can’t be demonizing every bank out there. We’ve got to be the party of business, small business and large business, because they produce jobs. We’ve got to be in favor of competition and exports and trade. We don’t want to be looking backwards. We can’t just go back to the New Deal and try to grab all the same policies of the 1930s and think somehow they’d work in the 21st century” is not what worries me, because we have survived 80 years in spite of the “Bad Deal”. I am scared, however, of what the 21st century plans are, and how exponentially they will grow our ballooning debt.

I could go on, but as you can see from this brief excerpt, our President is looking every bit the radical that we thought he was two years ago.

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Ballot Measures 66 and 67 passed in Oregon and there is a lot of debate on the severity of the tax. This vote does bring into clarity a microcosm of today’s American politics. All of politics has become a calculated game. What can I do to buy votes without alienating many others. Several tactics have been used successfully.

  1. Tax the rich. This tactic works because they have tons of cash and percentage increases bring in substantial sums of money without affecting a great number of voters. We can debate the merits of this in a “free economy” (and believe me I do), but this is politically savvy.
  2. Tax the opponents. This method has come into focus recently with the selective tax applications that we highlighted earlier today. How effective this is remains to be seen.
  3. Tax the public enemy. We are also beginning to see this as the bankers are public enemy # 1. Therefore, politicians do not feel any risk for attacking them and targeting specific industries with unconstitutional taxes. Once again, we will have to wait and see if this works.

Unfortunately, along with this methodology, a lot of misinformation is spread about. Take the following quote from Kevin Looper of the “Yes” on 66 and 67 campaign.

Opponents overstated the measures’ effects during the campaign, creating a false impression about Oregon’s business climate, …Most businesses won’t be affected by the taxes, … and only a few of the very wealthiest individuals will be paying more.

This statement is complete nonsense. First, why does it matter that “few” businesses will be impacted? If a business has a loss in a tax year, why should they also have to pay up to $100,000 in taxes as well? This is a completely ridiculous taxation system that will compound business failures in recessionary times. Second, the notion that only the very wealthiest of individuals will be paying more taxes is also ludicrous. All an individual has to make is $125,000 to see a tax hike of 1.8% or $2,250 minimum. Also according to this source, at least 2% of homes qualify for an increase. At a minimum, that is one in fifty. So for every fifty families you know, one would be impacted according to national averages, which are likely low for the expensive Pacific Northwest. I don’t know about you, but that does not seem to represent “only a few of the very wealthiest individuals.” It sounds as if someone is understating the measures’ effects.

We’ll see the consequences of this vote, but hopefully America will wake up to the national nightmare that is looking us in the face due to policies such as these.

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Common sense governance has been completely eradicated from Washington. When healthcare reform stalls, Democratic leaders throw pork at amiable senators to entice their vote. When the unions are upset that they will have tax increases as well as corporations on insurance benefits, they appeal and only the corporations are left to pay taxes in the plan. Now, President Obama needs votes for the 2010 elections, which means he needs one thing–jobs. In order to induce job growth, the President is suggesting that companies get $5,000 per employee hired. Not just for hiring employees, but doing so this year–an election year. Of course, funding for these jobs goes away next year, so who’s to say companies won’t layoff workers in January? In our current economy and political environment, Congress applies taxes and tax breaks selectively to buy votes, and that is a bribe!

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