THE WELFARE CLIFF: WHY MANY LOW-INCOME WORKERS WILL NEVER OVERCOME POVERTY

THE WELFARE CLIFF: WHY MANY LOW-INCOME WORKERS WILL NEVER OVERCOME POVERTY

baetjer  By Howard Baetjer

Pretend you are a poor, single parent of two in Chicago, earning $12 an hour, working full time, and determined to do what is best for your family. And suppose your employer, impressed with your work, offers you training for and promotion to a new job paying $15. Should you take the offer?

It sounds like a no-brainer, but it’s not.
Continue reading “THE WELFARE CLIFF: WHY MANY LOW-INCOME WORKERS WILL NEVER OVERCOME POVERTY”

AN EXAMPLE OF THE MORAL BANKRUPTCY OF THE LEFT

AN EXAMPLE OF THE MORAL BANKRUPTCY OF THE LEFT

“Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.” ~ California Governor Jerry Brown, as he signed the Minimum Wage Increase Bill – April 5, 2016

I have news for Jerry Brown. If raising minimum wages doesn’t make sense economically it is immoral to sign it into law. He can say it makes sense morally, but it doesn’t. If something doesn’t make sense economically, why would you disrupt the economy, force people to lose their jobs, cause companies to move out of state, and hurt the people on the lowest economic rung? It is a completely immoral act.
Continue reading “AN EXAMPLE OF THE MORAL BANKRUPTCY OF THE LEFT”

DEATH SPIRAL STATES

Which Are Death Spiral States?

William Baldwin writes in Forbes that if your state has more takers than makers, you are in a death spiral state.

Continue reading “DEATH SPIRAL STATES”

Milton Friedman on Minimum Wage

Milton Friedman on Minimum Wage

Milton Friedman explains why minimum wage laws hurt the very people that they are supposed to help.

For more on the minimum wage and how it causes unemployment and hurts poor people, see my previous post, “The Minimum Wage Hurts Poor People”

The Central Economic Fallacy of the Century

The Central Economic Fallacy of the Century

The late Murray N. Rothbard once published a major article titled “Ten Great Economic Myths.” Included on Rothbard’s hit list were the notions that deficits are the cause of inflation and that economists can accurately forecast the future.

One myth that he didn’t cite dominates Washington today: that the economy can be successfully “managed” from some central point. This idea underlies, directly or indirectly, all of the others Rothbard mentions.

Unfortunately, society’s intellectual, political, and economic “mainstream” still accepts what should be called the Central Economic Fallacy of the Twentieth Century. The “mainstream” just doesn’t get it. Thus, we continue to see a basic progression. First, government subsidizes x or regulates y to correct for some government-diagnosed problem z. Unwanted side effects result, and z, assuming it exists, often grows worse. Government intervenes again to fix the side effects and redouble its efforts to battle z. More undesirable side effects result. And the process continues, with government growing inexorably as interventions accumulate. More and more of the economy is micromanaged through increasing webs of subsidy, regulation, and quick fix. The logical end result, as Ludwig von Mises has shown in great detail, is socialism.

Read the whole article. The author makes a lot of sense.

Company Picnic Speech – A Lesson in Economics

Company Picnic Speech – A Lesson in Economics

[Neal Boortz created this fictional talk of a small business CEO to his employees. While it may be fictional, it conveys some important lessons about economics. GA]

Transcript of remarks made by Leo Carrington (who doesn’t exist) to a mandatory meeting of all employees of Carrington Automotive Enterprises, Inc. (which doesn’t exist either) on August 17th, 2009 at the Royal Payne Hotel (a purely imaginary place) in Norfolk, Virginia (which does, in fact, exist).

I would like to start by thanking you for attending this meeting, though it’s not like you had much of a choice. After all, attendance was mandatory. I’m also glad many of you accepted my invitation to your family members to be here as well. I have a few remarks to make to all of you, and then we’ll retire to the ballroom for a great lunch and some employee awards.

I felt that this meeting was important enough to close all 12 of our tire and automotive shops today so that you could be here. To reassure you, everybody is being paid for the day — except me. Since our stores are closed we’re making no money. That economic loss is mine to sustain. Carrington Automotive has 157 full time employees and around 30 additional part-timers. All of you are here. I thank you for that.

When you walked into this auditorium you were handed a rather thick 78-page document. Many of you have already taken a peek. You were probably surprised to see that it’s my personal tax return for 2008. Those of you who are adept at reading these tax returns will see that last year my taxable income was $534,000.00. Now I’m sure this seems rather high to many of you. So … let’s talk about this tax return.

Carrington Automotive Enterprises is what we call a Sub-S – a Subchapter S corporation. The name comes from a particular part of our tax code. Sub-S status means that the income from all 12 of our stores is reported on my personal tax return. Businesses that report their income on the owner’s personal tax return are referred to as “small businesses.” So, you see now that this $534,000 is really the total taxable income – the total combined profit from all 12 of our stores. That works out to an average of a bit over $44,000 per store.

Why did I feel it important for you to see my actual 2008 tax return? Well, there’s a lot of rhetoric being thrown around today about taxes, small businesses and rich people. To the people in charge in Washington right now I’m a wealthy American making over a half-million dollars a year. Most Americans would agree: I’m just another rich guy; after all … I had over a half-million in income last year, right? In this room we know that the reality is that I’m a small business owner who runs 12 retail establishments and employs 187 people. Now here’s something that shouldn’t surprise you, but it will: Just under 100 percent … make that 99.7 percent of all employers in this countries are small businesses, just like ours. Every one of these businesses reports their income on a personal income tax return. You need to understand that small businesses like ours are responsible for about 80 percent of all private sector jobs in this country, and about 70 percent of all jobs that have been created over the past year. You also need to know that when you hear some politician talking about rich people who earn over $200,000 or $500,000 a year, they’re talking about the people who create the jobs.

The people who are now running the show in Washington have been talking for months about raising taxes on wealthy Americans. I already know that in two years my federal income taxes are going to go up by about 4.5 percent. That happens when Obama and the Democrats allow the Bush tax cuts to expire. When my taxes climb by 4.5 percent the Democrats will be on television saying that this really isn’t a tax increase. They’ll explain that the Bush tax cuts have expired .. nothing more. Here at Carrington we’ll know that almost 5% has been taken right off of our bottom line. And that means it will be coming off your bottom line.

Numbers are boring, I know … but let’s talk a bit more about that $534,000. That’s the money that was left last year from company revenues after I paid all of the salaries and expenses of running this business. Now I could have kept every penny of that for myself, but that would have left us with nothing to grow our business, to attract new customers and to hire new employees. You’re aware that we’ve been talking about opening new stores in Virginia Beach and Newport News. To do that I will have to buy or lease property, construct a building and purchase inventory. I also have to hire additional people to work in those stores. These people wouldn’t immediately be earning their pay. So, where do you think the money for all of this comes from? Right out of our profits .. right out of that $534,000. I need to advertise to bring customers in, especially in these tough times. Where do you think that money comes from? Oh sure, I can count it as an expense when I file my next income tax return .. but for right now that comes from either current revenues or last year’s profits. Revenues right now aren’t all that hot … so do the math. A good effective advertising campaign might cost us more than $300,000.

Is this all starting to come together for you now?

Right now the Democrats are pushing a nationalized health care plan that, depending on who’s doing the talking, will add anywhere from another two percent to an additional 4.6 percent to my taxes. If I add a few more stores, which I would like to do, and if the economy improves, my taxable income … our business income … could go over one million dollars! If that happens the Democrats have yet another tax waiting, another five percent plus! I’ve really lost tract of all of the new government programs the Democrats and President Obama are proposing that they claim they will be able to finance with new taxes on what they call “wealthy Americans.”

And while we’re talking about health care, let me explain something else to you. I understand that possibly your biggest complaint with our company is that we don’t provide you with health insurance. That is because as your employer I believe that it is my responsibility to provide you with a safe workplace and a fair wage and to do all that I can to preserve and grow this company that provides us all with income. I no more have a responsibility to provide you with health insurance than I do with life, auto or homeowner’s insurance. As you know, I have periodically invited agents for health insurance companies here to provide you with information on private health insurance plans. The Democrats are proposing to levy yet another tax against Carrington in the amount of 8 percent of my payroll as a penalty for not providing you with health insurance. You should know that if they do this I will be reducing every person’s salary or hourly wage by that same 8 percent. This will not be done to put any more money in my pocket. It will be done to make sure that I don’t suffer financially from the Democrat’s efforts to place our healthcare under the control of the federal government. It is your health, not mine. It is your healthcare, not mine. These are your expenses, not mine. If you think I’m wrong about all this, I would sure love to hear your reasoning.

Try to understand what I’m telling you here. Those people that Obama and the Democrats call “wealthy Americans” are, in very large part, America’s small business owners. I’m one of them. You have the evidence, and surely you don’t think that the owner of a bunch of tire stores is anything special. That $534,000 figure on my income tax return puts me squarely in Democrat crosshairs when it comes to tax increases.

Let’s be clear about this … crystal clear. Any federal tax increase on me is going to cost you money, not me. Any new taxes on Carrington Automotive will be new taxes that you, or the people I don’t hire to staff the new stores I won’t be building, will be paying. Do you understand what I’m telling you? You’ve heard about things rolling downhill, right? Fine .. then you need to know that taxes, like that other stuff, roll downhill. Now you and I may understand that you are not among those that the Democrats call “wealthy Americans,” but when this “tax the rich” thing comes down you are going to be standing at the bottom of the mud slide, if you get my drift. That’s life in the big city, my friends … where elections have consequences.

You know our economy is very weak right now. I’ve pledged to get us through this without layoffs or cuts in your wages and benefits. It’s too bad the politicians can’t get us through this without attacking our profits. To insure our survival I have to take a substantial portion of that $534,000 and set it aside for unexpected expenses and a worsening economy. Trouble is, the government is eyeing that money too … and they have the guns. If they want it, they can take it.

I don’t want to make this too long. There’s a great lunch waiting for us all. But you need to understand what’s happening here. I’ve worked hard for 23 years to create this business. There were many years where I couldn’t take a penny in income because every dollar was being dedicated to expanding the business. There were tough times when it took every dollar of revenues to replenish our inventory and cover your paychecks. During those times I earned nothing. If you want to see those tax returns, just let me know.

OK .. I know I’m repeating myself here. I don’t hire stupid people, and you are probably getting it now. So let me just ramble for a few more minutes.

Most Americans don’t realize that when the Democrats talk about raising taxes on people making more than $250 thousand a year, they’re talking about raising taxes on small businesses. The U.S. Treasury Department says that six out of every ten individuals in this country with incomes of more than $280,000 are actually small business owners. About one-half of the income in this country that would be subject to these increased taxes is from small businesses like ours. Depending on how many of these wonderful new taxes the Democrats manage to pass, this company could see its tax burden increase by as much as $60,000. Perhaps more.

I know a lot of you voted for President Obama. A lot of you voted for Democrats across the board. Whether you voted out of support for some specific policies, or because you liked his slogans, you need to learn one very valuable lesson from this election. Elections have consequences. You might have thought it would be cool to have a president who looks like you; or a president who is young, has a buff bod, and speaks eloquently when there’s a teleprompter in the neighborhood. Maybe you liked his promises to tax the rich. Maybe you believed his promise not to raise taxes on people earning less than a certain amount. Maybe you actually bought into his promise to cut taxes on millions of Americans who actually don’t pay income taxes in the first place. Whatever the reason .. your vote had consequences; and here they are.

Bottom line? I’m not taking this hit alone. As soon as the Democrats manage to get their tax increases on the books, I’m going to take steps to make sure that my family isn’t affected. When you own the business, that is what you’re allowed to do. I built this business over a period of 23 years, and I’m not going to see my family suffer because we have a president and a congress who think that wealth is distributed rather than earned. Any additional taxes, of whatever description, that President Obama and the Democrats inflict on this business will come straight out of any funds I have set aside for expansion or pay and benefit increases. Any plans I might have had to hire additional employees for new stores will be put aside. Any plans for raises for the people I now have working for me will be shelved. Year-end bonuses might well be eliminated. That may sound rough, but that’s the reality.

You’re going to continue to hear a lot of anti-wealth rhetoric out there from the media and from the left. You can chose to believe what you wish .. .but when it comes to Carrington Automotive you will know the truth. The books are open to any of you at any time. I have nothing to hide. I would hope that other small business owners out there would hold meetings like this one, but I know it won’t happen that often. One of the lessons to be learned here is that taxes … all taxes … and all regulatory costs that are placed on businesses anywhere in this country, will eventually be passed right on down to individuals; individuals such as yourself. This hasn’t been about admonishing anyone and it hasn’t been about issuing threats. This is part of the education you should have received in the government schools, but didn’t. Class is now dismissed.

Let’s eat.

© 2009 Neal Boortz

Milton Friedman on Greed

Milton Friedman on Greed

If you want to know about greedy capitalists, listen to what Milton Friedman has to say.

THE CHILLING EFFECT OF THE BUSH/SCHWARZENEGGER FREEZE

THE CHILLING EFFECT OF THE BUSH/SCHWARZENEGGER FREEZE

Adam Smith’s key insight was that both
parties to an exchange can benefit
and that, so long as cooperation is
strictly voluntary, no exchange
can take place unless both parties do
benefit.

Milton Friedman
__________________________________

George Passantino of the REASON FOUNDATION wrote an
article today in the FlashReport about the proposed
freeze in interest rates which will protect borrowers
who made bad decisions and will punish investors who
invested in mortgage-backed securities because they
believed in the sanctity of contracts.

It is easy to call yourself a supporter of economic freedom
and the rule of law amidst a rapidly rising economy. Now
with dark clouds of the recent rise in mortgage
foreclosures—and more expected on the horizon—political
expediency has eroded the support for free markets in
some of its perceived champions.

Even self-proclaimed devotees of the late Milton Friedman,
President George W. Bush and California Governor
Arnold Schwarzenegger, sound more like critics than
Friedman supporters.

In the wake of a perceived mortgage crisis both have
attempted to use the coercive power of government to
solve the problem. Both plans center on agreements
with the largest mortgage servicing companies to
“voluntarily” freeze interest rates on adjustable rate
mortgages for a set period of time.

Upon Friedman’s death, President Bush remarked that
“Milton Friedman has shown us that when government
attempts to substitute its own judgments for the judgments
of free people, the results are usually disastrous. In
contrast to the free market’s invisible hand, which
improves the lives of people, the government’s invisible
foot tramples on people’s hopes and destroys their dreams.”
Perhaps the President should re-read his talking points and
share a set with the Governor.

There are several flaws in the approach to “voluntarily”
freeze rates. First, it is disingenuous to call the plan
completely voluntary. When a government seeks a
“voluntary” commitment in one hand, you can be sure
that the hammer of regulation is hidden behind the
back in the other hand.

Moreover, such a freeze is tantamount to a moral bailout.
While it may not necessarily be a financial bailout of the
S&L magnitude, it bails out lenders and borrowers from
bad decisions and forces someone else to shoulder the
cost. Behind each mortgage is a pool of investors that
make life decisions, such as retirement planning,
based on an expected return of those investments.
Forcing these investors to eat a loss by government
fiat is fundamentally unfair. Moreover, this tramples
the rule of law and the sanctity of a contract. And, of
course, as the regulatory feeding frenzy grows,
you will no doubt see a host of new efforts to clamp
down on lending practices and in doing so eliminate
the access to capital that so many families depend upon.

Equally troubling, the proposals seem to try to encourage
responsible borrowing by only applying to people that are
current on their notes but who can’t afford the rate
adjustment. It doesn’t take a Nobel Prize Economist
to figure out that thousands of families that actually can
afford the rate adjustment, and who made those decisions
willingly, will nonetheless seek relief by claiming that they
will not be able to afford it. And what constitutes not being
able to afford it? Does a family that goes out and finances
tens of thousands of dollars worth of home entertainment
equipment and luxury automobiles and whose monthly
debt obligations have increased dramatically qualify for relief?

Perhaps most troubling of all is that this move to freeze
rates and ratchet down the industry with new, tougher
regulation completely misses one fundamental reason
that so many Californians have turned to adjustable rate
mortgages and other exotic loans. The price of
housing in California is simply too high.

Is it any surprise that five of the ten areas with the
highest foreclosure rates nationally are in California,
or that in some markets there are more foreclosures
than new homes for sale?

If Schwarzenegger and Bush want to stay true to their
philosophical allegiances to Friedman, they could start
by tackling the root causes of the affordability crisis
that has driven so many families to secure loans
that are a poor fit for their unique conditions.

According to statistics from the California Building
Industry Association, California homes were on par
with national prices as late as the 1970s. As
development became more difficult in California,
prices relative to the nation began to shoot upward.
Now, California home ownership rates are 10%
lower than the nation.

If California really wants to ensure that people have
a home to live in, we need to make housing more
affordable. New regulations on mortgages or short
term freezes will not do that.

The price of regulation—both in hard dollar fees
and in the costs of time—can easily add $50,000
to the cost of each home. That can account for
$300 or more in each monthly payment. In many
jurisdictions, the cost of regulation is much higher
than that.

At the same time the costs of regulation are increasing,
anti-growth activists have become experts at utilizing
the California Environmental Quality Act (CEQA)
and other well-intended laws to stop development
or force substantial delays which also results in
significant costs. The longer a home takes to build,
the more it costs in interest and construction expenses.
On top of that, finding land that is suitable for devel-
opment is increasingly difficult, and when land is found,
political pressures typically mount against “affordable
housing.” While such conditions exist in varying
degrees around the nation, there is a uniform need
to address them.

While it may seem politically appealing for government
to directly help people keep their homes, as Friedman
said of government intervention, the results are usually
disastrous. Both Schwarzenegger and Bush would do
well to focus, instead, on underlying cost drivers of
the housing market that are truly governmental in origin.

People, faced with home prices they simply cannot
afford, have far too often found refuge in loans that
probably don’t fit their personal economic conditions.
While no amount of intervention can eliminate the
obligation that anyone has to fully understand
and honor the terms of the contract they sign, it
would nonetheless be helpful for government to
eliminate or reduce some of the cost drivers that
they developed and which have helped fuel this perfect
storm.
____________________________________
George Passantino is a Partner in Passantino Andersen
Communications, LLC and a Senior Fellow at the Reason Foundation.