Sunday, December 20, 2009

Give Me a Tax Cut, or Give Me Death II

Small Business Tax & Toil

By: Larry Walker, Jr.

Small business owners, like myself, pay twice as much in Social Security and Medicare Taxes as regular employees. Yet when we ask for a payroll tax cut on our own pay, what we get from the government is a crackdown on regional banks to give us more loans. Aside from the fact that 140 of these banks have failed since January 16, 2009 (here), what Obama's Cluelessian economists fail to understand is that wealth is not created through amassing debt.

If Obama wants to run the Federal Government based on the myth that wealth is created through debt, that's one thing, but his attempt to sell this ideal to small business owners like myself makes him look inept. Small businesses are already in debt. Adding more debt does not translate directly into increased sales, but rather into higher monthly principal and interest payments (aka. 'paying current expenses out of future income'). It's one thing to borrow money to start a venture, or to secure lines of credit for working capital, but it's entirely another to pile debt upon debt in a degenerating economy.

Wealth is created by increasing sales of products and services while maintaining or reducing expenses. Bankruptcy is achieved through maintaining or increasing expenses in the face of declining revenue. It is a fact, not a theory, that Obama's reckless economic policies will lead to the latter.

So what is the Small Business solution? What could possibly help small business owners survive in the face of a colossal governmental failure? A payroll tax cut for one. And what is it that justifies a payroll tax cut for small business owners? As I pointed out in Part I, small business owners pay an unfair burden of Social Security and Medicare Taxes, and we receive nothing in return. By nothing, I mean that we will receive the same benefits as regular workers after having paid twice the amount of payroll taxes (see the chart below).

Click To Enlarge

What we are asking for is fair. What we are asking for is economic justice. We want the Federal Government to stop unfairly burdening small businesses with an unjust burden of payroll taxes with no corresponding benefit. All we want back is some of our own hard earned money, produced from our own toil, in order to improve the future economic outlook of our communities and our nation.

If we get our desired tax cut, what will small business owners do? We will have been aided in paying our bills, in reducing our current debt, in not having to lay off additional workers, and in having survived for another day. And we will have done so with our own money, and not through a government handout.

Who will die? When I say, "give me a tax cut, or give me death", it won't be me or my fellow entrepreneurs who die. The first casualty will be the next laid off employee, and eventually the Federal Government. Every employee we lay off leads to negative government revenue, and reduced GDP. Most of us can scale back on spending and survive, but one can only cut so much before creditors are jeopardized. The Federal Government is well on the road that leads to death.

We will survive, but will the Federal Government? Small businesses have been cutting back on spending in the face of the economic decline. The Federal Government, on the other hand, has been increasing its debt. If Obama's incompetent economic theory leads to the bankruptcy of the United States government, then that is just a natural consequence of spending more than annual revenue, year after year. Eventually the principal and interest payments will surpass revenue. But that's Obama's plan and not the road for me. As for me,

Give me a tax cut, or give me death!


Tips: 5 Ways To Manage Business Debt

Related: Common Sense vs. Obamanomics; A Brief History of Social Security

Wednesday, December 9, 2009

National Debt Crisis - 2010

Obama's Debt Crisis

How much is the National Debt costing America?

It’s interesting to note that the total interest paid on the National Debt since 1988 has been $7,393 billion (that’s $7.4 trillion). That’s a lot of money being wasted by politicians in Washington, D.C. and there are not enough people talking about it. There is an even more deafening silence regarding what the cost will be over the next 10 years. The United States will pay almost as much interest as it did over the last 20 years in just the next 10. And no one in Washington is addressing the Debt Crisis. I would to God that somebody would wake them up before it's too late.

click to enlarge

Source: Treasury Direct

Plan A – Pay the Debt Now

The National Debt is currently $12,087 billion (that’s $12 trillion). If principal and interest payments were made over the next 30 years at 4.0% interest, the total remaining interest cost would be $8,883 billion (that’s $8.9 trillion). The total annual P&I payment would be $699 billion or roughly 31% of current government revenues (click on the chart below). But since it’s not likely that this plan will ever see the light of day, what is Plan B?

PLAN A - click to enlarge

Plan B – Ignore the Debt until 2019

The National Debt is projected to grow to $19,224 billion (that’s $19 trillion) by the year 2019. This is calculated by adding the CBO’s projected budget deficit of $7,137 billion to our current debt. If the debt is not addressed until 2019, the cost of interest over the next 10 years would be $6,271 billion, since no principal payments will have been made (see chart below). Then, assuming that a plan is put in place to pay the debt off over the ensuing 30 year period, ending in fiscal year 2050, the total cost of interest over the next 40 years will be $20,397 billion (that’s $20.4 trillion). If the government starts making payments after 2019, the annual P&I payment would be around $1.1 trillion or 49% of current government revenues.

PLAN B - click to enlarge

Obama's Debt Crisis

If we address the National Debt now it will cost roughly $8.9 trillion in interest. If we wait until 2019 it will cost closer to $20.4 trillion in interest. If we never address our debt and continue to treat it as an interest only loan, then this number will "skyrocket". In fact we may already be at the point of no return.

This is Barack Obama’s failure. Obama talks the talk but he doesn't walk the walk. Obama will cost America $6.3 trillion in interest over the next 10 years by his failure to address the national debt. Add that to his $7.1 trillion (and rising) budget deficit and Obama will have cost America at least $13.4 trillion. So any success that Obama touts short of $13.4 trillion in savings, revenue or benefits is a joke.

The Consequences

What consequences could American's face if the debt is not dealt with? Well, for one interest rates are currently at an all time low, and there is only one direction they can go, up. When interest rates begin to rise, so will the cost of the debt. As shown here, if interest rates rise to 5.0% and the debt is not brought down by fiscal year 2050, then the total interest cost jumps from $20.4 trillion to $36.8 trillion. That's about the equivalent of three times annual GDP wasted on interest payments.

Also, the United States could lose its AAA-credit rating. Once AAA status is gone it will be tougher for the nation to borrow money and lenders will charge higher interest rates. Lenders may also begin to impose stringent standards on our nation’s fiscal policies. Don't forget that a lot of this borrowed money comes from foreign countries. In other words, if we don’t deal with the debt now it will only cost more in the future and we could potentially lose some of our freedom in the process.

Is Congress Brain Dead?

When Congress talks about saving the country a couple of hundred billion over 30 years, by passing a health care entitlement bill, I can’t help but wonder if anyone is awake at the helm. Congress is on the path of costing the country roughly $6.3 trillion in interest over the next 10 years, plus another $14.1 trillion over following 30 years, and these are probably low-ball figures, and what are they up to? Telling us how they will save a few pennies by adding a few trillion more to the National Debt. Yet, if Congress fails to address the Debt by 2019, the interest costs will soar well beyond the $20 trillion mark.

Those who truly love this country could care less about the Congress saving $200 billion on a new entitlement program. I could especially care less since I know that it will cost 5 times as much to implement and more down the road. Don't talk to me about Health Care reform while your back is turned on the more pressing $20 trillion problem. Will somebody please wake up the Congress, the Media, and the Borrower in Chief? Wake them up before it's too late.

Note: This posting is based on the following assumptions: (1) that interest rates are fixed at 4.0%, and (2) that the debt is repaid over a 30 year term.


GAO Financial Audit of Public Debt 2007-2008

CBO Budget Projections through 2019

U.S. Treasury Direct

Paying The National Debt For Dummies

The Raw Truth: GDP vs National Debt

Gross Domestic Product (GDP) Mumbo Jumbo

Tuesday, December 8, 2009

The Real November Job Loss Number Was 255,000

Joe Weisenthal Dec. 4, 2009, 2:56 PM


Just about every time the monthly jobs numbers comes out, economic research firm TrimTabs comes out and slams the government's methodology, usually honing in on the Birth/Death model of new businesses entering the market.

This week is no exception.

Frankly, we're not sure what to make of their arguments. We've been hearing about this Birth-Death issue for a long time, but unless you believe they're changing their methodology from month to month, then that issue only goes so far.

We welcome your thoughts.


TrimTabs’ Estimates 255,000 Jobs Lost in November, While BLS Reports a Decline of Only 11,000

BLS Revises September and October Results Down a Whopping 45%

Something’s Not Right in Kansas!

TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 255,000 jobs in November. This past month’s results were an improvement of only 10.2% from the 284,000 jobs lost in October.

Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost an astonishingly better than expected 11,000 jobs in November. In addition, the BLS revised their September and October results down a whopping 203,000 jobs, resulting in a 45% improvement over their preliminary results.

Something is not right in Kansas! Either the BLS results are wrong, our results are in error, or the truth lies somewhere in the middle.

We believe the BLS is grossly underestimating current job losses due to their flawed survey methodology. Those flaws include rigid seasonal adjustments, a mysterious birth/death adjustment, and the fact that only 40% to 60% of the BLS survey is complete by the time of the first release and subject to revision.

Seasonal adjustments are particularly problematic around the holiday season due to the large number of temporary holiday-related jobs added to payrolls in October and November which then disappear in January. In the past two months, the BLS seasonal adjustments subtracted 2.4 million jobs from the results. In January, when the seasonal adjustments are the largest of the year, the BLS will add anywhere from 2.0 to 2.3 million jobs. In our opinion, trying to glean monthly job losses numbering in the tens of thousands or even in the hundreds of thousands are lost in the enormous size of the seasonal adjustments.

In November, the BLS revised their September and October job losses down a surprising 44.5%, or 203,000 jobs. In the twelve months ending in October, the BLS revised their job loss estimates up or down by a staggering 679,000 jobs, or 13.0%. Until this past month, these revisions brought the BLS’ revised estimates to within a couple percent of TrimTabs’ original estimates.

The large divergence between the two results begs the question of what is causing the difference. While we don’t have an answer today, we will be poring over the data in an attempt to answer that question.

A comparison of TrimTabs’ employment results versus the BLS’ results from January 2008 through November 2009 is summarized below.

click to enlarge

Source: TrimTabs Investment Research and Bureau of Labor Statistics –

Several other employment related data statistics support the conclusion that the labor market is not as robust as the BLS is reporting:

  • Automatic Data Processing reported on Wednesday that 169,000 jobs were lost in November.

  • The Institute of Supply Management (ISM) Non-Manufacturing Survey reported that the majority of companies surveyed were still shedding employees.

  • The ISM Manufacturing Survey reported weaker employment conditions in November.

  • Weekly unemployment claims were 457,000 in the week ended November 27, 2009. While last week’s results were below the important psychological level 500,000, the weekly claims are still uncomfortably high and point to a contracting labor market.

  • The TrimTabs Online Jobs Index reported lower online job availability in the past three weeks.

  • The Monster Employment Index declined in November.

We will have the opportunity to truth our employment model estimates at the end of January 2010 when the BLS releases its annual benchmark revisions. The BLS revisions are based on actual payroll data for March 2009. The BLS revision is then divided by twelve to correct prior month’s data back to April 2008. We also use the March 2009 revisions to adjust our model inputs and make any necessary corrections.

For a complete analysis of the current employment situation and economic conditions, refer to TrimTabs Weekly Macro Analysis published this coming Tuesday, December 8, 2009

Saturday, December 5, 2009

Paying The National Debt For Dummies 2.0

Ignoring The Problem?

[updated below]

The Cost of Paying the Debt Now

By starting today, the Federal Government can pay off the National Debt in 30 years by making interest and principal payments of $699,013,323,930.52 per year (see the chart below). In Fiscal Year 2009 the government made interest payments of $383,656,592,545.78. So it would take an additional $315,356,731,384.74 in annual payments to completely extinguish the debt in 30 years. By starting now, the total cost of interest will be $8,883,038,042,900.88 (8.883 trillion), at 4%, over 30 years.

Amortization Schedule - click to enlarge

Opportunity Cost: Waiting until 2019 [updated]

If the Federal Government chooses to wait until 2019 before addressing the debt, the cost rises dramatically. If we choose to wait, our annual principal and interest payments will rise to $1,111,746,741,447.46 per year (see chart below), an increase of $412,733,417,516.94 in annual P&I payments. The total interest on the debt will rise to $20.4 trillion which is computed by adding the $14,128 billion at 4%, over 30 years plus the $6,271 billion in 4% interest only payments, over the first 10 years (shown here). Thus, the cost of waiting is an additional $11.514 trillion ($20,397 billion minus $8,883 billion) in interest.

Amortization Schedule 2.0 - click to enlarge

So What Are You Waiting For?

Are you wondering what will happen when interest rates rise? If politicians were serious about fiscal responsibility, surely they would find a way to cut government spending. All of Washington, DC is guilty. The longer you ignore a problem, the greater it becomes. America needs to stop the deficit spending 'now'. Politicians need to start paying off the debt, and to put an end to annual budget deficits. Politicians need to stop making excuses, and quit playing political games.


Paying The National Debt For Dummies

The Raw Truth: GDP vs National Debt

Gross Domestic Product (GDP) Mumbo Jumbo

Paying The National Debt For Dummies

Amortization Schedule - click to enlarge

The Federal Government can pay off the National Debt in 30 years by making interest and principal payments of $699,013,323,930.52 per year. In Fiscal Year 2009 the government made interest payments of $383,656,592,545.78. So it would only take another $315,356,731,384.74 per year, or about $1,051 per capita to completely extinguish the debt. Since this will cost $8,883,038,042,900.88 in interest (at 4% over 30 years), I would suggest that you get started right away.

If you politicians were serious about fiscal responsibility, surely you could find a way to cut spending by $315,356,731,384.74 per year. I mean after all, many of you are claiming that more than that is wasted on Medicare each year.

The only condition for taking this bold step is that you stop deficit spending 'now'. Pay the debt, end the deficits, stop making excuses, and quit playing games.


The Raw Truth: GDP vs National Debt

GDP vs National Debt - The Raw Truth

I am still mulling over the Bureau of Economic Analysis’ recent, erroneous, GDP projection after my last post Gross Domestic Product (GDP) Mumbo Jumbo. One aspect that was not addressed previously was the pace at which our National Debt is catching up to annual GDP.

The question for today is what will Gross Domestic Product need to be in 2019 in order to keep pace with the Federal Government’s ruinous spending? And based on the answer to that, at what pace must the economy grow annually?

click to enlarge

If we add the CBO’s 2010 to 2019 projected budget deficit of $7,137.0 billion to our current national debt of $12,087.3 billion, then the National Debt will total $19,224.3 billion by the year 2019. At the same time, GDP is averaging $14,198.5 billion annually. Thus, if our economy does not grow over the next 10 years, the National Debt will soon exceed GDP. [Note: GDP represents the amount that our economy can produce in a year.]

I know that the ‘hope and change’ crowd will say, “So what, It does not matter as long as the interest payments don’t exceed GDP”, or some other lame reasoning. However, I choose to look back to the days when the economy was growing at 5% per year with low unemployment. After all, surely America had some banner years in the past. The question should be, “how do we return to a more reasonable Debt-to-GDP ratio?” Not, “how far can we go before the economy breaks?”

Thus, the first scenario, below, determines the rate of growth necessary in order for GDP to match our projected debt. The second scenario determines the rate of growth needed in order to return to the 2003 debt-to-GDP ratio of 62.8%. Finally scenario three simply states the obvious.

Scenario #1 – The Road to Nowhere

GDP must grow from $14,198.5 to $19,224.3 billion in order to equal the National Debt by 2019. In other words, GDP must increase by $5,025.8 over the ten year period. This represents an increase of 35.4% for the period. That means that GDP must grow at a rate of 3.54% per year in order to equal our National Debt by 2019. As I clarified in my last post, GDP is currently declining at the rate of 1.21% per year, so although this is achievable, we still have a ways to go on this road to nowhere.

click to enlarge

Scenario #2 – Back to 2003

In order to return to the more prosperous, albeit not the most optimal, 2003 Debt-to-GDP ratio of 62.8%, annual GDP must grow to $30,611.9 by 2019. In other words, GDP must increase by $16,413.4 billion, over 10 years, in order for the National Debt to equal 62.8% of GDP. That equals a percentage increase of 116.0% over the 10 year period. In other words GDP must grow at the rate of 11.6% per year, over the next 10 years in order to return to the 2003 Debt-to-GDP ratio.

Scenario #3 – Stop Spending Money that we don’t have.

Of course there are many possible scenarios. One common sense scenario would be to stop spending money that we don’t have. I don’t think it’s possible to grow the economy at 11.6% per year. At least I don’t see any plans from the Congress, the Senate, or Obama that would come anywhere close. In fact, their current plans do nothing to increase GDP, but rather are focused shamefully on doubling the National Debt. And you know what that means: higher taxes, and higher interest rates, leading to less economic growth.


GDP must grow at an annual rate of 3.54% in order to equal the National Debt by 2019, a road to nowhere. GDP must grow at an annual rate of 11.6% in order to return to the 2003 Debt-to-GDP ratio of 62.8% by 2019. Government spending needs to be cut dramatically, and immediately. Any plan that falls short of scenarios #2 and #3 is not a plan. That’s the raw truth.


GAO FINANCIAL AUDIT Bureau of the Public Debt’s Fiscal Years 2007 – 2008

CBO Budget Projections through 2019

Treasury Direct - Historical National Debt

Tuesday, December 1, 2009

A Free Market Solution to Universal Health Care, Part III

by: Raymond L. Richman

Link: Trade & Taxes

In the preceding blog on this subject (11-27-09), we wrote:

"The average household can afford to be self-insured with regard to health care costs that are not cataclysmic. We can expect falls and fractures, expect to catch cold, expect to need eyeglasses and hearing aids, expect to have children, expect cavities in one’s teeth, and to need dentures, and so on. Setting aside part of their income in a health savings account at regular intervals would enable the vast majority of our citizens to pay for these “normal” expenditures out of past savings and current income."

"What we need is insurance against catastrophic illnesses not against the easily affordable costs of relatively minor medical episodes. Were the hundreds of millions of health-care consumers to pay the full cost of their own minor health care expenditures, they would have an incentive to economize and seek-out more economical treatments. And providers would soon compete for their patronage. Competition is the force that makes a private market economy innovate and achieve constantly growing productivity."

Critics of health savings accounts argue that this could possibly work for the rich but not for the poor. What about those in poverty? Their past savings and current income are very likely to be inadequate to pay for all ordinary non-cataclysmic health care expenditures. Some special arrangement needs to be made for them. The current solution is Medicaid which like Medicare pays for all the expenses of getting treatment subject to a small co-payment which varies from state to state. Medicaid is a state administered program and each state sets its own guidelines regarding eligibility and services.

And these costs have been exploding. As we pointed out, expenditures in the United States on health care surpassed $2.2 trillion in 2007 or about $7,400 for every man, woman, and child, and has tripled since 1990. Neither the House or the Senate Bill creates any incentives to prevent or control rising health costs. They continue to insure the consumers of Medicare and Medicaid against all medical services. The problem is how to create incentives among Medicaid participants to economize on health expenditures. How can we create HSAs for those who have little or no income?

Medicaid is administered by the states. Philip Klein, the Washington correspondent of the American Spectator, wrote recently that the Congressional Budget Office (CBO) estimated that the proposed Obama health care bills

"would add 15 million to 20 million more people to the Medicaid rolls. The cost of such an expansion ‘could vary in a broad range around $500 billion over 10 years.’ But the catch is that such an estimate is of the anticipated federal cost of the Medicaid expansion. In actuality, the federal government typically pays around 57 percent of the cost of Medicaid, while the remaining 43 percent is picked up by the states. So what's the full cost of a Medicaid expansion at both the federal and state level?"

According to these numbers, expenditures would increase $943 billion, not counting any rise in prices resulting from increased demand for medical services and prescriptions.

Currently, many of the poor uninsured use emergency room facilities, which are alleged to be very expensive. The National Institute of Health (NIH) estimated the average cost of such a visit to be $274 compared to $88 at community clinics. It attributed the difference principally to “the higher levels of fixed cost and indirect cost seen in the emergency department.” As we wrote in the first of this series, that it is alleged that the uninsured go to hospital emergency rooms for illnesses that could be attended to by a qualified nurse, paramedic, or intern. It is asserted that this imposes huge costs on the hospitals.

If the alleged illness can be diagnosed and treated without hospitalization and expensive tests, it imposes no greater costs on the hospitals than an ordinary clinic does. The costs of maintaining and staffing emergency facilities -- having specialists, and testing and operating facilities on call to diagnose and treat really serious illnesses and injuries -- is expensive. But such costs are not applicable to patients who are diagnosed and treated in a fifteen-minute visit and sent home. The allocation of such expensive overhead to such patients is not justified. The marginal cost of treating minor illnesses in emergency facilities is often zero. The personnel are there on a stand-by basis and often have little or nothing to do. Those who use emergency rooms as a clinic create a costly problem only when the staff and facilities are operating at capacity. In that case, the cost of treating patients with minor health problems in the emergency room is not zero but it is not infinity either. Having a general practitioner on call – MD or nurse or paramedic – is not expensive.

And there are many general practitioners and residents on duty in every hospital in the country. Still there is a need to reimburse the hospitals. Is there a way for every user of such facilities to pay for some if not all of the hospital’s reasonable charges, thus creating an incentive to restrain exorbitant cost increases. Many states require a Medicaid co-payment if the enrollee has any regular wage income. But this does not create a sufficient incentive for the consumer of health care or the provider to economize.

What we propose is assigning each enrollee to a primary private physician, clinic, or hospital-sponsored clinic of his choice. We expect there will be competition among providers to be his primary care provider. Some pharmacies have a clinic in their stores and they may qualify as primary providers. If treatment beyond primary provider’s abilities is required, the patient will be referred to an appropriate qualified co-operating provider of such required services.

An HSA account could be created in a local bank in the name of the enrollee and a fixed amount deposited in it by HHS, perhaps, $100 per month per enrollee or by depositing a single lump sum. A family of four would have $4800 paid into the savings account in a year. The account will be charged for each care provider’s services to the household. The bank will be reimbursed by HHS for withdrawals that exceed the balance in the account. Banks can be expected to compete for such accounts. An incentive to economize on the enrollee’s part would be a provision that half of any balance in the account that remains at the end of the fiscal year will be paid to him.

We need to think anew about providing or subsidizing health care. The above is a start.