I think there’s a difference between an inheritance of a business in which the heir is actively involved and one of which he is a passive beneficiary. I would be disingenuous to say that there should be no inheritances – I want to leave something for my son to make him more comfortable in his later life, just like I want to be able to give him something to help him get a good start in life.
I think it’s a terrible idea for family farms and small businesses, for example, to be passed to the next generation with such burdensome taxes that they have to be sold or leveraged into a non-viable situation. That deprives the family of a livelihood and makes it easier for larger, wealthy corporations to gobble them up. Corporate-level farming is not very good for owners responsible for land stewardship. Independent farmers morph into seasonal laborers because they can’t pay a tax. Plus, corporate farming is terrible for the land, for water supplies increasingly polluted by farm chemicals, for the continued existence of pollinators, and for the diversity of our food supply. Plus, business corporations can indeed get so big by consuming their smaller rivals that they effectively undermine the free market.
Does inheritance create a dynasty? Yes, if there’s enough of it and the heir doesn’t squander it. If the second, third, and successive generations are up to the task, then they benefit. If they aren’t up to the task, the “dynasty” is over pretty quickly. Given the fact that the generations tend to get exponentially larger as time goes by, even competent heirs that come along later get a smaller piece of the overall pie until, at last, it’s gone. A lower percentage of each successive generation can participate in the operation for it to remain profitable. Like later-born children throughout history, one takes over the helm while the others find their own ways, or else the entire realm is cannibalized to give each heir a relatively smaller portion. If that portion is too small to be of benefit, the heir sells it to someone who adds that portion to his own, and the building of an empire starts all over again.
Problems arise when a monopoly is created by this process – if smaller operations are taxed just because of the death of their progenitor, they are left with no option but to sell out. In the strictest sense, neither unbridled capitalism nor strict socialism really works. A healthy society must strike a balance between the two.
Let me be clear about where I stand on other relevant taxes, though: I have no problem with a capital gains tax tagged to the actual income tax rate for the person receiving that capital gain. I have no problem with higher taxes on wealthier people. I certainly have no problem with a graduated corporate tax rate and eliminating subsidies for operations that make significant profits. In fact, I think it’s obscene for vastly profitable corporations to be supported by the government. What is the point of subsidizing a company with millions of dollars when it makes billions of dollars in profits? Unless there is some overarching public interest that is actually served by the subsidies (affordable food for the entire population, for example), subsidies should not exist.
Under the scenario I describe, I would pay considerably more in taxes than I do now because I was fortunate enough to receive an inheritance from which I receive passive income. I would really like those taxes to be put to work, improving the lives of my fellow citizens. Feeding the hungry, providing safe places for everyone to live regardless of income, providing education for anyone who wants it regardless of their ability to pay, rehabilitating substance abusers, job training for anyone who wants it, universal health care, rehabilitation of criminals, and scientific and technological research and development would be excellent uses of my higher taxes. It would improve not just their lives but also my world.
Who are the Job Creators?
I had an interesting conversation with a pair of one-percenters last week. I specifically asked them whether lowering their taxes would result in them creating jobs. Neither one hesitated to answer.
“You’ve got to be kidding,” said one.
“Nope,” said the other.
Why not? I wanted to know. The Republican party has been telling us for years that the way to create jobs is by lowering the taxes on the wealthy. Where’s the fault in the position?
Both of my one-percenters agreed that established companies don’t create new jobs unless they are also expanding, something they do when their business model and business plan indicate the time is right, not when the amount of taxes they pay changes. Tax savings amounts to larger profits remaining with the company, not expansion plans. Every corporation’s main priority is its bottom line. The large business interests and high-income individuals who will benefit from this tax deduction definitely want to improve their bottom line – who wouldn’t? – but they aren’t so altruistic that they are going to hire people they don’t need to do jobs that don’t need doing.
Payroll is the single largest expense of any company. It seems that people who own businesses want to get more done with fewer employees, not with more, because getting more done with a smaller payroll increases profits. That’s why outsourcing is so popular among the most profitable companies.
So who are the real job creators?
According to 2007 and 2008 economic census figures, “nonemployer” firms account for a vast number of businesses in the country – more than 78%. The Census Bureau defines nonemployer businesses as those that have no paid employees and are subject to federal income tax. Nonemployers include self-employed individuals operating unincorporated businesses, which may or may not be the owner’s principal source of income.
Of the remaining 22% of businesses, 89% are companies employing less than 20 people. That means more than 97% of the businesses in this country are small businesses, not large corporations.
Looking even more closely at the numbers, we see that businesses with more than 500 employees employ about half of all Americans who work for someone else. Even though they account for only 0.0036% of all firms, truly giant megacompanies with more than 10,000 employees put 27% of Americans to work.
More than 17% of people in America work for companies that employ between 20 and 100 employees. These are medium-sized companies, and constitute about 9% of the businesses out there. The next jump in statistical size is the large companies, which employ between 100 and 500 workers. These large companies put 14.5% of Americans to work.
So, although 97% of the companies in the US are small businesses, 82% of employed Americans work for large, very large, and mega-sized companies. Eighteen percent work for small businesses. Those figures add up to about 121 million people who earn income in the United States, not counting the 21 million whose self-employment provides them with some or all of their income.
If the big companies get the tax breaks, which apparently have no impact on whether or not they create jobs, who benefits? The big companies, of course.
I Just Solved All Our Problems
In response to the blog post of a friend who is understandably bemoaning the state of the nation, I got a wee bit windy.
I know, I know – it’s hard for anyone to believe that I – moi – would spew opinions unrestrained against the drums of ears attached to mouths that were asking rhetoricals, not practicals. Nevertheless, I have the answer, and if the president would only sit down and pay attention to me, all the country’s problems – yea, even all the world’s! – would be solved.
The economy is not going to be fixed overnight, and right now Obama is listening to the experts who advise throwing more money at the economy in all the wrong places – at least IMHO. But, in response to those who are nodding sagely, saying “We told you that Obama would bring socialism and liberalism to the country, but did you listen? Nooooo,” I say that (ahem) this started on the Republican watch. Obama inherited this disaster; he did not create it. And since no one has ever dealt with such a staggering world-wide economic crisis before, that means he is inventing this wheel as he goes along. Will he get it all right? Of course not. But he won’t be likely to get it all wrong, either.
From what I hear and read, the economy isn’t going to start upward on any consistent basis until at least next year, and maybe not until 2011. Whenever in history the economy has tanked as suddenly and as severely as it did last summer and fall, the recovery has always been slow. That’s why they call them “depressions.”
Consumer confidence is badly shaken, and as more and more jobs are lost and more and more foreclosure notices are mailed, it’s not as if Dick and Jane are suddenly going to decide to splurge on that vacation home, lavish gifts for their status-conscious kids, or a pricey new automobile. Their businesses aren’t going to be hell-bent to hire new employees, either, because if sales are down, and no one is getting the services they offer, the employers simply can’t justify it.
The economy is, believe it or not, depressed. And Economic Abilify has not yet been invented.
My opinion (and one or two of you might possibly be aware that I have one or two opinions, even though I rarely mention them in polite company) is that Obama would be better off to give stimulus money to the people and entities that are best in a position to turn this thing around, i.e., all of us, but in different ways.
Money should go to the homeowners trying to stave off foreclosure as a condition of and part of the debt renegotiation with the lenders – that way the lenders get paid directly by the government on behalf of the homeowners, the homeowners and their children aren’t sleeping on the streets, and the banks don’t own homes they can’t sell.
If a home is undervalued for the debt the homeowner has against it, the government should pay the difference as soon as new terms for the remainder are worked out between the borrower and the lender. If the borrower can’t afford to continue making the original payments – not the juiced-up interest payments – then there can be a second tier of incentives for the lenders to extend the debts to a 40 year amortization as opposed to the customary 30 year schedule.
And NO MORE INTEREST-ONLY long term debt! Whose idiotic notion was that, anyway? “Here, Joe Bob and Sally Sue, take this money that you never have to pay back. Just pay us interest and we’ll all be happy.” The hell, they say! Morons.
Next, apply stimulus funds to the remaking of the American infrastructure, especially rural and smaller urban areas without reasonable public transit. Make light rail, high speed rail, and buses reach more places and serve more people on better schedules. One of the worst things we ever did was allow our railroads to be dismantled in favor of three cars in every driveway and five lanes on every freeway. Refurbishing and improving our infrastructure will employ hundreds of thousands of people in various positions throughout the country. From engineers to draftsmen to laborers to porters, we can get this country moving at a much more economical rate, and faster, if we’ll commit the funds to do it. And those jobs won’t go away when the projects are complete – they will need to be maintained, too.
Simultaneously, pour money into scientific research and development of alternative energy as well as into to cleaning up and maintain the environment. I’m not talking about just reducing greenhouse gases, although that is certainly a big concern, but (for example) about making reasonable accommodations for heavy metals that are the by-product of mining and drilling. A rocket laden with nuclear waste, arsenic, mercury and lead headed for the dark side of the moon might not be a bad use of NASA’s funding.
Put people to work cleaning up the environmental damage we’ve done to the planet, and making sure we’ve still got a planet to leave to our great-grandchildren. Clean water, clean air, and fewer chemicals artificially enhancing the soil and crops will go a long way toward making us all healthier – not to mention the possibility that our grandchildren might be able to play with frogs in their back yards some day.
And while we’re at it, quit giving chickens and cows all those damn hormones! I have yet to meet a teenage girl whose double-D’s don’t put my paltry gifts to shame. Why are their adolescent mammaries the size of a Holstein’s udders? Hormones!
Reduce the employer’s share of employment taxes. With the matching amounts that employers pay for health insurance, medicaid, unemployment, and social security, the cost of hiring an employee is a lot more than just what the employee sees in his check. This would be a real, dollar amount of savings for employers and would probably allow businesses to hire more workers across the board and at all levels.
Nationalized health care? Bring it on. Insurance companies will always provide coverage to people who choose to pay more for less care. Those of us who have survived cancer (twice, thankyouverymuch) or who are on certain costly medications can’t get health insurance without staggering pre-existing conditions clauses that make our health insurance worthless and excruciatingly expensive – if we can get it at all.
When health insurance benefits dictate whether a parent can open a business of his or her own or must stay with an employer who provides health coverage the family can’t get elsewhere, entrepreneurialism is stifled. This country is dependent on small business and entrepreneurs. We absolutely must break down the barriers that prevent people from making an attempt to achieve their dreams. I don’t know about you, but I work a lot harder for myself than I do for someone else. I don’t think failed businesses should be propped up by the government (Detroit, are you listening?), but when something like paying for childbirth determines whether a family can start a small business, there’s something desperately wrong.
Where, O Where will the money come from to do all this?
(clearing my throat)
The same place the last two trillion dollars came from. And the next trillion will actually make a difference. It will put people to work, shore up the foundation of the country, and stabilize the economy. It will also have the added benefit of making the world a better place. And if any of you out there are thinking there won’t be more stimulus money forthcoming, you just hide and watch. It’ll come, I promise, whether the president takes my incontrovertible advice or not.
Now that I have solved the problems of the environment, the economy, health care, and reliance on fossil fuels, are there any other problems you’d like me to take a look at? My rates are reasonable, and I’m in a spewing mood.
Clueless
Not only is he likely to die by the end of his first term in office (see the actuarial tables if you think I’m kidding), he’s clueless.
Yes, the wars in central Asia are a problem. But even bigger and more worrisome is our country’s fiscal well-being. To quote James Carville’s “war room” reminder from 1992, “It’s the economy, stupid.” Sixteen years later, it’s the economy again. And that’s stupid.
As if it wasn’t bad enough before, the past two weeks have seen our economy positively reeling from blows repeatedly delivered to it over the past several years.
First, September 7 it was announced that Fannie Mae and Freddie Mac were insolvent and had to be taken over by the government. These two publicly owned companies either own or guarantee fully half of the mortgages in America. That’s right: of the twelve trillion dollars – that’s 12 followed by a dozen zeroes, for those of you who don’t know – in money borrowed to finance the American Dream, $6 trillion of it was, in one form or another, the ultimate responsibility of these two companies.
Fannie and Freddie are, according to Fortune’s listing of the “Global 500,” the 161st and 162nd largest companies in the world respectively. The ranking is based on their annual revenue, which for each company is a little over $43 billion. Their profits, however, are in the negatives. Fannie Mae reports losses of $2.05 billion and Freddie Mac, even worse, reports losses of $3.094 billion. And together they were on the hook for six trillion dollars in debt, over one percent of which was delinquent. That’s a recipe for bankruptcy in anyone’s pocketbook.
Are these companies even the biggest losers on the scale of gargantuan companies posting gargantuan losses? No. General Motors (yes, another cornerstone of the American economy and a major employer worldwide) boasts that honor. With revenues of more than $182 billion, GM is posting a loss of $38.732 billion. Ford Motor Company isn’t quite as desperate. It comes in at #10 on the list of losers at a loss of $1.8 billion. A loss like that seems manageable in comparison to GM’s, doesn’t it?
Another US company, Sprint/Nextel, which is the third largest among the telecom giants, is posting losses exceeding $26 trillion this year. Staggering losses like these do more than cause a company to go bankrupt. Companies vaporize due to losses like these. Then there’s the domino effect of the fallout: lost jobs, unpaid debts to other companies, and a gap in the economy that no amount of politicking can fill.
Will the government rescue GM like it rescued the Chrysler Corporation in the 1970’s? Our automakers employ an awful lot of people. It will be very hard for the United States, competing with Indian and Chinese workers who charge pennies to the dollars charged by American workers for their time, to fill a manufacturing hole of that size.
It’s a big jump from these staggering losses to the next bracket of the biggest losers on Fortune’s list. A German bank, in the red because it helped bail out a German competitor that had tanked because it had invested heavily in American subprime mortgages, is next in line with losses of $8.4 billion, but then, when we look to the next giant losers, we’re back on American soil.
Merrill Lynch is the fourth biggest money loser worldwide right now. Merrill Lynch was in the news this weekend because Bank of America became its white knight, dashing in to rescue the failing investment giant, whose offices fill all 34 floors of the Four World Financial Center Building in Manhattan’s famous financial district. We might note here that the same subprime lending crisis has led to the failure of this icon of investing. We might also note that Merrill Lynch is one of the relative handful of investment companies that survived the Great Depression of the 1930’s. News of its failure is ominous, indeed.
Four of the top five money losers in the world are American, and the one that isn’t had losses caused entirely by the American subprime crisis. And get this: one of the top five losers is an agency of the American government! Did that sentence get your attention? It should have. Yes, the United States Postal Service is number five on the list of losers.
Now, I could wax lyrical about the mismanagement of the postal service here, but I’ll save my rant for another time. Maybe I’ll mention something in the comments to this blog about how much freaking money the USPS spends to advertise its monopoly. But for now I’ll pass. There’s a lot of complex analysis that goes into that discussion, and I’m talking about the economy in general, here. I’m talking about a certain presidential candidate’s understanding of the economy in particular.
You see, despite Fannie Mae and Freddie Mac, despite the subprime and credit crises, despite the failure of Merrill Lynch and AIG, which the Federal Reserve decided to help yesterday with an $85 billion bailout loan, despite the bankruptcy filing this weekend of Lehman Brothers, another huge investment firm, John McCain believes our economy is fundamentally sound.
Now, keep in mind that we have a federal budget deficit of $9 trillion that has grown by well over $400 billion a year since the current administration has been in control. We’re fighting two wars in central Asia at an annual cost of $200 billion, which we have borrowed from China – China! – to finance. The Federal Reserve just lent AIG $85 billion, and that money has to come from somewhere. Internationally, our currency is weak.
When the wars started, President Bush expanded the government in an unprecedented move by creating a Department of Homeland Security. (Excuse me, but wasn’t that what the already-existing National Security Agency for? Wasn’t Homeland Security redundant? I feel another rant coming on. I’ll stop here.)
The biggest financial losers globally are either American companies or driven to their staggering losses by American economic policies and practices, and John McCain thinks that the economy is fundamentally sound.
John McCain thinks that America’s big employers and investors can sustain staggering losses and the economy is still fundamentally sound.
Something in that jungle prison over there did more than make him unable to comprehend how to send an email. Something in that jungle prison over there robbed him of his ability to see what is obviously an unfolding financial disaster on a scale with the Great Depression.
The emperor is wearing no clothes, and his consort is a redneck rodeo queen.
Tens of thousands of jobs on Wall Street are at risk, as are hundreds of thousands of jobs in the automotive industry. Monday was the worst day for the stock market since the 9/11 terrorist attacks. The dollar is weak against foreign currencies. We’re fighting two wars. Oil, which we depend upon as much as we depend upon water, is three times as costly as it ought to be. Worker productivity has increased, but wages have not.
Our government isn’t financially sound. It has debt it can’t possibly repay and it has pushed a pro-credit, pro-housing agenda among the populace until consumers no longer can pay for what they buy. Unemployment is rising, and job creation is ridiculously low, a dangerous situation when we look at the potential for both white collar and blue collar job losses.
McCain thinks the government is fundamentally sound? You’ve got to be kidding me.
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