Oct 20, 2011

I Protest ... Part Two

In response to comments (which are way too rational, I might add).  I can see the basis for the occupy movement’s frustrated, but just staying that the "playing field is "unfair" is, well, unfair, and it sounds like an excuse.  "I can't do well for myself or my family because the playing field is unfair."  I would argue that there are a good many people who are working in the system and achieving greatness and aren't necessarily part of the top 1%.  They don’t use excuses, they work harder.

With that said, I don’t disagree with the movement entirely, but it needs a better message.  This article does a decent job of making the case (click on the charts).  And although I can get behind facts and numbers, even this argument has holes.

Owning wealth and debt:  Is it the fault of the richest Americans that the rest of America spent beyond their means over the past decade?  What the wealth and debt discrepancies tell me is that some people managed their money smart, and others did not. I am not going to hold it against the wealthy for earning more than me if they worked harder and smarter, the same way I am not going to blame a stronger, faster runner for beating me in the 100M dash.  I just need to figure out a way to overcome and run faster.  One slide mentioned bankers making $350K per year, but doesn't mention that they most likely work 80-100 hours per week.  That's a lifestyle choice, and I would argue a privilege, and shouldn’t be held against them.
Tax structure: Regardless of how you slice it, the wealthy still contribute vastly more to taxes than the rest of the county (slide 25,26), and considerably more than the 47% of Americans, who benefit from tax-supported services and pay zero taxes.  Also, click on "Homa Files" blog to the right and see the Buffet Breakdown.  It points out that, after his AGI is adjusted for charitable donations, his tax rate is a measly 17%, indeed lower than his secretary.  It also points out that he would have to give $20M to charity to achieve this tax rate.  So, yeah, sure, he paid 17%, but it cost him $20M!!  The lower tax rates are a result of investment.  Same goes for corporations.  These "tax loopholes" are incentives to spend money on the business.  GE paid zero taxes on $3B (?) in profit last year, but it's because they wrote off losses and investments from the previous years.  When you look at it over several years instead of the single-year picture to which we are accustom, then it would ultimately level out.  Also, think of it this way ... if you run GE, are you going to be MORE willing to hire people and invest in R&D now, more than likely at a net loss for the next three years (average time to development, bring to market and reach profitability ... if profitable), if you are able to write those losses off toward the income later??  Let me answer that ... yes.  If not, then don't get into business.  It's ridiculous to think that R&D, investment and job growth can happen in a fiscal Jan1-Dec31 year.  That's just not how business cycles work.  GE did not cheat taxes.  Did they make shareholders and managers rich?  Sure they did, but, they also kept tens of thousands employed and gave us great innovation

Banks: Yes, banks and executives are to blame for this mess, clearly.  Do I believe that execs should be prosecuted ... tough to say.  They did nothing "illegal".  Were they unethical and immoral?  Yes, but bad karma is the only real sentence available.  I am angry at banks because when we needed growth capital, and we were squeaky clean on the books, we were turned down.  The bailout was supposed to support the capital market and businesses, but securing capital for growth has never been more difficult.  To a certain extent, knee-jerk reactionary regulations (higher cash reserves requirements don't help) and ridiculous banking borrowing options (borrowing for nothing, buying risk-free government paper at 1-2%) has hurt the economy even more.  It's the Fed's policies, not the bankers.  But, overall, tough call ... what's moral?  Earning money interest free for your shareholders or loaning considerably higher-risk loans to small businesses in a tough economy?  If you own bank stock, then the former is going to be your choice.  If it's not, then don't get into business.  :)

We The People:  We, as a culture, are as much to blame.  Racking up record debt, buying unaffordable houses trying to make a quick buck over working hard, all things that Wall Street and banks didn't force us to do.  Did they encourage some of it, yes, but for the same reasons I don’t commit to a three-year gym membership, I choose my course of action because I know better, not because someone tells me.  Further, I would blame media more than banks for perpetuating messages that are destroying our culture.  "Jersey Shore", "Housewives of Beverly Hills", "NFL Wives", etc ... what good do these programs do except to make us wish we were all rich and famous?  Do you see these people working hard???  This is a completely different soap box to argue.

So, my problem with the protesters, and most supporters:  Nobody is putting up solutions.  This movement is not going to end capitalism or close down Wall Street.  So, what do you do?  Here are some of my suggestions (that will assuredly keep me out of public office):
1. Tax code: Revise the tax code by reversing Income and Capital Gains taxes.  Income should be taxed lower than capital gains.  If you work, and you make a living contributing to the economy through the creation of products or the fulfillment of services, you are taxed at the absolute lowest level.  The more you work, the more you keep.  If you are sitting on a stock-pile of cash and living from it or creating wealth through "soft" measures (not actually producing a product or supplying a service), then this should be taxed higher.  I say reverse the taxes: Income tax 15%, capital gains 30-40% (or even higher).  I think business owners will put their money to work, growing their business and employing people if they know that it’s more valuable to engage your money than sit on it.
2. Tax everyone: There, I said it.  If you are earning income, and utilizing public services, which everyone does, you should contribute through taxes.  It doesn't have to be much, but anything more than nothing is fair.  Remember when you purchased your first car or home?  You treated it better and with more respect because you had ownership in it (apologies to the owner of the first apartment I rented).  Everyone owns public works, so everyone should pitch in.  I like Herman Cain’s 9-9-9 plan, although flawed, because it is the first to say this (*gasp*).
3. Market the benefits of taxes:  I hear the argument that in the 40-50's, the tax rate was 90% while the middle class grew.  True, but what did we get out of it?  The interstate highway, air transportation, telecommunications, sent men to the moon, the most powerful military in the world.  And the middle class grew through hard work and sweat putting all this into place.  Everyone contributed.  What do our taxes toward now?  Wars in the middle east, entitlements.  This is now what is going to grow our economy and create jobs.  We have nothing to get revved up about.  Well, not true, plenty to get revved up about, but what we need is resolute vision from the top.  Here are my suggestions: 
- Invest in the infrastructure of the future: uninterrupted, free nationwide WIFI.  This will help consumption, communication and educations.  As well, there exists a upcoming new technology that will allow you to recharge batteries on your computer and phones through WIFI.  Why not integrate this concept with electric cars so they can charge on a nationwide WIFI system while we drive?  It would require less infrastructure investment for recharge stations.  Sorry, filling stations, you will be reduced to Slim Jims and slushies.
- Invest in transportation.  When they were completed in the middle of last century, bridges and roads were only supposed to last 50-years (with a considerably smaller projection of cars and passengers).  They must be improved.  As well, provide funding to the states for transportation and get rid of toll roads!  These are huge productivity killer that add transportation costs.  An improved infrastructure and increased productivity would further add to the greatest transportation infrastructure in the world and give us a leg up for production and manufacturing.
- Investment in solar power, algae technology, nuclear, and other alternative power sources.  Expensive and risky, which is why we should all pitch in to find the next source.  AT THE SAME TIME ...
- Expand production of oil and coal domestically.  New power sources are years away from fruition, and we still need natural resources in the meantime, and a lot of them.  We cannot depend on foreign entities for the fuel that drives our economy.  Also, let’s keep in mind that almost everything we use has a petroleum-based product in it, from vitamins to 90% of your car, so we cannot, in many lifetimes, eliminate dependence on oil, we can only curve it.
- Investment in education and curriculum.  We need to prepare kids for the future, which will be completely different than what we know now.  We also need to teach and promote trades, so we keep production jobs here.  Lastly, incentivize teachers and with better benefits and restructure the school system to attract the brightest leaders to teach our next generation.
- Subsidize manufacturing.  It’s tough (arguably impossible in some cases) to compete with developing countries when it comes to manufacturing right now, but that is changing.  The rising cost of oil, the increasing safety concerns, and the growing middle class in developing countries is shrinking the cost benefit of producing overseas.  Incubators to promote new manufacturing technologies and provide skill training, reduced regulations for manufacturers in the US, and more free trade zones will help promote manufacturing domestically.  This will bring back tens of thousands of jobs and shrink the competitive deficiencies we have been burdened with  over the past few decades.  We grew as an industrialized country, we can continue to do so with the right attitude.

These are a few suggestions.  All would require higher taxes to fund if completed through public programs, which would require a major cultural shift of attitudes and expectations.  The middle class will be happy because jobs will be created, trades will be needed and salaries will rise, and the upper class will be happy because the infrastructure will be set for the next generation of products they produce.  I think many would be quick to say that this could never happen, given the partisan politics and great ideological divide in the country, but I would point to the Kennedy days when going to the moon seemed completely unrealistic.  It just needs to be said, a map needs to be laid out, compromise needs to be made, and people need to believe.  Probably the most important thing for everyone to understand is that big ideas can be generated in a 4-year political cycle, but a big visions may not be achieved for a decade or two.  My take: the general public's feeling of entitlement, deserving something for nothing, will hold us back from every raising taxes on EVERYONE to fund much needed innovation.  So, the private sector will prevail in the end, as it has for the past few decades, and smart, hard working individuals will rise to the top with a grand vision, not ideas, and become the next ruling class.  

Which leads me back to the protesters and Occupy Wall Street.  Leveling the playing field is fundamentally not capitalistic, and capitalism will not and should not be replaced any time soon.  It sucks that so many people are out of work, with many being unemployed for a very long time.  Sitting in a park is not going to help this.  The message has been sent, now let's move on and get back to work building on this great country.