Wednesday, March 9, 2011

The Rise of the Forgotten Man

By John Anthony

"The big difference is, you've got me," boasted Barack Obama in January 2010. He was responding to Democrats' concerns over looming mid-term losses as they recalled the disastrous elections of 1994. Unfortunately, 52 incumbent Democratic House members and 2 fellow Senators did not have him as they vacated their seats the following January in the worst Congressional turnover since 1948.

When Obama, the campaigner says, "me," he refers to his battalions of public and private union employees, legions of giggling college students on the receiving end of Tweets and texts, an Organizing for America political army and a myriad of linked campaign sites funneling to "Me" means hundreds of millions in contributions from fawning advocates, salivating ideologues, business opportunists and agitated victims of Mr. Obama's charismatic demagoguery.

When the jolt of his irrevocable 2012 defeat settles, few enthusiasts will accompany Mr. Obama on his denouement in January 2013. What convinces me Barack Obama is programming for defeat? The one assemblage the President has most successfully created since 2009 is not jobs nor a campaign super- dreadnaught, but rather the rise of the Forgotten Man. Let me explain.

William Sumner was a lecturer, philosopher and sociologist at Yale University, who wrote the 1919 essay, "The Forgotten Man". Sumner described social economics in terms of A, who observed the pitiable plights of the downtrodden, whom he labeled X. He then worked with politician B to write palliative legislation ultimately paid for by C.

Much is written of A, the social observer, of X the victim and of B the political savior. However, few mention C, the one who pays. As Sumner noted, "The forgotten man…He works, he votes, generally he prays, but his chief business in life is to pay."

The Forgotten Man is not the sought-after independent. He is he, he is she, and he is liberal, independent and conservative. The Forgotten Man resides everywhere. He may be a private or public union or non-union member; employed, unemployed or underemployed. He is the shoemaker, the store manager, the auto mechanic, the Human Resources administrator, the grocery clerk and the CEO. The Forgotten Man supported McCain, Obama or even sat out 2008.

Since January 2009, Barack Obama has elevated the ranks of the Forgotten Man beyond anything imaginable in the fall of 2008.

So ingrained is Mr. Obama's belief in central power, the debasement of capitalism and the installation of a green hegemony that his centrist dissembling cannot outweigh the economic impact of his ideological DNA. As the payers grow and the payments enlarge, the Forgotten suffer.

If cronyism is Mr. Obama's entremets, statism is his entree. As businesses dieted in response to confiscatory legislation, wages froze and hiring trickled to a soupcon. Meanwhile the President's policies launched price increases for food, healthcare, gasoline, education and local taxes. The Forgotten Man dangles between the two, suspended like a steel pin in opposing magnetic fields, as every cost increase reduces his living standards.

Those who understand the collectivist nature of Obama's policies are frustrated that the severity of his intentions eludes others. Yet, their damage still cuts deeply. People blamed Bush, but they pinned their hopes to Obama and his failures to deliver resound in unexceptional ways.

The Forgotten Man may not see a Marxist usurper, but he knows that he now pays for two bags of groceries what he once did for three. He may not fathom the serpentine thread binding falsified NOAA data, GE, and the EPA, but the $40 fill-up is now $50 and instead of lunch out, a detour home for a quick bite is apropos.

The new is abnormal and feeling more so. A trip to the movies means skipping the popcorn and candy, sale prices are for necessities and suddenly the Dollar Store has a more promising future than Wal-Mart. The cuts grow deeper and the wounds cannot heel, because the salve Obama carries is a toxic asset. Checkbooks do not understand political boundaries. Even among his own legions, he breeds the Forgotten Man.

The President may organize, fraternize and monetize. He may be a "reasonable propagandist" as was once applied to Franklin Roosevelt. The irony is that Obama's programming is to enrage. That is what organizers do. He is incapable of processing the notion that his actions will enrage the Forgotten Man and carve his own political demise in 2012.

Tuesday, March 8, 2011

Don't Miss Atlas Shrugged!

Ayn Rand's Atlas shrugged is coming to a movie near you April 15, 2011. Who is John Galt?

No Reason to Respect Elders!

This video was too troubling to dismiss. You will hear former WH Green jobs Czar Van Jones, lecturing a college audience at Colorado College in Colorado Springs on March 3, 2011.

The topic is "Beyond Green Jobs: The Next American Economy and the Politics of Hope."

The message at this point on the video is: "There is no longer a basis for young people to respect old people."

I believe in sharing points of view and that students must learn to question authority and blind beliefs. To broadly claim there is no "basis for young people to respect old" appears to be an attempt to undermine families and their unique values. It would be interesting to hear the audience response.

John Anthony

Monday, March 7, 2011

What's Wrong with Public Sector Unions

In 30 seconds, here is the probelm, not with unions, but with private sector unions.

Read story.

Friday, March 4, 2011

Greenspan Says Government Hampering Recovery

Former Federal Reserve Chairman Alan Greenspan said a surge in U.S. government “activism,” including fiscal stimulus, housing subsidies and new regulations, is holding back the economic recovery.

Increased bond issuance by the Treasury Department crowds out borrowers with the weakest credit ratings, Greenspan said in an article in International Finance, published on the Web today. At least half of the shortfall in companies’ capital spending “can be explained by the shock of vastly greater government- created uncertainties embedded in the competitive, regulatory and financial environments” since the failure of Lehman Brothers Holdings Inc. (LEHMQ) in 2008, Greenspan said. Read full story.

Florida Judge Slams Obama for Legal Delays!

This has not been a good month for the Obama administration in its continuing judiciary skirmishes.

On March 3, US District Court Judge Roger Vinson slammed the administration with the legal equivalent of enough already! In January, Vinson declared the entire Affordable Care Act unconstitutional and issued a declaratory judgment, meaning the government must cease implementation of the law or seek an appeal. They did neither until 2 weeks ago when the DOJ essentially said, "We don't know what you mean."

In his testy response, Judge Vinson admonished the administration for "moving forward" for "four plus weeks" on an Act that was declared unconstitutional, failing to apply for an appeal and responding with "an untimely and unorthodox motion" to clarify his January 31, 2011 judgment that was already "clear and unambiguous."

To restrict the administration's dilatory wangles, Vinson stayed his own January declaratory judgment and ordered the Justice Department to file an appeal within 7 days.

This is not the administration's sole legal run-in. On February 2, US District Judge Martin Feldman found the administration's Secretary of the Interior, Ken Salazar in contempt for intentionally violating his June 22 order dissolving the moratorium on drilling following the Deepwater Horizon disaster.

Feldman found the administration's response to the spill unnecessarily broad and partially supported by a skewed drilling safety report that had been altered by the White House creating the impression "the moratorium recommendation had been peer reviewed," when it had not.

The administration responded to the initial order by creating a second moratorium, which Judge Feldman blocked. The Interior Department then instituted a de facto moratorium by refusing to approve drilling permits. On February 17, Judge Feldman ordered the US to make decisions on a set of five permits.

On February 28, the administration issued one permit, the first since the BP disaster, but not before Seahawk Drilling filed for bankruptcy as its rigs lay idle waiting for the permits.

Meanwhile the agency is now implying they cannot issue more permits without an additional $358 million in funding.

John Anthony

Thursday, March 3, 2011

Postal Service Can't Pay Medical Costs!

AP WASHINGTON — The Republican-controlled House opened the envelope of postal finances on Wednesday and what it pulled out wasn't pretty.

Unless things change, the post office will run out of money by the end of the fiscal year in October, Postmaster General Patrick R. Donahoe told the House Oversight subcommittee on the postal service.

Donahoe said that as of Sept. 30 his agency will owe the federal government a payment of $5.5 billion to fund medical costs, in advance, for future retirees, and in November it will need to make a $1.3 billion payment for worker's compensation.
Read full story.

Monday, February 28, 2011

The Number One Lobbying Group In Wisconsin

Guess who is the number one lobbying group in Wisconsin according to the Wisconsin State Government Accountability Board? If you guessed the Wisconsin Education Association, you would be right. They spent $1,511,272 in taxpayer money or double the amount of the next largest spender in 2009.

This is why public (not private) employee unions are a very, very bad idea! Read the report here.

John A.

150 Programs Cut Under House Bill

House Republicans committed to cut $100 billion in 2011. Here is a list of the proposed program cuts.

Here are two points to consider when opponents argue that cuts will "hurt students, the elderly, our nation's defense, 700,000 jobs will be lost", etc.

1. These are waste cuts, not elimination of the programs.

2. Remember the $861 billion "one time" stimulus? That money was included in the baseline for the 2012 budget. Then a few billion in program cuts were made creating the illusion of greater debt reductions than actually occurred. Here is a closer look at the 2012 Budget.
John A.

Government shut down? Not really.

Worried, (or elated) the government might shut down? It's not as big a deal as many think. Social Security checks will go out, Medicare remains open as does the PO, our representatives get paid and Congress can even assure that our debt continues to be paid. In fact, less than half of the 2.1 million Federal workers will even get the day off. Here is the full story.
John A.

Friday, February 25, 2011

US Fumbles Libyan Rescue

167 American citizens remained stranded on board the 68 meter Maria Dolores for days in Libya because the US failed to charter a larger vessel. Rough seas prevented the smaller ship from departing the Tripoli port.

Meanwhile the Greek Government chartered the 204 meter Hellenic Spirit and sailed her passengers to safety days earlier. To worsen matters for Americans stranded amid chaos and violence, the British Government, China and India chartered planes to help their evacuees, while Libyan authorities refused the U.S permission to land any chartered aircraft.
Read the full story.

Monday, February 21, 2011

Understanding the NEA and Wisconsin

Most of us don't understand that the goal of the NEA is not to educate our nation's children. As Albert Shanker said, "When school children start paying union dues; that's when I'll start representing the interests of school children."

Mr. Shanker was a union organizer for the NYC's United Federation of Teachers and was their president from 1964-85.

When NEA's General Counsel of 41 years, Bob Chanin, gave his farewell address on July 9, 2009, he made these awakening remarks:

While you may not agree with the teacher's union strikes in Wisconsin, nor the poor example they set for their students, this at least gives a glimpse into their attitudes and motives.

John Anthony

Video of Presidential Union Support

Presidents always get behind their supporters. But, when you look at what is happening in Wisconsin, could there be a conflict of interest? Can you go too far?

In the video, the President declares he will assure that unions gain "more and more power."

A Talk With Wisconsin Governor Walker

While accusations and misinformation dart among the Madison protestors, here is an informative Q&A with Gov. Scott Walker.

Wednesday, February 16, 2011

Undercover with the 2012 Budget

President Obama's proposed new $3.73 trillion budget will affect businesses, employees and even the unemployed. One of the outstanding features is its tax increases. The FY 2012 plan contains $1.5 trillion in new taxes over 10 years, in addition to those already paid under the current law. Here is a quick rundown.

Taxes in FY 2012 Budget (1)

• Raises the top marginal income tax rate (at which a majority of small business profits face taxation) from 35% to 39.6%. This is a $709 billion/10 year tax hike

• Raises the capital gains and dividends rate from 15% to 20%

• Raises the death tax rate from 35% to 45% and lowering the death tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike

• Caps the value of itemized deductions at the 28% bracket rate: This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phase-out of itemized deductions limits them even more. This is a $321 billion/ten year tax hike

• Adds new bank taxes totaling $33 billion over ten years

• Adds new international corporate tax hikes totaling $129 billion over ten years

• Adds new life insurance company taxes totaling $14 billion over ten years

• Adds new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years*

• Increases unemployment payroll taxes by $15 billion over ten years

• Taxes management capital gains in an investment partnership (“carried interest”) as ordinary income: This is a tax hike of $15 billion over ten years

• Companies can no longer deduct the cost of punitive damages from a lawsuit settlement: This is a tax hike of $300 million over ten years

• Increases tax penalties, information reporting, and IRS information sharing: This is a ten-year tax hike of $20 billion.

*The WH budget also includes $120,000,000,000 in new energy taxes by 2021. The new budget repeals IRS Section 199, which grants deductions for companies who provide goods on American soil. The change applies only to energy companies and will cost $902 million in corporate income tax increases in 2012 for the oil and gas industry and $20 million for the coal industry. By 2021, the increases will total $18.4 billion. (2)

For It

Supporters suggest this is a good plan that cuts discretionary spending by 5% for 2012, increases 'green' jobs, the wave of the future, freezes job salaries, assists the poor and provides more money for higher education. (3) Benjamin Page, a faculty member at the Institute for Policy Research, suggests most people are worried about the economy, not the deficit. (4) While the deficit will rise to a record $1.6 trillion in 2012, Mr. Obama maintains he is taking a more reasoned surgical 'scalpel' approach to long-term reductions. (5) Added, over 10 years, Mr. Obama's much heralded cuts will come to a total of $400 billion. (6)

Against It

Opponents argue that, enthusiasm over the President's cuts is puzzling. Mr. Obama created discretionary debt of $373 billion more than recommended by his own debt commission. (7) Budget Committee Chairman Paul Ryan shows that the President's references to a 'freeze' are illusory. He points out spending increases every year for the next 10 years totaling $8.7 trillion and an addition of $13 trillion to the debt during the same period. (8) Under the Obama budget, rather than decreasing, the debt doubles in 5 years and triples in 10. (9)

Is Mr. Obama's plan good for the country or not? Perhaps the answer lies in the origin of the numbers.

The World of Numbers

In the political world, numerical conclusions are malleable. In January 2011, when the unemployment figures dropped from 9.8% to 9.4% percent columnists praised the turnaround, but insiders knew that people had stopped job searching and slipped off the stats. (10)

CBO figures would support or pan healthcare costs based, not on the math, but on the assumptions behind the math. The bill that once was necessary to reduce the budget, will now add at least $226 billion to the debt and that number keeps rising. (11) The reason for the divide? According to Douglas Holtz-Eakin, former CBO Director, the authors of the Affordable Care Act riddled the cost projections with "manipulated revenues," "unrealistic annual Medicare savings," "stolen revenues from Social Security" and double counting of savings, to name a few. (12)

Close review of FY 2012 budget reveals similar artful tactics. The "Bridge from Budget Enforcement Act Baseline to Adjusted Baseline" establishes a "Budget Enforcement Act Baseline" of $5.5 trillion over the next 10 years. When you add in program adjustments, "indexing to inflation the 2011 parameters of the Alternative Minimum tax" and numerous projections, the baseline jumps to $9.39 trillion in 10 years. (13)

In other words, the budget baseline was so bloated with vanishing costs that the savings appear to be greater than they are. One assumption was that the 'one-time stimulus' package is now a permanent fixture. Another posits that surge levels in Afghanistan and current troop levels in Iraq will remain constant for 10 years, even though we have already announced withdrawal times. (14)

This is like having an unaffordable personal annual debt of $10,000. One year you irresponsibly increase it to an unaffordable $20,000. Your solution is to project future debt based on $20,000 annually and add in additional rising costs so that in 10 years you owe say $300,000. You then eliminate $30,000 of projected expenses and brag to your partner of your cost-cutting prowess.

Mr. Obama also mentioned discretionary spending cuts of 5%. (15) Indeed there are 211 cuts estimated to save $32 billion in 2012. There are cuts to the Home Energy Assistance Program and various community grants. (16) But to create the image of larger cuts, Mr. Obama redefined Pell grants as mandatory spending, reduced spending for Iraq and Afghanistan by $38.2 billion in 2012 (the same costs he just inflated) and reclassified $54 billion of surface transportation spending from the discretionary column to mandatory spending. (17) In other words, discretionary spending wasn't reduced, it was moved. When added back, these costs actually increase discretionary spending by $31 billion.

Tax Tricks

  • The President's budget raises the top tax rate on capital gains and dividends from 15% to 20%, but lists the move as a tax cut that reduces revenues by $124 billion over 10 years.
  • The 2012 budget proposes to extend the Bush cuts for low to mid income earners and correctly includes this in the revenue baseline. But, he then leaves the tax changes for the upper income individuals out of the baseline and thus conveniently fails to report the resulting tax hike.
  • The President's budget proposes to prevent the Alternative Minumum Tax from rising in 2012, but thenproposes a $321 billion tax hike to offset the cost of not letting the tax rise! (17)

What the World Needs Now

Budgetary tricks are not the purview of any party. However, when our nation is so dangerously in debt, with 30% of mortgages underwater (18) and the average duration of unemployment at record highs,(19) we need integrity not trickery.

Whatever value may reside in the President's budget is overwhelmed by the perfidy. Whatever your political persuasion, this budget deserves the shredder.

John A.


Friday, February 11, 2011

Saturday, July 17, 2010


Republicans and Democrats are feverishly positioning themselves to save or take seats in November's mid-term elections. While both sides can display rather elastic ethical boundaries, the DISCLOSE Act ranks as one of the most blatant attempts to curb free speech and sway elections in our country's 234 year history.

The "Democracy is Strengthened by Casting Light on Spending in Elections Act" sounds as wholesome as Wilford Bromley on horseback. Introduced by Sen. Chuck Schumer (D-NY) and Rep. Chris Van Hollen (D-MD), DISCLOSE was Congress' response to the "Citizen's United v. FEC" ruling by the Supreme Court earlier this year in which the judges overturned spending limits by corporations and unions. Pres. Obama accused the judges of opening "the floodgates for" foreign spending in our elections and challenged Congress to fix it. In fact, the President was mistaken. The Supremes pointedly emphasized the exclusion of foreign money in their final ruling.

Undeterred, Congress galloped ahead with the unwholesome, DISCLOSE Act. The bill sets strict requirements and limits on campaign speech and advertising, accompanied by fines or imprisonment for violations. But only for select groups.

A US company with 20% foreign board members would be forbidden to campaign, but their foreign influenced unions would not. While government contractors doing over $10 million in business are subject to DISCLOSE, public employee unions, government grant recipients and even the union members of the covered organizations are exempt. TARP recipients who haven't fully repaid their loans are covered, their unions are not. Have you noticed a pattern? The liberal AARP is exempt while the conservative 60Plus is subject. In a flurry of backroom deals reminiscent of healthcare, special carve outs were provided for influential groups like the NRA, SEIU, Big Labor and the Sierra Club.

Casting light seems to be the last thought brightening the author's minds. According to Sen. Mitch McConnell (R-KY,) a 45 page amendment was crafted behind closed doors treating transfers between affiliated entities that were attributable to dues of less than $600, as exempt from the bill. The average union dues are $377, far below the threshold. Put simply, unions would be able to shift unlimited amounts of campaign money around through various affiliated, national and foreign entities, and never have to report a single dime. 'Affiliate' means any two organizations connected to a common group. The bill creates a financial shell game with endless worldwide possibilities.

For the unfortunate outsiders, the rules and penalties are severe. CEO's with no foreign interests must still certify their eligibility to advertise under penalty of perjury. Onerous advertising regulations demand that the names, titles and towns of the five top contributors be identified in ads (remember the Connecticut protestors at the homes of AIG executives?) so many times that a 30 second spot would require 15 seconds of disclosure. DISCLOSE either deters, if not prohibits, campaign speech.

Businesses are not the only shut-outs with DISCLOSE. Government watchdogs, spontaneous grassroots organizations and even politically inclined bloggers could find themselves facing a nasty subpoena. While Internet communications are generally exempted from areas regarding 'general public political advertising,' news stories, commentaries and editorials do not fall under this category. According to the Republican Study Committee, "since the coordinated communications exception does not mention the Internet, it could open up bloggers who refer to a clearly identified federal candidate during a certain timeframe from coming under the coordinated communication definition—and thus under onerous federal regulations and prohibitions."

The shut-outs should be prepared for a long silence. Under section 324, in a presidential election, the rules apply beginning 120 days prior to the first primary up until election day. In mid-term elections DISCLOSE begins 90 days prior to the election.

The authors just might have suspected the bill will not withstand a constitutional challenge. Virtually all substantive changes to Federal Election law are accompanied by expedited judicial review. The McCain-Feingold campaign finance reform bill allowed challenges to the law to quickly move to a three-judge panel in the US District Court for the District of Columbia. No such expedited provision exists in DISCLOSE. Rep. Dan Lungren (R-CA) introduced a motion to include such language, but it was voted down 217 - 208. Section 401 of DISCLOSE assures any constitutional challenge will be delayed until after the 2010 election.

As Joan Aikens, former FEC Commissioner said of DISCLOSE, "in Citizen's United v. FEC, the Supreme Court overturned spending limits by both corporations and unions, DISCLOSE seeks to re-impose them only on corporations."

If DISCLOSE were applied equally to all parties, it would be excessive, but fair. By design, this bill is not about transparency. It chokes off most conservative and Republican funding sources, while removing most obstacles from unions and liberal sources. Rather than level the playing field, DISCLOSE is a corrupt attempt to thwart voters and level the opposition.

DISCLOSE has passed in the house with 217 Democrats and 2 Republicans in favor. It is already on the Senate calendar.

For a complete analysis of DISCLOSE go to:


Tuesday, June 15, 2010

A Peek Inside Finance Reform

As the US economy sputters through one of its worst recessions, Americans are uneasy about the future, enraged at Wall Street and distrustful of Washington's responses. Sen. Christopher Dodd's financial "regulatory reform" bill is an ambitious attempt to address the first two concerns.

The opening statement of S. 3217, the Restoring American Financial Stability Act of 2010, promises " to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes."

Let's look at how the bill does or does not accomplish what it promises:

Improves accountability and transparency in the financial system -
Much of S. 3217 creates stricter scrutiny of financial advisers, brokers, financial institutions and insurers. Under Title VII, on page 762, the bill addresses Wall Street transparency and specifically derivative "swaps" markets.

Derivatives are an agreement based on future performance. They involve complex bets on the rise or fall of the stock market. In "credit-default swaps," fees are received in exchange for agreements to cover losses or defaults. While derivatives have been used successfully for decades as a hedge against losses, they also contributed to the meltdowns at Enron and AIG. Warren Buffet calls them "time bombs." Under S. 3217, call them "hyper-regulated."

Wall Street firms would be banned from brokering for speculators; and nearly all derivatives would be publicly traded in exchanges shedding more sunlight on the transactions. On page 640, large swaps would be highly regulated and their "books and records shall be open at all times to inspection."

Bottom line: Yes, the bill provides regulation and transparency into transactions of asset-backed securities, hedge funds, mortgage brokers and payday lenders and reduces loopholes in derivatives trading. What is notably missing is any form of additional transparency, accountability or constraints on the newly empowered agencies administering these regulations.

Ends "Too Big To Fail" -
Proponents argue the bill eliminates "too big to fail" since, on page 111, under Title II, an Orderly Liquidation Authority is formed to liquidate failed companies, not bail them out.

But the authority uses hazy terms like "non-bank financial companies," "relevant findings," systemic risk" and "substantial evidence" to decide which companies to seize or ignore. A company need not be "big" or "financial" to be confiscated. For instance, a company leasing equipment to its customers could be considered a non-banking financial institution.

The OLA is granted vast powers. Once a company is targeted for liquidation, its recourse is limited. On page 118, "the determinations of the Panel" shall be final and subject to limited appeal. After the liquidation panel issues its findings, the defendant has 30 days in which to appeal to the Third Circuit Court in DE. The OLA takes precedence over, and is therefore unbound by the constraints of bankruptcy law. Even the defendant's right of appeal to the Supreme Court is strictly limited to whether or not there was "substantial evidence."

The government forms the OLA by allocating itself a $50 billion Orderly Liquidation Fund created by taxing financial firms.

In practice, the authority creates a fertile patch for political favoritism or reprisal. The Obama administration's decision to force Chrysler bondholders to accept 33 cents on the dollar on secured debts while giving the UAW retirees 50 cents was in violation of bankruptcy law. The politically connected UAW folks got preference over the politically unconnected bondholders. S. 3217 would institutionalize this favoritism.

Bottom line: There is nothing in the 184 pages of Title II that forces the Orderly Liquidation Authority to liquidate anything. Since we already have a better defined, well-functioning and less politicized bankruptcy system, the authority would seem to be a step backwards.

Protects American taxpayers by ending bailouts -
Actually, the bill provides a runway for the opposite. On page 22, S. 3217 creates a Financial Stability Oversight Council whose directives are to 1. identify financial risks to US financial stability, 2. eliminate the expectation of a government bailout and, 3. respond to the threat. In other words, bail them out.

The bill hasn't even been signed and there are already bailout exceptions. Fannie Mae and Freddie Mac were key contributors to our financial crises as well as to the administration. Like the UAW, they have a favored status and are not even addressed in the reform bill. Meanwhile, Congress gave them bailouts of $19 billion for the first quarter of 2010 and they are asking for another $19 billion on top of the $145 billion already received.

Bottom line: There is nothing in the 1566 pages of the bill that prevents politicians from providing further bailouts. Let's not overlook the obvious. The only "bailers" are the people writing this bill. It carefully avoids hobbling their latitude for future generosity.

Protects consumers from abusive financial services practices -
The Bureau of Consumer Financial Protection, formed on page 1001, operates within the Federal Reserve System on a budget of $646 million. This is 12% of the Fed's record high 2009 operating budget. By linking the two budgets and using the inflated figures, lawmakers created the highest baseline funding possible for the new agency.

On page 1234, the BCFP monitors financial transactions and holds financial brokers and advisers accountable to comply with consumer financial laws or face penalties. Meanwhile, the bureau grants itself massive rulemaking authority with minimal oversight. While the BCFP must submit rules changes to Consumer Financial Regulators, they are only bound to note regulators' objections, not abide by them.

Though the intent sounds noble, the bureau's powers are alarming. The new agency has the authority to monitor every American's financial patterns. On page 1417, the bill mandates that each branch with an automated teller that accepts deposits for any financial institution, must maintain records of personal and individual transactions for the government to use and share as they deem appropriate. In addition, customer addresses are to be geocoded for data collection based on the census tracts and this information accumulated for sharing to identify purchasing habits on a geographical basis.

The bureau operates on the principle that they can only protect you if they know what companies are doing and how you are responding. Hence they authorized themselves to accumulate your personal information.

Bottom line: The bill provides additional oversight, reporting requirements and transparency for consumers, but at a price of personal freedom and privacy that is out of balance with its limited benefits. It creates a virtually autonomous agency with unprecedented authority to collect and mine personal information, then share that information at their discretion while creating self-regulating rules with minimal oversight.

And other purposes -
Among many other provisions, the bill also:
• Transfers the powers of the current Office of Thrift Supervision to the Board of Governors and within 90 days the office is abolished. The Board of Governors operates within the Federal Reserve, itself under scrutiny for a lack of transparency. In March of 2010, the Fed had to be forced by a District court to reveal information about loans to private banks.
• Establishes an Office of National Insurance to monitor, tax and regulate the insurance industry. • Manages executive compensation.
• Establishes an Office of Financial Research.

Conclusion -
While the intent of the Restoring American Financial Stability Act of 2010 is to restore financial stability, it is unlikely to do so.

Economic stability requires a balance of oversight and freedom. Sufficient oversight to prevent commercial abuse and enough freedom to creatively prosper. If anything has defined America's success it is the ability to find this balance and rebound when it is temporarily lost. S. 3217 is a heavy-handed attempt to legislate both the road to prosperity and its definition.

Americans are seeking protections, but this bill cages the innocent with the guilty as it nourishes a hunger for political ascendency.

Finally, the most fundamental components for success of this bill are character and fiscal responsibility. S. 3217 creates broad, vaguely defined terms and applies minimal constraints affording Olympian powers to masses of newly appointed bureaucrats who will add thousand of lines of regulations that will affect our daily lives. These are the same powers Washington routinely abuses. It took Bernie Madoff a lifetime to pilfer $50 billion of others' money. With our national debt increasing at the rate of $200 million an hour, Congress achieves this same feat every 10 days.

Perhaps in a different time, with different representatives a bill like this would have value. But, today, who is to protect us from the protectors?

John Anthony

Saturday, April 24, 2010

The Impact of A US VAT Tax

Background On The VAT
A VAT or value added tax is looming. President Obama said it is a "novel idea" and "on the table." Democrats favor adding VAT on top of current taxes and several Republicans would like to see it replace the Federal Income Tax. (There are no proposals to eliminate the FIT.)

The first VAT was implemented in France in 1954 as a way to increase taxes on top of an already high tax base. VAT is virtually invisible to the end user, so it quickly gained political popularity. The VAT tends to be introduced at a low rate, but quickly climbs. For instance, Sweden had a rate of 17.7% in 1976 and now has a VAT of 25% on top of a 55% personal tax rate. Today, most countries outside of the US have an added VAT of approximately 20% on goods and services plus income taxes.

How A VAT Would Affect Businesses
The VAT is levied on goods and services at each stage of production. However, your business is able to recover these costs by passing them on. Only the consumer must pay the full cost. In a quote from The Hill, "So the raw material seller charges the manufacturer who then adds a new tax onto the price when he sells his finished product to a retailer who then adds on a new levy when he sells it to a customer. "

From an accounting perspective, VAT is generally invoice-based, meaning each seller stage passes an invoice along to the next buyer stage and so on until all of the charges are finally passed to the consumer.

Look for sales to go down. As a function of supply and demand, when the price of goods increases from a VAT, the quantity of goods sold can be expected to decrease.

How A VAT Would Affect Consumers
For the most part, the consumer won't see the tax. But they will feel the pain. Again, quoting from The Hill, "When you buy something for $10 and the clerk asks for "$10.65, please", you know that you are paying a 6.5% sales tax. But when $4 of hidden VAT taxes causes the item to cost $14, you pay the $14 without knowing that it includes the extra tax." State taxes would be levied on top of the VAT.

What people will realize is their weekly paychecks will no longer stretch as far. Low and middle income earners will be affected the most and can be expected to buy less. See below.

How A VAT Would Affect the US Economy
It's important to see how debt and the VAT go together. At the end of the Bush Presidency, (Oct. 2008,) the US debt was a record, but manageable $438B dollars.

The first TARP bailout for another $700B was actually approved by Mr. Bush and Mr. Obama, as each shouldered responsibility for increasing the deficit to $1.2T. For 2010, the CBO deficit projections total $1.6T. (This does not include the healthcare costs that Associated Press on April 23rd reported were severely underestimated and will add another $1T to the deficit.) The total US debt now stands at $13T, a number incomprehensible to most. But, here's why these numbers matter.

66% of Americans (Rasmussen, April 2010) are against raising taxes for more programs. And 66% want deficit reduction. Since the President already spent money he didn't have, he can now cleverly argue that he is merely trying to reduce the deficit. While there is resistance in Congress, a VAT is a very real possibility.

The VAT impact on consumers and the overall economy would be substantial. A single taxpayer earning $75,000 yearly would pay 25% Fed Tax, 7.65% FICA + Medicare, 20% VAT, State income tax averaging 9.7% and State sales tax of approximately 6.5% . This totals 68.85% of income. In addition there will be a minimum 2.5% tax on uninsured's for healthcare and, according to the CBO, an additional $1500 in annual utility bill increases for families under a Cap and Trade type legislation now working its way through Congress and the EPA.

A Trade-off You May Not Want
Because a VAT hits everyone equally, it will have the heaviest impact on the poor and the middle classes. Since 26.5% of taxes would be based on spending, you can expect consumers in these brackets to reduce consumption. This will mean less trips to the theater, fewer dinners out and in many cases people would be forced to choose less expensive appliances, recreation equipment and cars.

Americans have often been credited with enjoying the highest standard of living in the world. This is partly because we are unencumbered by the onerous tax structures plaguing so many nations. The VAT coupled with the current tax and fee proposals from the 111th Congress would reduce, if not eliminate that advantage.

If the VAT is passed, most Americans, other than the wealthiest, can expect their living standards to drop. In return, the deficit should slow, but is unlikely to return to pre-Obama levels.


Sources: ABC News, The Hill, Wikipedia, Associated Press, Bloomberg, Rasmussen Polls, US Treasury, Congressional Budget Office, Health and Human Services, OECD Tax Database