President Obama’s Bad Economic Policies are Pushing the Economy Underground

Posted by PITHOCRATES - April 28th, 2013

Week in Review

Proponents of cuts in tax rates and less costly regulatory policies say it will encourage rich people to keep their money in the country.  Investing in plant and equipment.  Instead of investing it overseas.  Giving business the capital they need.  And the profits investors seek.  And history has proven this theory.  Proving that tax and regulatory policies drive the decision making process.  For investors.  Employers.  And workers (see $2 Trillion Underground Economy May Be Recovery’s Savior by Mark Koba posted 4/24/2013 on CNBC).

The shadow economy is a system composed of those who can’t find a full-time or regular job. Workers turn to anything that pays them under the table, with no income reported and no taxes paid — especially with an uneven job picture.

“I think the underground economy is quite big in the U.S.,” said Alexandre Padilla, associate professor of economics at Metropolitan State University of Denver. “Whether it’s using undocumented workers or those here legally, it’s pretty large.”

“You normally see underground economies in places like Brazil or in southern Europe,” said Laura Gonzalez, professor of personal finance at Fordham University. “But with the job situation and the uncertainty in the economy, it’s not all that surprising to have it growing here in the United States.”

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison.

That’s double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product.

Some workers in the construction industry prefer doing side-work rather than going into business themselves.  Because they don’t want to deal with all the taxes and regulatory costs.  So they do work through word of mouth.  At discount prices.  Because they aren’t paying union wages, health care, payroll taxes, insurances, etc.  They get their buddies to work for them under the table at discount wages.  Which they don’t mind.  Because they keep every cent they earn.  Paying no payroll taxes.  Or income taxes.  Money under the table is pure profit.  Gross pay that remains gross pay.  Allowing them a lot of purchasing power at a reduced wage.

Working under the table means people earn little compared to other jobs.  But because it’s tax-free and regulatory-cost-free employer and employee can both earn less and still have enough purchasing power to make it worth their time.  And during bad economic times everyone is trying to get by on less.  Which they can do if they cut out the taxman.

“The jobs are in service industries from small food establishments to landscaping.” said David Fiorenza, an economy professor at Villanova University. “Even the arts and culture industry is not immune to working off the books in areas of music and entertainment.”

It also includes firms that hire hourly or day construction labor, information technology specialists and Web designers. Many who have a job that doesn’t pay enough take another one that pays under the table…

A report from ADP Research Institute states that many employers, especially in low-wage businesses such as retail and food service, plan to reduce workers’ hours to less than 30 a week to avoid having to offer health benefits through Obamacare (or pay a fine).

“This type of regulation could put more people out of work and into an underground economy,” McHenry said…

“Those working and not paying the taxes puts the burden on those who pay the tax,” added Fiorenza. “Taxes could be lower if the government where able to capture the underground economy instead of raising taxes on those currently paying the various income and payroll taxes…”

“People are running out of patience when it comes to finding a job and losing income,” Gonzalez said. “So it’s not that surprising to have workers take jobs that are in the shadow economy. But it’s a sign of how bad things are and how we have to get the real economy moving again.”

It was the high taxes and regulatory costs that pushed these people into the underground economy.  If the Obama administration would cut taxes and reduce costly regulations—especially Obamacare—people would move back into the regular economy.  For the regular economy will have pay and benefit packages that workers can’t get working under the table.  And if they can get that working a normal 40-hour week they’re not going to want to spend their nights and weekends doing side work.  For life is too short.  And all work and no play isn’t good for our wellbeing.

People don’t like paying high taxes.  They don’t like having to work a second job under the table because of the tax bite out of their primary paycheck.  Or because that’s the only work they can find because of bad economic policy.  That makes hiring people bad business because of the costs.  This is why we have an underground economy.  Because of the redistributive policies of the Obama administration.  That President Obama is using to change America into a European-style social democracy.

Europe is rife with shadow economies.  As employers and employees try to escape confiscatory tax rates.  And brutal workplace rules.  That have pushed the economy underground in many areas.  So it is no surprise that when we adopt European policies that we should get European results.  The whole point of the European Union and the Eurozone was to replicate the American economy.  A large free-trade zone that fostered great economic activity.   Making the United States the number one economic power in the world.  And here we are.  Adopting the worst Europe has to offer.  The same policies that have plunged the Eurozone into a sovereign debt crisis.

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Obama uses a Joint Session of Congress for a 2012 Campaign Speech on Jobs

Posted by PITHOCRATES - September 9th, 2011

The Obama Jobs Speech was the Same Old Same Old with the Angry turned up to Eleven

The big speech was last night.  President Obama‘s Jobs speech.  After waiting with bated breath.  For him to come back from vacation.  On Martha’s Vineyard.  Where no one wants for a job.  Or anything.

What you thought of it depends on your party affiliation.  If you’re a Big Government liberal Democrat that wants to stick it to the rich, I’m sure you liked it.  If you were looking for substance, I’m sure you were disappointed.  It was just the same old same old.  With the angry turned up to eleven.

Here are some selections from the transcript with commentary (see Obama jobs speech transcript: Full text (as delivered) posted 9/8/2011 on Politico).

These men and women grew up with faith in an America where hard work and responsibility paid off. They believed in a country where everyone gets a fair shake and does their fair share — where if you stepped up, did your job, and were loyal to your company, that loyalty would be rewarded with a decent salary and good benefits; maybe a raise once in a while. If you did the right thing, you could make it. Anybody could make it in America.

For decades now, Americans have watched that compact erode. They have seen the decks too often stacked against them. And they know that Washington has not always put their interests first.

Yeah, it used to be like that.  Until greed set in.  Government greed.  Their insatiable want of private sector wealth.  And power over our lives.  High taxes.  And punishing regulations.  These have hurt American businesses that once provided those fair shakes.  It’s President Obama and his party that have been making this a business unfriendly nation.  Giving American businesses an unpleasant choice who struggle to compete.  Either close.  Or conduct business in a country that lets them compete.

Just look at the effect of Obamacare.  All hiring is frozen.  And those who can get Obamacare waivers are.  The communist Chinese don’t have these problems.

The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy.

He says as he scolds the American people.  And our Republican representatives.  Yelling at us.  Scowling at us.  Fed up with us.  Because he is not getting his way.

Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers.

Absolutely right.  And the best thing Washington can to is to stop helping.  Their tax and regulatory policies are smothering economic growth.  You want to help?  Then get out of the way.  And let business do what business does best.  Grow.  And create jobs.  To meet demand.  That the market is demanding.  Not building what the government thinks is best.

I am sending this Congress a plan that you should pass right away. It’s called the American Jobs Act. There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans — including many who sit here tonight. And everything in this bill will be paid for.

That urgent is it?  Urgent.  But not so urgent to cancel your luxurious vacation on the exclusive Martha’s Vineyard?  Where the rich and famous vacation to get away from people like us.  You know, if it could wait until after Martha’s Vineyard, it can’t be that important.

Democrats and Republicans support everything in this plan?  If so why isn’t this already law?  If not important before, why is it now?  Some two and a half years into your presidency?  And some two and a half years after applying your laser-like focus on job creation?

It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for long-term unemployed.

Jobs for teachers?  There’s nothing stimulative about that.  They don’t hire workers.  And the kids they teach aren’t going to hire any workers for a very long time.  This is just more money for teachers’ unions.  Which will be funneled back to the Democrat Party via union dues.

We pay teachers with tax dollars.  Paid by the taxpayers.  This is money the government transfers from the private sector economy to the public sector teachers.  So before teachers can stimulate with this money the private sector has to lose it first.  They take a large sum of money from the private sector.  And give it to the teachers.  Less administration costs to make this all happen.  To stimulate the private sector economy.  Which means the teachers spend less money than the private sector would have if they were able to keep their money.  This is a net loss of economic activity.  And is not stimulative.

Teachers are like government.  They provide an important service.  But they are taxpayer financed.  And like anything taxpayer financed, they are a drag on the economy.

More shovel-ready construction projects?  You told us yourself there is no such thing as a shovel-ready project.  This won’t be stimulative either.  Construction projects just don’t happen overnight.  Even if you get rid of all the regulatory red tape.  Projects take months to engineer.  If you cut that short there will be cost overruns to correct all the things missed in the engineering process.  Then there’s the asbestos abatement study.  Lead abatement.  Environmental impact studies.  At best these will start hiring in time for the 2012 election campaign.  Which no doubt is the goal.

It will provide — it will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. (Applause.) It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and if they hire, there will be customers for their products and services. You should pass this jobs plan right away. (Applause.)

If tax breaks are good for businesses then just cut tax rates.  A tax rate cut is more stimulative than a onetime tax credit.  A tax credit does not instill business confidence.  Because hiring a new employee is far more costly than any onetime tax credit.  Especially with Obamacare bearing down on small businesses.  It’s these permanent costs of current tax and regulatory policies.  These are what are keeping business skittish about expanding and hiring.  And a onetime tax credit won’t change that.  A repeal of Obamacare would probably spark some business growth.  But not a targeted tax credit.

Pass this jobs bill — pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or if they raise workers’ wages.

Wishful thinking.  Whoever came up with this is an economic simpleton.  He might as well have asked everyone to voluntary pay more for their groceries.  So the stores will hire more people with all that additional profit.  Employees are another cost of doing business.  Voluntarily increasing these costs above the market cost will only make these businesses less competitive in the market place.  Threatening their business.  And all the jobs they currently provide.

It’s not just Democrats who have supported this kind of proposal. Fifty House Republicans have proposed the same payroll tax cut that’s in this plan. You should pass it right away. (Applause.)

Yes, payroll tax cuts are good.  They reduce the cost of doing business.  And let employees keep more of their earnings.  So cutting Social Security and Medicare taxes will help.  But this will only set up higher taxes down the road.  Because these programs are going broke.  Businesses understand this.  They know it will only be temporary.  And illusionary.  For they will pay more in the future.  So they aren’t going to hire more now.

Building a world-class transportation system is part of what made us a economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads? At a time when millions of unemployed construction workers could build them right here in America? (Applause.)

No.  It didn’t.  We took over the title of economic superpower from the British before the federal highway bill.  And private industry built the railroads.  And robber barons.  Sure, government helped.  But it didn’t lead the way.

China?  Really?  Why is China building so much infrastructure?  Because they have cheap labor.  They couldn’t do what they’re doing if their labor costs were the same as ours.  And that high-speed rail system?  They’re now questioning quality and safety.

And there are schools throughout this country that desperately need renovating.

According to my calendar it’s September.  And I’m pretty sure it’s September throughout the country.  Which means what?  That’s right.  The kids just went back to school.  Which means the next round of school renovation projects will take place starting next June.  When the kids get out of school.  Not very stimulative if you ask me.  Unless you just want a lot of people working on these school renovations during the 2012 election campaign.

And to make sure the money is properly spent, we’re building on reforms we’ve already put in place. No more earmarks. No more boondoggles.

Just like you promised your $800 billion stimulus wouldn’t contain any pork or earmarks?  When it was mostly pork and earmarks?  Fool us once shame on you.  Fool us twice shame on us.

And we’ll set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it will do for the economy. (Applause.)

Great.  Nothing guarantees to speed things up like making it go through a new government bureaucracy.  Which can better send money to friends of the administration.  Just like that $800 billion stimulus.

Pass this jobs bill, and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job.

Let’s crunch some numbers.  Say you hire someone.  Pay them $30,000.  Your half of Social Security and Medicare taxes come to $2,295 for the year.  Now factor in your other costs.  State and federal unemployment insurance.  Workers’ compensation insurance.  Health care.  Etc.  Not to mention their salary.  It adds up to a lot of money.  Far more than that $4,000 tax credit.  For hiring someone they don’t need to support their current level of business.  And you know what?  A smart business owner isn’t going to do this.

The plan also extends unemployment insurance for another year. (Applause.) If the millions of unemployed Americans stopped getting this insurance, and stopped using that money for basic necessities, it would be a devastating blow to this economy.

The government has to take that money out of the private sector economy first.  Before it can pay unemployment benefits.  Someone is still spending that money.  Just a different someone.  By the time you add in the cost of administering those benefits, there is a net loss in economic activity. 

Unemployment benefits help the unemployed while they look for another job.  They don’t stimulate the economy.

The agreement we passed in July will cut government spending by about $1 trillion over the next 10 years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I am asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan — a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run. (Applause.)

Standard and Poor’s wanted to see $4 trillion in real spending cuts.  Not cuts in the out-years that will disappear in the next budget deal.  Real cuts.  If not they said they would downgrade the U.S. sovereign debt rating.  They couldn’t do it.  The best they could do was a $1 trillion tax cut over the next 10 years.  And by golly if S&P didn’t downgrade our credit rating.

And the special commission is to find another half trillion in spending cuts?  On top of the $1.5 trillion they were already looking for?  That Congress was unable to find?  And now they have to find $2 trillion?  Yeah, like that’s going to happen.  That’s a plan with but one goal.  Failure. 

With this kind of spending, a deficit reduction plan can only mean one thing.  More taxes.  Just what the economy needs.  Not.

While most people in this country struggle to make ends meet, a few of the most affluent citizens and most profitable corporations enjoy tax breaks and loopholes that nobody else gets. Right now, Warren Buffett pays a lower tax rate than his secretary — an outrage he has asked us to fix. (Laughter.) We need a tax code where everyone gets a fair shake and where everybody pays their fair share.

An executive secretary probably earns something north of $60,000 a year.  That puts her in a top marginal tax bracket of 25%.  Crunching the numbers and this executive secretary will pay $11,125 in federal taxes.  Now let’s assume Warren Buffet has a half billion dollars in investments that pay a return of 8%.  That’s a capital gain of about $40 million.  Taxed at a paltry 15% capital gains tax that’s a measly $6 million in federal taxes.  Funny.  His secretary has a higher tax rate.  But Buffet pays approximately 53,833% more in tax dollars.  I don’t know how you can say one person paying $40 million in taxes isn’t paying his fair share.

Should we keep tax loopholes for oil companies? Or should we use that money to give small business owners a tax credit when they hire new workers? Because we can’t afford to do both. Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? (Applause.) Right now, we can’t afford to do both.

This isn’t political grandstanding. This isn’t class warfare. This is simple math. (Laughter.)

This is nothing but political grandstanding and class warfare.  And rather Orwellian.  In Nineteen Eighty Four, they just changed the meaning of words to control the people.  Such as slavery is freedom.  But changing the meaning of words doesn’t change what slavery is.  It’s still slavery.  No matter what you call it.  And political grandstanding and class warfare is political grandstanding and class warfare.  Even if you say it isn’t.

Now it’s time to clear the way for a series of trade agreements that would make it easier for American companies to sell their products in Panama and Colombia and South Korea -– while also helping the workers whose jobs have been affected by global competition.

America can’t compete with China because Chinese labor is cheaper.  So to make American products more competitive the president wants to subsidize our high cost of labor.  With American tax dollars.  Spread the higher cost of U.S. goods throughout the American economy.  Leaving everyone with less money for their own personal needs.  So we can keep Big Union working.  And supporting the Democrat Party.  Which will only increase government spending.  Our deficit.  And our debt.

To subsidize Big Labor they’ll have to pill that money out of the private sector economy first.  So you subtract X from the private sector economy.  And give X to Big Union.  Less an administration fee, of course.  Meaning that there will be a net loss of economic activity.

If we provide the right incentives, the right support — and if we make sure our trading partners play by the rules — we can be the ones to build everything from fuel-efficient cars to advanced biofuels to semiconductors that we sell all around the world.

The free market doesn’t need government incentives and support.  They did fine and dandy in the old days without any government help.  And making our trading partners play by the rules?  If you could do that they would be playing by the rules already.  There’s nothing you can do to make China stop undervaluing the yuan.  Unless you want to throw up protective tariffs on Chinese goods.  Of course they’ll retaliate.  Which will only make everything more expensive for the American consumer.  Besides, we already tried this.  Just before the Great Depression.

You really want to talk about the government picking winners and losers (i.e., incentives and support)?  Really?  After the Solyndra bankruptcy?  And the FBI raid on their executive homes?

Well, I agree that we can’t afford wasteful spending, and I’ll work with you, with Congress, to root it out. And I agree that there are some rules and regulations that do put an unnecessary burden on businesses at a time when they can least afford it. (Applause.) That’s why I ordered a review of all government regulations.

Didn’t Al Gore already reinvent government?  To root out wasteful spending and regulations?  Yeah, he did.  Or tried.  Turns out that’s a lot easier said than done.  Especially when you don’t really mean it.  I mean, come on, the Left lives and dies for these costly regulations.  They’re not just going to sit idly by and let them get repealed.  Not when they fund Democrat candidates in elections.

But what we can’t do — what I will not do — is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades.

Really?  So you’re not going to let anyone do what you did?  Like Rahm Emanuel said, “You never want a serious crisis to go to waste.”  When you used the worst recession since the Great Depression to pass your stimulus?

Basic protections are one thing.  But your regulatory zeal has shut down this economy.  Just ask the Gulf oil workers.  If you can find any.  Because they aren’t working on rigs in the Gulf anymore.  Thanks to you.

We all remember Abraham Lincoln as the leader who saved our Union. Founder of the Republican Party. But in the middle of a civil war, he was also a leader who looked to the future — a Republican President who mobilized government to build the Transcontinental Railroad — (applause) — launch the National Academy of Sciences, set up the first land grant colleges. (Applause.) And leaders of both parties have followed the example he set.

The seeds of the first transcontinental railroad were sowed back in the 1830s.  Lincoln became president in 1861.  The NAS was established by an Act of Congress.  Land grant colleges came into being in with the Morrill Acts of 1862 and 1890.  First introduced in 1857.  Abraham Lincoln wrote the Emancipation Proclamation.  But he did not create these other acts of Congress.  Congress did. 

And the transcontinental railroad?  That was Congress, too.  And one of the most corrupt Congresses in history.  The incentives and support Congress gave encouraged them to build track on ice.  Zigzag to cover as much land as possible to claim the mineral rights beneath. And when east and west finally met, they kept building track.  Parallel to each other.  To keep collecting money for track mileage laid.  And the cost overruns made a lot of Congressmen wealthy.  No, this railroad was not America’s finest hour.

How many jobs would it have cost us if past Congresses decided not to support the basic research that led to the Internet and the computer chip?

The government Internet (DARPA) was nothing more than file sharing and email for scientists.  If private enterprise and entrepreneurs didn’t step in that’s what the Internet would still be. 

The computer chip?  Funny. I thought that was Texas Instruments and Fairchild Semiconductor.  Which was ultimately based on the transistor.  Invented in 1947 by John Bardeen, Walter H. Brattain, and William B. Shockley of Bell Labs.  Who replaced vacuum tubes with semiconductors everywhere.  Except in high-end audio amplifiers.

What kind of country would this be if this chamber had voted down Social Security or Medicare just because it violated some rigid idea about what government could or could not do? (Applause.) How many Americans would have suffered as a result?

Actually they’d probably be a lot better off.  As far as a return on investment, Social Security is one of the worst retirement investments out there.  Why?  Because it’s not an investment.  Your money goes into the Social Security trust fund.  Where it ‘waits’ for your retirement.  But before you do, the government takes that money and spends it.  Leaving an IOU in the trust fund.  This is no IRA.  No 401(k).  No mutual fund.  It’s not even a savings bond.  In fact, if you die before you collect, all that money you paid in is kept by the government.  It doesn’t go to your heirs with the rest of your estate.  Like an IRA, a 401(k) or a mutual fund would.

But Social Security has been a real success.  For the government.  Because it has made generations of people dependent on government in their retirement.  Who live in fear of losing their benefits.  And will do anything to keep those benefits coming.  Even if it means screwing their own children.  And their grandchildren.  They’re so frightened by the Democrats that they will vote Democrat.  No matter how much the Democrats steal from future generations.

I don’t pretend that this plan will solve all our problems. It should not be, nor will it be, the last plan of action we propose.

That’s right.  You never want a serious crisis to go to waste.  And they will milk this for all it’s worth.  Stimulus.  Bailing out the UAW pension funds (i.e., the auto bailout).  Financial reform.  Obamacare.  Everything they’ve always wanted.  But could never get through the normal legislative process.

The Problem with Barack Obama is that he’s a Keynesian who wants to Grow the Government

Once again the professor scolds those who don’t agree with him.  And offers more of the same.  Which has already failed to reverse the worst recession since the Great Depression.  And it’s not going to work this time.  How do we know this?  Because if this stuff worked it would have worked the first time.

And it would be nice to see the plan before our representatives pass the plan.  For as CBO said before, you just can’t score a speech.  We need to see the numbers.  And the leaps of faith.  But I guess it’s hard to quantify soaring rhetoric.  Especially when you’re offering the same thing.  That you’re trying to make sound different this time.

The problem with Barack Obama is that he’s a Keynesian.  With one slight difference.  Keynesian stimulus is supposed to be temporary.  Whereas Obama’s stimulus gets added into the baseline budget.  Making his stimulus spending permanent.  His number one goal isn’t growing the economy.  It’s growing the government.  That’s why his polices don’t help the economy.  But they sure have grown the government.  And in Obama’s book that’s mission accomplished. 

But he sure would like a second term to continue the fun.  But I just don’t see that happening.  For I can’t see how he can fool that many people into believing that they’re better off after four years of his policies.

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