Even before the Inauguration of President Obama, there was much talk of an economic stimulus package. President Obama’s stimulus package will entail 1 trillion dollars in additional government spending. This spending will primarily be focused on improvements in the nation’s infrastructure. In other words, it is designed to create jobs building roads, and bridges. The question the commonsense economist must ask is will this actually stimulate the economy or lead to higher taxes and inflation in the future.
Capital is the fuel that runs an economy. To stimulate the economy requires the infusion of additional capital into the economy. There are two differing theories on how to infuse capital into the economy and in this posting we will be looking at these two theories and the pros and cons of each.
President Obama’s proposals follow the theory that it is the government’s responsibility to infuse capital into a struggling economy. This explains why he favors such programs as bailouts for companies that are deemed “too big to fail” such as the automakers. State and local governments are also deemed to big to fail and are granted bailouts under this theory. Economists adopting this theory also favor stimulus checks to individuals such as the checks issued in early 2008.
Proponents of this theory also favor refundable tax credits such as the earned income credit and additional child tax credit that are currently a major part of the tax code for The United States. Refundable tax credits are credits given to taxpayers regardless of whether they paid tax or not. They are usually means tested which means individuals earning over a set income level will not qualify for the credit. Economists adopting the theory of government intervention believe this infusion of cash for lower income individuals will stimulate the economy. However, we must ask who pays for these credits.
The reason these credits are means tested is to insure there are taxpayers to pay for the credits. In other words these tax credits are not tax credits at all but transfers of capital from higher income individuals to lower income individuals using the tax code. However, it is these higher income individuals who own the businesses necessary for the creation of new jobs and increased economic activity. Taxing these individuals more will only slow new job creation and stifle economic activity which will prolong the duration of the recession.
The pros and cons of this theory are that it provides quick results since the government can simply change its monetary policy and create the cash it will need to stimulate the economy. However, this creation of cash through liberal monetary policy results in long-term pain due to higher taxes to pay back debt the government incurs and inflation caused by the sudden influx of large sums of cash into the economy.
The other theory of economic stimulation involves government retraction. Economists following this theory favor cutting taxes, reducing spending, and reducing regulations on private business. President Ronald Reagan favored this theory and used it to lift the country from the recession of 1980. Proponents of this theory believe that when the government spends less there is more capital available that business can use for investment and business expansion. This additional investment and expansion will result in more jobs in the private sector creating additional taxpayers and business revenue that will actually result in additional tax revenue coming into the government.
The pros and cons of this theory is that the results take longer to happen but the results are long-term. The economic stimulus started by Ronald Reagan in 1980 actually continued until the dot com bubble burst in 2000. However, the results of his policies were not felt until after 1982. This is why many politicians who are primarily motivated by earning votes hesitate to adopt this theory due to its slow results. They are more interested in short-term results but these often lead to pain in later years. However, politicians often do not care about this since they will be term limited out of office leaving the problem for someone else to solve.
I am a common sense economist and believe in long-term economic growth not some gimmick that produces quick results but causes long-term pain. I believe it is best to endure some short-term pain now while we adopt long-term policies of government retraction in order to experience long-term growth. I invite your comments expressing your opinions on this matter. You can also contact me at dalewsr34@gmail.com
Sunday, January 25, 2009
Tax Season Is Here So What Should We Do To Prepare.
Tis the season when we have to rummage through our records in order to prepare our taxes. In these tough economic times, it is important to make sure we do not pay more in taxes than we should. So exactly what should we do to prepare?
The truth is that 2008 is history. The only thing we can do is make sure we have documentation to support every deduction we take and take time to make sure we take every deduction to which we are entitled. However, we still do have until April 15 to invest in an IRA in order to reduce our tax liability for this year.
We should all begin planning now for 2009. The best form of planning is to set up some system to organize and keep track of our income and expenses for the year. This system can be something as simple as a file box where we file receipts or it may be some computer program such as Quick Books. I also encourage anyone who uses their vehicle for either their own business or their employers to set up some system to track miles and business expenses for this vehicle. The IRS requires that you keep track of the total miles driven for the year as well as how many of these miles are for commuting from home to the office and how many miles are used to make business calls.
Proper record keeping now will make next tax season much more tolerable and lessen the chance of missing some deduction. So let’s get organized.
Please reply with your comments or contact me at dalewsr34@gmail.com.
The truth is that 2008 is history. The only thing we can do is make sure we have documentation to support every deduction we take and take time to make sure we take every deduction to which we are entitled. However, we still do have until April 15 to invest in an IRA in order to reduce our tax liability for this year.
We should all begin planning now for 2009. The best form of planning is to set up some system to organize and keep track of our income and expenses for the year. This system can be something as simple as a file box where we file receipts or it may be some computer program such as Quick Books. I also encourage anyone who uses their vehicle for either their own business or their employers to set up some system to track miles and business expenses for this vehicle. The IRS requires that you keep track of the total miles driven for the year as well as how many of these miles are for commuting from home to the office and how many miles are used to make business calls.
Proper record keeping now will make next tax season much more tolerable and lessen the chance of missing some deduction. So let’s get organized.
Please reply with your comments or contact me at dalewsr34@gmail.com.
Sunday, January 18, 2009
We Need Economic Rehab
We hear many stories in the news of famous people going in for rehab due to an addiction to some substance such as drugs or alcohol. The cycle of addiction usually begins with the person experimenting or trying something new to feel good or hide their pain. They do feel good at first but as soon as the drug or alcohol is out of their system, they feel bad again and experience withdrawal. The easiest way to overcome the pain of withdrawal is to take another pill or have another drink and the cycle of addiction has begun.
Of course, the best way to kick the cycle is never begin in the first place. However, for those already caught up in the cycle, rehab is perhaps the only answer. The purpose of rehab is to break this vicious cycle. First, the individual comes to some remote place far from their normal surroundings, friends, and family. They are also separated from their addictive behavior immediately. I have heard from some who have gone through the process that the first few days are rough as withdrawal is allowed to run its full course. However, after the withdrawal is over, things begin to smooth out and the individual begins to find the real reason for their feeling bad in the first place. Once they can successfully face this reality and deal with it without the use of drugs or alcohol, the healing process can begin.
Ever since the initial $700 billion bailout in the fall, it seems our economy has begun a cycle of addiction to government bailout money. Ever since that time, we have witnessed one company and government agency after another appearing before Congress seeking bailout money. It seems that once the economy experimented with bailout money they have to continually return for another fix. Unfortunately, the government is all too happy to supply the fix. If we are ever to break this cycle, we need a rehab program.
First, we must separate the economy from the drug. In other words, the bailouts and promises of bailouts must stop. I urge the Congress and President to begin saying no and turning these people away.
Second, the economy must also separate itself from the socialists and Marxists with which it associates. These socialists and Marxists are only interested in one thing, keeping the economy addicted to the bailout drug. We need to educate the voters so they understand that government is not the solution but the problem as said by President Ronald Reagan. The only way government has money to give is by confiscating it from someone else through taxes or making it out of thin air. We may be the beneficiary of some government bailout but we will end up paying it back through higher taxes or inflation brought on by the influx of new money into the economy.
There will be a period of withdrawal in this rehab. It will be painful and very uncomfortable but if the withdrawal is allowed to run its full course, things will begin to smooth out. The economy can then do some soul searching and face the true cause of its addiction. I believe this because is that we no longer reward achievement but instead penalize it with higher taxes and more regulation.
Companies that have their profits confiscated through higher taxes or regulation soon run out of money. What choice do these companies have but to turn to the socialist and Marxist drug dealers of bailout to find a solution to their woes. The only way out is for our economy to replace its addiction to bailout with a love for profit and achievement. It is only then that we can truly say no to bailout and experience a long and lasting recovery.
Comment to Dale on this blog or send your comments to dalewsr34@gmail.com.
Of course, the best way to kick the cycle is never begin in the first place. However, for those already caught up in the cycle, rehab is perhaps the only answer. The purpose of rehab is to break this vicious cycle. First, the individual comes to some remote place far from their normal surroundings, friends, and family. They are also separated from their addictive behavior immediately. I have heard from some who have gone through the process that the first few days are rough as withdrawal is allowed to run its full course. However, after the withdrawal is over, things begin to smooth out and the individual begins to find the real reason for their feeling bad in the first place. Once they can successfully face this reality and deal with it without the use of drugs or alcohol, the healing process can begin.
Ever since the initial $700 billion bailout in the fall, it seems our economy has begun a cycle of addiction to government bailout money. Ever since that time, we have witnessed one company and government agency after another appearing before Congress seeking bailout money. It seems that once the economy experimented with bailout money they have to continually return for another fix. Unfortunately, the government is all too happy to supply the fix. If we are ever to break this cycle, we need a rehab program.
First, we must separate the economy from the drug. In other words, the bailouts and promises of bailouts must stop. I urge the Congress and President to begin saying no and turning these people away.
Second, the economy must also separate itself from the socialists and Marxists with which it associates. These socialists and Marxists are only interested in one thing, keeping the economy addicted to the bailout drug. We need to educate the voters so they understand that government is not the solution but the problem as said by President Ronald Reagan. The only way government has money to give is by confiscating it from someone else through taxes or making it out of thin air. We may be the beneficiary of some government bailout but we will end up paying it back through higher taxes or inflation brought on by the influx of new money into the economy.
There will be a period of withdrawal in this rehab. It will be painful and very uncomfortable but if the withdrawal is allowed to run its full course, things will begin to smooth out. The economy can then do some soul searching and face the true cause of its addiction. I believe this because is that we no longer reward achievement but instead penalize it with higher taxes and more regulation.
Companies that have their profits confiscated through higher taxes or regulation soon run out of money. What choice do these companies have but to turn to the socialist and Marxist drug dealers of bailout to find a solution to their woes. The only way out is for our economy to replace its addiction to bailout with a love for profit and achievement. It is only then that we can truly say no to bailout and experience a long and lasting recovery.
Comment to Dale on this blog or send your comments to dalewsr34@gmail.com.
When Facing Foreclosure
The most tragic consequence of the current economic crisis is many individuals are losing their homes. Owning a home has always been high in the list of dreams for People all across America. Unfortunately, for many this dream is turning into a nightmare due to the rising number of foreclosures.
If you find yourself facing eminent foreclosure, I wanted to pass on some things you can do.
1) The bank or mortgage company does not want your home back. They loaned you money to buy your home anticipating that you would pay it back. They are not in the business of taking peoples homes but earning interest on the loans they give people to buy a home. When they foreclose on a home they incur costs associated with both the foreclosure and finding a buyer for the home.
2) They want to hear from you. Many facing foreclosure go dark as the banks put it. This means they do not call the bank and fail to answer the banks calls. This leaves the bank with no recourse but to begin the foreclosure process. Instead of going dark, ask to sit down with your banker and work something out. Lenders can do several things to help you keep your home. For instance
a. They can reduce the interest rate on the loan and reduce the payment
b. They can extend the terms, or time required to repay the loan.
c. They can do a combination of both.
However, once you negotiate an acceptable settlement with the bank you must make sure to follow through. They may have been receptive the first time but will not be as receptive the second time if you still fail to make your payments.
When I purchased my home my realtor told me this would be one of the most stressful times in my life. She was right. However, I believe losing a home to foreclosure would be even more stressful so I hope this advice will be of assistance to you.
Comment to Dale on this blog or send your comments to dalewsr34@gmail.com.
If you find yourself facing eminent foreclosure, I wanted to pass on some things you can do.
1) The bank or mortgage company does not want your home back. They loaned you money to buy your home anticipating that you would pay it back. They are not in the business of taking peoples homes but earning interest on the loans they give people to buy a home. When they foreclose on a home they incur costs associated with both the foreclosure and finding a buyer for the home.
2) They want to hear from you. Many facing foreclosure go dark as the banks put it. This means they do not call the bank and fail to answer the banks calls. This leaves the bank with no recourse but to begin the foreclosure process. Instead of going dark, ask to sit down with your banker and work something out. Lenders can do several things to help you keep your home. For instance
a. They can reduce the interest rate on the loan and reduce the payment
b. They can extend the terms, or time required to repay the loan.
c. They can do a combination of both.
However, once you negotiate an acceptable settlement with the bank you must make sure to follow through. They may have been receptive the first time but will not be as receptive the second time if you still fail to make your payments.
When I purchased my home my realtor told me this would be one of the most stressful times in my life. She was right. However, I believe losing a home to foreclosure would be even more stressful so I hope this advice will be of assistance to you.
Comment to Dale on this blog or send your comments to dalewsr34@gmail.com.
Saturday, January 10, 2009
Overcoming Fear and Anxiety
I trust everyone had a great holiday season. This year appears to be filled with many challenges and many of us have fear and anxiety especially where our personal finances are concerned. In this posting I want to share some ideas on how to reduce our fear and anxiety.
It is especially important for us to network with people who have the same economic interests as we do. Even though times are tough and we hear in the media that no one is making any money, there are still entrepreneurial people out there that have new ideas and are looking for good people to help make them come true. Alternatively, you may be someone with a good idea but are looking for someone to help you make your dream come true. Whatever the situation, networking helps us find the people we need to work with.
It is also a good idea to turn off the media when we find ourselves in a time of fear or anxiety. The purpose of the media is to gain good ratings and increase advertising revenue. They do this by sensationalizing the news to make it appear worse than it is. Instead if listening to the doom and gloom delivered by the media try reading a good encouraging book.
If you have a social network of close friends or associates, plan time with them as they may also be experiencing the same feelings. You can also pick up the phone and call someone. Of course, if you find yourself in an extremely difficult situation or are contemplating thoughts of suicide, seek professional help.
The country has experienced many difficult times in its history and we are still here. You may be young and have never experienced difficult times in your life however; others who are older have experienced difficult economic times in their lives. If you are younger and this is your first recession, seek out a mentor who has successfully survived recessions in their lives and ask them how they survived.
I am also opening up another blog that will contain lessons in basic economics. Most of us had economics and possibly slept through most of class as I did. However, knowledge is our greatest weapon against economic disaster so I encourage you to begin class. I will not be giving tests and you can work through the lessons at your own pace so you have nothing to lose or fear. I have provided a link to this blog in the list of links to this website so I encourage you to start class today.
Together we will come through this and be even stronger when it is over so my final word of encouragement for you comes from the Bible, my favorite encouraging book. Jesus said in John 14:27 “Let not your heart be troubled, neither let it be afraid”. Others have been where we are at and have survived. Were they any different and better than we are? I think not. In fact, if you were to ask one of them I am sure they would tell you they were just as afraid and full of fear as you are now.
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