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Wednesday, July 21, 2010

Are Subsidies and Payment Transfers Stimulus?

It appears that after practically in third, from $120 billion to $34 billion, that a few Republican Senators will jump the aisle and pass a bill that will re-new extended unemployment benefits. The bill has been held up as Republicans have asked, "how are we going to pay for this?" With no budget in place, and not budget being presented nor debated in Congress, Republicans wanted to see some cuts in spending made elsewhere before passing the bill.

Using the politics of division that are so natural in Washington, Democrats, led by House Speaker Pelosi and President Obama, accused the Republicans of cold-heartedness, not caring about American families and blocking a bill that was "about jobs." Jobs? How is extending unemployment benefits about jobs?

Once again we see this Administration and Democrats confuse economics with social policy. While this Congress has passed three huge bills that have transformed our national debt and both the healthcare and financial industries, none of the bills have really done or been about jobs. Preaching the Keynesian religion, Democrats feel that the best way to stimulate a moribund economy, increase hiring in an economy and promote economic growth is through sweeping government regulation and spending.

The practice has never worked as a long term economic policy and as is being seen in our current economy is failing now. Jobs created to work for the federal, or state, or local, government, are not jobs upon which an economy is built nor sustained. As the number of people reliant upon tax dollars and government spending increases the burden for making those payments becomes focused more and more on a shrinking number of net tax payers instead of takers. Eventually this system collapses under it own weight. Unbridled public spending and borrowing cannot continue for prolonged periods of time without leading to insolvency, which leads to economic crisis and melt down.

Jobs that allow an economy to grow and sustain itself are created in the private sector. In America this mostly means within the small and medium size businesses that support local communities and larger businesses. Locally these businesses are hurting because of the lack of manufacturing businesses in California that support smaller subcontracting companies and suppliers. Through tax policy, environmental policy and costs to operate businesses have left the state and/or country to manufacture their products.

Nationally the uncertainty created by the 111th Congress and Obama Administrations have led companies to hang onto cash and not reinvest in their businesses. Having found out what was in it after it passed as promised by Pelosi, corporations are estimating their costs due to Obamacare in the billions of dollars. Bent on overtaking and controlling the banking system the financial reform bill puts tremendous powers in the hands of an appointed official, the Chair of the Federal Reserve, to dictate credit policies and asset ratios of banks. Businesses are holding onto cash because they are not able to get credit lines secured by receivables due to Fed auditors scrutiny of bank balance sheets and discouraging credit extensions they consider risky. Businesses are holding onto cash as they are uncertain if/when the Cap and Trade movement will gain ground in Congress between the mid-term elections and the end of this Congress. If passed Cap and Trade will increase taxes and costs for businesses.

Every piece of legislation this Administration and Congress has passed has increased to costs on businesses. Instead of loosening the cash and anxiety among business owners by extending the Bush tax cuts (which increased revenue for the Treasury every year from passage to 2007 as predicted by the Laffer Curve), stopping "comprehensive" reforms, and allowing the private sector to heal, the constant drumbeat to reform all of America at the expense of the private sector has killed economic growth.

Into this dying economy the Administration plunges ahead with more speeches for reform that is about "jobs" but in reality is about votes. Looking to use the immigration issue as another wedge to divide the country for political advantage, Obama knows that if he is able to naturalize many or most of the 12 million illegal immigrants in our country he has secured the votes of the Hispanic and Latino communities for the Democrats for decades. Somehow his language will make his quest for these votes about jobs, but we won't know until legislation is passed what it will mean.

Regarding the bill to re-new extended unemployment benefits, Senate Finance Chairman Max Baucus (D., Mont.) said, "This bill is about jobs, and this bill is about compassion." I will grant that the money given in the form of unemployment benefits will trickle through the economy for food, rent, gas, but to say it is primarily about "jobs" is deceitful. Extending the payments is not about creating or saving jobs, it is about using the Federal Treasury without limit as a social welfare system.

We are a resourceful nation populated with so many who have an entrepreneurial spirit. Despite the recession individuals across the country are creating their own businesses. I have spoken in the past several months with many small business owners who have started what I have termed "Recession Businesses." Each has said they took the opportunity of being laid off to start their own business so they would not be dependent on a single source of income for their future. Sure there is risk and they may not make it, but maybe they will. One owner of a small hot dog and hamburger shop has hired at least two or three workers, and has created business with his suppliers that did not exist before. No boss to give him a pink slip, not dependent on the government for survival, he represents many small business owners spring up in Long Beach and across the country.

It is my belief that 99 weeks of unemployment benefits is too many, it appears that my sentiment is shared by about half the country so it is a divisive issue that crosses party lines. My solution to the issue would be a multi-pronged series of actions.

First, on the benefits scale back the payments as the traditional 26 week benefit is passed. Lower the payments by 5% per month until the maximum of 99 weeks is reached.

Second, to pay for the deficit created by the benefits instead of recirculating repaid TARP money and profit into more government bailouts and takeovers, transfer the funds to cover the unemployment benefits.

Third, with some more of the funds left over make one-time cash payments to community colleges to jump start programs for re-training laid off workers, assisting small business owners and start ups.

Fourth, extend the Small Business Association lending program that is currently being phased out. Allow small and community banks to assist local businesses in loans to purchase equipment and obtain cash flow as they grow and secure their business. Instead of re-circulating TARP funds into government programs and jobs, use the funds as intended--to assist banks with their assets. Use the re-paid funds as funds for small and community banks to make small loans, $10-50,000 to small and medium size businesses.

Fifth, repeal or at least suspend Obamacare. This gets a guffaw from those who supported major healthcare reform, but was reforming our entire healthcare system for 10% of the populace when we have 10% unemployment a wise decision? Reduce the costs to employers and increase the chance they will hire and extra worker, or two or three.

Six, extend the Bush tax cuts. Facing increasing tax burdens to pay for increasing debt burdens at the state and national level, businesses, and small business owners, are holding cash to bridge the pending gap between revenue and expenses created by this hit to their bottom lines. Most businesses are Schedule C or S Corporations, meaning personal tax returns are in play. Reducing the tax burden allows business owners to expand their business.

America needs private businesses. It needs them to thrive to provide jobs and stability in local communities. Private businesses create tremendous velocity of money through payrolls, suppliers and tax revenues they generate. Since January 2009 Washington has passed legislation that has only hindered and hurt private businesses and economic growth.

Extend unemployment benefits? Congress and Obama need to extend private business, let them take care of getting rid of unemployment benefits with jobs.


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