Wednesday, October 29, 2008

Have You Witnessed any Miracles Lately? Keep Watching. They May be Endangered.

I have witnessed a miracle. It unfolded before my eyes during the past two years. No doubt you've seen one or more as well. Don't miss them. Indeed, appreciate them. So, what miracle have I seen?

I've watched as five jobs were created out of thin air by a newly created business. It's an amazing sight and it demonstrates the greatness of America. If not before, I now realize why millions of people all over the world would jump at the chance to live in the U.S. and pursue their dreams.

Dreams--miracles--happen here.

Fred Smith is one person who pursued such a dream. He created a business that became a major corporation. He founded FedEx in the early 1970s. Today FedEx has some 290,000 employees, or team members. The company operates globally and partners with the Red Cross in disaster relief. The very first FedEx aircraft (shown below) now sits on display in the Smithsonian Air and Space Museum. It is fitting testimony to the company's tremendous success and the American story.

During this presidential election there has been much talk about increasing taxes on the wealthy and on corporations. But one key thing has largely been overlooked or at least under appreciated. It is how wealth gets created.

Wealth, whether money in the bank or stock market, or in the form of wages, is largely generated by the miracles of innovation and inventions. They are essential elements to our economic well-being. But like air and water, they can be taken for granted.

Mr. Smith spoke about the sources of wealth in a recent Wall Street Journal interview with Stephen Moore. Wealth doesn't come from the government he asserts. It comes "'...from invention and entrepreneurship and innovation. And our [government] policies promote a legal and regulatory system which impedes our ability to grow entrepreneurship.'"

He also feels that government unnecessarily limits our ability to lead globally.

"'Many of our current policies are not conducive to continued [global] economic leadership," he says. "'We restrict immigration when we have thousands of highly educated people who want to come to the United States, and some of our greatest corporations [are] crying out that we don't have the scientific talent that we need to develop the next generation of innovators and inventions.'"

Mr. Smith would like to see fewer restrictions on such immigration. He would like corporate tax rates lowered to make us more competitive. At 38% our top tax rate is among the highest. In places like Germany, in contrast, the top rate is only 25%. And he'd like to make it possible for corporations to expense more rapidly their capital investments. That includes equipment they use (like airplanes) to provide services or manufacture products.

Large corporations are not the only sources of innovation, new inventions and new jobs. Small businesses do this often in greater ways. The miracle I alluded to above was due to a small business that grew from zero to five people. In fact, most new jobs are created by small businesses. They have generated 60-80% of net new jobs annually over the past decade. They employ about half of all private sector employees.

It's important that as voters we recognize these facts. We face a tough issue right now that Mr. Smith finds alarming.

"'We're now at a point,'" he said, "'where a very large part of the population pays no federal income tax at all. When you have a majority of the population that realizes that you can transfer money from the productive to themselves, that's one of the great questions of the future of civilization, as far as I'm concerned.'"

When the majority of voters see government as a source of wealth, or as a conduit to wealth to be redistributed, one has to wonder: Who will create the new miracles?

Monday, October 27, 2008

Community Organizing may be Key to this Presidential Election

Living in a battleground state such as Ohio makes presidential elections especially interesting. When George Bush and John Kerry were competing it seemed as though the candidates were visiting our city (Cleveland) every other day. Hollywood celebrities canvassed door-to-door. But this election may be teaching new lessons on the best way to campaign.

Barack Obama may lack executive experience but he's an expert on how to organize a community and inspire the grass roots. Obama canvassers have knocked on our door twice and one can find them in the parking lot at the local super grocery. I was very surprised the other day to come across a giant Obama puppet at a busy intersection. I have never seen anything like it in a presidential race. Standing there waving to rush hour traffic, Obama's giant likeness was imposing, almost frightening. Though the puppet is a little hard to see in the photo below, I think you can still get a sense for the drama.



A giant Barack Obama puppet smiles and waves to rush hour motorists at a busy Cleveland intersection. To the right of the puppet an Obama supporter holds signs urging people to vote early.

The McCain campaigners, meanwhile, have been conspicuously absent.

David Broder, columnist with The Washington Post, recently traveled to the city of Wooster, Ohio, about 60 miles south of Cleveland. It's a picturesque place, the seat of Wayne County and home of the highly regarded College of Wooster. Perhaps not surprising for a college town, a sign at the city's edge declares Wooster to be a nuclear free zone. Surrounded by rich farmland Wooster also fits the stereotype of a rural Republican stronghold. Indeed, George Bush won handily in Wooster and Wayne County in both his presidential runs.

Mr. Broder decided to visit this city in the Republican heartland to observe the campaigning. He stopped by the local headquarters of both candidates. The contrast between the two was stark.

The McCain office was quiet with two people working inside when he arrived. Several folks stopped by to pick up McCain-Palin yard signs.

"None were asked to do anything else for the campaign," Mr. Broder wrote, pointing out some missed opportunities.

But two blocks away he found the Obama headquarters to be a beehive of activity.

"Sixteen people were at their desks, talking on phones or working on computers," he observed. He spoke with two volunteers who had been recruited from the East coast to work on the Obama campaign in Wooster. He was told that the number of Obama volunteers is growing at least 100 per week.

Is this a sign of a coming election victory for Senator Obama? Perhaps. In any event, there is a grass roots election spirit that is very much alive and flourishing in Ohio.

Wednesday, October 22, 2008

Millions of Voters Pay No Federal Income Tax. Many More Will Join Them if Senator Obama's Tax Policy is Implemented. Should We be Concerned?

Adam Lerrick, professor of economics at Carnegie Mellon University, recently published an article in the Wall Street Journal which warns about this issue. His assertions are based on startling data. Should we be concerned? Yes we should.

According to professor Lerrick, 40% of eligible voters—89 million people—paid no income taxes in 2006. And he says the percentage will increase to 49% as a result of Senator Obama’s proposed tax credits. Further, another 11% of the electorate pay less than 5% of their income in income taxes.

This all means that “three out of every five voters will pay little or nothing in income taxes under Senator Obama’s plans,” he wrote.

Professor Lerrick warns that we're near a tipping point where “half of all voters will receive a cash windfall from Washington (under the Obama plan)."

Is this a good thing?

If you think it is consider that professor Lerrick cautions that it is only a matter of time before Senator Obama's proposed new taxes prove to be inadequate. Government spending will be too great. He predicts that tax increases will ultimately need to be levied upon many additional households, those with incomes of $75,000 or more.

Perhaps the most eye-catching statistics he cites are these:

• Just 5% of taxpayers earn more than $250,000.
• Yet this group pays 60% of the federal income tax bill.

If you’re not part of the 5%, you have a strong incentive to support Senator Obama's tax plan. Chances are you will receive a direct economic benefit, one that the government deems "fair." But such benefits have proven to be self-defeating.

“Other nations have tried the ideology of fairness in the place of incentives and found that reward without work is a recipe for decline,” professor Lerrick says.

It's worth repeating: "...reward without work is a recipe for decline."

It will take a while before the electorate sees this. But by then the damage will have been done in the form of still higher taxes and more economic troubles.

"Taxation without representation is tyranny!" That was a rallying cry when our country was founded. The American Revolution and our democratic form of government took care of that. So, are we threatened by tyranny today? “No,” I want to say dismissively.

But then, like a deer caught in the headlights, I am stunned by the staggering number of eligible voters who pay little or no federal income taxes--and, who will receive an economic benefit through Senator Obama's proposed tax plan.

I think professor Lerrick is warning us about what Alexis de Tocqueville termed “tyranny by the majority.” That occurs when the majority causes government to do something ultimately detrimental to society as a whole. Should Senator Obama's tax plan become effective, we may well be faced with such a dilemma.

A majority of U.S. voters, who enjoy representation, may largely avoid taxation. We should all be concerned about that.
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* For his article professor Lerrick draws on 2006 U.S. Census data (the most recent available) and an analysis by the Tax Policy Center. The Center is a joint venture of the Brookings Institution and the Urban Institute. Brookings is one of the Washington’s oldest non-profit think tanks. It is headed by Mr. Strobe Talbot, a former TIME magazine reporter and diplomat in the Clinton Administration. Mr. Talbot and President Clinton were Rhodes Scholars together at the University of Oxford. The Urban Institute is a Washington, D.C., non-profit think tank which educates Americans on social and economic issues. It was founded during President Lyndon Johnson's administration to provide nonpartisan analyses of the problems facing America's cities. It is headed by Mr. Robert D. Reischauer a former director of the Congressional Budget Office and nationally known expert on the federal budget, Medicare, and Social Security.