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On Taxation and Entitlements: Essay for March 17, 2012

Two articles of interest hit the New York Times this week that each of us should read. “A Nation of Too Many Tax Breaks,” by Eduardo Porter, graced the front page of the Business Section. It chronicled the seeming disparity between the collection of taxes and the distribution of tax breaks in America by quintile. The second was an essay by Thomas Friedman describing the state of American capitalism in the 21st century. They both deserve some air time.

Any analysis only provides a tiny glimpse of the complexities of the problem statement: Is taxation and redistribution of wealth in America a fair deal? First off, there is nothing simple about the distribution of government spending or about the manner in which such funds are generated through taxation. Neither is there anything fair about how it is done. Both policies reflect a complex series of compromises and programs designed to aid one sector of the population at the expense of another. Those policies cut both ways. Over time, the original intent of such policies become muddy indeed, yet we are saddled with their consequences seemingly forever.

Take the Porter article for starters. Said Porter, “Taxpayers in the top fifth of the population shoulder three quarters of the Federal tax burden and receive only 10 percent of the entitlement spending…[while] Families in the bottom 40 percent of income distribution pay about 1 percent of taxes and receive about 60 percent of entitlements.” He goes on to point out that on the tax break side, the upper quintile receives more tax breaks on an average of $214,000 in income than those in the lower quintile receive on $8400. No kidding.

This dichotomy would appear to emanate from the lower tax rates on capital gains and dividends, benefits associated with those who have investment income. They naturally reside in the upper income brackets, thus skewing any inequity conclusions that Porter asserts. The obvious conclusion one takes from this so-called analysis is that there is a disparity that can be reconciled by eliminating tax breaks for the wealthiest of Americans in the form of increasing taxes on capital gains and dividends. This timeworn and threadbare argument always suggests that the wealthy in America were all born with silver spoons in their mouths; that nobody actually worked to earn their wealth; or that they came by it unscrupulously. It is not true. Most wealthy Americans earned their money. And any distinction hardly matters.

Enter Tom Friedman. He is definitely a thinking man’s columnist. I don’t often agree with his conclusions but his presentation of fact is usually compelling. He’s the kind of man with whom I’d like to have a cup of coffee. Freidman sees, as do I, the necessity of a balance between the actions of public and private America. A country where the excesses of unchecked capitalism cannot stifle an economy and the excesses of government regulation does not strangle the private sector. It is more than that, he argues. He speaks of striking grand bargains between competing interests. Perhaps it is one like that nearly struck between President Obama and Speaker Boehner last summer.

There are many such bargains to be struck that involve repairing a crumbling infrastructure increasingly incapable of moving goods to market; invigorating an educational system that has become the most expensive in the world but is producing only mediocre results; that addresses the growing gap between the needs of the youngest against the needs of the oldest in our society.

Most importantly, the Federal budget deficit must be closed. And it must be done without smoke and mirrors and without demonization of the advocates on the revenue side and on the spending side. The truth is that the tax system is severely broken. Spending must be decreased through Mr. Freidman’s grand bargains and revenues must be adjusted through tax reform. Corporations do not need the special treatments the currently receive. They are quite capable, or should be quite capable, of competing on their own. If they are not, they should be left to mercy of market forces.

Capitalism was not invented in America but it reached pinnacles of greatness in the 20th century, a greatness that has lost some luster as we claw through this 21st century. Our objective in this political debate in 2012 should not be to paint either side as evil, unless they really deserve it. I am willing to recognize that eliminating a special tax break for a privileged constituency might actually result in them paying more taxes. Now that is what I call fair.

Let the spending cuts begin.

Press on.

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On the New ‘Okies: Essay for February 18, 2012

In a very visceral manner, there is something deeply troubling to me about the country these days. The dismal economy is taking a toll on Americans in a way unseen since perhaps the days of the Dustbowl. I recently flipped through John Steinbeck’s novel, “The Grapes of Wrath.” Is it me or is there a resurgence of Okies in America? Far too many people remain out of work. Far too many people fear for their jobs. Far too many people have lost hope and lost confidence. They no longer can look in a mirror without questioning the meaning of their entire lives. They sense judgment in other people’s eyes as they are forced to swallow their pride and put out their hand. First it is from their friends, then their community and finally, their government. In the words of John Steinbeck, “Okie means you’re scum. Don’t mean nothing itself, it’s the way they say it.”

A recent front-page story in the New York Times recounted tales of once proud conservative Americans in Minnesota. They were the type who never would support taking entitlements. They do now. The affect such charity on their souls is palpable. These are the same sort of Midwesterners of which Steinbeck wrote. They were guilt ridden and unsure if they would ever get off the dole. They qualify for Earned Income Tax Credits. Their pride is crushed as they accept school lunches for their children. Said the Times article, “…they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it.”

Some might call these entitlements a gravy train. In many cases, that is true. In the very same article a man described people who paid for their $400 tattoos with government disability checks. Ironically, the sister of that very tattoo artist was receiving disability payments and living in an assisted living facility.

Governor Romney had to remove his foot from his mouth when he said that he did not worry about the poor in America because they had an effective safety net. Crude as the remark sounded; there is a good deal of truth in that statement. There are many comprehensive programs to deal with the poorest among us. Here is the interesting fact, however: the poorest in America, the lower quintile, are receiving a far smaller share of entitlement spending than they did in 1980 when they received more than one half of entitlement spending. It is down to about one third. The middle quintile, those proud members of blue collar America, has actually seen their share grow by fifty percent.

What that tells me is that the poor remain so but are being joined by middle class families sliding down the scale to meet them in despair.

Ironically, statistics show that support for conservative Republican runs higher in States where government benefits outweigh taxes. The opposite also runs true. Liberal Democrats are favored where the outflow of taxes exceeds payout. Nobody can fully explain this phenomenon. What is clear, however, is that the majority of people who are forced to accept these payments would rather be working for what they need rather than extending their hand for a government check. They recognize the paradox of taking for themselves today while burdening their children with debt.

This brings us back to the subject of many of our conversations over the past year. The economy, job growth and the role that the Federal government can or should play in creating an environment that supports growth. Whether one loves or hates the corporation, business will drive growth for its own survival. It will do so wherever the environment for that growth is fertile.

The government cannot stop business from trying to remain in business. Government must lead, follow or get out of the way. While small business is the “canary in the cave,” so to speak, large business is the tail that wags the dog of small business. They control the vast majority of manufacturing jobs in America and drive small businesses to produce. They have the capacity, given the proper incentive, for determining the fate of those remaining jobs and the fate of those offshored already. Some indicators are leaning towards relocating some more highly technical manufacturing out of China. Given a proper environment many of them can come back to the United States.

Lack of talent in the American workforce will prove to be our Achilles Heel if we do not start getting the right people into technical pipelines. There is a group of manufacturers in Massachusetts who are taking matters into their own hands. They are Manufacturing Vigilantes. They see their future vitality directly connected to a steady influx of machinists, tool and die makers, CAD programmers and technicians. The vocational schools have not been successful in promoting manufacturing careers. These careers have an average pay in Massachusetts of $1500 -$2500 per week. That is a nice piece of change. These businesses have realized that they cannot afford to wait for government to solve their problems so they are willing to go it alone.

Nationwide, there are 600,000 open positions in manufacturing. Last count, some 19 million people are under or unemployed. The multiplier effect of filling those jobs would be to create perhaps additional 2 million more. In short order, there will be a steady influx of veterans either returning home from war or being involuntarily discharged under new budget guidance. This fresh crop of dedicated and intelligent people should be the ones targeted for placement in our manufacturing positions.

The New ‘Okies are everywhere. The economic dustbowl is very real. It is forcing contrarian behavior in our middle class ethos.

Steinbeck also said, “I know this… a man got to do what he got to do.”

Press on.

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On China and American Moral Leadership: Video Essay for February 4, 2012

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On China and American Moral Leadership: Essay for February 4, 2012

Traveling as do, I have literally circled the globe a couple of times each year over the last several decades. In fact, travel has taken me overseas for three of the last four weeks to Asia and Europe to conduct business; doing my part in growing the business of a large multi-national corporation. It is an experience that has produced a world view that is seasoned and uniquely mine.

The United States is an island nation. Our east coast abuts the mighty Atlantic Ocean. Heading westward, as our pioneer ancestors did, brings us to the vast Pacific. America has been blessed with abundant natural resources that, for most of our existence, made us self-sufficient and blissfully isolated in a world that long ago relied upon delicate interdependencies and alliances. We avoided colonial aspirations and fiercely resisted entering global conflicts in Europe and Asia until dragged in by grievous circumstance.

And when the dust settled after the Second World War we were still standing. The industrial might of the nations of Europe was destroyed and Japan laid waste by nuclear attack. The Arsenal of Democracy became the Factory of the World. The Marshall Plan rebuilt Europe and MacArthur oversaw the rise of a democratic Japan, each dominated by American industrial might.

Ironically, we created the monster that ate the American factory. Our efforts to restore stability and prosperity to a war torn world led to great infrastructure improvements. Germany and Japan built new factories and highways that were more efficient than the aging behemoths in the United States that just a few short years earlier produced the war material that defeated the Fascists and the Nazis. Taiwan and Korea built ships that Henry Kaiser, the father of the Liberty ship, would envy. Year by year, the newly industrialized world nibbled at the heels of American industrial dominance.

Slowly but steadily, American businesses grew weaker. Large industrial employers began to ship production elsewhere for better efficiencies and labor costs; first to the Sun Belt, then abroad. In 1960, 9 of the top 10 employers in the United States were industrial companies. Today, 7 of 10 are service providers. Here’s the rub: the job multiplier for industrial companies, such as automotive and steel, are much higher than for service industries such as retail or healthcare. For every 1000 jobs created in the steel industry, an additional 11,000 jobs are created elsewhere as a direct result. In retail, the same 1000 jobs create only an additional 240.

The bottom line effect is that losing 1000 steel workers has an impact that cannot be offset by creating 1000 jobs at Wal-Mart. Not by a long shot. America needs to retain, create and repatriate industrial jobs in order to preserve the post-war economy that ushered in the era of Pax Americana. And it needs to do so fast.

The erosion of domestic American business accelerated once Most Favored Nation status was conferred upon the People’s Republic of China in 1999. Since then, foreign direct investment has grown geometrically as a vast low cost labor market became available. Our balance of payments deficit has ballooned from $89 billion in 1999 to a level three times higher today.

And with all the wealth sprung from wildly successful businesses built in newly built cities in China, more than one third of the 1.3 billion Chinese live on two dollars a day. Human Rights and Workers Rights have not kept pace with the pace of change. Environmental respect long ago yielded to unbridled development. The cost of environmental stewardship is not passed along to producers.

These factors greatly enhance the competitiveness of Chinese businesses. They are not likely to change unless the world cries out for change. And we are held hostage by the addiction we have to low, lower, lowest cost manufacturing and the consumerism that drives consumption in America. We have failed to hold China accountable for their lack of responsible leadership in the face of the dynamic change their society is undergoing.

We can talk about leveling the playing field against unfair tariffs, product dumping and currency manipulation but until we begin to exert pressure on the Communist regime to act in a responsible way towards their society and our environment, the United States is a willing co-conspirator in our own industrial demise and the erosion of our moral leadership.

President Hu will shortly be visiting the United States. Who in our government will exhibit the courage to lead against this nascent economic giant? And in so leading, do we not gain a chance to reclaim a stronger economy in the process. The whole world should be watching.

Press on.

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On the State of My Union: Essay for January 28, 2012

As Article II Section III of the Constitution mandates, President Obama gave his State of the Union address earlier this week. It ran over 60 minutes and covered a wide range of topics. I hereby offer my own State of the Union to you on several of the essential topics Mr. Obama covered. I will keep it to about 5 minutes.

Ladies and gentlemen, the state of the Union is strong. We may have seen better times but we are in the 236th year of a tremendous experiment in representative democracy. We have weathered the storms of great national calamity, war, natural disaster, terrorist and fascist threats and economic depression. We have witnessed great things: the emancipation of slaves; women’s suffrage; the dawning of civil rights. Some might say that these times are bleak but I say we are a nation of survivors. We are nation of optimists. We are a nation of transformational souls who have demonstrated time and again our penchant for leading ourselves and civilization; for making the world a better place in which to live. And so it is today.

We are in economic hard times born, perhaps, in a different era; of a different administration. That matters little. We are where we are and we have the power and the means to propel this great nation and this potent economy into a much higher gear. It is in our hands to secure the blessings of liberty to ourselves and our posterity.

What has worked for America ‘lo these many years is not shared sacrifice but shared commitment. We are in the boat together and we pull the oar together. We have been around long enough to know what does not work: blaming businesses for the ills of society; inciting an increasingly punitive regulatory environment that seeks to punish rather than promote; imposing a tax structure that only the well connected understand; and devising an educational system that rewards political correctness at the expense of discovery and inquisitiveness.

We can keep American jobs in this country by making the playing field level; not for some but for all. Set a goal to reduce the corporate tax rate by half this year and to zero within five. American entrepreneurs and businesses are intelligent enough to determine where to place their bets on the next hot product. They do not need government to tell them where to invest their money. Remove the unseen but heavy hand of lobbyists and special interests who peddle their influence in the halls of Congress. Eliminate industry specific tax breaks. Let American business compete with one another so that the best ideas emerge.

We must recognize that too frequently, our desire to expand regulatory oversight stems from a desire merely to increase power and authority in the Washington bureaucracy. Such expansions may stoke egos inside the beltway but they serve to extinguish the flames of creativity that can yield the next breakthrough in science or technology. It is time for the Department of Commerce to act to defend commerce in America. I propose that department review and approve regulatory actions that would hamper business activity as an advocate of American enterprise before the regulations have the force of law. They would serve as a Regulatory Board of Appeals for business.

God has blessed America with spacious skies and amber waves of grain. And our maker has also blessed us with ample reserves of oil and natural gas. We must balance the environmental concerns of well intentioned environmental interests, me included, with the needs of a growing population in a globally competitive world. The benefit of energy independence is not merely a lower price for gas at the pump: it is a lower cost for policing the actions of nations and rouge actors who use unfettered access to energy as a weapon for the destruction of civil societies.

All of our God-given resources, oil and gas, coal and wind, solar and nuclear, must be part of the equation. Onshore and offshore resources must be developed and judiciously used. Green energy is coming but it is not yet viable. When it becomes viable, it will take its rightful place alongside our traditional sources of energy.

Finally, there is no investment more important to make for the long term destiny of our nation than education. Learning must be a lifelong endeavor. What the pace of technological innovation has taught us is that skill sets must be firmly established in our young and then constantly refreshed throughout a lifetime. Our schools must return to the basics, to the so-called STEM subjects of science, technology, engineering and math. We do not have nearly enough people trained in these areas and we must have more in order to compete in a world full of degree holders. The role of the Federal Government must be to encourage and set the bar high. Incentives should be reserved for the students in the form of scholarship in exchange for service. Local school boards know how to make curricula. The role of government should be to ensure that our graduates have the skills that our businesses need when they graduate. And government should foster a business climate that seeks new hires.

I have spent a lifetime traveling this world. Let no one say to you that the Age of America has past. The world looks to America for political leadership, moral leadership and economic leadership. The American way of life is still the envy of the world. The role of the President of the United States of America is to ensure that the union endures.

Ladies and gentlemen, I say to you once again: the State of the Union, our Union, is strong. Let no one doubt our resolve. May God bless you and may God bless the United States of America.

Press on.

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