Tuesday, September 21, 2010


  There has been alot of news lately about the Tea Party due to some recent upsets.The big question is if these wins reflect a true support for the Tea party. or as I believe,simply a voter revolt against incumbency.Voters are upset with our current state of affairs and want to see a change in direction and naturally feel that a vote against the incumbent is the way to go. This voter attitude has given Tea party members an opportunity. This is not much different than Ross Perot challenging Bush Sr. when we had hugh voter discontent with the state of affairs then.We havent heard from the Perot factor since then and I cant even remember the name of the party he ran under.. The same will happen with the Tea Party.
  The Tea Party has a web site that lists their core beliefs and I suspect that most voters would support most of them in principal. The main beliefs being lower personal and corporate taxes,adherence to the constitution,and a mandatory balanced budget.In principal this sounds pretty good but their website does not have any proposals , no path to achieve these lofty goals. A mandatory balanced budget , possibly through a constitutional amendment , ties the hands of our government to respond to extemporaneous influences.
  While the lofty goals have beneficial outcomes, there is no roadmap of how to get there so this leaves the individual candidates free to expound their own ideas which often tend to be vague , radical, and poorly considered.There is no real leader of the party so it has more of a tendency to scatter off into often extreme directions.
  While I support their goals of reduced government and balanced budgets I do not see how they expect to do this.The tea party is just a normal reaction to voter frustration.After the mid terms we will likely see a move more towards the middle which will knock some of the wind out of their sails.The Tea party will last the afternoon but will not be a long term affair.

Thursday, September 16, 2010

grandpa timmies political / economic views: U.S. MANUFACTURING ; BE PROUD OF IT

grandpa timmies political / economic views: U.S. MANUFACTURING ; BE PROUD OF IT: " If you listen to the news, read political comments and debates, you probably believe that U.S. manufacturing is either dead or dying.You p..."


  If you listen to the news, read political comments and debates, you probably believe that U.S. manufacturing is either dead or dying.You probably believe that China is the power base of manufacturing. Well, surprise.American manufacturing is king and we should be very proud of that.
 Here are the facts.In 1982,the value of goods and services produced in the USA accounted for 20% of the total world output.Today we produce 22% of the total world output.We are the largest producer in the world.By comparison, China produces just 8% of total world output.However, no doubt China's manufacturing base is rapidly increasing, up from 4% just a few years back.
  So why do we get the feeling  that our manufacturing base is in decline? Very simple , the employment numbers in the industrial sector have been in a long and steady decline. In 1987 industrial employment accounted for 16.5% of all employment , today just 11%. These jobs did not all go offshore.It is the increase in productivity that caused so many jobs to disappear.
 The increase in productivity is a good and necessary thing to keep our manufactures competitive and healthy.It means that we increase output per hour worked.It is not taking advantage of the working guy,it is rather a result of working smarter with better technology which is something our country has excelled at. It is good for all of us.Increased productivity helps manufacturers provide the consumer with better and less costly products, it provides more tax revenue,it helps us export more and it improves earnings for the employees.Yes I realize that the guy who spray painted cars on the production line will not buy this if he lost his job to a robot that took over his job. However someone has to build , fix ,program and maintain those robots which requires a higher skill set and is rewarded with higher pay.
 A great example is the american steel industry. Back in the 1960's ,American steel was king and employed a very high number of people.A US Steel plant in Pittsburg had up to 5000 employees. Today a plant in Kentucky can produce the same volume of steel as the 1960 plant did, with much higher quality and only 500 employees. If you were the 1960 worker this sounds bad. A 1960 steel plant in todays world could not stay in business.It could not be able to compete in todays world in terms of price and quality so it would provide zero employment.
 But there is good news. The steel plant of today may only employe 500 , but all of these employees are either high skill technicians or degreed engineers with proportionally much higher incomes. This is our future, it can not be avoided if we plan to continue to lead the world in manufacturing.This means that future job growth will require a better educated , higher skilled work force which challenges our educational system.The rate of job growth for high school dropouts and low skill workers does not look good.
 So what does this all mean relative to our future? Manufacturing is an extremely important part of our economy ,we should promote it, encourage it and stop blaming it for being greedy and sending jobs offshore. Yes economics and our own tax policies do create the forces that move jobs offshore but at the same time it also helps create jobs here.[ see tax policies /offshore jobs ] When we had high gas prices and Exxon reported record profits there was outrage against Exxxon .They were attacked for making " excess" profits at the expense of the American consumer.I say good for them, it is in our own interest that they make lots of profits.Actually as a percent of sales  their profit rate is  low compared to other industry ie. drugs. In realityit is American ingenuity,technology, and risk taking that allows Exxon to go out and find and develop the energy that we all demand at a cheap price.We are the first to scream the loudest when our gas prices go up and they will if Exxon does not make the money to invest in finding new energy sources for our future demand.If Exxon doesnt make money,where will they get the one half billion dollars they invest to develop a new well with no guarantee it will return one dollar in profit?
 There is a school of thought that corporate America runs our government through lobbies and contributions.Yes to an extent they do influence policy and in some cases this is good for our industry and good for us. But do not blame corporate America for too much influence , it is a two way street.Our politicians have the final say and the choice to limit the influence if they want to.Both parties share equally in allowing corporate influence.
 It should again be pointed out that we tax our corporations at 35 % which is the second highest in the world. Instead of burdening our big business with high tax rates perhaps we should offer support in terms of lower tax rates which will boost output, create jobs and in turn increase tax revenues .My thought is that we will get more for our investment if we raise individual rates and reduce corporate rates.Corporate America is the engine that drives our economy,and raises our standard of living.It is not the evil enemy as is often claimed to be.

Friday, September 10, 2010


Thuresday our president said that we need to "invest" in high speed trains here in our country.His reason,other countries have them so we should too,right here in the US. Does this make sense to you? Is this good economic and fiscal planing?Does the cost vs. return make sense? Isn,t this line of reasoning sort of like saying that you "need" a big SUV because your friend has one, when you can,t even afford it?
 This appears to me as just a waist of money,a good example of spending other peoples money just for the sake of spending.What a stupid idea.
We are not the same as the countries that do have high speed trains.They will never show a profit here in the US. and only add to future deficits as they will have to be subsidized just like amtrak [see amtrak blog] to the tune of 1.5 to 2 billion a year.
 We can not afford this type of type of irrational spending and waste.

Thursday, September 9, 2010


 Remember the rhetoric from Obama and Hillary during the campaign ,repeated wednesday during Obama's speech in Cleveland to great roars of enthusiasm? We have heard it many times.Basically the theme goes ; we are going to close the tax loopholes and tax breaks for big American companies that ship American jobs to other countries. This will bring those jobs back to Cleveland or any other city he is speaking in.It will put American workers to work and keep those jobs here in America where they belong. Often these "rewards " to American companies to ship jobs offshore are associated with ' the failed policies  of the past "which of course means he wants the voter to believe that the right is behind this evil plot to give rewards to any company that hires people offshore.Kind of gets you upset to learn about this terrible plot.Right?
  Do you really know what Obama is talking about? He is in fact talking about the US corporate income  tax code.No doubt, knowing this, many may assume that this "loophole" was part of the Bush tax breaks for the rich.Actually many do not understand that the personal tax codes and corporate tax codes are two different sets of tax law with different rates,rules and deductions. The corporate tax loophole or incentive Obama is referring to is the part of the law that exempts from US income tax the profits that American companies make from offshore activities but only if those profits are kept outside of the United States.Now this is the important part to understand. This tax code has been in existence for FIFTY years.It is not a new goody for big business put in place by Bush. It has been in place and unchanged by the administrations of the past 50 years.
 Lets put this in easy to understand terms. One day I was in a souk in Morocco where you could buy anything from daggers to donkeys and was amazed to see a few boxes of Tide detergent. One can find American products in the most unlikely places. Tide is made by P&G who's home office is in Cincinnati.Lets assume that a box of tide ,made in cincinnati can be sold at a profit of one dollar.If that profit is made here in the US ,P&G will pay corporate income tax of 0.35.After tax profit is 0.65 per box.P&G then learns that there is a large market in europe for tide and starts to export a lot of tide to its distribution center in Ireland and finds that the volume is so high that it makes sense to build a plant in Ireland .So P&G now has a plant in Ireland selling lots of tide and for this example we assume that the per box profit is still one dollar per box. {more on this later].This profit is now subject to corporate income tax in Ireland but Ireland has a corporate income tax rate of 12.5%.So P%G now has an after tax profit of 87.5 cents per box versus the 0.65 cents profit if that tide was made in the US. P&G can not bring that profit back into the US, say to build a new tide plant here unless it pays the US a 35% tax on that profit.So to get that money to work in our country P&G now ends up with about 0.57 left from the original one dollar profit.
 If P&G keeps the profit off shore it does not pay the US tax and this is the loophole or tax break Obama is referring to. To close that loophole he has to get a law passed that would tax those boxes of tide made in Ireland and that will never happen because it would cripple US multi national companies , make them uncompetitive and ,now get this, cost high paying jobs here in the US.Yes the tide plant in Ireland would no doubt hire locals for most of the work.But all the marketing ,research,accounting,sales management ,and other functions would be in Cincinnati. Also no doubt there would be people from the US sent to Ireland to be managers of production etc. Many may think that these would be counted as exported jobs but just not true because these high paid US citizens working at the tide plant in Ireland are still subject to US income tax.Yes US citizens working abroad,except military, must pay US income tax.
 Getting back to the profit on a box of tide made in Ireland would probably be more than the dollar per box in the example. There are little labor issues in Ireland,there is less government regulation,no unions and a better educated labor force.  All of these factors would lead to lower costs.
 Now think about this.What should a US company do with the profits that it has earned and kept offshore to avoid US taxes? Well if they are sitting on a pile of cash and the need arises for a new research facility or production facility do you think they will spend that money here in our country? Of course not. This is an example how our corporate income tax policy helps keep jobs offshore.It is not tax loopholes that send jobs offshore, it is the US corporate tax code with the second highest tax rate in the world,that pushes those jobs away.It seems like the other industrialized nations have figured out that it is in there best economic interests to have much lower corporate tax rates. Many have no tax on corporate profits earned off shore.
  AS long ago as 1961 JFK asked congress to change the code to reduce the punishing tax rates on multinational and allow them to bring their profits home and it just did not happen.In 2004 our government did an experiment .The IRS offered multinationals a deal. They had a window of opportunity to bring their profits home for a one time deal of 5.25% instead of 35% tax rate .It was a good deal for everyone. The taxes paid on those repatriated profits generated 354 billion in tax revenues.
 Why do we bight the hand that feeds us?That is what our corporate tax code does.The multinationals are not the enemy and our tax code makes them fight their competitors,from other countries,with one hand tied behind their back which further reduces their ability to create corporate support jobs here.
 A much more reasonable approach that will help American companies and American workers is to quit attacking these companies ,reduce their tax rates to allow them to compete in the global economy,reduce their taxes on profits earned from goods exported from the US,and allow them to bring their offshore profits home to work here at a lower rate,this way the American worker wins,the multi national wins,and the IRS wins.
 The next time you hear that we give tax rewards to companies that ship jobs off shore do not believe it.When you hear that we will close those loopholes its a lie.If the IRS goes after this "loophole"and tries to tax offshore profits that are kept offshore it will devastate our multinationals and I doubt that it is legally even enforceable. Our tax laws force our companies to ship jobs away and inhibit job growth here in our country.It is just not right , fair or good for the American economy.

Tuesday, September 7, 2010


   I am rapidly loosing faith in the decisions made in washington to "help" the economy. Today our president proposed more spending on rail travel to create jobs. I do not like to criticize our president so I will just say that whoever came up with this idea must have been smoking dope when the idea appeared to him and then the president gave it no thought before proposing it. I guess it sounded like a good idea at the time.
  To pay for this new program the president said he was going to eliminate subsidies for the oil and gas industry which was given  as part of the 2005 HR 6 energy bill which due to other provisions actually raised taxes for the energy companies.But ,and this is a big but, that bill only allocated 2.6 billion for oil and gas, the rest for nuclear power [haven't seen that yet].So for a cost neutral bill,he wants to spend 50 billion and pay for it with 2.6 billion in reduced expenditures.Do the math people, we get screwed again.And there is more, yes I know hard to believe.It seems the president has already proposed to use the oil and gas industry increased revenue to invest more billions in clean and renewable energy sources [june 2 2010.] but that was two months ago.I guess its easy to forget when he is so busy spending other peoples money.How does he keep track of it all?
  In 1970 congress created amtrak.Ever heard of it  [unless of course you live in the northeast corridor.? ]Amtrak is run by guess who, the government. So I guess it  comes as no big surprise that Amtrak has never made a profit and it was designated by congress to be a for profit business. But congress in its infinite       wisdom has all kind of antiquated rules that make it unprofitable.I know so many are upset about corporate parachutes but get this, any employee who is laid off from amtrak must receive six years severance pay.So congress attacks wall street bonuses but essentially does the same thing with a railroad they run that does not and never has made a profit.Well a business can not run at a loss indefinitely without an injection of money.Amtrak is no different but it has an unlimited supply of our money.We the taxpayer pay between 1 to 1.5 billion a year to subsidize amtrak or about $32 for every passenger. The best or should I say worse route is from New Orleans to Los Angeles.We pay $462 for every single passenger that takes that train.I just checked , you can fly the same route , round trip, for $300 or non stop for $480.
 I think you can figure out where this is going.Our president wants more amtracks to create jobs which means that in the future we will be asked or should I say forced to subsidize more riders who might ride them.What a joke.What is he thinking or smoking? New rail routes will take years to plan, buy right of way and it will be years before any jobs are created on the actual construction.The stimulus bill contained 8 billion for rail travel , one from Chicago to Iowa [ever been there? people in the east think thats where they grow potatoes. ] and the other goes from Tampa to Orlando.I used to live in Iowa and other than corn and pheasant hunting there are no major tourist attractions. Who will ride that train anyhow?The Florida route has no parking available doesnt plan to stop at places like disneyland and will cost more than driving yourself plus will save no time.So whats the point? I just dont get it.But we will get it, in our taxes.Bet on it.
  I think our president is impressed with the high speed trains in Europe. I have taken them and they are impressive ,fast,clean,efficient.But the U.S. is not europe.We have a much more scattered population,over vast distances and we prefer the freedom of our own car.Also europe has had trains for a very long tim,buying the right of way years ago and its a way of life .
 This new jobs proposal which is just more tax and spend hoopla is supposed to be paid for by eliminating some oil and gas industry tax breaks. So while we criticize the industry for making money and push them to find more energy and scream loudly when gas and heating costs go up we want them to pay for rails to nowhere which we will subsidize and no one will ride.Does this make any sense to anyone?
 This is one more example of how our government is hurting the economy.Please no more help from Washington.

Monday, September 6, 2010


    The august jobs report was generally seen in the news as good news. The president said "it is good,but not good enough."Some headlines said "hiring picking up" Some said it was better than expected and therefore good.The stock market even responded with some very positive increases.
   This is all sugar coating or putting lipstick on a pig. The job report sucks. When looking at employment numbers I only consider the private sector to negate the effects of the census workers.The first four months of 2010 were looking pretty good for jobs .In january we added about 4000 jobs.Nothing to brag about here , but each month through april the numbers keep raising sharply to about 250000 in april.Things were looking pretty good then but then everything fell apart.In may new jobs dropped to 50000 and have wobbled around since then to 67000 jobs in august.To keep up with the segment of population growth entering the job market we must add 120000 jobs a month just to keep the unemployment  rate the same.The only good number in the report showed average hours worked ticked up 6 min. a week.This is a forecaster of future hiring but I just do not see it happening soon.
  In a previous blog I noted that uncertainty is a job killer and we still have plenty and our administration is doint nothing to reduce it. The private job sector will not take risk and hire if uncertainty is high.No one knows the true costs of obamacare,we do not know what our taxes will be,we fear the costs of possible cap and trade and given the huge and growing debt. we do not know what inflation and interest rates will do,and what government interference in the private sector will be thrown into the mix.The future is not looking good.
  I have a friend and customer who has testified before congress on helping improve our exports. A nobel task. He believes the future costs of obamacare will raise his health care costs 100 % in five years.He is trying to expand his business.He is hiring Americans,buying U.S. equipment and exporting. Since he has 135 employees and expects his health care costs to double in five years do not think that doesnt put a damper on his hiring and investment.
  So we saw a nice uptrend  from jan. to may then dismal job creation.What happened in may was the Greece financial crisis.While we do not count Greece in our jobs numbers, what it did was drive home the message that yes it could happen here. We already have a few states,is Calif. and Ill. that are essentially in the same position as Greece and our federal situation is not far behind.Again it is fear and uncertainty, caused by our own government that is hurting future economic growth.
  The stock market took a good bounce on the numbers because fear of a double dip were already priced into the market and positive jobs numbers  help to alleviate that fear.
  So once again, if we want jobs to come, the government must get out of the way and quit taking actions that actually cripple growth.