This week I noticed that the attitude of the American people has changed from slightly optimistic to one of pessimism. When I spoke to some people about the economy, I found that they are actually angry! Unemployment is too high; the deficit is growing faster than a speeding bullet; and our debt appears to be insurmountable. The stock market started downward last week and continued its negative spiral on Monday. The President announced he would make a speech designed to quell the market's fears about Standard and Poor's downgrading of the U.S. debt. His speech was a dismal failure. It offered nothing but tired old solutions that were already proven to be ineffective. His words were simply a reiteration of his desire to create jobs, increase taxes, and most importantly placed the blame on others. As usual, there were no details on how to achieve his these objectives. The platitudes sent the market into a tailspin, from which we have yet to recover.
President Obama blamed the economic malaise on the earthquake in Japan, the Arab Spring in the Middle East, the poor economy in Europe, his old favorite George W. Bush and the Tea Party downgrade. The Tea Party downgrade is a new one, magically pulled out of thin air by the President and his cohorts. Let's get the facts straight. Standard and Poor downgraded our credit rating based on the deficit and our massive debt. It is clear to anyone who is up on current events that the reason for the downgrade is our failure to balance our budget and trim our debt. As an investor, I agree with the downgrade by Standard and Poor and I expect another downgrade in the near future. Our debt will only be repaid, if ever, by printing money. This will further devalue the dollar, causing everyday living costs to increase. Inflation will hurt those existing on a fixed income more than the D.C. fat cats who will retire wealthy on pensions paid by our taxes.
The people I talked to are extremely angry at our government's failure to take decisive action to address the economic issues facing our nation. The President spreads blame like farmers spread manure! Any fool can see that he is looking for scapegoats rather than addressing the issues. It is time for the President to change course! As I have written in previous articles, he needs to lower taxes on corporations immediately. Our corporate tax rate, at 35 percent, is one of the highest amongst our trading partners. Canada has a tax rate of 15 percent, the United Kingdom and even Kazakhstan have a corporate rate of only 20 percent. Major American corporations have moved their operations and investments overseas to reduce their taxes. With lower rates, corporations would repatriate their profits and their taxes would again be flowing into the U.S. Treasury.
I agree with one thing the President said in his speech. Everyone should pay his or her fair share of taxes. To me, this does not mean a tax increase for those who are already paying 35 percent at the federal level plus Social Security and state taxes. Any further taxes on the so-called "millionaires", those making over $250,000, will only increase unemployment. Hiring people in this economy, at the current after tax return, is just not a sound business practice. Instead, we should focus on the 48 percent of the workforce that pay no tax at all. To be fair, all Americans should pay income tax, even those with low incomes. Once these new taxpayers feel the pain of federal and state tax deductions from their paychecks, I believe they too will join the fight against confiscatory taxation and government waste. For many of us, a 20 percent flat tax would encourage us to invest more in our small businesses and corporations. This would create the jobs we need to reduce unemployment to seven percent or even less over the next two years.
We must also address the spending side of the equation. Permitting people to receive unemployment insurance for 99 weeks is not only a drain on the economy but it encourages sloth. Let's initially cut unemployment insurance benefits to 52 weeks. Small businesses and midsize corporations are unable to fill some of their existing positions because the wages they offer cannot compete with the unemployment insurance check. We need to encourage able-bodied people to work rather than collect the dole. In a year or so, we should reduce the unemployment insurance benefit again, to a maximum of 26 weeks. If everyone knows this is coming, they will actively seek jobs, even if it means that they will be underemployed. After World War I, my grandfather was a quasi dentist who fixed toothaches by pulling teeth. During the Great Depression, people could not afford even his inexpensive services. To support his family, he had to ride the rails and take any job, at any wage, so he could send money home. He didn't complain as everyone was in the same boat (or on the same train so to speak). Now is time for everyone between positions to actively seek work and support their family. The entitlement system must be curtailed if we are to keep our country from bankruptcy.
As I write this, there are riots in the United Kingdom and several other European countries. The poor economy, lack of jobs, and cutbacks in entitlements are the primary cause of this civil disobedience. I believe that good citizens do not riot. Instead they join together in a peaceful protest, or write, call or email their politicians. Rioting is just an excuse to run amok, burn buildings and pilfer goods from broken shop windows. If our government continues on its current path there could be rioting here in America. I lived in the Los Angeles (L. A.) area and saw the riots firsthand. One vivid memory is of an obviously middle-class person stealing a very expensive television. For whatever reason this person decided that he might as well take advantage of the situation. After all, if everyone else was burning and pillaging, why shouldn't he take a television set before someone else does!
My concern in the L. A. riots was that the National Guard was called out but they were not given bullets. At the time, the governor said he did not want "accidental" shootings. He thought that the highly trained National Guardsmen would not be able to control their weapons and might inadvertently shoot bystanders. This would spark even greater unrest. The riots continued for days as the urban population realized this was their chance to furnish their homes, get new clothing, and stock their pantry. Today, if you go to downtown L.A. you will not find any large supermarkets. After their stores were burned and looted several times over two decades, the major chains decided not to rebuild and closed stores in the riot prone areas. Take a few moments to watch this short video of the riot, the damage and the aftermath (http://video.google.com/videoplay?docid=6644850983746156628 )
None of us want to see riots in our cities. Instead, we need leadership. It is time for the President and our representatives in Congress to get together in earnest to create an American recovery program that can be implemented immediately. Then, they need to sell it enthusiastically to the people. Throw away the teleprompter and speak from the heart about how America will be great again if we all work together to create the jobs we need, revamp the tax code and rebuild our decayed cities. The time for partisan politics and political maneuvering is over. It is time for the President and our elected representatives to earn their salaries, build a plan, and execute it. It is our duty as citizens to ensure our representatives know that we will no longer accept their past fiscal folly. We want the recovery to commence and we want it now!
© 2011 Gordon Smith - All Rights Reserved.