Why Romney is Better for Small Businesses

Businesses that pay taxes at the individual income tax rate employ 54% of American workers.  Obama wants to raise the marginal income tax rate of business owners making more than $200,000 a year, while Romney wants to lower this marginal tax rate by 20%.  Obama will raise the marginal tax rate in the two highest income tax brackets from 35 to 39.6% and from 33 to 36%.  He will add a 0.9% increase in Medicare taxes to people in these brackets and will increase the tax rate on dividends, interest, and capital gains by 3.8% beginning in January.  He will reduce their deductions as well, which will make their marginal tax rate a real 44.8%.

As Obama says, these tax rates will not apply to 97% of small business owners, but they will apply to those who hire most of the new employees.  In 2008, there were 27.28 million companies and only 18,469 had more than 500 employees.  This means that about 27.26 million firms are small businesses or about 99.93% of all businesses are small businesses.  78.26% of all firms had no employees.  Those with 4 or fewer employees accounted for 91.6% of all small businesses.  The businesses that account for most of the new hiring employ from 20 to 499 employees and these are only about 2.3% of all businesses.  Most of the high income business owners Obama wants to tax at 44.8% marginal rates are owners of such businesses.  Such high marginal tax rates will serve as a strong disincentive to work so hard to grow a company.

Small businesses are the result of free associations of individuals in the private sector, not the government sector, or the falsely, but optimistically termed public sector.  The owner(s) of the small business voluntarily formed the business to supply services or goods to others in voluntary trade.  The owner(s) may hire employees, who voluntarily trade their labor for a wage or salary.  The only necessary role of government is to prevent others from using force to interfere with these voluntary trades and associations.  Small businesses are very much creatures of the private sector.

Large businesses are sometimes in a position to purchase politicians to bend the excessive powers of big government to provide them with special advantages, much as labor unions and trial lawyers do the same.  Among the favorite tactic of such nefarious big businesses is the use of excessive regulations to reduce the ability of otherwise lean and determined smaller businesses to compete with them.  The big business can readily hire several compliance lawyers and accountants, while hiring one of each is a huge expense for the competing small business.  Of course, under Obama, the big business just has legislation passed that directly gives it an advantage, such as a mandate that people must use their product or service.  The green energy companies and the Too-Big-To-Fail financial companies are the recipients of such advantages.  So are ethanol producers.  Almost any advantage an unethical big business gets with its political pull is harmful to most small businesses.

Small business owners tend to be more independent-minded and more individualistic than most people.  They are willing to take on a greater amount of self-responsibility and the risks that manifestly come with trying to build a small business.  They have to carefully identify their values and control their limited resources with wisdom and understanding.  These are not the traits of people who wish to be dependents of government in its Nanny State guise.  Small business owners tend to be willing to rise or fall based upon their own productivity.

Broadly speaking, the Democratic Party is more the champion of big government than is the Republican Party.  In particular, it tends to be anti-economic rights in its viewpoint.  Property rights, the right to earn a living, the right to hire employees exercising freedom of contract, the right to travel, the right to trade goods and services with others under the freedom of contract, and the right to create new ideas, goods, and services are all critical individual rights which small businesses require to flourish.  It is the maximization of these freedoms, not special interest favors, that small businesses need most to have the opportunity to succeed.

That the greatest need of small businesses is economic freedom is seen empirically by studies that rank nations and states (here, here, and here) by their economic freedom and examine their economic growth.  Generally, a small business does better when its customers are doing better, so targeted favors from government are of little use if your customer and suppliers are not doing equally well.  Bigger and growing markets also tend to bring down the costs of its business inputs more as more innovation occurs and businesses can take more advantage of scale or find more niche markets adequate to their growth.

Independent-minded small businessmen should want this open field of a healthy and robust private sector to operate in.  They are not equipped to field an army of lobbyists to protect themselves from politician's attempt to extort money from them.  They are not able to come up with the campaign donation bribes to pay the game of seeking special interest legislation or regulations.  The small business owner has his mind fully occupied by the business needs of his business and does not need a ton of government paperwork to do, hundreds of thousands of pages of government regulations to read and decipher, long discussions with politicians behind closed doors, and weeks of hearings and trials to attend.  Neither does he want subsidies, credits, and deductions which are supposed to reward him for obeying the wishes of politicians.  He is an independent businessman because he wants to do things his way, not as the manipulated serf of a politician.

Obama has been making the claim that he has lowered taxes for small businesses 18 times.  Yes, he has manipulated small businesses with a number of small or short term tax breaks.  My own small business has never benefited from any of these tax breaks.  In the Obama economy, I have not been able to hire an additional employee, so I have not received the benefit of paying only 90% of the taxes owed on quarterly tax payments, with the rest to be made up at the end of the year.  No, I have had no advantage from this also since my company pays payroll taxes every month in full.  Small business owners are not allowed to deduct the cost of their health insurance premiums, but for one year (2010) Obama allowed relief from this nasty ill-treatment of business owners.  In a couple of years, the amount of equipment one could deduct in the year of purchase was increased, but the usual lower amount is much more than most small businesses can purchase in a year anyway, so only a few small businesses can benefit from this tax break.  Start-up costs of up to $10,000 for a new business can now be deducted instead of a paltry $5,000, but that is worth little unless the start-up business makes money quickly.  And then it is still worth little.

Obama claims to have increased Small Business Administration loans.  They come with incredible paperwork, long wait times, and are for relatively small amounts.  It is easier to earn the money and pay for growth from earnings than to try to get money from the SBA.  Or, many small businesses used to finance growth by taking money from the refinance of the owner's home, but the policies of big government that led to the sub-prime mortgage bubble have killed that option for capital seed money.  Obama and the Democrats were especially prominent in support of the sub-prime loan bubble and its collapse.  The SBA programs for which Obama increased funding are directed at sub-prime loans to small businesses.  Many of them will fail when they cannot make their loan payments.

Obama's website for Small Business Owners claims that:

When President Obama took office, American small businesses were struggling under the devastating effects of the recession, runaway health care costs, and a credit freeze created by the Wall Street meltdown.

How interesting.  Small businesses, especially most of those serving mid- and large-size businesses are still feeling a recession due to the $2 trillion that these companies have been hording rather than using to buy the services of small businesses.  Our healthcare costs have only increased due to ObamaCare, or the ObamaUncaringTax according the Supreme Court Chief Justice Roberts.  The quote on our healthcare plan for my business went up 20% this year.  We had to drop the benefit as many other small and larger companies have also done.  Thanks to the Obama FDIC, the Federal Reserve, and the Dodd-Frank so-called financial reform law, it is still very hard for a small business to get a loan.  Of course, who wants a loan when the economy is so bad and so variable that one cannot be sure one can make the payments on it?

The SBA 7(a) Loan Program is ideal for businesses with less established credit histories looking to borrow up to $5,000,000.  Great, but what responsible small businessman will borrow anything like $5 million when his business is not well-established enough that he can be sure to pay back so much money?  I suppose the answer is a Democrat businessman, especially one who has bundled campaign contribution money for Obama.

The supposition of all of Obama's small business programs is that a small business wants to partner in some way with the government.  Well, no, most of us just do not want government to view us as a source of income for wasteful government spending, such as on green energy subsidies.  We do not want to pay higher taxes on our marginal income if we manage to generate a profit.  We really just want government to stay off our backs and out of our way as we exercise the economic rights which legitimate government is supposed to protect, not violate.

NLRB - From Unconstitutional to Wildly Unconstitutional

The National Labor Relations Board (NLRB) has ordered that people with objections to its actions taken against Boeing be quiet and not voice those objections.  I am today asserting my constitutional right to think, to freedom of conscience, to freedom of speech, and to freedom of the press.  The letter of intimidation came from the General Counsel of the NLRB, Lafe Solomon, who is an Obama appointee.  Obama also stacked the NRLB with Craig Becker, the former associate general counsel for SEIU and the AFL-CIO, with a Congressional recess appointment.  Having delivered little to the unions with legislation in Congress, Obama is trying to deliver the goodies through Executive Branch agencies even if it means the public has to be intimidated out of exercising their right to freedom of speech.

The NLRB has no legitimate power under our Constitution to violate employee-employer contracts and it certainly does not have the right to declare that a company must maintain all of its production activities in one state just because that suits a particular union.  Yet, the NLRB has tried to force Boeing to build a third new production line for the 787 Dreamliner in Washington state, where it built its first production line.  Boeing has nearly finished a second production line in South Carolina and it only needs two production lines.  The International Association of Mechanics (IAM) and the union-owned NLRB are claiming that Boeing built the second production line in the right-to-work state of South Carolina in retaliation against the many strikes they have had in Washington state.  In reality, the second production line is being built at an ex-Vought site bought by Boeing.  The employees at the site were briefly members of the IAM, but decertified it as their representative when they decided that the IAM did not have their best interest at heart.  The IAM and the NLRB are retaliating against that facility in South Carolina as a result.

The NRLB is embarrassed by the weakness of its case.  Whenever the government has reason to be embarrassed and the public has or will likely catch on to that fact, the government either hides the facts and the data from the People or it tells them that they cannot talk about it.  Big government always has many reasons to be embarrassed, so censorship and secrecy have always been a consequence of a big and intrusive government.  After all, no one has ever heard of an effective central planner micromanaging the lives of hundreds of millions of complex and richly differentiated individuals.  It does not happen in the real world.

The Deception of the Reduced Employee Share of Payroll Tax

I am sure there are many employees who are delighted that the government has decided to make the total 2.0% reduction in the rate of the Social Security tax in the employee's contribution and not in the employer's contribution.  In fact, this is a nearly meaningless distinction, except that it plays well with those who have not thought the problem through.  I can tell you from my experience with mostly quite intelligent employees that very few people have thought this issue through.

In view of this ignorance, the ploy makes great political sense.  First, there are many more employees than there are employers, so it wins more votes for the politicians.  Second, the disappointed Progressive Elitists who so badly wanted to raise taxes on those guilty of being productive enough to earn more than $200,000 or somewhat less or couples earning more than $250,000 together or somewhat less are likely to feel that the reduction of the Social Security tax only on employees making less than $106,800 helps to equalize their disappointment in not getting to soak the rich.  They are also getting even with those rich, exploitative employers by not letting them have a share of the tax break for 2011 offered by this Social Security tax reduction.  Progressive Elitists hate business, profits, and businessmen, so this plays well.  But then this little triumph is entirely based on their own ignorance of employee compensation, which they display in many ways in addition to the present case.

Why is the distinction of employee and employer shares of the Social Security and the Medicare taxes meaningless?  On one level, it is because they are both paid by the employer.  The employee does not take his paycheck home and then send his Social Security withholding of 6.2% and his Medicare withholding of 1.45% in to the IRS.  His employer does that, unless he is self-employed, in which case he sends 12.4% in Social Security tax and 2.9% in Medicare tax.  But while this fact is important, it is not the hard part to understand.  Let us get to that.

An employer hires an employee because he wants the employee to help him produce goods and services and hiring the employee is calculated to produce enough more goods and services that the employer can cover all the costs of hiring the additional employee and make some profit as well.  The employer and the employee make a deal that the employee will be so productive that the employer can rationally afford to keep him employed.  There are two sides to this issue that need to be considered.  What will the employee add in company income and what he costs the employer.  For our purposes here, we will mostly consider what the employee costs the employer.

Adding an employee will generally require more work space and more equipment.  Workman's Compensation Insurance payments will go up.  The company may need to do more advertising to bring in more customers for the employee to provide goods or services for.  There will be an incremental increase in liability insurance in many cases.  There will be generally added expenses for business cards, office supplies, pollution controls and other regulation compliance, and the materials and goods the employee must use to make the company's finished goods or provide services.  There will also be overhead expenses due to the added work in doing payroll and keeping records for the IRS and reporting to them and other government agencies on tax and labor issues, and to provide and keep track of benefits.

Finally, there is the matter of providing the compensation package to the employee.  His compensation cannot rationally be greater than his additions to the company's income minus the many expenses of the previous paragraph.  If they are, for more than a brief training period, he should be fired.  Now every company is also in a bidding war with every other employer and even with the employee's potential thoughts of being self-employed, so that he has little leeway on the downside as to what he can offer in a compensation package.  He may increase that leeway somewhat by providing a nice work environment, good people to work with, good customers to work with, extra freedom in hours worked, and interesting work to do.  But one way or another, he is still in a stiff competition to keep desirable employees, who are likely to be desirable to other employers as well.  But most important of all, the employee's total compensation has a strict upper bound determined by what he adds to the company income minus the expenses associated with his doing so.

The compensation package is usually considered to be his wages or salary plus the costs of his benefits such as health insurance, retirement plans, vacation, sick leave, etc.  One could say that the employer's share of the Social Security tax and the Medicare tax, that state and federal unemployment taxes, and Workman's Compensation costs are all overhead expenses.  But if you do, the employer still needs to consider them as part of the costs of adding an employee and the employee still has to cover those costs or lose his job.  But, unlike added equipment, office or warehouse space, advertising, and other common overhead expenses, these taxes, which Workman's Compensation also is for all intents and purposes, are very easy to attribute to each particular employee and most rational employer's will do just exactly that.  They are part of your compensation package then.  Sure, most employees do not think of them as such, but that is the real case.

Why is this?  It is because the employer would have been just as happy to have given these tax monies to you as to give them to various governments or insurance companies.  If you are employed, you are worth the sum of these taxes, your take-home pay, the other taxes fictionally paid by you though he pays them for you, and all of your benefits.  In fact, if the employer could hand all of this money to you he should be happier.  He probably likes you and he would surely be very happy not to have go to all the trouble of separating the amount you are worth into separate piles with all the associated record keeping, report filings, and payments needed to

• Withhold income taxes for the state.
• Pay unemployment insurance to the state.
• Withhold income taxes for the federal government.
• Withhold Social Security taxes for the federal government.
• Withhold Medicare taxes for the federal government.
• Pay unemployment insurance to the federal government.
• Pay Workmen's Compensation insurance.

I can certainly vouch for the fact that I would love to give all this money to my employees and if any of these taxes had to be paid, I would be delighted if they would relieve me of all the tedious work involved and do it themselves.  Of course, I have a devious motive.  I know that that would create so many very angry voters that we would soon have a much simpler tax system and much smaller governments.  Many more people would pay more attention to how much they were paying in taxes.  The present system is designed to fool them into underestimating the amount of taxes they pay.  That deception works with most people.

Now, let us consider the case of a tax increase.  It does not matter a bit whether the tax increase is designated as paid by the employer or the employee.  The employer is still the one who is actually going to make the payments, though the employee is involved in some minor adjustments on the income tax.  Let us suppose that either the Social Security or the Medicare tax goes up.  If it does, the employer will have to do one of a few things:

• If he has many employees, he can easily fire one or more of the least productive employees to compensate for the cost increase.
• He may crack the whip and say all employees must work harder.
• He may defer pay increases until increases in worker productivity match the increased tax cost.
• He probably will be loathe to take on new workers who will not be able to match their cost of employment for an initial period of time as they learn the job.
• He may cut back on benefits.
• He might have to decrease wages or salaries, though this is usually psychologically a tough choice for everyone.

The employer has options and he will have to exercise them.  Losing money is not a choice he can handle for long.  But, you should note that such compensatory actions are harder on small businessmen than on big companies.  If your costs go up 2% and that wipes out your profit, but you have four employees, firing one causes you to lose 25% of your income.  That is most often not an option.  So you have to use the remaining options or go out of business altogether.  The going out of business option is very frequently exercised by small businesses, especially since they are usually already working very hard and productivity increases are often harder for them to come by.

Now let us return to the 2% decrease in the employee share of the Social Security tax.  Each employee gets to now take that 2% home and spend it as he wishes.  But, what would have happened if the 2% decrease had been in the employer's share of the Social Security tax?  Well, perhaps for a few weeks the employer might have had a few extra dollars to reinvest in his company or to call net income and to be taxed, but there would be a very rapid readjustment in the marketplace in which employers found that they must offer employees 2% more to retain them or to get them to come to work for them.  Why?  Because the worker in question has already proven that his labor is worth that extra 2%.  That is why he had a job in the first place.

Good, productive employees are a scare resource.  There is always an active bidding process for their services, just as there is a market for plumbers, accountants, gold, wheat, pork, televisions, and other goods and services.  The inescapable Law of Supply and Demand applies here as it generally does in life.  Governments often pretend that they are above the Law of Supply and Demand, but all they do is shift the equation is some way, usually some bad way, but some new Supply and Demand equilibrium ensues.

In the case of the 2% reduction from 6.2% to 4.2% in the employee share of Social Security, there will be more money available in the short run for people to spend.  Generally, I favor reductions in taxes.  However, this reduction is going to make the financial straits of the Social Security system all the worse.  The Baby Boomers are about to start retiring in large numbers.  The politicians have been unwilling to face that program's severe underfunding.  The Ponzi scheme is about to collapse upon us all.  The best solution is simple, but few will yet accept it.  The problem is the size of the Baby Boomer wave and the fact that retirees are living a long time.  The life expectancy of the 65 year old in 2006 was 18.5 years.  That is a long time in retirement, particularly given that many people aged 70 are now in good enough health to be working.  The retirement age should be at least age 70.  I expect to work at least until I am 75 and longer if my health allows, which it probably will.

Given that the federal government has long been using Social Security tax revenues to generally pay for the obscenely excessive spending of the government, either major retirement age increases or major tax increases will be required.  Taxes are already much too high and they are already very much degrading the health of the private sector.  What we generally need are massive government spending decreases.  They are coming because the People will not put up with higher taxes and they are coming to understand the fatal nature of government deficit spending.  The process by which the necessary spending decreases will occur is going to be very interesting to observe.  Because a simple problem has so very long been ignored, its solution will now be all the tougher and may be catastrophic for some.

Obama's Job Creation Summit

This is really a funny event.  Obama has gathered together some executives from large companies, government Labor and Commerce Department people, and his ever popular labor union leaders for a jobs creation conference.  After taxing small business owners to death and wanting to tax them still more beyond the grave, after threatening everyone with energy restrictions under the ridiculous claim that CO2 is a pollutant causing catastrophic man-made global warming, after telling businessmen in industry after industry that he has a Marxist hatred for them, after threatening to saddle companies with new health care expenses, after a Stimulus Package that creates no private sector jobs, after threatening business contracts and property, and after making all investment decisions a roll of the dice, Obama is having a job creation conference.  Is he admitting finally that he who sits at the feet of every Marxist professor he can find in college has no idea how the economy works?

Indeed, he does not.  Including labor union leaders in such a meeting flies in the face of its purpose: job creation.  Labor union leaders are experts in one thing related to jobs: killing them.  This is why private sector employees have been avoiding labor unions now for decades.  They have come to understand this.  This is also why the labor union bosses so badly need card check.  Without intimidation, they cannot force private sector employees to join the unions.

The executives of large businesses are not really interested in spurring job creation either.  The large businesses do not hire many people.  It is small businesses that hire most people.  So, if a large business executive were to spur more jobs in the economy in general, he is doing more to grow his competition, the lean and mean small companies who are always trying to make inroads in his product and service areas.  The big businessman usually fears small business.  The last thing he wants to do is to help them grow.

With 15.7 million Americans unemployed, this jobs summit should have an easy job creating new jobs.  There are plenty of sufficiently skilled and interested potential employees available for hire.  All we need is for large numbers of small business owners to gain the means and the confidence to hire them.  Within a framework of Marxist theory, there is no way to motivate the small businessmen to hire.  No, it would require Capitalist theory to understand what government actions and inactions are needed to spur job creation.  The answers are tried and true.  Most small businessmen can tell you what is needed.  They just need these very simple encouragements:

• No new payroll taxes.
• No threats to take down their businesses when they die with a death tax.
• Lower individual income taxes for higher income brackets.  Finally come to understand that the net government revenues increase with lower upper bracket income tax rates than those we presently have, while encouraging growth of the economy.  The onlyreason for higher rates is to punish the rich.
• Remove the minimum wage laws or at least lower the minimum wage.
• Stop increasing unemployment insurance rates.
• Control Workmen's Compensation Insurance costs with tort reform.
• Do not raise the cost of health insurance as ObamaCare will certainly do.
• Do not increase energy costs and lower energy reliability as carbon cap and trade or the EPA's plan to declare CO2 a pollutant will do.
• Do not threaten businesses with union takeovers as card check will do.
• Cut back on government spending so investment capital is available for the private sector.
• Lower corporate income taxes, so American companies can compete with companies abroad, almost all of which now have lower taxes than do American corporations.
• Reduce barriers to trade.  Simplify both import and export laws and regulations.
• Understand that Medicare and Social Security will both be turning in their IOUs in just a very few years and that increasing payroll taxes on them at that time will kill many jobs.
• Reduce the burdens of government regulations, instead of constantly increasing them.
• End subsidies that distort the markets into inefficient activities.
• Allow the drilling of oil and gas fields in the US and its offshore waters.
• Sell off much of the federal lands which are not being used productively, so that private owners can use them productively.  Use the income to reduce government tax rates.
  
• Encourage the states to stop business discouraging activities, such as those common in California, New York, Michigan, and Ohio to name a few.

OK, so if we saw Obama and the Democrat Congress doing these things, rather than the opposite in every case, we small businessmen would be hiring people instead of firing them.  As long as Obama and his cadres of comrades refuse to recognize these basic factors in the economy, there is simply no justification for companies to hire.  It is all very simple, if you are not a childish, Marxist blockhead.

The Obama Huge Health Care Insurance Tax

Let's calculate the tax that an employee will pay if his employer drops his health insurance coverage and pays the 8% payroll tax penalty instead. We will ignore in this calculation any other taxes that some people may pay due to taxes on very expensive health insurance plans or on sugary drinks, which are under discussion in the Democrat Congress. We are going to examine the new hidden tax, the tax which the politicians are pretending will be paid by companies.

A rational company pays an employee the sum of salary, benefit costs, and employer taxes which is justified in terms of the additional income the employee brings into the company. The employer taxes that are a real part of his compensation, despite the fact that they are of no use to the employee, are such things as the employer's contributions to social security, medicare, unemployment insurance, and worker's compensation insurance. If the cost of any of these taxes goes up, then the amount the employer pays the employee in salary and benefits should go down by an equal amount. These are all the costs of employing this individual and they are specific to this individual, unlike some other overhead costs such as for equipment, utilities, liability insurance, advertising, and many other overhead costs. They are also immediately changed upon hiring the individual or letting him go.

Let us suppose you are an employee who is being paid $100,000 per year. Your employer provides a family health insurance policy costing $13,500 a year and pays $10,500 of that cost, while you pay $3,000. After the deduction of your contribution of $3,000, you take home $97,000, ignoring the taxes that are also withheld. The company opts to stop providing health insurance and pays the 8% payroll penalty tax instead. The 8% tax is incurred because you are employed. I can tell you right now that you are going to wind up with 8% of $100,000 less compensation. You did not instantly start producing 8% more income for the company, but your employment is costing the company that amount.

Or, we can do some calculations based on that part of your compensation which is salary plus health care insurance benefit. Your salary plus paid health insurance benefit was $100,000 + $10,500 = $110,500. But now the company must pay $8,000 or 8% of your salary to keep you employed. But you are only worth $110,500 to the company, ignoring all other fixed benefits and taxes. So, the company is going to pay you $110,500 - $8,000 = $102,500. Whoopee! You have a salary increase of $2,500! Ah..... But now you get to pay for your insurance yourself. So, you pay $13,500 for your insurance. After paying for the insurance, you have $102,500 - $13,500 = $89,000 for other uses. Before your employer dropped insurance coverage, you had $97,000 for other purposes, so you lost $8,000. You might as well regard this $8,000 as a personal tax levied on you.

It is worse than this. You also have to pay your marginal income tax rate on the extra $2,500 you now have for your salary!

If you are a high-income employee or employer, Section 441 of HR 3200, the bill favored by Obama, imposes a further surcharge of 1% to 5.4% on you.

People making less money will not pay a full 8% net on their salary as you did. Depending on what their salary is, they will get a part of this back in a tax credit. But, whatever they do not get back is a tax they will be paying. Not your employer. If he does not instantly give you the extra $2,500 in salary, he may save some money for a short time. But, supply and demand in the labor market will cause him to give you your $2,500 salary increase in time.

Obama sure has designed a nice run around on his pledge not to raise taxes on the middle class or those with salaries below $250,000! He pretends he is taxing businesses, while he creates a giant increase in taxes on a great many Americans he claimed he would not tax more. He lied big time. The pretense is just too shallow for many Americans not to see through it.

On the other hand, many Americans actually do think that half the social security tax and half the Medicare tax is paid by the employer, not them. What dull poltroons they are! And they do not have a clue that their pay is reduced by the full amount of the unemployment tax and the cost of workmen's compensation insurance either. Yet, employers are mostly smart enough to take all of these costs of employment into account in setting pay and benefits packages. Those who are not, and there are some, are still driven to about the right compensation by labor market supply and demand and/or by their own company's ability to generate income.

Of course, understood this way, you and your employer should keep the company health insurance plan in place. As long as you both understand that if your company does not provide a plan, then your taxes are going up by 8% plus your marginal tax on $2,500, then he should keep the health insurance plan in place as a fully understood and valuable part of your compensation. If the plan is kept, you are making $8000 more than people with the same salary in companies without plans. They may have a salary $2,500 higher than yours, but you are in reality better compensated.

Aside from ignorance, the other big problem is that the government is going to be dictating the terms of acceptable health insurance plans in time. As it does that, the cost of such plans will increase due to the many things the government wants covered and the low deductible requirements. Preventive care, marriage counseling, mental health coverage, substance abuse, and many other requirements may add costs to the future qualifying plans. This will put more pressure on companies to drop their insurance plans. especially if their employees do not understand the consequences to them.

Taxing Employer-Provided Health Insurance

Having just examined the $787 billion stimulus bill and its expenditures and noting that that bill clearly signals a government takeover of the health care industry, it is appropriate to wonder where the money will come from to pay for all of this. This is not all, of course, since there are the on-going bailouts, a huge omnibus "regular" government spending bill full of pig ears, and future stimulus bills to consider as well. Is it possible to pay for all this by taxing the rich more heavily? Certainly not. Everyone but a few of the most envy- and hate-ridden socialist ideologists recognize this fact.

So, Max Baucus (D.-MT), chairman of the Senate tax-writing Finance Committee, has proposed that the health care insurance benefits that employees get from their companies should be taxed. President Bush and Sen. John McCain had earlier suggested this. Thirteen other Senators have signed on to this idea. Obama has earlier rejected this idea, but he now is said to be willing to go along if someone else does the proposing. Apparently, if the House and Senate were to pass a bill to tax employee health benefits, he would sign the measure.

The health insurance benefit has never been taxed since it was first offered during WWII on a large scale. This reduces taxable earnings by about $9,000 per year for family coverage. Clearly, taxing this income will move many people into higher tax brackets and will increase government tax revenues. It will also encourage companies to drop this benefit. Indeed, this benefit will make no sense at all if individuals will have access to group insurance plans such as Obama has proposed and will not have the tax benefit.

Actually, it is only fair that this benefit should be taxed like all other income. But, if it is to be taxed, it should happen as a part of a general tax decrease from which everyone will save some money from falling into the rapacious hands of the government. Given the government's hugely wasteful spending plans and given the great damage it has done to the economy resulting in lowered tax revenues, there is no way that such a general tax reduction can be accomplished, at least not without acknowledging that lowering tax rates may soon generate more tax revenues. This happens both because the economy responds with increased growth, but also because at reasonable tax rates, people will make many more taxable transactions. The tax revenue is a function of both the tax rate and the frequency of taxable transactions. It is also a function of the frequency of reported taxable transactions.

The socialists in charge will not provide a broad-based tax cut when they start taxing employer-provided health insurance benefits.

Union Representation Card Check Legislation

Labor unions are doing very well in the public sector, where they have been very successful in organizing government workers. In the private sector, they are in deep trouble. In the 1950s they had 35% of private sector workers organized, but now they have only 7% in the private sector. Consequently, they have become desperate to find a way to improve their numbers in the private sector. The card check legislation, which was passed by the House in 2007, but defeated in the Senate, is once again Labor's number one lobbying priority.

Presently, if a labor union persuades 30% of the non-management employees of a company to check a card saying they are interested in labor union representation, the company must either accept the union as the sole bargaining agent of all of its non-management employees or call for a secret ballot election managed by the National Labor Relations Board of the Labor Department. Currently, labor unions win more than 50% of such secret ballot elections. This system is one full of injustice. First, it is wrong to require a company to negotiate labor contracts against its will with anyone or any organization. Company owners are not obliged to provide a job to anyone, except by their choice. When they are forced to do so, they have become slaves to their employees. Second, it is wrong to force those employees who do not wish to join a labor union to do so, unless the management freely chooses to make that a condition of employment, which they do have the right to do.

But this already union-skewed system is not enough for the labor unions. Clearly, workers have seen that unions are often very effective in destroying companies, which makes their continued employment very dubious. A very good illustration of this presently is the need for General Motors to go bankrupt, so an organization can emerge from its ruins which is not chained to many extremely uncompetitive concessions made to the labor unions. Many employees in the private sector have clearly understood the risks of joining a labor union and have chosen not to do so.

The union answer was to have Rep. George Miller (D of CA) introduce the so-called Employee Free Choice Act once again, which in the best tradition of Congress is anything but what its title suggests. This is more commonly called the card check legislation. It will require a company to recognize a union as the sole bargaining representation of all of its employees if 50% of them check off a card saying they want union representation. A union may be forced upon a company and those employees who do not want union representation even before they know that an attempt is being made to organize the workers of the company. There may never be an opportunity for the company and uninterested workers to make any counter arguments. It is also very clear that union organizers can put very great pressure on the last few employees they need to reach the 50% critical number for unionization. The secret ballot need no longer stand in their way.

This process of unionization is so easy that it can be readily applied to very small companies, which will be especially vulnerable to being taken over before they even know they are under attack. There is nothing to prevent the unionization of even very small Mom and Pop businesses. These businesses do not have the legal resources to contend with the unions. These small-time entrepreneurs have often suffered through years of personal privation to build a stable company and to get to the point where they could hire a few employees. In many cases, the lowest paid employee in such a company may be the founder of the company, who is still foregoing salary income in order to build his business. Yet, this struggling owner/manager is now forced to employ employees backed by hordes of lawyers from the union and to pay them still greater multiples of pay and benefits relative to his own pay. He may be providing them with health benefits already, which law does not allow him to provide for himself.

This proposed legislation further imposes the requirement that the company must enter into negotiations with the union within 10 days of the union getting the 50% check-offs needed. Then if no agreement is reached between the company and the union within 120 days, the government provides an arbitrator who will dictate the wages and benefits the company will provide the workers for a two-year contract. Given that the Labor Department will designate the arbitrator and given its generally pro-labor union stance, you can see why labor unions have written these provisions into the bill.

Meanwhile, a February 2007 McLaughlin Associates poll of 1000 respondents found that 79% opposed this bill and only 14% were in for it. Among just Democrats, 78% opposed the bill and 16% were for it. A 2004 Zogby poll found that 78% of union workers oppose any measure that denies them a secret ballot vote on union representation. Despite this opposition by voters, the Democrat Party obligation to the labor unions is so great that the Employee Free Choice Act, or abomination, may well pass Congress when it is considered soon. President Obama voted for it when it failed to pass the Senate last time and swore during the election that he would sign it into law as President.

Soon not only GM and U.S. Steel will be having difficulties being competitive, but your corner independently owned gas station and the local diner will be struggling even harder than normally to stay in business. Small business owners who relished doing it their way instead of opting for the safety and easier life of working for a large company, will find themselves slaves to a labor union. What a life!

Maryland State Employee Benefits

According to the Maryland Public Policy Institute, the average state employee salary is $47,313, while the average private sector salary in Maryland is $46,031. While this is probably an unjustified salary level, the real benefit of being a Maryland state employee is the 55% greater benefit package. The state employee receives $13,387 worth of benefits, while the private sector Marylander receives benefits with an average worth of $8,604 per year. Only West Virginia offers its employees better benefits in the region. Maryland benefits rank only 24th in the nation, however, so the situation in many other states is comparable.

In 2006, the state pension liability was $7.6 billion. In January of 2008, the unfunded pension liabilities had increased to $11 billion. Other post-employment benefits, such as health care, have a liability of $14.5 billion. Someday, the state will be under considerable tax strain to pay out these obligations. These benefits should be reduced now!

The American Dream is Slip, Slipping Away - Not

Before every election in which a Republican President holds the reins of the Executive Branch of the Federal Government, the Democrats claim that the American Dream is dying. Both Senators Biden and Obama made the claim that it was "slipping" away. Biden said it directly, while Obama said that many Americans felt that it was slipping away.

I have posted on aspects of such Democrat claims in these prior posts:

• 47 million uninsured Americans
• 2nd Quarter GDP Growth 3.3% Annual Rate
• American and Chinese Exports
• Democrats Create Unemployment Before Election
• Hilary's 47 Million Uninsured Americans Demagoguer...
• 47 Million Uninsured Americans Revisited
• Benefits versus Wages
• Lambro: Recession fixation

Of these, the "Benefits versus Wages" post is must reading. I have recently come across another very essential commentary on the subject of American worker well-being. James Sherk, Bradley Fellow of Labor Policy at the Heritage Foundation wrote an article called "The American dream lives," which was published on 7 September 2008 in the Washington Times.

Sherk says we are "enduring trying economic times." Gas is expensive, some homeowners have lost considerable home equity, growth has slowed, and there are some job losses. But the American Dream cannot be said to be lost every time the American economy enters a downward business cycle. We should remember how slight today's problems are compared to say the stagflation of the 1970s, which was not enough to end the American Dream.

He says good jobs are easier to find in recent times than they were in the past. Repetitive, brawny work has been replaced with creative, brainy work. "The share of Americans working in what the Census Bureau calls 'professional specialty' jobs (such as nurses or engineers), as well as executive or managerial, and technical or sales positions, has expanded 10 percent since 1980." "Between 1993 and 2006, the median annual earnings of American born workers rose by one-sixth."

By contrast, the Democrats, as in Obama's acceptance speech, like to point out that workers have lost earnings in the last 8 years. This ignores the fact that Americans take a much larger fraction of their compensation as benefits to avoid taxes. It also ignores the affect of many immigrants and many illegal workers, who are commonly paid less than native Americans.

Sherk points out that 401(K)-style defined contribution pensions have freed many workers to make more frequent job changes, which gives them more opportunities to seek jobs at higher pay and that they enjoy. Employees are more than one-third more likely to voluntarily change jobs now than they were in the 1970s. Contrary to the anecdotal claims, employers are much less likely to fire or lay off employees than in the past.

One of the problems often noted today is the rising cost of health care costs. This puts some downward pressure on take-home income as employers pay more for health insurance plans. Despite this pressure, the fraction of the work force receiving company provided health care insurance is the same as in the mid-1990s, provided a correction is made for illegal immigrants.

When the present slow growth moment ends, Americans will have many opportunities to get ahead. It is a sad business to underestimate the long-term strength of the American economy and the productivity of its workers.