COMMENTARY:

Thinking About Incentives

by Fred Cederholm

Instead of tax credit "carrots" to stimulate jobs, the President and Congress could use the stick approach and levy added taxes on those who downsize or terminate employees here and replace them with cheaper workers abroad. If the “stuff makers” don’t reside here, slap ‘em with a tariff. These will generate revenue and reduce deficits.

I’ve been thinking about incentives. Actually I’ve been thinking about our troubled economy, real politics, budgets, sticks and carrots, jobs, and the debt/deficits. The political/economic and comic/tragedy epic that is unfolding before our eyes right now is something I never expected to see, or to live thru. So many things are linked together now that one must literally fly over the lower 48 states in a space shuttle to even begin to grasp the whole picture. We are witnessing the ultimate in soap operas. So curl up in a comfy chair with a large bowl of popcorn and a cold drink. This is gonna be interesting!

You see in the tradition of classical Greek drama, a comedy is when the protagonist, or lead character (TH*NK Uncle $ugar here), succeeds in his quest or mission. In the alternative, a tragedy is when the lead character fails. We had better hope that in this theatre that is Washington DC, Uncle $ugar succeeds in turning things around and we can all enjoy a good laugh when it is over. Let’s face it... laughter is always better than tears. There is so much potential for plot/story lines when politics goes head to head with economics. Political maneuvering that was money driven got us into these messes, now it will be further political maneuvering that will get us out of our dilemmas? Or... will it?

We have seen the Obama Administration and the Democratic controlled majorities in Congress go from being the drivers of change to double talking (not-so-slick anymore) salesmen in the space of one year. They claim the turn around has begun, but the public just isn’t buying the sale. We are only thru one third of the housing real estate crisis. We should see the unfolding of the commercial real estate crisis in 2010. Estimates of losses in commercial real estate in 2010 now exceed $300 BILLION on $1.4 TRILLION of loans! The employment facts and statistics being reported are laughable. Everyone knows a jobless recovery won’t cut it. The “fix” will be years away WITHOUT their fictional jobs tossed in.

The budgeted numbers for the present fiscal year are bracing US/us for a $1.6 TRILLION deficit. This is for one year! It should be noted that it took the US from January of 1791 to September of 1984 for the US to accumulate $1.6 TRILLION of debt. This, by the way, includes all the war debt from the Civil War, the Spanish American War, WWI, WWII, Korea, and Vietnam. We will now add that much just in fiscal 2010. War is expensive and we will spend ONE TRILLION on IRAQ and Afghanistan in 2010. The other $600 BILLION of debt/deficit relates to other stuff, bailouts, and stimuli. As our President and Congress tell US/us it is all needed for “the recovery.”

Washington DC operates on the principle of the “rule of the stick or the carrot.” As the Thomas Nast cartoons depict: “you get the mule to move by beating it with a stick, or luring it with a carrot.” Our problems run so deep... it will take one heck of a big stick and/or a lot of carrots to get the mule moving in any direction. Hence, we will see a $1.6 TRILLION deficit in 2010. I’ve included all the $1 TRILLION in war expenses as part of the solution, because without the mobilization our unemployment levels would probably double and our Gross Domestic Product (GDP) would shrink accordingly.

Jobs are a hot button issue for 2010 and the mid term elections. Our fearless leaders will be talking a lot about jobs and what they are doing to get America working (or at least on the payrolls) again. Uncle $ugar can “create” the new jobs, but just how many “assistant vice deputy directors in charge of paper clips” do we need? Federal payrolls have skyrocketed and we still have 10% not working presently according to Uncle. Jobs will come from existing business and start ups. These must be real jobs paying living wages and have decent benefits or it isn’t going to work (pun intended).

The President and the Congress would prefer the carrot approach and lavish on tax credits to anyone who adds an employee. The “bribe” will come in the form of so many dollars in reduced tax liability for each new hire or position created. In our current situation, every dollar of tax credit will mean an additional dollar of deficit; which will men an additional dollar of debt. There is no way around this. They forget the old rule of thumb where each and every employee should generate at least TWO times the costs of wages and benefits in added revenues.

The President and Congress could use the stick approach and levy added taxes on those who fire, downsize, can, or terminate, anyone here and replace them with cheaper workers abroad. If the “stuff makers” don’t reside here, slap ‘em with a tariff. These will generate revenue and reduce deficits. Then Presidential advisor Dick Cheney once said: “The deficits don’t, matter.” Well... the deficits DON”T matter... until they matter!!!

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Copyright 2009 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at asklet@rochelle.net.




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This story was published on February 15, 2010.