Can Obama’s tax plan work for the economy?

Let’s read this interesting letter from a small business owner.

To All My Valued Employees,

There have been some rumblings around the office about the future of this
company, and more specifically, your job. As you know, the economy has
changed for the worse and presents many challenges. However, the good news
is this: The economy doesn't pose a threat to your job. What does threaten
your job however, is the changing political landscape in this country.

However, let me tell you some little tidbits of fact which might help you
decide what is in your best interests.

First, while it is easy to spew rhetoric that casts employers against
employees, you have to understand that for every business owner there is a
back story. This back story is often neglected and overshadowed by what you
see and hear. Sure, you see me park my Mercedes outside. You've seen my big
home at last years Christmas party. I'm sure; all these flashy icons of
luxury conjure up some idealized thoughts about my life.

However, what you don't see is the back story.

I started this company 28 years ago. At that time, I lived in a 300 square
foot studio apartment for 3 years. My entire living apartment was converted
into an office so I could put forth 100% effort into building a company,
which by the way, would eventually employ you.

My diet consisted of Ramen Pride noodles because every dollar I spent went
back into this company. I drove a rusty Toyota Corolla with a defective
transmission. I didn't have time to date. Often times, I stayed home on
weekends, while my friends went out drinking and partying. In fact, I was
married to my business - hard work, discipline and sacrifice.

Meanwhile, my friends got jobs. They worked 40 hours a week and made a
modest $50K a year and spent every dime they earned. They drove flashy cars
and lived in expensive homes and wore fancy designer clothes. Instead of
hitting the Nordstrom's for the latest hot fashion item, I was trolling
through the discount store extracting any clothing item that didn't look
like it was birthed in the 70's. My friends refinanced their mortgages and
lived a life of luxury. I, however, did not. I put my time, my money and my
life into a business with a vision that eventually, some day, I too, will be
able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at
about noon, and then leave at 5pm, I don't. There is no "off" button for me.
When you leave the office, you are done and you have a weekend
all to yourself. I unfortunately do not have the freedom. I eat and breathe
this company every minute of the day. There is no rest. There is no weekend.
There is no happy hour. Every day this business is attached to my hip like
a 1 year old special-needs child. You, of course, only see the fruits of
that garden - the nice house, the Mercedes, the vacations ... you never
realize the back story and the sacrifices I've made.

Now, the economy is falling apart and I, the guy that made all the right
decisions and saved his money, have to bail-out all the people who didn't.
The people that overspent their paychecks suddenly feel entitled to the same
luxuries that I earned and sacrificed a decade of my life for.

Yes, business ownership has its benefits but the price I've paid is steep
and not without wounds.


Unfortunately, the cost of running this business, and employing you, is
starting to eclipse the threshold of marginal benefit and let me tell you
why:

I am being taxed to death and the government thinks I don't pay enough. I
have state taxes. Federal taxes.
Property taxes. Sales and use taxes. Payroll taxes. Workers compensation
taxes. Unemployment taxes. Taxes on taxes. I have to hire a tax man to
manage all these taxes and then guess what? I have to pay taxes for
employing him. Government mandates and regulations and all the accounting
that goes with it, now occupy most of my time. On Oct 15th, I wrote a check
to the US Treasury for $288,000 for quarterly taxes. You know what my "
stimulus" check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who
has provided 14 people good paying jobs and serves over 2,200,000 people
per year with a flourishing business? Or, the single mother sitting at home
pregnant with her fourth child waiting for her next welfare check? Obviously
, government feels the latter is the economic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you'd quit and
you wouldn't work here. I mean, why should you? That's nuts. Who wants to
get rewarded for 50% of their hard work? Well, I agree which is why your job
is in jeopardy.

Here is what many of you don't understand .... to stimulate the economy you
need to stimulate what runs the economy. Had suddenly government mandated to
me that I didn't need to pay taxes, guess what? Instead of depositing that
$288,000 into the Washington black-hole, I would have spent it, hired more
employees and generated substantial economic growth. My employees would have
enjoyed the wealth of that tax cut in the form of promotions and better
salaries. But you can forget it now.

When you have a comatose man on the verge of death, you don't defibrillate
and shock his thumb thinking that will bring him back to life, do you? Or,
do you defibrillate his heart? Business is at the heart of America and
always has been. To restart it, you must stimulate it, not kill it. Suddenly
, the power brokers in Washington believe the poor of America are the
essential drivers of the American economic engine. Nothing could be further
from the truth and this is the type of change you can keep.

So where am I going with all this?

It's quite simple.

If any new taxes are levied on me, or my company, my reaction will be swift
and simple. I fire you. I fire your co-workers. You can then plead with the
government to pay for your mortgage, your SUV and your child's future.
Frankly, it isn't my problem any more.

Then, I will close this company down, move to another country and retire.
You see, I'm done. I'm done with a country that penalizes the productive and
gives to the unproductive. My motivation to work and to provide jobs will
be destroyed, and with it, will be my citizenship.

So, if you lose your job, it won't be at the hands of the economy; it will
be at the hands of a political hurricane that swept through this country,
steamrolled the constitution and will have changed its landscape forever. If
that happens, you can find me sitting on a beach, retired and with no
employees to worry about ...

I think lots of people who earn over $250K threshold will also be very angry. I know some of my friends feel foolishness of their ways and wish they would have bought a bigger house that they couldn't afford and taken lavish vacations and bought new cars every three years like those people who are now getting stimulus rebate checks,tax cuts and cramdowns on their mortgages… Welcome the socialism!

It's gone deep. It's gotten worse.

"It's gone deep. It's gotten worse." President Obama said of the recession in Fort Myers, Fla. couple of days ago.
After Senate passes $838B economic stimulus bill, with the actions that could throw as much as $3 trillion more government and private funds into the fight against frozen credit markets and rising joblessness, the major indices were pushed lower on Tuesday on increased concerns about this nation's financial industry that the government's proposed stimulus package will not lend adequate relief to the health of the banking industry. In addition, the report from the Commerce Department showed that this nation's wholesale inventories were reduced by the largest amount in almost 17 years during December.
With the economy affecting on every aspect of this country's businesses, companies already cut their reserves by 2%, twice the amount that economists had expected. Furthermore, sales at the wholesale level plunged 3.6% during the month as well, more than any analysts had projected.
The Dow Jones was down more than 4.7% at 7,888.88,the S&P 500 was down almost 4.8% at 827.15 and NASDAQ down 4.2% at 1,524.73.

Gold has started its up trend again

Last week, Gold was up around $30 to close at $928.40 (continuous contract) for a big weekly gain (+3.42%). And interestingly, dollar was up too which has changed long time inverse relationship between these two—they usually move in the opposite direction. Although this interesting Phenomenon has been continued starting from this year, it won't last long as gold probably will restart its rally while dollar will lose its position sooner or later, especially after the tremendous bailout bill and stimulus package hit the market hard.

For the past two days, gold has retreated a little bit. I think because it has been close to its July 2008 high, so it needs time to overcome the resistance, once the resistance turns to be support, Gold will be very likely to go to $1200 than go down to $700 level again by the end of this year.

Another Bad Month for SP500

During the past month of January, the SP500 has droped over 8% and became the worst January in the history of the index. Based on the very poor economic reports and huge numbers of job losses, nothing is unexpected. GDP numbers looked better than expected, but when you look at the details, you must find that we will see worse situation than we can see the better. Housing data is bad and indicates that we will have a long way to go before we see any good sign. With three more banks going belly-up on Friday, the banking sector in stock market will see floods of sells… With the payroll losses of around 500,000 and an increase of unemployment rate to 7.5%, no one can forecast that the mood of consumers will turn around, especially with estimates of the possible unemployment rate over 9% later this year. This disappointed January already tells us that the financial crisis is far from the end, we may have to prepare the very bad situation ahead, hope not another DEPRESSION.

Inflation is very likely

President Obama’s 816B stimulus bill was passed by House on this Thursday, although no republicans supported this and there is possibility that this plan would be failed in Senate next week. With the strategy of bail out everyone, US has printed 10 trillion paper money within a year. Facing the deepening recession, President has asked Americans to prepare "trillion dollar deficits for years to come.” What does this mean? That means the inflation, hope not hyper inflation, is unavoidable.

Let’s look at the meaning of Inflation:

According to Webster's New Universal Unabridged Dictionary published in 1983 the second definition of "inflation" after "the act of inflating or the condition of being inflated" is:
"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.

This definition includes some of the basic economics of inflation and would seem to indicate that inflation is not defined as the increase in prices but as the increase in the supply of money that causes the increase in prices i.e. inflation is a cause rather than an effect.

It is time for everyone to spend less and save more. Government should do it first. Unfortunately, no politicians dare to ask Americans to face the reality, what they encourage is spending, like the President has mentioned during his inaugurate address including lower taxes, expanded corporate bailouts, and direct stimulus checks to consumers.