If you want prosperity for a nation, it helps to know what prevents it. It is very clear what is prohibiting prosperity for present day America; it is uncertainty. We are a nation uncertain: about regulatory policy, about tax rates, and both income and costs.
Since President Obama took office there has been no federal budget. Not having a budget means investors, businesspeople, and even consumers, can’t plan. When we know what the budget will be, and that it will remain more or less consistent from year to year, we can plan around it. But when a country sees its deficit double and triple while politicians talk about slashing and cutting; people tend to freeze. That is exactly what we are doing as a nation today, whenever the Congress votes on the budget, we hold our collective breath. We need a budget!
Predicatability leads to long-term planning. Uncertainty in tax rates, regulations, monetary policy, and costs, all lead to confusion and individuals postponing action. The result is stagnation.
On average it costs businesses 10,500 dollars per employee to comply with current regulations—and there are 219 new, unknown regulations coming down on business from now until the end of this year! All these regulations do is limit innovation and production, as employers spend ever increasing amounts of time trying to comply with government mandates.
Unclear and unknown pending regulation makes it impossible for businesses to plan, further freezing up economic activity. This freeze won’t thaw until regulations become known and permanent. They can be good regulations or bad, but prosperity will not return until they are understood.
Just the regulation bound up in Dodd-Frank and Obamacare alone will take years to implement and adjust to. Ten new regulations a week are being imposed on business by various government agencies. How can businesses plan for anything? A moratorium on all new regulation is the only hope our economy has to move forward.
There is an estimated 600 trillion dollars in derivatives around the world that politicians want to regulate. Can you imagine the army of regulators necessary to do that? Yet all that is really needed is for every buyer that enters into a contract involving a derivative to understand and inspect the terms and quality of the instrument he purchases. It's called "Buyer Beware." This used to be the unwritten law of the land.
Health care rules, financial and other regulations, and taxes need to be objective and permanent in order for individuals and businesses to plan. When Nancy Pelosi said "We need to pass the health bill before we can know what's in it,” that was actually an understatement. When a bill is passed, it then goes to a regulatory agency who writes the rules and regulations. These new agencies hire bureaucrats; non-elected personnel that are given carte blanche power to write the new regulations as they see fit. So, we actually won’t know what is in a bill until the rules and regulations are announced by the regulators. But we do know they will amount to hundreds of rule changes, and how can we plan if we do not know the rules? Is it any wonder that growth has slowed to a snail’s pace?
Temporary tax decreases, such as the extension of the bush taxes through 2012, or the reduction in payroll taxes for a year or two, will not promote prosperity. What would really promote economic growth is a sensible tax code made permanent. We need a flatter tax, a fairer tax, devoid of deductions and loop holes, so the average taxpayer can pay a predictable and affordable tax, simply.
There are many ways to do this, but the surest way, is an across the board elimination of subsidies, deductions, loopholes, and corporate welfare. When everyone takes a hit, it is easier to get legislation passed. That is the fair way of legislating, not ganging up on one group, singling them out, and imposing a separate set of rules for them.
The success of a simple, fair, and flat tax would be measured by the elimination of the army of accountants and tax preparers who cost this nation a fortune every year.
Give us a tax rate we can all compute based on our yearly income and we will send in the check. No deductions, just simple math. The back of a postcard could be our tax form instead of the dozens of pages now required. Simple, easy, and fair.
Bottom Line
We need at least a degree of predictability in this country. We must have a budget and see it moving toward balance. We require a moratorium on all new rules and regulations and a committee set up for the sole purpose of identifying and eliminating redundant rules and counterproductive regulations. Monetary policy has to maintain a fixed increase in the money supply with market originated interest rates. And a tax code needs to be put in place that we know will not be tampered with for the foreseeable future.
The business of America is business. The business of government is to establish clear and simple rules of the road for business, along with laws that protect individuals and property. Instead, the government is creating havoc with their massive new regulatory agencies and their thousands of rules and regulations which are impossible to comply with. This chaos leads to increased costs, decreased confidence, and reduced employment and economic activity.
A peek at this week’s Market Update:
Follow ‘My Take’ for free every week here at www.paulnathan.biz. Also available on a subscription basis is my Market Update; which includes in-depth weekly market analysis, real-time trade alerts, and instant commentary on what developing stories mean to us as investors.