Search This Blog

Tuesday, March 8, 2011

POLITICAL LOGGERHEADS

One of the most fascinating aspects of the recent budget debates in Wisconsin was the delineation of political ideologies. Rarely have I seen it as clearly defined as exhibited in Madison, but this is just the start as more states are likely to propose similar legislation soon. Conservative Republicans are at a loss as to why their counterparts do not seem to grasp the significance of budget deficits. Liberal Democrats claim the Republicans are putting the burden unfairly on the backs of the working class as opposed to the rich and corporations. Both sides adamantly defend their opinion hence the confrontational demonstrations in Wisconsin with neither side budging. Both sides are speaking but nobody is listening. We're at loggerheads, a stalemate, which will remain in effect for several years to come.

Democrats urge raising the taxes of the rich and corporations, while Republicans contend spending less and lowering taxes will be a more effective solution. Sound familiar? Actually these incompatible philosophies haven't changed for a long time, but it has come to the forefront of public attention as governments have run out of money. It is now time to pay the piper and neither side can agree on the best approach to do so. Hence we are now witnessing political histrionics the likes of which we have not seen since the Kansas-Nebraska Act. Even old friends and family members find themselves at odds over this contentious issue.

As humans, we rely on the facts that appear to support our arguments. It is human nature to gravitate towards data that complements our interests, and away from that which we consider fraudulent or stilted. Consequently our political perceptions, right or wrong, are based on how we view the world. There are those who ardently believe in capitalism, and others who believe in socialism with the same fervor. Whereas one believes in opportunity, personal initiative, and reaping the benefits from assuming risk, the other believes in collective equality and sharing the wealth. Republicans identify with the parable of the Ant and the Grasshopper, while Democrats admire the tenacity of Army ants. We have grown comfortable with our belief system and, frankly, don't want to change.

Despite the political spin of the media, we cannot ignore the fact that our state and federal governments are going broke. This is caused simply by spending more than we take in. As we should all know, the golden rule to profitability is simply to cut expenses and raise income. Obviously, governments have to cut spending which means all of the perks we have grown accustomed to may very well disappear. Hard and painful decisions will undoubtedly have to be made. Sorry, but the party is over. You can blame our politicians for promising us everything without the ability to fund it, and blame ourselves for abusing the system. But it's over. Our way of life is changing, get used to it.

As to income taxes, just about everyone agrees they should pay their fair share. This would imply that both progressive or regressive taxes are unsuitable solutions, that a flat tax would be more equitable and go a long way to overcoming suspicions of the various socioeconomic classes. There are those who believe the rich do not share their wealth. First of all, under the free enterprise system if you assume risk you are entitled to enjoy the bounty resulting from your efforts. Second, the reality is that the rich already shares their wealth by creating jobs and opportunities through their investments. Saying the rich does not share their wealth is misleading and fraudulent. Regardless, establishing a flat tax would put this issue to bed once and for all.

As to corporate taxes, businesses should pay their fair share too, but we cannot saddle companies with a tax burden that stifles employment, capital improvements, and research and development. The economy stagnates when this happens. Instead of heaping on taxes which will cause companies to tighten their belts, tax incentives encourages companies to move in certain directions. Understand this, aside from financial institutions, companies are not in the business of hoarding cash, it doesn't make sense to do so. Due to such things as tax limits on retained earnings, companies are fully cognizant of the need for modifying and improving their operations, it's called "competition."

As I got older, I thought I could start to slow down and enjoy the world around me. Unfortunately, I have come to the realization this is not going to happen. My generation, the Baby Boomers, is going to have to work longer than our predecessors just to make ends meet. As such, retirement is now regarded more as a luxury as opposed to a right of passage. The fact remains though, the American way of life is deteriorating whether we want to admit it or not. For example, our standard of living has dropped over the last few years (and will continue to do so), our trade deficit grows (we're now the #3 exporter behind China and Germany), and we have become a service oriented country (70% service/30% manufacturing). This does not bode well for us.

The United States still has a substantial middle class which has been a powerful engine moving the world's economy, but when this engine runs out of fuel everything will come to a halt. Those who have a sense of entitlement will have the hardest time adjusting to any form of government spending cuts as they believe it is their God given right to be taken care of, whether they earned it or not. Inevitably, they will rebel and create a fuss with considerable fanfare. Nonetheless, when your business starts running on red ink, it is time to make changes, difficult changes; the status quo simply will not suffice. So, whether you construe the government budget battles as "union busting," attacking the rich, or whatever, you cannot ignore the economic reality of today, it usurps all political agendas. It is not going away unless "we" do something about it. And "we" means all of us.

Keep the Faith!

Note: All trademarks both marked and unmarked belong to their respective companies.

Tim Bryce is a writer and the Managing Director of M. Bryce & Associates (MBA) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com

For Tim's columns, see:
http://www.phmainstreet.com/timbryce.htm

Like the article? TELL A FRIEND.

Tune into Tim's THE BRYCE IS RIGHT! podcast Mondays-Fridays, 11:30am (Eastern).

Copyright © 2011 by Tim Bryce. All rights reserved.