Category Archives: tax related issues

the cost of our system

The Wall

The Wall
As I understand the rationale for a Wall on the Mexican Border there are two perceived benefits: 1. Ceasing the flow of illegal immigrants and 2. Reducing the flow of illegal drugs.
I am in favor of both of these objectives but am convinced that the wall is not the most cost-effective solution. While a wall does serve as a significant symbol of our intent it will have little impact. To better understand the issues, it would be wise to examine the “demand” that we have created for both illegals and drugs. This week’s post will focus on the first objective.
The demand for illegal workers is fueled by big Agriculture and other firms that desire a supply of low paid workers with a good work ethic. I actually have no problem with this as long as their workers are properly documented and have legitimate resident cards or work visas. We probably make the process of securing resident cards too cumbersome for these workers and if that is the case the process should be streamlined. In addition, any firm that regularly employs workers that originate from South of our border should be regularly audited. And any violations should involve extremely severe financial penalties (say $20,000 or more per occurrence after the first offence plus jail time). The current penalty system is not adequate. Currently most fines are broken down to the following: First offenders can be fined $250-$2,000 per illegal employee. For a second offense, the fine is $2,000-$5,000 per illegal employee. Three or more offenses can cost an employer $3000-$10,000 per illegal employee. A pattern of knowingly employing illegal immigrants can mean extra fines and up to six months in jail for an employer.                                                      Seasonal foreign workers It is legal to hire these workers, but the process is extremely cumbersome and overstay enforcement is lacking. Overstay is a bigger problem than what any wall will prevent. For these workers an employer must obtain a single, valid temporary labor certification application from the U.S. Department of Labor (DOL). The DOL will certify the application only if it is convinced there are no U.S. workers for the position (after the employer has advertised in the local newspaper), that the job is temporary, and that the employer will pay the required wages. The employer then must file a petition with the U.S. Citizenship and Immigration Service (USCIS) to approve the employment. Finally, the foreign worker must appear at a U.S. Consulate in the home country to obtain a U.S. visa. Generally, it takes three to four months to complete all of the steps necessary to obtain an H-2B visa; however, sometimes it takes longer because of government delays and because there is a quota on the number of H2-B visas that can be issued each year. Overstay offenders are not that hard to control, but do employers really want that to be an enforcement focus?                                                                                                                                                Workplace raids vs. paperwork raids                                                                                                            After multiple efforts, Congress passed the 1986 Immigration Reform and Control Act, which stated that employers couldn’t knowingly hire unauthorized workers. Employers must attest that they made a good faith effort to verify the eligibility of workers by completing an I-9 form. The documents are easy to counterfeit, so the federal government developed an online employer verification system in the 1990s under President Bill Clinton, and the use of it soared after 2007. That system, now known as E-Verify, is currently voluntary, though some states mandate it for certain employers. (The Corker-Hoeven amendment to the Senate immigration bill would make it mandatory.) E-Verify spending dramatically increased under President George W. Bush & Obama. Why are many states resisting this enforcement step? At times, members in Congress have called for stiffer workplace enforcement. But when the reality hit home in their districts and led to complaints from business owners, politicians urged the federal government to ease up, according to border expert and University at Albany professor Rey Koslowski. That’s why border security has been more politically popular to fund than worksite enforcement. (We should note that a significant percentage of people working illegally don’t cross the border; they simply overstay their visas.) Under Bush, workplace raids on factories & meatpacking plants received much attention. But after Obama the federal government eased up, according to a border expert the Department of Homeland Security unveiled a new strategy and ditched the workplace raids, which also tended to punish employees, in favor of “paper raids” (I-9 paperwork audits of employers to determine if they complied with employment eligibility verification laws). “ICE will focus its resources within the worksite enforcement program on the criminal prosecution of employers who knowingly hire illegal workers in order to target the root cause of illegal immigration. The change was dramatic: the number of I-9 audits soared from 503 in 2008 to more than 8,000 in 2009. Under Obama, ICE announced sanctions against major employers. That included a $1 million fine against Abercrombie and Fitch that grew out of an I-9 inspection in November 2008 while Bush was president, and the termination of hundreds of workers at Chipotle restaurants. In 2007, ICE arrested 92 employers, while in 2012 it arrested 240, according to ICE. Final orders — rulings at the end of the case which show employers violated hiring rules — also increased under Obama. In 2007, there were two final orders, while in 2012 there were 495. In conclusion: Make E-Verify mandatory, require departure evidence for all visa workers & adopt meaningful offender fines.

Stay tuned for more on the wall next week

Politics as Usual

Politics as Usual

Most of my friends describe themselves as Republican Conservatives. I suspect they view me as at least some form of Liberal. I have real problems with “labels”. I do not view myself as either Democrat or Republican or Conservative or Liberal. I am not a supporter of the two-party system. In that regard President Washington and I are on the same page (refer to his farewell speech). The two ruling parties are unindicted co-conspirators responsible for bankrupting our country.

With regard to my political views I come very close to the principals espoused by the libertarians. That said, I like to think I am “issue” oriented and hope to rely on “facts” when establishing a position, and not align with the “party line”.

I believe that less government is best government. I am extremely conservative when it some to fiscal issues. Both parties have a history of spending money that we do not have. The national debt and unfunded liabilities are unbelievable. We have mortgaged the future for our citizens with absolutely no plan to recover.

Everyone agrees that our government is not efficient and the facts show that we pay federal government employees at a rate fully 50% above the free market rate for comparable jobs. Despite this, studies have shown that productivity among government employees lags far behind that in private industry. My opinion is that achieving a 20% reduction in employee costs could be easily achieved by addressing both rates and productivity without decreasing services. Whom in our government is working on this?

 

Almost everyone agrees that Defense is important. I completely agree with providing the highest level defensive system. Where I vary with many of my friends is on how to accomplish this. My view is that it can easily be accomplished with-in existing budget limits. Having been in the military I can assure you that the same malaise the infects the other government departments is alive and well in the military. My belief in the 20% reduction factor would also apply here.

While I believe in an extremely effective defense, my views on offensive military operations are quite different. I do not support the idea of being the “World’s Cop”. We have spent many Trillions of Dollars on the civil conflicts in both Afghanistan and Iraq. We have sacrificed the lives of countless men and women. The vast majority of our citizens realize that we have to pull out of these conflicts at some point, but what is the cost of continuing, both in lives and $? What will these countries revert to when we finally do withdraw? Most now realize that Vietnam was a huge mistake, but we tend to repeat this insanity.

I completely agree that we need to attack terrorism where ever it exists and is supported. In that regard I favor “surgical strikes” with small or no commitments of bodies. I would hope that we could move in the direction of using technology rather than putting our men and women in harm’s way whenever possible.

Our National Debt – Update

Our National Debt – Update

I like to keep track of our debt since it the Elephant in three rooms (Oval office, the House & the Senate). It is our most significant financial issue and one which none of our elected representatives are willing to address. The solutions are easy, but it will be painful which is why no “career” politician will pursue them.

Now that the Republicans control the Executive & Congress you would expect that we would start to slow down the rate at which the debt is increasing. If you believe that, then you would be wrong. The National debt is currently increasing at the rate of $1 million every 50 seconds. It now stands at $21 trillion. The annual deficit is actually accelerating vs 2017.  President Trump is on schedule to set new budget deficit records:

The Total Actual plus Budgeted (projected) for the next 4 years = $5.683 trillion, almost as much in one term as Obama accumulated in two.

I am not taking sides politically as my view is that both the Dems & Reps are in this together. Ignore what they say, look at what they do. A significant contributor to the runaway debt is the recent tax cut. What we are doing is borrowing the money to fund this tax cut.

President Obama actually did the same thing in 2010:

In 2010, the Obama tax cut (an extension of the Bush tax cut) added $858 billion to the debt in its first two years. Obama increased defense spending, adding as much as $800 billion a year. Federal income decreased due to lower tax receipts from the 2008 financial crisis which was a result of the financial industry’s mismanagement during the President Bush terms.

Tax changes are always just a method of income redistribution. The only real difference is in who gets what. The problem is that we primarily fund these cuts out of borrowings which increases the size of the elephant.

The redistribution formula of the current tax cut is extremely complicated, but in general terms only about 20 – 25% of the funds end up in the pockets of the middle class and overall is the equivalent of a 2% pay increase. The vast majority of the benefit is going to the wealthiest segment and to corporations.

If tax payers had to payoff their portion of this debt it would require over $173 thousand each and it grows larger every day.

A significant measure of the financial health of country is the ratio of debt to GDP. Many were dissing the Greeks when they were facing bankruptcy at a ratio of 1.8 to 1. They were very lucky to have the EU to bail them out. Our current ratio is 1.06 to 1. The most optimistic projections for growth in GPD over the next 20 years is 3%. There are others that predict the new average real growth norm will be in the 1 – 1.5% range. Using a mid-point of 2% (inflation adjusted) and the current growth rate of our debt at 5% we will be approaching the level of the Greek financial status by 2050, if not sooner. Who will bail us out? Our grandchildren? China?