Monday, February 26, 2007

A GRT is bad for eveyone

The Gross Receipts tax a bad idea for everyone More papers have been running articles on the rumored Gross Receipts Tax that Governor Blagojevich may propose. It pretty well known that this tax would be bad for business Illinois, giving the state a more negative economic climate, make marginal business unprofitable, make goods and services produce in the state more expensive and encourage businesses to relocate to neighboring state. For more on the negative business effects look at my previous post on the GRT. The GRT would also have negative effects on the public in general, with a sales tax the cost of the tax is split between the business and the consumer but with a GRT most of the cost of the tax would be embedded in the price of the final good or service and would be pasted on to the consumer. The reason for this is that a GRT would be placed on the entire value of a good not just the profits a company earns off of a good sold and the good would be taxed multiple times, for a example if a company sells a piece of steel for 5 dollars to a factor that used to a make a good that is sold for 10 dollars, that piece of steel would be first taxed on the the whole 5 dollars that it was sold for and then the factory would be taxed again on that 5 dollars plus the additional 5 dollars that they sold it for it. For this reason most of the cost of the tax would be embedded in the price of the good and paid for by the consumer. The tax burden would fall heavier on the poor, who spend most of not all of their income on the goods and services and less on the middle and upper class that save more of their income. Along with this a GRT would hurt economic growth in the State which would mean fewer new jobs and make manufactured goods for the state less competitive with those from other states and countries.
For all of these reasons and more everyone would should write their state representive and senator and tell them to oppose any attempt to enact a Gross Receipts Tax in Illinois.

Thursday, February 15, 2007

Poverty In Illinois

A press release reported today that 1.5 million people in Illinois and indicated that poverty rates have increased in 87 of the 100 counties in the states and that the problem isn’t just a urban one, but also a rural problem. What it also should show is the failure of the Blagojevichs administrations policies and the damage that they have done to the states economy.
In the long run there are only two ways that poverty can be eliminated, thou education and strong economic growth. With strong economic growth, you can have all the government policies and intervention that you want, but they are doomed to fail and maybe even make the situation worse. But first education, the state needs to improve it education to insure that all student have the best education oppurnties possible. School districts need to be held accountable not just for students performance, but also for how they spend there funds. The single largest increases in the cost of schooling have not come in the form of education cost or teachers salaries, but from support staff, administration and non-education staff. Those cost need to be reigned and more of the money that is used to pay for them directed toward education or teachers. The majority of funding should still come from the local community, but state funding should be tied to each student and the state should, at least, experiment with a voucher system. This should be designed to allow student from failing schools to attend more successful ones, either private of public. If that is successful move to a full voucher system for all students, this would inject a level of competition into the school system and add yet another check on how schools decided to use there funds. None of this means that we should abandoned the public schools of course, they should remain properly funded and we should look for local solution in order to solve local problems when ever possible. Since one size fits all programs, like the utter failure that is No Child Left Behind, can not possible solve the problems of school districts that have different features and problems. Also many of the rural school districts that have small population will have to look at consolidating with other districts, quite frankly the state still has many districts that are to small to offer there student the kind of education that they need and deserve in order to make a good living. Schools need to add more vocation training programs for students that are no college bound or unlikely to be able to succeed in college level programs.
Some communities will have to change there cultural so that is more supporting or education and parent will have to be willing to be more involved in with there children’s education. Parental involvement is one of the most important factors when it comes to children’s success in school, and it is one of the reasons that students in private schools tend to do better on average, is that their parents are more involved in their education. For people that are already out of school and in the work force we need to expand job training and vocation education programs. The community college system provided the perfect infrastructure for this, along with providing an affordable 2 year college education for students that plan to either transfer to a 4 year college/university or just get their associates degrees, one of the major mission of the community colleges should be to serve as a center to retrain the part of the local work force that are in low income jobs or have lost there jobs for new more profitable careers.

Economic growth is probably the most important factor in lessening the number of people living in poverty, a rising tide lifts all boats and growing economy increases everyone standard of living. Which means the state of Illinois needs to adopted good economic policies that promote growth. We need to repeal the fee increases that the governor has put into place on business in the state of Illinois. This increases in fees have the effect of both making Illinois a less attractive place for business to set up in or encourages them to relocate in near by states and in lower the profits of companies in the state which in turns means that they have less money to expanded and hire new works. We also need to keep the state's minimum wage at the same level as neighboring states, when our minimum wage is higher than neighboring states, it encourage companies that rely heavily on low skilled labor to locate in those state instead of Illinois, this in turn means fewer jobs for the low skilled worker in Illinois, who happen to be the most likely section of society to be poor and if they don’t have a access to work it means that they will be poor for sure. The State also needs to control spending on unnecessary programs in order to balance the State budget and then we need to devote an surplus to two things, one education funding and two improving the state infrastructure and capital improvement projects. This will make the state even more attractive to business and encourage strong economic growth.
In the short run the state should help the poor not be raising the minimum wage, which will mean higher prices and more unemployment for the poorest section of society, but expanding the State Earned Income Tax Credit into a full negative income tax, so that no only will poor workers get to keep all of their pay, but they will also receive a check in the form of the negative income tax. This will do a lot more to help than a minimum wage increase and will not have as many negative affects on the states economy.

Thursday, February 8, 2007

Gross Receipts Tax

There has been a number of rumors that Governor Blagojevich will call for the creation of gross receipts tax in Illinois. A gross receipts tax is a tax on the revenues of a business, not there profits, meaning that depending on the form that the tax would take a company would be taxed on the amount of money even if the company is losing money, meaning its cost are greater than its revenues. This would be horrible for the economy of the State of Illinois in the long run, the state economic climate would become even worse and more hostile to business The gross receipt tax would be added on top of the existing state sales tax and business fees that are already charged by the states. The these added taxes would be passed on the public in the form of higher prices and a higher general price level in the state of Illinois. The rising price level would have the large effect on the poorest section of the state population since they spend the majority if not all of their income, they would be the most effected by the price increases and would see their real income fall by the largest percentage. While middle and upper class families that usual save and invest some of their income and don’t spend it all would be less directly affected by the tax.
By raising the prices of the goods in the state would lead to people to go to neighboring states in order to make large and expensive purchases when ever possible, since those business would not have to pay the gross receipts tax and would by able to sell their goods for a lower cost. Along with this it the tax will lower the profits of business based in Illinois and their rate of return, which means that will have less money to expanded, and if business here expanded at a slower rate, that means that they will higher new employees at a slower rate. This will mean fewer new jobs for the citizens of Illinois and will slow economy growth even more.
What Illinois needs right now is not to make it business climate more hostile, but to make Illinois a more welcoming place to business. The state needs to reign in spending, lower business fees, balance the state budget and invested in capital expansion projects in order to prompt economic and job growth in Illinois. This will help the people of Illinois, not an added anti-business take in order to fun more government programs

Monday, February 5, 2007

More Free Trade Not Protectionism

Recently there have been some calls for the United States to adopt more protectionist trade policies, and some Democrats have even been elected with this as part of their platforms. Protectionist policy would be one of the worse economic moves that we could make. Protectionist policy benefit a small select section of the economy at the expense of everyone else and the cost that protectionist trade policy place on society is always higher than the value of the jobs that it might save. Protectionist policy lessen economic freedom, reduce consumer choice, lower quality, raise prices, slow the growth of productivity and hurt economic growth.

A protectionist trade policy raise price in a number of ways, the first is that if the protectionist policy takes the form of tariffs. The cost of the tariff places on an imported good, will always raise the cost of imported to goods to a level that is higher than domestically produced goods, because of it didn’t then the tariff would not serve to "protect domestic industry", so consumer are either forced to pay more for the domestic good or to pay even more to buy the imported good that would of been cheaper with out the tariff. Then this has a cascade effect through out the rest of the economy. Since consumer will have to pay more in order to buy goods in the protected industries they will have less money to spend on other goods and services, so they will buy less of those goods and that in turns means those firms will earn less revenue. If they earn less revenue that means that they will have less money to invest in expanding production, paying workers and higher new employees. This cares thru that since the none protect business will earn less, pay less in wages and higher few workers, workers in non protect industries will have less money to spend on goods and service which will lead to even less revenue for non-protected industries.

Import quotas have a similar effect since they limit the amount of an imported good that can be sold in the United States, which means that consumers that are unable to purchase the import will have to spend more money on the goods from the protect industry. Both tariffs and import quotas limit consumer choice by telling them that either can only buy some much of an imported good or that they have to pay a price that is higher than what the market price would be.

Protectionist policies also harm the quality of goods available to the consumer, when competition is limited firms are more likely to produce goods that are of lower quality because they don’t have to worry as much about another firm producing a higher quality good for the same price or price that is close to theirs. Think of how much of improvement there has been in cars in the United States since the American car companies have had to compete with the international car companies or the quality of electronic good sold in the United States since they have had to compete with Japanese.

Protectionist policy also make firms in the United State less competitive, the reason for this is that protectionist policies not only limit the ability of consumer to buy imported goods that maybe cheaper or higher quality, but it also limited the ability of firms to buy lower cost or higher quality. Which means that the goods this produce will be either higher cost, lower quality or both, which means that they will be able to sell fewer goods and that the goods that will be less competitive in the international markets. This once again will hurt economic growth in the United States.

Since it is pretty clear that protectionist trade policies are bad for the economy and the general public, then why do so many people support them? There are a couple reasons, first their are some people that have a bad understanding of economics and truly believe that free trade is bad for the United States, and this includes people like Ross Perot and Patrick Buchanan. Then there are business and interest groups, such as some unions, that have a vested interest in preventing free trade because they benefit from protectionist policies at the expense of everyone else. These groups use dishonest arguments about free trade, such as that is lowers the standards of living in the United States or threatens everyone jobs or hurts the economy, in order to try and turn people to there side.