Slip Sliding Away

Or why the Obama jobs initiatives will all fail. It’s the taxes:

Employers are getting hit with a massive tax hike at a time when they can least afford it.

Companies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies.

The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold.

Many of these hikes happened automatically as prolonged joblessness triggered state laws governing their unemployment insurance systems. But at least seven states voted to raise their taxable wage bases, the level of income subject to unemployment tax. And another 10 are looking at upping the wage bases or tax rates.

The states are scrambling to restore their unemployment insurance trust funds, which cover claims.

The state coffers are empty. The Federal coffers are having to print or borrow money to keep spending at Obama’s levels.

This will not end well.

This kind of tax hit on employers will guarantee more layoffs rather than more hiring. The much-touted tax credit for hiring new employees will be eaten alive by these increases – making it financial suicide for employers to bite on the proffered poison apple. The Obama “largess” will be eaten up by the new levies by the states and the employers will certainly be hit with additional future tax increases to pay back the money Obama glad-handed to them.

It’s a lose-lose-lose scenario for potential employers.

Tell me again why the GOP should sit down with Obama for more White House photo ops.

Bad time to play with the bums when a throw the bums out election is shaping up. Deservedly so.

Ashes

Kimberly Strassel:

No one pushed harder than Mr. Kindler. The CEO made no fewer than five trips to the White House last year. He was the man prodding Pharmaceutical Researchers and Manufacturers of America head Billy Tauzin every step. He wrote an op-ed with the SEIU’s Mr. Stern demanding reform. He pressed the industry’s $150 million ad campaign promoting ObamaCare, rolled out with liberal activist groups.

Critics warned the legislation would lead to a government takeover and price controls. They warned Democrats would take the money and double-cross them. None of it fazed the industry, right up until ObamaCare imploded.

Mr. Kindler and Co. are left with the ashes. Having got this far (with Big Pharma’s help), Democrats are more desperate than ever to pass “something.” It won’t include any upside for drug companies. There is talk instead of “popular” stand-alone legislation, including reimportation, Medicare price controls, and slashing the industry’s 12-year exclusivity on biologics.

You really, really have to go read the entire piece. It is an object lesson in how to make a bad bet. A lot of the medical industry made a bad bet on this one. The drug companies – led by Pfizer and Kindler – really made a really bad one. He was never the one.

Free market supporters now have a heaven-sent opportunity to make some real changes – if they are smart, fast and willing to push their ideas. Corporations that supported the won stand a real chance of finding out that they backed the loser instead of the one. Or won, as may be.

Limit lawsuits, allow insurance sales across state lines, allow drug reimportation – allow the free market to work. Will this lead to lower profits for companies like Pfizer who backed a losing horse? Probably. No, certainly.

Gosh, I feel bad about that. Don’t you?

The Truth About Government Motors

Edward Niedermeyer reveals the truth about the surprise announcement that General Motors would “repay” loans from the American taxpayers – even as it reported a huge loss for the third quarter. It seems that the “repayment” is anything but in reality:

For starters, $6.7 billion doesn’t begin to scratch the surface of what G.M. actually owes us. Over the past 12 months, the Treasury has given it some $52 billion in the form of cash, loans and the purchase of that 60 percent of the company’s post-bankruptcy equity. And that number fails to take into account the two bailouts of G.M.’s former lending arm, GMAC, or the $3 billion spent on the “cash for clunkers program,” which doubtless kept the company from posting even deeper losses.

Moreover, G.M. is not, in the strictest sense, paying back taxpayers at all. Rather, it is refunding $6.7 billion of an $18 billion escrow account that was given to it by the government when it emerged from bankruptcy. The rest of that account will be used to cover fourth-quarter losses (including $2.8 billion pledged for the rescue of G.M.’s major parts supplier, Delphi), repay loans from the Canadian government, and possibly prop up the automaker’s shaky European operations. That escrow account is due to expire in June, at which time G.M. will repay what remains of the $6.7 billion from this week’s pledge — and then pocket the estimated $5.6 billion remainder.

There’s much more, go read it all.

My own opinion is that GM will not, in the long run, survive at all. Chrysler is likely to fold even sooner. Maybe I’m wrong about that, but I know I will not personally ever buy a vehicle from either company. I rather suspect that a lot of others feel the same way, judging from recent sales figures.

American taxpayers got taken for a ride on the GM and Chrysler bailouts by the Wizard of O and his munchkin minions – those companies are going to pay dearly for that as the taxpayers wake up to that fact.

After The (Fender) Bender

Comes the hangover. Car dealers are bracing for the hangover after their taxpayer-funded sales bender. Sales of automobiles are expected to plummet now that the cash for clunkers spigot has been turned off.

After the heady rush of Clunkers sales, the return to normal — especially in a market where “normal” means deeply depressed — may be difficult to deal with.

“I think you’re going to be able to shoot a cannon through here and not hurt anybody,” Tonkin said.

In the short run, dealers will see sales drop precipitously, said Jeremy Anwyl, CEO of the auto Web site Edmunds.com.

“I think we’re going to see a decline of about 40% in the immediate aftermath,” he said.

That would take sales down to where they were in May, lower than they were in the month or two just before the program started.

In the long run, this program may actually lead to lower prices on cars, which may not necessarily be good news for dealers or car makers (although consumers will be happy). Back when rebates were first introduced, buyers became used to them and expected them. So it may be with this incentive program.

Crash For Clunkers

The program grinds to a halt. But dealers are left holding the bag at the moment.

U.S. Transportation Secretary Ray LaHood announced Thursday that after a wildly successful run, the cash for clunkers program will come to a close on Monday, August 24th at 8 p.m. EDT.

“This program has been a lifeline to the automobile industry, jump starting a major sector of the economy and putting people back to work,” Secretary LaHood said. “At the same time, we’ve been able to take old, polluting cars off the road and help consumers purchase fuel efficient vehicles.”

I happened to be listening to NPR tonight when they announced this. They had in interview with a dealer who has made more than 300 C4C deals.

And has been paid for exactly one of them. Just one.

Read the whole thing, because there is a lot of Federal incompetence on full display in it. They started with far too few people to manage the paperwork. They have added more staff, tripling the available manpower to 1,100 – but these new additions are completely green and there is no real evidence that they will improve the situation – or simply cause even more headaches and delays.

Do you really want the government handling a trillion dollar health care program when it cannot run a measly $3 billion efficiently?

UPDATE: I know! Let’s give them the entire health care system!!

Apparently, They Did Stop Driving That Hod Rod Lincoln

Now all of a sudden she started to knockin’
And down in the dips she started to rockin’
I looked in my mirror; a red light was blinkin’
The cops was after my Hot Rod Lincoln

(C. Ryan/WS Stevenson Hot Rod Lincoln)

It seems the Cash for Clunkers program has started to knockin’, so to speak. CNN is reporting that interest in the program is falling and sales are dropping like a rusted-out  muffler.

Interest in Cash for Clunkers has fallen 15% since its peak, and the number of people planning to buy cars could fall to pre-Clunkers levels by next week, an auto research group said Tuesday.

Under the Clunkers program, which launched July 27, vehicles purchased after July 1 are eligible for refund vouchers worth $3,500 to $4,500 on traded-in cars with a fuel economy rating of 18 miles per gallon or less.

The program proved wildly popular, running through its initial $1 billion in its first week and leading lawmakers to approve an additional $2 billion in funding on August 7.

But interest in the program peaked on July 29, and demand has waned, according to the report from Edmunds.com.

The report, which cited Internet shopping data, said if current trends continue auto purchase intent will fall back to pre-Cash for Clunker levels by August 20.

I read something from the head of Edmunds a short while ago that argued that the C4C was a bad idea – and re-funding it was an even worse one.  

I love a good sales surge as much as anyone. But it’s not that simple. First, it’s not clear that cash for clunkers actually increased sales. Edmunds.com noted recently that over 100,000 buyers put their purchases on hold waiting for the program to launch. Once consumers could start cashing in on July 24, showrooms were flooded and government servers were overwhelmed as the backlog of buyers finalized their purchases.

Secondly, on July 27, Edmunds.com published an analysis showing that in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place. The 200,000-plus deals the government was originally prepared to fund through the program’s Nov. 1 end date were about the “natural” clunker trade-in rate.

I posted about this just yesterday.  That was regarding a USA Today report that the C4C was driving up used car prices, hurting the poor the most.

In other words, this is yet another “brilliant” and “popular” government program that has more unintended negative consequences that actual positive benefits. This one shelling out only a paltry $3 billion (once real money, now noise on the system in Obama budget deficit space).

How do you think this bodes for massive Democrat-pushed programs like crap and tax and health care “reform”? If they can screw up $3 billion, do you really want them to start playing with trillions?

Job Killer, Economy Destroyer

Obama’s health care “reform”, it’s two for the price of one! Investor’s Business Daily:

The president’s runaway-train approach is the same one he used with the economic “stimulus” package. On the very day the House health bill was released, newspapers reported the Treasury Department’s announcement that we have amassed our first one-year deficit of $1 trillion – and we have accomplished this in just six months. If the $1.2 trillion House bill becomes law, that record likely won’t last for long.

The three central problems in American medical insurance are the rising costs of care, the deficit spending resulting from the rising costs of Medicare and Medicaid, and the number of uninsured.

The House bill does nothing to deal with costs, would increase deficits and would apply a multitude of new taxes to pay for those who are uninsured.

The bill contains a pay-or-play provision that would require all but the smallest businesses to provide health insurance or else pay a fine equal to 8% of payroll.

The White House’s own internal estimates – based on a model developed by Council of Economic Advisors Chairwoman Christina Romer – say this would cost employers $300 billion and would cost workers 5 million jobs.

Hide Those Dollars

The bill would increase income taxes by $583 billion. The White House says only the rich would be taxed. The truth is, this would be a tax on job creation. More than half of all those taxed would be small-business owners, and the taxes would be substantial.

Gee, and this is on top of the job killing, economy destroying crap and tax bill. It’s a double twofer. The only field that appears to be poised for growth is in the wonderful new field of fitting contraceptive devices to wild mustangs. 

Maybe they should have told us that the biggest “shovel ready” project they had in mind was burying the US economy.

Our government, hard at work.

House To Middle Class: You’re Screwed

Keith Hennessey has delved into the House bill for health care “reform” and finds this astonishing bit of news. Some 8 million middle class Americans will likely end up with no health insurance and will get hit with a huge tax increase as well.

As expected, the House bill would mandate that individuals and families have or buy health insurance.

But what if they don’t buy it?

Then Section 401 kicks in. Any individual (or family) that does not have health insurance would have to pay a new tax, roughly equal to the smaller of 2.5% of your income or the cost of a health insurance plan.

[ Technical note: From the legislative language, it appears the tax = min( 2.5% * (modified AGI - personal exemption), average premium cost). In the examples below, for simplicity I assume modified AGI = AGI. ]

I assume the bill authors would respond, “But why wouldn’t you want insurance? After all, we’re subsidizing it for everyone up to 400% of the poverty line.”

That is true. But if you’re a single person with income of $44,000 or higher, then you’re above 400% of the poverty line. You would not be subsidized, but would face the punitive tax if you didn’t get health insurance. This bill leaves an important gap between the subsidies and the cost of health insurance. CBO says that for about eight million people, that gap is too big to close, and they would get stuck paying higher taxes and still without health insurance.

Go over and read the whole post. It is pretty ugly. Hennessey is using the CBO’s own numbers here, so you can bet he’s got this pegged pretty close. So much for Obama’s pinky-swear promise of no tax increases on people earning less than $250,000.

You know the House plan sucks when even the Washington Post calls it “bad policy“.  (Mind you, they are in favor of soaking the rich, it’s just that they want the money to go to deficit reduction rather than the spend, spend and tax plan the House is pushing).

The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.

The Democrats controlling the House are assuming that their targets are fixed in place and will stand still for being milked to fund the Democrat’s schemes.

I’m betting on a slightly different scenario happening here. I think a lot of subchapter S corporations are simply going to cease to exist. Some will be reincarnated as subchapter C corporations, others will simply disappear, their owners will get out of business and their capital will be socked away. As a result, the number of “rich” are going to plummet – as will the number of jobs those small businesses created and sustained.

I live in an area that has been hit less hard than other sections of this nation during this recession. Yet even here, I am seeing small businesses simply close their doors. The town I live nearest to had three auto parts stores for all the years I have lived here. It now has one. A Local barber shop that had been here all the years I have simply closed one day – sign gone, shop empty.

Small business is in retreat – or rather is heading for cover in this climate of witch hunt taxation waiting for a victim to pounce on. The smart businessmen are deciding not to be victims of the House pitchfork mob, I suspect.

That does not bode well for the American economy or any economic recovery.

Can You Get It Over The Counter?

Only if you take two. The punchline to a Viagra joke seems appropriate here. Warren Buffet is suddenly on board the idea of a second “stimulus” bill. Comparing the first one to a half a Viagra tablet.

“I think that a second one may well be called for,” Warren Buffett, the CEO of Berkshire Hathaway, told “Good Morning America” today. But, he added, “you hope it doesn’t get watered down in many ways.”

Buffett cautioned that a second stimulus package, like the first, won’t be “a panacea,” because stimulus packages take time to work. He criticized lawmakers’ work on the first stimulus package, which contained $787 billion in spending.

“Our first stimulus bill … was sort of like taking half a tablet of Viagra and having also a bunch of candy mixed in … as if everybody was putting in enough for their own constituents,” he said. “It doesn’t have really quite the wall that might have been anticipated there.”

With all due respect to Buffet, he was widely touted as an adviser to Obama during the campaign. Buffet is also widely known as a buy-and-hold investor.

He is, frankly, personally invested in Obama. Therefore, his advice is to be taken with a grain of salt.  

What I would pay a lot more attention to in this piece is this tidbit:

The U.S. unemployment rate, which currently stands at 9.5 percent, still “has a ways to go” before it peaks, he said. His own company, he said, had to lay off 500 people.

“We didn’t want to do it, and if we saw things coming back we wouldn’t do it,” he said.

That says a lot more about where Buffet is coming from here. Berkshire Hathaway laying off is huge news, not of the good sort.

He has a lot riding on a recovery and a lot to lose if none comes along. He, being personally invested here, is almost duty bound to try to get it over the counter.

Really, really sorry for that mental image.

Via Memeorandum

Flunking Basic Math

Forbes on the Marxman-Wacky fraud bill:

Electricity is a good thing. It powers your computer, drives economic growth, transmits images from Tehran streets, keeps preemies alive in hospitals, prevents meat from rotting and enchants and cools you in movie theaters.

Yes, electricity is a good thing. Where does it come from?

In the U.S., electricity is produced from these sources. If you are reading this on a handheld and can’t read Wikipedia’s wonderful pie chart, here is the breakdown:

48.9% — Coal
20% — Natural Gas
19.3% — Nuclear
1.6% — Petroleum

Got that? A tick over 88% of U.S. electricity comes from three sources: coal, gas and nuclear. Petroleum brings the contribution of so-called “evil” energy–that is, energy that is carbon- or uranium-based–to almost 90%.

The remaining sources of U.S. electricity, the renewables, are, by comparison, tiny players:

7.1% — Hydroelectric
2.4% — Other Renewables
0.7% — Other

Hydroelectric accounts for 70% of renewable energy in America. But, of course, hydro is mostly tapped out. Almost every dam that could be built has been built. Ironically enough, political opposition to building more dams comes from the same crowd of tree huggers who oppose coal, gas and uranium.

Do you see where I’m going?

The Waxman-Markey bill that passed the House on Friday by a 219-212 margin will punitively tax energy sources that contribute 90% of current U.S. electricity (or 71% if you want to leave out nuclear). The taxes will be used to subsidize the 10% renewable contributors (but really just 3% after you leave out hydro).

I’ve pointed out before that wind energy is a bad bet. Yet this is deemed to be the future of this nation. Marxman-Wacky dooms the United States to a future of rapidly-rising energy costs and a much lower standard of living. On top of the, it hammers the economy while we are still in serious economic trouble. 

On top of that, the “science” this is based on is more faith than fact.

Start calling your Senators and help stop this monstrosity.

Now, Ask Yourself Why…

Why would struggling auto companies want to cut off the dealers that sell their products? Why cut off any potential source of revenue in hard times? Why not keep every mother’s son that wanted to sell their product?

I have no idea what the reasoning is here. Nor do the victims of the forced dealership closings by Chrysler and GM:

“I am the face of GM and Chrysler in my town,” said Peter Lopez, a Spencer, W.Va., dealer unlucky enough to be selling the brands of both fallen automakers.

Russell Whatley, a Chrysler-Dodge-Jeep dealer in Mineral Wells, Texas, said his grandfather opened the business in 1919. “A 90-year investment is just gone,” he said. He called Chrysler’s actions “wasteful and devastating.”

Lawmakers expressed sympathy for the dealers and some impatience with the automakers. But retrenchment is inevitable as taxpayer-supported GM and Chrysler fight to stay afloat once they emerge from bankruptcy protection.

Chrysler President James Press told the hearing of the Senate Commerce Committee his company was “working hard to achieve a soft landing” for dealers. But if underperforming dealers aren’t selling cars, the company can’t return to profitability, he said.

That is, quite frankly, pure crap.  Chrysler has no interest whatsoever in who sells their cars, just so long as they are sold. Unless I am completely missing something here, we are being sold a bill of goods. It is to the advantage of the producer to have his product in as many places as possible. The producer should not care – at all – whether the dealers get into price wars with one another, compete with one another or simply fade away all on their own.

So long as the dealer, no matter how small, meets his dealership obligations, the producer has no interest – at all – in how the dealer runs his business.

There is a clue as to what this is really about in the last sentence of the article:

Car dealers are a potent political force, contributing more than $9 million to federal candidates for the 2008 elections.

One has to suspect that this entire bit of political kabuki is a disguise. The real motive for cutting off dealers has nothing – at all – to do with the economic health of the car companies involved.

UPDATE: Anthony has many more links.  For the record, I suspect “thugocracy” pretty well sums it up.

Government Motors

Or, as The Wall Street Journal calls it, the Obama Motor Company:

Every decision the feds have made since December suggests that nonpolitical management will be impossible. First they replaced Mr. Wagoner — whom they are nonetheless still paying — with the more pliable Fritz Henderson as CEO and Kent Kresa as Chairman. The latter are good at playing Washington but unproven in making popular cars. Then Treasury bludgeoned the bond holders in both Chrysler and GM to take pennies on the dollar, which will not make creditors eager to lend to the companies in the future.

There’s also the labor agreement that the UAW approved last week, which goes some way toward reducing costs but probably not enough to make the new, smaller GM competitive. The new agreement simplifies some work rules and job descriptions but makes no reductions in hourly pay, pensions or health care for active workers. The agreement must also be renegotiated in two years by an Obama Administration running for re-election and weighing the need to keep Big Labor happy against the risks to taxpayer-shareholders. Who do you think wins that White House debate?

The Administration’s concessions to the UAW also restrict the company’s ability to import smaller, more fuel-efficient cars that it already makes overseas. UAW President Ron Gettelfinger boasted on PBS’s “NewsHour” last week that “we, quite frankly, put pressure on the White House, the [auto] task force, the corporation” to bar small-car imports from overseas. GM is also selling its Opel operation in Europe as part of this restructuring, and the Washington Post reports that one of Treasury’s sale conditions is that Opel’s new owners must stay out of the U.S., and even out of China, where GM’s business is strong.

In other words, the fix is in. With this deal, Obama has now effectively stolen two companies, screwed investors and rewarded the UAW.

Wonder why it’s getting harder to sell Treasury notes?  They are having to raise interest rates to entice buyers. That, in turn, endangers any recovery in the housing markets.

These things are not unrelated.

Strong Arm Tactics

Allegations that the Obama administration are nothing more than thugs:

Creditors to Chrysler describe negotiations with the company and the Obama administration as “a farce,” saying the administration was bent on forcing their hands using hardball tactics and threats.

Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered. Another characterized Obama was “the most dangerous smooth talker on the planet- and I knew Kissinger.” Both were voters for Obama in the last election.

Apparently, the change you can believe in is a switch to tactics that would make a mafioso cringe.

I’ve been worried over the fact that the Obama administration is planning on stiffing secured creditors. This is a horrible precedent.  This does not seem to penetrate the Obama-crazed media’s pointy little heads. Breaking contracts like this is bad for business in general and especially bad messaging to foreign investors.

This is not the way to run a government. It is a way to run a mob. Be worried.

Quite frankly, those folks on Wall Street who filled Obama’s campaign coffers have got to be kicking themselves at this point. This will not end well for them. The writing is on the wall.

Idylls Addles Of The King

Holman Jenkins on “King” Obama’s GM Strategy:

Kingly prerogative also conflicts with kingly prerogative in the case of GM’s unsecured creditors, who are the sticking point in agreeing to a turnaround plan by the drop-dead date of June 1. His retainer, Steven Rattner, has delivered word that the king’s pleasure is that these unsecured creditors give up 100% of their claims in return for GM stock.

It may also be the king’s pleasure, he advised, to convert at some point the government’s own $13 billion in bailout loans into GM stock.

There’s just one problem: Why on earth would GM’s creditors — who include not just bondholders but the UAW’s health-care trust — want any part of this deal?

They’ve already seen that the rights and privileges of shareholders are not worth diddly when the king is throwing his prerogatives around. He dispensed with the services of GM chief Rick Wagoner, though the king owned not a single share of GM stock at the time. His minions communicated the king’s pleasure that GM consider discontinuing its GMC brand, maker of pickups and SUVs that offendeth the royal eye — though these vehicles earn GM’s fattest profit margins.

His minions haven’t asked GM to give up the Chevy Volt, even after determining it will be a profitless black hole, because of the king’s fondness for green.

No wonder the king’s mediation of 40 years of stalemated labor and business issues in the auto sector isn’t going so well. There’s a reason royal discretion has long been outmoded as a way to run an economy: Things just work better if a realm’s subjects are left to resolve their own disputes and interests through the impersonal mechanism of the markets and the law.

 Oh, this one is really a must read, folks. Please go over – there is snark-a-plenty.

Obama has fired GM’s CEO. With no Constitutional authority to do so. Now he is demanding concessions that no bankruptcy court would order.

Obama was not elected king, he was elected President.

I’m no fan of GM or the hash it has made of its core business. But I am considerably less a fan of an autocrat in the White House attempting to micromanage a car company when he was elected – not anointed – to run this country.

Mixing business and politics is like mixing gasoline and matches. Watching from a distance may be exciting, but up close and personal, someone is going to get hurt.

Tanking

There is still some time left in the trading day on Wall Street, but as of this post, the Dow is down 4.23%, the NASDAQ down 3.59% and the S&P 500 down 4.29%.

I’m guessing Wall Street is less than enthralled by Obama’s promise to back GM and Chrysler warranties with our taxpayer dollars.