Tuesday, April 21, 2009

Stopping Government Waste & Sprawl Is Easy

Although I am not a religious person I do believe that most of us are born sinners. Which is a Judea Christian way of saying that most of us need an incentive to do the right thing in most circumstances.

I sell to government agencies. I get the calls every year from most of the agencies I cover in my territory all telling me the same thing. “Hey. My year end is coming up next month and I have $200,000.00 I need to burn”. I’ve sold millions of dollars in unnecessary equipment to the government just to help the manager of a governmental department make sure they have spent their total annual budgeted amount.

In case you’re not familiar with this phenomena, here is how it works. Almost all government organizations get an annual budget that is based on an increase from last years budget (whether they need it or not). They will get this increase if, and only if, they spend ALL of the money they were given in the previous budget year. If they do not spend ALL of the money in their previous budget year they will not get an increase in their budget for the following year.

Essentially, government organizations are punished for acting responsible with taxpayer money. Because of how the system is set up they are actually given an incentive to act irresponsibly with money. Your money. With this being the case, should we be surprised that government keeps growing and wasting? No. We shouldn’t because the system that government workers use is set up for waste and failure.

The only real way to fix this problem is to incent the workers and managers in government to do the right thing. Until then it doesn’t matter who is in power, Democrat, Republican, Marxist, Libertarian. The government will continue to waste and spiral out of financial control until we change the incentives.

How can government workers be incentivized to spend money more wisely? Well, it is rather simple and it is done successfully all of the time in the private sector. Simply give the management and workers a portion of the budget money they don't spend in the form of an efficiency bonus. Then, to ensure above average service delivery, tie another bonus (using only money from saved budget funds) to some sort of survey done by an independent organization that rewards the managers on a sliding scale for services rendered.

What would be the positive results of such an incentive program?

  1. Government employees would have the opportunity to earn more money.
  2. Government employees would be more thrifty with tax payer's money knowing that their bonus compensation will be positively impacted if their department spends money wisely.
  3. Government employees will deliver services more effectively knowing that their performance and ability to deliver will be independently surveyed and that their compensation will be positively affected if service targets are met.
  4. Government would require less money to operate creating a more positive and trusting relationship with the tax payer.
  5. Government workers would take a more active role in stopping waste, fraud and abuse knowing that their compensation is positively affected by meeting spending and service targets.
  6. Contractors working with the government would need to find real, cost effective, supportable solutions that provide service while saving money.
  7. Government workers would be more creative in their work place in order to maintain service levels while remaining financially efficient.
  8. Tax payers would have a better, more responsive, more efficient government and a trust in the government they pay for.

What would be the negative results of such an incentive program?

  1. If the surveys that are created to measure service delivery results are inadequate or outdated it may create a situation where results are skewed and create a pay and delivery issue in one direction or the other.
  2. If the independent organization managing the surveys does not remain objective or does not administer the surveys properly it can lead to a system that is not trusted by the government employees which would defeat the purpose of the program.
  3. If the incentive programs are not properly formed, monitored and shifted based on conditions, the system could loose credibility with the government workers and tax payers.

The purpose of a government incentive program like this is not to pay government workers less, or to shrink the number of departments in the government, or to provide fewer services to constituents. In fact, this program is designed to pay government workers more for being frugal and intelligent about how the tax payer's money is spent while delivering high quality services. It is to ensure that the government departments that do provide services provide them using the tax payer's money as though it was their own. It is to ensure that the services that are provided by government organizations are provided at the highest service level possible. And, it is to ensure the tax payer, the people paying the tab, that the money they are paying to the government is being spent as wisely as possible.

In the end, no government can serve all of every constituent's interests. Not all tax payers will always be happy with all of the government programs their money is spent on. However, what all tax payers can agree on is that the money they forfeit to the government should be spent effectively and efficiently and that the services the tax payer pays for should be delivered in an above average way. An incentive program like this could be the foundation for helping this happen and be the olive branch the government holds out to the burdened tax payer.

It wouldn't be perfect. Especially at first. But, it would be better than what we have now. I'd be in support of finding out how well it could work.

Sunday, April 12, 2009

Jesus would love Easter candy at our house.

Halloween candy? I don't think Jesus would have been as big a fan of Halloween candy.

Last night when my wife was hiding the plastic, candy filled eggs I decided to crack a few open to see what was inside. It was the good stuff. None of that cheap, kandy korn by-the-pound corn syrupy stuff. It was the higher end retail chocolates and candies.

Later, the kids will open more great candies from my parents. My parents get their chocolates from a local Swiss confectioner. The kids will devour those along with some artisan chocolates that I picked up downtown a few days ago.

At the end of the day their total candy inventory and consumption will have been a fraction of haul they make on Halloween. But, on Easter, what they don't get in quantity they will make up for in quality.

If Jesus was a fan of the good candy he would have really dug Easter at our house.

Saturday, April 4, 2009

Why Hollywood Liberals Don't Care When Taxes Are Raised on the “Rich”?

Recently, while reading an article on some other subject, I was distracted by a teaser news add flashing in the right of the browser. The teaser, along with the actual article, was titled Hardcore Liberal Celebrities. I clicked over to what turned out to be a CBS News picture gallery of Liberal Hollywood celebrities. Each of the 61 pictures had a caption below describing the actor’s Liberal leanings and/or distain for George Bush and his administration. (http://cbs3.com/slideshows/liberal.celebrities.politics.20.968399.html)

It got me to wondering why these major celebrities don’t seem to care the same way that I do when taxes are raised on “the rich”?

I earn an average of $220,000 per year and am considered, based on the fact that I am in the second highest bracket just under these mega stars, a “rich” person. After doing some light research I’ve discovered the reason that mega rich Liberal Hollywood types don’t care about 3% to 5% tax increases on “the rich”. The answer is simply that they can afford tax increases with no problem while that same 3%to 5% tax increase dramatically affects my lifestyle and future.

Let’s do the math. In 2006 the 100th highest paid celebrity was Ty Pennington. (http://www.forbes.com/lists/2006/53/J2KW.html) Ty pulled in a cool $6,000,000.00 that year while I earned $196,000.00. In 2006 Ty was in the maximum tax bracket of 35% (lowered from 39.1% in 2001 by George Bush) while my federal tax rate was 2% lower than Ty’s at 33%. (http://www.moneychimp.com/features/tax_brackets.htm)

So, here is how it breaks down for me with my 2006 income:

$196,000.00 x 33% federal tax rate = $64,680.00 going to Uncle Sam (Gulp! I sure hope he spends that efficiently.). That left me $131,320 left to pay for my state, local, sales, property, capital gains, car and sin taxes and my living expenses, savings, etc..

Let’s try with Ty’s income of $6,000,000.

$6,000,000 x 35% = $2,100,000 of Ty’s money going to Uncle Sam (It would take me 9 and a half years at my annual average income just to make enough money to pay Ty’s 2006 federal tax bill.) That left Ty with $3,900,000 to pay for his state, local, sales, property, capital gains, car and sin taxes and my living expenses and savings.

Huh. Interesting. I wonder if Ty feels my pain when they raise the federal tax rate 5%? Let’s see.

Using my 2006 income of $196,000 x (33% + a 5% federal tax increase for a total of 38%) = $74,480 in federal tax that I would have to pay leaving me with $121,520. That is a bottom line loss of $9,800 for me in this example. That reduction in income will affect things like the quality and quantity of foods we buy and at which store we buy them. It will affect things like if we can take a vacation, the type and amount of new clothes for ourselves and the kids, how much we eat out at local restaurants, how much we can save for retirement…I could go on.

With an increase of 5% Ty would be burdened with a 40% federal tax bill. Let’s see if you think his tax burden will affect his standard of living in any way.

$6,000,000.00 x 40% = $2,400,000 in federal taxes. In this example Ty sustains a bottom line loss of $300,000.00 over the 35% federal tax rate calculated above. That leaves poor Ty with a mere $3,600,000 to live on. I sure hope he was able to get by in 2006.

Incidentally, the number one paid star on the Forbes list in 2006 was Tom Cruise. This was a return to the number one slot which he held in 2001 as well. In 2006 his income was

$67,000,000. At a federal tax rate of 40% Tom and his family would need to figure out a way to get by on only $40,200,000.00. Think he and his family would have any lifestyle changes? I'm guessing...No!

These stars have multiple mega homes, sometimes in exotic parts of the world while I have one modest 4 bedroom home that looks like every other ticky tack home in my mid-Western neighborhood (which I love). They fly private jets to where they need to go while I cram myself into the first seat available on a Southwest flight (which beats the heck out of driving for 3 days). Eating healthy, organically grown, high end foods is their standard while I consider it a luxury (and we try to indulge as often as we can). I could go on but you get the point. Raising a mega celebrity's taxes 5 or even 10% is not going to change anything in their lifestyle. But raise this person’s (me) taxes 5% and it will have a measurable impact on me and my family's lifestyle.

I don’t want Ty’s taxes to go up. That is not the point. I actually want Ty’s and everyone else's taxes to go down. What I don’t want are Liberal Hollywood mega stars telling me that they think that “rich” people like me need to pay more in taxes. These limousine riding Liberals have no perspective on the impact it has on “real” people that don’t earn $20,000,000.00 for a movie Like Tom Cruise or who don’t earn $52,252,672,00 a year like Bruce Springsteen. (http://www.paywizard.org/main/VIPPaycheck/VIPPAYcheckmusicians/musicians-salaries/vip_details?id=bruce-springsteen)

When taxes are raised on “rich people” like me there are personal sacrifices that I have to make in my life. When taxes are raised on these mega stars there are no sacrifices for them. They live their lives unaffected by the increased tax burden. Perhaps what we should do is pass an 80% federal tax on all of the Forbes top 100 celebrities. Maybe then we will see a change in heart from the Hollywood Liberal elite on taxation. I’d be in support of finding out.

P.S. This is not a "woe is me" story. I am fortunate and I know it. I'm just not in the mood to be called "rich" by a mega Hollywood star that will never understand want or need regardless of how dramatically their taxes are increased.

Other links researched: