The high cost of low prices

Fast Company has a fascinating article on the quandary many manufacturers and wholesalers find themselves in because of the huge success - and resultant power - of Wal-Mart.

Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.

[...]

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

It's interesting to get a look at the effect dealing with Wal-Mart can have on retailers. The article notes that, to an extent, Wal-Mart's low prices have helped keep inflation down in recent years. At the same time, however, their demands for low wholesale costs from their suppliers has forced many companies to move jobs overseas - leaving Americans out of work.

I'm neither an economist nor a business wiz, but to me it would make more sense for Wal-Mart to try to work with their suppliers to find a point where the cost is as low as it can be before the retailer would have to start shipping jobs overseas. This would not only benefit America as a whole, greatly - it would do a lot to help ease the current unemployment rate - but it would also help Wal-Mart because even if their prices are low, someone who is out of work isn't going to be able to buy anything. In addition, if someone lost their job because Wal-Mart's demands forced their employer to outsource their work to other countries, that person is less likely to want to do business with Wal-Mart.

Initially, Wal-Mart would probably suffer some loss of sales if their prices went up, but if they promoted the fact that they are doing this in order to save American jobs, that would certainly help people be more willing to continue shopping there. In addition, once people got more used to the prices being a bit higher, customer would soon return.

Of course, I doubt that will happen, but it would seem to me to that it would be a far better situation for all involved.

Fixing the new tax bill

There were news reports yesterday that the Senate was considering a way to help increse the tax "relief" for the families who make between $10,500 and $26,625 who were initially excluded from the increased earned income tax credit for having children. The plan would have given them access to an expansion in the child-care tax credit that can be paid as a cash refund, rather than just used to offset what taxes they have to pay.

While the initial tax package reportedly left 12 million low-income families out of the child tax credits, this plan would have given up to $400 per child to 6.5 million of those families.

Democrats seized on reports that the 10-year, $350 billion tax-cut package enacted last week deprives many lower-income people of some of its benefits - and provides nothing for others - to renew their attacks on Republicans for what they say is an unfair measure. This time, Democrats have a concrete example, made more politically potent because it involves children.

"People can focus on it because it's one issue and it's so grossly unfair," Sen. Barbara A. Mikulski, a Maryland Democrat, said of the decision not to extend the child tax credit to some lower-income people. Republicans "really poke working families in the eye with what they've done."

The plan is not likely at this point, however, to get passed - because of one man - Tom DeLay. In one of the most callous statements I've heard from a politician in a while (and that's saying something), DeLay dismissed the idea outright.

DeLay said he would not permit legislation making the working poor eligible for the expanded child-care tax credit to come to the House as a separate bill. The tax cut law increased the child-care tax credit to $1,000 from $600 per child.

"They had their chance," DeLay said, referring to legislators who worked on the law. "There's a lot of other things that are more important than that. To me it's a little difficult to give tax relief to people who don't pay income taxes."

The SunSpot explains what the current tax bill offers and some of the plans that have been rushed into Congress to try and rectify some of the problems that have become apparent since the new bill was signed.

Senate action on the measure would be a follow-up to enactment last week of the $350 billion tax-cut and state aid package. That package included an increase, from $600 to $1,000, in the child tax credit, which benefits families with dependent children. The credit is not given to those who earn $110,000 or more a year.

The increase in the child credit was originally scheduled for 2010; the new tax-cut law makes it immediate but sets an expiration date of next year. If Congress does not act to make the increase permanent, the credit would fall to $700 in 2005. But lawmakers are widely expected to make the increase permanent before then.

Also included in the tax-cut package was a provision to make the child tax credit refundable so that some lower-income families who do not earn enough to owe income tax could still receive it. But the provision to widen eligibility for the credit - added by Lincoln before the Finance Committee approved the measure last month - was dropped by House-Senate negotiators before its final passage.

The Lincoln-Snowe measure would restore it and would pay for the change by closing corporate tax loopholes.

While it's good to see that some members of Congress are trying to fix the problems with the bill signed by President Bush, it would have been far better if they had actually managed to prevent the problems from being included in the first place.

12 Million Children Left Behind

The Liquid List has an excellent bit about the new tax cut that just passed, and includes a transcript from a press conference with Ari Fleischer, where he tries, essentially, to avoid admitting that, in order to get the dividend tax-cut for the rich, they left 12,000,000 kids whose families make between $10,500 and $26,625 out of luck when it comes to the additional $400 per child tax credit that the administration has been promoting as proof that "everyone" will benefit from this round of tax cuts.

Thanks, President Bush

For the last 8 years, my husband has worked for a subsidiary of a large multi-national conglomerate (whom everyone has heard of). The division he's been in is losing one of their biggest clients - the one he's been working with. Initially, it looked like when that office closed down, it would be pretty easy for him to get a job working with one of their other clients. Today, however, he learned that none of the other divisions has reached anywhere near their growth expectations because of the complete wreck President Bush has made of our economy, so the company won't be adding any new positions to those clients' teams.

The client teams aren't small, either - there will be a fairly good number of people being laid off with this office's closing, and if they want to keep jobs within the company, it'll have to be the result of individual turnover - other current employees in these other departments quitting and needing to be replaced. There will be a lot of competition.

A few years back, the company faced this same problem with the first client he worked with - and a new client came along at the last minute which saved his job. Unfortuantely, because of the lousy economy, that doesn't appear to be a reasonable hope this time around.

So, in two months, my husband will be out of work. He'll get modest severence pay, of course, and my disability checks will keep on coming, but even if he finds a new job right away, it's unlikely it will pay quite as well, and, of course, benefits won't kick in right away. That means we'll either have to do without health insurance until he gets a new job and their benefits kick in - which can be hard to do under the best circumstances, and those aren't what we have here; or we'll have to pay for continuing coverage under his old plan - which we can barely afford to do.

Right now, I'm just feeling rather down in the dumps about the whole thing. The prospect of my husband having to find a new job in this economy is really scary. I hope things will go quickly, but who knows.

Tax-cut savings calculator

There's handly little calculator that can help you figure out how much you'd save under the Republican plan to eliminate taxes on your capital gains. Of course, if you're like me and don't have any capital gains, well, you already know how much your taxes will go down under this plan. Yep, zilch. Ah well, maybe next time we'll be rich enough for the government to think we maybe need a few extra bucks in our pockets too, eh?

Sunset taxes

If anyone buys for a minute that the proposed sunset provisions on Bush's tax cut (which are being offered as a "compromise") will actually ever go into effect and cancel the cuts, they deserve to face great ridicule and embarassement for their gullibility.

Seriously, much of Bush's first big tax cut was justified (and made "affordable") by putting in sunset provisions that would rescind the taxes after a given number of years. Efforts have already been made and are underway to eliminate those sunset provisions and make the cuts permanent. Sunset provisions were built into the USA PATRIOT act, and efforts have been made (though, thankfully, they've since been withdrawn) to elimiate those sunset provisions as well.

Sunset provisions are, in essense, meaningless, especially if they're offered as a way to get a controversial or unpopular bill through. Those who vote for the bill with the sunset provisions are trying to do what they think will make those in power happy while still being able to tell their constitutants that they're not "really" giving in, and those who propose them do so with the goal that the sunset provisions will eventually be removed and the bill made permanent.

In general, the rule of thumb should be that if you wouldn't vote on it as a permanent thing, don't vote on it as a temporary one, either, since odds are good, someone will try to make it permanent anyway. At least one White House official has acknowledged as much:

In a rare display of GOP discord, Kevin Hassett, an American Enterprise Institute economist with close administration ties, posted a Web site editorial calling the emerging Senate plan “one of the most patently absurd tax policies ever proposed.” The plan would discourage companies from offering dividends over the next two years, he said, and could harm the economy Bush wants to help.

But administration officials say the president’s goal of completely eliminating the tax on dividends that are paid out of fully taxed corporate profits — even if for only a year or two — justifies such contortions. The White House has said that its original plan would spur short-term and long-term economic growth.

The financial markets will assume that Congress will not allow the dividend tax cut to be phased out, a White House official said, acknowledging that the dividend plan’s true cost would be far higher than the proposal’s official tally indicates.

“There may sometimes be a distinction between policy and law,” the official said. “We are fighting for the policy. The law will just have to catch up.”

Fortunately, it appears that not all are in agreement that this "compromise" proposal is a good idea:

IN ITS dogged pursuit of the dividend tax cut, the White House is pushing a temporary version that even some Republicans openly deride as bizarre and economically suspect. Under the proposal, the elimination of what has been called double taxation of dividends would be phased in — one-half next year, 75 percent in 2005 and 100 percent in 2006-07. Then, the current dividend tax rate would suddenly reappear.

That timetable technically would hold the plan’s cost at $120 billion over 10 years, far less than the $396 billion that Bush originally proposed. It is designed to fit within the Senate leadership’s self-imposed budget limit and make room for other tax cuts.

Some Democrats, though, are thinking of voting for this thing - in one case, on the condition that some money be made available to state government, which are suffering from extremely tight budgets. While I agree that state government need help, and fast, I can't agree that this is the way to get it. In the long run, the tax cuts will cost considerably more than the financial mechinations being proffered now make it appear, and that money will have to come from somewhere - and usually its in the form of less money for states to carry out federal mandates. This means that while state governments may get some immediate financial relief out of this mess, in the long run, they'll get hit even harder.

One thing I hope someone got on film is that, according to the article, Bush, stumping for his tax cut yesterday in Indianapolis, said he would not raise taxes to balance the budget. We need to get every single example of him saying anything about how he won't raise taxes for whatever reason he may give, as it may just help create a "no new taxes" variation for 2004.

...but we can afford more tax cuts

Another reason tax cuts are a bad idea right now

If Congress doesn't agree to raise the US debt limit, the US Treasury department says that we could end up defaulting on our debts as a nation.

Now, typically, if you or I were to be facing, essentially, bankruptcy, we would have a difficult time getting someone to let us go further into debt in order to pay of the debts we already have. In part, that's because when people borrow from Peter to pay Paul (as the old saying goes), it tends to get them even deeper into debt and makes it that much harder to climb back out.

Last year, our debt ceiling was at $5.95 trillion (with a "t") and Congress boosted it by $450 billion to our current cap of $6.4 trillion. Now they're talking about raising it again, this time to $7.38 trillion.

Think about that for a minute. When Bush took office, we had a budget surplus. In less than 3 years, we are now facing either allowing ourselves to go $7.38 trillion into debt or have to default on the debt we already owe.

And these figures don't take the Presidents much-desired new tax cuts into account yet.

Now, I'm a normal person. I don't really like paying taxes all that much - but I do it because I understand it's necessary so that we can keep the government - and the country - running. The government keeps talking about how we have to make spending cuts so that we can afford to pay for all the new safety measures that are needed because of the "new" risk of terrorism (a risk that actually isn't new, it's just more real now that one attack has happened). And yet somehow, the Bush administration seems to be of the opinion that giving tax cuts is a good idea and will help the economy?

Think they'll ever let us know what planet it is they're really from?

Pop quiz

I almost wouldn't be surprised...

Enforcement of God's laws...

I ventured into enemy terratory for a bit today -- the notorious Free Republic site.  Atrios had a link to a thread there about the current unemployment problems (noting that several of the posters were frustrated with the job market themselves, and welcoming them to the Bush economy.)  I found "tag" line there, though, that I absoultly love and wanted to share:

If they truly are God's laws, he can enforce them himself.

Beautiful!

On Target

Funding Homeland Security

Tuesday, I made a post about how funding for Homeland Security is being distributed using a forumla that gives lower-population states disproportionately more money for security measures than states with large populations.  A story in the Washington Post today helps point out the practical impact this distribution formula is having:

Responding to the recently elevated national terror threat level, Los Angeles Mayor James Hahn deployed scores of police officers to secure Los Angeles International Airport, target of a foiled millennium terrorist bomb plot. But with heightened citywide security costing $1 million a week and a budget deficit expected to exceed $200 million, Hahn couldn't do it alone. He asked the state to send in the National Guard.

The state, however, was staggering under a deficit topping $30 billion. Already, Gov. Gray Davis was moving to raise taxes, lay off thousands of schoolteachers and cut half a million adults off Medicaid. Still, Davis sent 50 National Guardsmen to LAX. Chalk up $100,000 a week more to cut elsewhere.

California, of course, is not alone.

Governors and mayors said they are not skimping on public safety, but as a result, they are skimping on much else. "These responsibilities are unprecedented, and it's an extra cost burden when none of us can absorb it," said Arkansas Gov. Mike Huckabee (R). "If you put extra personnel on bridges, you're taking money from public schools or telling scholarship students they can't go to college or taking medicine from elderly people. We're beyond the point of inconveniencing people. We're close to hurting them."

Bush recently announced an additional $2 billion in funding for Homeland Security, of which $500 million is being set aside specifically for "enhanced wartime security costs" through June of this year, with $50 million of that earmarked for large metropolitan areas - an attempt by the Bush administration to answer concerns about large-population centers not getting adequate funding for their needs.  Fifty million, however, is what it would take the state of New York - including New York City - to pay for 4 weeks of increased security.

The article also offers more specific information on how much funding various states are getting, showing the disparity between the large- and small-population states:

Just how thorny was clear in the initial round of Homeland Security grants released this year -- about $600 million nationally. Despite a concentration of likely terror targets in population centers, smaller states received much more money per capita than large ones, with California and New York running last. California received $1.33 per person and New York $1.38, while Wyoming got $9.78, Vermont, $8.15 and Alaska, $7.97. The national average was $3.29. (The study was done by New York City and compared the largest states with the smallest; it did not include Maryland or Virginia.)

In other Homeland Security spending news, the Republicans today rejected an attempt by the Democrats to provide additional funding for security at ports.

As they have done for weeks, Democrats argued that security for U.S. airports, nuclear facilities and other domestic safety programs was being shortchanged. Among their amendments was one by Sen. Ernest Hollings (D-S.C.) to add $1 billion to upgrade safety at U.S. ports, which was defeated by a near party-line vote of 52-47.

''We are in a crisis,'' Hollings said, arguing that the nation's ports are ''the most vulnerable targets that you could possibly imagine.''

The Senate bill contains $4.2 billion for the new Department of Homeland Security, the Coast Guard and state and local security and emergency agencies. Democrats wanted to boost that to $9 billion.

Somehow, seeing the Republicans refusing to provide additional funds to help secure our airports, shipping ports and nuclear facilities seems to undermind the claims that fighting the "War on Terror^TM" is a priority. It also leaves open the question as to why "preventing terrorism" is important enough for us to send our troops into Iraq, killing and injuring who knows how many American and UK soldiers, not to mention the untold casualties among the Iraqi civilians and military personnel, but it's not important enough to allocate additional funds for necessary security upgrades at some of our most vulnerable locations - or even to distribute money for security in such a way that the areas most as risk get the most money to work with.

Inequality and insecurity

Paul Krugman writes this week about how the money that is supposed to go towards ensuring "homeland security" appears to be being distributed less on a basis of where it might be needed than one of where it might secure the most electoral votes.  He notes that a review of Department of Homeland Security's spending formula, the government will be spending seven times as much on each resident of Wyoming as it will on each resident in New York. 

How does this relate to the electoral votes?  The formula being used is set up similar to the way the distribution of electoral votes is set up.  There is a portion of the funding that provides an equal grant to every state, regardless of population, and a second portion of the funding that is divided in proportion to each state's population.  Just as the electoral college winds up giving small states a disproportionately "louder" voice than many large states have, the homeland security funding formula gives those same smaller states a larger slice of the pie when viewed on a per capita basis.

Where this becomes problematic is that states with large populations almost invariably are also states with large urban centers - the kind of densly populated areas that terrorists are most likely to target.  While it's true that terrorists can target anywhere, it is far more likely that they will pick a New York City or Los Angeles than Casper, Wyoming.  Yet, with the way the money is being divided between the states, Wyoming can afford far better protection for each one of its citizens than New York or Los Angeles will be able to. 

As Krugman notes, its probably no coincidence that the Department of Homeland Security is granting proportionally more funds to smaller, less urban-oritented states, since those same states are generally Republican strongholds, making it important to Bush, and the Republican party, to keep them very happy.

Unfortunately, keeping them happy, in this case, means leaving the largely Democrat-oriented, urban areas more vulnerable to terrorist attacks. I suppose that's one way to help make your opponants less of a threat come election time....

Tax cut, cut

I'm watching some news on MSNBC right now, and just heard that the Senate has voted to slash the President's requested tax cut in half to help fund the war.  Go Senate!  It's good to see them recognizing the financial realities of the entire situation.

Helping? Or just not hurting?

From Newsday - more reasons to question Bush's credibiltiy

Bush and White House Press Secretary Ari Fleischer went out of their way Thursday to cite a new survey by "Blue-Chip economists" that the economy would grow 3.3 percent this year if the president's tax cut proposal becomes law.

That was news to the editor who assembles the economic forecast. "I don't know what he was citing," said Randell E. Moore, editor of the monthly Blue Chip Economic Forecast, a newsletter that surveys 53 of the nation's top economists each month.

Deputy White House Press Secretary Claire Buchan insisted Friday that the survey, which mentioned "the likelihood that some version of the Bush administration's latest stimulus package will be enacted," justified the president's claim. Moore said that a survey taken in January before the president announced his plan forecast 3.3 percent annual growth between the last quarter of 2002 and the last quarter of 2003. A survey taken in February reached the same consensus.  

Economics tends to lose me sometimes, but if I'm reading that last paragraph right, saying that Bush's tax cut will help - in any way - increase annual growth at all isn't supported by the data.  If a survey taken before the plan was announced showing 3.3% annual growth, and a survey taken after the plan was announced shows 3.3% annual growth, then the plan isn't doing a damn thing to stimulate the economy.  All it's doing is not hurting it any.

Would anyone buy it for a moment if a scientist went out and measured the temperature (let's say, 70 degrees) on a Tuesday, drank a Coke on Wednesday and then noted it was over 70 on Thursday, announced that his research shows drinking a Coke helps ensure the temperature stays above 70?  We'd laugh him off the national stage! Too bad we have to wait 2 more years to do that to Bush.

Tax...

Washington Post Editorial "We hold to the old-fashioned opinion that the government ought to provide certain services, and that to do so it must raise a certain amount of revenue. The federal tax burden today is not inordinately high by historical standards, while the demands on the government are large and growing. Mr. Bush himself has not been shy to spend: on defense, for example, and on farm subsidies. Yet the president and most of his fellow Republican officeholders continue to behave as though balancing the books just isn't part of their job description. The economic plan that the president proposed yesterday is in keeping with this irresponsible philosophy.

[...] When you factor in the other tax changes proposed by Mr. Bush yesterday, you find that the poorest fifth of Americans would see their after-tax income go up this year by one-tenth of 1 percent, according to the Tax Policy Center. The top 1 percent of earners, by comparison, would see their income rise by 3.5 percent."

I don't have a problem with paying taxes in exchange for the services I receive from the government.  It's the only fair thing to do.  I do, however, mind, paying more taxes so that the wealthy can pay less - and I mind paying taxes to fund programs that primarily benefit the wealthy rather than the needy.

Trickle-down redo

Bush to propose eliminating dividend taxes

January 6, 2003

By Scott Lindlaw, Associated Press

WASHINGTON -- President Bush will propose wiping out the taxes shareholders pay on dividends as the centerpiece of his economic revival plan, a step that would cost the Treasury more than $300 billion over a decade.

"It'll encourage investment, and that's what we want," Bush said at the end of a Cabinet meeting Monday. "Investment means jobs."

Bush also argued that eliminating the dividends tax would correct an injustice in the tax code. Dividends are taxed once at the corporate level, when companies report profits, and again as dividend income to shareholders.

First, a caveat - I got a "D" in Economics.  I got "A"s and "B"s in every other one of my business classes (except Accounting, but we'll leave that one alone), so a "D" is a pretty good indication that I just had no real clue as to what was being discussed in that class.  So, when reading my opinion on economic matters, just keep that in mind, and if I'm off base, feel free to correct me (gently, please) as I really would like to understand it better.

The problem I have with Bush's plan is two-fold.  First, didn't we try the "if we let rich people keep their money, they'll invest it and make jobs for the rest of you" tactic under Reagan?  If I recall correctly, Bush's father called that "voodoo economics", and also known as "trickle-down economics", which didn't work so well.  I don't see how it would work any better this time around...

The second is in his theory that because the money gets taxed twice - first as corporate profits, and then as dividend income - that it's unfair.  If that's the case, shouldn't all retail taxes be eliminated as well?  I mean, the money paid to workers is taxed first as personal income, and then taxed again when exchanged for goods and services.  What's worse, in the first example, the corporation shoulders the first tax burden (when its taxed as profits) and the shareholder shoulders the second (when its taxed as divident income).  In the second example, the individual shoulders the entire tax burden - having the income tax taken from their paycheck and sales tax added on to the cost of the goods they're buying.