All the economic talk these days seems to center around the fiscal cliff.
The uncertainty surrounding that cliff is disconcerting to all of us, and makes planning for 2013 difficult at best.
Of concern to me is President Obama's proposed tax increase package a few weeks ago. The president said everything is up for negotiation, except there are items he is unwilling to negotiate. It's impossible to have it both ways. Then again, previously he formed the Simpson-Boles Committee but when he didn't like their recommendations, he ignored them.
None of that matters as a tax increase will neither pull our country out of economic stagnation nor put people back to work.
The major problem is that "the rich" who the president wishes to tax have options, because they have money. If you are poor, you do not have choices. It all boils down to disposable income.
Disposable income is the money you have left over after you have paid for such things as food, fuel, housing, medical, taxes, insurance, and the other necessities of modern life. Generally speaking, the less income you have, the more of it goes for life's necessities. No matter how "large" the rich live, they most assuredly have more left over at the end of the day than you do.
Most people can't manipulate their income very much. We are mostly a country of two earner families and the income side of our personal economic picture is about as fixed as the expenditure side. There just isn't much wiggle room if you don't have much money.
The "rich" who the president is speaking of are mostly business owners and professionals who do have choices. Business owners have the most options. They can time expenditures, purchases of equipment, payment of dividends and a host of other things to control how much they pay in taxes each year. I'm not talking about cheating, I'm speaking of operating within the thousands of pages of tax rules that exist today. Either trust me they have options or grab the thousands of pages and leaf though them to reach that same conclusion.
What is happening in boardrooms across America today is whether or not to issue huge dividend payouts before the end of the month. President Obama has proposed raising the tax rate on dividends next year from 15 to nearly 40 percent. Corporate leaders are thinking "why don't we pay a big dividend now and then cease paying dividends for a while because the tax saving to the shareholders will be enormous."
Likewise, business owners can manipulate salaries for themselves to keep themselves out of the highest tax brackets. They might have to scrimp a little, but if they don't pay the tax some of the money stays in the business to build corporate wealth. The point is these are just a couple of strategies being discussed now to save proposed taxes.
So how does all this uncertainty play out locally?
Over the last year I have been helping Alpena Community College raise money for the very successful Utility Lineman Training Program. The college is somewhere around 82 percent of its goal and to reach it, I have been trying to put the "bite" on the usual companies and individuals in the community. Before I go further, let me say the locals are extremely supportive of ACC. We are blessed to have that kind of support in the community.
However, the fundraising is going slowly. We have a great program that puts young people to work with respected skills, so why the reluctance now to donate? The answer is that companies are uncertain, and thus, cautious. A previously generous donor said "Let's wait to see what the next couple of quarters bring in terms of economic improvement. We want to see how the tax thing falls out for us. There may be new rule-making affecting our industry and we would like to see how that turns out before we commit."
It's a good example locally of how companies and their leaders are afraid that Washington might be starting to kill America's golden goose. It's time to proceed with great caution as business owners try to avoid the cliff looming up ahead.