Happy 4th of July!

The Fourth of July is my favorite holiday. There is no better birthday than to celebrate the continued life of what was conceived as a great experiment 234 years ago. We’ve come a long way in 234 years….

A quick refresher of the opening preamble of the Constitution of the United States:

We the people of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

4th of JulySome Amendments we hear about daily – at least in Texas – right the bear arms, freedom of speech, but what about some lesser known amendments to spice up your conversation today . . .

10th Amendment:

The powers not delegated to the United Statesby the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

16th Amendment:

The Congress shall have power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Nothing beats our Declaration of Independence for stirring sentiments.

WHEN in the Course of human Events, it becomes necessary for one People to dissolve the Political Bands which have connected them with another, and to assume among the Powers of the Earth, the separate and equal Station to which the Laws of Nature and of Nature’s God entitle them, a decent Respect to the Opinions of Mankind requires that they should declare the causes which impel them to Separation.

WE hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness – That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed, that whenever any Form of Government becomes destructive of the Ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its Foundation on such Principles, and organizing its Powers in such Form, as to them shall seem most likely to effect thier Safety and Happiness.

That is one long, meaty sentence. For my GMAT students, imagine seeing that one underlined…. Notice the parallel structure.

Enjoy!

Remember, we created this country and it is up to us to keep it alive and well. It is a choice we make each day.

Image courtesy of Matthew Straubmuller

Leo Hindery is Wesley Mouch

I almost vomited all over the paper when I read what “enlightenment” Leo Hindery had to share through the Financial Times Editorial page. The editorial in question, “Obama must act to curb executive greed.” What a sexy title. Pander to the lowest denominator, great, just the dialog we need.

Executive PayHe goes on to say that Obama must “… enact permanent limits …” on “all public companies,” and proposes a system whereby executive pay is maxed out at some multiple to the average employee compensation. He also proposes that ” … the Treasury oversee the compensation practices of any entity that is regulated, whether or not it currently relies on government guarantees. This should apply to employees at the individual trader level, too.” Leo proposes a 35x ratio.

I wonder if this is the same Leo Hindery who paid $2 million last year for “consulting” and a luxury car and driver for Daschle that was exposed in the Daschle tax scandal. Hmm. As a representative of the American public, Daschle would be capped at . . . $32,000 * 35 = $1,1,20,000….

Perhaps most offensive is Leo’s statement in quotes,

that it is the government’s responsibility to “ensure wealth’s fair and equitable distribution.”

I’m no constitutional scholar, but I have read the document a few times and I do not remember that line, “ensure wealth’s fair and equitable distribution.” From whom or what did Mr. Hindery quote that abomination? Or was he using quotation marks to be cute?

Spirit versus the Letter of the Law?
Never mind that any official sanctions will be skirted – see Leo’s skirting of congressional protocol with regard to Mr. Daschle. Executives should be capped so the average employee doesn’t get his feelings hurt? I’m not sure what the argument is here. See article on ACTUAL income level changes as reported by the US Census before you give me that bogus rich getting richer, poor getting poorer argument. If I create a ton of value in the marketplace, I want a ton of reward. I don’t ask you to give it to me; I will make it myself. I will make it by conquering risks, pushing myself further and harder than my peers and by the sheer force of will.

If you want to redistribute the wealth,
STOP bailing these buggers out. For the love of all that is holy, let the bankers and lawyers who supported them slide into the ooze they’ve created. Why should you, American GM BailoutTaxpayer, be forced to support GM through your tax dollars? I’m not interested in having GM in my portfolio – they’ve taken lazy-man risks and have considerable deadweight. I’d rather support the companies who will rise up in the wake of GM. Talent does not disappear.

“…Freedom has been given a chance and has failed. Therefore, more stringent controls are necessary. Since men are unable and unwilling to solve their problems voluntarily, they must be forced to do it.” – Wesley Mouch, Atlas Shrugged.

No one, no thing is too big to fail. That is the natural cycle, let it be.

I don’t advocate “excessive” pay packages whatever those are. I don’t care what you pay your executives. I invest in private enterprises and I keep tabs on the folks running the companies. It’s a novel idea, being involved, paying attention…. For those of us with tiny bank accounts, we may be investing in Raul’s Corner Drycleaner instead of Raytheon, but the result is the same with smart investors and smart directors. Raul put his life on hold for 8 years to get the Drycleaner zipping. As long as we continue to grow the business and I get the return I want, Raul is welcome to pay himself whatever the blazes he wants. When Raul steps out, then the Board negotiates pay.

The biggest challenge in business is finding more Owner Class Rauls, not how much Raul is paid.

So perhaps here is the problem:
The public Boards are stuffed with old farts. I know some of these guys. Some have had remarkable careers. Most were never more than middle managers but had the opportunity to ride an amazing economic boom so they think they know what they’re doing. They are stuffy fluff. They get to sit as comfy Board members by virtue of their age and “wisdom.” They got lucky. Don’t begrudge their luck, their gender or their race. Replace them with talent – Owner Class talent. For companies where a real owner is still involved, the stuffy fluff doesn’t last. Stuffy fluff kills innovation. A real owner lives for the organization and what it can create. Money is a cool perk. Keep the owner class involved.

Want to learn more about Leo Hindery, check out the Forbes article.

Images courtesy of David Shankbone and brett jordan

Tax Reform

So the concept of tax reform gets several of my family members hot and bothered . . . I’m not sure what that says about my family but I leave that for a therapist to sort out in 10 years when I have time for a visit. In the meantime, I propose the following:

1. Flat tax, say 15% on current income for those earning more than $50,000 annually. For those earning less than $50,000 annually, total payment can be made in kind as in #2 below. No loop holes. This will be a huge boost to the Treasury and will reduce the dead Tax Reformweight cost of filing for those who are contributing less than 5% collectively to the Treasury. See contributions based on income level on the middle of this page. Remember, the top 5% of tax payers contribute 57.1% of the total. The bottom 50% of tax payers contribute less than 3.3%.

2. In exchange for getting back at least one weekend a year, you will be expected to contribute to local charities that meet certain thresholds. You have the option of contributing TIME or MONEY or any combination of the two. The point of this measure is to reconnect locals with locals. Charities to benefit from your expenditure of time and or money must consistently demonstrate that more than 80% of all funds raised go directly to the mission purported and MUST BE LOCAL. This should not discourage you from supporting non-local charities as you are gaining both time and money from the measure. This measure is to redistribute our most valuable resource, you. Your intellectual capital deployed locally is much more important than a long-distance, fickle fingered bureaucrat’s.

By the way, the donation of time and or money must be done by you, personally. This represents work/money for a tax savings. You may pay your way out (thereby negating the effective savings) or you may perform the work yourself.

Proposed Schedule of work:

< $50,000, 25 hours of community service
$50,000 – $125,000, 10 hours of community service
$125,000 – $250,000, 20 hours of community service
>$250,000, 45 hours of community service

This schedule represents my experience working with those in a variety of income brackets – who has free time and free cash flow.

The pay your way out schedule would look more like this:

< $50,000, 15% of your total income
$50,000 – $125,000, additional 5% of your total income (above the 15% flat tax)
$125,000 – $250,000, additional 5% of your total income (above the 15% flat tax)
>$250,000, additional 10% of your total income (above the 15% flat tax)

I’d like to see the rate even lower, and it is important conceptually for everyone to pay into our system. Our government doesn’t really need that much money when we trim the fat and turn over local activities to local people. We will fund the government for less administration and more administering. We need a Federal system for roads, but do we need a Federal system for schools?

incometaxpie

Image courtesy of Fibonacci Blue