DEBT CLOCK

REPORTER: TOMI HINKKANEN – LOS ANGELES

Capitol_-_west_front

After months of partisan bickering, the U.S. Congress finally agreed on taxes and cuts on New Year’s Day. The American Taxpayer Relief Act seems to please very few people, and no wonder why. It offers “relief” only in a sense that had the lawmakers not come to a deal, taxes would have gone up for everybody even more than they do now.

The top tax rate will go up from 35 to 39.6% for individuals earning more than $400,000 and for couples making $450,000 or more. The additional tax is subtracted only on the amount exceeding those figures. The inheritance tax will go up from 53% to 40% for estates worth more than 5 million. All wage earners regardless of how much they make – about 77% of the population – will see their paycheck shrink this year due to the comeback of the payroll tax. For an average earner of $50,000 it means an expense of $1,500 a year – roughly the cost of filling the car tank twice a month. The act extends tax credits for college students, low income families and families with children and limits deductions for individuals with incomes of more than $250,000 and couples with incomes of more than $300,000.

congress ext - capitol building

These measures will generate $620 billion over the next ten years – less than five percent of the gigantic national debt, which is 16.5 trillion and mounting. 16 trillion is 16 million million, or 16 thousand billion with 12 zeroes. If one was to pay off the debt with hundred dollar notes, tied in packets worth ten thousand each and organized in standard pallets stacked two pallets high, the payment would fill 16 football fields. You can see the national debt here (WARNING: Not for the faint of heart):

Bob Foster is an Adjunct Professor at UCLA Anderson School of Management. He visits Finland each year to recruit high tech companies to take part in the University’s Global Access Program, GAP. In the program, fully employed MBA students work with the companies for six months and create a business plan for each company wanting to expand their business beyond their country borders.

Bob Foster is the director of the GAP program at UCLA Anderson.

Bob Foster is the director of the GAP program at UCLA Anderson.

Mr. Foster characterizes the American Taxpayer Relief Act as a middle of the road bill that does little more than kicks the can down the road.

“It only defers more serious decisions for two months. If you are a corporation thinking of making big purchases, you are concerned about the economy anyway. You also have to be concerned about the very large national debt – the largest we have had in our history. What are we going to do to get that under control,” Professor Foster asks.

Two months from now the congress will face yet another cliff – the raising of the debt ceiling.

“I can’t remember the gov’t being so out of control in my 70 years,” professor adds.

He says at the root of the national debt is a structural problem.

“I believe one out five people are sick or incapable of working for different reasons. We have a moral obligation to take care of those people. I hear about 42% of Americans pay absolutely zero income taxes. It appears to me that something is wrong. Every citizen of the country should pay something – even a small amount.”

In other words:

“20% of the population falls under social support network. I think there’s another 20% of the population that are taking advantage of the many loopholes, there’s fraud in the Medicare, social security…There is something fundamentally wrong here. We have to fulfill our social obligations but at the same time live within our means.”

Professor Bob Foster has an extensive background as a CEO of various companies.

Professor Bob Foster has an extensive background as a CEO of various companies.

Foster, who describes himself as a Blue Dog Democrat, says the Republicans’ reluctance to “tax the job creators” argument is not as valid as they claim. However, he notes that the U.S. cannot fork out the money to pay off the national debt just by taxing the rich.

“If you take the one percent of the top earners and take 100% of their compensation – not just some but 100% – it wouldn’t even begin to solve the debt problem. There’s just not that many of them. They cannot finance everybody else.”

Foster’s solution to the problem:

“Simplify the tax code, eliminate a lot of the exceptions that complicate the tax code. Clamp down on those individuals who are fraudulently benefiting from the system.”

Bob Foster would like the government to crack down on tax cheats.

Bob Foster would like the government to crack down on tax cheats.

His advice Finnish companies wanting to expand into the U.S.:

“Our recommendations to any company wanting to come to the U.S. is make sure you hire the services of knowledgeable lawyers and tax professionals to prepare your accounting and tax returns in order to be aware of what the law requires and to maximize profits legally.”

Businessman Heikki Ketola serves as a judge in the GAP program at UCLA Anderson.

Businessman Heikki Ketola serves as a judge in the GAP program at UCLA Anderson.

The Finnish business community in the U.S. has mixed emotions about the tax bill. Malibu-based bar code entrepreneur Heikki Ketola doesn’t mince words scolding the congress.

“They have done nothing but delayed the decision by two months. At the same time they bicker about the debt ceiling. It’s American antics. The congress has already signed off to certain things – building of bridges and aircraft carriers. Now they have to separately decide, whether to pay for them!”

Heikki Ketola calls the debt ceiling negotiations American antics.

Heikki Ketola calls the debt ceiling negotiations American antics.

Ketola laments the lack of willingness to compromise. Instead, the two parties are at each others’ throat instead of working towards solving the problem. He predicts the impasse will continue and fears filibuster when it comes time to decide on the debt ceiling.

Esa Ylä-Soininmäki is the owner of the furniture company Monte Allen.

Esa Ylä-Soininmäki is the owner of the furniture company Monte Allen.

Esa Ylä-Soininmäki is the owner and CEO of Monte Allen, a company that manufactures custom made furniture. His company employs 40 people and generates sales between two and three million dollars.

“I think the 450 thousand mark for a tax increase is reasonable. President Obama wanted to set the limit at 250 thousand. It would have hurt too many small entrepreneurs who file taxes as individuals,” Ylä-Soininmäki says.

He himself has an S Corporation, in which the profits are passed on to the shareholders, and are taxed on personal returns. Therefore, if his revenue exceeds the $450,000 mark, Ylä-Soininmäki will stock on inventory at the end of the year to lower the revenue and thus avoid the tax increase.

Esa Ylä-Soininmäki with wife Anne

Esa Ylä-Soininmäki with wife Anne

“On the other hand, the middle class and the low income earners will suffer, because of the return of the payroll tax. In all reality it is a tax increase – the amount of the paycheck after taxes is smaller than before.”

Esa Ylä-Soininmäki says the tax bill did nothing to alleviate his uncertainty about the future.

“It is just as unclear as before. My business is going well and we are even going up a bit, but with all these cliffs and talk about the national debt, one does not feel like investing any more than is necessary.”

He says the uncertainty has lasted for the past few years and also reprimands politicians for the lack of leadership.

Monte Allen has many celebrity clients

Monte Allen has many celebrity clients

Monte Allen deals with celebrity clients who want the very best. Lately Esa Ylä-Soininmäki has acquired two more star customers – Michael Richards, who played Kramer in the TV show Frazier and Jane Fonda.

“Michael Richards has a Mediterranean style house in Pacific Palisades with a gorgeous view of the Pacific. He is as funny as in the show and I always feel like laughing going there. We’ve made him some modern furniture.”

Jane Fonda, 75, is one of Monte Allen's star clients.

Jane Fonda, 75, is one of Monte Allen’s star clients.

Jane Fonda knows what she wants.

“Jane Fonda has purchased a house in the Trousdale Estates section of Beverly Hills. We’ve been furnishing it since the end of the year – desks, shelves in the media room that are of eclectic, modern style. Jane is a very determined lady, who knows exactly what she wants and is not shy about it. She also takes responsibility of her decisions and is easy to work with,” Esa describes.

President George W. Bush signing a $1.35 trillion tax cut into law June 7, 2001.

President George W. Bush signing a $1.35 trillion tax cut into law June 7, 2001.

Here are my two cents:

The current debt crisis was born during the presidency of George W. Bush. He put two wars on a credit card and at the same time lowered taxes on everybody, including the rich. Therefore, it was necessary to take on debt starting at the end of President Bush’s presidency in the fall of 2008, when the economy was on the verge of a total collapse. It was equally important to salvage the banking sector, the car industry and to stimulate the economy in the beginning of President Barack Obama’s first term in 2009.

Presidents Bush and Barack Obama in the Oval Office.

Presidents Bush and Barack Obama in the Oval Office.

Now we have to find ways to start reversing the dreaded debt clock. The American Taxpayer Relief Act starts to do just that by taxing the rich their fair share. The wealthy still get off easy, since their earnings are oftentimes in the form of a much lower taxed capitol gains, not wages. For example Mitt Romney only paid 13% in taxes. The obvious way is to reverse the debt clock is to create more jobs to generate more tax revenue. The other way is to cut expenditure, including military spending. There are over a thousand U.S. military bases around the world. Now that the Iraq war is over and the war in Afghanistan is winding down, it is time to take a serious look to see if all this U.S. involvement is really necessary. Other painful cuts have to be made as well. There is nothing so fundamentally wrong with the U.S. economy that it couldn’t be fixed. This country is full of bright people and entrepreneurs. There’d be even more of them, if the broken down immigration system was fixed. Nobody wants to create another Greece, nor duplicate the British style austerity measures that are so harsh that they themselves drown the economy. What is needed is a golden middle road. It is time for the political leaders to stop bickering and to come together for the good of the country.

U.S. House Committee in session.

U.S. House Committee in session.