Archive for October, 2010

Recipe for a Balanced Government Budget

October 18, 2010

The way to balancing a government budget can be found on the back of a box of pancake mix: a recipe.

Fixing any problem requires a methodology, or a recipe/process/method that is comprised of reasonable, practical, and cost effective steps that actually produce a reasonable outcome.  Regardless of the issue (e.g., unemployment, illegal immigrants, education, budget deficits,) you don’t often see public policy makers creating comprehensive, practical, step-by-step roadmaps to address them.

Here is a basic 16-step recipe to balance a government budget:

Step 1. Toss the numbers and start with plain English.

Realize that numbers get in the way of what you are trying to accomplish. Initially, put numbers aside when developing a system. Define the sequence of steps in plain English in order to create the process by which the system operates.

Step 2. Define the purpose of government.

Realize that government exists to meet certain needs so that society and communities might function and maintain a high quality of life. Evaluate current programs and determine if they meet the purpose of government, or not.

Step 3. Define the scope of government.

Decide which specific, public needs that government will and will not address, and set priorities.  Evaluate current programs and determine if they fall within the appropriate scope of government, or not.

Step 4. Start at the local level.

Realize that all tax money originates from the same place, and that all government checks are sent to that same place: some place with a ZIP Code.   Government programs and resources are utilized at the local level.

Step 5. Adopt Responsibility Based Budgeting.

Decide exactly who should pay for various government programs and services.

Step 6. Assign responsibility for funding government.

Assignment of tax paying responsibility stabilizes the revenue stream.  Assign taxpaying responsibility through assessments (a tax bill with someone’s name on it.)

Step 7. Give credit for ALL tax payments.

Credit any type of tax payment to the taxpayer’s personal or business tax assessments first, including indirect taxes such as sales and excise taxes.  Electronic commerce technology allows for this.

Step 8. Focus on the funding of specific resources.

Consider the budget to reflect the scope of work, and to be a listing of resources (e.g., people, places, & things) that are required for government programs.

Step 9. Decide on whether to fund resources with or without collecting & spending tax money.

Realize that there are two ways that government can obtain the resources (people, places, things) needed for public service programs:  By collecting and spending tax money, or without collecting and spending tax money.

Step 10. Look to the taxpayer last.

Initially, consider the Taxpayer as the Funding Source of Last Resort.  First, seek to obtain resources without collecting and spending tax money by offering the resource provider with the appropriate incentives.  When tax money is not spent, it need not be collected.

Examples of the Taxpayer as Funding Source of Last Resort include the Adopt-A-Highway programs and volunteer firefighters, where taxpayers save $million by “borrowing” the labor to pick up roadside trash and put out fires.

Step 11. Adopt Tax Payment Choice.

When government must collect and spend tax money, adopt Tax Payment Choice.  Offer taxpayers a variety of options in how they pay their taxes, and the flexibility to effectively lower their tax burden.  Allow businesses the option of direct Payment-in-Kind (PIK) of goods and services as a form of tax payment.  With PIK, businesses would receive retail value tax credits at wholesale cost.

Step 12. Plan for a tax holiday every year.

When revenue requirements have been met for the fiscal year, plan to give people holiday from tax collection.

Step 13. Meet revenue requirements.

At this point, the budget is balanced.

Step 14. Declare a tax holiday for the remainder of the year.

The goal should be to have an annual tax holiday during the period of time that will have the maximum economic impact (e.g., Christmas shopping season.)

Step 15. Take a temporarily holiday from taxes.

With the plethora of available electronic commerce technology, we should all be able to just quit paying taxes at some point each year for the remainder of the year.

Step 16. Rebate any tax surplus back to taxpayers.

Government should take from it citizens only what is needed to deliver public services that fall within it appropriate scope of activities and that are defied by its budget.

The above recipe is one example of how to balance a government budget.  Many types of recipes can be created.  What is important is that the objective is articulated,  a series of steps is defined to meet the objective with reasonable success, and that the steps are executed to achieve a reasonable success.

Recipe for Full Employment

October 17, 2010

The way to create full employment can be found on the back of a box of pancake mix: a recipe.

Fixing any problem requires a methodology, or a recipe/process/method that is comprised of reasonable, practical, and cost effective steps that actually produce a reasonable outcome.  Regardless of the issue (e.g., unemployment, illegal immigrants, education, budget deficits,) you don’t often see public policy makers creating comprehensive, practical, step-by-step methods that actually result in reasonable success.

Here is a basic 4-step recipe to achieve Full Employment by focusing at the local level:

* Use the sales process as job creation process.

** Estimate business growth or sales to hire next employee or create next paycheck.

*** Estimate per capital or household spending required for different types of local businesses    to grow enough to hire their next employee.

**** Create a system to convert local spending into local paychecks.

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* Use the sales process as job creation process

All businesses must sell.  They must sell more of their goods and services to justify the risk and expense of hiring a new employee.  The Sales Funnel is a visualization of the selling process that represents a series of probabilities in the steps that lead to a sale.  When the Sales Funnel is expanded enough to result in a business hiring a new employee, it becomes The Jobs Funnel.

The Jobs Funnel – Using The Sales Funnel to create more jobs in your community.
https://paycheckeconomics.wordpress.com/2010/05/23/the-jobs-funnel-what-local-businesses-must-do-to-create-more-jobs-in-your-community/

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** Estimate business growth or sales to hire next employee or create next paycheck.

Below is link to a short, informal survey I took with some small business owners in my community, at a networking breakfast. I asked them how much they would need to grow to hire their next employee. Half those surveyed indicated they would have to grow 100% or more to hire.  What is needed is a statistic or metric to better define that “growth,” and that can be related to consumer or household spending by industry or business category(e.g. NAICS codes).

Survey showing why job growth is slow: Businesses have to grow a lot to hire and they will only hire one new employee at a time.
https://paycheckeconomics.wordpress.com/2010/06/21/survey-showing-why-job-growth-is-slow-businesses-have-to-grow-a-lot-to-hire-and-they-will-only-hire-one-new-employee-at-a-time/

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*** Estimate per capital or household spending required for different types of local businesses to grow enough to hire their next employee.

By knowing the amount of revenue growth required for businesses to hire their next employee, and the amount of additional, local household or consumer spending required to generate those new business revenues, you can develop a road map to “full employment” (e.g., 5% unemployment rate [UR].)  You actually plan local job creation, base upon local, economic parameters.

With the labor force being approximately half the population, the ratio of population to jobs required to shift the UR 1% is 200 to 1.  That would require that $2/week per capita or $7/week per household to be converted into wages from consumer spending, or household consumption.

For example, to create a job that pays wages of $10/hour or $400/week requires $2/week from the spending of 200 people to generate those wages.  This would be multiplied by a factor for total new business revenues required for a business to hire, and create that next paycheck.

Below are some analyses that provides a measure of economic activity that would be a starting point for lowering the UR 1% in the United States (1.5 million new jobs), Michigan (50,000 new jobs), and South Carolina (20,000+ new jobs) where I live.

An Approach to Lowering the United States Unemployment Rate 1% (on about $20/week)
https://paycheckeconomics.files.wordpress.com/2009/10/united-states-1-unemployment-rate-reduction-03-09_r0.pdf

An Approach to Lowering the Michigan Unemployment Rate 1% (on about $20/week)
https://paycheckeconomics.wordpress.com/2009/09/13/an-approach-to-lowering-the-michigan-unemployment-rate-1-on-about-20week/

An Approach to Lowering the South Carolina Unemployment Rate 1% (on about $20/week)
https://paycheckeconomics.wordpress.com/2009/08/26/an-approach-to-lowering-the-south-carolina-unemployment-rate-1-2/

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**** Create a system to convert local spending into local paychecks.

An Approach to Lowering the United States Unemployment Rate 1% (on about $20/week)
https://paycheckeconomics.wordpress.com/2009/10/18/an-approach-to-lowering-the-united-states-unemployment-rate-1-on-about-20week/

For example, to covert local shopping into local jobs requires:

* a transaction system (to covert spending revenues into paychecks)
* a reporting system (to better inform and motivate people to shop locally and create paychecks)
* businesses willing to participate by offering some goods and services for this paycheck creation program
* incentives for businesses to participate
* people who are willing to shop locally
* incentives to motivate people to shop locally and create paychecks

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The above recipe is one example of how to balance a government budget.  Many types of recipes can be created.  What is important is that the objective be articulated,  a series of steps be defined to meet the objective with reasonable success, and that the steps are executed to achieve a reasonable success.