Fiscal Cliff

An Impartial Perspective on the Fiscal Cliff

I, like many people, have been inundated with conversations about the looming “fiscal cliff”.  It seems to be an unavoidable topic.  However, like many things, it may be a popular topic and one that provokes rigid opinions, but it seems that the facts often avoid us.  I found myself getting frustrated with congress and forming opinions, but I also realized how little I actually knew about the situation.   So, I began to research.  Here is my understanding of the issue:

The Fiscal Cliff is a termed coined by Ben Bernanke, Chairman of the Federal Reserve.  It refers to two separate things converging and potentially affecting our economy.  The fist is the expiration of the Bush Tax Cuts and the second is the effects of the Budget Control Act of 2011.  The Bush Tax Cuts which lowered marginal rates, lightened estate tax, lowered capital gains tax amongst other things are set to expire at the end of the year.  If they do, we will revert to our old tax policy which will end up costing middle class families about $2,000 (4% increase) more per year and top earners about $120,000 (7% increase) more per year.  This tax burden increase in itself is bad for economic conditions but when combined with the other aspect of the Fiscal Cliff it could create a significant problem. 

The Budget Control Act of 2011 was created in 2011 due to the debt ceiling crisis.  Spending far outpaced Congress’s expectations and they had to scramble to get approval for an increase in the “debt ceiling”, which is basically the allowable deficit.  Congress granted a $900 Billion increase to our debt ceiling in exchange for some immediate spending cuts, but also, and more importantly, 1.2 trillion in future spending cuts over 10 years.  These $1.2 Trillion in future cuts is where it gets tricky.  The act created a deficit reduction committee that was supposed to come up with these cuts; the problem is that they did not do it.  The Bill states that if the committee failed to come up with a deal then “Sequestrations” or indiscriminate cuts to all specified government programs would take place.  The ultimate fear is that Congress will fail to approve the necessary cuts to avoid the dreaded “Sequestrations” and the Bush Tax Cuts will expire resulting in simultaneous tax increase and decreased government spending. 

According to most experts, going off the fiscal cliff will likely result in another recession.  However, if we continue our current path government debt will get out of control.  Republicans want lower taxes and cuts to entitlement programs such as Medicare, Medicaid and Social Security.  Democrats are adamant that the rich should pay higher taxes.  There are only two ways to balance a budget, by adding to inflows or by cutting outflows.  If you take a look at the US spending, of the total 3.8 Trillion that has been and will be spent in 2012 12% is welfare, 22% is Healthcare, 24% is Social Security and 24% is defense, so 82% of our budget is for entitlements and defense.  Democrats want higher taxes on the “Wealthiest Americans”, those making $250,000/years or more.  Their latest proposal would end the Bush era tax breaks for those “wealthy” Americans; this would generate about $1 Trillion in new revenue in 10 years.  However, can we tax our way out of government budget issues?  The facts suggest that we cannot.   A $1 Trillion revenue increase over 10 years is hardly going to offset $16 Trillion in debt with entitlement programs that have increased at rapid rates.  Over the last 40 years entitlement programs such as Medicare, Medicaid and Social Security have went from approximately 3% of GDP to 8% of GDP.  The answer is likely a combination of cuts and tax increases.  According to Paul Ryan, former VP candidate, if you taxed all the millionaires in the country at 100% it would only run the government for 4 months.  On the other side, Billionaire Warren Buffet claims that he pays a lower tax rate than his secretary and often suggests the unfairness of current tax law, specifically capital gains tax.  While the solution is clearly very difficult, the truth seems to be that spending on entitlements and/or defense needs to be seriously adjusted in order to have a chance.  While taxing “the wealthy” may make people feel better, it is not the answer-but it could be part of the answer.   

Other options include alternative forms of taxation.  While taxing people on income will seemingly put the brakes on economic growth, other forms of taxation may not.  Consumption taxes are believed by some economists to have a lighter effect on the overall economy.  It is possible that consumption tax could yield the necessary revenue without the damaging economic effects.   A more intriguing and controversial method would be to tax carbon emissions.  Carbon emissions which are currently considered a major factor in global warming, could be taxed at a light rate and conceivably stimulate economic growth in certain areas.  If you tax energy that comes from polluting methods such as burning coal, you open the door for alternatives.   Solar, wind and nuclear would potentially turn the corner and become increasingly viable.  Increased practicality would lead to increase investment.  Increased investment would lead to increased exploration and production.  Increased exploration and production would lead to increased jobs.  Additionally, increased exploration would lead to increased efficiency.  Eventually, these forms of energy would become cheap.  This would not come without a price.  The price would likely be increased utility costs in the short term.  The question is, would the jobs that come with increased investment offset the economic impact of higher priced utilities.  Several renowned economists and businessmen support carbon tax such as Duke Energy CEO, Paul Anderson, the CEO of Caterpillar, James Owens, Nobel Prize winning economist, Gary Becker and John McCain’s campaign advisor, Kevin Hassett.  Arthur Laffer, the “Father of Supply Side Economics” put it this way, “We need to tax the things we want less of (such as carbon dioxide) and reduce taxes on things that we want more of (income and jobs)” (www.carbontax.org).   It seems unlikely that an unorthodox tax will be used to resolve an issue that needs to be solved within thirty days, but it is something that needs to be considered.  Awareness is the first step!

Most recently John Boehner responded to the Tim Geithner’s proposal with his own proposal which included no tax increases, even for the highest earners.  Above all else, it seems that Democrats are unwilling to budge on their belief in tax increases for the rich.  It has been clearly stated by the President, the Vice President and the Treasury Secretary, Tim Geithner that the highest earners need to pay more.  Considering this fundamental difference and the very limited time, it is difficult to be optimistic about a resolution to our “Fiscal Cliff”.  Even though, tax increases for the rich will not solve our problem, it has become a major point of this negotiation.  It is an emotional issue rather than a factual issue.  Both sides are rigid and seem narrow in their discussion.  Compromise is a difficult thing, particularly when you were seemingly elected into office to do anything but compromise.  However, if one thing is clear it is time to do what is right for our country.  Partisan politics and unbending loyalty to your constituents has failed us.  This issue is so difficult, but if I have could express any desire it would be to consider everything and negotiate when it is necessary to negotiate. 

Bob Caperton, Jr.

www.barrettproperties.com

Sources:

www.cnn.com

http://www.carbontax.org

www.politifact.com

www.usgovernmentspending.com

www.acg.org

Over-simplified Summary of the Implications of Health Care Reform

Perhaps the most notable outcome of the recent election is that in all likelihood the new health care legislation will stay intact.  This set of laws was set forth in the Patient Protection and Affordable Health Care Act and was reconciled by the Health Care Education and Reconciliation Act of 2010.  This legislation was upheld by the Supreme Court early this year as it was narrowly deemed “Constitutional” under the theory that the Federal Government has the right to tax citizens.   Here are the major changes as far as I can tell:

1.      Individuals not covered through government programs (Medicaid, Medicare) or by a private plan are now required to purchase health insurance or they are subject to a $695 annual fee.

2.      In 2014 companies of more than 50 employees are penalized for not offering health care coverage to their employees.  They will be obligated to pay $2,000 per employee exempting the first 30.

3.      After 6 months of being signed into law it bans lifetime coverage limits and the rescission of coverage to all existing health care plans. 

4.      It requires insurers to offer the same premiums to all applicants of the same age and location regardless of preexisting conditions etc.

5.      Health Insurances Exchanges for each state will commence operation on January 1^st, 2014.

6.      Low income families will receive subsidies (on a sliding scale) if they purchase insurance via an exchange.

7.      Initiates additional Medicare and capital gains taxes on people or families that earn $250,000 or more per year.

8.       Doctors that treat Medicare patients will be reimbursed at the full rate.

9.      The Federal Government will pay 100% of the costs of expanding Medicaid until 2016, and then it is phased down to 90%.

According to a 2012 Reuters poll, 56% of people disapprove of the law.  While it was initially intended and determined to cut the federal deficit, it is highly debatable.  So far, 17 states have declared they will set up their own exchange and 10 have stated they will not.  The bottom line is that even before this became law, the US Government costs for health care were extremely high especially relative to the results, but It is extremely difficult to predict if this legislation is the right answer or even a step in the right direction.  Also, it remains to be seen whether employers will gradually do away with private coverage and leave the Federal and State governments as the only source of health insurance, and whether this would limit people’s healthcare choices like many other countries that have national health care plans. 

Personally, my biggest fear is the impact on the incentive for businesses to hire new people.  If we continue to tax businesses that foster employment (payroll tax, penalties for not providing insurance), where will they draw the line and consider alternatives to employing people in America.  This to some extent will undoubtedly promote out-sourcing of jobs as well as investment in new vehicles to substitute for the employment of US citizens (technology, automation etc).   Also, is now really the time to promote increased government spending and intervention?  Anyways, these are just my thoughts.  I, like many people, am concerned about the consequences of this legislation, but I am by no means an expert and by no means am I capable of predicting the outcome.

Bob Caperton, Jr., CCIM

www.barrettproperties.com

With the assistance of Craig Johns, Business Consultant

Maximum Freedom

“Minimum Government, Maximum Freedom”

The Libertarian Party

The Libertarian Party is the third largest political party in the United States.  Millions of Americans have voted for Libertarian candidates despite consistent efforts from many state governments to keep their candidates off of ballots.

The Libertarian Party was formed in Colorado in David Nolan’s home on December 11, 1971.  The formation was prompted by issues such as removal from the Gold Standard and the Vietnam War.

Here are the issues:

Personal Liberty: Libertarians believe in maximum personal freedom.  People deserve the right to privacy, expression, relationships, self defense etc. 

Economic Liberty:  Libertarians oppose all controls on wages, prices, rents, profits, production and interest rates.  Also, Libertarians call for an end to government energy subsidies and the abolishment of the IRS and income tax.  Libertarians defend the right of individuals to form corporations and other types of companies.

Labor Markets:  Libertarians support the right of free persons to associate or not associate with labor unions.  Also, employers should have the right to either refuse or recognize a union.

Education:  Education is best provided by the free market.

Retirement and Income Security:  This is the responsibility of the individual, not the government.  Libertarians would phase out Social Security.

Defense:  Libertarians support the maintenance of a sufficient military to defend the U.S. against aggression, but the US should end foreign intervention including military and economic aid.

Representative Government:  Political Parties should be allowed to establish their own rules for nomination procedures and conventions.  Libertarians oppose laws that effectively exclude parties or candidates, deny ballot access or gerrymander districts. 

In more than 40 years, Libertarians have made some progress at local levels; however they have yet to achieve electoral success in the US congress or at the Presidential level.  By the end of 2010, 154 Libertarians were holding political office. 

Sources:

www.lp.org

Bob Caperton, Jr.
www.barrettproperties.com

ACC Football Officiating

ACC Officiating

Football officiating in the ACC has bothered me for several years, but it has recently reached an all time low.  

While there are countless examples, the most egregious showing was likely the Florida State, Miami game last weekend.  In fact, John Swofford, the ACC Commissioner, announced on Monday that the entire crew that presided over that game will receive letters of reprimand.  Additionally, the crew chief has been suspended for one game due to failure to properly administer the ten second runoff rule.  Let’s start with the runoff rule.  Florida State had the ball as the half was closing and had one timeout.  With less than ten seconds left a FSU Offensive Guard was called for a false start.  The officials ruled that consequent to the ten second rule, the half was over and that Florida State could not kick a field goal which potentially would have put the Noles up 13-10.  What they failed to realize was that the rule is such that it prevents teams that do not have timeouts from stopping the clock with a penalty.  FSU did in fact have a timeout.  It seemed to be more of a misunderstanding of a rule as opposed to failing to keep track of timeouts.  Florida State Head Coach, Jimbo Fisher, had to run to the center of the field to inform the officials of the rule.  By this time, half of the UM team was already in the locker room.  Finally, the officials got it right and let FSU kick their field goal, which they made to take the lead.  This blunder highlights a general lack of understanding by the referees; literally the head coach had to inform the officials of the rules of the game.  In addition to this mistake, there were several others including three offensive pass interference calls.  The PI calls, in my opinion were the worst of the entire game, which says a lot.  One was Rodney Smith, who did not appear to even touch the defender- it cost FSU 50 yards.  The other two were on 6’6’’ wide receiver Kelvin Benjamin.  Here is one thing to keep in mind, prior to this game no offensive pass interference had been called in all of ACC football in 2012.  On top of this, our sophomore Cornerback, Nick Waisome, was called for Pass Interference when almost no contact was made.  Additionally, the refs missed some blatant holding calls as well as personal foul calls.  The most notable non-call in terms of personal fouls came when a UM defensive player head-locked an FSU player and threw him to the ground while they were both out of bounds.

On top of the FSU, Miami game, it seems like Florida State fans feel victimized, particularly this season and last.  It is not just that FSU is penalized more, but often times other teams are penalized less, particularly with regard to holding calls. Here's a mind blowing fact: During the same time period, Duke has been the beneficiary of holding calls four to one over FSU.  FSU'S defensive line has produced All Americans, NFL prospects etc and Duke is Duke, but somehow Duke's Defensive line draws more holding calls on it's opponents.  How is this possible, especially in such proportion?  Florida State’s defensive line is so superior to every other defensive front in the ACC that it seems like the officials show mercy on other teams.  There literally looks to be a holding penalty on opposing teams almost every play.  Check out this picture:

That is a choke hold being put on our star Defensive End, Bjoern Werner.  Of course, it was NOT CALLED.  In 5 ACC games for Florida State, the Noles have been penalized 42 times compared to it's opponents sum of eight times!  Officials are not put on the field to level the competition…..    football is not supposed to communist. 

Here are some facts:

FSU averages 8.4 penalties/game vs. ACC competition while opposing teams average 3.6 penalties/game.  UM averages 7/game, but when they played FSU they only had 4 and 1 one in the first half.   Clemson averages 4.7, but when they played FSU, they only had 3.  When FSU plays ACC opponents, those opponents generally have fewer penalties than they are averaging against all other competition.  When FSU plays ACC teams, they have more penalties for more yards than when they play other competition-8 penalties/game as opposed to 6.4/game.

There are countless other examples of unfair officiating.  Take a look at the video of officials moving the ball to help Wake Forest while spotting for a first down:

http://www.youtube.com/watch?v=HqANJsY8gZI

Is this a conspiracy?  Who knows, but it is certainly something.  I have always perceived people that complain about officials to be whiners, but something here is different and something has to be done. 

Bob Caperton, Jr.

Disclaimer:  Some of the numbers that I used came from Rivals message boards and are thus subject to error.  Also, some of the plays and calls that I reference are subject to my memory.  However, to the best of my knowledge all of the information is correct.

CCIM

CCIM

After over three years of attending classes, taking tests and putting together, submitting, correcting and re-submitting an extensive portfolio, then taking an 80 hour/sixty question final exam, I am now an official CCIM designee.  Here is a brief history and description of CCIM:

CCIM, owned by the National Association of Realtors, was founded 1954 and is now the premier distinction for commercial real estate professionals.  CCIM was founded Jay Levine, the first President, and Jim McMichael, the first designee.  Since its inception, CCIM has grown into a global organization with more than 15,000 members.  The four core courses of CCIM include Investment Analysis, Market Analysis, User Analysis and Financial Analysis.  Each course is 5 days and includes a 4 hour exam.  After passing the 4 core courses and two elective courses, a cumulative final exam is all that stands in the way of a potential designee.  Even though CCIM presents a time consuming challenge for candidates, in my opinion it is undoubtedly worthwhile and I will explain why.

CCIM is respected by anyone that has been in the commercial real estate business for any length of time; it is automatic credibility.  Additionally, the information and resources are tremendous.  CCIM teaches practical techniques for real estate professionals (brokers, investors etc).  It gives you an understanding of Real Estate on a different level and enables you to perform analysis that you didn’t think possible.  I’ll put it to you this way, I thought that I generally understood some forms of analyzing real estate investments beforehand, but after going through CCIM, I realize how little my understanding was before.  Not only is it formulas and techniques, but you gain an entire new perspective on real estate investment, you conceptually grasp the material.  Internal Rate of Return, Depreciation and Cost Recovery, Basic Employment, Net Present Value and much more become topics that you understand and appreciate.  Also, CCIM membership gives you access to their “Site to Do Business” program which is terrific for site analysis (demographics, etc).  Membership also gives you connections, but not just ordinary relationships-relationships with people that put the big deals together in the commercial real estate.  CCIM is more than a designation; it is a career boost, a confidence builder, a credibility enhancer, a connection boost, and a concept coach (Sorry, I had a few C’s in a row and I just decided to go with it).

Bob Caperton, Jr. 

Fore more information on Dalton Ga Real Estate go to my website:

www.barrettproperties.com

Sources:

www.ccim.com

Interesting Facts about the Carpet Industry and Dalton, GA

·         In 1950 carpet industry shipments were 97 million square yards

·         In 2007 carpet industry shipments were 1.6 billion square yards

·         90% of US carpet is made within a 60 mile radius of Dalton

·         The 4 largest carpet companies are headquartered in Georgia

·         Co2 emissions have dropped from 1.8 lbs/sq. yd. in 2008 to well below 1 lb/sq. yd. currently

·         Water consumption in terms of gallons per square yard of carpet produced has dropped from 4.4394/sq. yd. in 2003 to 3.6185/ sq yd. in 2007

·         Measured by kWh/sq. yd., electricity required for production has dropped from 1.8 to 1.4

·         The recycling effort has increased dramatically; in terms of post consumer waste purchased, .05 lbs/sq. yd were purchased in 2005 compared to .35 lbs/ sq. yd. in 2007

·         Milliken, one of the large carpet manufacturers, has not contributed to a landfill in over ten years

·         Shaw Industries was recognized by CARE as “Recycler of the Year”

·         Tandus replaced diesel fuel with vegetable oil to power its boiler resulting in reducing CO2 emissions by nearly 80%

·         Shaw’s Waste To Energy Plant in Dalton started using carpet waste and wood flour to power a nearby facility and by doing so saved $1,000,000 and replaced 90% of the facility’s oil use

·         Shaw Industries is one of the founding reporters to The Climate Registry, a non-profit group that reports greenhouse gas emissions

·         Dow Chemical Company changed its Dalton latex carpet backing manufacturing facility to get 90% of its energy from methane gas which comers from a nearby landfill

·         Carpet covers nearly 60% of floors in the United States

·         Carpet is the largest manufacturing business in Georgia

Bob Caperton, Jr.

www.barrettproperties.com

Sources:

www.carpet-rug.org

“We Disagree about Dalton”

I recently gained a new appreciation for the power of media as an article in the New York Times painted a less than desirable picture of my home town.  The article titled “No End to Housing Bust in Carpet Capital of the World” labels Dalton as a declining city far too dependent on one industry.  Since this article was published, it has been the hottest topic in the area.  I cannot recall one day in the last month that I have not heard a resident or business owner reference this article.   The most common reaction seems to be anger as people in Dalton understand that the current economic conditions have affected our area, but they never considered it to be close to the nightmare that the New York Times described. 

Here is a brief history on Dalton:  In the late 1800’s a process called tufting was developed in the area to enable quicker manufacturing of textiles, mostly bedspreads.  In the 1950’s this process was implemented in the carpet trade, which subsequently exploded with the post war housing boom.  The industry grew rapidly; Dalton, GA was the hub.  In a matter of no time, there were 300 carpet mills in the area employing 25,000 people.  90% of the world’s carpet was made in 60 mile radius of Dalton, GA.  The industry created many millionaires and gave seemingly endless work to laborers.  There simply were not enough workers.  Technology improved and machines got more efficient, but the increasing demand kept up with new efficiencies.  In the 1960’s, there were more millionaires per capita in Dalton, GA than anywhere in the world and by 2000, five of the ten richest people in Georgia were tied to the Dalton carpet industry. 

Dalton’s economic a base is manufacturing.  Any such town will have a tight correlation to certain markets and thus be sensitive to certain economic pressures.  In other words, the downturns can certainly hurt us.  But is it as bad as this article claims?  Absolutely not!  It all starts with the numbers; the writer suggests that according to the records Dalton lost a higher percentage of jobs in the last year than any other metropolitan area.  The question is where do these numbers come from?  The answer is they come from economic modeling, which is subject to misrepresentation.  Another interesting part of this article is the gloomy picture that the writer paints of Downtown Dalton.  She says “Now, downtown Dalton holds not much more than three pawn shops, an espresso bar that plays Christian soft rock and the Headquarters for the Carpet and Rug Institute”.  This quote makes it clear that no one from the New York Times has been to downtown Dalton, which has more businesses than it has ever had.  Downtown Dalton is home to several big branch banks, countless restaurants, and hundreds of unique businesses.   Getting back to the numbers, Dalton actually is one of the few metro areas in Georgia which has more jobs than residents.   I think this one fact disputes the theme of her entire article.  If I have to give the author anything it is that according to the numbers (which are very questionable) Dalton has experienced about a 13% drop in employment in the last 4 years, roughly two times that of the entire state.  However, is that not to be expected?  When you consider how tied Dalton is to housing, this number is neither severe nor surprising.  When the housing sector comes back, which it will, the lost jobs will return to Dalton.  I like what the mayor said in response to this article: “This $18 billion industry centered in Dalton did not receive federal bailouts; and it continued to pay millions of dollars in taxes while managing to remain profitable and employ thousands of people in northwest Georgia and southeast Tennessee.”  Another error the author made that astonished me was that she interviewed someone and dubbed this person the “carpet king of Dalton”.  I can name several people that could accurately be considered carpet kings, but I have never even heard of this person named in the article.  I do not mean to insult this person’s accomplishments, but this reinforces the fact that the author of this article simply did not do her homework.  It is one thing to bash our town, but it is another to do so when you don’t have the facts. 

It is easy for an author to criticize industry, but before you do, I think it is smart to consider all of the facts about that industry.  Dalton has a special place in American manufacturing- while the author’s iPad was slapped together in China, the world’s carpet has essentially been made in the US (Dalton) for 60 years employing thousands of people while paying fair wages.  Authors like this seem to have little understanding or appreciation for American business. The carpet trade is huge, not only for Dalton, but for the United States and insulting one of the last major businesses to support American manufacturing is simply un-American. The bottom line is this, yes Dalton has taken a hit, but it is still a great place to live.  Dalton has actually been through this before; in 1991, Dalton had 9.5% unemployment, but came back in a strong way.  Dalton is in position to bounce back as hard as it was hit as soon as we see substantial recovery in the housing market. In the interim, we continue to see retail development, a solvent local government, hard working entrepreneurs, and an excitement for the future.  The residents of Dalton have never depended on anyone or anything and because of our quintessential entrepreneurial attitude, we will be back.  Anyone who counts us out, like this author did, will soon be proven wrong. 

RWC, Jr.