Archive for the ‘U.S. Senate’ category

The First 100

January 4, 2007

As the clock ticks down to January 4th, when Democrats take control of the House and Senate, they are reminded of their “First 100 Hours” promises.  Those that may stand in the way of accomplishing Pelosi’s promises are not only Republicans, but anti-war Democrats as well.  Protesters lead by Cindy Sheehan, demanding that the Democrats cut funding for the war and bring the troops home beforedoing anything else, showed up during the Democrats press conference on lobby reform today.  They were so disruptive, that the intended speaker actually gave up and left the room. 

Pelosi has made many promises for the Democrats first 100 hours in control, but cutting funding and bringing the troops home was not one of them.  Will the extreme left wing of the Democratic Party keep the party from acting on the things they actually promised in the First 100 Hours?  Probably not.  Will they be very, very unhappy when they see that bringing the troops home is not the Democrats first priority?  Absolutely.  Will the American people see that the Democrats may be rendered ineffective by extremist elements they happily embrace during campaign fund raisers?  Time will tell.

 Let’s examine what Pelosi has promised for the First 100 Hours of the Democratically controlled Congress.  The first two are what would be considered the minimum.  The rest have been labeled as “if we have time”.

  1. Put new rules into place to break the link between lobbyists and legislation
  2. Enact ALL the recommendations made by the commission that investigated the terrorist attacks of Sept. 11, 2001
  3. Raise the Minimum Wage
  4. Cut Interest Rates on Student Loans in Half
  5. Allow government to directly negotiate with pharmaceutical companies to get a better price for medicare recipients
  6. Broaden stem cell research
  7. Pay as you go spending policy – no deficit increase

It will be interesting to watch the effectiveness of the Democrats over the next 100 hours, stay tuned for results.

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Dems’ Grade Updated

December 20, 2006

The first update of The Dems’ Grade is complete.  The grade rose a bit from it’s original B- to a B.  Although the national unemployment rating slipped a tenth of a percentage point, the rise is negligible.  Additionally, the rise in the 30 year fixed mortgage standard was offset by a climbing Dow Jones Industrial Average, NASDAQ Composite Index, and S&P 500 Index.

 You may remember that The Report Card began grading the Democrats just after the election.  This was done because, although they are not yet in power, the 2006 election put Democrats in a position to take some of the credit for government’s successes and failures.  As future events unfold, other categories may be monitored as well as the one’s currently displayed on the page.  As always, you are welcome to suggest categories that should be added for future grading.

The Secret Tax Increase (Part I)

November 27, 2006

The Minimum Wage Cycle 

Minimum Wage Goes Up, Prices Go Up, Cost of Living Goes Up…
Repeat As Necessary

 Part of the first 100 hours plan given by the Democrat Congress includes a raise in the national minimum wage.  A minimum wage increase is always one of the most popular bills passed through any Congress; it is not likely to be blocked by the executive branch.  In this multi-part series we will examine the true effects of a hike in the minimum wage.

The plan calls for wages to be raised from the current $5.15 per hour to a staggering $7.25 per hour.  One plan calls for this increase to happen immediately, the other calls for it to happen over the course of the next two years. In order to understand how this effects the economy, let’s look at it on a small scale and then expand. 

Examples given below are simplified for the sake of brevity and better understanding.  There are portions of business expenditures that will not be addressed until Part II of this series.  Other portions, such as an overtime option for some workers after layoffs as a savings of overall employment costs were not addressed for the sake of simplicity and brevity.  As I’ve said in previous posts, I’m not an economist, but this is how I see it.

 Let’s say a company employs 100 workers at a minimum hourly wage of $5.15 per hour.  Assuming that the employee works 40 hours a week, that means that the company pays each of these 100 employees $10,712 per year (Math:  $5.15*40 hours*52 weeks).  If the company is now required to pay the same employee $7.25 per hour, each employee is now paid $15,080 per year (Math: $7.25 per hour*40 hours*52 weeks).  On a yearly basis, this company’s costs have just increased $436,800 [Math: ($15,080 – $10,712)*100 employees].

Let’s say this company makes widgets.  At $5.15 per hour, each employee can produce 5 widgets per hour.  At $7.25 per hour, each employee can produce 5 widgets per hour.  In other words, none of the 100 employees are any more productive at $7.25 per hour than they were when they were making $5.15 per hour.  We’ll assume that it cost the company a total of $10.00 to produce every widget when each employee was making $5.15 per hour.  That means the cost of labor for each widget was $1.03 (Math: $5.15 per hour / 5 widgets per hour).  After the increase to $7.25, the cost of labor for each widget is now $1.45 (Math $7.25 per hour / 5 widgets per hour).  This means that it costs the company $10.42 to produce each widget (Math: $10.00 total widget production cost – $1.03 old labor cost + $1.45 new labor cost) .

We will assume that this particular manufacturer operates on a 10% margin basis.  The company has four choices at this point:  Cut Margin, Layoff Workers, Raise Prices, or a combination of the three.  For simplicity, we will assume that the company will choose between one of the first three strategies. 

Cut Margin:  The retail price of a widget before the minimum wage increase was $11.00 (Math: $10.00 old production cost * 10% margin).  Thus, the company’s profit from each widget was $1.00 (Math: $11.00 retail price – $10.00 total cost).  The company’s total annual profit from widgets at the old minimum wage would be $1.04 million (Math: 100 employees * 40 hours per week * 52 weeks per year * 5 widgets per hour * $1.00 profit per widget).  If the company was to leave prices at the current level, the minimum wage increase would reduce margin to $0.58 per widget (Math: $11.00 – $10.42)  This would take the companies annual profits down to $603,200 (Math: 100 employees * 40 hours per week * 52 weeks per year * 5 widgets per hour * $0.58 profit per widget).  Rarely would a company choose this option, especially if it is publicly held.  The only time this option maycome into play is if competitive market forces do not allow for a price increase.

Layoff Workers: If a companycannot raise prices due to competitive market forces, it may also choose to conduct a layoff.  Knowing from the previous example that the company stands to lose $436,800 annually due to the minimum wage increase, this would mean that the company would have to layoff 29 minimum wage workers in order to offset the loss (Math: 436,800 annual profit loss / $15,080 new minimum yearly wage).  This, of course, does nothing to bring sales margin per widget back to what it was, and the decreased sales volume from the decreased number of widgets produced would not make this an appetising option.

Raise Prices:  This would be the most likely result from a minimum wage increase.  Any competitive forces in the marketplace would be facing the same challenges, and would likely raise prices as well.  Additionally, it is the only option that keeps production and sales levels at current standards while keeping company profit margin per widget the same.  Assuming that this is the choice made be the company, the new retail price of the widget is $11.46 (Math:  $10.42 new widget production cost * 10% margin).  This means that the total price you pay for a widget just increased by $0.46 per widget (Math: 11.46 new retail price – 11.00 old retail price).

We’ve previously calculated that the manufacturer produces 1.04 million widgets per year (Math: 100 workers * 40 hours per week * 52 weeks per year * 5 widgets per hour).  The minimum wage increase has forced Americans to pay an additional $478,400 for their widgets (Math: 1.04 million widgets * $0.46 per widget price increase). 

Where does the government come in?  Let’s assume that state and local sales tax combine to equal about 10% of the purchase price.  State and local tax revenues have just increased by $47,840 from the annual sale of only this particular company’s widgets (Math: $478,400 additional purchase price * 10% tax).  Please note that in this example the customer is paying more for the widget, but the manufacturer is not making any more money.  The only entities benefiting from the price of widgets going up due to the minimum wage increase is the state and local government.  Expand this across the multitude of industries, companies, and products that would be effected by the minimum wage increase.

 Part I of this discussion did not cover the national tax revenues that would be increased by a Congressional Bill raising the minimum wage.  National revenues will be addressed in Part II.  Additionally, the current job market in the United States rarely allows an employer to pay it’s workers minimum wage.  However, this example can be construed to those making hourly wages above the minimum as well.  The minimum is a set standard, and many times employees making above the minimum will demand hourly wage increases based on the same percentage as the minimum wage increase.

Promises, Promises

November 20, 2006
Voting Machine Exit polling displayd by CNN for the November Congressional elections shows that one of the primary reasons the nation elected Democratic majorities to the U.S. House of Representatives and the Senate was for a change in Iraq.  Democrats in many House and Senate races ran on a platform that included changing direction in the Iraq conflict.  Now that they’ve been voted into power in the U.S. House and Senate, what will they do?  Whereas the Congress has no real control over troop placement, they can do one thing…cut funding. 

But should the U.S. Congress decide to cut funding, there is only one outcome that can result…troop withdrawal.  The New York Times now reports that the same experts who criticized Rumsfeld’s management of the war are now saying that “Phased Redeployment” or Immediate Withdrawl would spell disaster for Iraq.  With this information in hand, will Democrats continue to push for troop withdrawal?

The Democrats are currently talking about “phased redeployment” plans, but it is just that, talk.  Unless the Bush administration chooses to decrease troop levels, (which is not likely in the next year) the only course change that Democrats could bring is the one that experts say will do the most damage.  Should the Bush administration choose to ignore Democrat threats, we could be looking at a standoff between the administration and Congress.  The question is, would the Democrat Congressional Leadership actually be dumb enough to back up the threat and cut funding for our troops? 

I give the Democrats more credit than that.  A small minority of left wing liberals in the Democrat party might argue that cutting funding for our troops serves the greater good, (Click here for an example of this kind of thinking) but a majority of them would not want to deal with the consequences in the next electoral cycle.  The Dems have backed themselves into a corner on this one.  They will have to choose which is worse:  Not keeping their election promises of changing Iraq policy, or cutting funding for our troops and facing the voters as the party who does not support the military in 2008.

This assumes, however, that the Bush administration will have some backbone over the course of the next two years and not cave in to Democrat demands of phased redeployment.  Should the Bush Administration choose to ignore the Democrats ideas for a new strategy in Iraq, Democrats will most likely back down before they pull funding; and will realize the small amount of power they hold in military matters when compared to the Commander-In-Chief.  Should the Democrats choose to cut funding, they will be crushed for it in 2008.

Release the Hounds

November 17, 2006
 
bdoglogo.jpg
The Blue Dog Democrat, defined as social and economic conservatives and centrists in the Democrat Party, have just shown that they will have some bite in the newly elected Congress.  Democrats running as centrists pushed the party over the top in many key states, giving them control of the House and Senate.  Blue Dogs are now starting to flex their political muscles by standing by their conservative convictions.  

Nancy Pelosi and Harry Reid may have their hands full trying to keep the Blue Dogs in step.  The vote for Steny Hoyer as House Majority Leader was not only a vote against John Murtha and sign of disapproval from Blue Dogs, who disagree with his stance on the Iraq war.  It is also a sign that Pelosi’s left wing, first 100 hours, agenda may be harder to push through than she once thought.  Freshmen Congressmen, of course, will be less likely to blaze their own trail than veterans.  Even those who have walked the halls of the Capitol before will be under big pressure to go along with the leadership on key issues, will they cave in or continue to stand strong? 

Pelosi has already tried and failed once to solidify power, by backing John Murtha for majority leader.  Now that Pelosi has had her first failure it is more likely that Blue Dogs will not hesitate to challenge her on other issues.  Because Pelosi’s influence had no effect on the outcome of the vote for majority leader, the Blue Dogs will have more confidence in defying the Speaker’s orders on future issues. 

Make no mistake, there are enough Blue Dog Democrats in the Senate and House to make things difficult for Pelosi and Reid if they attempt to push the agenda too far left.  The question is, will the Blue Dogs attempt to modify or control the debate?  Or, can Pelosi and Reid find a way to keep them in line?

Links:

http://en.wikipedia.org/wiki/Blue_Dog_Democrats

http://www.breitbart.com/news/2006/11/16/D8LEA3NG1.html

http://thehill.com/thehill/export/TheHill/News/Frontpage/111506/pelosi.html

http://www.bluedogdems.com/