It’s been said that all politics is local. So in less than 2 years we’ll get a shot at Congress again. The question that is begging answered is the same one that always matters to mayors and county officials – how to increase the tax base.

The tax base is the local payrolls, property, income, sales and things that local governments use to tax for paying for the services right in front of you, every day, many of those mandated by the Federal government and by the way, keep everyone else employed. Which is why the mad rush to get last week’s massive spending bill passed, before local folks figure out – there isn’t much there for the long term – really almost nothing. In truth, all commentary to the contrary, the “stimulus” bill is a giant special interest and earmark, payoff or buyoff – spending spree.

When the local mayors, council members and commissioners get to the facts the first sensation will a bit of relief as some money will be coming, the second will be the realization that the sending in of the taxes, or the borrowing, or the inflation to pay for all of this is going to crush their tax base.

Keep in mind, a trillion is a very big number, indeed.

$1,000,000,000,000.00 Count those zeros – a trillion is a Million Millions. Imagine, your have a net income of $100,000, about $2,000 per week. Taking ALL of your money and ALL the money of 10 million more people like you for a year would cover it.

What was over looked in the race to pass the legislation is the increase in the tax base, more investments, more construction, more rebuilding, more jobs, and more economic growth. The lessons about stimulating economies are numerous, across many countries, over the centuries, in various government forms. Only one thing works:

Increase the tax base. Or not . . .

For example Iberdrola of Spain the world’s largest renewable-energy company is scaling back its investment plans in the U.S. in light of the financial crisis. Iberdrola was planning to invest a total of 4.64 billion euros in U.S. wind power between 2008 and 2010, installing a total of 3 gigawatts of wind power. But today (Announced Feb 13, 2009), the executives at Iberdrola’s U.S. unit, Iberdrola Renovables, say the company’s global renewable investments for 2009 would only total 2 billion euros. U.S. wind-power investments would amount to about 540 million euros. Iberdrola expects to install about 500 megawatts of wind in the U.S. this year, down from earlier targets of about 1 gigawatt. Let’s see, a third as much installed capacity would be a third as much equipment, so they’re on schedule for the two-year period to cut by more than two thirds.

The subsidies in the legislation will matter a little bit, Iberdrola executives said the firm would ratchet up investment—maybe about 20% if the subsidies are generous enough. I wouldn’t bet on that.

If you’re not catching on, Iberdrola will go where the tax base grows because that’s where the healthy and the new customers are.

This morning I and everyone else responsible for managing assets will be thinking about the consequences.

More taxes? More government borrowing? A resurgence of inflation? All of the above?

The spending bill isn’t going to stimulate where it matters, in your community. Actually, the customer base, the number of customers, the amount they are willing to spend, is going to shrink, I know mine will, it already has and everything about the giant government spending bill will cause more uncertainty and doubt.

The hard fact is that the Federal government has gone into competition with state and local governments for the nation’s cash flow whether it’s from the income stream of payrolls and profits or in the credit market or in the value of the currency. Even more worrisome is that the Federal government is competing with everything in your life you need and care about that requires money to support.

More energy and more fuels by any topic and description or stage and scale need creativity, genius, innovation, investment, and acceptance of risk, just to get started. A trillion dollars moved by fiat outside the construction and rebuilding of a country will be a huge dislocation of capital and cash flow.

I’m real sure that most everyone I know and I aren’t in place to get anything from the spending bill. The best analysts are saying it isn’t a national economic stimulus; it’s a government stimulus. But with about half of the U.S. population relying on government to send them paychecks the prospects to turn this kind of thing back isn’t real likely.

But eventually the Tax Base issue will get into the media and press again. With over a year of the Obama hysteria behind us, the cooling is getting closer.

Meanwhile, you can start asking local council people, state legislators, commissioners, mayors and others, just how is it that the spending bill rebuilds our tax base? What can be done locally?

Expect to be disappointed.

If you have any ideas beyond recalling the dopes voting for the Giganticus Spending Bill of 2009 please give me a comment. You just might have a great idea – and we sure need ‘em now.


2 Comments so far

  1. jp straley on February 16, 2009 6:22 AM

    Here’s your idea for increasing investment in American manufacturing.

    Stop using Social Security as a Ponzi and use a portion of it for industrial bonds, available only to US Companies (criteria should be at least 90% American-owned). Let people select various funds that target the industry sector of choice. It would create a huge pool of money, available at cheap rates, to American companies. And it would stimulate buy-American because our retirements are directly bound up in such investment.

  2. Niche Marketing for Newbies on February 16, 2009 10:18 PM

    Tons of useful info here – will grab your feed!

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