Wednesday, March 20, 2013

What does 'small government' really mean and Why budget cuts don't lead to small government

It seems like every time we cut budgets, programs are cut or the services are cut. We don't get less government small government. 

Budget : Budget cuts symbol for reducing budgeted expenditures by slashing costs and eliminating financial surplus represented by sharp open metal scissors.

It's like a small manufacturer cutting a product line or a store cutting it's hours. The size of government is not smaller in terms of the bureaucracy and materials does not change. The same bureaucracy delivers fewer services or lower level of service. 

Why? In large-scale operations the fixed set-up and foundation staffing costs are incurred early on and then not increased as you substantially increase production. The 'marginal cost' decreases, meaning the cost of producing one more item decreases because the fixed costs are not increased and are now spread across more produced items.  Conversely, decreasing services-benefits increases marginal costs.

The bureaucracy per unit delivery should be the key measure of small government.

The idea of government budget cuts universally appeals if it means delivering the same products and services at the same quality with less cost or more products and services at the same quality and cost, so that the changes are accomplished through delivery innovation. 

Small government means less bureaucracy per unit delivery, but that never seems to be what gets in budget cuts. We need more sculpting and less axing. 

Budget cuts that improve the cost-effectiveness of government services through innovation requires the commitment to long-term program management in an environment of transparency, flexibility, good pay & training, and mistakes. 

Yes, employees on the floor up through management making reasonable mistakes without fear drives a successful innovation environment speeding down the experience learning curve. That's been the successful model for industry for years. 

That's what we need but that's not what we get in budget cuts ... nor in budget cuts debates. 

We get platitudes, philosophies, and obfuscating details to support the platitudes ans philosophies. 

We get union-busting cloaked as smaller government. We get people receiving government benefits, working for government agencies, and living in states that receive more government spending than the state pays in taxes ... all complaining about big government. 

Small government is a nice bumper sticker but it means different things to different people and rarely gets publicly discussed in specifics nor leads to budget cuts achieved through innovative cost-efficient reductions. Cutting salaries and benefits is not innovative, and usually reduces innovation. 

Successful stores sell more stuff to more people with the same hours, staffing levels, and cost (i.e. same quality and service level). That's innovative management. That's profitable growth. 

Successful small manufacturers sell more product, lower their costs and, often, improve their products over time as they develop new markets and experience learning curves.

So successful small government therefore, in a business analogy, should provide more stuff & services over time with the same hours, staffing, and products. 

So why don't we think of small government as relatively few people delivering a lot of services? Why don't we focus on government programs experiencing learning curves?

We have not achieved this kind of small government nor have we achieved the high-quality government services through the private sector necessarily. 

When most, if not all, private contractors deliver government services at lower reimbursement, so far, all or most of them have simply cut the level of service by cutting hours, people, and wages. 

Do you remember the fad for privatizing highways? Those states which tried it found their toll rates soaring ... just charging more for the same services that were provided when the government ran it. What a formula for ... success? ... raise toll rates and cut employee compensation. Not. Heck, the government could have raised the tolls to get the same dollar benefit they got from privatizing those roads.

This year, the New Jersey Turnpike Authority privatized the toll collection services to a company that changed absolutely nothing except increasing NJ Turnpike toll rates and cutting the employee compensation by more than half in order to ensure themselves a significant profit margin. So half-or-more of the money that was being spent at high velocity by Turnpike employees in our local economies suddenly has been moved onto the profits of a company. Not good.

In sales we say that anyone can sell volume but not everyone can sell volume profitably. The same rings true for operations: Anyone can do less with less but not everyone can do more for the same. 

It has been the growth of spending beyond the growth in services and the growth of our national income. It has been the growth of bureaucratic jobs and, perhaps often as well, hiring & appointing patronage rather than performers. 

We need government. We might disagree which services and benefits we should offer together through government. But we do need government. And we need high-quality government benefits and high-level services delivery.

Nearly every big American technological advancement and private sector growth spike has involved government and, very often, involved government start-up development or government start-up funding. Think about the internet, the railroads, airplane advances, the Jeep (mother to SUV's), damns, health care, and space ... and all the benefits that these government investments have brought to our private lives.  

America should be about doing more and affording more through innovation, not doing less and affording less by cutting. Are we to become churn 'n burn or remain bigger 'n better?

Good small government should not be measured by the amount of benefits and services delivered but, rather, by the ability to continually offer more benefits and services at the same delivery costs or the ability to offer the same quality of benefits and level of services without raising prices or cutting compensation. 

Small government means better government.

Now, let's start a transparent national conversation about what benefits, services, and investments our government should handle --- municipal, county, state, and federal.

By Steven J. Reichenstein

Sunday, March 17, 2013

Hurts Economy, Unfair to Employees: Why Pay Federal Income Tax on Social Security, Disability, Unemployment Insurance Benefits?

Social Security, Unemployment, and Disability Insurances' benefits should not be taxable as income ... period.

Royalty-Free Images: Unemployment Insurance Still Life


(1) Social Security insurance benefits are taxable as regular income.

(2) Unemployment insurance benefits are taxable as regular income.

(3) Disability insurance benefits from a personally sponsored or employer sponsored plan are taxable on the portion of premiums paid by your employer. If your employer sponsored disability plan premiums are paid through an employer sponsored cafeteria-style benefits program then all of the premiums are considered paid by the employer.

Ordinary income is subject to Social Security payroll taxes throughout your life, at any age, even if you continue to work while collecting Social Security insurance benefits.


(1) Income over $113,700 per year -- any kind of income -- is not subject to Social Security payroll tax. This is referred to as the Social Security Income Ceiling.

(2) Income through qualified capital gains (that which is net profits and direct dividends from equity you own for more than 1 year) is not subject to Social Security payroll tax.

(3) Federal Unemployment Insurance premiums are capped to 6.0% on the first $7,000 in annual income per employee (fully paid by employers only) and exempt from capital gains income; but if not capped then could be an estimated .38% which would save employers an estimated $154 per employee.

(3) Medicare payroll tax (of 2.9%) has no Income Ceiling. Additionally, starting in 2013, ordinary income above $200,000/$250,000 will pay an additional Medicare payroll tax of 0.9%.

(4) Medicare payroll tax was not applied to qualified Capital Gains income until now in 2013 when a so-called Medicare Surtax of 3.8% of the lesser of Adjusted Modified Gross Income above $200,000 (joint) or Net Investment Income.

Medicare tax on income has no income ceiling, so why does Social Security tax?

Capital Gains is no longer exempt from Medicare tax, so why is Social Security tax?

Substantially larger percentages of GNP has accrued to those earning more than the Social Security Income Ceiling and in the form of Capital Gains during the past 20-30 years, and this income is not subject to Social Security tax. Therefore this must be diminishing the Social Security Trust Fund and a leading cause of the currently debated squeeze.

And  your thoughts?

By Steven J. Reichenstein