Monday, October 17, 2005

Social Bankruptcy

The new bankruptcy law goes in effect today, ushering in a whole new world--of what? Problems, I believe, for the financial realm, and society, too will likely suffer for lack of risk-taking by businesses because of the tougher rules. For individuals, it’s going to be a fiasco…but out of this two positives are going to emerge:

Knowing that the “B” word is a harder option, I believe we will likely gravitate towards a cash-basis of buying many things. This is good because it will reinforce the value of what we pay for things…and with that realization will come a degree of restraint in spending. It is proven that consumers buy more when "using plastic" than when shelling out paper with dead presidents’ likenesses…so there’s going to be a lessening tendency to spend beyond means on a cash basis.

Secondly, by going to a cash basis, there will be more personal responsibility—and personal choice—in play in making purchases. This is a key point to remember: When personal responsibility factors enters into any transaction—whether financial or social—there is a greater degree of care and concern that’s injected into the process. There are definite benefits to this, some of which have not yet been fully realized.

I was alarmed to learn this morning from the President of the Tax Foundation, Scott Hodge, that in 2004, one-third of all filers filed a tax return but had no tax liability after taking advantage of their credits and deductions. That 32% of Non-tax payers is nearly a 50% increase since 2000, and a 160% increase in the number of non-payers since 1985.

For lower-income wage earners, such an arrangement is a fiscal boom…for the upper wager earners, it’s an unfair additional burden. Remember—one man’s tax break is another’s burden increased.

The shocking part of this conversation: the Tax Foundation reckons that in New Orleans the ratio of non-taxpaying citizens exceeds 40%. Are we witnessing the fruition of a society that coddled the lazy, encouraged slothfulness while discouraging personal growth and risk-taking through tax and debt rule legislation?

Hearing these statistics, it is not surprising that those who were left behind by their government (City of New Orleans, State of Louisiana) had such a profound sense of helplessness; an entire generation raise on a welfare mentality the reinforces the concept of the world owing them a living.

Think of paying taxes as making an investment in government. I do—and sometimes that’s the only way I keep my sanity each April 15. I am a stock holder in America. The best way to impose my will on how that money is used is by participating in the process—including voting.

But if a segment of society isn’t paying its freight in taxes—whether through legitimate tax breaks, or legislated “exceptions,’ there is no investment in government, no buy-in to the system, and certainly no ownership incentive to participate in the process--only a taking away in benefits and payments on the government dole.

Certainly, if one is dependant upon an entity for all sustenance, there is no incentive to change that—until the very essence of that subsidy is threatened.

That’s what’s happened at GM, where the company dole cannot possibly meet obligations. That’s what happened in New Orleans, although there are deeper, more sinister problems that contributed to that failure…but the root cause was a failure of personal accountability on government and individuals. Think of it as "social bankruptcy."

There is a profound mindset change that must take place for our entire society to survive, not just the survival of corporate America. It will require companies jettisoning the responsibility for providing healthcare (and other benefits of a personal nature), forcing us as individuals to secure medical and health attention ourselves. When that happens—when we make the buying decisions for healthcare and physician and hospital services, a remarkable change in spending habits will take place. Prices will approach something more realistic. And wouldn’t it be refreshing to run a company un-encumbered from the expense of providing health care for employees?

You see, the government should not be in the business of taking us to raise, from the cradle to the grave, as it were. And corporations do not exist to fund healthcare and insurance plans, contrary to the thinking of the UAW. If you disagree, take a look at where that line of reasoning has gotten General Motors…where over $1,500 of the price of each vehicle it makes goes to defray GM employees' benefits.

So long as we-the-people refuse to take personal responsibility for all aspects of our lives, not just our healthcare, the nation can never truly prosper, never truly compete on the global stage. We didn’t get to this point overnight, and it’s not going to change in a year or even a decade. It’s a generational, philosophical evolution that will require much time, patience, and wisdom. But change it must.

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