(Sunday, the New York Times reported the possibility that higher than expected tax revenues would lower the deficit more than predicted.  You need to remember three things: a $350 billion a year deficit is still a government spending more than it takes in, $400 billion goes uncollected in tax revenues each year and corporations do not pay taxes - their customers do when they purchase their products.  This points to increasingly unreliable predictions, flawed tax collection and the short-term celebrations that ignore long range problems.)

I spoke with a card-carrying Republican recently who spent his formative years as a Marine followed by thirty some odd years at the IRS, and who now prepares taxes privately.  Jack, we will call him is fun to talk to because of his personal transparency.  He will always preface the most controversial topics we discuss with: “You know, I have a lot of Socialist friends.”  On this day however, he asked me a by-no-means rhetorical question:  “What has value?”

Deficits and debts owed by the government don’t have value, Jack said.  They are beyond the average person’s comprehension and because of that they couldn’t possibly assign a value to an amount of money that is so enormous, it defies perception.  It is simply beyond our grasp.  Surpluses we all seemed to understand but deficits, for some reason, exist in an alternate dimension where hundreds of billions and even trillions of dollars have no relativity. 

In Jack’s way of thinking, the government should continue to spend, borrowing with abandon to do so.  If the world is willing to lend it, according to him, we should spend it. To his way of thinking, that money started out as ours in the first place.  It took a rather circuitous route from the purchase of a foreign good, to the country, where the product, paid for in dollars, originated.  Those dollars need to go somewhere so our debt gets purchased in the form of Treasuries, offerings that are supported by the good faith and credit of the most powerful nation on the planet.  Then, through the miracle of banking, those dollars make their way back into our wallets.

Oil has no value, Jack continued. The price of oil is based on a hypothetical inventory, much of which is still in the ground, undiscovered, undeveloped or not earmarked for refinement.  The price will go up and we will continue to depend on it.  

While Jack feels sorry for those poor souls that bought bigger and better houses farther and farther out of town, he understands that increased fuel costs are not going to slow these new suburbanites down.  Oil has no value because it cannot be priced with any certainty.  Until that happens, we won’t be able to place any value other than cost on the product making it cheaper today than it might be tomorrow or next week.

Planning for retirement has no value.  Inflation will eat its way through your savings with relative surety.  You can’t save enough to offset the simple fact you will probably outlive your money.  Too many big players with widely different agendas control too much of the market’s activity, he said.  

He was making yet another reference to hedge funds.  Jack and I discuss this quite often.  He thinks hedge funds are a beacon across the rolling fog.  These funds, run by superstars who are paid handsomely to protect and serve capitalism on every front have been elevated to new heights as investors seek the magic bullet.  

I see them as the ill-mannered gorilla in the room, offering only crumbs to the average investor, who, because they are average, will never have access to those high fees.

Jack quickly added that you can and should invest in spite of the lackluster odds of success.  He says you should do so because investing adds hope.   Compounding and due diligence, you will net more than if you did nothing at all, he added but unless you are willing to embrace risk, the future return on your investments will breakeven at best. 

He then told me that what I do, writing books has value.  Doing taxes, like he does has value.  Whatever the average person does, whether it is stacking shelves, building houses, or paving roads, has value.  What we contribute has value.  

According to him, its what we can’t conceive, the ever-burgeoning government debt, the reasons behind the skyrocketing oil prices, or the comfort of worthwhile investments that has no value.  

But they do. 

Federal deficits and debts have become a very real threat to the average American’s ability to achieve a life with real value. Weakening the support of systems that protect the average worker will be real value missed.  Start with legislation keeping the below poverty line minimum wage in place for yet another year and continuing slice away at two programs designed to help the average American: Medicare and Medicaid. Current attempts to fix those issues have resulted in reductions to the quality of those programs.  

While the Deficit Reduction Act of 2005 is being challenged in court on its constitutionality – seems that document requires both the House and the Senate sign the same exact bill and it seems that the watchdog group Public Citizen has found a mistake in the process.  There was $2 billion typo between the two versions that narrowly passed in either chamber.  The House passed it by two votes, the Senate by one.  And then the president signed it.

The ramifications of the Act will be far reaching and will affect an enormous portion of the American landscape.  Not only will Medicare and Medicaid see cuts to their programs but the cost of college just took an enormous jump.  This is particularly unsettling for the average American and not for the reasons you might think.

True, your son or daughter will pay more for their education in terms of interest.  But it remains among one of the best debts available.  Consider a ten-year repayment on a $25,000 college loan.  Payment at 7% amounts to just under $300 a month.  While some students do graduate into high paying jobs, those that choose the professions provide social services to the average American, that $300 can eat up over a fourth of a graduate’s after-school expenses.

Oil has value and someone should just admit it.  No one wants to speak frankly about our dependency or offer real time solutions to the problem. For the next two years, the subject will get repeated lip service with little action and almost no change of course.  

Investments, particularly the ones earmarked for retirement have value.  We will always have inflation.  And despite everyone’s well-intentioned efforts to harness its destructive power, it continues on.  A hundred dollars in 1950 is worth a little more than $13 now.  

The one single way to ensure that inflation will have less of an impact is to take away the taxation at the end.  Or at least define it.  The whole idea behind tax-deferred savings is the gamble that we will be paying less when we decide to draw on those funds.  It would be far easier to eliminate the tax on the first two or three hundred thousand saved while fixing the rate on anything over that amount.  Congress could actually cap the eligibility at a household of $150,000.  This would please Wall Street and the tax-cutters in Washington.  Investments would become more transparent with added retirement incentives, they would become far more valuable. 

Jack’s not alone in his thinking. If value cannot be understood, he suggests and quite a few folks currently in charge agree that we should ignore it and focus on what does have value.  Once, in a speech delivered by Vice President Spiro Agnew, William Safire called Republican naysayers “nattering nabobs of negativity”.  Perhaps those who disagree are just that.  I would prefer the alliterative description of “reasonable researchers of realism”

© 2006 Paul Petillo
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