The president delivers his State of the Union message tonight. We’re told he’s going to say some things about the economy. We don’t yet know what those things will be…but for clues, we’ve checked out this year’s list of Lenny Skutniks.

You probably don’t remember, and neither did we, till we looked it up: Lenny Skutnik became momentarily famous in 1982 after an Air Florida plane crashed into the icy Potomac River in Washington, DC.

He dove into the river to save a passenger. Days later, Skutnik sat in the gallery for the State of the Union. President Reagan pointed him out by name and commended him.

Thus began a tiresome tradition – the president pointing to “everyday Americans” in the gallery as an example of heroism – or, more typically, as an example of why their policies are so swell.

If a president hopes to launch some new signature program, then some potential beneficiary of that program is sure to be sitting in the gallery during the State of the Union.

Looking over this year’s Lenny Skutnik list, we see 25 invited guests. They are…

• The vice president’s wife
• The president’s chief liaison to Congress
• Two corporate CEOs
• Four people connected to the shootings in Tucson
• Three service members, and one service member’s spouse
• Five students, either high school or college
• A cancer patient we’re told is benefiting from the new health care law
• Seven small business owners

So one out of four guests is a small business owner. This might lead us to wonder if the president will call a truce in the War on Small Business we’ve explored in this space from time to time. Maybe he’ll launch an initiative to address issues like these…

• Companies with 20 or fewer employees pay more than $10,500 per employee to comply with federal regulations, according to the Small Business Administration’s advocacy office
• Companies with 500 or more employees pay less than $7,500 per employee
• That gap will surely grow next year with the infamous “1099 provision” of the new health care law – requiring business owners to send IRS 1099 forms to everyone from whom they buy $600 or more in goods or services each year.

Sadly, no. Two of the invited small business owners got $500,000 in federal money to retool their part of a roofing business into a solar panel factory. Two more got $250,000 to open an organic ice cream shop.

Another supposedly saved $10,000 in health insurance premiums for his employees thanks to tax credits tucked into the health care law. And the last two own the company whose technology helped rescue the trapped miners in Chile.

Conclusion: Unless you manage to be part of a feel-good story or you’ve taken a handout for some politically correct cause, you don’t count. The War on Small Business is still on.

Addison Wiggin
for The Daily Reckoning

Searching for Lenny Skutnik: Small Business Owners and the State of the Union originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

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Searching for Lenny Skutnik: Small Business Owners and the State of the Union

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

“Global Backlash Grows,” says The Wall Street Journal.

This is the backlash against Ben Bernanke’s crackpot money-printing scheme.

The foreigners don’t like it. Because the US is flooding the world with “hot money.” This fast cash chases oil, commodities, collectibles, farmland – just about everything.

It creates bubbles. It distorts markets. And it will certainly lead to busts and bankruptcies…and maybe to hyperinflation, too.

So, sit back and enjoy the show, dear reader. It’s the greatest show on earth. Yes, it will most likely lead to embarrassment and poverty in the US. Yes, the US dollar will cease being the world’s reserve currency. And yes, America’s leading economists – many of whom have won Nobel prizes – will be shown to be hapless goofballs.

But this is all good news to us. Under the leadership of modern US economists, Americans have been getting poorer for the last 10 years.

Why? How could that be?

With the encouragement of the Fed and Congress, Americans consumed more than they produced. “Go out and buy an SUV,” said a Federal Reserve governor. “Buy a new house,” said Fannie Mae. “Spend, spend, spend,” said mainstream economists.

Result: Americans have less real, net wealth than they had when this millennium began.

Now, finally, the average yahoo is wising up. He’s lost this job. And he knows he’s been played for a fool. But he’s learning. He’s defaulting on his mortgage…and he’s paying down his debt.

Consumer credit keeps contracting…it went down by $2.1 billion in September.

But the feds have kept at it. They tempted him with lower interest rates: the Fed brought its key rate down to zero; it can’t go lower.

The Fed also bought up worthless mortgage loans so he could borrow more cheaply and took over Fannie and Freddie so they could continue suckering people into a lifetime of mortgage payments. The latest word is that losses from Fannie and Freddie could reach to $363 billion through 2013, according to the Federal Housing Finance Agency.

But with Tea Partiers in the House…and the Fed hard up against the “zero bound,” what else could they do?

The Fed could print money! No need to ask Congress to pass spending legislation now. Forget what it says in the Constitution. The Fed can print money. And it can use the money how it sees fit – even funding an “off the records” stimulus program if it wants to.

Each dollar is, in effect, a liability of the US government…engaging the full faith and credit of the government and its taxpayers. But what law was voted on? What act of Congress authorized spending billions of dollars?

How came it to be that the taxpayers are on the hook for $600 billion more in financial responsibilities with no vote of their elected representatives? No point in even asking the question….

This is, after all, late, degenerate state-guided capitalism. If Congress can make citizens buy something they don’t want – such as health insurance – surely the Fed, which is a privately-owned bank, can write checks from the taxpayers’ checkbooks. Heck, nothing is too absurd.

So, the Fed goes boldly where no sensible person would want to go. It is trying – trying! – to create bubbles…asset bubbles, to make people feel like they have more money. If people feel richer, the feds reason, they’ll spend more money. Presto, we’ll be richer.

Are we beginning to rant and rave? Are we “losing it”? Is there a doctor in the house?

Regards,

Bill Bonner
for The Daily Reckoning

Economic Irony: Creating Bubbles to Maintain Stability originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Economic Irony: Creating Bubbles to Maintain Stability

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

“The Social Security Trust Fund is misnamed. It cannot be trusted, and it is not funded.”

–Former US Comptroller General David Walker, July 2010.

If David Walker – who was essentially the US government’s accountant from 1998-2008 – can make jokes like that about Social Security, we’re in trouble. Indeed, as we noted in our essay “The End of Social Security as We Know It”, the Social Security Trust recently began paying out more than it is taking in. Over the next 75 years, the Fund will require an additional $5.4 trillion to pay for scheduled benefits.

Given the deplorable fiscal condition of the Social Security Trust Fund, some forward-looking Americans are asking, “Why can’t I just opt out?” Even middle-aged members of the Baby Boom generation are wondering if there will be any Social Security left for them when the time comes…and if they wouldn’t be better off abandoning the government’s mandatory retirement plan.

So can you opt out? In a word, yes.

How Do You Feel About a Horse and Buggy?

It’s true; you can opt out of Social Security…if you belong to a fiercely independent religious culture like the Amish.

Back in 1954, when the Social Security Administration first began taxing and covering “agricultural workers,” the Amish took issue with Social Security’s forced participation. The program, also known as Federal Old Age, Disability and Survivors Insurance, is a pretty brash affront to the Amish credo. Not only are the Amish famous for “taking care of their own,” but the whole concept of insurance goes against their faith. As people extremely serious about God’s plan, they don’t take kindly to a government-mandated hedge against His prerogative.

So in the late ’50s, the Amish started their resistance to Social Security. Naturally, they were quiet and reasonable about it. Some put money into a bank account and insisted the government place a lien on it. At least that way, some Amish thought, they weren’t voluntarily paying into the program. Others signed a petition and sent it to Capitol Hill. But, naturally, the IRS paid no attention. The IRS kept insisting that FICA taxes be remunerated…until eventually many Amish just stopped paying.

The whole conflict came to its climax in 1961 when the IRS went after one of these “delinquents,” Valentine Byler. Long story short, he owed over $300 in back Social Security taxes, so the IRS repo’ed three of his six horses. No kidding. (At one point in this fiasco, Reader’s Digest reported a judge berating the government’s representatives, “Don’t you have anything better to do than to take a peaceful man off his farm and drag him into court?” Apparently not.)

To the Amish’s credit, they kept resisting the FICA tax, insisting that it violated their 1st Amendment right to practice religion free of government interference. Byler’s story, as you can imagine, was a real hit with the media and within a few years the IRS caved under public pressure. In 1965, the government passed a law that allowed US citizens to opt out of Social Security.

Of course, only a small minority of Americans can legally stop paying Social Security taxes and strike their beneficiary status. In order to qualify for the IRS’s exemption, you must:

• Convince them you are part of a religion that is “conscientiously opposed to accepting benefits of any private or public insurance that makes payments in the event of death, disability, old age or retirement.”
• Have a ranking official of this religion authorize that you are a true believer
• Prove that your religion has been established – and continually opposing insurance – since at least 1950.

So unless you are Amish, Mennonite, Anabaptist or part of another very small religious sect, odds are you’re stuck paying (and receiving) Social Security for the foreseeable future. Still, we won’t fault you for trying: Look around for Form 4029…you’ll have to file with the IRS if you seek Social Security exemption. Be careful what you wish for…exemption might be the swan song for your life, auto and health insurance, too.

Learn from the Amish

Even though your opt-out chances are slim to none, there’s plenty to learn from the Amish battle against Social Security.

1) This story should serve as a reminder of what the whole program really is: insurance. When FDR first introduced Social Security in 1935, he said it would “give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” It was never intended to be a program in which nearly everyone paid in and nearly everyone expected to be fully paid out…even though that is what it has become today.

We suspect that kind of insurance language will return. The rich – who are so exceptionally unpopular these days – might soon be reminded they are not “average” and that Social Security was not designed to supplement their fat 401(k)s. (Whether that is in any way ethical, or even what qualifies you as “rich” in America, is a debate for another Daily Reckoning.) At the least, expect this cash-strapped government to raise the wage base for the Social Security tax or institute a benefits means test in the near future.

2) The framework of Social Security is flexible. There are plenty of people alive in America today who were around before this program even existed. Those same people saw it amended and reformed many times in the ’30s, ’40s and ’50s. Exceptions have been made along the way. And in 1983, under the Greenspan Commission, the government gave Social Security yet another dramatic reform.

Thus, there is no reason to think Social Security can’t be amended again, for better or for worse. Maybe the government, like it did in the ’80s, will change the rules and hike taxes, raise the retirement age and reduce benefits. Or if you are as persistent as the Amish, perhaps you can influence legislation in your favor. (Your odds increase dramatically if you own or control a large multinational corporation.)

3) Most importantly, like the Amish, expect a self-sufficient retirement. “The best revenge is living well,” the saying goes. Thus the best way to survive the plight of the Social Security Trust Fund is to not need it in the first place. Take a page from the Amish playbook and minimize your taxes…contribute the most you can to your company’s tax-deferred 401(k) plan. Better still, enroll in a self-directed 401(k), where you can invest in stable, dividend-yielding companies that might compound your returns. A few of those companies might even have a dividend reinvestment plan (DRIP) where you can use those quarterly payments to reinvest in the underlying stock… That’s a double serving of perfectly legal tax evasion.

There’s something to be said for the Amish way of taking care of your own, too. Their lifelong financial planning doesn’t just revolve around their individual net worth, and neither should yours. If there’s money to spare, set up some tax-deferred accounts for family members. Not only could it empower them, but depending on your situation, you might be able to alleviate your own tax burden at the same time. They’ll thank you 10-20 years from now, when David Walker’s joke isn’t quite so funny.

Regards,

Ian Mathias
for The Daily Reckoning

Opt Out of Social Security originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Opt Out of Social Security

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Just two business days after our post titled “The War on Small Business,” The Washington Post publishes an article headlined, “Small Businesses Feel Squeezed by Obama Policies.”

“As small businesses try to plot their recovery,” it says, “attention is turning to what many owners consider burdensome policies – higher taxes, new accounting procedures and health care mandates. Even as the government tries to help with an array of small-business initiatives, many owners say the intervention is as much a hindrance to hiring as the faltering economy.”

You don’t say? If you were on vacation last week and missed our laundry list of indignities large and small, it’s worth a look.

Elsewhere, we see the president is on the verge of announcing several proposals that aim to help small business…

• A payroll tax holiday
• Permanent extension of the (now-expired) research and development tax credit
• Accelerated write-off of new investment in plant and equipment through 2011.

Hmmm… Two of those three things look like quick-fix adrenaline shots, along the lines of the homebuyer tax credit. What happens after those incentives go away?

And where’s the proposed repeal of the requirement to send Form 1099s to every vendor from whom a businessperson buys more than $600 of goods and services each year?

Which brings us to the mail we invited from small-business owners…

“My husband and I are both long-haul truck drivers,” as we kick off our list of small-business horror stories, “and each fuels our trucks about twice a week, with an average weekly fuel consumption of $2,000-3,000. Can you imagine the horror of us having to send a 1099 form to EVERY truck stop we purchased fuel at for an entire year!!?? This is going to be a nightmare!”

“Nothing too drastic,” our next reader writes. “Just a 50% increase in health insurance premiums. Our provider informed us of this three weeks before we were due to renew our policy. Almost all of us opted for a new high-deductible plan with an HSA. Normally, this wouldn’t be an issue, but I’ve got a flex account that prevents me from having an HSA for another calendar year.

“So I have a flex account with a $900 balance versus a $3,000 deductible (formerly $500), and I can’t open an HSA until 2011. These costs will effectively eat up any raise I might receive at year’s end. At least I still have a job.”

“I’m self-employed, 63 and in fantastic health,” says another – “no meds, great diet and a runner – a 30% increase in my health insurance premium!!!!!!!!!!!!! At that rate, I’ll be working for health insurance only shortly.”

“I own and operate two commercial fishing boats in Alaska,” writes our next reader, “and yes, I am not just dreading the changes in 1099 filings, I am PISSED OFF at the thought! I do my own accounting, and a quick glance at my cannery statements suggests the number of 1099s I’m required to file will explode from the current seven per tax year (crew members only) to 40-plus in 2012 when I will send a form (for miscellaneous INCOME) to every VENDOR (not employees, mind you) that I buy from.

“The extra time and/or money I will be REQUIRED to spend (27 minutes per form, by IRS reckoning) on this redundant policy is an indirect tax on my business. Even more reviling is the stat you posted showing that even though an IRS auditor’s time is more efficiently spent (in terms of uncovering unreported income) auditing large corporations, their focus is increasingly turning to small businesses and sole proprietors.”

“I am a sole proprietor of a small Internet-based retail business located in Southern California. My income goes on a ‘Schedule C,’ as I am not incorporated.

“This is a second job for me, and based on all the questions and uncertainties, I am ‘coasting’ right now. My inventory is lean, I am spending nothing on advertising and have no plans to risk any money outside of normal operating expenses or to expand in any way right now.

“The 1099 is upsetting, but it’s certainly not the only worry. The thought of a VAT or even having to charge my out-of-state customers sales tax is frightening, as most of my business comes from out of state. Who is going to want to pay shipping charges (what I sell is heavy and expensive to ship) if they have to pay sales tax too? My California customers won’t be enough to keep the lights on.

“Sometimes I feel like I purposely want to make less money in both my sole proprietorship AND my day job just so the government has less of my tax money to do damage with!”

“[My wife and I] are realistically considering whether or not to continue our C-Corp as a going concern. By the time we account for compliance costs, the marriage tax penalty on our personal income, the increased payroll tax burdens and generally every expense of running a business…it’s about not worth it anymore.

“She (my wife) can stay home and not do anything, we can get the extra exemption on our income taxes, reduce our tax rate and the way it looks now we’ll actually come out better in the long run, without all the headaches and pressures of running the business. Not to mention I can free up my time spent on the business and focus more on my true passion, which is trading. It may be slightly less income at first, but just the change in quality of life may be worth it.”

Dave Gonigam
for The Daily Reckoning

Small Business Owners Speak Out originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Small Business Owners Speak Out

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.