Economic Recovery and Investment Act

February 8, 2009

The Honorable Charles B. Rangel
Chairman of the Ways & Means Committee
United States House of Representatives

Subject: Economic Recovery and Investment Act

Dear Mr. Chairman:

I remember well when, in your address in Harlem before the election, you called for the United States to look past TARP and make a major investment in the economy to create new and lasting jobs in accordance with my call for the reindustrialization of America. Value driven manufacturing jobs cannot be outsourced. This applies to both the industrial and agricultural production of goods if produced to the highest standard of quality and safety. You have been aware of my interest in the adoption of macro economic policies which can pull us out of the tail spin caused by financial mismanagement and cultural decay. The current debate and fear mongering regarding your Committee’s economic policy recommendations adopted by the president compels me to publish the attached graphs developed, at my request, by Jeffrey Brock, CFO of RTD Embedded Technologies.

Much has been said about our nation being bankrupt. The attached graphs put in historical perspective the Government Consumption Expenditures and Gross Investment as a percent of GDP and U.S. Debt to GDP. It does not require a rocket scientist to conclude that the total extraordinary investment of $1,519 billion is slightly over 10 percent of our GDP. This is in line with what FDR did during the Great Depression and is dwarfed by the huge borrowing during WWII.

More significant, is that the $10,718 billion national debt obligation is not understood by the general public. The public is rightfully concerned. Let’s look at the numbers. The figure includes $6,410 billion held by the public and $4,308 billion fictitious intra-governmental holdings (e.g. non-negotiable Social Security IOUs). If we add the $700 billion TARP funds and the $819 billion Economic Recovery and Investment request by President Obama to right our economy, the public debt would increases to $7,929, and probably top at $8,500 billion by the end of FY2009 if the underlying current deficit spending is included. The $8,500 billion figure is much more palatable and would reduce public anxiety and get everyone onboard. The $8,500 billion public debt would stand at 60% of GDP, an uplifting number in the present gloom and doom environment where perception often becomes reality.

Social Security is and must continue to be funded from current accounts. The notion that the IOUs are recoverable without imposing high taxes when the time comes is a hoax. You are well aware of my position on payroll taxes. I have repeatedly recommended that there should be no ceiling on payroll tax withholdings, but retirement benefits should be capped at middle-class wage levels indexed for inflation. Corporations should equally match payroll tax withholdings without any wage caps. Eliminating the cap on wages, subject to payroll taxes, would create an even handed approach to increasing tax revenues and create a de facto baseline flat tax. Reductions in corporate income taxes should be considered in order to offset the associated corporate payroll tax burden. Past attempts at privatizing Social Security – in part or in whole – are sheer nonsense. The social safety net must be funded from current accounts. Investments of public funds would distort the capital markets and induce increased volatility.

It is important to recognize that Hungary has a national debt burden of 67% of their GDP. They need to drop to 60% or at least demonstrate a downward trend to convert to the Euro. The United States, at more then 70% when public debt and intra-governmental holdings are lumped together would never “cut the mustard.” So it’s time to have a bonfire with dumping the Social Security IOUs and stop this self-deprecating actuarial nightmare.

Very Truly Yours,

Robert J.S. Haris

Senior Vice President
Strategic Marketing and Planning
RTD Embedded Technologies, Inc.

Attached:  (1) Government Consumption Expenditures and Gross Investments as % of GDP
                (2) U.S. Debt to GDP with Debt Held by Public and Intra-governmental Holdings

cc: The Hon. Senator Christopher Dodd
     The Hon. Congressman Barney Frank
     The Hon. Senator Bob Corker
     The Hon. Congressman John Conyers