Those few of you who will actually wake up tomorrow, will see several leading stories offering different ideas to balance the budget…

Delaware Liberal, re-offers the Geek-Kowalko plan: Raise revenues for one year to quantify its effect upon the economy.

Delaware Libertarian offers the end run plan: don’t balance the budget for one year, and Keynesianite our eco

kavips: well, you are about to find out…

In the post directly below this one, I outline the personal cost that 8% will impose on real human beings like myself. Previously, I had supported the 8% as being the most fair way of tackling the issue of balancing the budget minus $780 million dollars. I had been skeptical of any changes involving Delaware’s business climate, knowing personally how difficult running a business that is down 20% in sales can be..

No offense. Most postulates argue only one side of a position.. They have too; that’s the side they know too well. But if you are a critical thinker, and you look hard enough throughout their argument, somewhere therein lies ‘that dismissive clause” where the author minimizes the negative impact they feel their plan will have… Often the tone of such, is one of presumption, as if they presume the audience will be waltzed away by their tone, become persuaded by the conclusion of their argument, and not be inquisitive of the facts that lie scattered across the landscape… ( I know; I do it all the time.)

Therefore in the Geek Kowalko argument from Delaware Liberal, we get this line….

” fear that businesses will leave Delaware if business taxes are increased. Perhaps this is true, but I have yet to see any solid data to convince me either way.”

The flaw in this argument is that if this IS true ( the author admits “perhaps”) we are worse off for following this plan… There will be fewer businesses, fewer employers, fewer employees, and fewer dollars to fuel our economy.

The answer lies in specifics. How many business can we afford to lose… The answer in today’s economy is none. We can not afford to lose one business in today’s economy. We may… but we cannot afford to..

How much does a business contribute? Let’s take a $1,000,000 yearly gross receipt business as a model…. That million dollar establishment has a 30% labor cost, 30% raw material cost, 15% others cost, and 15% fixed costs… Which is about right for a business receiving $19,230 in gross receipts per week… Those doing the subtraction above, know that the profit margin is 10%, meaning $1,923 is incoming per week…

Currently Delaware’s tax rate is 8.7% for corporate entities, making the state’s take to be $167 dollars per week… (Keep in mind the Federal Corporate Rate is 39% so $753 has already been claimed.) After tax income has been collapsed to $1003 per week down from $1923 showing on one’s books. A small business owner, living off the income his business brings, makes $52,000 a year off his enterprise. Not a large amount to be sure… and certainly not a guaranteed amount either.. A large repair to his business, takes a big bite out of his family’s income…

It is into this environment that Kowalko’s plan intrudes. Our initial tendency is to visualize its impact on multinational corporations, and not on the small businesses trying to eke an existence throughout these trying years…

However, unlike us sitting in our armchairs, Markell’s job is to balance the impact fairly between all of the states entities, not just the state’s workers… Additional fees, costs, rate hikes, will each take additional tolls upon the poor business owner… At what point does he decide to throw in the towel? My guess it is where he is right now… at $1000 per week…Go below that, and he can sell his business for a million, invest the capital into a CD (certificate of deposit) returning 5%, and make $50,000 a year with no headaches or aggrivation…

So yes. Kowalko’s plan appears to threaten small businesses, and Markell is correct to be hesitent to follow through with such.

So let’s jump to Steve Holmes idea, leading the page of Delaware Libertarian, that for a couple of years, we scrap the Constitutional admendment requiring us to balance our budget, and run with a deficit.

No state employee takes a pay cut. Instead we use borrowed money to survive on today…

The idea has merits. Anyone of us would prefer to spend only as much as we make, and have no debt payments…But occasionally we have a purchase beyond the usual range of our income, and require financing to achieve that item.. We pay off the note, and continue spending only as much as we make…

Is the livelihood of our state workers worth the cost of interest? Considering the cost to the economy that will acrue because of a 8% cut, it appears that it may be. Perhaps the best investment as a state we can make, would be in our people…

The downside is that our expenses would grow in the future.. We would still have to pay of our over extended state employee workforce if no firings of state employees occurred, AND we will have to make hefty interest payments, a new and additional cost, on top of what we already spend.

The question, is it worth it?

And here is the kavipsian line… At $50,000 dollars we draw the proverbial line. Below that line, all state employees not making that moderate amount, keep their salary intact… Above that line … the 8% takes efffect. The balance of money “not saved”,… by “not cutting” an additional 8% off of their low incomes, will become Delaware’s first deficit in a long time…

As revenues return, we pay off first the interest and second the debt, and return to our “pay as we go” constitutionally required spending plan…