Friday Rant and SIG Dispatch: Newt's Got me Thinking …

While I'm sure 30% of Spend Matters readers hate Newt Gingrich, 30% love him and the other 40% don't know who he is (or don't care), given the global contingent that reads this blog, I thought it would still be worth reporting some of the concepts he introduced at the SIG Global Sourcing Summit last week in Baltimore. First, for those who don't know him, Newt was the infamous speaker of the house, probably the most effective in recent memory, pushing through the "Contract with America" that cut taxes, increased jobs and generally drove left wingers crazy (think of Newt as the conservative and more effective equivalent of Nancy Pelosi.

But Newt, in his Congressional retirement, is changing his partisan ways . On his way to check in with his new found buddy Al Sharpton in a New York neighborhood that I bet polled 99% for Obama, Newt gave a rousing lecture to a diverse global group of global sourcing practitioners at SIG. I was one of them. Besides arguing against the stimulus package and telling the crowd that the US has moved to the left of Sweden when it comes to economic policy, Newt shared a few views that will be a bit less controversial with this audience.

Perhaps the most relevant perspective he shared for the attendees was the importance of keeping our trade doors open with the rest of the world. But merely encouraging free trade will not be enough to keep the US ahead of India and China in the next twenty-five years. Rather, to maintain US global leadership, the US must also invest in serious reform, including lowering corporate taxes and reforming education. Newt raises a good point. My wife and I run businesses which, while small, do produce a material amount of revenue and profit, enough that we need to make the decision each year about how much to leave in vs. take out to fund potentially new investments the following year.

The problem is, it's hard to expand when your profits are taxed at 30+% per year without tapping outside funding -- something neither of us are interested in doing. This forces us to make the decision each year to keep profits in the business or pay them out. And we see little point in paying Uncle Sam for the privilege of being able to hire additional workers the following year (including the employer -- read our -- side of payroll taxes) versus part-time contractors. Call it the entrepreneurs' dilemma, but with Obama's forthcoming tax increase on our profits which are already at close to world-high corporate levels, the decision is easy. We pay ourselves first at the expense of expanding payroll and making calculated bets on growth. But I digress -- back to Newt.

The next most salient non-partisan argument Newt made was in favor of education reform, something our country desperately needs, and why Newt was headed up to visit Al Sharpton in fact. I won't get into the nuances of his argument but I will say that the need for education in the procurement and operations fields -- at the high school, college and graduate school levels -- is clear. For example, when it comes to the role of the buyer, why not offer vocational high-school or non-degree courses? Why do we need to ship jobs offshore to shared services centers when, if properly trained, a whole class of people not getting into procurement in this generation could assume a function that still pays $40-$45K per year + benefits (if not more) in a buyer or A/P capacity. Education -- even non-degree education -- is key. But we're not going to go there because of the entrenched special interests that dominate educational policy at the moment.

On that note, and my last rant for the day, a family member comes back from 4 months in Florida this week. This relative, who I love dearly and always enjoy a debate with, is a warden of the state -- and my tax dollars. His Illinois teachers' pension is $80K per year even though he made roughly half that for most of his tenure teaching high school English. How does this work? It's a great Spend Management lesson called passing the buck. In Illinois, counties assume the role of paying educators until retirement. But the state assumes the retirement chit. However, retirement compensation is based on an equation looking at the past two or three years of pre-retirement compensation.

What's the result? Schools dangle the prospect of making a respectable income in the last years of retirement (and the subsequent retirement years) because they know local property taxes paid to the counties won't have to fund a nickel of the retirement package. The total chit, assuming a twenty-year career, is that if you do the NPV calculation on his total compensation package from age 25 to 80 (for the sake of argument), he'll probably make more than most lawyers do during their career. Paid for courtesy of my tax dollars.

As an alternative option, why not pay entry-level teachers $60-$65K per year -- with no pension and only 401K -- and attract a higher quality applicant in the first place? Now that's a good question. It would be cheaper for all of us on an NPV basis, would attract higher quality teachers in the first place and could be a foundation for education reform. And above all, it would be a better use of educational spending dollars. However, if someone ever asked it at the State or Federal level, the teacher's union would put the kibosh on it just about as quickly as Obama can dazzle the Europeans who bowed down to him as if he was socialist royalty on his most recent trip.

Now back to our regularly scheduled Spend Management programming (but thank you Newt, for getting me thinking on some of these issues, and creating the opportunity to vent). And said family member, if you're reading this, I still love you, man (great movie, BTW). Just not enough to pay for your pension at the current levels. I'd rather slip you a few bucks every week than see my tax dollars go up in smoke.

Jason Busch

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