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"It's The Economy, Stupid."

by Greg Mermel, C.P.A.

Published in the "Money and Taxes" column in PerformInk on October 24, 2008

That's the catchphrase from Bill Clinton's 1992 presidential campaign. Sixteen years later, we have come full circle. Once again, the economy is reeling from years of mismanagement by a member of the Bush family. This time, however, the situation is far, far worse, and fixing the mess will take a lot longer.

Don't misunderstand me. I am not saying that this is 1929 redux, though there certainly are important similarities: a stock market crash, lack of regulatory oversight and the concomitant fraud. I also see important differences, some good and some bad.

The best difference is that government intervention came swiftly, rather than four or five years later. The '29 crash occurred in October, and government action did not really start until a year or more into the first Roosevelt administration. The British economist John Maynard Keynes's ideas about government involvement in the economy were revolutionary then. Now, they are widely accepted though they have been largely out of fashion during the years of "free market über alles." The worst difference is that the New Deal policymakers did not have to also address a gigantic budget deficit. The next U.S. administration will, mostly because of "Dick and George's Excellent Adventures" in the Middle East.

About The Candidates' Tax Proposals

What they are saying now -- even if comprehensible -- does not matter. The sausage-making machine which comprises our legislative process will ensure that something else entirely emerges. What might that be? Ask me again after we know who won the election and what the party ratios are in both houses of Congress. Then I might be able to give you semi-informed speculation.

Whatever emerges will have to strike an exceptionally delicate balance. The economy will require continuing stimulation -- "pump priming" it was called in the 1930s, when the average American still understood rural references. That costs money. So will rebuilding the regulatory framework necessary for a modern economy. And, yeah, there will still be two wars to pay for -- probably to overpay for, given the lack of oversight on military contractors.

At the same time, draining money from the economy to pay for this could be counterproductive. A tax increase will have to be very carefully targeted, but will have to occur because an even bigger deficit could lead to inflation. Not mild, normal annual inflation, but the serious, scary stuff.

Similarly, the public's mood will have to be carefully read to find the right balance between too aggressive and too timid action.

And they will need to beware of the law of unintended consequences, where an action here produces a "what the hell happened?" result there.

Artists Aren't Exempt

You may feel that the economic mess does not affect you. After all, you never had more than $100,000 in the bank, and despite my repeated urging and admonitions, you never opened that IRA so you never had investments to lose.

Let me tell you what's coming. You are going to have less work.

Advertising, and especially the creation of new commercials, is a discretionary expenditure. Businesses counting the pennies, and knowing that consumers are not going to be spending much anyway, will be cutting back.

Live performance work, too, will be reduced, especially in the nonprofit sector. Ticket sales will decline, of course, as consumers feel the pinch. But unearned income is also dropping. Those organizations fortunate enough to have endowment are seeing their investment returns plummet; so are the grant-making foundations.

Individual giving -- the toughest part of development even in flush times -- will become much harder to get, and not just because people have less money to give. What they can give will be spread thinner. The BBC reported last week that 195 million people globally have fallen into hunger in the past year, due to the recession, rising food prices and reduced aid from wealthy nations. Compassionate people will undoubtedly divert money to organizations like Oxfam and your neighborhood food pantry that might otherwise have gone to your theatre.

You won't see much of this effect in the 2008-2009 seasons. Those are already set. But watch out for 2009-2010. I know (through the usual sources who want to remain anonymous because they are not authorized to discuss these not-yet-public matters) of one classical music presenter that may cut as much as half of their program, and an opera company in another city that has already dropped an entire production to save money.

In theatre, you should expect lots of small cast, one-set plays ("Krapp's Last Tape," anyone?) and shorter runs. Fewer work weeks, less income, and more problems qualifying for union health insurance.

About the Election

PerformInk does not endorse political candidates, but my political views are certainly no secret to any regular reader of this column. I have probably bashed Bush in print more often than anyone except Paul Krugman. (Yo, Sweden -- where's my Nobel Prize?)

Polls suggest that Obama will easily carry Illinois, and the tactics of both campaigns suggest that they expect that to happen. But I do want to remind you that it is not just a presidential election. As I hinted earlier, the ratios of Democrats and Republicans in each house of Congress will matter as much as who is in the White House. Illinois's other Democratic Senator, Dick Durbin, is running for reelection against a Republican opponent, Steve Sauerberg, who seems to still believe that laissez-faire economics solves all problems.

Two Chicago area congressional races could result in turnovers from Republicans to Democrats. In the 10th Congressional District (covering the North Shore from Wilmette to Waukegan, and west to Barrington), polls show Democrat Dan Seals leading incumbent Republican Congressman Mark Kirk. And in the 11th (covering far south and southwestern suburbs, and extending down to Bloomington-Normal), Democratic State Legistlator Debbie Halvorson is in a tight race with Republican concrete magnate Martin Ozinga to take over the seat previously occupied by retiring Republican Jerry Weller.

Please pay attention, and vote.

Free Offer

Every year during the income tax season, I offer free copies of my “Checklist of Potential Deductions...” for those in the arts. Just call my office, or send an email to checklist@gregmermel.com.

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