Category Archives: Finance

ASK & RECEIVE

There’s quite a few people who have been listening to a familiar message. The message from Washington politico wanna be’s . . . You should be getting more benefits. . . but not paying a lot more taxes.

taxes_coming_to_you_2This is an old message for people who have heard the Pied Piper calling, it’s about government and how much to pay in taxes. There are numerous ways to deliver the message but it’s always about finding new ways to extract more money from your pocket book while not seeming to be the money grabbing, pocket thieves, that they really are.

Actually it’s not so much about money, it’s about power and the influence & manipulation of people, through it’s gathering and distribution. Amazingly, even though the practice of government gaining power through taxes, rather than conquering, looting & plunder, is thousands of years old, the use of force in obtaining it is about the same. There isn’t an insanity plea that can be raised in a court of law should you not pay your share.

The roots of IRS go back to the Civil War when President Lincoln and Congress, in 1862, created the position of commissioner of Internal Revenue and enacted an income tax to pay war expenses. The income tax was repealed 10 years later. Congress revived the income tax in 1894, but the Supreme Court ruled it unconstitutional the following year.

The shift toward income tax and away from property & estate tax as the major source of government revenue began in the 1920s and ’30s which saw the creation of multiple taxes. The 16th amendment to the constitution regarding income taxation in the U.S. was ratified in 1913. Here are a few other facts about taxes which you may find interesting.

  • Federal tax has increased by a multiple of 27 since 1960 (Tax Payers Union data 2012)
  • Tax payers have spent 3.8 billion hours complying with tax laws (Tax Payers Union data 2009)
  • In 1978 the alternative minimum tax (AMT), a type of federal income tax, was enacted. It uses a separate set of rules to calculate taxable income after allowed deductions. It was designed to prevent taxpayers from avoiding their “fair share” of taxes. It’s not indexed to inflation, and more taxpayers have become subjected to it.
  • In fiscal year 2010, the government collected $2.4 trillion in tax revenue, but spent $3.5 trillion. The gap between revenue and spending is known as the budget deficit. The total money the federal government borrows through the years to cover the accumulated budget deficit is the national debt.
  • In 2013, the US government spent over $3.5 trillion, of which $700 billion was borrowed, which in total equates to 21% of our Gross Domestic Product (GDP). The top 5 major spending categories are:
  1. Social Security (24%)
  2. Medicare, Medicaid, Children’s Health Insurance (22%)
  3. Defense and International Security (19%)
  4. Safety Net Programs (12%)
  5. Retirement for Federal Employees and Veterans (8%)
  6. Interest on debt (6%)
  7. Transportation & infrastructure (3%)
  8. Science & medical research (2%)
  9. Education (1%)
  10. International (non-security) (1%)
  11. All other categories (2%)

IRS_revenue_graphic_1

Tax freedom day for 2016 is April 24th. That’s the day calculated when American taxpayers have completed their annual tax obligations. Some states are a little earlier, while others may take a few more days of work to meet the tax burden.

Have a wonderful time calculating, tabulating, and typing in all that tax information. Most states require you to electronically submit or mail your tax obligation by midnight April 15. The IRS says for this year, you must submit by April 18.

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Plenty of Blame to Go Around

I read this article, first referenced by someone I connect with through Facebook. Admittedly, its a long article, and mine isn’t much shorter. Such is the challenge when you look at a major systemic problem. It can’t be answered through memes or twitter posts. I could go into a more in depth discussion on what this article attempts to explain, but I believe it would only be lost in the Ether. Current popular ideas circulated throughout many social media exchange points as well as mass media, run adverse to what I have to say in rebuttal to this article. I believe her article serves to promote a political ideology, which becomes more obvious as you get to the end, and realize it’s a promo to Bernie Sanders. I’m not interested in promotion of a candidate, a party or ideology. I prefer substance and facts. Obviously, even in the best of efforts, prevailing opinion and quotes from others, denote a view point.

I Know Why Poor Whites Chant Trump, Trump, Trump
by By Jonna Ivin – April 1, 2016

Her article makes references to things which are historical and tries to draw parallels between some historical facts, and the authors politics without any rational explanation as to why she thinks Republicans are nothing more than a bunch of greedy, up with the rich, down with the poor, racist political hacks. Her explanation of war profiteering is the age old method of blaming the wealthy for creating wars with the thinnest of explanation, other than noting that such a thing exists. All of us would do well with this simple foundation of logic, correlation doesn’t necessarily indicate causation. Again we see the narrative, the wealthy have done better while the poor have done worse because of the greedy, racist, Republicans.

Statistics are wonderful and they can be used to say a lot about whatever the individual displaying them wants to say. Permit me the opportunity to politely disagree with some of these assumptions. First, I’ve lived through many years and most especially the Reagan years, which many now wish to disparage. Second, if you want to believe that one party owns the responsibility of the pain and suffering, you’re being setup and are not being intellectually honest. Both political parties have controlled and promoted their own selfish interests. Don’t believe me, then let’s further examine some of these ideas.

Since 1945, the House and Senate have been controlled by different parties only five times (10 years). And there have been only two complete turn-overs of Congress since 1945: one in 1949 and the other in 2007. The years for Congress controlled by Democrats have been far in excess of the Republicans. The Presidency has been occupied slightly more years by Republicans than Democrats (up to and including George Bush), that changed with President Obama. Most of the time the Congress was controlled by the opposing party to the President.

The Republicans have been in control of either the Senate or the House only 22 of the past 64 years. For 10 years, they were only in control of either the House or the Senate, the other 12 years they controlled both.

From 1960 to 1968, the Democrats controlled both the Senate and the House by large majority. During those years, the Presidents were also Democrats. 80% of Republicans in the House and Senate voted for the Civil Rights Act – 1964. Less than 70% of Democrats did. Minority Leader Republican Everett Dirksen led the fight to end the filibuster. Meanwhile, Democrats such as Richard Russell of Georgia and Strom Thurmond of South Carolina tried hard to sustain a filibuster. Geography was far more predictive of voting coalitions on the Civil Rights than party affiliation. In 1964, Barry Goldwater, was one of the few non-Confederate state senators to vote against the bill. He carried his home state of Arizona and swept the deep southern states. Strom Thurmond switched parties because he thought he would have a better chance of continuing segregation laws with Republicans because of Goldwater. He was wrong on both assumptions.

If history were to be used objectively, Republicans sponsored and passed the 13th Amendment banning slavery. They also wrote the 1866 Civil Rights Act. Republican support was nearly unanimous, while Democrats were unanimously opposed. Republicans James Mitchell Ashley & James F. Wilson were a pioneers in the advancement of federal protection for civil rights in the 1860’s. Democrats worked against it and helped to modify it’s implementation, especially in the south.

In fairness to the overall discussion, President Harry Truman (Democrat), attempted on more than one occasion to enact further civil rights legislation. His successor, Republican President Dwight Eisenhower, gave his first State of the Union message in 1953, spoke out against specific acts of desegregation within the federal government and within the nation’s capital. In that year segregation ended in the District of Columbia’s hotels, restaurants, motion picture theaters, and Capital Housing Authority projects. Strom Thurmond (Democrat) of South Carolina made a one-man stand against 1957 Civil Rights Act, but it was passed in spite of him. Dwight Eisenhower was slow and reluctant to support civil rights but he publicly admitted the Brown v. Board of Education was the right decision, in spite of his dislike for Earl Warren, majority opinion, 1954.

Over fifty years ago, before a joint session of Congress, President Lyndon Johnson announced an “unconditional war on poverty in America.” Today, many in black leadership are critical of how that war has been waged. They note the expansion of government and a strategy focused on handouts that discourage self-improvement caused more harm than help to the poor. Some of the black activists like Al Sharpton and Jesse Jackson have made a luxurious living off their grievance activities. “The disastrous effects of the government’s management of anti-poverty initiatives are recognizable across racial lines, but the destruction is particularly evident in the black community. It effectively subsidized the dissolution of the black family by rendering the black man’s role as a husband and a father irrelevant, invisible and — more specifically — disposable. The result has been several generations of blacks born into broken homes and broken communities experiencing social, moral and economic chaos. It fosters an inescapable dependency that primarily, and oftentimes solely, relies on government to sustain livelihoods.”

Lower and middle income have been severely set back due to several factors. The Democrats have much to share in the responsibility of the laws and direction set in this country, as they’ve been in control during most of the past 60+ years. The Republicans have also supported laws such as NAFTA, and deregulation of securities, finance, and investment. They (Republicans) made an attempt to reign in the careless mismanagement of Fannie MAE & Freddie MAC, but were torpedoed by several key finance committee Democrats.

Manufacturing employed many “non-professional” people prior to the 1980’s. We’ve seen a rapid decline in heavy industry such as automotive and steel as examples. It used to be said when Detroit sneezes, America catches a cold. The decline of the American automotive industry has been far reaching because of how it affects many other support industries. Detroit was run very badly under Coleman Young, who served as mayor of Detroit, Michigan from 1974 to 1994. He left the city a fiscal and social wreck, but part of that can certainly be blamed on the mismanagement of the big automakers and the quality control of the American auto-worker combined. People looked to overseas manufactures for car purchases. Even to this day, I’m inclined to buy Toyota or Honda automobiles, (although I drive a Buick).

This isn’t news to most people, but they overlook the huge impact of the decline of manufacturing and the exodus of companies as they sought manufacturing of their products in lower cost labor markets. Look at most appliances, TV’s, washers, dryers, refrigerators, small kitchen appliances, replacement auto parts, video game consoles and smart phones. That’s a lot of money and a lot of jobs which are going to other countries. Look at the trade deficit, year after year it’s not favorable to the U.S.

Meanwhile, we’ve heard about the economy is evolving to a service industry. Here’s the basic problem with that. These jobs are highly competitive, not just within the domestic market. Many services can be performed outside of the U.S. and those within have a very low entry requirement, education requirements are typically some high school or may require high school graduation. They are low skill and thus low paying jobs. People might complain about low skilled labor rates are below poverty, then again, people pay for commodities based on perceived value. That’s why people shop for low cost goods at Walmart or Target. The individual consumer isn’t willing to pay a greater cost for higher priced labor, so they shop at discount retailers or online, such as Amazon.

Here’s the problem in a nut shell which people need to learn before there’s nothing but table scraps to fight over. People’s lives are improved through expanding the pie, not figuring out the best way to divide a smaller pie. It’s growth of industry, imagining, creating, and risking time, labor and fortune, that builds a real economy. Education in the trades are needed as well. We can’t be just a nation of lawyers, doctors, programmers, investment bankers, stock brokers, entertainers, professional athletes, and politicans.

Our government has learned nothing from the failed economic policies which have diminished wages, property values and the middle class, which we see in many large cities as well as several states. Look at most of the north east, the middle part of the country such as Illinois, Indiana, Michigan, and Ohio. The federal government has forestalled the massive poverty it’s pushing all of the middle and lower income class into through it’s debt expansion. The U.S. is addicted to credit and continues to spend as if there’s no end in sight. This can’t go on indefinitely, and while we blame Republicans or Democrats, we fail to examine their policies, history and understanding of what it takes to move an economy forward.

This is a complex topic, and I suspect those who are firmly entrenched into their past college studies, and divisive party politics won’t be able to see the forest for all the trees. Here are a few films which have attempted to address the cause or the indifference while “Rome Burns”.

  • Inside Job (2010) Everyone that’s interested in a portion of this topic, should see this film. Don’t be on your phone playing games or talking while this runs, because you will miss some key points.
  • I.O.U.S.A. (2008) America’s obsession with credit and it effects on it’s future. (No wonder it wasn’t a box office hit)
  • Up In the Air (2009) Although this film is more of a personal fictitious view, it’s a realistic human portrayal of the downsizing which myself and many others were affected by.
  • The Company Men (2011) Company Men focuses on both sides of the equation: the executives doing the firing, and the employees who are downsized and suffer through long periods of joblessness. It was a box office flop. It’s not your romance, Marvel or DC Entertainment fantasy. It’s an attempt at keeping it real through varied perspectives.
  • Frontline: The Warning (PBS Documentary, 2009) before the economic meltdown, one woman tried to warn about the threat to the financial system. She failed because greed and power / control won the day. Plenty of Democrats and Republicans to blame here.

Here’s a little more history on our financial meltdown.

Additional Links

Trivia note:
Future defense secretary Donald Rumsfeld at one time was the White House’s man in charge of anti-poverty programs such as the Peace Corps.

trade, finance and inflation

Debt & Inflation – Economic Disaster Recipes

History contains numerous examples of government fiscal mismanagement combined with crony-capitalism designed to achieve financial power and status. When these major down turns occur, there are huge grabs for distressed assets. Real estate is a prime example.

When things really go wrong, that’s when some form of autocratic / tyrannical authority is ushered in. No one wants to think this can be repeated, but the only way to alter that trajectory is to find ways of reducing debt and spending.

Just like weight loss is difficult, so too are all of the reasons to continue to spend. Finally, some individuals realize cutbacks are necessary, but it has to be understood by those who so often are at the helm. I’m not just referring to government spending, I’m also referring to outrageous executive compensation. There are people on each side of this issue which argue that there’s a need for all of the government intervention and spending programs. The other side is willing to talk about waste in government, but will argue vehemently that any curtailing of executive excess is detrimental to the free market economy.

Here’s where sensible moderation needs to be part of public policy, just as important as personal decisions.

Greece was a bellwether, a warning of what happens with too much debt. China also faces mounting debt and acted as you expect. It pumped more money into the economy to swamp the ratio of debt with inflated valuation of equity. Obviously this is artificial equity but it’s this inflationary spiral that can get out of control. Market corrections are a symptom of the change in perceived value.

Here’s a sampling of the events over a short but recent time span.

In mid July this news came out.
The really worrying financial crisis is happening in China, not Greece

In late August this occurred.
China share plunge smacks world markets; S&P, Nasdaq in correction

What drove this change?
Everything you’ve heard about China’s stock market crash is wrong

The best way to gain control, is to ignore the fringe elements that demand extremes and find ways to decrease spending, building real value, and reduce the huge income gap through appropriate compensation, up and down the business/ corporate structure.

US flag Whitehouse