Tuesday, June 29, 2010

Diamonds

A good read about the diamond industry on WiseBread. I swear I wrote an article on diamonds before, but I couldn't find it, so I must have never published it.

Thursday, June 24, 2010

Plunge in Homesales

As I said in a previous post recently, all tax credits do is move people's decisions around, at a cost to the taxpayer. There is new data out that homesales plunged to a 'record low' after the home buying tax credit expired. Well, gee whiz, who could have seen that one coming? Once again, this is yet another reason why politicians should be required to have some economics training (and stop selling out Americans to lobbyists!!).

Sunday, June 20, 2010

More Taxpayer Fleecing

It's government waste like the bailing out of government sponsored (now owned) entities Fannie Mae and Freddie Mac where if we didn't have to deal with them, we would all pay much lower taxes. The CBO, who always seems to underestimate costs, predicts the final tab will be nearly half a trillion dollars.

Internet Kill Switch

I'm a little bit worried that lawmakers are proposing a bill that would give the President authority to turn off all internet activity with a "Kill Switch." What the hell is this country turning into? Are we going to be living in communist China pretty soon here? Sure, they sell it as a way to protect us, but remember this is how they always sell new ideas - they are good for you. They'd never tell you something like, "You're only on a need to know basis when our great F├╝hrer, Barrack Hussein Obama, converts this country to a totalitarian regime." Note how the bill specifically targets search engines. What, are terrorists going to undermine America by creating websites? Wake up America!!

Friday, June 18, 2010

A Look to the Future

At least we know where Obama is getting his playbook from. Coming soon, The United Socialist States of America.

Saturday, June 12, 2010

Extension of Home Tax Credit

Some lawmakers are pushing for an extension of the home buyers tax credit (unfortunately this is a yahoo news link, so the link will disappear in the not too distant future). Let it Die! All these credits do is move the decision to buying a home sooner, at taxpayer's expense. People who were either on the fence or considering buying in the near future will jump on the chance of saving $8,000, but those without the means to afford a mortgage or do not want to buy a home soon are not affected. Once the first tax credit was announced, home buying activity increased, but once it expired, home buying activity decreased below the level before the tax credit (Series: HXQ.US at economy.com). So, essentially over the time period, the same number of homes would have been sold, but taxpayers got fleeced for billions of dollars. Not a great deal for the rest of Americans who already own their homes or will continue to rent. Essentially these people are subsidizing other people to buy homes (remember, it may not sound like to are going over to your neighbor and handing him a check, but if money like this wasn't wasted, the government could lower taxes, or spend it on more productive purposes)

Also interesting is the rampant fraud found as apart of this tax credit. Many were not first time home buyers, many didn't even buy a home, some people were putting the credit into their children's names, and I'm sure countless other schemes.

So, notice in the first article, "The Realtors group has been pushing hard in Congress for the extension." Once again, lobbyists fleece America for their own benefit. And who is the lead supporter of this bill? Nevada's Harry Reid, of course. This is not surprising, since home values tanked in that state and he would probably like to garner some additional support since his popularity is decreasing.

Thursday, June 10, 2010

Evil Shareholders

Being a shareholder gets a bad rap when it comes to populist politics sometimes. Whenever a company runs into trouble, the public and politicians demand that the shareholders be punished. Why? The average shareholder is just mom and dad who have a pension or own a mutual fund. All they wanted was a place to store their savings to gain a return on their investment. They might not even know they own part of the company if they invest through an institution.

So, unless you've been living in a cave, BP/Transocean had an oil rig disaster that exploded back in April and has been spewing oil into the gulf since. Numerous attempts have been made to fix the leak, but there has only been limited success. It is quite a tragedy for those who lost their lives, the animals, and the businesses affected by it. So,


So who are these shareholders anyway? They must be real bastards to invest in an oil company, right? Well as it would turn out, there are quite a few U.S. pension funds who now have a capital loss of 40% since $90 billion in market capitalization has been wiped out. Things haven't been helped much with Obama repeatedly beating the drum with his oil bashing and his other highly professional comments such as "whose ass to kick."

But, if the company can handle both the costs and the dividend, then it is not a politician's business to say what a company should do with its stakeholder's money.

As an update, BP bowed to political pressure and cut its dividend for year and set up a $20 billion fund.


Monday, June 7, 2010

Top Federal Tax Rates

So, this blog entry is a two part series where here I will discuss the top tax rates and the next post I will discuss whether lowering income tax stimulate growth or not. These are hotly debated issues.

So, to start, there is a little political cartoon being passed around on the internet titled, "Socialism: The top tax rate, a little historical perspective". It is clearly mocking those who think Obama's soon to be 40% top tax bracket is a big jump from today's 35%. However, this cartoon is an apples-to-oranges comparison because the top rate is only half the information. The other half of the information is what level of income that rate applies to. People probably assume, which is obviously the cartoonist's biased message, that the level of income that the top tax rate applies to has been the same throughout history. Also, what is not shown are the tax rates before the year the 77% rate took effect.

So, that's where I come in. I will give you some real perspective. So before we begin, let me remind you that the planned 2011 Obama 40% tax rate will apply to income over 200k (if the Bush tax cuts were extended, a 35% rate would still apply to income over 373k). And while this may seem like a lot to many people, it is not accounting for the cost of living for those who live in the largest cities in America, where a dollar goes about half the distance.

So, we will walk through a sample of the tax rates since the early 1900s. So, what you will notice is that the top tax rates are dropping, but so is the tax bracket, so that the top rate is affecting more and more of American's income.

Before 1914, taxes were sporadic which came and went depending on what war's debt needed to be paid off. The government collected most of its revenue with tariffs.

In 1914, the top tax rate was 7.0% on income over $500,000. After you adjust that for inflation (CPI) that 7% applies to income over $10,764,646. Okay, so then the 16th amendment was passed with the revenue act of 1916, and the tax rate doubled to 15% (gasp!). But that applied to income over $2,000,000 -that's $39,365,137 accounting for inflation. So over the next couple of years the tax rate increases dramatically until we find that 77% top tax rate that we see in the cartoon. That applied to income over $1 million, or $14,207,947 in 2009 dollars. So then the tax rate drops a little (the government has changed the tax code so many times you would think that they would have found the optimal solution by now). In 1922, the top tax rate drops to 58% on income over $200,000 ($2,554,047 accounting for inflation)... it continues to bob around and drop to 25% on income over 100,000 in 1925 ($1,225,942). In 1932 it jumps to 63% on income over $1 million. 1936: 79% on income over $5 million. 1941: 81% on income over $5 million.
1942 is a big year. The tax rate is raised to 88% on income over $200,000... but that's still $2,632,392 in 2009 dollars. Then in 1944 it was raised to 94% on the same bracket.
In 1964, top tax rate drops to 77% on income above $200,000, or $1,384,129 for 2009 dollars. 1965, 70% applies to $100,000 and above. Are you seeing a pattern here?
Taxes started to get really high during the inflationary period of the 1970s-1980s. For example, in 1981, 70% applied on $107,700 or $252,538. The US went through a period of stagnation around this time, and it is probable that excessively high tax rates played a role here, but many factors were at play.
1982: 50% on income over $42,800.
1983: 50% on income over $54,700.
The bracket grew over the next several years.
So, then we arrive in the modern era of tax rates in 1987. The top tax rate drops to 38.5% on income over $54,000 ($101,982).
2009 dollars from now on:
1988: top tax bracket of 28%, applying to income over $89,560.
1991: 31% on income over $51,900.
Clinton comes aboard and adds two top brackets, with the largest being 39.6 on income over $250,000.
2002: Enter Bush's tax policy: drops the tax rates down a few percent for each bracket, with the top 35% tax rate on income over $311,950

So what I left out was that today's era of tax brackets only have about 5 levels. Back in the olden days when there were tax rates above 40%, there were generally 15 or more tax brackets. And because of that, a better tax comparison would be to take a few samples of income levels (25k, 50k, 100k, etc) and calculate the actual tax bill in each year to get a better idea of what a hypothetical earner was actually paying and to determine which era had the largest burdens. Since this little analysis was already time consuming as it was, I don't plan on doing that here. But you can still clearly see that these "top rates" for most of America's history applied to income over a million. That is a stark contrast from today.

And let's not forget that this tax is only the federal income tax. When we tack on social security, Medicare, state, county, city, sales and sales tax [not to mention the million other taxes we end up paying (e.g. property taxes)], that 40% rate becomes 60% or more. Do you really think that the government is better at spending 60% of your money than you are?

How's that for some perspective?