Wednesday, January 27, 2010

Obama's Tax Fallacy


By: Larry Walker, Jr. [Updates in Red]

Barack Obama - "I gave 95% of all Working Families a tax cut..."

Really?

First of all 43.4% of Americans don't pay any income taxes. That leaves the rest of us. So did 95% of the 56.6% who actually pay income taxes get a tax cut? I doubt it, but even if that were true, it's not 95% of all Americans (or 'working families', whatever that means) [see Tax Fallacy II: 95% B.S. for more on this].

Is a refundable tax credit the same as a tax cut?

But the real fallacy lies in the fact that refundable tax credits are not tax cuts, but rather, they are subsidies. Subsidies are paid for by taking money from some Americans and giving it to others. This is also known as 'spreading the wealth around'.

I'm not very cheery knowing that while I have been faithfully paying my mortgage, people are buying foreclosed houses down the street for $110K less than what I owe. And not only that, but the Government is giving them an $8,500 subsidy out of my tax dollars. It's as if the $110K of potential equity wasn't enough of a subsidy. Also, when the government refunds a person $8,500 to buy a house, it only applies to those who bought houses, not to 95% of all Americans.

The $400 ($800 for joint filers) Making Work Pay Credit is also a refundable tax subsidy. It is however only available in full to those (a) who made less than $75,000 ($150,000 for joint filers), (b) is reduced if income exceeds these amounts, (c) and it is not available at all for those making over $95,000 ($170,000 for joint filers) in 2009. Is it possible that 95% of Americans who actually pay income taxes made less than $95K ($170K for joint filers) and will get the full credit? Not when the top 50% of wage earners pay 96% of income taxes.

The earned income credit is a well known tax subsidy. If you made $10,000 and have a child, you will pay no taxes and will get back a $4,043 tax subsidy ($3,043 earned income credit, plus $1,000 child tax credit). This is not a tax cut, but rather a 40.43% bonus awarded for not trying very hard.

Non-refundable tax credits represent true tax cuts, as they can only be used to reduce the amount of tax actually owed, with the balance being lost. The child care credit is an example of a non-refundable tax credit, and has not changed in years. The retirement savings credit would be a good way to cut taxes, but unfortunately if you made over $27,750 ($55,500 for joint filers), you don't qualify. The education credit used to be a way to cut taxes, yet it is already $2,500 per year, so nothing new was stated by Obama when he said he will give out a $10K credit over 4 years. Uh, we already have that, sir. [What is new, however, is that as of 2009, now 40% of the education credit has become a refundable tax subsidy.]

Another tidbit, right now, all three of my kids are in college. I'm divorced and they live with their mother out of state. I am paying part of the way for one while the other two have full scholarships. Because I don't claim any of them as dependents, I am not allowed any credit for the tuition that I'm paying. I wonder how many others are in the same boat. It's not that I want anything from the Government, but just want to let you know that there are cracks in the real world.

Capital Gains Tax Cut for Small Business?

Finally, Obama wants to give a Capital Gains Tax Cut for Small Business Investment. What does that mean? A capital gains tax cut only applies if someone has an appreciated asset to sell, which they have held for more than one year. So, first you have to have an appreciated asset. Then you have to either have a small business that buys and sells appreciated long-term assets, or would need to sell your business in order to benefit. The only problem with what Obama said is that the lower Capital Gains Tax rate that we already have, which is currently 0% for those in a 15% or lower tax bracket, already applies. Nothing new here.

As a small business owner I haven't quite figured out how anyone can really use this one. And what kind of tax rate are we talking about anyway? He didn't say anything specific. The only way I could use it is if I sold my business. But I don't want to sell the business. And if I did sell my business I would already benefit from the Section 1244 exclusion or the low capital gains rate.

While you are applauding Obama's words, you should stop and think about how a capital gains tax cut can benefit a small business. If anyone can explain it to me, I'll be glad to listen, but to me, it's just rhetoric.

In conclusion, all I heard from Obama tonight, regarding taxes, was the same class warfare, wealth redistribution rhetoric that I heard in 2008 when I cast my ballot for the other guy.

___________________________________________________

References:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2276&DocTypeID=7

Thursday, January 21, 2010

Obama Stumbles on Glass-Steagall

How Novel!

It looks like Barack Obama has reverted back to stage one of the Obama Learning Curve, 'unconsciously insular'.

Click to Enlarge


His latest bright idea involves re-instituting the Glass-Steagall Act of 1933. Could this possibly be the same kind of overreaction which helped to prolong the Great Depression? After all, the Depression didn't officially end until 1941. Obama constantly blames the 8 year Presidency of George W. Bush for our current economic woes, yet Glass-Steagall was repealed in 1999. I mean all you hear from this guy is the same tired whine about the 'failed policies of the Bush Administration'. But then what does he do? He reverts to the failed policies of the FDR Administration.

Background

"In 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, "improper banking activity", or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money..."

I thought our current dilemma was caused by a housing related bubble, not by commercial banks investing too much money in the stock market. In our time, banks took on too much risk by investing in risky home loans. Loans which were promoted by 'liberal' politicians under the false ideology that it was somehow a Natural, God-given, Right for everyone to own a home.

Reasons for the Act - Commercial Speculation

"Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks."

Hmmm. This doesn't even sound remotely related to our present woes.

Effects of the Act - Creating Barriers

"Senator Carter Glass, a former Treasury secretary and the founder of the U.S. Federal Reserve System, was the primary force behind the GSA. Henry Bascom Steagall was a House of Representatives member and chairman of the House Banking and Currency Committee. Steagall agreed to support the act with Glass after an amendment was added permitting bank deposit insurance (this was the first time it was allowed)."

It is interesting to note that even Glass himself moved to repeal the GSA shortly after it was passed, claiming it was an overreaction to the crisis.

An Overreaction to the Crisis?

It seems to me that all Obama has done is to stumble upon a method of prolonging the economic crisis. Instead of embracing obvious policies which have helped America out of every single recession since World War II (i.e. across the board tax cuts, and allowing the free market to correct itself), Obama has not only failed to come up with new ideas, he has 'dug up' the old tried and failed policies of the 1930's. And this is the guy you were waiting for?

Barack 'Carter Glass' Obama could do us all a favor by just getting out of the way. If he would just sit down and hush up, the free market will eventually reach equilibrium. Sometimes it's best not to meddle. You know what they say, "Jack of all trades; Master of none."

Finally, what was it again which finally broke the Great Depression?

"Only when the federal government imposed rationing, recruited 6 million defense workers (including women and African Americans), drafted 6 million soldiers, and ran massive deficits to fight World War II did the Great Depression finally end."

Is it possible that the War on Terror was our salvation, and not a mistake?

____________________________________

http://www.nps.gov/archive/elro/glossary/great-depression.htm

http://www.investopedia.com/articles/03/071603.asp

Sunday, January 17, 2010

Capital Homestead Act: A Plan for 2012

By: Larry Walker Jr.

"For a binary solution needed to restore free markets, private property and limited government, why not focus on getting political leaders to pass a Capital Homestead Act by 2012, the 150th anniversary of Lincoln's Homestead Act?" - Norm Kurland

We have to cast down this insidious idea that a socialist (anti-free market) system is best, lest there be no free market left with which to institute Capital Homesteading. It is clear from the policies being implemented by the current administration, that Mr. Obama will not be our ally. We must work to defeat these anti-free market ideals in the 2010 and 2012 elections. And we will defeat them, one brick at a time.

But what do conservatives have to offer? There is a solution for saving Social Security and Medicare, for eliminating payroll taxes, and which will help all Americans to be able to provide for themselves. It's called the Capital Homestead Act.

Summary

The Capital Homestead Act is a comprehensive national economic strategy for empowering every American citizen, including the poorest of the poor, with the means to acquire, control and enjoy the fruits of productive corporate assets.

This long-range agenda involves major restructuring of our tax system and our Federal Reserve policies to lift unjust artificial barriers to more equitable distribution of future corporate capital and faster growth rates of private sector investment. It would shift primary national income maintenance policies from inflationary wage and unproductive income redistribution expedients to market-based ownership sharing and dividend incomes.

The Capital Homestead Act's central focus is the democratization of capital (productive) credit. By universalizing citizen access to direct capital ownership through access to interest-free productive credit, it would close the power and opportunity gap between today's haves and have-nots, without taking away property from today's owners.

The Goals of the Capital Homestead Act

As summarized below, the Capital Homestead Act is designed to:

  1. Generate millions of new private sector jobs by lifting ownership-concentrating Federal Reserve credit barriers in order to accelerate private sector growth linked to expanded ownership opportunities, at a zero rate of inflation.

  2. Radically overhaul and simplify the Federal tax system to eliminate budget deficits and ownership-concentrating tax barriers through a single rate tax on all individual incomes from all sources above basic subsistence levels. Its tax reforms would:

    • eliminate payroll taxes on working Americans and their employers;

    • integrate corporate and personal income taxes; and

    • exempt from taxation the basic incomes of all citizens up to a level that allows them to meet their own subsistence needs and living expenses, while providing "safety net" vouchers for the poor.


Read More Here...

Saturday, January 16, 2010

Washington vs Wall Street: The Audacity

- By: Larry Walker Jr -

Our 'unconsciously insular' President, Barack Obama, on Saturday slammed Wall Street’s "audacity" for fighting a bailout fee he wants to slap on financial firms and said his Republican opponents had sided with big banks (here).

Meanwhile, his Chief Critic, poses this question: 'Where would you rather invest your money?'

While Washington, DC has done an excellent job in growing the National Debt, Wall Street has been busy actually creating wealth and opportunities for millions of Americans.

Click to Enlarge

In comparing the total loss produced by the Federal government, to the total return 'earned' by investing in the S&P 500, from 1950 through 2009, I'll go with Wall Street. While Washington, DC netted a total loss of -403.85% for taxpayers over the period, Wall Street produced a total return for investors of +760.15%. This is not rocket science. Thanks but no thanks Mr. Obama.

Conclusion

Wall Street outperformed Washington, DC by 1,164.0% over the last 59 years. While Obama seeks to win political brownie points, in the real world his warped ideals don't pass the logic test. I would suggest to Mr. Obama, that he concentrate on figuring out how to shrink the size of the Federal government's budget and the national debt, and keep his nose out of the private sector.

Clearly Obama has no future in the world of finance. Perhaps when he retires, which will be in just a couple of years, he could entitle his next book, "The Audacity of Irresponsibility".

: Data Table

Data Sources:

http://www.treasurydirect.gov/

http://www.moneychimp.com/features/market_cagr.htm

Friday, January 15, 2010

Not Accountable - It's Your Government

By: Larry Walker Jr

The United States Government Accountability Office says major impediments are preventing GAO from rendering an opinion on the federal government's financial statements, the federal government did not maintain effective internal controls over financial reporting and compliance with significant laws and regulations due to numerous material weaknesses, and financial management system problems continue to hinder federal agency accountability. I'm just wondering whether the situation is improving as we trudge down Obama's disastrous path.

My view is that it's unwise to radically increase the size of any enterprise, which has an unsound and unreliable financial infrastructure. In my opinion the federal government is on an unsustainable path. I strongly question the federal governments ability to continue as a going concern. If the federal government were a publicly traded corporation, its CEO would be in prison. Just imagine the auditors of Bank of America, or AIG stating that they are unable to render an opinion because the entire financial structure is not accountable.

Here is what the GAO found in its latest July 8, 2009 report, followed by a link to the full report:

FISCAL YEAR 2008 U.S. GOVERNMENT FINANCIAL STATEMENTS

What GAO Found

For the second consecutive year, GAO rendered an unqualified opinion on the Statement of Social Insurance; however, three major impediments continued to prevent GAO from rendering an opinion on the federal government's accrual basis consolidated financial statements: (1) serious financial management problems at the Department of Defense, (2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and (3) the federal government's ineffective process for preparing the consolidated financial statements. In addition, as of September 30, 2008, the federal government did not maintain effective internal controls over financial reporting and compliance with significant laws and regulations due to numerous material weaknesses. Moreover, financial management system problems continue to hinder federal agency accountability.

The federal government still has a long way to go, but over the years, progress has been made in improving federal financial management. For example, audit results for many federal agencies have improved; federal financial system requirements have been developed; and accounting and reporting standards have continued to evolve to provide greater transparency and accountability over the federal government’s operations, financial condition, and fiscal outlook. In addition, the federal government issued a summary financial report which is intended to make the information in the Financial Report of the U.S. Government more understandable and accessible to a broader audience.

The federal government’s response to the financial markets crisis and economic downturn has created new federal accountability, financial reporting, and debt management challenges. Such challenges will require utmost attention to ensure (1) that sufficient internal controls and transparency are established and maintained for all market stabilization and economic recovery initiatives; (2) that all related financial transactions are reported on time, accurately, and completely; and (3) these initiatives are effectively and efficiently financed. moreover, while policymakers are currently understandably focused on efforts directed toward market stabilization and economic growth, once stability in financial markets and the economic downturn are addressed, attention will have to be turned with the same level of intensity to the serious longer-term challenges of addressing the federal government’s large and growing structural deficits and debt.

Finally, the federal government should consider the need for further revisions to the current federal financial reporting model to recognize its unique needs. A broad reconsideration of issues, such as the kind of information that may be relevant and useful for a sovereign nation, could lead to reporting enhancements that might help provide the Congress and the President with more useful financial information to deliberate and monitor strategies to address the nation's long-term fiscal challenges.

http://www.gao.gov/new.items/d09805t.pdf

Tuesday, January 12, 2010

HARRY REID SHOULD NOT ONLY RESIGN

By: Larry Walker Jr

In the wake of Harry Reid's racist thought pattern coming to light, countless Negroes (I consider myself to be Black) have come out of the woodwork to proclaim that what Reid said is 'only the truth'. Numerous Republicans have weighed in only to state that 'nothing should be done' while pointing out that if it were a Republican who made such remarks, Democrats would be 'screaming' for his resignation. Why are Negroes racing to Reid's rescue? And why aren't Republicans screaming for his resignation?

It is my opinion that Harry Reid should not only resign his post as Majority leader, Harry Reid should resign from the U.S. Senate. Harry Reid should be driven to the outskirts of town and booted out on his *ss. H*ll, Harry Reid should be exiled from the United States of America.

How dare you judge people by the color of their skin. How dare you judge people because their dialect differs from yours. How dare you Harry Reid. I have lost all respect for Democrat party, for watered down Republicans, and for so called Civil Rights Activists. All of you who practically broke your necks racing to the support of a true racist are a joke. You're not Civil Rights Activists, you're *ss kissers. You know who and what you are.

And if you think I am writing this in defense of Barack Obama, you're sadly mistaken. As far as I'm concerned Obama can pack his bags and go serve coffee to Reid in exile. You sir are nothing but a coward.

I AM SCREAMING. I AM MAD AS H*LL. I WANT THIS MAN OUT, AND I WANT HIM OUT NOW.

Friday, January 8, 2010

Social Security and Medicare's Missing Link


I’m sure that everyone is aware of, or should be aware of the problems facing the Social Security Administration. For example, here’s an excerpt of the bleak outlook from the 2009 Report issued by the Social Security and Medicare Boards of Trustees. The report points out the obvious problems that have been debated for decades. You may skip this part if you want to get straight to my point below.


A MESSAGE TO THE PUBLIC:

Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes our 2009 Annual Reports.

The financial condition of the Social Security and Medicare programs remains challenging. Projected long run program costs are not sustainable under current program parameters. Social Security's annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2010 because of the economic recession, and to rise only briefly before declining and turning to cash flow deficits beginning in 2016 that grow as the baby boom generation retires. The deficits will be made up by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about three fourths of scheduled benefits through 2083. Medicare's financial status is much worse. As was true in 2008, Medicare's Hospital Insurance (HI) Trust Fund is expected to pay out more in hospital benefits and other expenditures this year than it receives in taxes and other dedicated revenues. The difference will be made up by redeeming trust fund assets. Growing annual deficits are projected to exhaust HI reserves in 2017, after which the percentage of scheduled benefits payable from tax income would decline from 81 percent in 2017 to about 50 percent in 2035 and 30 percent in 2080. In addition, the Medicare Supplementary Medical Insurance (SMI) Trust Fund that pays for physician services and the prescription drug benefit will continue to require general revenue financing and charges on beneficiaries that grow substantially faster than the economy and beneficiary incomes over time.

The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the third consecutive year, a "Medicare funding warning" is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare's outlays. A Presidential proposal will be needed in response to the latest warning.

The financial challenges facing Social Security and especially Medicare need to be addressed soon. If action is taken sooner rather than later, more options will be available, with more time to phase in changes and for those affected to plan for changes.

http://www.ssa.gov/OACT/TRSUM/index.html


The Missing Link

My dilemma may be found in the title of the report itself. To be more specific it is found in the words ‘Social Security and Medicare Boards of Trustees’. Of course my first question is who’s on the board(s)? And my second is who’s supposed to be on the board(s)? Following is another excerpt from the 2009 Report.

Who Are the Trustees? There are six Trustees, four of whom serve by virtue of their positions in the Federal Government: the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Services, and the commissioner of Social Security. The other two Trustees are public representatives appointed by the President, subject to confirmation by the Senate. The two Public Trustee positions are currently vacant.

So if I am reading this correctly, ‘the other two Trustees are public representatives appointed by the President, and subject to confirmation by the Senate’. And to date, please correct me if I’m wrong, ‘the two Public Trustee positions are currently vacant’. The Board of Trustees is composed of the following four individuals:

  1. Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee
  2. Hilda L. Solis, Secretary of Labor, and Trustee
  3. Kathleen Sebelius, Secretary of Health and Human Services, and Trustee
  4. Michael J. Astrue, Commissioner of Social Security, and Trustee

One has to go back to the 2007 Report to find the last time that the two public trustee positions were functional. Here’s an excerpt from the 2007 Report:

The other two members, John L. Palmer and Thomas R. Saving, are public representatives initially appointed by President William J. Clinton on October 28, 2000, and reappointed by President George W. Bush on April 18, 2006.

http://www.socialsecurity.gov/OACT/TR/TR07/I_intro.html - wp1000302

The only other lapse I can find is in 1990. George H. W. Bush was sworn into office on January 20, 1989. The public trustee positions became vacant at the end of 1989, and they were vacant for all of 1990. In 1991, President Bush appointed Stanford G. Ross, and David M. Walker.

Here is a link to a historical listing of the Boards of Trustees:

http://www.segurosocial.gov/OACT/TR/trustees.html

So what’s my beef?

There is no public oversight over Social Security and Medicare. There has not been any public oversight for the last two years and I don’t see any on the horizon. A public corporation can’t even function properly without outside board members. Without independent, external oversight there's no telling whether we are on the right path, or whether we are even getting the truth.

So 2008 passed without public trustees. Then 2009. Now it’s 2010 and no one is even talking about this? With major issues looming for both Social Security and Medicare, my beef is that the American people deserve to have competent, non-governmental, outside, public trustees on the Social Security and Medicare Boards of Trustees in order to monitor, verify, and criticize the information that is being disseminated. Granted this may not be the most desirable job, both positions need to be filled. That's my beef.

By: Larry Walker Jr