Category Archives: Economics

Economics, Politics

Capital Gains

Capital Gains Tax.

I would like to see the Capital Gains Tax, as applied to stocks and bonds, modified a bit. Specifically, I would like to address investment profits derived from securities subject to regulation/control by the SEC.

If you invest in a stock/bond/security and later sell it for a profit you pay a tax on the difference between your purchase price and your selling price – your Capital Gain. In and of itself, that’s fine. But, if you are selling one stock in order to buy or invest in another stock, you pay the Capital Gain tax on your profit and only have the remainder to invest in the new stock. You haven’t taken the profits and used them in the non-security world and you have less to invest in a new security. I would like to remove the Capital Gains Tax on security sales where the proceeds are directly applied to the purchase of another security. You are only taxed on the proceeds you take out of the security marketplace.

I think this would encourage, indeed stimulate, investment in new potential industries and encourage people to move their investments around. I find it sometimes isn’t worth contemplating moving investment money around when you know you will be paying a 15% – 20% – 30% tax on the proceeds. So it sits, slowly not growing. I may take other money and invest it in the new industry I think will be growing but the older money stays where it is, stuck until it is needed. The newer industry doesn’t get the boost it might with more capital investment and then good things don’t happen.

Economics

Money, Money Money…

I don’t like where some economic advisers are wanting to take us.

Why don’t we, the people, take this TARP bailout money and start our own bank(s) to provide the short-term credit for corporate entities – this appears to be where the credit logjam is occurring – and let the current financial institutions die? This will provide the capital needed for the economy to run for the near-term and if the new bank(s) is set up right it may be able to address the long-term funding growing corporations need.

We might even be able to get into some consumer credit business as well, but why not leave that to the banks and credit unions that didn’t run themselves into the ground. Once all the current banks that have dug this economic sinkhole  have buried themselves, we can sell our young vibrant bank(s) to investors and recoup our investment.

We don’t need to nationalize the existing banks and get stuck with their toxic wastes. We can start anew and try to do it right.I’m not sure that this approach will help any for the mortgage market, but realistically, people with no income and with a $500K mortgage should default and give the house back to the bank that financed them.

As the commenters in the linked article note, don’t give any money to the folks who created the crisis. Don’t reward bad behaviour.

Economics

Further ado

2007 Mean Household income is $67,609
total of 116,783,000 households
aggregate US income in 2007 – $7,895,581,847,000 –
Let’s call it $7.9T – Total 2007 US income.

The Median Household income is $50,233 which means that 58 million households are making less than $50K and 58 Million households are making more than $50K. And the Mean, or Average, household income is $67K. Something doesn’t seem quite right here… But I didn’t start this to talk about income inequality.

A few days ago I mentioned that the 2007 health care expenditures in the US were $2.2 Trillion and the per capita cost of that comes to ~$7K per person. And I thought that was a doable cost to support. How can it be done?*

If we go to some sort of National HMO plan that covers the full range of health care that $2.2T covered, then we can drop about 20% of the costs right off the top to get rid of the administrative overhead and all those redundant file clerks at every office, leaving us with about $1.8T to manage. I think about $0.5T of the expenses is for Medicare but I want to roll the Medicare expenses into my plan so I will leave them there.

I like the way SSA does it, and Medicare, with the Employee paying 50% and the Employer paying 50%, so the Employees need to cover $0.9T to cover their part of the HMO insurance.  $0.9T/$7.9T = 11.4%.

The Employers get out of the health care management business altogether, saving themselves a lot of aggravation and expense,  and will end up with a presumably healthier, more productive workforce.

So along with the 6.2% FICA, and an additional 11.4% payroll tax to cover the medical  everyone will be paying a 17.6% payroll tax. But unlike FICA/SSA, the medical/HMO can be used immediately. Should be used immediately. If people started getting routine medical maintenance when they are young, and using neighborhood clinics instead of emergency rooms for minor ailments, the long-term medical costs would drop a bit right there.

A 17.6% payroll tax is a bit steep if you have to worry about other taxes on top of that, but that medical coverage could pay for itself overnight if you don’t have the coverage today. I would further propose to get rid of all the deductions and other bits that make tax season so much fun and give a straight single deductible of $50,233. You only pay income taxes on your income greater than the median family income. 

*Must remember to start with First Principles:

We the people of the United States, in order to form a more perfect union, establish

justice, insure domestic tranquility, provide for the common defense, promote

the general welfare, and secure the blessings of liberty to ourselves and our

posterity, do ordain and establish this Constitution for the United States

of America.


I think this comes under the promote general welfare principle, so we can proceed.

Economics, Politics

Planning ahead

Why don’t we set aside 5% per year of initial infrastructure project costs to use for maintenance. If you can’t fund the long-term maintenance then don’t do the project. I suspect a lot of municipal water systems could have used that philosophy a a long time ago.

Should we even consider flying anymore, given the state of the Air Traffic Controllers?

Economics, General, Preparing for the worst

Being Lazy

I just came across this site that gives some guidelines on developing worry-free investment portfolios. They make sense to me and I think I am following them with my own retirement planning.  I do like #5 – If you’re not saving 10%, you’re spending too much.

I wonder about this quote:

Albert Einstein put it very simple: “There is no greater power known to man than compounding interest.”

I checked on Snopes and it is undetermined that Einstein really said anything like that. So he probably didn’t. Even though the sentiment is right on.

I don’t worry about what my portfolio is doing these days and I keep telling Elaine not to worry. We have set up a portfolio as best we could and we will see what it looks like in a few years.

My concern about the current state of the market is for the overall state of the US and Global economy. We have to live with the macroeconomic fallout of this meltdown and I don’t see any reliable hands the helm at present. But what do I know? Maybe paying dividends to shareholders of failing financial institutions is the best way to go. Not.

Economics

The end is just the again beginning

I found this interesting article by Michael Lewis, the author of Liar’s Poker, discussing a bit of what’s been happening on Wall Street in the twenty years since he left. I liked Liar’s Poker when it came out and find it disturbing that the next generation of Wall Streeters found it to be a useful how-to manual.

There is an object lesson somewhere in all this involving doom-sayers, pessimists, and people trying to see the dreams all the while ignoring the nightmares. How to make reality the nightmare? Ignore it for a while. Wall Street seems very good at ignorance.

Eisman was appalled. “Look,” he said. “I’m short. I don’t want the country to go into a
depression. I just want it to fucking deleverage.” He had tried a
thousand times in a thousand ways to explain how screwed up the
business was, and no one wanted to hear it. “That Wall Street has gone
down because of this is justice,” he says. “They fucked people. They
built a castle to rip people off. Not once in all these years have I
come across a person inside a big Wall Street firm who was having a
crisis of conscience.”

Even I, an uneducated fiscal novice, could see that a house of cards was being built with my, and everyone’s, money for the past decade. And it was being built in an earthquake zone. And I was asking at every chance “how can I protect my investments?”  And knowledgeable folks couldn’t help me. Even those that agreed that an earthquake was coming didn’t have any viable alternatives. Now I see, I should have shorted the mortgage/CDO/CDS market.

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