The Dividend Tax May Soar

Dividends matter, and so do the taxes on dividends. When the dividend’s tax goes up, the after-tax yield goes down. To keep the after-tax yield the same as before, the price of the stock must fall.

 

President Obama, who dislikes even those capitalists who are not rich, has arranged for next year’s tax on dividends to almost triple from 15 percent to a whopping 43.4 percent. To retired folks living on their dividends, he’s flipping the bird. 

If the tax increase actually takes effect, the stock market would probably suffer a substantial decline. 
But if the increase in the dividend tax takes effect in January, the stock market would be falling substantially now in anticipation. It is not falling substantially now. Therefore, I suspect that the dividend tax increase will be nullified after the election – retroactive to January 1 – by a newly-conservative Congress. 

Dividends matter. But then, so do elections.

 

The Dividend Tax May Soar

Dividends matter, and so do the taxes on dividends. When the dividend’s tax goes up, the after-tax yield goes down. To keep the after-tax yield the same as before, the price of the stock must fall.

President Obama, who dislikes capitalists, even the ones who aren't rich, has arranged for next year’s tax on dividends to almost triple from 15 percent to a whopping 43.4 percent. To retired folks living on their dividends, he’s flipping the bird.

If the tax increase actually takes effect, the stock market would probably suffer a substantial decline.

But if the increase in the dividend tax actually takes effect in January, the stock market would likely be falling substantially now in anticipation. It is not falling substantially now. Therefore, I suspect that the dividend tax increase will be nullified after the election – retroactive to January 1 – by a newly-conservative Congress.  

Dividends matter. But then, so do elections.

 

Bring Warren G. Harding Back from the Dead

Beginning in 1920, after the end of World War I, the U.S. Gross Domestic Product plunged 24 percent, consumer prices dropped 18 percent, and unemployment soared from 2 percent to 12 percent. It was ugly.

Did President Harding try to spend his way out of the downturn? Not on your life. Instead, he cut federal expenditures, reduced the top tax rates, and broadened the tax base, making the rates flatter and less progressive. He also induced the Federal Reserve Bank to cut the money supply.

Bingo, the depression came to a screeching halt. Unemployment plunged, and the extraordinary prosperity of the 1920s was launched.

Bigger government and higher tax rates don’t cure economic downturns. They lengthen and intensify them.

 

 

 

Who’s Greedy for Oil Profits?

Oil companies are the greedy ones. They make too much profit, right?

Well, let’s see. Assume the retail price is gas is $3.50:

$2.66 (or 76%) goes to the oil producers. This price is set in the global market for crude oil, moving up or down like any commodity according to world-wide supply and demand.

The next major cost is the refining of crude to extract gasoline, lubricants, and many other products. The gasoline portion costs 21 cents (6%).

Then comes another 21 cents (6%), for transportation, advertising, and retailer markup.

Out of the $3.50 retail price, we’ve got 42 cents left, or 12%. The recipient?

Government. The federal sales tax on every gallon of gasoline is 18.4 cents. The State taxes vary from 8 cents (Alaska) to 49 cents (New York and California), with an average of 23.6 cents per gallon.

For every gallon of gas sold in 2011, Exxon made 7 cents. Government made 42 cents. That’s six times greater. The biggest oil profiteer of all is government. 

The Best Way for Governments to Raise Revenues

At federal, state, and local governments, all revenues should be voluntary gifts. Governments should be allowed to pay for advertisements about what a great job they’re doing. But in collecting revenues, no coercion would be permitted.

Services not provided by government, if desired, would be furnished by profit-making enterprises or by voluntary gifts.

Citizens would give, all right; I certainly would. But the government sector of the United States would nevertheless fall from the current 38 percent of the Gross National Product to something like 8 percent. This is where it stood a century ago, and where it belongs today.

Killed by Prosperity

Almost everywhere in the world, prosperous people are having too few babies.

The fertility rate – the number of children produced by the average woman during her lifetime – is too low. To maintain the population, the rate must be 2.1. At 2.0, the U.S. is close. Northern Europe, at about 1.8, isn’t bad, but Southern Europe, including Germany, is under 1.5. India is a stellar 2.5, but China, hindered by a one-child policy, is only 1.6. Japan and Singapore are a disastrous 1.2.

The children of old-time farmers served as farm hands and counted as assets. But the children of prosperous urban dwellers are costly liabilities. For women, college degrees, full-time jobs, the pill, marriages later in life (or never) all create a dearth of births. As developing nations become prosperous, their birth rates, too, will fall.

Entitlement programs, including Social Security, face bankruptcy, because the benefits to numerous older beneficiaries are paid by too-few younger workers.

Human beings may eventually expire and be replaced by robots. By that time, robots will have judgment, common sense, and even a sense of humor. That’ll be quite a Darwinian twist.

U.S. Enforcing FOREIGN Laws!

A U.S. businessman imported Honduran lobster tails in plastic containers rather than cardboard packaging. For this violation of Honduran law, he was indicted and convicted by the United States and sentenced to eight years in a U.S. prison.

In importing wildlife or plants, the U.S. requires business owners to know obscure and highly technical laws of almost 200 other nations. The owners must also predict how the U.S. government will interpret those foreign laws. If the authorities think any of them have been violated, the owners are subject to criminal indictment.

Gibson, a U.S. manufacturer of fine guitars, imports wood from India used for fingerboards. Indian authorities provided sworn statements approving the shipment. Nevertheless, 30 armed federal agents stormed Gibson’s Tennessee factory, sent workers home, and seized 100 guitars and other property, costing the owner over $2 million.

Why? The agency interpreted Indian law to mean that the parts should have been finished in India rather than by U.S. craftsmen.

In America alone, there are over 4,000 federal criminal offenses. Call it the rule of law after law after law after law after law.

Student Loans Ruining Higher Education

Government’s student-loan aid is ruining higher education, to wit:

The interest rate, set by politicians, is too low, causing too much borrowing.

Grants and loans from a third-party (the federal government) make students and parents insensitive to education costs. On top of the flood of cash, schools have taken advantage of this to incur unnecessary costs and raise tuitions through the roof!

The number of college graduates exceeds the availability of high-level jobs. Over half of recent college graduates are unemployed or underemployed, but they’re still struggling to repay their loans.

Student loans induce too many unqualified people to apply for college. The portion of Pell Grant recipients who fail to obtain degrees within six years is 60 percent – yikes! 

Colleges should own the loans themselves. Defaults would cause the colleges to lose, not the taxpayers.

Instead, the Obama Administration has taken over the student-loan program completely, removing competition among creditors for the quality of service and making every problem worse.

Why Italy Stagnates

As an ambitious Italian entrepreneur, here are some of the government hurdles you face:

Two-thirds of your employees’ Social Security taxes are paid by you.

After hiring your 11^th employee, you must submit an elaborate assessment of every possible health and safety hazard to which your employees might be subject, including – get this – the stress caused by age, gender and racial differences.

After your 16^th employee, dismissing a staffer becomes nearly impossible. Plus, your employees then become unionized, requiring you to consult union representatives on many issues, including gender equality and the introduction of new technology. You must also begin hiring the disabled. (By your 51^st worker, 7 percent of your workers must be disabled.) 

After your 101^st employee, you must submit an elaborate report every two years on the gender dynamics in the company, including the dynamics in each production unit.

Certain exemptions ease the way. But the overall costs, include those of the applicable government bureaucracies, subtract over 47 percent from the average Italian wage. Since many costs are hidden, most Italian workers don’t know the total costs of their employment. 

No surprise that Italy’s unemployment rate is 10 percent. No surprise, either, that Italy is likely to leave the Euro.

These conditions are prevalent throughout much of Europe. Eventually, the Euro itself will probably disappear.

Food-Stamp Flood

When the food-stamp program was started in the 1970s, it was expected to assist 1-out-of-50 Americans in special need of food.

Now, 1-out-of-7, or 45 million Americans are using food stamps, at a cost of $78 billion. The Agricultural Department runs radio and TV ads urging more people to obtain the free food, even saying that food stamps help lose weight! Some 39 states have no realistic asset test to measure qualifications for the dole. Wealthy families that have no one working can sidle up to the trough.

It’s disgusting. The few enumerated powers granted to the federal government by the Constitution say nothing about food stamps. This is one more unconstitutional program. 

One among thousands.

Government programs usually become obese. The people who run them have no way to measure their success except by counting the number of employees they manage and the number of dollars they dispense.

If taxes were lowered and government vacated the compassion business, plenty of money would become available for the poor and the hungry. This is the way it was many years ago in America, and the way it would be again.

Lobbying Isn’t the Problem

The U.S. government would work better if it weren’t for all the lobbying!

Sorry, you’ve got it backwards. Lobbying isn’t the problem. The government’s effort to solve every problem – that’s the problem.

Given that the feds allocate so many resources, regulate so much of the private sector, and decide who wins and who loses, organizations can’t avoid lobbying. Squeaky wheels get the grease.  

These days, the hottest economic news, the most enticing gossip, and the best party invitations come from Washington. With the federal government such a goliath, businessmen must spend more and more of their time currying Washington’s favor. Lobbying is the most profitable investment they can make. The expense isn’t all that great in relation to the benefits – legislators act cheap. But a company that fails to stay on government’s good side may be swept under by government-favored competition.

It’s time for the federal government to abide by the Constitution. The government would do a whole lot less, causing less need for lobbying.

Self-Interest is Good - With One Notable Exception

Self-interest makes the economy work. Millions of people, endeavoring to satisfy their own needs, send price signals, which enable people to meet their needs as well as the state of technology allows.

In a free economy, the price signals also enable the poor to gain wealth faster than the rich.

But the self-interest of one group makes conditions worse for everyone, namely, the people at senior levels of government. They're the only ones who can induce us to do their bidding by exerting force.

Government officials are blind to the price signals that inform everyone else from minute to minute. Elections count, but they’re too infrequent to be as sensitive as price changes.

Government officials don’t judge their success by profit, because government earns no profit. Instead, they measure success in three ways: the power they exercise over others, the number of people who work for them, and the size of their budgets. Costs don’t count; those are paid by others. Officials just want the power and the money. It’s a one-way, ever-growing, highway to hell, because the bigger the government, the more net harm it does.

Tax Rates and Tax Revenues: Opposite Numbers

Let’s say you buy a radio station. To increase your income, you increase the percentage of time for advertisements. But this repels your listeners, and they turn to other stations. Your income doesn’t rise after all, it falls. This reaction is called “negative feedback” – counter to what one would intuitively expect.

Negative feedback also applies when government raises tax rates. People avoid reporting taxable income by working less, engaging more in the underground economy, or otherwise changing their behavior. With less income subject to taxation, government revenues fall, despite the higher rates. 

But when tax rates are reduced, the economy is strengthened, citizens earn more, and they choose to report more of their income. Government revenues rise, despite the lower rates.

Surprisingly enough, governments have no control over their revenues; they control only the tax rates. At a given rate, people change their behavior accordingly. If governments in the U.S. or Europe cut their tax rates, their economies would grow faster. The revenues would rise, and the deficits would fall. 

With most big-government policies, in fact, the results are counter-intuitive.

Pillars of International Peace

-- Repeal all tariffs and impediments to trade, even if other nations do not reciprocate. If one nation repeals its tariffs but other nations do not, all parties benefit, even the one without the tariffs. With no tariffs or impediments to trade, Hong Kong for many years was the world’s fastest growing economy. Trading partners are less likely to fight.

-- Require Americans abroad to provide for their own protection. Merchant ships would be armed. The possible loss of tourism would induce foreign nations to protect Americans.

-- Repeal all laws that criminalize the sale, purchase, or use of drugs.

-- Resign from the United Nations and require the United Nations to leave America.

-- The U.S. military would kill or capture anyone in the world who has the capability and clear intention to kill American citizens in the U.S. If the host nation denies permission, we would go in anyway. If our soldiers are killed or captured, we would consider this a cost of war, not an act of war. We would not apologize, but we would not reciprocate.

Privatize Regulations of Financial Companies

Numerous federal, state, and international agencies regulate banks and investment companies. Altogether, they’re not worth a bucket of warm spit.

Despite warnings, they didn’t catch Bernie Madoff’s Ponzi scheme ($65 billion). They didn’t catch Allen Stanford’s Ponzi scheme ($8 billion). Recently, they didn’t catch MF Global Holdings ($1.6 billion) or Peregrine Financial ($100 million). Now, they’re investigating the purposeful misreporting of a key global interest rate (“Libor”) which a U.S. agency was first warned about four years ago and did nothing about.

Instead, banks and investment should be audited and regulated by the people who have the most to lose when a bank or investment company goes bad – depositors or investors.

With bank-deposit guarantees in effect, depositors couldn’t care less about safety. “That’s the government’s job,” they say. Yeah, sure. Federal and state governments should terminate bank-deposit guarantees.

To privatize the regulations, bank associations would get together with depositor associations and iron out who can do audits and when. Likewise for investment companies and investors. Insurance companies would probably become involved.

Almost everything big government touches turns out badly. The regulation of financial companies is a fine candidate for privatization.

Pakistan Has Outdone Us

Since the New York terrorist attack in September 2001, Pakistan’s stock exchange index (KSE100) has risen 700 percent. Pakistan’s economy is growing at 4 percent a year, and the nation is entertaining peace talks with India.

During the same eleven years, the U.S. stock market index (SP500) has risen only 50 percent. Not that we compared unfavorably because of Pakistan; that’s nonsense. Out economic problems were caused by our own government’s domestic policies. 

Pakistan has been a rocky road for the United States. But the nation is making progress. The wealthier they become, the less they’ll put up with terrorism. Given the considerable advance of their stock market, we’ve probably been more of a help than a hindrance.

America’s deep involvement with Pakistan and Afghanistan was due to the terrorist attack on 911. The U.S. has not suffered another such attack since. By keeping the terrorists on the run, or dead, our activities in Pakistan have helped both countries.  

Now, if we can just change U.S. leadership, we can increase our own pace of advance. 

Pennsylvania Public Schools: Yuck!

In the ten years from 2000 to 2010, Pennsylvania’s public schools suffered a dropout rate of 20 percent and lost 27,000 students. (Among blacks and Hispanics, dropouts were 50 percent.)

Not only that, half of the 11^th graders have inadequate reading and math skills – greater than half if dropouts were taken into account.

Despite fewer students, Pennsylvania’s public-school spending during the same ten-year period grew by 69 percent. The system gained a net 33,000 employees.

Pennsylvania’s not alone in its rotten schools. One-quarter of Detroit’s high-school graduates are functionally illiterate. Generally, the public schools are especially poor in areas that have long had Democrat leadership. 

Enough! Let’s shut down public education and privatize all the schools. Some would be operated for profit; others non-profit. The costs would fall, and the quality would improve substantially.

But people in the central cities couldn’t afford the tuitions, right?

True, some couldn’t. But with government out of the way, tax rates could fall substantially. Prosperous people, paying less in taxes, would compete as to who could provide the most assistance to central-city schools.

Teachers unions aren’t exactly nuts about the idea.

Social Security: Massive Ponzi Scheme

From the beginning, Social Security tax revenues were paid out immediately to whatever the government was spending money on that day. They weren’t set aside and invested to cover future Social Security benefits. No, those benefits were to be paid from future FICA taxes. Will those revenues be secure? Let’s see: 

Originally, the payments to each Social Security beneficiary were collected from forty workers. Now, each beneficiary is backed by just three workers. In ten years, when baby boomers retire in great numbers, each beneficiary will be backed by only two workers. Will those two be willing to support half a beneficiary?

Of course they won’t. They’ll eject any Congressman who proposes such taxes.     

Social Security transfers wealth from young to old – until the old become too numerous and the young too few. It’s a gargantuan Ponzi scheme, heading toward disaster.

Poor black men, with short life expectancies, receive less in benefits than they paid in Social Security taxes. Wealthy white women, with long life expectancies, receive more than they paid in taxes. The money comes from the same pot. Poor blacks therefore subsidize wealthy whites.

Liberals talk about helping the poor. But actually doing it? Oh, that's a different story.