Sunday, December 11, 2011

Let's Go Back to 2008-2009 to Learn Some Lessons

I apologize, as I will fail those who expect exact numbers and figures on the period of 2008-2009 where we were at the "brink" of financial collapse. Fortunately, there is a Google search tab at the top of this page that can aid you in your research, I only endeavor to describe concepts in this blog, and hear what other folks think - so I (and others) can be enlightened.

In order for you to form an opinion on this post, I respectively suggest that you use your incredible imagination to go back in time and think of how YOU felt at the time of the US financial crisis in late 2008-early 2009.

Two major things happened to "solve" the crisis. The first step taken was for the federal government to bail-out banks and auto-makers. The second step was to create a "stimulus" plan to help jump-start the economy.

At face value (at the time when assets were valued at half the price they are now), many nervous or soon to be retired folks were likely frightened about the standard of living they will have in retirement based on their 401k balances at the time (which some folks referred to as 201k's - bc of the 50% hair-cut they saw on their investment statements).

If you have used your incredible imagination to jump back to the time aforementioned above, then here is where you will take value from this long and boring post.

I agree whole-heartedly with the $700 billion bail-out plan for the banks, AIG, GM, etc. This statement will piss off conservatives (and Liberals - I really don't care), but they fail to realize one CRITICAL factor. Conservatives are the biggest opponents of Communism (and rightfully so). If the banks, and especially AIG - were allowed to fail, then we would all be speaking Russian in a few years. If you disagree, think of the game of Dominoes and how that works...

The funny thing that the media doesn't cover, whether it be "The View" or Fox News - is the fact that the majority of the TARP funds have been recuperated and will be at worst - a breakeven investment for US citizens. This fact does not make it right for the US government to step-in and use US citizen dollars to bail them out. However, desperate times call for desperate measures - and I fully back TARP.

What needs to happen is increased regulation of "financial firms". This has already happened to the extreme on many levels. However, is it wise to pressure financial institutions now when they are on their backs, or to enact more appropriate restrictions on them once they are have dusted themselves off and willing to go back to business as usual?

If you have made it this far in my blabbering, then give yourself a pat on the back (or two). I hopefully have addressed all of the concerns by conservatives and the OWS folks in regards to TARP. However, there was another $700 Billion plan pushed through upon US citizens from the current administration. The first one was logical (in my opinion) which was a part of the Bush legacy. The second part which was used to "spur" economic growth, was a complete farce and only the curent administration can take responsibility for.

Since we are still in the time-machine back in 2008-2009, let's look at the "stimulus" plan created by the administration. Let's look back at the crisis based on an anology of a patient that has been rushed into the Emergency Room with a heart attack (because that is where we were 3 years ago).

My thoughts would be to make a quick decision on this emergency (much like using shock-therapy to bring back the patient from their possible demise). "Shock Therapy" in this situation would have meant allowing citizens to keep 100% of their salary for 6 months. Calculate your own NET paycheck and add 30-40% on that to determine the amount of money you would have received (to save, invest, or spend - it is up to YOU). The reason I say this, is because this matches up identically to the amount of money our current administration has used for "stimulus" to build roads and bridges and turtle tunnels and under-water treadmills for shrimp (Google it)....

Friday, December 9, 2011

Triple Taxation of Company Dividends

Many astute investors and folks who have retirement plans, or extra money to invest probably already know about the "double taxation" of dividend payments. Go ahead and "Google" the phrase "double taxation of dividends" and you'll have a decent understanding of this info. I'll break it down as briefly as possible here.

The US sports a corporate tax rate that is the highest (or nearly the highest) of any "developed" country in the world. The news headlines always berate companies for moving jobs over seas, but they fail to realize that money flows to places where it is best treated on a tax basis - much like consumers put their money in savings accounts that yield the highest interest rates....

The "double-taxation" of dividends is based on these facts. If you own a stock within a mutual fund for your retirement plan (which most of you do), or own it directly - you own the right to receive any dividend payments from the company (and may experience appreciation in stock price in favorable conditions).

Here is where the math comes in and where one may fall asleep. If you hold shares of companies in a mutual fund/retirement plan, YOU have a share in the excess profits of the company that can be paid as dividends. You in effect - own the company. The company pays a record-high corporate tax rate of approx 35% on profits - so you just took a 35% tax hit off the top. Then they reward loyal shareholders like yourself with a dividend. That dividend you receive is taxed at 15% (currently - but will likely go much higher). So, your share of profits from the company are taxed at an "effective rate of 45-50% or more).

Here is where my "triple taxation" statement takes hold - and no one else has talked about. Let's say you have some extra money to invest after you have already paid the income taxes on the cash. In this situation, you can buy a stock that pays a nice dividend, but you already paid income taxes on your paycheck of say 25% - then the evil corporation gets taxed at a 35% rate (which cuts into your possible dividend pay-out), and then you get taxed again on the dividends at a "low" rate of 15%.

And people wonder why the rich take tax loop holes (and move their businesses over-seas), and why the poor keep getting screwed. It all lies in our oppressive tax code....