Pin the Debt on the Donkey November 17, 2010March 19, 2017 Rachel brings to life the National Debt record in colorful, tuneful ways your humble correspondent cannot begin to approach. Watch. You will do much better than the fake quiz show contestants. But some of the stuff that follows their performance was news to me and may be news to you as well. The hypocrisy and double-speak are amazing. I yield back the balance of my time.
Two Views From Canada And One From Arkansas November 16, 2010March 19, 2017 THE VIEW FROM ARKANSAS Larry Taylor: “I work at a law firm and an Abstract or Title Company. I spend every day helping folks get their mineral rights cleaned up where they can lease them and/or draw royalty payments. It is a great pleasure to see old dairy farmers, who have worked so hard, finally realize a nice income. The Fayetteville Shale is the 10th largest gas field in the U.S. We have seen over 5,000 wells drilled since 2004 and have seen very little environmental problems. There is not a single fresh water zone that has been damaged by fracture stimulation. I saw Gasland the night that it came on HBO. It is a crock. It is funded by some folks in the Northeast who have other issues with drilling operations in suburban communities. Also, almost to a person (certainly true in Gasland), the complainers are those folks who do NOT own their mineral rights. They are just trying to get a piece of the gas money pie. Sure, there are going to be accidents and errors made by companies who do not follow the rules. And as the report said, only Haliburton objects to making public the chemicals used in the process. Change the law, make it public, and use good regulatory approaches…even very tight ones, but please do not ban the technique, as has been the approach by some in Congress.” Eileen Bartlett: “Another great documentary about the dangers of drilling for natural gas is Split Estate by filmmaker Debra Anderson.” ☞ My only concern with leaving it to the regulators is that sometimes, especially when anti-government folks are in charge, regulation grows lax. And if an aquifer is contaminated, how would you ever purify it? So the regulation needs to be solid, and there may be some high populated areas where we just shouldn’t take even a small risk. A VIEW FROM CANADA: MORTGAGES Erich Almasy: “Home mortgage interest is not deductible here in Canada. It took me a while to get used to this. Eventually, I saw that it encouraged rapid payoff of mortgages and shorter terms – average is less than 5 years, with rollovers as mortgages expire. Canada avoided the 2008 meltdown because there are essentially 5 big banks (and a Hamiltonian central bank) that were not irrationally exuberant. There is now some home price contraction but no meltdown. Home ownership percentages are higher than the U.S.A. with much higher home equity.” A VIEW FROM CANADA: THE PRESIDENCY From the October issue of Senior Living Magazine Vancouver & Lower Mainland: America – He’s Your President for Goodness Sake! By William Thomas There was a time not so long ago when Americans, regardless of their political stripes, rallied round their president. Once elected, the man who won the White House was no longer viewed as a Republican or Democrat, but the President of the United States. The oath of office was taken, the wagons were circled around the country’s borders and it was America versus the rest of the world with the president of all the people at the helm. Suddenly President Barack Obama, with the potential to become an exceptional president has become the glaring exception to that unwritten, patriotic rule. Four days before President Obama’s inauguration, before he officially took charge of the American government, Rush Limbaugh boasted publicly that he hoped the president would fail. Of course, when the president fails the country flounders. Wishing harm upon your country in order to further your own narrow political views is selfish, sinister and a tad treasonous as well. Subsequently, during his State of the Union address, which is pretty much a pep rally for America, an unknown congressional representative from South Carolina, later identified as Joe Wilson, stopped the show when he called the President of the United States a liar. The president showed great restraint in ignoring this unprecedented insult and carried on with his speech. Speaker Nancy Pelosi was so stunned by the slur, she forgot to jump to her feet while clapping wildly, 30 or 40 times after that. Last spring, President Obama took his wife Michelle to see a play in New York City and republicans attacked him over the cost of security for the excursion. The president can’t take his wife out to dinner and a show without being scrutinized by the political opposition? As history has proven, a president in a theatre without adequate security is a tragically bad idea. Remember: “Apart from that, Mrs. Lincoln, how did you enjoy the play?” At some point, the treatment of President Obama went from offensive to ugly and then to downright dangerous. The health-care debate, which looked more like extreme fighting in a mud pit than a national dialogue, revealed a very vulgar side of America. President Obama’s face appeared on protest signs white-faced and blood-mouthed in a satanic clown image. In other tasteless portrayals, people who disagreed with his position distorted his face to look like Hitler complete with mustache and swastika. Odd, that burning the flag makes Americans crazy, but depicting the president as a clown and a maniacal fascist is accepted as part of the new rude America. Maligning the image of the leader of the free world is one thing, putting the president’s life in peril is quite another. More than once, men with guns were videotaped at the health-care rallies where the president spoke. Again, history shows that letting men with guns get within range of a president has not served America well in the past. And still the “birthers” are out there claiming Barack Obama was not born in the United States, although public documentation proves otherwise. Hawaii is definitely part of the United States, but the Panama Canal Zone where his electoral opponent Senator John McCain was born? Nobody’s sure. Last month, a 44-year-old woman in Buffalo was quite taken by President Obama when she met him in a chicken wing restaurant called Duff’s. Did she say something about a pleasure and an honour to meet the man or utter encouraging words for the difficult job he is doing? No. Quote: “You’re a hottie with a smokin’ little body.” Lady, that was the President of the United States you were addressing, not one of the Jonas Brothers! He’s your president for goodness sakes, not the guy driving the Zamboni at “Monster Trucks On Ice.” Maybe next it’ll be, “Take Your President To A Topless Bar Day.” In President Barack Obama, Americans have a charismatic leader with a good and honest heart. Unlike his predecessor, he’s a very intelligent leader. And unlike that president’s predecessor, he’s a highly moral man. In President Obama, Americans have the real deal, the whole package and a leader that citizens of almost every country around the world look to with great envy. Given the opportunity, Canadians would trade our leader, hell, most of our leaders for Obama in a heartbeat. What America has in Obama is a head of state with vitality and insight and youth. Think about it, Barack Obama is a young Nelson Mandela. Mandela was the face of change and charity for all of Africa but he was too old to make it happen. The great things Obama might do for America and the world could go on for decades after he’s out of office. America, you know not what you have. The man is being challenged unfairly, characterized with vulgarity and treated with the kind of deep disrespect to which no previous president was subjected. It’s like the day after electing the first black man to be president, thereby electrifying the world with hope and joy, Americans sobered up and decided the bad old days were better. President Obama may fail but it will not be a Richard Nixon default fraught with larceny and lies. President Obama, given a fair chance, will surely succeed but his triumph will never come with a Bill Clinton caveat – “if only he’d got control of that zipper.” Please. Give the man a fair, fighting chance. This incivility toward the leader who won over Americans and gave hope to billions of people around the world that their lives could be enhanced by his example, just . . . has to stop.
Balance the Budget, Learn More About Gas Build a Hotel in Six Days November 15, 2010March 19, 2017 MAKE YOUR OWN DEFICIT REDUCTION PLAN Mandy Nelson: “This was a useful tool, especially on a Sunday morning over coffee. I bet your readers would enjoy it too.” ☞ Indeed! I solved the deficit problem in 10 minutes. You can, too. Whether you will go along with my choices or I will go along with yours – or Congress will go along with anyone’s – is another story. But it’s an interesting exercise. NATURAL GAS: ENERGY INDEPENDENCE Lesley Stahl’s “60 Minutes” piece last night . . . that we’ve now identified two whole Saudi Arabia’s worth of natural gas in our native shale, but that extracting it could contaminate much of our drinking water forever . . . brought to mind Robert Bryce’s Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future. Bryce scoffs at the solar panels Charles and I have put on our roof (and would have scoffed all the harder if we had found room for a windmill). Instead, he sees natural gas as the bridge to the ultimate cheap, clean solution: nuclear. I’m skeptical that he has it all right, but learned things all the same. I now know what a joule is. (More or less.) Recently, when I mentioned concerns about natural gas fracking, you responded: Kirk: “Not all natural gas comes from shale formations where they use fracturing to get it out. Most NG up to now has been drilled down into same as oil, with very little environmental impact. After the well is drilled, only a small well head is left to produce and gather the gas. We should be promoting the use of clean NG as an alternative to costly foreign oil, by using NG cars, buses, and such. I urge you to get on board and sign up for the Pickens Plan at pickensplan.org.” Charles C: “Gasland is a great documentary on the ‘safety’ of extracting natural gas. Worth watching since the conventional wisdom is that natural gas is safe and clean. The film centers around drinking water contamination as you mentioned in your post.” CHINA BUILDS 15-STOREY HOTEL IN 6 DAYS Take a look. (Thanks, James.) Oh, my.
Hyperbole November 12, 2010March 19, 2017 And so the deficit-reduction discussion begins. Your comments in a moment. But first . . . CURTAILING THE MORTGAGE DEDUCTION No one I know is talking about taking away the deduction for your mortgage interest on your first home, up to the first $500,000 you borrow; but phasing out the deduction on second, third, and fourth homes, and on mortgage debt above $500,000, makes a lot of sense. At one time, it was a priority to encourage people to go into debt to build vacation homes and larger, more luxurious residences. Now, at least for a while, we should shift our priorities to encourage even more urgent things, like reducing our deficit – and weatherizing the homes we’ve already got. And renewing that wonderful infrastructure our great grandparents labored so hard to leave us. Everyone would of course still be completely free to build vacation homes and mansions. It’s just that now is not the time to dip into the Treasury to provide an incentive to do so. HYPERBOLE Kathryn: “Hold it right there, Andy! Not so fast! What about current Social Security benefits and Medicare? It sounds as if they want to get rid of those too, or at least reduce them to the point of uselessness.” ☞ I think you can be quite certain Social Securty and Medicare will neither be gotten rid of nor reduced to the point of uselessness. Joel: “If Obama signs on for all of this, he will have become a Republican, and an enemy of the middle class and working class. I will work as hard to defeat him in the primaries as I did to elect him.” ☞ All our nerves are raw, and with good reason. But going into instant fighting crouch may not help reach the best result. I’ll never forget the woman, years ago, that the TV news chose to feature commenting on President Clinton’s 4.3-cent-a-gallon hike in the gasoline tax. Part of the 1993 budget that not a single Republican voted for (and that they confidently predicted would wreck the economy), it was outrageous only for how much too small it was. Yet here was this woman, genuinely at wits’ end, telling America that it would simply wreck her life. (It amounted to about $30 a year.) The Republicans were wrong to kill this effort at deficit reduction. (You will recall that they first proposed such a commission, then reversed course and killed it when President Obama came on board.) President Obama was right to resurrect it by executive order. It’s a discussion we need to have, and a set of course corrections (whatever their ultimate form) we need to make. So as I said yesterday: that the process and discussion have finally begun is good news. Ralph Mason: “This is not a meaningful start on the deficit discussion. To quote Kevin Drum: ‘Any serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare. Any proposal that doesn’t maintain approximately that ratio shouldn’t be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That’s not serious.’ See his whole comment, and especially his chart, here.” ☞ The health care bill includes a pilot program “for every good idea anybody ever had,” as I recall one analyst putting it – and grants authority to the Secretary of HHS to roll out the ones that work. I wouldn’t sell short the effect this could have on bending down the cost curve over time. Nor sell short the need to make other adjustments, too, like curtailing the mortgage interest deduction, above. (And consider this: especially as the population ages, we may, as a society, choose to spend relatively more on health care, relatively less on, say, enlarging our homes or burning more fuel.) So Drum’s hyperbole – that 98% of the commission’s focus should have been on health care – is a useful perspective to toss into the discussion but, in the end, just that: hyperbole.
Deficit Reduction November 11, 2010March 19, 2017 This is good. We all would have preferred the Bipartisan Deficit Reduction Commission to find ways to reduce the deficit by lowering taxes and spending more. But that is not ordinarily how arithmetic works. Politicians know this, but can’t say it. Hence bipartisan commissions. It won’t be abrupt and it won’t end up exactly as described in this draft report. The mortgage interest deduction on second homes and for loans above $500,000 might or might not be phased out (see, for example, here) and the Social Security retirement age might or might not rise to 69 by 2075 (here). (Gosh, would 65 years allow people enough time to prepare for the change?) Indeed, ‘radical centrist’ Matt Miller argues that the floated proposals – as unpopular as they will be – are not nearly enough. A 15-cent-a-gallon hike in the gas tax? He scoffs. And rightly so – it should be more like a 15-cent annual hike, which one could ‘beat’ at first by hypermiling and, eventually, by trading up to a more fuel-efficient car. But that the process and discussion have finally begun is good news. I’m taking the rest of the day off.
CRME Might Or Might Not Pay November 10, 2010March 19, 2017 NO SPECIAL RIGHTS – JUST SPECIAL TAXES This couple was together 44 years, recognized by New York State and by Canada as legally married. Yet the surviving spouse was docked $350,000 in estate taxes because she is gay. Why is it fair to treat some married New Yorkers differently from others? The ACLU will argue it is not. That, indeed, it is unconstitutional. RELIGIOUS-BASED BIGOTRY Few people today would condone the way religion was used to justify slavery, oppress women, or keep inter-racial couples from marrying. This report from Faith In America explains how religion-based bigotry continues to affect millions of people, driving some of the youngest and most vulnerable to suicide. Share it – lovingly – with your pastor? HOMEOWNERSHIP FOR A RETIREE Jim L.: “With respect to Gene’s question Friday, I think you botched it. And I’ve been discussing with your friend Less here.” Mike Blankenship: “I get more like $35,750 net a year on $2.75 million at 2%. A 2% return is $55,000, leaving $35,750 after 35% is sliced off for taxes. I can’t find $80,000 anywhere. Can you elaborate?” ☞ It’s calculated like an annuity, where you are not just withdrawing investment income, but drawing down your principal as well – in this case, all the way to zero by age 100. That’s how it got up to $80,000.* I should have been clearer in explaining that. Gene had asked how much of his $3 million net worth he could tie up in his home. I gave a very conservative answer, because it’s easy to spend more when you’re 80 or 95, if you’ve been too frugal; painful to run out of dough if your assumptions prove not to have been conservative enough. That said, sure: instead of a $250,000 house or condo, if Gene can’t find one he loves, he’d likely do fine with a $500,000 unit (and its higher property taxes, maintenance, and insurance) and thus “just” $2.5 million in investments to support him rather than the $2.75 million I had used in my example. My main point was simply this: that I’d turn his question around. Rather than try to know the maximum he can prudently spend on a home, I’d look for the least expensive home that would make him happy and then run the numbers to confirm he can comfortably afford it. He can always trade up later. *To do the actual calculation, you need to visit a website like this one. DFZ Suggested here a couple of months ago at $10, this slipper maker yesterday reported a seemingly great quarter, with earnings up 81%. So the stock opened up at $11.21 – but then dipped below $10, to close at $10.26. The problem? “The DFZ conference call was not at all optimistic,” reports my friend who follows this one. “The better earnings were mostly the result of stores wanting their holiday inventory earlier this year, so orders slipping from both last quarter and next quarter into the reported quarter. But warm weather has resulted in a slower than expected start to the holiday season, and then looking out into next year, raw material cost pressures are going to start being quite significant, necessitating cost increases. The only good news was that they are within 120 days of announcing an acquisition and they have previously said, more-or-less, that they’d be looking for 15% return on invested capital from any acquisition, so this could be a very good use of cash. This is a good management team, and ultimately I believe they will generate reasonable returns for owners of the business, but the near-term stock reaction could be unpleasant, especially once the sole analyst following the stock [and what would a footwear company be without a sole analyst? – A.T.] cuts estimates, which she will have to after this call. There is a really big buyer at 10.25 currently, so hopefully the stock is cheap enough that some value investor is accumulating and it has found a floor. It is a very, very cheap stock. In a rational world, it would be time to buy. But in the world where stocks tend to overreact by a factor of 3 to news that changes earnings expectations, this stock is unlikely to do well in the next couple of months relative to the market.” I sold a third of mine. If I get to buy more at $8, I’ll be glad I did. If the market sees past these problems and it goes to $13 without dipping much first, I’ll be glad I didn’t sell more. CRME Guru adds this one to our latest speculative basket. “Will resolve its two overhangs by the end of the year,” he thinks, which could push the stock up from the current $4.60 to $7 or more. Remember, remember, remember: he’s often right but not always! So . . . only with money you can truly afford to lose. FAMILY OF SECRETS Amazon’s #1 best-selling book as I type this is George W. Bush just-released Decision Points. A good companion volume for a different perspective: Family of Secrets. “Shocking in its disclosures, elegantly crafted, and faultlessly measured in its judgments, Family of Secrets is nothing less than a first historic portrait in full of the Bush dynasty and the era it shaped. From revelation to revelation, insight to insight – from the Kennedy assassination to Watergate to the oil and financial intrigues that lie behind today’s headlines – this is a sweeping drama of money and power, unseen forces, and the emblematic triumph of a lineage that sowed national tragedy. Russ Baker’s Family of Secrets is sure to take its place as one of the most startling and influential works of American history and journalism.” – Roger Morris, former senior staff member, National Security Council, and author of Richard Milhous Nixon: The Rise of an American Politician and Partners in Power: The Clintons and Their America
New v. Small November 9, 2010March 19, 2017 YESTERDAY’S COLUMN COULD HAVE BEEN SHORTER Mark Budwig: “The irony is that, on most things, it’s the Republicans who go for the simple — generally simplistic — argument, while Democrats say, “No, it’s more complicated than that.” Here it’s VERY simple: 1. No amount of tax cuts will induce a business owner to hire a new employee he doesn’t need to handle demand, because the employee will be unproductive so reduce profit, regardless of taxes. 2. No tax increase will dissuade a business owner from hiring a new employee he does need to handle demand, because doing so – if his business is profitable to begin with – will increase his profit, regardless of taxes. Full stop.” NEW COMPANIES VS. SMALL ONES Tom Anthony: “Time to stop worshiping small businesses, says MarketWatch. Only NEW companies create jobs. SMALL companies per se don’t. Another red herring of the Republicans to divert our attention from their real object.” ☞ In part: . . . [I]t’s entrepreneurship we want to cultivate, not some nostalgic memory of Floyd the barber as the hero of the economy. We need to get away from the idea that smaller is better. In fact, newer is better. ☞ And I defy you to find a hungry young entrepreneur (or greedy old venture capitalist) who ever decided not to start a business because the $50 million payout he dreamed of cashing out with someday might be taxed at 20% instead of 15%. Did Steve Jobs and Steve Wozniak take this into account when they started Apple? Fred Smith when he started Federal Express? Robert Noyce when he founded Intel? Mark Zuckerberg when he started Facebook? Get real, people. Republican leaders are spreading another myth about small businesses [the MarketWatch piece continues]. They say that if the tax hikes are allowed to go through for the 2% of taxpayers who earn more than $250,000 a year, it’ll keep small-business owners from hiring. Their claim is nonsense. The tax rate that business owners pay is irrelevant to their decision whether to hire another worker. The main point to remember is that money spent on hiring new workers isn’t taxed at all. Think about it from the viewpoint of an owner who’s making $250,000 a year from a business and who’s thinking about expanding. If I hire more workers, my business costs will increase. I’ll have to pay their wages and benefits, train them, and buy the materials and the equipment they need. In order to turn a profit, I need to be able to sell the goods or services they produce for more than the cost of employing them. If I cannot sell their product for more than it costs, I won’t make a profit and I shouldn’t hire them. My decision is based on two factors: Costs and revenues. Notice that the decision does not depend on my tax rate. I pay taxes on the profits I receive, not on the costs of doing business. MUST SEE TV Yes, I’m posting this a third time, because you may not yet have found time to watch these two segments: Here is why we have a huge problem making our already messy democracy work. It’s Rachel Maddow on the $200 million a day we are spending on the President’s trip to Asia . . . except that we’re not,. But it doesn’t matter: the right wing has made it fact for a huge segment of our population, an increasing number of whom will now be sitting in Congress. And here she actually agrees with Rand Paul on something . . . and makes the fundamental point that adding $700 billion to the deficit by extending tax cuts on income above $250,000 will make the deficit bigger. Not smaller. Bigger. Not smaller. Bigger. Not smaller. Bigger. And yet it is the Republicans’ number one priority. And we really, really, really need to fight it. KNOW ANYONE WITH KIDS IN HIGH SCHOOL? Rick Sparks: “I read Debt-Free U over the weekend (I read your promo for it a few weeks ago). An outstanding book by an extraordinary young man confronting a rising problem in our nation. Thanks for the tip.”
A Republican Who Should Be Ashamed November 8, 2010March 19, 2017 MIKE BLOOMBERG IN CHINA As quoted in the Wall Street Journal: ‘If you look at the U.S., you look at who we’re electing to Congress, to the Senate – they can’t read,’ he said. ‘I’ll bet you a bunch of these people don’t have passports. We’re about to start a trade war with China if we’re not careful here,’ he warned, ‘only because nobody knows where China is. Nobody knows what China is.’ NICK KRISTOF IN A BANANA REPUBLIC From his column in the New York Times: ‘I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie. But guess what? You no longer need to travel to distant and dangerous countries to observe such rapacious inequality. We now have it right here at home – and in the aftermath of Tuesday’s election, it may get worse. . . .‘ MITCH MCCONNELL FACES THE NATION The recipient of more money from the tobacco industry than any other Senator or Congressman, Senate Minority Leader Mitch McConnell opposed providing insurance for children by taxing tobacco. How can you not love a man who stands up for the interests of tobacco companies against the interests of sick children? He is against virtually everything President Obama is for – everything from campaign finance reform to the Bipartisan Deficit Commission his own party proposed, but then blocked once the President signed on to it – and he says the thing he most hopes to accomplish over the next two years (job creation? infrastructure renewal? an energy policy?) is seeing to it that President Obama serves just one term. ‘A vast majority of Americans feel very, very uncomfortable with this new [health care] bill,’ said Mitch McConnell looking into the ‘Face the Nation’ camera yesterday. (Actually, according to this poll, 45% ‘strongly favor’ repeal . . . which may not be a vast majority. But when you add in those who merely ‘favor’ repeal, the number goes up to 58%, which is about as vast as a majority can get, I guess, short of complete unanimity.) One reason so many people hate it is that they have been told relentlessly to hate it. Senator McConnell referred to it yesterday morning as an ‘awful monstrosity’ – the AARP and the AMA both supported passage – and if you can’t trust Senator McConnell when it comes to issues of health, whom can you trust? Did you watch? It’s not just he, of course, it’s the whole neatly coordinated Republican Party, which includes Rush Limbaugh, Fox News and all the rest. But he is one of the worst. Here’s the latest deception: When it comes to borrowing $700 billion over ten years to extend tax cuts on income above $250,000, it’s not millionaires and billionaires the Republicans are looking out for – it’s small business! This isn’t about helping rich people! This is about helping small business in order to create jobs! The Republican Party has always been a champion of the worst off, be it through Reagan’s ‘trickle down’ plan (that even George H.W. Bush called ‘voodoo economics’ until he became Reagan’s running mate) or Bush 43’s tax cuts ‘by far the vast majority’ of which, he and his team assured us over and over, would go to ‘people at the bottom of the economic ladder.’ We can’t raise taxes on income above $250,000 – we need to borrow that $700 billion over ten years – because, Senator McConnell said over and over yesterday morning on ‘Face the Nation,’ ‘it would be a mistake to raise taxes on small business in the middle of a recession.’ Mitch McConnell surely knows: (1) Most small businesses make far less than $250,000 in taxable profit and would thus be entirely unaffected. According to this from the SBA (Table 3, Page 19), 88% of all small business tax returns in 2004 (before things got bad) had gross receipts below $250,000. The taxable net, after all costs of doing business, would have been way lower still. (2) Allowing the tax cuts to lapse on income above $250,000 will mostly affect wealthy investors who have absolutely nothing to do with small business. (3) The President has already pushed through 16 tax cuts specifically for small business – over Republican opposition. (4) The tax rates we’re talking about are (more or less) the same as those that prevailed under Clinton/Gore. At the time, when Clinton pushed them through without a single Republican vote, the Republican predictions were dire, just as they are today. (Among the mildest: ‘This plan will not work,’ Ohio Congressman John Kasich told CNN in 1993. ‘If it was to work, then I’d have to become a Democrat.’ Well, it did work. Magnificently. The economy grew, unemployment fell, we balanced the budget – but Kasich remained a Republican. Indeed, last Tuesday, riding the wave of economic misery that resulted from his party veering off the Clinton/Gore path, he became Ohio’s next governor!) (5) Small businesses making more than $250,000 a year in profit will hire more workers if it will make them more money (regardless of the tax rate); not hire more workers if it won’t (even if we dropped their tax rate to zero). (6) We tried the ‘borrow massively to fund tax cuts for the best off’ strategy. We have the tax rates Senator McConnell espouses. Have they led to job growth? To a resurgent middle class? The Senator acknowledges none of this. Instead, on ‘Face the Nation,’ he says we’ll be raising taxes ‘on 750,000 of our most productive small businesses, which represents 50% of small business income and 25% of the work force.’ But let’s say you are a hedge fund with 30 employees – a nice small business. And let’s say you made $500 million last year. Your income is figured into Senator McConnell’s small business statistics. But would a hike in your tax rate really cause you to cut back your hiring plans? Because he includes hugely profitable hedge funds in his figures – and a rock star’s ‘small business’ income – Senator McConnell harks back to the famous homeless shelter whose residents have an average $50 million net worth the day Bill Gates is visiting. A lot of the Senator’s 750,000 small businesses are dentists and doctors and lawyers and accountants (and financial writers!) who would find themselves taxed as they were under Clinton/Gore. Would this keep them from hiring an additional hygienist or nurse or paralegal if an uptick in their business required one? Remember, the cost of that new employee is a business expense that lowers taxable income. The higher the tax rate, the lower the after-tax cost of adding him or her. It’s this simple: we can’t afford to extend the tax cuts on income above $250,000. Those who argue that we should borrow $700 billion over 10 years to do it – and who in the next breath rail against the deficit – are at best not thinking very clearly. In McConnell’s case, as he surely understands all this, it is more sinister. As I quoted Reagan’s own budget director Tuesday: ‘The Republican Party, as much as it pains me to say this, should be ashamed of themselves.‘ MUST SEE TV And on a tightly related note . . . in case you missed it last week, here is why we have a huge problem making our already messy democracy work. It’s Rachel Maddow on the $200 million a day we are spending on the President’s trip to Asia. (Except: we’re not, anymore than there were death panels or that Iraq attacked us on 9/11. But it doesn’t matter: the right wing has made it fact for a huge segment of our population, an increasing number of whom will now be sitting in Congress.) And then you have to watch this one, where she actually agrees with Rand Paul on something . . . and makes the fundamental point that adding $700 billion to the deficit by extending tax cuts on income above $250,000 will make the deficit bigger. Not smaller. Bigger. Not smaller. Bigger. Not smaller. Bigger. And yet it is the Republicans’ number one priority. And we really, really, really need to fight it.
The Retirement Home And Must See TV (Really You Must) November 5, 2010March 19, 2017 NOW YOU GET MAD? This message to the Tea Party has been circling the Internet since March if not before. In case you hadn’t seen it. HOMEOWNERSHIP FOR A RETIREE Gene S.: “What percent of net worth should be in one’s home? Let’s say a person is retired at 59 and has a net worth of $3 million, what should be the value of his home or condo?” ☞ So many factors to consider, including key ones impossible to know. Like how long you’ll live and what kind of investment returns you’ll achieve. Let me scratch the surface – and no more than that – by suggesting I would come at it from the other direction: how much income will you have available to live on after taxes and inflation (including Social Security, once you start taking it) . . . and then how much of that are you comfortable apportioning to the costs of home ownership? Ideally, you’d find a house or condo you really love – in part because it’s so economical. These days, I need hardly tell you, there are a lot of motivated sellers. Can you get by on $80,000/year in after-tax money and still afford this place? If it’s a $250,000 house or condo, you probably can, easily. If it’s a $750,000 house or condo – with all the property taxes, insurance premiums, and other costs – probably not. A $250,000 home would leave you $2,750,000 to invest. If you could earn 2% above inflation (but before 35% in federal and state income taxes) – all fairly conservative assumptions – that $2.75 million throw off $80,000 a year (in today’s dollars) all the way to age 100. Could you live on that (plus Social Security) while bearing the costs of your home? It would not be crazy to spend more than $80,000 a year; but the less you spend now, the more security and options you preserve for later. You actually sound like a perfect client for my friend Less Antman (see the link to Ask Less, at left). MUST SEE TV Here is why we have a huge problem making our already messy democracy work. Don’t miss Rachel Maddow on the $200 million a day we are spending on the President’s Asia trip. (Which we are not doing, anymore than there were death panels or Iraq attacked us on 9/11, but it doesn’t matter: the right wing has made it fact for a huge segment of our population, a increasing number of whom will now be sitting in Congress.) And then you have to watch this one, where she actually agrees with Rand Paul on something . . . and makes the fundamental point that adding $700 billion to the deficit by extending tax cuts on income above $250,000 will make the deficit bigger. Not smaller. Bigger. Not smaller. Bigger. And yet it is the Republicans’ number one priority. And we really, really, really need to fight it.
Six Weeks’ Paid Vacation November 4, 2010March 19, 2017 PAPER Yesterday, mud; today, paper. Twenty-First Century stuff of a high order. Boise (BZ) reported healthy earnings and a special 40-cent-a-share dividend yesterday. This is good if you own the stock (suggested here at $4.15 in 2008 and then again here a few months later at 53 cents). It closed last night at $7.69. And it’s probably good if you own the warrants, which you might have bought for as little as 2 cents (they closed last night at 70 cents). The warrants are now “in the money.” They give you the right to buy the stock at $7.50 anytime up to next June 18. Some investors will be heartened by the encouraging earnings and dividend and might bid the price up higher in hopes of even better things – and more dividends – ahead. But once that 40-cent dividend is paid, the company will be worth 40 cents a share less. The closer the warrants come to expiration, the dicier the gamble. I’ve by now sold about three-quarters of mine, in a sophisticated strategy (see if you can follow the math) known as, “I’d kill myself if they expired worthless and it turned out I had passed up a 35-fold gain only to see it waste away to zero!” But I still have a meaningful chunk because I’d kill myself equally dead if the stock hit $9 or $10 or even $12 by June 18 and I’d sold all my warrants at 70 cents – when, with the stock at $10, they’d be worth $2.50; at $12, $4.50. DYAX Alan F.: “We’ve had lots of updates on DCTH and DEPO, but nothing recently on DYAX, which is the one that isn’t doing so well. Sell and cut our losses, or hold on?” ☞ First suggested here a year ago at $3.19 (and for a while topping $5), DYAX closed at $2.41 yesterday. Guru says it’s not unreasonable to think the stock would be back above $4 in a year or two – their product is on an upward sales trajectory and they have about 15 partnerships with drug companies. “Some of those will turn out to be valuable,” guru says. “So the issue is that DYAX continues to put one foot in front of the other. But at the moment, no one cares – and the company hasn’t given anyone a strong reason to care.” COMPETING WITH EUROPE Myriam Miedzian at the Huffington Post, in part: Capitalism Uber Alles: How the American Working Class Got Brainwashed . . . Our country has long been admired for its extraordinary social mobility, but as Arianna Huffington points out in Third World America, Canada, Germany, Denmark, Norway, Finland, Sweden, and France now have greater social mobility — university education is free, or at minimal cost in Western Europe. Compared to other advanced industrialized countries which all provide universal health care, we are at the bottom in life expectancy and infant mortality. Americans have three months unpaid parental leave — Swedes have 13 months, paid. Unlike Western Europeans, we have no government legislated paid vacations. In Germany, the world’s largest exporter after China, workers get 6 weeks a year off. Americans average 13 days. American conservatives delight in predicting the imminent demise of socialistic Western European benefits. But these benefits are part of the social contract within which all major European political parties, including conservatives, operate. While large national debts are leading to some cuts in benefits, these cuts do not represent reneging on that contract, just as cuts to education in the U.S. do not represent reneging on government funding for education — which is part of our social contract. A look at the divergence in political thinking between Western Europeans and Americans provides much of the answer to why we lag so far behind. . . . ☞ Think about it: We are more than triple their population – and we have all those amazing agricultural exports – yet Germany, with its 6-week vacations, universal health care, and strong labor unions, outcompetes us in the world market. How can that be? We’re number one! But in obesity. China now has the world’s fastest supercomputer. Can the solution really be to borrow $700 billion to extend tax cuts on income above $250,000? Get rid of the minimum wage and social safety net, cut back on education, deregulate polluters, and increase military spending? Food for thought.