No New Taxes

Posted by Ray on August 4, 2009 under Main | Be the First to Comment

Give me a break, the mere fact that our government is not taking “anything” off the table is proof enough that taxes will be realigned to make sure they are “fair.” The question is what are they going to consider fair and for what income levels.

Given the projected national debt load, it can be assumed that tax rates will increase for the wealthiest 5% of Americans, as stated in Obama’s campaign. However, to assume that those who are making $100-$200K will not see tax rate increases is absurd. We know capital gains taxes are going to go to at least 20%, but some indications that 28% is not off the table. However, there is a possibility that capital gains taxes may only increase on “wealthier” Americans.

What we know is this, higher taxes are very bad for economic growth and always temporarily boost tax revenue in the short-term, but long-term tax receipts always drop. My issue is where the line in the sand is drawn as far as who is wealthy and who is not. If it is determined that those making $100K a year are wealthy then we are in serious trouble because that income range is not wealthy and more Americans will have higher tax rates.

Even if taxes are for the wealthy it is only a matter of time before those higher tax rates trickle down to lower income brackets. The AMT, alternative minimum tax, was intended for higher net worth individuals, but more and more Americans are subject to this draconian tax every year. I fear that any tax increase will have the same unintended consequences.

Although, I question whether or not higher rates on all Americans will be an unintended consequence or a carefully orchestrated maneuver. What will happen is that higher taxes will produce higher tax receipts for a year or so and then when the receipts decline, as they always do, then taxes will have to be raised for all Americans. Given our current and projected national debt load I believe we are all doomed to pay higher taxes.

There is no way out of this situation, well there is another  more politically accepted way, but it is just as dangerous to America as higher taxes. The US can inflate its way out of it debt by printing money, which is currently happening. Inflating our currency may be great for paying off our debt, but it will cost us as central banks will not loan us as much money and Americans will be paying a lot more for goods and services.

No matter how we try to solve our debt problems our trying to figure out how to pay for universal health care I personally believe higher taxes are the end result. That is what is meant by Americans will have to “sacrifice” something for our new health benefits and social engineering. Unfortunately, it is the wrong choice to make and our current social programs are just more waste which will drastically increase our debt load.

What Happens When there is No More High Income Earners?

Posted by Ray on July 12, 2009 under Main, Politics | Be the First to Comment

We favor a public insurance plan simply because it is embarrassing for the most powerful country in the world, and the richest, supposedly, to have so many people go without health care. The numbers are skewed and the real uninsured number, for legal Americans, is somewhere in the area of 8 to 10 million people, perhaps as high as 15 million depending on who you listen to, but the ways our wonderful government are considering to fund it is just stupid.

They are considering another tax on the wealthiest of Americans to pay for this. This would be on top of the already promised tax increase Obama campaigned on. The problem that these idiots have not thought of is what happens when high income earners disappear or are substantially reduced? We know things are tough and we know or understand that many feel that the tax system does favor the rich, and it might to a certain degree, but we need the rich as much as they need us.

How about this, let’s just assume you make $250K a year and your tax rate increases to 40% not including state taxes. You will now be paying $100,000 to the government every year and if we add in state taxes you would be paying another 9% or another $23,500. That means you would be paying $135K a year in taxes and bringing home $116,500 a year.

Now if we use the same numbers but add another 5% tax to fund health care then the numbers really stink. In fact, you would be adding another $12,500 a year in taxes and we are not even including the AMT, alternative minimum tax, of 16%. Now include health insurance, retirement or 401k savings and other miscellaneous taxes and fees and you are bringing home next to nothing.

Where is there incentive to earn more money under this proposal? To be a good citizen and fund everyone else’s health insurance? Simply put, this is not fair and will cost jobs and reduce productivity.

Not only that, but what happens when inflation hits? When inflation first hits it is painful and in response we will then have wage inflation so people can live. This is typical during high inflationary times. Now, we will have much higher living costs and your income will increase, perhaps to as high as $250,000 a year and then you would be paying those taxes, does this sound fair now? Of course not.

If you think this could not happen you are wrong. It already happened in the late 70′s and has happened all around the world already. Your income will increase but its buying power is reduced to nothing during inflationary periods. This new tax or taxes do not take this into account.

Now, if inflation does not occur, which is unlikely, then people will not want to earn more money because there is no point. What would happen then? They would have to reduce the definition of “rich” down to a level where they can collect these taxes, perhaps to $150K a year or lower even. The unintended consequences is that many more people moving forward will have to pay more in taxes which is not good.

This is also something that cannot be undone as well. If you think the government can run insurance programs correctly, think again. I can point to Medicare and the National Flood Insurance program as 2 great examples of mismanagement, mis pricing and general stupidity.

Once they enact this, if they enact this, then how could they ever undo it? They can’t so you better be prepared to pay more in taxes and you should be careful what you wish for as you just might get it.

The great American ripoff is growing.

So, Do You Like Taxes?

Posted by Ray on October 29, 2008 under Main | Be the First to Comment

Regardless of what happens next week the one thing we know that is going to be a fact is that there is no tax cut coming, for anyone. All those campaign promises are just the stuff to get the person in office and once they realize that Congress has to approve it and they have to pay for it somehow.

Both candidates say that there will be tax cuts, but it just is not possible. If either of them get what they want then we are, long-term, in big trouble. We have too much debt, as the financial meltdown has shown us, and there is no one to bail out the government if it fails, well no one we want to bail us out, huh, hum China…

No matter who wins the election there is no way we can keep taxes where they are. They will have to go up in order to boost revenue in the short-term. We do not want to see it happen, but there is simply no other way out of this huge deficit we have. Neither party can deliver the tax cuts or their talking point programs there simply is no money to fund them with.

When they figure this out then they will look to us, again, to pay for their pet projects and staggering debt. Taxes go up and down, but now they will have to trend higher. Sorry, and keep your political comments to yourself please as we believe both candidates are very, very flawed.

They Just Don’t Get It…

Posted by Ray on October 28, 2008 under Main | Be the First to Comment

Nope, they have not and they will not understand the benefits of variable annuities. This market which has devastated retirement savings has had nothing that has gone up. Even gold has now declined in value, bonds are a no go, especially corporate bonds and stocks have been horrible.

However, a variable annuity with a living benefit has done something that no other investment has done, guaranteed retirement income without annuitization. All the financial writers in the world tell you to buy index funds and to stay away from those bad variable annuities. If you listened to them you would be sucking wind in the S&P 500 with 24% or more exposure to financial stocks – pre-market meltdown – and another 20% or so in technology which as also suffered badly.

Even with reality hitting them right in the face they still deny variable annuities their rightful place as a good investment alternative. They, the financial guru’s, just don’t get it. They do not understand that the Democrats will more than likely take the Whitehouse and Congress which will ultimately raise taxes, specifically the capital gains tax.

A complete Republican controlled government did not do well, spending went through the roof along with other questionable behavior, what makes them think that Democrats will do any better when they have a much stronger history of raising taxes. Actually Obama is the only political candidate that we have ever known to be, possibly, elected on the premise that he is actually going to raise taxes.

Your political affiliation does not matter, all you need to know is what we have been saying about the 15% capital gains tax is correct, it’s going higher. Regardless of who would have been elected taxes would need to be increased given the massive debt the US has, we just never had such stark honesty from a politician who is advocating higher taxes.

So, income taxes will go up for those “wealthy” Americans, we will see what the term wealthy means after the election, and capital gains taxes will go up. This means that all distributions from mutual funds will be taxed higher and it blows the argument right out of the water for the Suze’s, Liz Pullman’s and Scott Burn’s of the world.

Oh, did we mention your retirement income is also guaranteed?

The Tax Man is Here, Yet Again

Posted by Ray on April 15, 2008 under Main | Be the First to Comment

Today is the last day to mail your taxes and as many people now know their investments also come with tax liabilities. Many people will tell you that investing in mutual funds is a better idea than using a variable annuity because of the long-term capital gains treatment. The irony is that the long-term tax treatment is only relevent to sales of your mutual funds that are more than 12 months old and only on a portion of your total mutual fund distributions.

The vast majority of your distributions from your mutual fund account was probably short term income distributions. That means that the gains from this account will be taxable at your ordinary income tax bracket, not the famed 15% long-term capital gains rate that many claim you will be taxed at.

With turnover rates of mutual funds hovering around 100% annually it is highly unlikely that you will pay long-term capital gains on your investments in the future, unless you sell your fund. To add insult to injury the sub-prime meltdown has handed investors hefty losses on their mutual funds and now they owe taxes on a fund that lost them money.

With a variable annuity you would have circumvented both of these situations. The tax deferral would have shielded the investor from taxes and a living benefit would have preserved the investors income or principal, depending on what type of benefit they bought. To find out what type of benefit is right for you go to Annuity IQ to find out more.