When President Obama ascends to the podium this evening to deliver his State of the Union address, he’ll undoubtedly shine a spotlight on the many strengths of America. The real issue, however, isn’t where the United States is today. The problem is where it’s going. And quickly...
WWII is still reshaping our economic reality. The subsequent baby booms in the US and globally in Japan, Europe, and so many more locations which were affected by the war created a “pig in the python” moment. This unusually large wave of population growth from ’45-’55 was “pent up demand” from the war. But society and its leaders assumed this baby boom anomaly to be the new reality. The “pig is passing” from the American and global workforce into retirement and now the wreckage and folly of such basic misnomers has come home to roost…and will get far worse.
The Congressional Budget Office (CBO) just released its annual report on “The Distribution of Household Income and Federal Taxes” analyzing data through 2011 on American households. The major finding of the CBO report is that the households in the top income quintile are the real “net payers” of the US economy. The highest income quintile is basically financing the entire system of transfer payments to the bottom 60% and the entire operation of the federal government. And yet don’t we hear all the time that “the rich” aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden?
Do you have a friend who consistently borrows 30% of his income each year, is currently in debt about six times her annual income, and wanted to take advantage of short-term interest rates so that he needs to renegotiate with his banker about once every six years? Well, if Uncle Sam is your friend you do!
Eritrea - a tiny, mostly unheard-of country in East Africa - taxes its citizens who live abroad. Nearly every other country in the world bases its tax system on residency rather than citizenship. This practice has been condemned as “extortion” and a "repressive" measure by an 'authoritarian' government by the media. In Resolution 2023, the UN Security Council condemned Eritrea for "using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals." You may be thinking, "What's the controversy? Eritrea is getting criticized, and rightly so.” But there's another country that does the same...
"The ECB's quantitative expansion is hitting the financial system at a time when broad liquidity is also very high. The rise in excess liquidity, i.e. the residual in the model of Figure 3, is supportive of all assets outside cash, i.e. bonds, equities and real estate. The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme, in our view.... These liquidity boosts are not without risks. We note that they risk creating asset bubbles which when they burst can destroy wealth leading to adverse economic outcomes. Asset yields are mean reverting over long periods of time and thus historically low levels of yields in bonds, equities and real estate are unlikely to be sustained forever."- JPMorgan
Remember all those allegations that Obamacare would be an unmitigated disaster for businesses, especially smaller companies? Well, now we have some facts. A week ago we noted that the Philly Fed found that Obamacare was a disaster for business, and now no lessor entity than the Congressional Budget Office (CBO) is out with its latest forecasts, concluding "certain aspects of the Affordable Care Act will tend to reduce labor force participation." While we already noted that 'work is punished' in America, it appears now that with Obamacare, non-work is actually incentivized.
There are many ways to look at the United States government debt, obligations, and assets. But TrimTabs's Charles Biderman cuts straight to the bottom line and add it all up - $89.5 trillion in liabilities and $82 trillion in assets. There. It’s not a secret anymore, and although these are all government numbers, for some strange reason the government never adds them all together or explains them - but we will. No one can really know what will have value in this politicized crony capitalistic system as the hyper-monetization ramps up... all I can suggest is to hedge your bets with some physical precious metals and some minimal leveraged real estate. Unfortunately, the more you know, the more you know you don’t know... invest and live accordingly.
As the topic of "unpatriotic" 'tax inversions' becomes a political issue, we thought it interesting to examine how big an economic issue it really is. How much income tax do U.S. companies actually pay every year to the Federal government? As ConvergEx's Nick Colas notes, the simple answer is “Not much”, at least as compared to any other major source of revenue. In Fiscal 2013, Colas adds, the total was $274 billion, or just 9.9% of all tax and withholding receipts. Your political leanings will inform your opinion about whether that number is too high or too low, of course; but we point out that, as Reuters reports, a former international tax counsel at Treasury explains Obama could "slam dunk" dictate an end to 'tax inversions' without Congressional approval (by invoking a little known 1969 tax law)
Corruption ceases to be corruption when it becomes the Status Quo; what was once recognized as corruption is seen as just another cost of doing business. Our political order is structurally corrupt: the key dynamic in every level of governance is favoritism and extortion.
From 1998 to 2013, Barclays and Deutsche Bank sold 199 basket options to hedge funds which used them to conduct more than $100 billion in trades. The subcommittee focused on options involving two of the largest basket option users, Renaissance Technology Corp. LLC (“RenTec”) and George Weiss Associates. The hedge funds often exercised the options shortly after the one-year mark and claimed the trading profits were eligible for the lower income tax rate that applies to long-term capital gains on assets held for at least a year. RenTec claimed it could treat the trading profits as long term gains, even though it executed an average of 26 to 39 million trades per year and held many positions for mere seconds. Data provided by the participants indicates that basket options produced about $34 billion in trading profits for RenTec alone, and more than $1 billion in financing and trading fees for the two banks.
Yes, the nonfarm payroll clocked in at 138.5 million jobs and thereby retraced for the first time the point at which it stood 77 months ago in December 2007. This predictably elicited another “milestone of progress” squeal from the mainstream media. So you have to wonder. Did these people skip history class? Do they understand the vital idea of “context”? So if you want to try a little “context” absurdity recall this. So far we have created a trifling 100k “new” jobs since the last cyclical peak. During the equivalent 77 months in the Reagan era the US economy actually generated 150 times more jobs!
NY Republican Congressman, and former FBI agent (ironically), Michael Grimm - who became infamous for threatening an NY1 reporter "I'll throw you off the fucking balcony... I'll break you in half" - has been indicted on campaign finance charges as well as mail, wire, and healthcare fraud. Oh and since he seemed such a trustworthy and honest chap after his apology for the prevous threats, he is also being charged with perjury after lying about all the other shit he did... Welcome to American politics... As AP reports, he has pleaded not guilty to the 20-count federal indictment.
If you read this without saying "umm, what?" read it again... USA Today notes that a report by the Treasury Inspector General for Tax Administration shows the IRS handed out $2.8 million in bonuses to employees with disciplinary issues - including more than $1 million to employees who didn't pay their federal taxes.
One of the most consistent debates emanating out of Washington in the past 6 years has been that dealing with income tax. Whether high, low, "fair" or "unfair", said discussions, however, focus solely on tax paid at the Federal level, and largely ignore that "other" key tax: state. Which is surprising, considering some states such as California demand a total contribution amounting to a third of the highest marginal Federal tax bracket, which could make some wonder if those bracing sea breezes are really worth it. But what about the other states? Here is the full breakdown of the states with the top income tax rates, those with the lowest, and all the states inbetween.