Today's Examination Of Yesterday

Tyler Durden's picture

Via Mark J. Grant, author of Out of the Box,

“Until we can re-establish a condition under which the earnings of the people can be kept by the people, we are bound to suffer a very severe and distinct curtailment of our liberty.”

                    -Calvin Coolidge

I left yesterday for the bobbling heads. Those small dolls resident in the back of car windows that nod up and down as you go over every bump in the road. I left yesterday for the media spinners. Those that are paid to turn diamonds into lumps of clay and then back again by the glittering facets of their arguments. I left yesterday to the artists of verbiage that weave arguments of their own accomplishments much as the artists of Three Card Monty hide the truth behind their shells. I left all of that for yesterday so that today we could examine the reality of that which we have been presented.

Yesterday we had a nice rally in the equity markets. No surprise; the sigh of relief was palpable that Congress did something, anything to address our fall over the cliff. I would not get too excited however. We raised taxes, we penalized those succeeding and we did it in a meaningful manner. We did not cut the national debt as sung by the chorus across the airwaves. In fact, according to the Congressional Budget Office we decreased revenues by $3.6 trillion over ten years. We did not protect the middle class, but because of the expiration of the payroll tax decrease, Federal taxes will rise for 77% of all working Americans. Thus we rewarded non-working Americans at the expense of those with jobs. For those that are truly succeeding, making over one million dollars, we increased their taxes by $171,300.00 on average which becomes a disincentive to progress or a very good reason to explore tax avoidance and gimmickry. We still face “sequestration” in March and the “debt ceiling” in February and nothing was done to curtail our social and entitlement programs that cannot be afforded without even more debt and mountains of it regardless of all of the new taxes. The game was the continuation of postponement and avoidance and reckless governance of the nation.

The spin is that the increase in taxes on capital gains and dividends will rise from 15% to 20% (a 25% increase) but this is not accurate. Under the Affordable Care Act, which is in effect today, there is another 3.8% tax which raises taxes on capital gains and dividends to 23.8% which is a 37% total raise. So much for the value of appreciation and the value of dividends if you start out yards behind the eightball. Then you can feel very proud of our President and our Congress because they feathered the nests of so many peacocks in the process. GE’s tax bill was lowered along with several other companies with the $111.2 billion extension for off-shore financing. How about $78 million for Nascar, $248 million for films and TV programs in additional depreciation and $222 million in a special exemption for imported rum.

Unintended consequences

One of the unintended consequences of all of these new taxes may be a population shift in the United States. Many people in higher income states like CA, NJ, NY or CT will be paying well over 50% now between Federal taxes (39.6%), the rise in Social Security taxes (2.00%), the new Obamacare tax (3.8%) and the increase in Medicare taxes (1.45% to 2.35%). Add to this state income taxes and many people in those states will be paying 50-60% of their income in combined taxes. These are levels of taxes where not only disincentives come into play and where tax chicanery is multiplied but where people and possibly corporations will change locations based upon what the various governments take from their pocketbook.

The Best Bet

There was lots of talking about it and speculation was rampant but Municipal bonds were left alone in the new legislation. The major indices for Munis had declined around 3.5% prior to the new laws but yesterday, when long Treasuries were off 1.75 points, these same indices were up around one point. I have long suggested buying Municipals as many credits are cheaper than corresponding corporates on an apples to apples yield basis given the ratings. Forget the tax consequences; the absolute yields on many Municipal bonds are better than equally rated Corporate or Mortgage backed bonds. Municipals now represent the last large pocket, the last asset class of investments, where tax exemption may be found and this is now far more important than it was on he final day of the last year. I suggest getting in now because Muni’s will compress and keep compressing against Treasuries and there is very good value now to be found here.

“This country would not be a land of opportunity; America could not be America, if the people are shackled with government monopolies.”

                          -Calvin Coolidge

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TuesdayBen's picture

...raised taxes?! WaPo columnist Ruth Marcus today states that "...nearly all Americans...will not see income taxes rise"...

flacon's picture

Is that because "nearly all" Americans are receiving more money from the government than they are paying to the government?

SheepDog-One's picture

RIGHT! They WON'T 'see' that tax will just be a '-' sign on their next paycheck!

odatruf's picture

And she's right. About income taxes. Payroll taxes are another story. The increase in medical costs resulting from the new Obamacare taxes are also another story. The costs associated with pervasive inflation as a result of CTRL-P is yet another story. The costs caused by wage and economic stagnation is still more.  And so on.

But, yeah, most people will be just fine as far as income taxes go.  And hey, with wages being driven down, really they are going to pay even less!!  Winning, Forward Style.


booboo's picture

We have as a nation evoloved into a mass of milkers, takers and whiners. But evolving has taken years of central planned engineering. We are a hybrid american species having our natural inclinations of hard work, perserverence and the family unit engineered out of the DNA by an evil and oppressive few. Party on america, party on and pay no attention to that blight massing on your roots for your natural defence and response to pain that might indicate a problem has been surgically removed in the petri dish of public education, television, "gimme programs" and pop culture.  

Spastica Rex's picture

Botomless fear and desire.

Thank the marketers and bankers.

Everyone is free to want and fear less, though. Seriously.

RiverRoad's picture

If only they knew it.  Unfortunately the masses have been conditioned from birth to want and need endlessly.  Works for the marketers; works for the bankers.  It's the American way.

Flounder's picture

Meanwhile the weekly EURUSD chart is forming a failed breakout.  1.27  coming on the way to 1.21?

Hohum's picture

Mark Grant assumes that most people making over $450K are job creators.  I think he's spot on wrong, although I am open to proof to the contrary.

adr's picture

Nobody milking unearned income from capital gains is a job creator, in fact they are all net job destroyers.

I would love to see the capital gains tax rate jump to 90% over $100k. If all the uber wealthy leave America to milk better capital rates from other countries, so be it. America doesn't need the leeches at either end.

I come from the Andrew Mellon school. Lower taxes on earned income, increase taxes on unearned. Productivity is to be celebrated, sitting in an ivory tower collecting stock options should be punished.

Publicly traded corporations are the enemy, private enterprise is the savior. Private enterprise relies on smart hardworking employees and real profit to exist. Public enterprise relies on government handouts and bullshit hype to milk cash from anyone stupid enough to invest in the phantom of actual business.

RiverRoad's picture

As long as no money/jobs gets in the hands of the sheeple the 1%ers private party will roll on sans inflation.

CrimsonAvenger's picture

This was Grant's best article - direct and to the point, whereas normally he covers up what he's trying to convey with overly clever and unnecessary prose. I suspect he's too pissed or despondent to layer his work with unnecessary fluff. I hope he sticks in this vein because I do think he has something worthwhile to say.

donkshover's picture

If i'm on the Titanic and I know it I may as well take a seat,sit back have a buffet and enjoy the view. Why the hell should I be cooking the food, waiting the tables and cleaning up after everybody when I know I'm screwed too? Its time to keep the income under the radar, grab me a snap phone and whatever goodies I can. This ship aint changing course.

adr's picture

But when you were on the Titanic, you were told it was unsinkable, and you believed it. Even after you hit the iceberg, the captain told you everything was fine. You would have kept on dancing until you saw the bow raise above the water.

You're describing more of the Armageddon scene where the world has been told the mission was a failure and to prepare for the asteroid to wipe you out.

Schmuck Raker's picture

"...$222 million in a special exemption for imported rum."

Hey now, don't mess with the rum, that's important!

Buys MY vote.

Shizzmoney's picture

Thus we rewarded non-working Americans at the expense of those with jobs

Like the 20-something female with 3 kids by 4 different baby daddies, and of course, the retired old white guy who hates "the gays and the brown people and the socialism"......despite the fact he cheers on black players destroy each other during football on Sundays, drinking beer paid for by the checks funded by the taxpayer via Social Security?

Oddly enough, you don't hear much on these financial blogs about the amount of welfare Goldman recieved, as well as the traders and paper pushers getting shuttled cash from the taxpayer, that is 100x's more than any mom on welfare will EVER recieve.  But hey, that mom getting a check of $300 dollars a month, yeah THAT bitch is the problem!

Maybe if those on the right would maybe take a look up at take on those who CREATED the problem, for their financial gain, instead of shitting on poor people because they are an easy target........the American public would, you know, actually respect your fucking opinion.

But lets pick on the old people, the brown people, because you know, no one cares about them anyways, right? 

I actually root for an austerity right wing president and Congress.  Get em in there. Cut all of the entitlements, the welfare, the unemployment benefits, the entitlement our soldiers recieve when coming back overseas after fighting wars based on lies.  All of it. 


GCT's picture

Shiz you must not read ZH much.  I suggest you read more ZH as we discuss it here all the time.  Reading skills for the win Shiz. Theft is theft Shiz no matter who is stealing from you.  But I guess you blame the white folks for all of this.  They already screw the elderly in this country mmight as well start screwing the rest of us.  Oh I forgot they already are if you make any money actually working.

NotApplicable's picture

That's a lot of damn words to try and call out Tyler, only to contradict yourself in the process.

Logic is your friend.

Darksky's picture

If there was only ONE 20-something female with 3 kids from 4 different baby daddies then we wouldnt mind spending $300/month on her. But sadly there are millions of women having 3 babies with 4 different men. Please explain to me how one of those babies can have two daddies.

Shizzmoney's picture

Please explain to me how one of those babies can have two daddies.

It's in limbo.  Tune in to Maury Povich on Friday to find out who is the "winner"!

JohnFrodo's picture

It was a huge victory for the right. Progressives got a higher tax, but no increase in capital gains tax. Most if not all the superich do not get a salary. The next debate over cost cutting is all going to be in the socialist sphere. The right has made starving the goverment a permanant condidtion.

JohnFrodo's picture

okay a small increase on capital gains.

JohnFrodo's picture

Capitalism is a total surrender to human nature.
Communism is a total denial of human nature.
Socialism is your mother saying make your bed TM
copyright 2012 Steve

sbenard's picture

Calvin Coolidge was perhaps the greatest president of the 20th Century. And the one most often vilified by progressives. His model was THE most successful economic model of the past century, and yet it is the one progressives want us to forget.

Darksky's picture

Roger that. The man just keeps climbing my list of best Presidents ever.

heywood jablowme's picture


You are dead wrong on your muni bet.  First of all, the idea of a 28% cap on exempt interest will certainly be part of the discussions over the next month and is still a favorite for enactment as it is one of the few areas with support from both parties.  When this happens municipals get hammered.  Second, and more important, exempt municipals are currently expensive compared to corporates or taxable municipals.  The easiest comparison is MUB (2.66% yield)  vs BABZ (4.17% yield).  When comparing to corporates, just look at MUB vs. LQD (3.60% yield) and you will see your premise of municipals yielding more than corporates is WRONG.  Best bet...short MUB, go long BABZ! When the 28% cap to exempt income is enacted the yield ratio between these two funds will go from the low 60s to the mid 70s real fast.

ZFiNX's picture

This one's going to be a slow bleed: subsidized stagflation.