Curried Wealth Building
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April 15, 2012
Issue 194  -  Oh Yeah,
THAT'LL Work
 
 
I really hate political pandering and unfortunately that has become the norm in American politics.  The latest bit of pandering floating out of the White House is the Buffet Rule.  This is a proposal to tax the rich so they pay their "fair" share.  Of course taxing the middle class is the ONLY way to even approach solving the huge deficit issues and that would collapse consumption and end up being counterproductive. But enough about realities, let's talk fantasies.  Here's a picture shown in an ABC news story about the Buffet Rule:
 
 
 
 Now this hedge fund manager supposedly has no problem with raising his taxes and if the government did just that his "secretary" could pay less.  Now even a casual thought about the numbers shown on that picture suggest it's bogus, here's one analysis: 

“The President appeared in a picture surrounded by secretaries who pay a higher tax rate than their millionaire bosses who were there too by their sides, a direct challenge to Romney, his wealth and his tax rate,” anchor Diane Sawyer conveyed in highlighting the Obama campaign stunt of the day.

“Reporter” David Muir proceeded to relay:

The President argues if you make more than a million dollars, you should pay the same tax rate as the middle class. One of those millionaires standing behind him, hedge fund founder Whitney Tilson, who stood outside with us today with his office manager Kelly Alaris (sp?). He makes 39 times what she makes. Their tax rate, not even close.

Tilson asserted “I pay a 24.6 percent tax rate, she pays a 33.4 percent tax rate,” which is ludicrous since the maximum marginal federal income tax rate is 35 percent and she’d only pay that on part of her income. (Muir said she’d “save” $9,300 “if she paid his tax rate,” thus putting her income in the $100,000 range – though the numbers are wrong so you really can’t estimate too well – and at $100,000 no one pays 33 percent.)

After failing to point out the fallacy, Muir ran a clip of Mitt Romney saying 92.3 percent of the people who have lost jobs during Obama’s term “have been women.” Muir pounced: “Now the non-partisan group
PolitiFact saying that number right there is ‘mostly false,’ arguing the President can’t be held responsible for the job picture the day he took office.” PolitiFact did declare the stat “mostly false” – after admitting “the numbers are accurate.”

(In the Washington Post’s mis-named “The Fact Checker,” Glenn Kessler idiotically assessed the Romney number as “
TRUE BUT FALSE.” How helpful.)

Yet Muir has no qualms about passing along preposterous Obama campaign talking points.

This wasn’t Muir’s first offense. He was just as disingenuous
back in late January. “The secretary speaks,” fill-in anchor Muir excitedly teased at the top of World News, “billionaire investor Warren Buffett and his secretary, who pays a much-higher tax rate than him. He says not fair. She’s now at the center of a huge debate. What does she think? An ABC News exclusive.”

That ridiculous story claimed Buffett’s secretary paid a 35.8 percent rate, which is impossible since the top marginal income tax rate is 35 percent. Even including the non-income tax FICA tax of 7 percent would put the income tax rate at a still impossible 28 percent.

In fact, the average effective federal income tax rate for taxpayers is 11 percent, as I noted in my January 24 post, “Nets Use Romney’s Taxes to Advance Obama’s False ‘Fairness’ Narrative,” which includes a table showing those earning between $50,000 and $75,000 pay an average effective income tax rate of 7 percent, 8 percent for those taking in $75,000 to $100,000 and 12 percent for those between $100,000 and $200,000.

Muir, of course, failed Stephen Hayes’ test.
On FNC’s Special Report on Tuesday night he noted the 30 percent income tax rate on capital gains earned by millionaires “would raise less than six percent of the total cost of the stimulus” and “would raise roughly the same amount in one year” as “the U.S. government accumulates in debt in a single day.” Declaring it “totally meaningless,” Hayes asserted “there’s nothing serious about” Obama’s economic plan and so, he suggested in an idea with little chance of occurring: “Reporters should do their job and put this in perspective.”

 
If this "secretary" is indeed paying at a 33% tax rate, then she is making a TON of money, not to mention that she has a horrible tax planner.  She would have to be making over $250,000 a year and have VERY few deductions to even APPROACH this rate.  No need to wonder why the public has such a low regard for the national mainstream news reporting.  Politics is injected at every turn.  What happened to just reporting the news?  Are we to believe that the Obama administration didn't suggest these two individuals for the piece? 
 
Here is  Rick Santelli on CNBC explaining how just taxing the rich can't possibly solve our fiscal problems:
 
 
 
Now if just taking a million dollars from these people won't even put a dent in the deficit, can you see how the Buffet rule is bogus?  How about a graphic of what this new rule would accomplish:
 
 
Gee, that doesn't look like it will solve much, besides more votes at the polls.  This is the sad fate of our system as spinsters and conmen work their way into the highest levels of government.  There is no way to escape this hole of debt and anyone who doesn't realize it is either stupid or lying.  What is really needed is a drastic simplification of the code.  Here is an explanation of tax rates versus total revenue.  Believe it or not the revenue is virtually static on a percentage basis.  Therefore, simplifiying the tax code is a no brainer.
 
 
Tax preparation is eating up millions of hours which is essentially nonproductive and wasteful.  Drastically simplifing things would be beneficial in a variety of ways.  Too bad the fate of some Americans is so bleak that filing their taxes is the only way they can fiscally survive:

Americans Can't Wait For Their Tax Refunds... To Immediately File For Bankruptcy





In yet another sad reflection on the state of the Schrodinger-economy, USA Today notes that  over 200,000 households will use their tax rebate this year to pay for (drum roll please) a bankruptcy filing and associated legal fees. The NBER research confirms a little known fact (outside of bankruptcy lawyer circles) that 'at the first part of the year, when Americans receive their tax refunds, there almost always is a spike in personal bankruptcy filings.' but this has been especially true since the cost of bankruptcy soared (from $921 in 2005 to $1477 two years later according to the US GAO) after law changes in 2005. The bulk of the fees go to the lawyers of course but the fact that the law was changed to prevent bankruotcy abuse as it was thought too many people who could afford to pay their debts were taking advantage of the system. The sadder truth, according to the USA Today article, is that the drop in bankruptcy filings doesn't necessarily mean that the change has curtailed abuse of the system. "It just means that financially distressed people are not necessarily getting the help they need," Last year's average tax refund was $2913 - enough for many Americans to file for bankruptcy. So we wonder what impact this will have on AAPL's earnings as bankruptcy fees outweigh iPad purchases from this year's rebates. Brilliant!

 
Isn't that special?  Not being able to "afford" bankruptcy.  Gotta love this country.
 
Changing subjects here to bring to your attention the new gustapo bill that is floating around congress:
 
 
 You Are Free To Travel—If The IRS Lets You
http://gonzalolira.blogspot.co.nz/2012/04/you-are-free-to-travelif-irs-lets-you.html#more

There is a bill flying through congress that will allow the IRS to revoke a US citizen's passport for unpaid taxes. This may not be the revenue generator the IRS bureaucrats envision since only about 5% of Americans even possess passports. How will Timmy G get to all of those posh global economic conferences?

"The right to travel freely is sacrosanct—it’s not some privilege that the government bestows on us: It’s one of our basic freedoms as citizens. In point of fact, the countries that have limited their citizens’ ability to travel—the Soviet Union, the People’s Republic of China, North Korea, Cuba—were all rightfully called "police-states": It’s one of their defining characteristics—the fact that they were keeping their citizens hostage."

Welcome to gulag America, Comrade Consumer.
 
 
Freedom of movement is a right, not a privilege.  No one can take away your rights, and yet this bill would do just that.  All without a trial.  That just rubs me the wrong way.  Just par for the course as we head down the road to complete government control.
 
Now back to our regularly scheduled programming.  The only reason that this massive debt hasn't collapsed us already is the ever increasing amounts of liquidity "injections."  If you look at this chart, you can see where these massive money printing were initiated:
 
 
 
As can be seen, the effects of these actions seems to be shortening.  How much longer will the current prop up last?  I'd say no more than a couple months.  These actions of ever increasing easing has caused some to be aware that the whole system must be supported with no end in sight: 

US Editor Of The Economist: "Paper Dollar" And "Paper Euro" Will "Debase" In A "Big Way"

Submitted by Tyler Durden on 04/17/2012 - 08:08

Matthew Bishop, the US Editor of The Economist, has been interviewed by the Wall Street Journal TV about gold and why "people have lost faith in the 20th century religion of government backed fiat money." He says that he has become an agnostic or an atheist with regard to his belief in government-backed money as he fears that governments are in a position whereby they are going to debase currencies such as the "paper dollar and "paper euro" "in a big way." Gold becomes one of the "alternative religions" in that environment. History shows that a deleveraging downturn takes a long time and can take 7 or 8 years. Inflationary pressures are building and will be seen in the second half of the cycle, according to Bishop. Bishop says he would put some of his money into gold but is prohibited from this due to the investment policies of The Economist. He advocates owning gold as a "portfolio of money" and diversification and advocates having 5% to 10% of one’s money in gold. The Economist magazine has a strong Keynesian bias and has been one of the most anti-gold publications in the world with many simplistic, unbalanced and ill-informed articles. The publication has suggested on many occasions since 2008 that gold is a bubble. Clients of GoldCore have told us that they were prompted to sell their gold bullion as long ago as 2009 after reading such articles in The Economist.

 
If this hypothesis is correct, than gold and silver will go ever higher.  Here is a chart showing the monetary base versus the price of gold, notice anything?
 
 
 
 
Only near perfect correlation.  This will only continue as the printing is renewed with vigor.  Of course gold is in a downtrend currently and you may be arguing that it should be going higher.  It should and it will, but the manipulation continues to this day.  Here is a graphic from Midas:
 
 
Looking at the chart and notations you see the $8 an ounce drop in gold with a 6,000 contract sell.  To put that into perspective, that equates to 19 metric tonnes of gold!  Who would sell that much all at once?  Certainaly not someone looking to maximize profits, huh?  This is all done by computer algos.  Eventually, and no, I don't know when, this game will end and the physical market will reestablish it's dominance.  At that point you will thank your lucky starts that you have gold and silver.  Make sure you do.
 
I'll close with a very nice time lapse video of nature, have a great week!