American Shareholders Association

Retirement Plan Assets Doubled in Last Decade

This according to a new report from Watson Wyatt Worldwide:

Assets in U.S. pension funds, 401(k)s, individual retirement accounts (IRAs), and other retirement savings vehicles have increased from $7.9 trillion in 1997 to $15 trillion in 2007...In the United States, most retirement plan assets (59%) are invested in equities, while less than a quarter (23%) are in bonds, and 17% in alternative assets, including hedge funds, private equity, real estate, commodities, and infrastructure. The amount of assets invested in equities has remained relatively stable over the last 10 years, but the portion in alternative investments has grown from 9% in 1997 and the share in bonds has declined from 33% in 1997.

Hillary Clinton REALLY Doesn't Believe In Private Sector Health Insurance

She's stopped paying health insurance for her campaign staff.  I guess she wants them to go on Medicaid or something.

And we thought Barack Obama was cheap.

WSJ Picks Up Story on Obama Not Being in the Investor Class

John Fund of the WSJ today picked up ASA's analysis of the Obama family's lack of exposure to stock markets:

Ryan Ellis of the American Shareholders Association has examined the Obama returns for calendar years 2001 to 2006 and found that, in all of those years, the couple reported a mere $1,188 in dividends in 2006 and another $2,754 in dividends in 2005. In the previous years, they reported no dividends of any kind.  Indeed, even though Michelle Obama had income from the University of Chicago's Hospital System that exceeded $1 million during the period the tax returns were filed, she appears to have neither a 401(k) plan nor an IRA for retirement contributions. In another sign the Obama household wasn't into building a nest egg, the couple cashed out $6,260 from a pension or 401(k) plan in 2000.  Given all this, Mr. Ellis asks why the Senator is so "hell-bent on pursuing punitive taxes on capital that would wreck America's retirement savings?" His answer: Perhaps it's "because, by and large, he doesn't have any skin in the game."

Obama Lays Out Tax Increase Plan on Cap Gains

It looks like investors have CNBC's Maria Bartiromo on our side.

Here and here, Obama discusses his plan to hike the capital gains tax to as high as 28%.

Meanwhile, there are apparently a whole bunch of economists in Washington who think that the Bush tax cuts are hurting the economy.  Huh?

Payroll Tax a Raw Deal for Younger Workers

In light of the Social Security Actuaries Report released this week (the one that showed a $14.133 hole for every man, woman, and child in America), Bob Novak writes about the evil payroll tax.  The real problem is that younger workers pay this tax, and have little expectation they are going to get much if any of it back.  So why not cut the payroll tax, and allow younger workers to opt out of future benefits?:

Even Republican advocates of cutting the payroll tax talk about offsetting it with reduced future benefits. That's a bargain young workers would buy in a minute, and current Social Security recipients would be assured that their pensions would not be reduced one penny. Nevertheless, Democrats would feast on any Republican hint of slashing payments...As part of the Democratic obsession with making a progressive tax system still more progressive and redistributing income, Obama actually would raise the $102,000 cap on the payroll tax, and his tax credit would not change payroll tax withholding for employees or employers. There is an open field for John McCain, if he has the wit and will to enter it.

The Audacity of Cheapness

Yesterday, I blogged on "Friends of ATR" about Obama's paltry charitable giving since 2000 (with a decided uptick once he decided to run for President).  This is further borne out by a George Will op-ed on how conservatives are more generous than liberals.

Don Luskin at the Conspiracy Blog writes about it today:

Hey, the liberal agenda is never about personal, voluntary generosity. It's about them forcing you to be generous with your money for their causes. Here are the year-by-year portions of AGI that went to charity -- and this includes his contributions to the hate-mongering "reverend" Wright.

Would You Let Obama Fill Out Your Tax Returns for You?

Dave Freddoso of NRO has a good piece today on Obama's plan to fill out your tax returns for you.  I point out that this will have a--shall we say--upward effect on tax revenues:

“At first, when they only apply it to the simplest returns, they probably wouldn’t have that much more money coming in,” says Ryan Ellis of Americans for Tax Reform. “But when they expand it — oh yeah, then they would have a lot more money coming in. People have better things to do than to fight the IRS, and they figure they’ll lose even if they do.”

Employers Seeing Lower Health Insurance Costs The More They Switch to HSAs

Kiplinger's reports today that employers who successfully switch over to an HSA plan are seeing a first-year drop of 30% in their health insurance premiums.  Going forward, their annual cost increase is only 1%--well below inflation:

The most successful employers are aggressively pushing consumer directed health plans (CDHPs), which put more control in the hands of workers, usually by combining a high deductible insurance policy with a tax advantaged health savings account. Some firms are setting the premiums for such plans at 30% below traditional plans to encourage participation, and it seems to be working. Employers that offer them as an option report that participation hit 15% this year, up from 10% in 2007 and likely to hit 20% next year.

Obamas Are Strangers to the Investor Class

Barack Obama released his tax returns since 2000 last night, and we learned something interesting about Barack and Michelle.  They have next to no stake in the investor class.

Here's what they reported in qualified dividends per year, and the implied taxable portfolio holdings from them (assuming a 3% dividend yield):

2006: $1188 ($39,204 in implied holdings with an AGI of $983,826)
2005: $2754 ($90,882 in implied holdings with an AGI of $1.65 million)
2004: $0 ($0)
2003: $0 ($0)
2002: $0 ($0)
2001: $0 ($0)

Surely, you might protest, Obama simply held securites that issued no dividends until 2005 (unlikely), or he held all his investments in IRAs, 401(k)s, annuities, etc. (more likely).  That's belied by two observations:

1. Michelle Obama earned a quite lucrative annual self-employment contract from the University of Chicago Hospital System (in some years, approaching $1 million).  Yet, Mrs. Obama didn't appear to have a self-employed 401(k) plan or a SEP-IRA to make retirement contributions from.  This implies that the Obamas are not exactly the best tax-deferred investors in the world.
2. In 2000, the Obamas cashed out $6260 from either a DB pension or a 401(k) plan.  This is a sure sign of a household that does not build and accumulate a nest egg for their future.

Why is Barack Obama so hell-bent on pursuing policies that would wreck America's retirement savings?  Because, by and large, he doesn't have any skin in the game.

Social Security Faces $4.3 Trillion Deficit

The Social Security Trustees today released their annual report which shows that Social Security faces a shortfall of $4.3 trillion over the next 75 years.  That's $14,333 for every man, woman, and child in the United States.

Starting in 2017, Social Security taxes will not longer be sufficient to pay benefits that year.  By 2041, the Social Security Administration will no longer be able to legally pay full promised benefits.

Under the intermediate assumptions, the worker:retiree ratio will fall from 3:1 today to 2:1 in 2085.

Medicare Faces $85.6 Trillion Funding Shortfall

The annual Medicare trustees report was released today, and the news (as usual) is catastophic:

• Medicare spending will rise from 3.2% of GDP today to 11% of GDP in 2080
• Medicare faces a funding shortfall of $85.6 trillion over the "infinite horizon"
• Medicare's Part A Hospital Insurance will run out of money in 2019, a mere decade from now
• If the Medicare shortfall were made up for by increasing Medicare taxes, the tax rate would have to rise from 2.9% under current law to 13.4% over time
• If the Medicare shortfall were made up for by increasing premiums on the elderly, the premium level would be between $3000 and $4900 per month by the time a child today collects Medicare
• The cost of Medicare's Part B (office visits) is expected to double every 9 years

In one sliver of good news, the long-term unfunded liability of Medicare Part D (prescription drugs) remained constant at $17.2 trillion over the infinite horizon.  However, this represents a decline from 1.5% of GDP to 1.3% of GDP.  Not surprisingly, Part D is the only section of the Medicare program with significant private sector competition.

Is Inflation Now Around the Corner?

The consensus seems to be that the Fed's actions over the past several weeks (rate cutting, brokering the Bear Stearns buyout, etc.) has stopped the bleeding.  Many think the worst is over in financial markets as a result.  The S&P 500 Index closed at 1350 yesterday, up smartly from the 1277 close of a week ago.  That 5.7% pop seems to be a signal markets are giving that stocks are pretty cheap.

But is there another shoe to drop?  If inflation is always and everywhere a monetary phenomenon (as Milton Friedman famously said), the Federal Reserve may have a double effect to all its easing.  It may have prevented a credit crisis that could slip the U.S. into a deep recession, but in so doing its "easy money" policy might foment a bought of inflation.

Rich Lowry makes that point today in NRO:

This is an economic environment that the Federal Reserve helped create. It fought a phantom deflation in 2002-2003 by cutting the federal funds rate to 1 percent and keeping it there for a year, blowing hot air into the credit and real estate bubbles. Now that those bubbles have burst in spectacular fashion, the Fed is trying to forestall or minimize a recession with more rate cuts.  In effect, the Fed is creating more dollar bills, and thus depreciating their value. This isn’t the sole cause of price increases. An ill-conceived ethanol program has driven up food prices, and global demand is bidding up the price of oil. But oil wouldn’t be at $100 a barrel if the dollar weren’t so weak. The Fed’s rate cuts benefit Wall Street by lowering the cost of borrowing and potentially homeowners with adjustable-rate mortgages, but at the cost of everyone else who wasn’t improvident in business dealings or home-buying.

Iowa Has the Highest Corporate Income Tax Rate...In the World!

It's a familiar refrain that the United States has the second-highest corporate income tax rate (39.3%) in the world, behind only Japan.  That number is arrived at by combining the federal corporate rate with the various state corporate income tax rates.

Of course, that means you could do a state-by-state combined corporate income tax rate.  The Tax Foundation did.

Interestingly, it found that Iowa has the highest corporate income tax rate in the entire world, at 41.6%.  In fact, 24 states have a combined corporate income tax rate higher than even world-leader Japan.  Even the best states (those without a state corporate income tax at all) only beat out Japan, the U.S., Germany, and Canada.

Gives a whole new meaning to "prarie socialism."

If It Keeps Moving, Regulate It...

Chances are, when we look back at this credit crisis, we'll have found that the government screwed up and created most or all of the mess.  It's usually when government tries to "help" that things get really sketchy. 

The best thing the government can do is butt out and let the markets fix this problem.  Unfortunately, the government thinks up a new way to be activist every day.  Now, the government wants to create a mortgage guild:

Licensure has three basic problems. First, any kind of regulation makes it harder to enter a profession...Second, licensing requirements don't always have much to do with being good at the profession...Finally, licensure may make consumers worse off by deterring talented people from entering a profession.

Could Delaware Be Moving to 401(k) Plans for Teachers?

According to BLS, there are 22,000 teachers and education administrators in Delaware.  Not surprisingly, this government monopoly is bloated and expensive.  That's why the Democrat governor of Delaware, Ruth Ann Minner, appointed a commission to study ways to save money.

What was the committee's recommendation?  A 401(k) option for younger teachers.  The commission thinks that $29 million per year could be saved by making this switch.  At a time when taxpayers have to foot a bigger and bigger bill for retired government employees, this plan is a win-win.  And it comes from a Democrat governor.

Kudlow on Why Bush Is Not the New Hoover

Big rock candy Kudlowism is back, baby.  Here's a snippet of the longer piece.

It was Hoover who signed the Smoot-Hawley trade-protectionism act and overturned the Coolidge-Mellon tax cuts. These disastrous measures — along with monetary contraction from a fledgling Federal Reserve — turned a recession into a depression. FDR didn’t help matters, either. His misbegotten tax hikes on successful earners and businesses, and his alphabet agencies to control the industrial and farming sectors, extended the depression and held unemployment near 20 percent. Today, it’s the Hill-Bama Democrats who want to raise taxes on successful producers. And they want to turn protectionist by reopening NAFTA and stopping any new open-trade treaties. Schumer himself has spent years bashing China, threatening the nation with huge tariffs if its currency policies don’t conform to demands.  If anyone has resurrected the party of Hoover, it’s today’s Democrats. They’ve adopted pessimism as their national pastime, and want us to believe we’re already in a long and deep recession.

Canadians Get Universal Tax-Free Savings

News today from Canada that the government is getting ready to approve a system of universal tax-free savings accounts.  Any Canadian over 18 could contribute $5000 per year.  The money is after-tax, but grows tax-free (like a Roth IRA).  The money can be withdrawn (and returned!) for any purpose.  It's depressing when the Canadians beat us at our own game.

IRS Updates Capital Gains and Dividends Tax Revenue Historically

Hat tip to the Tax Prof Blog.

The Laffer Curve, Part III: Dynamic Scoring

GWB As Herbert Hoover? Hardly

Yesterday, Senator Charles Schumer (D-NY) accused President Bush of being a "new Herbert Hoover," by which he meant asleep at the switch.

If only Hoover had been asleep at the switch.  In any event, the contrast couldn't be starker.  Where Hoover signed a massive income tax increase, President Bush has signed multiple pro-growth tax cuts.  Where Hoover raised taxes on imports (aka tariffs), Bush has been a tireless free trader.  The only area of negative comparison is that neither man could seem to keep their hands out of the taxpayer's cookie jar when it came to spending.

If we had that kind of Hoover in 1929, we might be a far freer and pro-growth nation right now.

The Best Part About Ireland? How About the 12.5% Corporate Income Tax?

Everyone knows that today is St. Patrick's Day.  People harp on the brogue, the beer, and the shamrocks. 

What investors should be grateful for is the 12.5% corporate income tax rate--the lowest in the developed world, leading to the "Celtic Tiger" effect of the last decade.

Go n-éirí an t-ádh leat! Ádh mór ort!

Shareholder Votes of Interest From Senate Budget Vote-a-Rama

Over the past couple of days, the U.S. Senate considered a host of amendments to the budget resolution (the so-called "Vote-a-Rama").  Several votes were of interest to shareholders, including:

• Final passage 51-45, which assumes the largest tax increase in American history.  This includes raising the capital gains tax from 15% to 20%, and the dividends tax from 15% to 39.6%
• Reimportation non-binding "Sense of the Senate," which received a disturbing 73 votes
• DeMint amendment to provide a universal above-the-line tax deduction for health insurance premiums
• Exemption of AMT patch from PAYGO rules
• Two (Kyl and Landrieu) death tax votes that would have established a 35% rate
• The famous DeMint earmark moratorium only received 29 votes
• Extension of the extenders package (including the R&D credit) through 2009
• A Brownback commission plan that is like BRAC for spending programs
• Creation of a deficit-neutral reserve fund for Social Security reform
• To immediately raise the top marginal tax rate from 35% to 39.6%
• Repealing the "Clinton AMT" (lowering the top rate from 28% to 24% and indexing the AMT deduction to inflation from 1993)
• To make the major provisions of the Bush tax cuts permanent

Specter to Offer Amendment Repealing "Clinton AMT"

This week, the Senate is considering the FY 2009 Budget Resolution.  As part of the "vote-a-rama" series of amendment votes, Senator Arlen Specter (R-PA) is offering a measure to repeal the "Clinton AMT."

What's the "Clinton AMT?"  Back in 1993, President Clinton raised the AMT rate from 24% to 28%.  He also failed to index the AMT's version of the standard deduction to inflation.  The Specter Amendment reduces the rate back to 24%, and permanently indexes the deduction to inflation.

Believe it or not, that solves 40% of the AMT problem.

Andrew Biggs Gets It Wrong on Social Security--Again

ASA is a big fan of Andrew Biggs and the rest of the "pain caucus" (i.e. benefit cuts, openness to tax increases, and teeny personal accounts for Social Security).  He's a great guy and a top-rate mind.  Today in the WSJ, he has an almost-terrific article on how Obama's "donut hole" Social Security tax increase would be a massive tax hike:

The top marginal federal tax rates would effectively increase to 50.3% from 37.9%, equivalent to repealing the Bush income tax cuts almost three times over...If one accounts for behavioral responses, even the modest budgetary improvements from Mr. Obama's plan are likely to be overstated. If employers reduce wages to cover their increased payroll-tax liabilities, these wages would no longer be subject to state or federal income taxes, or Medicare taxes. A 2006 study by Harvard economist and Obama adviser Jeffrey Liebman concluded that roughly 20% of revenue increases from raising the tax cap would be offset by declining non-Social Security taxes.

Where Andrew goes wrong is on the advice for Obama.  It's very similar to the advice that the Pain Caucus had for President Bush in his failed effort to reform Social Security:

Mr. Obama should drop his exclusive [emphasis added] focus on raising taxes and return to his previous view, that Social Security faces significant problems requiring prompt attention. All options should be on the table.

In Washington, that's code for, "tax increases need to be on the table."  The problem here is that the goal is wrong.  Social Security's solvency is not what's at issue.  The "crisis" is that younger workers are getting ripped off, and won't get their money back.  They should be allowed to save that money in a personal account they own and control, much like an IRA or 401(k) plan.  To hell with "the solvency of the system."  That relatively-minor crisis is taken care of by solving the bigger issue.

Flat Tax Club Now Up to 24 Nations

Dan Mitchell has written a new update on the flat tax for the Center for Freedom and Prosperity.

The "flat tax club" is now up to 24 members with the addition of Iceland.

Tax Issue Front and Center in 2008

Grover Norquist has a piece in RCP this morning about the tax issue in the 2008 Presidential election.  Here's a snippet about the investor class in particular:

[T]he growth in the investor class--those Americans who own shares of stock directly in their mutual funds and 40lk's--have strengthened the power of the tax issue. When Reagan was elected only 20 percent of Americans owned stock. Today the number is more than 60 percent of adults.  This growth in the number of Americans who own stock directly makes the tax issue more important for two reasons: first, taxes on businesses, once taxes on "the other," are now more transparently taxes on most Americans. Second, taxes on businesses have a wealth effect. The same Fortune 500 company facing a 35 percent dividend tax has one value. Cut the dividend tax to 15 percent and the stock of the company increases. When the 2003 tax cut brought the capital gains and dividend tax rate to 15 percent the Dow Jones stock market rose from 8454 on May 1, 2003 to a peak of 14,165 on October 9, 2007 As we approach a return to higher taxes on capital gains and dividends in January 2011the stock market will continue to drift down in anticipation.

Budget Resolution on the Floor This Week

This week, both the House and the Senate will be considering the FY 2009 budget resolution.  There are several differences between the two budgets, but they both have two things in common:

• They budget in the largest tax increase in American history.  Over the next decade, taxes are slated to rise by some $3.2 trillion.  That's $10,000 for every man, woman, and child in the United States
• Nothing is done to slow down the exploding growth of Social Security, Medicare, or Medicaid.  Largely due to the unrestrained growth of these programs, federal spending will rise from $0.20 out of every $1.00 of economic output today all the way to $0.40 out of every $1.00 by 2050.  That would make France look like a tax haven.

Corporate Income Tax Payments Down 13%

This according to the latest CBO Monthly Budget Report.  Corporate income tax payments are down 13% from this time last year, meaning that corporate profits are continuing to fall.

CBO Releases New Estimates of Tax Increases

The bottom line: if Congress doesn't extend any of the expiring tax cuts (AMT patch, "extenders" package, Bush tax cuts, etc.) there will be a cumulative $3.9 trillion tax increase over the next decade. 

That's $13,000 for every man, woman, and child in the United States.

Clearly, that can't happen.  But it will if Congress does nothing.

Republican Summary of House Dem Budget

ASA has obtained a copy of the House GOP's critique of the House Dem budget.  Good talking points and reading.

News Roundup: Free Trade and Tax Cuts the Answer

Two quick items from the web today:

First, the Heritage Foundation has a good piece on free trade agreements, and how they lead to economic growth in both the short- and long-term.

Second, IBD points out the idiocy of raising income taxes on domestic energy companies, while cutting them on a socialized energy company owned by Venezuelan strongman Hugo Chavez.

Effective Total Tax Rate Falls For All, For the Poor Most of All

Class warfare devotees always like to point out tax cuts for the rich, ignoring the effects of payroll and excise taxation, etc.  Greg Mankiw has put together a chart which should silence all that.  When the effective average tax rate is considered--taxes paid divided by income--and when payroll and excise are thrown in, the results are interesting.

Tax rates have come down in the 1979-2005 period, but most of all for those in the lowest income quintile.  This is especially true for families with children.  Since the Bush tax cuts, the same effect has happened--tax rates have come down for all, but especially for those in lower income brackets and those with children.