American Shareholders Association

ASA and 88% Tax Rate Mentioned in WSJ

We always get a giddy feeling around here when we're noticed by the national media, so here's the link and my shameless plug:

Tax rates under a Barack Obama presidency are expected to rise to as high as 52.2% when combining the income-tax increase the candidate supports and his proposed elimination of the payroll tax cap. These would be the highest rates since the late 1970s, when the economy went haywire. "That's a frightening proposition, especially when the rest of the world is cutting tax rates," says Jim Carter, chief economist on the Senate Budget Committee's minority staff.  Now a new study by the Congressional Budget Office suggests that rates would have to go even higher if entitlement spending isn't reined in. The report, which was requested by Republican Rep. Paul Ryan, finds that the top rate of personal income tax would have to rise to 88% from 35% to pay all the nation's bills. Even the lowest tax rate would have to more than double. This is the price we pay for running up unfunded liabilities in Medicare and Social Security.  Faster economic growth would help ease the burden of these long-term costs, but if tax rates are raised, economic growth will slow. That's the point of Mr. Ryan's inquiry. If we don't get serious about reforming health care programs and Social Security, Democrats will argue that only super-sized tax hikes will solve the problem.  Ryan Ellis of the American Shareholders Association states the obvious when he says that income-tax rates of 88% are a surefire way to create a massive outflow of capital away from the U.S.

Your Exxon Mobil Stock Under Attack From Latte-Drinking Greenie Snobs

OK, so maybe the headline is a bit much.  But not too much:

The heirs of John D. Rockefeller's Standard Oil empire made a media splash recently when they demanded that the oil giant diversify out of oil, of all things. When Exxon holds its annual shareholder meeting next week, the Rockefeller clan will push proxy resolutions requiring the company to invest in noncarbon energy sources, and to create more board of director "independence" from management by splitting the role of chairman and chief executive. To hear the wealthy heirs tell it, Exxon will thus be better positioned to take advantage of the eco-opportunities of the future.  The counterpunch from other, nonwealthy shareholders has now arrived in the form of a letter from union chief Chuck Canterbury. He's president of the National Fraternal Order of Police, whose 324,000 members have plenty of pension-fund dollars invested in Exxon. In a May 17 letter to Exxon Chairman and CEO Rex Tillerson, Mr. Canterbury made clear he and his members don't agree that Exxon should be used to promote social goals if it means putting worker retirements at risk.

House Passes Permanent Tax Increase To Pay for One-Year Extension of Current Rules

If there's one thing that should be blindingly obvious, it's that permanent new tax increases shouldn't be needed merely to extend present tax law.  Yet that's exactly what the U.S. House did just last night.  Under that logic, we'd have to have hundreds of billions of dollars in tax increases over time just to keep present tax law in place.

Clinton Reports $31 Million in Campaign Debt

Hillary Clinton filed her campaign financial reports late last night, revealing that she has accrued a monster $31 million in debt.  Overspending seems to be a trend for Clinton, who has exceeded her means even amidst her best fundraising efforts.  This past month alone Clinton overspent by $9.5 million.  In April, Clinton's fundraising efforts brought in $21 million, only to see Clinton spend nearly $29 million.  Clinton's debt is largely made up of unpaid bills to vendors and consultants and personal loans.  This information begs the question: would a Clinton presidency lead to the same cavalier spending seen in her campaign?  Read more on this issue here.

Paul Ryan Introduces Mother of All Tax and Spending Reform Plans

Today, Congressman Paul Ryan (R-WI) introduced his "American Roadmap" plan to reform the tax code, Social Security, Medicare, Medicaid, and the health care system.  In short, his bill (which has been scored by CBO to be paid for and result in current levels of goverment spending by 2082), is the big enchilada.

For investors, his alternative tax system features a 0% tax rate on interest, dividends, and capital gains.  The corporate income tax is replaced by an 8.5% VAT (which is a mixed blessing). 

Here are some resources:

www.americanroadmap.org

An op-ed by Congressman Ryan in today's WSJ (subscription required), and an op-ed by Peter Ferrara praising it in NRO

New Term for the Growth Lexicon: "Hauser's Law"

From yesterday's WSJ: The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

How Does an 88% Tax Rate Sound to You?

Uber-Congressman Paul Ryan (R-WI) recently requested that the Congressional Budget Office tell him what tax rates would have to be if entitlement spending were left unchecked, and taxes were raised across the board to pay for them.  The results are shocking:

• The lowest tax rate would rise from 10% to 25%
• The middle class tax rate would rise from 25% to 63%
• The highest tax rate would rise from 35% to 88%

That 88% tax rate would be the highest level since just before the Kennedy tax cuts of 1963.  A half-century of rate reductions and the resultant economic growth would be lost in the next seventy-five years.

There's more.  The corporate income tax rate--currently the second-highest in the developed world at 35%--would also have to rise all the way to 88% (the highest it has ever been in the history of the country).  Assuming a 20% capital gains rate and an 88% dividends rate, that creates an integrated double-taxation of corporate profits along the following schedule:

• A dividends rate of 98.56% (88% corporate and 88% personal)
• A capital gains rate of 90.4% (88% corporate and 20% personal)
• A corporate capital gains rate of 98.56% (88% corporate and 88% corporate)

Federal Bureaucrats Have a Better 401(k) Plan Than You Do

Many of you might already know that federal employees have the best 401(k) plan in the world--the "Thrift Savings Plan."  The administrative costs are super-low, thanks to taxpayers like us picking up many of the administrative costs.  Now, they're looking to add a Roth deferral option and make the TSP even better:

Currently, TSP participants make tax-deferred contributions, and those savings plus any earnings are taxed upon withdrawal, usually in retirement. Contributions to Roth plans are made after taxes have been paid; those savings and their earnings are withdrawn tax-free. That makes a Roth option especially attractive to people who expect their income to rise over time [very helpful when you have an automatic COLA, as federal employees do], putting them in higher tax brackets.

Hold Onto Those Munis: Supreme Court Solidifies Them In Law

Investors already probably know that municipal bonds are usually free of federal income tax (even under AMT, unless the interest is derived from "private activity bonds" like sports facilities).  States often don't tax municipal bond interest from their home state.  Now the Supreme Court has upheld that practice.

What does this mean for investors?  It pretty well locks in the favorable tax treatment at both the federal and state levels.  With the possibility of rising tax rates on capital gains and dividends, this Supreme Court decision makes munis a more favorable investment over time.

Obama Lays Out Retirement Plan: Younger Investors on Their Own

Barack Obama laid out a retirement policy plan this weekend.  He talks about the elderly, the poor, etc.  However, he leaves out the most important component of all: the fact that younger workers lose money with every paycheck by sending money down the rathole of Social Security:

Here's my plan. Right now, the Social Security payroll tax only applies to the first $102,000 a worker makes. I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected...And we should include what's called a "donut hole" to make sure that this change doesn't ensnare any middle class Americans...That's why I've proposed automatic workplace pensions. There will be no red tape or complicated forms - employers will provide a direct deposit of a small percentage of each paycheck into your account. You can add to it, or you can opt out at any time. And employers will have an easy opportunity to match employee savings. If you switch jobs, your savings will roll over into your new employer's system. If you become self-employed, you will control your account. Studies show that about 80 percent of Americans will enroll if given the option to pursue my plan. This will put a secure retirement within reach for millions of working families.

So let's get this straight: he wants a top tax rate on wages of 39.6% income tax plus 15.3% payroll tax, for a combined Carteresque 54.9%.  And, rather than letting younger workers save some of that 15.3% themselves, he wants to opt them into an additional savings plan on top of that.  Some visionary.

McCain Criticizes Obama's Trade Policy

In a recent speech John McCain called Barak Obama a “tool of organized labor,” noting that “He’s been against (trade agreements with) Colombia, South Korea, and several others. That’s what labor unions want: no free trade agreements.” Obama has also spoken harshly of NAFTA, and he recently opposed a Latin American trade deal. Agreements such as the South Korean and Latin American trade deals promise to open up untapped markets to U.S. businessman and encourage economic expansion. However, Obama’s sentiments may not be a major concern, so long as you don’t mind hampering competition and growth in America a little…  Read more on this issue here.

It Bears Repeating: Obama Means Higher Cap Gains and Dividend Taxes

There's a theory in politics that you should pick a theme, and repeat it again and again.

The theme from ASA's perspective?  An Obama win will mean a 28% capital gains rate and at least a 40% dividends rate (both up from the 15% of current law).  Click here to read the latest iteration of this simple message.

Think you're ok because you do all your savings in an IRA or a 401(k)?  Think again.