Sunday, July 27, 2014

Show Me a Company That Pays Taxes

The most idiotic statement I heard the other day was from President Obama stating that these "Business Inversions" going on, were a way for business to avoid paying U.S. taxes. Show me ANY company that pays government taxes. There are NONE! The tax is added on to the price of the product and THE CONSUMER PAYS THE TAX.

Basically a corporation makes widgets at a reasonable price, or goes out of business. There are all sorts of taxes the corporation has to collect and turn into the government. If the government decides it wants 26 percent of the company’s earnings and call it taxes, so be it; it is a cost of business and is factored into the price of the final product. So when you buy a new American car, built for 20K the selling price has a 26 percent markup just for the tax --- figure $25,200 with GM’s tax added in. Then figure profit for dealer and producer and the price hits $30,000 also envision all of the car parts from suppliers paying the same government tax. And add that on to what the car company has to pay to acquire parts to produce the vehicle. When done this way, the buyer has no clue to as to what goes into his 10 percent sales tax tacked on to his purchase price— he is paying tax on taxes already paid by the auto producer and his suppliers.

The President and Congress express the need for tax reform, and big business has figured out what that means, there won’t be any. Moving your mouth is not the same as rolling up your sleeves and picking up a shovel. This country wasn’t created because of religious freedom and voting rights, it was created over unjust taxation. People were tired of paying the King of England tribute taxes with no visible benefits. Obama thinks that it is our patriotic right to pay taxes. We fought a war to fix that 200 years ago and it looks like we are facing the same problem again.

All governments are incredibly stupid when it comes to taxes. The Great Depression of the 1930’s was greatly exacerbated by municipalities using the logic; “If we raise taxes, we will increase the amount collected.” People couldn’t pay the taxes and gave the city their keys to the property. The net effect, the tax revenues collected, dropped drastically. The politicians didn’t comprehend the cause and effect of what they had done, but that mattered little, they didn’t get reelected, so there was no lesson learned. The tax rate on the rich at one time was almost 90 percent and when the government dropped it down to 20 percent, there was no change or decrease in tax receipts, the rich now had more places to invest without being penalized. Changing the rate on the rich, in no way affected the amount collected. You can be stupid and poor forever, but you can’t be rich and stupid for very long.

The cost of running a business in the USA is chasing manufacturing off shore. Taxes are only one item; there is Obamacare, Social Security, unemployment insurance, workers comp and liability from ambulance chasing lawyers.

This country was settled by people voting with their feet. Corporations are now considered people, and they seem to be voting with their feet. Why do I get the feeling that the political logic doesn’t fit here? The real question that needs to be asked, is this: Why does government need more money to fix what isn’t broken, and at the same time, need less money to fix what is broken?

Common sense suggests that if it works in the USA, it will work a hell of a lot better in another country at half the price. Why does that seem like the wrong answer, but the right conclusion?

Monday, July 21, 2014

Socialism a Humorous Explanition

Below is a web link if it doesn't show up right.
Web link

Sunday, July 13, 2014

The New Housing Bubble in California

Housing prices in San Marcos are about back to pre-bubble prices. A house like we rent for $1750 a month is now going for 560K. That would be about $3,000 a month to own it plus another $5,600 in property taxes. So renting costs us about $21,000 a year while owning would cost us about $41,600 a year. Notice the cost difference. If you wanted to turn the property into a rental, it wouldn’t be worth the effort at these prices.

In the past, many people said, that paying rent was just throwing your money away. Owners rationalize when the home is paid off, "they get to live in it rent free." Actually, they forgo the interest of the dollar value of the home. A paid off 560K home would generate 17K at 3% interest. So if you take the 17K and add the property taxes, of $5,600, you get $20,500. Divide that by 12 and they are still paying $1700 rent a month. We are not even talking repairs here, I've got a $7,000 repair bill to rebuild one bathroom on my rental.

The real reason for home ownership in the past; it was cheaper to own than to rent. The renter paid extra for the freedom to pick up and move when they felt like it. With housing prices up 160K in two years, that thinking has changed a bit. The funny thing for this area is that the people that bought at the height of the last bubble are still underwater after 8 years. They need 34K in equity just to pay the realtors fees if they were to sell without a loss.

In a roundabout way, the Federal Reserve and your retirement funds are what keep the real estate prices artificially high. Beginning in October, the Feds will no longer be buying the real estate paper. The estimates of the dollar value of the paper owned by them is around 2.3 trillion dollars. No big deal on this, the home loans will be paid off over thirty years and the 2.3 trillion will go to zero ---if the real estate doesn’t go back into foreclosure.

The trouble begins in October. Here is a simplification of how the present banking system handles real estate. The bank loans a home buyer 500K for a home loan. The bank then sells the loan to whomever, in this case the Federal Reserve and keeps a half percent of the loan for management fees. The bank then loans the money out again and does the same thing and gets another management fee. If the bank does this 10 times, it is getting 5% in management fees on their depositor’s 500k with little or no risk. Before the Federal Reserve and the Fannie and Freddie bail out, the loans were sold to private parties. So now, it looks as if interest rates will have to rise up about 300 basis points to create interested third parties willing to invest in the real estate note market. You ask why?--- the banks don't want to hold on to 30 year 5% paper. Will rates rise, or will the Fed throw in the towel and start buying more paper?

I think all of us can agree that the stock market has reached new highs for no good reason. A lot of hard working people have retired because they can’t find a job. Many college grads are finding out that their degree isn’t worth the money they borrowed to get it.

Our government has enabled every dreamer the right to become a failure. Buy a home, get a college education and become a part of the American dream. Buy a Lotto ticket and win. And if you can't speak Spanish, you'd better learn.

So we have a housing bubble in San Marcos, I wonder how it will end? If the government rewards failure, I guess we will get more of it; it’s tragic to think that we earned it by hard work rather than ineptness.