by | ARTICLES, BLOG, ECONOMY, ELECTIONS, POLITICS
I was shocked to read “Get Ready for the Biden Stock Boom” in the pages of the Wall Street Journal, written by a former editor of Barron’s, no less. Ed Finn really, really wants you to support Joe Biden and his article is full of so much wishful thinking that it reads like a Disney Fairy Tale — except in reality, there will be no happy ending.
To be fair, Ed Finn does acknowledge that the stock market will certainly experience some turbulence if Joe Biden is elected — but that’s because smart investors know that socialist policies are coming in the form of higher taxes, strangling regulation, and ridiculous legislation such as the “Green New Deal.” You think Obama was bad for the economy? Wait until Biden gets in there.
Yet after laying out the coming economic reality, Ed Finn still wants you to believe in Joe Biden, and the rest of his analysis is basically dependent on the word IF. You can’t make this up:
“IF a President Biden can control the federal budget deficit, IF he can forge better relationships with America’s trading partners, IF he can reverse some of President Trump’s anti-immigration policies, IF he can bring a less combative atmosphere to Washington and the nation, there is no reason to think that during his term average annual stock returns, including dividends, can’t be in the 10% range, as they have for the past 95 years.”
It should be noted that even with all the “if’s” coming true, they have no positive economic consequence. They would be nice, but not economically powerful.
How does he spell out how Joe Biden’s going to improve the economy: “Given Mr. Biden’s ambitious plans to use increased tax revenue to fund more spending on green energy, health care and infrastructure, it’s conceivable he could spur the U.S. economy enough to push annual stock returns to 15%.” Ed Finn must think that the readers of the Wall Street Journal are stupid. To think that anything relating to “green energy” isn’t detrimental to the economy is economically illiterate. We already have efficient fossil fuels, but the Democrats would happily pay three times as much for less energy to be environmentally woke — and that’s supposed to improve the economy? That’s either ignorant or socialist or both. And see how Finn continues to use wishful language: “it’s conceivable he could spur the U.S. economy enough to push annual stock returns to 15%.” That’s because neither Finn’s analysis nor Biden’s policies are actually grounded in any sort of economic reality, only fantasy.
On the other hand, what we do know is that there are multiple policy proposals that WILL have negative economic consequences, none of which will come close to offsetting any of the rosy positives that Finn is pinning his hopes on. The main threats Biden poses to the stock market are increased regulation and higher taxes. Increased regulation will inevitably result in slowed economic growth, and with that decreased profits and a less robust stock market. But that’s not even the worst of it. Two specific initiatives will affect the stock market both in the short- and long-term: 1) Raising taxes on corporate profits from 21% 28% and 2) Nearly doubling the capital-gains tax from 20% to 39.6% on income over $1 million/year — and don’t forget the investment-tax surcharge of 3.8%! Of course, Biden plans to raise taxes on nearly every taxpayer regardless.
Ed Finn ought to be ashamed for penning such an unrealistic economic outlook with Joe Biden at the helm. Increased taxation, crushing regulation, and impudent legislation never improves the economy or the lives of the American people.
by | ARTICLES, BLOG, BUSINESS, ECONOMY
I was disappointed to read “How the Bidens Dodged the Payroll Tax” last week in the WSJ, not because Biden is a good guy, but because the author of the screed, Chris Jacobs, gets it all wrong. Those of you who read my columns regularly know that I’m no fan of Biden, but in this case, Biden is in the right. There is nothing legally wrong with how he structured and paid his taxes – to the contrary, it elucidates an ongoing tax inequity that was completely missed in the article.
In order to understand what Biden did and didn’t do, you need to understand a little bit about s-Corps, LLCs, partnerships, and Social Security taxes. Foremost is that Social Security taxes are imposed on individuals’ earned income – salaries for employees and earned business income for independent earners. It is a tax on earned income — and only earned income. It’s money contributed from your work that goes into your retirement social security pension, not your business profits, interest and dividends income, capital gains or anything else. Social security is calculated from your working history, because you are taxed only on your earned income. That’s why it’s dubbed the payroll tax.
So now let’s look at some different scenarios. Say you work for a business operated as a C corp or S corp, and you also are a stockholder in that business. The money you get as a stockholder — such as dividends–is not working income so you do not pay the Social Security tax. But the money you earn on your labor for your work in this company – salary – up to $137,700 (for 2020)- is subject to the social security tax.( Amounts earned over the $137,700 is still subject to the much smaller Medicare Tax).
But it gets more complicated when you consider partnerships (or LLC’s which are taxed as partnerships). If you work for and are also an owner of a partnership, your share of the partnership income – both for your labor and share of profits are included in one number reported to you on a K-1 form. And the full amount is subjected to the social security tax. For instance, say you are a 50% owner of an architecture partnership and the firm makes $2 million, you would get a K-1 form showing $1 million. Though that would be for both labor and profit, you would have to pay Social Security tax on the full amount.
But if you are structured as an s-Corp, you pay yourself a salary. If the architecture firm were an s-Corp and it earned $2 million and each shareholder received a $400K salary and netted $600K in profit, they only pay the Social Security tax on the earned income, the $400K. And this is exactly what Biden did. He paid tax on his earned income.
So with an S-corp, you have cleared defined salary and (hopefully) profits. It is conceivable that, in Biden’s case, his salary was too low. That is a bit unclear. But what is absolutely clear is that the business is not all labor and therefore he should not be paying Social Security on the full amount. The problem, therefore, isn’t that Biden did something wrong or that he used an S-Corp “loophole” to “get away with” only paying tax on some portion of the business. The problem is that just because someone is a business owner should not mean that he has to pay social security tax on his business profits. Remember Social Security is a tax only on earned income and thus Biden rightly paid the Social Security tax only on his salary. The real problem is that partnerships, unlike their C-corp and S-corp counterparts, have to unjustly pay the full Social Security tax on both their labor and profits. This is the real problem with the tax code that has needed reform for many years. Biden and Trump would do well to address this inequality in the future.
by | ARTICLES, BUSINESS, ECONOMY, FREEDOM, POTUS, TRUMP
When I read commentary by people associated with the Club for Growth — known for promoting the rule of law, low taxes, small government, low tariffs, economic growth, etc. — I expect to find analysis consistent with their principles. Therefore, the recent CNS News article on 8/10, “American Manufacturers Come Back, Thanks to Trump,” took me completely by surprise because it was essentially the rantings of someone who is economically ignorant. Ken Blackwell, former elected official in Ohio and current member of the Board of Directors for the Club for Growth advocates for protectionism, pure and simple.
Blackwell praises how Trump instituted “strategic counter-tariffs on bad actors such as China to combat the effects of illegal and abusive trade practices that previously put companies like Whirlpool at an unfair disadvantage.” But this pro-tariff position runs counter to any competent economic analysis. Tariffs clearly and consistently hurt the consumer and taxpayer by driving costs up to everybody in amounts far in excess than any benefits given to those crony beneficiary companies. To call a tariff a “pro-growth economic policy” as Blackwell does is utterly ridiculous, and his entire article reads like a cheap campaign ad.
Tariffs don’t “strengthen” American manufacturers as Blackwell believes; it is cronyism of the highest order. How the Club For Growth — as well as the National Taxpayers Union — can have someone on the board with views that are economically ignorant and destructive to our economy is beyond comprehension.
by | ARTICLES, BLOG, ECONOMY, EDUCATION, HYPOCRISY, NEW YORK
I was disgusted to read Jamie Dimon’s new initiative, the “New York Jobs CEO Council,” not because I oppose gainful employment for New Yorkers, but because Dimon completely gives a free pass to the New York education system with this program. He misses an opportunity – and ignores his responsibility – to help improve a clearly broken system.
Dimon spends most of his op-ed talking about “skills-based hiring and matching,” but completely ignores the elephant in the room: New York’s education system is failing our kids. He describes how, “The council will create sustained pathways for opportunities in the city, better aligning educational programs with skills that employers need as the demands of the labor market rapidly evolve. This will alleviate unemployment—filling currently open jobs through skills training and empowering communities for the jobs of the future.” Quite frankly, this is PR-speak nonsense. New Yorkers are bereft of a decent education system, which is strangled by public school unions, and exacerbated by the fact that Mayor de Blasio is abusively hostile to charter and religious schools, even though those schools consistently outperform public schools — especially among black and Hispanic students.
If Dimon really wanted to make a difference, he would blast de Blasio on the sub-standard New York education system, but instead, he’s joining forces with him. This is an embarrassment, a detriment of rank-and-file New Yorkers. You would think Dimon would be smart enough to know that he’s in bed with New York politicians and playing politics with regular New Yorkers, but perhaps he thinks he can get away with being so political just because he’s the CEO and chairman of JPMorgan Chase.
by | ARTICLES, BLOG, COVID, HYPOCRISY, MEDIA, QUICKLY NOTED
This article from the WSJ is a must-read reflecting how the media reported on the pandemic:
“Has there been in recent history a more tendentious, hysterical, data-denying and frankly disreputable exercise in misdirection than the way in which much of America’s media has covered the Covid-19 epidemic?
Perhaps we can forgive them the endless repetition of pandemic porn; the selectively culled stories of tragedy about otherwise completely healthy young people succumbing to the virus. While we know that the chances of someone under 30 being killed by Covid are very slim, we know too that news judgments have always favored the exceptional and horrific over the routine and unremarkable.
Perhaps we can even forgive them the rapidly shifting headlines—each one shouting with absolute certitude—about the basic facts of the virus and its context: its lethality and transmissibility, the merits of mask-wearing, or the effectiveness of this or that therapy. The science is evolving, and so too is the reporting.
But there are larger representations of this massive and complex story that we should mark as simply unforgivable.
First, the notion, implicit or at times explicit, in so much of the reporting, that the U.S. handling of the pandemic has been a globally unique failure. This is quickly ascribed to the ignorance and malevolence of the Clorox-injecting, quack-cure-peddling bozo in the White House.”
And this:
Even less forgivable is the naked, politically motivated selective use and manipulation of data to damage Republicans and favor Democrats. Typical of this is the steady stream of stories telling us what a great job New York and other (Democrat-controlled) Northeastern states have been doing in managing the spread of the virus, in contrast with the performance of other (Republican-led) states.”
And this:
“There are many reasons for differing rates of infection, death and economic performance, and it would be unwise at this stage to say anything about outcomes with absolute certainty.
But that is perhaps the greatest dishonesty of all: the media’s self-serving insistence that their narrow, partisan narrative of this complex and evolving phenomenon is the revealed and unchallengeable truth.”
The article is worth it to read in its entirety.
by | BLOG, BUSINESS, CONSTITUTION, GOVERNMENT, RETIREMENT
There’s another issue with regard to the crushing liabilities of public sector pensions. Several states, such as California and New York, have a constitutional amendment that grants pension entitlement to public sector workers. In other words, once a person is working for the government and they have a defined benefit plan, they are entitled to keep it and transfer it, even if the contract runs out.
This kind of constitutional amendment says it’s a constitutional requirement to pay employees for their pensions. Now, what it should mean legally is that any pension any employee is earned, it is a constitutional obligation. But that’s not the problem. It has been redefined by the leftest political structure and judiciary to mean something else, which from an economic literacy point of view, that something is incompetent. They have defined it to pay the pension not only for what they’ve earned but also include an obligation to continue that level of funding into new contracts, even those that aren’t signed on yet. So even if a contract is over, it’s not really over. And their employer can’t renegotiate it.
In contrast, in private industries, if an employer terminates a defined benefit plan by a negotiation with a person or whatever, they can’t reduce what they already promised, but there’s an amount that is calculable and then that’s it. Whatever you’ve earned in a contract is specific to that contract. When the contract is over, you have to negotiate a new contract. The terms can be the same. The terms can be different. You may suddenly get offered a contract with no medical benefits when you once had medical benefits. By and large, contracts tend to be the same but there is no obligation to have anything in a new contract that existed in a prior contract.
But in the government world in some places, you have to give the person the same pension benefits in a new contract. Therefore, that is a whole additional cost factored into what an employee earns. The fact that he is required to be given that benefit in the future is an additional cost that is never factored into the equation. As a result, we have enormous forced sums of liabilities that add to the unreported sheets. Yet the municipalities say they are entitled to keep that same level of funding, which is economically illogical and illiterate. The crux of the problem is that the amendment is interpreted in a way that interferes with the ability for two parties to contract by giving one party extra benefits. This is both unjust and financially negligent.
by | ARTICLES, BLOG, BUSINESS, CONSTITUTION, HYPOCRISY, RETIREMENT
Over the years, I have written numerous articles on the looming problem of funding public pensions. Many states are facing severe shortfalls and it isn’t due to the economy or the recent recession or the pandemic. The main problem is accounting gimmicks that cities and states regularly do which results in underreporting their pensions. In the private sector, if someone were to underreport a pension, they go to jail for it, but the public sector gets away with it, and the taxpayer is left holding the bag.
Here’s what’s going on. A principle of normal (accrual) accounting is that if you have incurred current expenses, they have to be reported currently. You cannot delay reporting it until a future year, even if it is not paid until a future year. You have to count their costs today. So when you accrue an expense — for instance, a legal fee — you owe that money. Even if the bill arrives after the new year and you pay it that next year, you still owe it for the current year when incurred. It is a payable – that is, a liability – as of the end of the year incurred.. This is accrual basis accounting, and it’s how pensions must be accounted for in the public sector — but they’re not. And therein lies the problem.
When an employee works for a government (or any organization) in a given year, all costs associated with that employment must be recorded as an expense for that year. Naturally, the regular pay iis an expense incurred. That’s an easy enough concept to understand. But there are other things to consider — for instance, a bonus. If you have a bonus that is not paid until the next year, it still has to be recorded in the year it was earned. Now, pensions are not paid out in the year worked or the year after, but they will be years in the future and actuaries can calculate that amount. That amount is not what is booked as an expense. What is booked as an expense is what’s paid. There’s a disconnect between the funding requirement for pensions, and those funding requirements are usually less than the cost incurred.
If that amount is two billion dollars (one billion earned now and one billion in future pension benefits) you are supposed to record two billion dollars. In other words, that liability should be factored in on the balance sheet. But what’s happening instead is that they’re merely recording the one billion earned by the employee as an expense and not accounting for future payouts. There is no measure of a pension’s accrued actuarial liabilities (the current value of earned benefits in the future). The accountants are merely recording the present expenses while underreporting the future ones.
In a given year, you might incur $100 million in future payments for employees who work. So that $100 million is the true cost. Remember that even though the money is not paid for many years, you still need to know what that cost is today, and include that amount in the budget. You cannot say you’ll ignore it and not include it because you won’t pay it for twenty years. But that is what has been happening. Suffice it to say, in the private sector, it’s very onerous. You have to pay in an amount very close to what the cost is so that the company doesn’t go bankrupt and then leave the pensions hanging. That is both right and responsible. But the morons in the public sector think that because the municipality is so powerful, it doesn’t have to do the funding requirement — and therein lies the reason why they are in trouble. They only put the amount that they pay as an expense; they don’t put the whole thing. That is fraud. So now they’re falling further behind. Even if they don’t have to fund it all, they are required to keep a balanced budget, but they don’t.
What’s even more difficult, a lot of municipalities also promised other things like future medical expenses, and those aren’t even booked. They’ll just list it as an expense when it is paid. That’s not right. You can’t promise someone a benefit and have a legal obligation for the future and then not book it on your books. And what’s worst of all is a constitutional amendment in several states that grants pension entitlement to public sector workers. In other words, once a person is working for the government and they have a defined benefit plan, they are entitled to keep it and transfer it, even if the contract runs out. They have defined it to pay the pension — not only for what they’ve earned but also include an obligation to continue that level of funding into new contracts, even those that aren’t signed on yet.
These non-standard, non-accrual forms of accounting for public pensions over the past few decades have resulted in reckless — and dare I say criminal — budgets resulting in billions and trillions of unfunded liabilities that in some places are financially insurmountable. Those that have engaged in such practices should be sued criminally for intentionally filing false sheets on their pensions.
