Who Feels the Tax Sting

Now that the massive new tax bill has passed, I thought I"d do a little experiment with a spreadsheet to see how a hypothetical Silicon Valley, California earner might be affected. I was sure his tax bill would be higher, but I am surprised at how much higher.I wouldn"t be surprised if some people decided not to stay in their homes since their tax bite is so substantial.

I will preface this by saying I"m not a tax expert, but I"ve got a pretty good understanding of taxes, and I put together a deliberately simplistic spreadsheet for this experiment. And while it may be simplistic, it still makes a powerful point, and the tiny amount of rounding error for an actual tax form won"t change the conclusion.

In this examination, I make the following assumptions:

• The individual earns a very handsome salary of $500,000


• He bought a $3 million house in Palo Alto (which is going to be a pretty decent but not opulent home). He has a $1 million mortgage at an interest rate of 4%.


• He pays property tax of 1.2%


• His state income tax rate comes in at 10% (California is actually 13.3%, but I"m making it a little lower to take into account lower income levels aren"t taxed as highly)


• His blended federal income tax rate is 30% (again, the actual highest rate is 37%, which is the new rate, reduced from 39.6%, but for this experiment, I"m moving it down quite a bit)

So here is the spreadsheet. I want to stress this is extremely simplified (hey, almost a tax return on a postcard!) but here we go:

In the left column, which is "pre-reform", this person has state income tax and property tax totaling $98,000, which he can used to offset income for the purposes of calculating federal income tax. In the right column, he is limited to $10,000. So suddenly he"s got an extra $88,000 in income which is taxed that wasn"t taxed before.

He"s already limited to deducting only the first $1 million of his mortgage, but even that drops down to $750,000 (we"re assuming his home purchase was after 12/15/2017, when the law changes).

So, in the end, his federal tax bill is $29,400 higher than it was. That isn"t small. That"s a nice new car. Or a year"s tuition at a private school. And it sure as hell isn"t tax "relief."

Now some of you who live in places with lower (or no) state income taxes or inexpensive real estate may be thinking, "Awww, fuck "em, those rich Californians." But this isn"t some scumbug Goldman Sachs managing director who is making tens of millions of dollars.

I also don"t have a personal ax to grind here. I bought my house so long ago, so cheaply, and I owe so little on it, that none of this applies to me personally. However, I think hardly any of those affected have any CLUE what is about to hit them. There is an enormous tidal wave heading toward huge masses of professionals in states like California, Washington, and New York that are about to have the rug pulled out from under their feet.

But, hey, what am I complaining about, with reassurances like this coming from the White House:

Oh, and since I"m in the Silicon Valley.......

Our poor hypothetical taxpayer has one more indignity to suffer: between (1) rising interest rates (2) the loss of deductibility in state income taxes (3) the reduction of deductibility in mortgage interest (4) the loss of deductibility in property taxes..............his house is going to sink in value as it dawns on people how badly they"ve been screwed. So on top of massively higher expenditures to pay federal taxes (after all, SOMEONE has to pay for Bob Corker"s tax cuts!), he"s making payments on a diminishing asset.

Congratulations, America. You"re not even sure what"s hit you yet.

Another Delay: Senate Won"t Release Tax Bill On Thursday As Mnuchin Admits Corp Tax Cut Delay Likely

Yesterday, the dollar slumped and yields dropped after a WaPo report claimed that the corporate tax cut could - the core piece of GOP tax reform - would be delayed by up to a year, a clear indication that there may be irreconcilable differences in the Senate regarding tax reform. Then, moments ago, Axios confirmed as much, reporting that the Senate "won"t release its version of the GOP tax bill tomorrow", citing a senior GOP aide. On Tuesday Mitch McConnell said that the bill would come out on Thursday. That said, the aide reportedly said "this wasn"t a delay, because the release of the Senate bill was always going to start after the House Ways and Means Committee finished marking up its bill."

As Axios explains, the delaying introduction of the bill is problematic "because it not only gives off the impression that things aren"t going well (whether it"s true or not), but also removes one more day that could have been spent getting the caucus on board with the bill."

Meanwhile, speaking on Bloomberg, Treasury Secretary Mnuchin said that the White House"s preference would be to start the corporate tax rate cut next year, which again implies a material probability of delay.

“Our strong preference is that the corporate tax rate starts next year. The longer we wait, the worse it is for the economy,” Mnuchin said in interview on Bloomberg TV.

Asked whether he rules out delaying corporate tax cuts: “Again, I’d just say, the president’s strong preference -- he feels very strongly that he wants to start this right away. But having said that, we’ll have to look at the entire Senate package -- I assume it’s just a money issue -- as to how they’re moving the different pieces around”

“It’s not a philosophical issue; I’m sure they’d like to start this just as soon as they can”

Some other soundbites courtesy of Bloomberg:

• MNUCHIN: STATE ELECTIONS DIDN"T CHANGE OUR TAX STRATEGY


• MNUCHIN: WE"RE GOING THROUGH HEALTHY PROCESS ON TAXES ON CMTEES


• MNUCHIN: PRESIDENT WOULD LIKE TO KILL HEALTH CARE MANDATE


• MNUCHIN: KILLING HEALTH CARE MANDATE WOULD FREE UP LOT OF MONEY


• MNUCHIN: HOUSE MOVE ON CARRIED INTEREST STEP IN RIGHT DIRECTION


• MNUCHIN: WE"RE SENSITIVE TO NEED OF STATE TAX EXEMPTION


• MNUCHIN: THERE ARE SHORT-TERM CONCERNS ABOUT FX IMPACT ON TRADE


• MNUCHIN: PART OF DOLLAR STRENGTH REFLECTS U.S. ECONOMY


• MNUCHIN: I DON"T THINK YELLEN HAS MADE DECISION ON STAYING

In the final update, CNBC reports that "the Senate tax plan is not expected to include a controversial 20 percent excise tax on imports by multinational companies, according to three people briefed on the issue."

The tax is a critical revenue raiser in the House bill—worth about $155 billion over a decade—and applies to purchases by U.S. subsidiaries of multinational businesses from their foreign counterparts. Among the most vocal opponents of the new fee is the conservative advocacy group Heritage Action, which called it a "backdoor border adjustment tax."

 

The fee covers both intangible goods such as intellectual property as well as consumer parts. But unlike the border adjustment tax—a proposal that Republicans have discarded—the transactions must occur within a single parent company. Business groups such as the Organization for International Investment also fear the tax could disrupt international supply chains and raise costs for multinational companies—and ultimately consumers.

 

"It"s an extraterritorial reach into global supply chains that were never part of the U.S. tax base," OFII President Nancy McLernon said. "It will have a disproportionate impact on international companies that have made a deliberate decision to invest and create jobs in the United States."

Last week, House Ways and Means Committee Chairman Kevin Brady defended the tax as a crucial to ensuring that companies do not shift profits overseas. He said that the border adjustment tax was abandoned months ago and that the excise tax in the current bill bears no resemblance to that proposal.

With so many moving parts and even more conflicting opinions, it will be surprising if a one day delay by the Senate is all it boils down to.

Trump"s "Beautiful Tax Plan"... Fuggedaboutit!

Via MurraySabrin.com,

Last week President Trump’s tax plan was unveiled with great fanfare by the Congressional Republican leadership. Although President Trump babbled what he claimed to be the biggest tax cut in American history, the evidence is quite to the contrary.

Former Reagan budget director David Stockman dissects the “beautiful tax plan,” concluding that it is nothing less than a big scam. Tax cuts are not targeted toward the middle class but the highest income earners in the country and corporations. That is not to say that taxes should not be cut for upper income individuals, families and businesses, but all taxes should be reduced for everyone.

Closing so-called loopholes is another egregious flaw in Trump’s tax “reform.”  There are no tax “loopholes” in the tax code.  There are only exemptions. deduction and credits.  A loophole is term used by politicians and tax grabbers who think any individual, family or business that pays less taxes is getting away with not paying their “fair share.”  “Fair taxation” is an oxymoron if there ever was one.  Taxes are coerced from workers and business owners.  Thus, taxation should have no place in a free society.

If the American people really want to live in a free society (and that is a big if considering who we have elected as president, legislators or governor around the country for decades) that will create the greatest prosperity for all working folks, they should agitate for the abolition of all taxes. I make the case for abolishing all taxes America in my 1995 book Tax Free 2000: The Rebirth of American Liberty.

Why should taxes be reduced substantially or abolished altogether? Reducing taxes does three things for families and businesses.

First, less money going to the taxman means that people can spend more on their families’ needs.

 

Second, less money going to the taxman means that people can save more for the future.

 

Third, less money go to the taxman means that people can increase their charitable contributions.

But the big government proponents would scream in horror… “What about the poor?” “What about the elderly and disabled?” “What about the children and education?” “What about infrastructure?” “What about our national security?” “What about all the regulatory agencies?” And on and on and on. (I explain in Tax Free 2000 how the services that people want will be funded by voluntary exchange, and how people will make choices about what social welfare services they want to support with their charitable contributions. I also discussed the transition from the current welfare-warfare state to a free society.)

For both liberals (progressives) and conservatives they cannot conceive of a free society… one in which people are in charge of their earned incomes as opposed to having to cough up anywhere from 10 to 50% of their income to the political elites that run the country who are supported by special interests and crony capitalists that put them into office.

In addition, one of the major benefits of a tax-free society would be the end of U.S. military intervention overseas. A tax-free America would end undeclared wars and bring the troops home from the hundreds of military bases around the world, ending the military industrial complex’s global empire. Substantially lower taxes or a tax-free society would end America’s welfare-warfare state once and for all, and make the United States the greatest magnet for capital, which would boost both employment and living standards considerably.

Trump’s tax plan should be deep-sixed because it does not address the fundamental issue – federal government spending. As long as the federal government spends $4 trillion a year, which keep on increasing in good and bad times, America’s welfare-warfare state will eventually lead us to national bankruptcy, because growing entitlements and global military commitments are financially unsustainable.

Trumpnomics does nothing to take us on a journey toward a freer economy. In fact, Trump’s tax plan continues the bipartisan consensus in Washington DC, namely that without the federal government spending $4 trillion a year the economy would implode. Now is the time to have the debate that former President Clinton said we should have years ago about the role of government in a free society.

I am an unabashed, unapologetic proponent of reducing both taxes and federal spending substantially, with the goal of creating a tax-free society. Where do you stand? For liberty or statism?

Record Number Of Americans Expected To Renounce Citizenship In 2017

Perhaps some of the disaffected Hollywood elites who threatened to leave the country after Hillary"s staggering 2016 election loss have actually followed through on their childish temper tantrums after all...

According to a Bloomberg note today, a record 6,800 Americans are expected to renounce their citizenship in 2017, a 26% increase YoY and nearly 7x the pace set just 5 years ago.

In the third quarter of this year, 1,376 Americans renounced their U.S. citizenship, putting the annual tally on track to top 2016’s record, data from the Treasury Department show.

 

If this year’s fourth quarter mirrors that of 2016, when 2,365 people chose to expatriate, 2017’s annual tally would be 6,813. That’s a 26 percent rise from 2016’s total of 5,411—which was itself a 26 percent jump from 2015.

Of course, the uptick, unfortunately, has nothing to do with disaffected Hollywood elites but rather corresponds with Obama"s passage of a 2010 law requiring foreign banks to disclose U.S. citizens.

"To some degree it is President Obama’s fault. It was Obama and the Democratic Congress that passed a law in 2010 that forced foreign banks to disclose U.S. citizens," says Mitchel.

 

When the law was passed, it appeared to be aimed at fat cats who sought to hide money in secret Swiss bank accounts. But today, it could affect nearly any of the 7 million Americans, who Mitchel says live abroad—many of whom are people of modest means.

As Fortune pointed out, the United States, unlike almost every other country in the world, taxes people on the basis of citizenship rather than residency.  So even if you spend all of your adult, wage-earning years on a remote tropical island with a 0% tax rate, if you were born in the United States, you still owe Uncle Sam your "fair share."  So, when all those sunbathing tax evaders had their Swiss bank accounts exposed in 2010 they started to renounce their citizenship in record numbers.

The cause of the defections, which led the U.S. to say so long last quarter to everyone from Jonathan Abbis to Anna Zwirner, is primarily the U.S. tax system.

 

When it comes to taxes, the United States is an outlier because, unlike nearly every other country, it taxes people based on nationality rather than residency. While U.S. citizens can claim credits with the IRS for what they pay to foreign tax authorities, those amounts are not always enough to offset what they owe.

 

U.S. expats also face the burden of annual filings with the IRS with the prospect of stiff penalties if they fail to comply.

 

According to international tax attorney Andrew Mitchel, those who deliberately fail to report foreign accounts to the IRS can face a fine of $100,000 or half the value of the account—whichever is greater. Meanwhile, there are a range of other penalties for small business owners abroad and for those with assets of more than $30,000.

 

"The IRS has been very gracious in saying they won’t take more than 100% of your money," says Mitchel, ironically. "These people are terrified they will go bankrupt because of the United States. They just want to get out of the U.S. tax system."

And while we know many of you will be disappointed that our disaffected celebs aren"t the key driver of the data above, we encourage you to keep an eye on this IRS list of American quitters...perhaps Lena Dunham"s name will show up on there yet.

Stocks, Bond Yields Tumble On Disappointing "Gradual" Tax Cut Headlines

Having continued Friday"s melt-up as soon as US equity markets opened this morning, headlines from Washington that the corporate tax cuts may be enacted "gradually" reaching 20% in 2022.

As Bloomberg reports, House tax writers are discussing a gradual phase-in for the corporate tax-rate cut that President Donald Trump and Republican leaders want -- a schedule that would have the rate reach 20 percent in 2022, according to a member of the chamber’s tax-writing committee and a person familiar with the discussions.

The phase-in plan has been considered, but may not yet be final, said a member of the House Ways and Means Committee, who asked not to be named because the discussions are private.

Under that plan, the rate may be reduced from its current 35 percent rate by three percentage points a year starting in 2018.

This is clearly not what the "Veruca Salt" market demands... "I want it all.. and I want it now."

This follows the SALT elimination over the weekend. As Bloomberg reports, bowing to concerns from Republican House members in high-tax states, the chamber’s chief tax writer said he’ll preserve a federal income-tax break for property taxes.

“At the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens,” House Ways and Means Chairman Kevin Brady said in a statement Saturday afternoon.

The announcement was welcomed by Representative Chris Collins, a New York Republican, who said the compromise would address the need “to protect middle income working families” in states like his own. He predicted it would assuage Republicans’ concerns.

And that sent stocks lower...

 

Even FANG Stocks are rolling over...

 

And 10Y Yields are at one week lows...

IRS Pulls Equifax Contract In "Precautionary Step"

And the hits just keep on coming...

Until today"s headlines indicating the possibility of another breach of Equifax"s security, dip-buyers had been enjoying a few days" relief as analysts clammored to explain how one of the biggest cyberhacks of all time did nothing to hinder Equifax"s business model. Tonight, they might just start questioning that as Politico reports The IRS has temporarily suspended the $7.2 million, no-bid contract it awarded to Equifax to verify the identities of taxpayers.

As Politico reports, the short-term suspension means that taxpayers will not be able to establish new accounts through a program called Secure Access, which grants them access to online records and transcripts. Those taxpayers who already have accounts will not be affected, the agency said.

The IRS plans to continue reviewing the security of Equifax"s systems during the suspension.

The agency had previously said its hands were tied and it had to keep the contract with Equifax.

"The IRS emphasized that there is still no indication of any compromise of the limited IRS data shared under the contract. The contract suspension is being taken as a precautionary step as the IRS continues its review," agency spokesman Matthew Leas said in a statement.

For now the dip-buyers have slowed down...

In letters to IRS Commissioner John Koskinen, some members of Congress questioned whether Equifax could be trusted to handle taxpayer data and suggested the contract should be revoked.

Is Equifax"s business model starting to come into question?

CalExit 3.0: New Petition Calls For Cali Secession...3rd Time's A Charm?

A new group of CalExit activists are hoping they can secede (see what we did there?) where two predecessor groups failed in efforts to force California"s independence from the United States of America.  Ironically, you would think that removing California from the union would be something that Republicans and Democrats could actually agree on...so we remained perplexed as to why this process is proving so difficult.

So, what"s their plan?  Well, rather than pursue a ballot measure, which requires 585,407 signatures, the CalExit 3.0 group has petitioned California"s Attorney General to call for a Constitutional Convention of the States so they can, among other things, amend the U.S. Constitution to allow for a "clear and reasonable path for individual States to become independent, so that CA can secede, if they so choose."

But, secession isn"t all they"re after...the CalExit 3.0 group enumerated a litany of Leftist grievances which they would like to address with constitutional amendments...here"s just a couple of our favorites (spelling mistakes below are not ours):

1. Given that "California is - and must always be - a refuge of justice and opportunity for people of all ages, backgrounds and aspirations - regardless of how you look, where you live, what language you speak, or who you love;"

2. Given that the world has changed dramatically since 1787, and over the next Century California will continue to invent the future, be it in Entertainment, IT, Medical discoveries, Environmental Protection, Global Climate Disaster Mitigation, or Civil Rights & Liberties;

3. Given that a Californian"s vote has one seventieth the weight of a citizen of Wyoming in the US Senate and has become functionally irrelevant in presidential elections;

5. Given that the US federal govermnent has seen increasing gridlock and citizens across the country feel poorly represented by the federal government;

6. Given that California"s government and people increasingly want to chart their own path on issues ranging from - but not limited to - immigration, civil representation and environmental protection and, given the US Constitution expressly designates states as sovereign entities;

20. Given that Californian"s believe in the equality and inherent dignity of all persons;

22. Given that California was seized undemocratically and annexed by the US in 1846 in an act of naked imperial aggression;

Not surprisingly, the petition also calls for a whole bunch of very expensive entitlements...

8. Provide free, reliable and safe Universal healthcare for all citizens, regardless of medical history.

9. Provide free, high quality, Universal education.

...but then also calls for Federal taxes to be abolished...

Modify Federal tax law to render Federal taxes negotiable:

1. State tax becomes primary.

2. Federal tax secondary and negotiable, based on the needs of each State - to be determined by each State and the voters.

3. State govermnent negotiates Federal Taxes on its voters, and their respective communities, behalf to fairly and equally represent voters" values and needs, and those of their respective natural environments.

...which we presume means that they"re planning to rely on the entitlement fairy?

Here is the full petition filed with the Attonery General"s office:

Tax Collectors In Florida Now Openly Carry Guns, While Public Is Banned From Doing So

Authored by Mac Slavo via SHTFplan.com,

Tax collectors in Florida are now publicly announcing the values of being armed when demanding money from citizens. The only problem is that the state bans open carry for civilians that the tax collectors are stealing money from.

If you’re leery about government intervention in your life, and you know that taxation is theft, this article will probably strike a nerve. However, on the other hand, if you revile and worship the government which steals from you and creates edicts you must follow under threats of violence using your stolen money, you’ll love what they are doing down in the Sunshine state.

“A Central Florida tax collector says a new policy will allow his employees to openly carry firearms while they work,” The Associated Press reports.

“Seminole County Tax Collector Joel Greenberg told the Orlando Sentinel that according to Florida law, he and his employees are considered ‘revenue officers’ and are exempt from the state’s ban on the open carrying of firearms while performing their duties.”

Ready for the glaring hypocrisy?

The rationale behind the move is to save taxpayers money by eliminating the need to hire private security.

Know what else would save taxpayers money? No government theft (taxes), or even perhaps lowering the tax rate to the point that people aren’t willing to shoot at tax collectors over what’s obviously amounting to putting a gun to the head of a person and demanding money. Last time we looked up the definition of theft, taxation fell firmly into that category. No amount of mental gymnastics could convince a free thinker that money they made is somehow the property of anyone else.

But, “tax collector Joel Greenberg says he is a ‘big believer in the Second Amendment,’” letter to the editor writer Gordon Crawford points out in the Orlando Sentinel. “If that is truly the case, he would know that this constitutional amendment was put in place to protect the public from government tyranny, not to arm the government” making stealing easier for government officials.

Not that the courts have any incentive to provide for that. As noted by the Sun Sentinel in March, “The Florida Supreme Court found the state’s ban on openly carrying handguns constitutional, raising the stakes for open carry laws under consideration in the Legislature this year.” But if you work for the government, and steal from others for a living, you can be armed. How odd, right? People want to protect their lives with guns when stealing. And the constitution already literally declares that all gun laws are unconstitutional. It’s the four little words no socialist wants to hear: Shall not be infringed.

It’s more than obvious that this kind of “action” is exactly what the founders of the nation did not intend when writing the second amendment. All the more proof that the government does not protect rights, it’s our job to do that. The government is stealing from us at gunpoint and a few even claim that as long as they throw in a bridge here and there, it’s worth it.

But is it worth it? What would the founders do? They are probably spinning in their graves with disgrace at the loss of freedom we’ve allowed. This seems to come right out of a dystopian dictatorship.

Watch Live: Speaker Paul Ryan To Deliver "Major Speech" Calling For Permanent Tax Reform

In what is being hailed as a "major speech," which means just about nothing to ordinary Americans living outside the D.C. bubble, House Speaker Paul Ryan is expected to call for permanent tax reform in 2017 in remarks to be delivered to the National Association of Manufacturers.  According to the Washington Examiner, Ryan will report that the GOP intends to introduce and pass a joint tax bill in the fall of this year.

"We are going to get this done in 2017. We need to get this done in 2017.  We cannot let this once-in-a-generation moment slip."

"Transformational tax reform can be done, and we are moving forward. Full speed ahead."

The @HouseGOP plan for tax reform will create more jobs & increase wages, putting American workers & families first. https://t.co/TgaUyqc4WJ

— Paul Ryan (@SpeakerRyan) June 20, 2017

One component of Ryan"s tax plan, the so-called border adjustment provision, has become very controversial even among his Republican colleagues. It has elicited fierce opposition from retailers and other industries that fear it would result in higher taxes on imported products. In effect, the border adjustment would work by exempting export sales from companies" taxable income, but disallowing the deduction of the cost of imported goods from taxable income.

"While acknowledging that the particular mechanism must be sorted out with the administration, he will argue that we must fix the current incentive for American companies to move abroad, make things overseas, and then sell them back into America — which costs us jobs," his office said. Ryan will also stress that the U.S. needs a more competitive tax system after years of being disadvantaged.

"We are actually unique in the world in the way we discourage capital from coming back to America and how we incentivize off-shoring jobs," he"ll say. "This is not the kind of exceptionalism we should aspire to…We must think differently, so that once again we make things here and export them around the world."

We will also eliminate many of the loopholes used by the wealthy and well-connected, helping to lower the tax rates for American families.

— Paul Ryan (@SpeakerRyan) June 20, 2017

Meanwhile, Republicans will have to pass their tax package via a continuing resolution to take advantage of their simple majority in the Senate, a procedural move that will prevent Democrats from blocking it. Under such a procedure, the tax package cannot add to long-term budget deficits. 

That said, in order to take advantage of the procedure, Republicans in the House and Senate must pass a budget resolution.  And while that may sound simple enough, the Republican party is bitterly split over spending levels for the military and various domestic programs.

Of course, major tax reform has been a key agenda item for Republicans for quite a while and only time will tell whether it is possible or, as John Boehnor would say, just a bunch of Republican "happy talk."

New Theory Behind Stalled Economy: Retirees Are Hoarding Too Much Cash

For years we"ve written about the fact that Americans, young to old, are lousy savers (see "Retirement Crisis Looms As Average U.S. Household Has Saved $2,500 For Retirement"). Of course, they have to be because how else can a mature economy continue to grow unless every single person levers every asset they own to the maximum extent possible and then spends all of that money?  Anything less would mean that all of Janet Yellen"s efforts have been a colossal waste. Meanwhile, this inherent inability to save is awful news for a nation that faces a massive wave of baby boomer retirements over the next 20 years. 

All that said, we were somewhat shocked to come across a report from money manager United Income which effectively argues that American retirees are saving too much money rather than too little.  To summarize the thesis, United Income argues that retirees become more conservative as they grow older which causes them to save more and allocate less to equities...which is, of course, a somewhat self-serving conclusion but never mind that.

Innovations in medicine and technology have extended human life by over 30 years since 1900. This has helped to double the amount of time the average adult now spends in retirement compared to several decades ago. But, the benefits of longer lives and retirement may be limited if older households curb their consumption or investment in preventive health measures because they are overly pessimistic about their future financial health. Overly negative viewpoints toward the future may also create self-fulfilling economic problems if it leads to an overly aggressive fixed-income portfolio. To assess these possibilities, we analyze consumer sentiment and spending data from the University of Michigan that was commissioned by the Social Security Administration and U.S. Commerce Department, among other federal agencies.

The only problem with the theory is that, intentional or otherwise, it"s based on a complete misinterpretation of data.  Per the chart below, United Income referenced the growth in "Mean Net Wealth" as evidence that retirees are hoarding too much cash. 

Unfortunately, when combined with the fact that "Median Net Wealth" is actually shrinking, it"s easy to deduce that while the majority of American retirees are actually spending their retirement income (and then some), there is a group of super wealthy old folks who simply can"t spend enough money to offset annual investment income growth....which speaks more to the growing wealth gap than to some economic fear that is causing retirees to hoard cash.

In this context, it"s not too difficult to understand why aggregate YoY spending trends collapse as old folks get older.  The most wealthy retirees can only find so many ways to burn their massive nest eggs which means that, at least for these folks, YoY spending doesn"t grow but retirement balances do...

...while the overwhelming majority of people simply run out of cash and have to cut every corner possible to survive....

But we"re sure the report from United Income, as misleading as it may be, will undoubtedly convince more retirees to allocate more money to equities...all of which will inflate this ETF-induced equity bubble even more, all while adding to United"s fee income...It"s one of those "win-win" deals.

How Governments Justify Theft is a Fallacy: Wealth Was Created before Taxation

Via The Daily Bell

Do we owe society taxes?

Tax day is tomorrow. Some people get excited because they will get money back which the government withheld–a clever trick that makes people feel less oppressed and plundered by filing taxes.

Something the regressive left likes to say is that taxes are justified because of the infrastructure of society, provided by the government, makes all earning possible. It is, therefore, only fair to share some of that wealth to continue funding the common property. They say the rich would never have gotten rich without government provided services, and that is why they owe the government.

An up and comer on the left who we will unfortunately not stop hearing from anytime soon has weighed in on why we owe taxes to society. This is an old but relevant quote since progressive champion Elizabeth Warren will probably be a White House contender soon enough. While running for Senate she said:

There is nobody in this country who got rich on his own. Nobody! You built a factory out there, good for you, but I want to be clear, you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces the rest of us paid for. You didn’t have to worry that mauraduing bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did… But part of the underlying social contract is that you take a hunk of that, and pay forward for the next kid that comes along.

I think she slipped up there. Do you see it? Warren says that if the government didn’t provide security for the factory, the business owners would have to “hire someone to protect against” marauding bands. And she is correct in that.

What she leaves out is that their money is already stolen to pay for the police. So why on earth would they say no thanks to a service for which they were forced to pay? (Well, I guess because the police do a terrible job. Most factories do in fact hire their own security in addition to the police that “the rest of us” paid for.)

And this is the whole issue: Which came first, the government or wealth?

Clearly, a business first has to have money in order to be taxed. And it makes sense to think that since the infrastructure already exists, it helps people to earn money. And it does, but it was all paid for first by privately produced wealth.

Think about it, the very first tax payers were farmers that were conquered by herders and forced to pay a share of their yield to the nomadic invaders. The herders realized they could make this a regular thing if they didn’t murder all the farmers, and thus government was born.

Not murdering the people was the first service which government ever provided. Boy, are we lucky to have them!

Ironic that Warren says taxes are paid to basically prevent from happening the very thing which began the existence of government. It was extortion from the very beginning. The farmers paid protection money to their government.

Who was the main threat? The government. The mafia does the same thing.

But looking at the first taxpayers shows that they necessarily had to have earned something and created wealth before they were taxed on it.

And this means we are building on a stolen foundation. It means we didn’t need the government to make wealth creation possible in the very first place. Based on the very function of government, which only came into existence after the first farmers had created wealth, this proves that it is possible to create wealth without that magnificent infrastructure for which “the rest of us” paid.

Warren said it herself when she admitted the factories could simply purchase their own protection. But what they are really paying for, is protection from the people they are paying, the government.

So is taxation the price we pay for the society government has built around us? Without a doubt, certain things taxes pay for are used by everyone living in society and thus contribute to business, like roads for shipping.

And even though the government is used to providing these things, the question remains are taxes what we owe to society for the opportunity to do business? Or did wealth have to be created first before taxes could be paid?

Justifying the Upward Redistribution of Wealth

Everything government does is done with tax dollars, therefore first something of value had to be created before they could tax anything.

So then why do people argue that we owe the government taxes because they have made everything we earn possible?

We wanted to add a Bernie Sanders quote since he was vocally against the wealthy. He is one of the most powerful U.S. Senators at this point, with his unspent war chest of individual campaign donations, and an army of useful idiots.

But it turns out the man said remarkably little for how much he talked. It was all catch phrases and the same repeated lines about how immoral it is to be wealthy. The rich need to pay their “fair share” he says, but that doesn’t actually answer the question of why anybody should have to pay taxes. We all need to be robbed equally?

There are certain ways to become wealthy which are immoral, such as securing government contracts, government bailouts, government grants, government loans, and government subsidies. But Bernie’s support for higher taxes would only exacerbate that upward transfer of wealth.

Sanders actually never tried to justify why the rich owe taxes, his only criticism seemed to be that they were wealthy. He repeated over and over that they basically stole this wealth from the middle class, but offered no real examples other than the Wall Street bailouts (which yes, were theft on their part, but again that was a government transfer of wealth, which giving the government more power would only increase).

Turns out what Bernie was doing has been done since the beginning of government. Jared Diamond explains the origins of Chiefdoms in his book Guns, Germs, and Steel:

These noble and selfish functions are inextricably linked, although some governments emphasize much more of one function than of the other. The difference between a kleptocrat and a wise statesman, between a robber baron and public benefactor, is merely one of degree: a matter of just how large a percentage of the tribute extracted from producers is retained by the elite, and how much the commoners like the public uses to which the redistributed tribute is put…

Make the masses happy by redistributing much of the tribute received, in popular ways. This principle was as valid for Hawaiian chiefs as it is for American politicians today.

Clearly, Bernie is a big fan of the redistribution method; his free college proposals sound pretty good to his young target demographic.

So basically, these “progressive” stars are actually regressing to the oldest forms of government which always looted and tricked the masses into supporting their power grabs and wealth confiscation.

The government didn’t create the wealth in society, and they didn’t even make that wealth creation possible. They simply stole the wealth that others created and redistributed it in obvious and popular ways. They monopolized mechanisms like roads and security in order to make it seem like the government is the only method of laying the infrastructure to create wealth.

But clearly wealth came before taxation, otherwise, there would have been nothing to tax! The premise of their justification for theft is a fallacy.

NYT's Nick Kristof Urges IRS Employees To Illegally Leak Trump's Tax Return

On Sunday evening, the New York Times" columnist Nicholas Kristoff urged IRS employees Sunday to break the law, and leak Donald Trump’s tax returns to his publication: “If you’re in IRS and have a certain president’s tax return that you’d like to leak, my address is: NYT, 620 Eighth Ave, NY NY 10018,” Nicholas Kristof wrote on Twitter.

But if you"re in IRS and have a certain president"s tax return that you"d like to leak, my address is: NYT, 620 Eighth Ave, NY NY 10018. https://t.co/ujYe100Tn9

— Nicholas Kristof (@NickKristof) March 6, 2017

As the Hill reminds us, the release of an individual"s unauthorized tax returns is a felony. While reporters who publish illegally obtained information that they did not solicit are traditionally not prosecuted - recall that in September 2016 the NYT released an old Trump tax return without legal consequences-  the legal picture becomes less clear if the reporters are involved in the leaking of the information.

On this issue, the U.S. code on unauthorized disclosure of information states quite clearly that "It shall be unlawful for any person to whom any return or return information (as defined in section 6103(b)) is disclosed in a manner unauthorized by this title thereafter willfully to print or publish in any manner not provided by law any such return or return information... Any violation of this paragraph shall be a felony punishable by a fine in any amount not exceeding $5,000, or imprisonment of not more than 5 years, or both, together with the costs of prosecution."

A veteran NYT reporter, the Harvard-educated Kristof has covered global affairs for the NYT since 2001. Last September before the election, the Times was sent Trump"s 1995 tax documents anonymously. After verification, the paper printed the documents in full a few days later. 

Shortly thereafter, Trump’s attorney sent a letter to the paper"s editors stating that publishing the tax documents was “illegal” because "Mr. Trump has not authorized the disclosure of any of his tax returns.” 

New York Times editor Dean Baquet had stated publicly earlier in September that he was willing to risk going to jail to publish Trump"s tax returns. Should some IRS "source" respond to Kristof and illegally share Trump"s tax documents, Baquet may get his request.

How The IRS Can Empty Your Bank Account Without Warning

Having just filed his 2016 taxes, a Zero Hedge reader submits the following bizarre story.

On January 20, the reader filed his Federal tax return using Tim Geithner"s favorite TurboTax software, which the IRS formally accepted three days later, on January 24. One week later, on January 31, the IRS made an automatic deposit into the reader"s bank account, who then used the refund to pay down his credit card debt the very next day.

This is when things turned bizarre, because as our readers writes, just two days later, without warning, on orders of the IRS his bank empties out the bank account handing over its contents to the IRS: 

"the IRS emptied our bank account February 3, 2017 for erroneous refund with no notice! (please see attached letter).

The only other thing I could think of was that TurboTax did not work correctly and calculated to large of a refund but the letter from the IRS stated it was a "processing error at the Internal Revenue Service". The refund we received was the same as what TurboTax calculated. I researched the IRS manual about erroneous refunds and could not find anything referring to a "R17" code as stated in the letter.

Called them. Our return was fine. The amount of refund was fine. Not an identity theft problem. Error on their side. According to the person I spoke with they are doing this to a large block of filers. They seemed hesitant to give more info.

He then adds that "in our phone conversation they told me that the return was fine and the refund amount was correct, it was not an over refund issue but some kind of IRS internal error and they would reissue the same refund after receiving the money back. It makes absolutely no sense to me but this is what I was told."

So, as our reader summarizes, "no outstanding taxes. Never been audited. Always file on time. Not a small business, just a normal employee W2, not a structuring issue. Only typical deductions and student loan interest. Scrambling to cancel auto payments and trying to figure out how we will pay mortgage and any payment that will not accept credit card.

His question, "how can this be legal with no notice?" is not simply rhetorical. To be sure, the IRS has virtually unlimited rights over individual fund flows and stock, among which to:

• File a tax lien against you;


• Levy your bank account;


• Garnish your wages;


• Close down your business;


• Seize and sell your home;


• Assess you personally for corporate employment taxes;


• Put you in a monthly installment payment arrangement that is too high;


• Contact your banker, neighbors, friends and business relationships concerning your tax liabilities;


• Go after third party transferees of your assets.

... but all of the above are only permitted in the course of "due process", when an individual taxpayer has been found in violation of US tax laws.

In this case the IRS counterparty was in no way at fault, and was merely the lucky recipient of a clerical IRS error, in the IRS" own words, without any justification or validation. That the IRS would then have full liberty to indirectly enter the account with no warning, and take out whatever funds it deemed appropriate - again, with no explanation of just what the "error" was - is sufficiently disturbing, and is why the person who this happened to would like to know if it has happened to other ZH readers and if so, does he have any legal rights in this particular case.

The redacted IRS notice sent to the readers" bank, in this case the ASCU, is below:

The Myth Of Authority... "But There'd Be No Roads!"

Submitted by Eric Peters via EricPetersAutos.com,

Along with the Myth of Authority – the idea that being ordered about by other people is legitimate so long as those people have given themselves titles or wear uniforms – there is this idea that, absent government, we’d never have things like roads.

Much less plowed roads.

It snowed hard over the weekend and I got to thinking about it as I watched the government plow trucks do their thing.

They do it very expensively.

It seems “free,” of course. The trucks rumble by and you aren’t sent a bill . . . for that. But you’re sent a bill – via the IRS, via your state-level IRS – for many other things, most of which (unlike roads and plow trucks to clear them when it snows) you probably don’t use, don’t want and – quite reasonably – would therefore rather not have to pay for.

Like, for instance, the estimated 10,000-plus nuclear warheads possessed by the federal government. Even if you’re not a Libertarian, it probably strikes you that a few hundred of them are sufficient for “defense.”

But we’re all forced to pay for as many nukes – and carrier battle groups – as the federal government decides it wants, even though we have little if any use for such.

The “defense” budget amounts to around $610 billion annually – nearly three times what China spends (appx. $216 billion) and more than seven times what Putin-rearing-his-head spends ($84.5 billion).

If the U.S. “defense” budget were to be cut in half, we’d still be spending as much as the dreaded Chinese and 4-plus times as much as the Russian bogeyman. Surely, sufficient for “defense.” Just imagine how much more money would be available for roads and plows to clear them. Things most of us probably would be willing to pay for and would pay for voluntarily.

Because we could afford to do so.

If, that is, we weren’t forced to pay for so many other things – like “defense” spending that amounts to more than what Russia and China and the entire axis of evil spend together.

Oddly, many Americans (especially Republican ones) believe “our military” is mendicant, like the ragtag Colonial Army at Valley Forge. That “we” must rebuild it. Because Putin, et al. Who – with his single operational Typhoon is going to challenge Uncle to nooklear combat, toe-to-toe, per Major Kong all those years ago.

People buy this stuff.

Literally.

They pay for “rebuilding” (endlessly, excessively) the military – and lately, on top of this, the Homeland Security apparat. So there is less available to pay for things like roads and trucks to plow them.

Much less.

How many miles of new road could be paid for with $300 billion dollars – just half the current loony sum burned up on the “defense” budget? America would likely not be invaded or nuked in the meanwhile. The 10,000 nukes in stockpile will keep and if even nine out of ten of them are duds, probably 1,000 Hiroshima-plusses ought to suffice to keep Putin from rearing his head. But most Americans – trained to an extent that Dr. Goebbels, were he still around, would find startling – react exactly as required, siding with the government as it sticks its hands in their pockets yet again. Note that both candidates in the late election worked hard to outdo the other as the greatest champion of “defense.”

Even “small government” conservatives defend the defense budget – not grokking that “defense” is also government.

And very big.

Like the rest of the federal budget. It takes so much from us that we have very little left to spend on ourselves. On the things we need and want.

Most middle class people pay about 28 percent off the top in federal taxes; add more if you are self-employed and have to pay “your share” of the federal tax (it is actually called a contribution) toward FICA, also known as the Social Security tax. These taxes have the effect of making it very difficult to set aside money for retirement – because all your  working life, you are taxed to pay for the retirement of other people, many of whom do not “contribute” much and sometimes nothing at all. Regardless, the point is you could have provided for your own retirement – and probably, retired at a much younger age – if you hadn’t been fleeced at every paycheck to provide money for other people’s retirement.

All of us would be better off; and better able to help people who needed help. Non-coercively, too. Imagine that.

 

The faulty premise behind the anti-Libertarian argument that “we’d have no roads” and other needful things rests on the assumption – almost never questioned – that we would not have the money available to spend on such things, currently taken away from us to spend on other things.

Including “administration” (make-work government “workers”) and so on.

Imagine if you were allowed (vile, isn’t it, that such language is necessary?) to keep what you earned. Not 60 percent of it. All of it. To spend as you see fit, on only the things you need and want.

Probably, there would be roads. Very good ones.

And plow trucks, too.     

When Assets (Such As Real Estate) Become Liabilities

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

Correspondent Joel M. submitted an article that struck me as a harbinger of the future: In Greece, Property Is Debt:

"At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate.

Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden.

After many years in which only very valuable properties were taxed, many Greeks went from paying almost no taxes on real estate to not having enough money to pay.

In 2010, property taxes accounted for 0.26 percent of gross domestic product, while this year they are around 2 percent, according to state budget figures. "Suddenly, the state treated the Greeks as if they were rich, at the precise moment that they ceased to be rich."

Among the many disruptions of the past few years, this one shows how traditional conceptions — and a sense of security — can be shattered. With a history full of wars, bankruptcies and rampant inflation, Greeks had always seen land as a haven.

But it is private debt — at 222 billion euros last year — that may prove an even greater danger. This shows in government revenues. With the unified tax, ownership of every kind of property is now subject to taxation.

It will be very difficult for the Greeks to get out from under this mountain of debt. Delinquent loans, which at the end of June made up 31.7 percent of all housing loans, were a mere 5.3 percent of the total in 2008."

The self-reinforcing dynamics in this narrative profoundly reverse time-honored concepts of value: assets that once held or gained value now carry high costs of ownership and lose value.

1. Governments desperate for tax revenues raise property taxes, which add costs that eventually depress sales and future price appreciation.

2. High debt levels and high property taxes trigger foreclosures and forced sales that further depress the market with high inventories of unsold/unrented homes.

3. As sales decline, appreciation can no longer be counted on to enrich owners. Instead, owners fear declines in value and higher taxes. This further depresses sales.

4.  High debt levels become even more burdensome as property values fall.

5. Rather than offer a means of building and protecting wealth, real estate becomes a liability that destroys wealth via payment of taxes and declines in value.

While it can be argued that Greece is a unique situation--a cumbersome, costly bureaucracy of land transfer coupled with soaring taxes--perhaps Greece is simply early to the party.

Governments everywhere are facing fast-rising pension and healthcare costs, and the need for more tax revenues will skyrocket once the global recession trims income, payroll, business and sales taxes.

Additional taxes on assets that can"t flee the country--i.e. real estate--become extremely attractive.

Once an asset class shifts from being a means of wealth preservation and appreciation to a financial risk and burden, a self-reinforcing feedback loop reduces demand and increases supply, pushing prices lower--a decline that then causes more people to sell before prices drop further.

The nightmare scenario for recent buyers is a sharp tax increase that crushes the market value of their home, putting them underwater, i.e. their mortgage is greater than the value of their home. Faced with ever-increasing property taxes and further erosion of value, what"s the advantage of holding onto the property?

Anecdotally, stories of owners destroying buildings to lower their property tax appraisal emerged in America"s Great Depression, as owners desperate to lower their property taxes destroyed their assets (buildings on the land) as the only available means of keeping their property.

Which asset class attracts new taxes will be different from nation to nation, but we can anticipate that governments will go after assets that are currently considered safe and that can"t flee to low-tax havens.

Mobile capital can flee to safer, lower tax climes, and the super-wealthy can buy legislative tax breaks on their wealth. It will be the middle class that accepted the notion that "real estate is the foundation of family wealth" that will be stripmined by higher taxes on immobile assets such as real estate.

This essay was drawn from Musings Report 45. The Musings Reports are sent exclusively to major patrons and contributors ($5/month or $50 annually) every weekend.