Millions and Billions and Trillions, oh my!

The economy and tax cuts simplified!

 

crushing_burden_debt

The media often decries that tax cuts for the rich are unfair, and that the wealthy are greedy individuals who don’t care about poor people and don’t pay their fair share in taxes. We saw a lot of this in recent years from the Occupy Wall Street group as they tried to demonize the top 1%. The sad fact is that the majority of individuals in the USA do not understand the economy, personal finance, taxes, investments, or the stock market in general.

These are three undeniable facts:

  • Wealthy people create the most jobs and pay the most taxes.  
  • Poor people are poor because they don’t yet understand how to become rich.
  • Investing in the stock market has resulted in the largest creation of wealth in human history.

“(It’s) the economy, stupid” – James Carville

Let’s start off by differentiating between the economy and the stock market. They are NOT the same thing.  February 5th 2018 saw the largest single drop in the history of the Dow Jones, 1175 points.  And the two week period from the end of January to mid February amounted to a market correction, which is to say, a 10 percent drop. You did not see 10% of the business in America hang a ‘closed forever’ sign on their doors, nor did you see them fire 10% of their employees, or find the shelves stocked with 10% less goods.  This is because the economy is just as strong today as it was before the market dropped. The economy involves the sum of all the goods and services produced in this country every day. The stock market is something very different and doesn’t have anything to do with the economy at all.  The market reflects speculations by investors on the potential values of various companies based on imagined future profits. Nothing is produced on Wall Street except wealth. When you buy a stock, you are actually really just loaning that company money in the hopes of a future return on your investment. The stock exchange just facilitates and records that transfer of funds. The influx of currency gives the company capital which it can use to expand and grow the goods and services it produces. Hopefully.  As the famous investing disclaimer goes “past performance does  not guarantee future earnings”. This is why tax cuts for business and the wealthy can cause the market to fluctuate.  The perceptions of investors change, and the market reflects that change.  

408chart

A median is the exact mid-point. In 2016 the real median household income was $59,039. That said, half of the households in the USA earned more, and half earned less.  The same can be said of tax payers. About 50% of the people in the country pay ZERO in federal taxes, while the wealthiest 1%  in the country account for a staggering  35% of all taxes collected. When you expand this group to the top 10% of wage earners, the taxes collected grows to 68%. Is it fair when a millionaire gets a larger tax cut? Absolutely! If taxes were ‘fair’ we’d all pay the exact same percentage regardless of our level of income.  

There’s no such thing as a free lunch!

On October 30th 2017, White House press secretary Sarah Huckabee Sanders kicked off a press briefing by reading an anecdote about reporters and a bar tab to try to explain who would benefit from the proposed Republican tax reform framework.  It was adapted from a piece that had been floating around the internet since the early 2000’s, Here is the original:

Suppose that every day, ten men go out for lunch and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily lunch by $20.00.”  So lunch for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes.  So the first four men were unaffected.  They would still eat for free.  But what about the other six men?  How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33.  But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to eat his lunch.

So the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% off).

The sixth now paid $2 instead of $3 (33% off).

The seventh now paid $5 instead of $7 (28% off).

The eighth now paid $9 instead of $12 (25% off).

The ninth now paid $14 instead of $18 (22% off).

The tenth now paid $49 instead of $59 (16% off).

Each of the six was better off than before.  And the first four continued to eat lunch for free.  But, once outside the bar, the men began to compare the amount they got off.

The sixth man said, “I only got $1 off out of the $20 while the tenth man got $10 off!”

“Yeah, that’s right,” exclaimed the fifth man.  “I only got $1 off, too.  It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man.  “Why should he get $10 off, when I got only $2?  The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all.  This new tax system exploits the poor!”

The nine men surrounded the tenth and told him they were angry that he got so much off while they each got very little.

The next day the tenth man didn’t show up for lunch, so the nine sat down and had their lunches without him.  But when it came time to pay the bill, they discovered something important.  They didn’t have enough money amongst all of them for even half of the bill!

And that is how our tax system works. The people who already pay the highest taxes will naturally get the largest benefit from a tax reduction.  Also, all of the taxes collected annually do not cover all of the spending by the Government the short fall of which is covered by borrowing money from foreign countries. Each year this deficit and the interest on the foreign loans adds to the growing national debt.  You can see this debt growing in real time at usdebtclock.org .  Currently we have a national debt of $20,633,000,000,000. This amounts to $63,000 per citizen OR $170,000 per tax payer ! The government needs to shrink the national debt and the only way to do that is by the elimination of all non-essential spending. We need to have everyone pulling their own weight. We can’t have half the country working and paying taxes for the other half of the country to sit home and not work. Government welfare programs must end. We simply cannot keep spending more money than we take in. You can spend your way into the poor house, but you’ll never spend your way into prosperity.    

TheNumbersDontLie

Now when you’re earning less than $60,000 a year, a million dollars is a lot of money.  Even if you earned $250,000 a year, a million dollars is still a lot of money. But when we talk about the US economy, the budget, and tax cuts, were are discussing billions (a thousand-million) and trillions (a million-million) and these numbers are larger than the average person can comprehend.  Let’s ignore the smaller numbers and shoot for the moon by explaining  the size of a trillion.

A single one dollar bill measures 6.14 inches. If you laid a trillion of them end to end, it measures 96,906,656 miles. This would exceed the distance from the earth to the sun. Even if you just stacked them one on top of the other, the distance would be 67,866 miles. This would reach more than one fourth the way from the earth to the moon. Mind blowing huh?

One of my favorite examples of explaining the US budget, taxes, and those ‘HUGE’ multi-billion dollar budget cuts is to shrink the example down to a household budget. You remove the 8 zeroes. I’m using numbers from the recent 2018 US budget and the current national debt .  

  • United States Tax revenue : $3,654,000,000,000
  • Fed budget $4,094,000,000,000
  • New debt $440,000,000,000
  • National debt  $20,633,000,000,000
  • Recent budget cuts which some politicians are proud about  $ 54,000,000,000

Now, remove 8 zeroes and pretend it’s a household budget.

  • Annual income $36,540
  • Annual spending $40,940
  • New debt on the credit card $4,400
  • Outstanding credit card debt  $206,330
  • Recent budget cut $ 540

Now look at those ‘household budget’ figures.  Knowing that you were in debt about 564% of your annual income, would you continue to spend 112% of what you earn? Would you decrease that by less than 1.5% and call that an accomplishment? You’d have to be way beyond crazy to think that was a good idea. Hopefully you now understand why we need to end the welfare state and stop demonizing the rich. As always I wish you happiness and success! 

A Wall Street Fairy Tale

Is the sky really falling?

chicken

Chicken Little lived in Storybook Land. He had a nice government job working for the King, Mr. T. Chicken Little wasn’t born rich, but he was smart and read a lot. He wanted to be rich someday like his cousin Goose Golden-Eggs. Money just seemed to drop out of Goose. She left a pile of wealth everywhere she sat. It didn’t seem fair that some people were  born rich and had more money than brains, but no one ever said life was fair. Chicken had feathered his nest with Index Funds from the Stock Market. He hoped to have a very nice nest egg when he retired. He always paid attention to what was happening with The Stock Market.

The Stock Market was co-owned  by Mr. Bull and Mr. Bear. No one had seen Mr. Bear in years, not since 2009. No one liked it when Mr. Bear ran the market, but thankfully he only did so about once every seven years, and he never ran it for very long. Mr. Bull did a much better job running the Stock Market and always managed to clean up the mess left by Mr. Bear. He even had a new friend keeping him company on Wall Street,  Fearless Girl who just showed up one day and has hung around with Mr. Bull ever since.

Now Chicken Little was always running home from work each day, because he always wanted to see what the Talking Heads on TV had to say. Everyone in Storybook land watched different Talking Heads. There were many of them and you could always find one you liked. The problem was that they all said something different, so you had to be really careful which ones you listened to. Some of them said some very bad and dumb things, and if you listened to them too much, you grew very sad and jaded, like The Old Witch.

The Old Witch liked to tell everyone how  smart she was because she was very old, and she watched the Talking Heads all day long, so she knew everything. As Chicken Little was passing her home, she waved him over.

“Hi Chicken, did  you hear what my favorite Talking Heads said today?”

“No Witch, I was busy working all day so I could have more money to feather my nest.”

“They said Mr. T the King is an idiot, his son is retarded, and he’s going to destroy the world.”

Chicken Little was aghast! He couldn’t believe anyone would say such terrible things, much less listen to them, so he decided to quickly change the subject.

“Say Witch, you’re old and know everything. What’s the best thing to do with your money? I leave ten percent of  my money in  The Stock Market with Mr. Bull and he takes great care of it.”

“The Stock Market?!” she yelled. “You’d have to be crazy to leave money in the Stock Market. Do you remember the big crash of 1929? Humpty Dumpty lost everything  in the Market and leapt to his death because he was so depressed. Only idiots put their money in the Stock Market. I hide all my extra cash in my mattress,  it’s safer than a bank, and I own a nice house, it’s made of Candy and Chocolate.”

Chicken Little didn’t own a house, he rented a nice apartment with a great view. He eyed her home skeptically. “Isn’t candy bad for you? I heard it makes you fat and gives you diabetes.”

 The Old Witch scowled and gave him an angry look.

“What do you know? You’re not as old as I am, and you’re not as smart. I watch the Talking Heads all day. Chocolate comes from cocoa, which is a bean.  Candy is made with sugar which come from sugarcane. So both come from plants and therefore they are both vegetables and vegetables are good for you. Now scat! I’m busy, my favorite TV show is about to start.”

Chicken Little walked away shaking his head. Next he came to the house of the Pigs.

Practical Pig owned a house made of Gold Bricks. He and his brother Fifer were in the yard gardening as Chicken walked past. He called to them.

“Hey Pigs! I was talking with the Old Witch about money, what do you do with yours?”

“All my money is invested in real estate and precious metals.” replied Practical Pig pointing at his house made of gold bricks. Fifer said nothing, he just smiled. 

Practical was older and smarter than his brother Fifer. Fifer lived with his brother and slept on his couch. Fifer  used to own a house made of sticks. It was built on a foundation of sand, and financed with a ‘Ninja’ loan. It was a variable rate mortgage which inflated quickly. Fifer eventually lost his house of sticks when the housing bubble bust, so now he had to live with his brother.

“Isn’t gold and real estate expensive?” asked Chicken.

“It can be, but everyone has to live somewhere, and gold had never been worthless so both are great investments.”  Practical replied.

Chicken alternated looks between Practical Pig and his homeless brother Fifer.

“Say Practical, do you ever hear from your other brother Fiddler?”

“Oh yeah. I spoke to him on the phone this morning. He just moved into a huge expensive mansion financed by BitCoin and Ethereum. It’s totally built out of Ones and Zeros. I worry about him, some day he’ll be sleeping on my couch too.”

Chicken waved goodbye at the brothers and hurried home to his maintenance-free apartment.

The first thing he did when he got home was to turn on the News to listen to what the Talking Heads were saying about the day’s business news. They were all screaming that the sky was falling because the market plunged nearly 666 points and that it was probably the end of the world.

Chicken Little was so shocked by the news that he passed out!

After he recovered from the shock, he reviewed the various news clips to see why the market fell.

Some of the Talking Heads blamed Mr. T the King  for constantly letting his pet blue birds The Tweets fly free,  and said that he didn’t play well with others. Some of the Talking Heads said the Market Fell because The Wicked Witch of the West was the rightful ruler of Storybook Land and the throne had been stolen from her. A few others blamed it on The Man in the Moon and yelled at the sky. A few blamed the Russians. A few said they had ‘no idea why, it was a mystery.’ A few said it fell because the market fluctuates and it’ll bounce back. Uncle Warren the Wise Wizard of Wall Street said he was going to buy lots of cheap stocks first thing in the morning.  Little Jack Horner  sat in the corner eating his pie. The Cheshire Cat smiled until he faded away,  leaving only his grin. Everyone seemed to react to the news differently.

In the end, Chicken Little checked that his nest was still intact, saw that his index stocks were still up for the year, and discovered that despite what some of the Talking Heads claimed, everything was going to be just fine. He decided to listen to Uncle Warren and pick up a few bargains at the Stock Market, and knew that one day, he too would grow up to be a Wizard of Wall Street.

The End

Fairy Tales were a traditional way to entertain young impressionable minds while at the same time conveying a moral lesson. Even Jesus Christ occasionally turned to parables when trying to covey complex ideas to the crowd. There are lots of individuals who have difficulty understanding  how the economy, the stock market, and even personal finances work.  Throw in politics and religion and people get real confused quite fast.

February 2nd, 2018 marked one of the largest drops of the Dow Jones Industrial Average  since 2009. The thousand point plunge from the prior week’s high probably scared the novice investor to death. It’s not as bad as some of the ‘experts’ are claiming. Investing in stocks still results in far greater returns on investment than real estate, precious metals, or even the dangerous new gimmick, crypto-currencies like BitCoin. I’d stay far away from that last one, when that bubble pops, it’s going to burst loud and hard!

The bottom line is that there are many factors which impact our day to day lives, and just as many pundits, cynics, and fools with opinions. Everyone has an opinion.  It can become quite the task to filter out the many voices and distill all the information to refine a pure source.  What do singers , athletes, and movie stars really know when they speak on a topic? For every one celebrity with an actual college degree, there are at least a hundred who barely even graduated  high school.  Check your sources, check your information, and review your facts before making a decision which could potentially ruin your future happiness. Just because everyone around you is telling you what you want to hear doesn’t mean it’s the truth. You just might be in an echo chamber surrounded by sycophants.   Tread carefully.  As always, I wish you happiness and success!    

Wrap it in a ribbon and a bow!

Budgeting 103: Decorate for Christmas without breaking the bank!

Every Christmas, there’s at least ONE house in every neighborhood decked out with so many lights and lawn ornaments that it could probably be seen from space on a clear night.  Forget the initial expense of buying all those lights and glowing plastic luminaries, imagine the electricity usage! The numbers on the electric meter are changing so fast they’re probably an unreadable blur. And if the house is that decorated on the outside, you know the interior is just as festive. Imagine also the amount of time to decorate, then after the season, to  un-decorate. Let’s not forget storing it all. If you can’t fit it all in your home, you need to rent a storage locker for a year. That adds up to thousands of dollars a year to transform your residence into a festive Christmas spot for about 4-6 weeks depending on how early you start, and when you take it all down.

Now, there’s nothing wrong with spending that kind of money IF you are doing it to make YOURSELF happy, and you can afford it. If you’re just doing it to impress people you don’t know, or you’re trying to outdo the Jones’s on the corner with their ‘impressive’ display, you really need to examine your heart. Christmas is a great time of happiness and fellowship for the majority (despite some of the Christmas headaches) and should you care more about your friends and family than how your home looks. So here’s a few things to help save you money (and sanity) decorating for Christmas.

K.I.S.S.  – Keep It Super Simple

Outside

  • Limit the number of lawn and outdoor pieces. Less is more. People will see a light up nativity scene or plastic Santa a lot easier it it’s not hidden among a 100 other luminaries on your lawn.
  • Instead of stringing lights all over your house, save time and money by projecting the lights with a laser light projector.

Inside

  • Decorate a room, or two at most. You don’t need to deck EVERY hall.
  • DIY – Don’t buy expensive Christmas decorations. A few craft supplies can be used to make homemade ornaments, spruce up pine cones with paint and glitter, or whatever your mind can imagine. Be creative, but remember crafting takes time and skill. You can only do what you can do. I wowed a couple of my guests this year with simple holly rings ( which I made myself with craft supplies ) added to the bases of cheap votive candles.

Xmas Craft

Xmas candle

    • Don’t buy ‘collectible’ ornaments! Every year Hallmark and several other chains release HUNDREDS of expensive ornaments for every fandom base there is. They are cheap plastic trinkets that will never go up in value, and cost big bucks. No one cries when they accidentally break a simple glass ball. But  Barbie’s limited edition Pink Corvette from 1997 or the Millennium Falcon? These will bring a fanboy or fangirl to tears when they break.
    • Pine cones are FREE, go for a walk in the woods and gather a couple dozen. Just be sure to clean and disinfect them if you find them in the wild, you don’t want bugs invading your home.
    • Use pine cones, a glass bowl, real greens and candles to make your own center piece.

Xmas centerpiece

  • Take advantage of after Christmas Holiday clearance sales and stock up for next year now.  I’m always able to get a collection of spare Santa hats for my guests for pennies on the dollar every year after the stores mark them down. I’ve gotten a dozen glass balls for 75¢ ! Wrapping paper is never so cheap as it is after Christmas.  Just make sure to store everything you pre-buy for next year properly. I use Red Plastic Totes, and Ziploc bags, then put these all in the walk-in closet where I can find them. I have a special ornament tote, and wrapping paper tote to keep these safe as well.

Santa Hats

The money and time you save will make you jolly each Christmas, and allow you quality time with friends and family. Xmas Friends

As always I wish you happiness and success!  And God bless us, everyone.         

Deck the Halls!

It’s Christmastime- Budgeting 102!

DECKHALLS

“There is nothing in the world so irresistibly contagious as laughter and good humor.” 
― Charles Dickens, A Christmas Carol

It’s the most wonderful time of the year, and the average consumer tends to blow their budget to smithereens as they get carried away by the holiday cheer.  Each year Christmas spending has been increasing, usually prompted by Black Friday and Cyber Monday sales.  This is good news for retailers whose profit earnings during the Christmas season can be significant, up to and even exceeding  half of their annual profits. Christmas is big business, but it can land consumers in the poor house.

Haunted by ‘The Ghosts of Christmas Past’?

According to The American Research Group Inc. the average American spends almost $1000 on Christmas gifts. If you add other seasonal expenses like decorations, food, and expenses associated with traveling to visit distant friends and family, the amount can easily skyrocket. Most of this is rung up on plastic.  Let’s not forget about charitable donations either. How much pocket change did you throw in the Salvation Army Kettle each time you passed a bell-ringer? Till it’s all said and done, the end-of the-year shopping spree spreading Christmas Cheer is followed each January by the real ‘Ghosts of Christmas Past’ – the credit card bills!

“I will honor Christmas in my heart, and try to keep it all the year. I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me. I will not shut out the lessons that they teach!” 
― Charles Dickens, A Christmas Carol

At the end of A Christmas Carol Ebenezer Scrooge learns the true meaning of Christmas. You don’t have to go overboard and be a miser to avoid the consumer trap, you just need to plan a budget and  stick to it.

Naughty or Nice?

Do you honestly have to buy something for EVERYONE you know? It may be sad to say, but there are many people we know who deserve a lump of coal for Christmas. If you have little or no money to spend, you have two choices:

  • ‘Everyone’ doesn’t get a gift.
  • ‘Everyone’ gets a share of the pot.

I’m not a fan of  cutting people out because I feel mistreated or cheated. Everyone we know is facing some inner turmoil we know nothing about.  If someone gives you a gift, you don’t have to automatically reciprocate with an equal or even more expensive gift.  Just say ‘thank you’.  A gift is a gift, not an obligation.  I have almost a thousand regular customers at my day job. I treat them all the same. A very small few give me Christmas gifts. I don’t expect anything from them, but I always thank them.   I know that in many cases, some of my elderly customers are on fixed incomes and have very little money. I worry about accepting gifts from them, and I sometimes ask ‘are you sure?’ or state that they ‘didn’t have to do that’. It’s rude to refuse a gift. Be grateful, smile and thank them. They appreciate it far more than you know, and it costs NOTHING to be kind!

Set limits!

I budget for Christmas. I have a set amount ear-marked for the season, and I stick to that limit. Everyone on my list gets something, even if it’s only a card. It’s the thought that counts. I mail out almost 50 cards, each with a printed annual newsletter. It’s an expense, but I enjoy doing it. I have not been able to see some of the people on my list in years because I am so busy, and they are busy, and our schedules don’t mesh. A Christmas greeting in the form of a card and newsletter is a nice way to let people know you still care. Only about 20% of them mail me a return card, but that’s okay. Gifts are gifts, no obligation remember?

Keep gifts appropriate

Always consider that just because you like something doesn’t mean everyone will like it. Take fruitcake for example. Some people think it makes a great gift. Others feel it’s great for propping open the door. Some people have food allergies or special diets.  Some parents don’t allow certain toys. NEVER GIVE PETS AS GIFTS! Give cash or gift cards and let the recipient purchase what they really want.

Christmas Club!

During the Great Depression, banks first started the idea of seasonal savings accounts earmarked for Christmas. These are still offered by some financial institutions. In many cases you can even arrange for automatic payroll deductions to make saving for even Christmas easier. Christmas Clubs usually send out checks or electronic bank deposits of the entire amount at the end of October, in plenty of time for Christmas.  

Grandma hates me!

Children do not understand gifts of socks and underwear. I grew up poor, and Christmas was about getting toys. Very few children have the understanding and level of maturity to understand that they may be poor, and don’t get why ‘Santa’ didn’t bring them a Red Ryder Carbine Action 200-shot Range Model air rifle, opting instead for much needed clothing. I was always disappointed by clothing. I also had too many toys.  I didn’t play with the ones I had, or need new ones. I don’t have kids, but let me tell you, if I did they wouldn’t be spoiled with showers of toys. Yet each year, I see friends and relatives spoiling their kids.  Some elderly people have a dozen or more grandchildren. They can’t afford a gift for every grandchild. If there is some special must-have toy that is quite expensive, consider pooling resources, and just labeling the one gift ‘From Santa’.   

Visions of sugar-plums danced in their heads

Instead of buying gifts, throw a small dinner party. I do this each year for a few close friends who live local.  Arrange party games and take pictures to make it memorable.    

Made with Love

 Maybe there is nothing in the store they need, but what about some token of love? Bake Christmas Cookies, or give a handmade gift like a decorated mason jar filled with coffee or cocoa mix, or a handmade ornament. Send cards to let them know you care. What about just love itself?, Share friendship, understanding, consideration, a helping hand, a smile, and a prayer. You can’t buy these things in any store , but these things are what people need the most. As always I wish you happiness and success!  And God bless us, everyone.