Diversion Trick

Just as magicians need to divert the audience’s attention from the real action, our rulers are ever so glad to make sure everyone is paying close attention to the funny accounting tricks being played by some large corporations, while they continue doing things that are much more corrupt and that affect many more people than any corporation does.

Nanny State

Our Founding Fathers are definitely spinning in their graves over how the Federal government has grown so big & invasive as to dictate every little detail of what we can & can’t do with our personal lives. It is the very reason why I have long been referring to the people in government as our Rulers. They sit up on their thrones and tell all of us little people how we are to live our lives; while exempting themselves from all of the rules they force us to obey.

There is no end in sight as to how much our rulers in DC insist on micro-managing our lives. One of my contemporary heroes, Walter Williams, has a good take on this sad state of our country, for those few of us who still respect the Constitution.

KMK

Optimistic Budgeting

A topic I frequently discuss is how our rulers at all levels of government use methods & techniques for their financial planning that would never survive in the real world. One of the most idiotic methods they use to predict revenues is to take a windfall year, such as a few years ago when the stock market was doing well and there were tons of capital gains taxes coming in, and make the assumption that such revenues will continue forever. It’s the same illogical reasoning as assuming that you will hit the jackpot on a casino slot machine every time you pull its arm, just because you won once.

That is how the Clinton Gang was able to predict Federal budget surpluses. When reality hit, and the capital gains taxes dried up, Bush is now being blamed for squandering the fictitious budget surpluses by his enemies in the JackAss Party and their propagandists in the media.

State rulers also use this optimistic extrapolation of revenues to justify new spending programs. When the predictions fail to come true, they scream about the terrible budget shortfall. However, their reaction is again different from what it would be in the real world. If you or I had planned to buy a new car based on an expected bonus from work, we would scratch that plan if the bonus didn’t materialize. However, with most government programs, once they are established, they will last until eternity. The result is the need for our rulers to squeeze more money from the people, which is what they are going crazy doing right now. Chris Edwards has a good explanation of this budget gap problem on National Review Online.

KMK

All For Show

Some people are prematurely optimistic about our rulers in DC actually doing something properly. Just because the CBO allowed proponents of dynamic analysis of tax law changes to speak at a recent conference doesn’t necessarily mean that they will change their completely bogus static analysis procedures.

How many congressional hearings have there been about such things as government waste and IRS screw-ups? What remedial actions have been taken as a result? None. Enough said. Our rulers don’t like to actually fix problems. They just like to give the gullible populace the impression that they care about them and then go back to business as usual.

KMK

Only One Party Supports Lower Taxes

Unfortunately, in spite of the GOP’s image as being against taxation, they never seriously support eliminating taxes, and in fact actively fight against such attempts. Here in Arkansas, the only party that has supported eliminating property and sales taxes has been the Libertarian Party.

In Massachusetts, the LP is supporting the repeal of the state income tax and the two monopoly parties are panicking because the less money they are able to take from people, the less power they will have.

State Rulers are petrified of allowing the people to have a direct vote on tax matters; so they will pull out all stops to prevent the issue from even appearing on the ballot, as they have done several times here in Arkansas.

KMK

Democrat Party Move Leftward

I am by no means the only one to consider the modern Democrat Party as virtually indistinguishable from the followers of Karl Marx. Because the transition has been so gradual over time, I find this contrast with John F. Kennedy quite illustrative of how far the JackAss Party has evolved.

In stark contrast to his brother today, John F. Kennedy was a big believer in reducing income tax rates. According to David Horowitz, if JFK were alive today, the Washington Post would describe him as a right wing ultra-conservative Republican because of Kennedy’s tax cutting economic policy and his staunch anti-communist foreign policy

KMK

Surprise To Arrogant Rulers

Just as it is in Washington DC, the mindset of our rulers in the State Capitols is that they can continuously raise taxes & fees all they want and everybody will just gladly pay them without altering their behavior. This is the infamous “static analysis” method of predicting tax revenue that I so often mention.

With many states in financial peril, they see an easy solution by making tobacco addicts pick up a bigger share of the burden. They figure addicts are a captive audience and will have no choice but to pay in order to continue getting their fix. Again, I am not a smoker; but I have always supported the freedom for people to do stupid things, such as using tobacco. I have long wondered why smokers have allowed themselves to be persecuted so harshly by those who want to force their personal opinions on everyone else (aka Tobacco Nazis).

This is why I am glad to see stories about smokers refusing to buckle under to the State Rulers and find ways around paying their extortion, such as bringing in cigarettes from low-tax states and buying them over the Internet. Unfortunately, I expect this opportunity to be short lived. It shouldn’t be long before our rulers in DC levy huge Federal taxes on cigarettes, making it expensive to buy from anywhere in the entire country.

I guess the only real way around the high taxes would be to grow your own tobacco and roll your own cancer sticks.

KMK

Why I Don’t Invest In Stocks

Many people seem to be confused why I, a very staunch & unabashed capitalist, do not believe in investing in the stock market. There are several reasons why I have never invested in the stock market & can’t sincerely recommend it for my clients. I’ll cover a few of the main ones.

Profitability

First is obviously the odds of making money in the stock market. As I mentioned below, it is really a crap shoot. Anyone who claims to have the secret formula for guaranteed honest profits is a liar. No such thing exists. The only way to make consistent profits is by using insider information; which has side-effects, as Martha Stewart has discovered. The market is susceptible to too many rational and irrational variables to allow any kind of accurate prediction.

Control

I have always been a big believer in owning one’s own business, which you can control. Investing in the stock market is not even remotely close to that. Even if you buy 10,000 shares in a large corporation, your ownership percentage is a tiny fraction. You have absolutely no say in what the business does and are at the complete mercy of the people running the company. As has been shown, this can be disastrous for small investors. None of the recent revelations of corporate accounting fraud have surprised me in the least and just go to show how powerless an investor is.

Best Vantage Point

One of the side benefits to being in the tax business is the ability to see what other people do to make or lose money. While I don’t have an exact count, over the past 26+ years, I have prepared and reviewed at least 15,000 tax returns. Over that time, the number of people who consistently make profits on stocks is extremely tiny. The number who lose money in stocks is huge. The only ones who make consistent profits in stocks are the stockbrokers who earn commissions and often churn accounts just for that reason.

So, if stocks have proven themselves to be unreliable income generators, what kind of investment has the best track record? Real estate. In fact, it’s almost the complete inverse of stocks. The percentage of people making large profits in real estate is huge, while the number losing money is very small.

Tax Breaks

It is also a very real fact that the tax laws make accumulating large amounts of wealth via real estate much easier than with stocks. Gains on stock sales are taxable, even if the money is plowed right back into other stocks. Contrast that with sales of real estate. Up to $500,000 per couple of tax free gain is possible every two years from the sales of primary residences. Gains from other kinds of real estate don’t ever have to be taxed if their disposals are set up as like kind exchanges, where the proceeds are reinvested into new real estate within 180 days. I have seen hundreds of people parlay a few thousand dollars into hundreds of thousands through this technique. Not having taxes eat up the return makes the investment grow much faster than if gains had to be shared with our rulers.

Having access to cash is actually easier via real estate investments. Loan proceeds secured by real estate are tax free and much easier to obtain than a loan using stocks as collateral.

KMK

Gambling In the Market

I’ve lost track of the number of times over the past 25+ years that clients said they would play the stock market if they only knew more about it. My reply was always that the more you understand how the market works, the less you will want to take part in its irrationality.

I used to also say that if I were in a mood to gamble, I would much prefer to do it in a casino for some very good reasons. First is the fact that the odds of winning or losing in a casino game are statistically known, while the odds of making a profit in the stock market are completely impossible to determine. Another big difference is that there are plenty of free drinks and cheap food buffets in the casinos; amenities that few (if any) stockbrokers provide.

Along this line comes this suggestion to just turn over the stock markets to the casino (aka gaming) companies.

KMK