On the Right Path

It’s a bit premature to consider much needed tax law changes as reality. However, with the GOP finally in charge of all three main houses of power in DC, they will finally have the chance to show us what they can do.

Social Security Reform

Permanent Additional Tax Rate Cuts

Killing the Death Tax Forever

Our GOP rulers do need to act on these matters ASAP before their momentum slows down and the 2004 campaign gets into full swing. If Bush doesn’t have a chance to sign them into law in the next two years, all hope will be lost because President Hillary Rodham definitely won’t.

KMK

Hillary Style Investment Advice

I have to admit I’m not completely up to speed on all of the details for the plans to eliminate conflicts of interest in the stock markets and make investment advisors independent from their supporting underwriters. However, if this analogy of the plan currently under consideration being similar to what Queen Hillary tried to force on the nation’s health care system in 1994 is true, I would agree that this issue needs to be seriously reevaluated. The entire idea of the financial markets being controlled in the same way Hillary wanted to control all medical care makes me sick to my stomach, literally.

KMK

The Wrong Path

I hope this story isn’t true about growing popular acceptance in Tennessee for an income tax. While it is being sold with the idea of an offsetting reduction in the sales tax, that won’t last long. It won’t be long until the sales tax rates are back up. Of course, by then the income tax will have become a permanent fixture and removing it an impossibility. There is no such thing as a temporary tax. It is also true that any tax that starts off small will grow. Let’s hope the people of TN can resist the siren call.

KMK

Scared Of Cash

I’m not a big believer in conspiracies. However, stories like this about how much more rampant counterfeiting is becoming do seem to play into the hands of the IRS. With more and more people afraid to use untraceable cash for fear of being stuck with bogus bills, they will have to use checks and credit cards, all of which leave auditable trails.

KMK

Stock Picking Formulas

I understand that some people consider this James Glassman guy to be some kind of financial guru. This article doesn’t convince me much on that account. While he does have a decent amount of skepticism towards people who claim to be able to reverse engineer into magic stock picking formulas (the unachievable Holy Grail of finance), he makes one comment that betrays his ignorance of simple accounting.

He claims that comparing a corporation’s stock price to its gross sales is a more practical approach to valuation than comparing it to the corporation’s net profits because gross sales are harder to manipulate than is net income. What planet is this guy from? Artificially inflating sales figures is the easiest thing to do on this planet (Earth). Gross sales are routinely pumped up by artificial churning of sales in and out between allied companies. It’s no more complicated than I sell a bunch of items to you and then you sell them back to me and so on and so on back and forth. The discovery of this kind of thing led to some of the big corporate accounting scandals of this past Summer. It is much more difficult (but definitely not impossible) to use churning to inflate net profits because someone has to eat the difference. Churning sales is a simple break even process.

One of the reasons I have avoided investing in the stock market is the fact that it is too irrational and cannot be defined by any kind of formula. Anyone who claims to be able to do that is nothing more than a con artist. The dot-com boom of the late 1990s proved that. Stocks were selling for huge multiples of their gross sales, while their bottom lines were projected to be negative for all foreseeable future time.

If you are going to objectively look at any stock purchase, you need to step back and look at it for what it is. As the new commercials for AmeriTrade (owner of Motorola in a tour bus, etc.) illustrate, when you buy capital stock, you are buying a percentage of the actual business. Try to extrapolate that concept to buying 100 percent of an actual business, such as a corner convenience store. When you and your financial advisors are deciding on a fair price to pay, which figure is more important: that it has gross sales of two million dollars a year or that after paying all operating expenses, the net profit is $10,000 per year? Would it be a wise move to buy the store for a million dollars? Anyone with even the most basic of accounting training would focus on the net profits. Part of analyzing any investments involves comparing alternative uses of the money. Why would anyone invest a million dollars to earn just $10,000 per year (a one percent yield) and also have to put up with the hassles of actually running the business when you could stick that money in a bank account and earn much more, with far less hassle?

How about paying a million dollars to buy a business that will lose money from now until forever, as dot-com stocks were? The only way that makes any sense is based on the greater fool theory, where you need to be sure a bigger idiot than yourself will come along to pay you more than you did. As with any pyramid or Ponzi scheme, greater fool plans eventually run out of fools and the market collapses.

KMK

Tax Cuts Do Stimulate Economic Growth

I have been sick for the past week, so I haven’t been able to include as much of my own discussion of the topics as I would have liked. I was lucky enough to just post the articles that are worth being aware of. Not every article posted here is automatically something I agree with. It is important to stay aware of arguments used by the opposition.

Specifically, this piece from the Democrat Party’s official publication, the New York Times, trying to make the case that there is no correlation between tax rate cuts and economic activity, is a perfect example of leftist distortion of the facts.

It conveniently glosses over the reason behind almost all of the economic growth in the 1980s and 1990s, the Reagan tax cuts. Dropping the top Federal marginal income tax rate from 70% down to 28% did more to encourage people to earn income than anything else I can recall in my lifetime. Anyone who claims otherwise is practicing the exact same kind of dishonest historical revisionism as those who state that the Reagan tax cuts caused the massive Federal deficits. Once again, the Reagan cuts resulted in more than double the overall tax revenues. The deficit was caused completely by Congress tripling the level of spending. The fact that Congress was controlled by the DemonRats back then is just a coincidence when the story of those times is reported by the media.

The other big lie repeated in the Times article is that the economy did very well after the humongous Clinton-Gore tax increases of 1993. Clinton worshippers have long claimed that his tax hikes were the reason for the booming economy of the late 1990s. I have long contended that Clinton was one very lucky SOB because the economy did well under his regime in spite of his tax increases, not because of them. Just as almost all State governments are learning, the driving force behind the 1990s’ economy was the stock market, fueled primarily by the hyper-inflation in prices of dot-com stocks. That whole mess had nothing to do with the tax rates and was driven by a herd of greedy short-sighted idiots who pretended that money could be magically created out of nothing.

KMK