The Economy

[Root beer]

Tyrius, root beer...and all you other economic guys:

What is your opinion on a flat tax?

I don't know all the statistic details, but according to some people in Eastern Europe including Russia, Flat Tax has increased economic production..With that being said, I think it's too simple and unfair, and giving our government state of mind when it comes to spending it will only hurt us in the long-run, fiscal wise. If you have read our current Code, you will noticed that our system is supposedly designed to encourage and discourage certain activities, the Flat Tax will eliminate this. A middle class man, with home mortgage, medical bills that exceeds the allowable percentage of his AGI, and other deductions to lower his taxable income, will be paying more in taxes under Flat Tax given him lesser money to spend in the economy. So in theory. When you think about it, under flat tax, he cannot receive any percentage of his money back from those expenses then you add the Flat Tax he already stretching his budget thin. At least that way I'm thinking about it off top of my head without writing it out.

General Electric didn't pay a dime in taxes last year. Without looking at their financial statements, I'm guessing it has to do with "2 years back, forward 20" rules. Or whatever the name of that rule is. Our current Code allows corporations and businesses to carry losses to years they have gains either previous years or years in future to potentially eliminate all of their taxable income. Under Flat Tax, it will disappear. Any start-up businesses would find a loss in early years beneficial and when they make a profit in long-run, (assume they do in this case) then they can get out of paying taxes on the net income and escape taxable income for a couple years. Flat Tax eliminates all of this.

In my Federal Income class, I had do this case where my client owns an art gallery that was raided by the FBI and he was found guilty of selling forgery. I wrote his income into tax form, and deducted all of his expenses that were tied to producing forged paintings and running the art gallery itself. The only expense I didn't deduct from his income were the fines he had to pay as punishment from the judge. The Code allows criminals to deduct criminal activities related expenses from their taxable incomes, however, the only exception is, the criminals cannot deduct expenses related to drug running. It's very odd, but it plainly stated in our books and Codes. Flat Tax would get rid of this oddness.

My point is, I don't think our current Code is that great, but I do believe we need a tax reform and I think giving complexity of our economy and all, Flat Tax is too simple. I generally have mixed feelings for Flat Tax depends on which versions, but I'll end up rejecting it most likely. I'm for tax reform that a little more flexible. How? I don't know, I'll need a lot of beers and other stuff to stimulate my mind to come up with ideas and write a book about it. :D

[tyrius.]

General Electric didn't pay a dime in taxes last year. Without looking at their financial statements, I'm guessing it has to do with "2 years back, forward 20" rules.

Nope. It's the foreign profit rule. GE will set up their subsidiaries such that items made overseas by an overseas subsidiary are sold to the US subsidiary at the price that GE is going to sell the item to the customer. This results in no profits for the US sub, but the foreign subs have profits. Those profits are taxed at the foreign country's rate, typically one of the lower ones (like 10%) and those profits are kept in that subsidiary. Those profits will be taxed at the difference between the US rate and the foreign country's rate (tax already paid) when they are "brought back" to a US based company. This won't happen with US corp tax rates at 35% though.

[SirSnookalot]

A flat tax for individuals may be viable, with a starting point maybe above 40 or 50k. For businesses, no. Businesses need their depreciation on equipment, write offs on property, etc. However, jets, yachts, autos (really used for personal use, like for their kids or spouse) should be eliminated. Code should be trimmed, but I still think the rate needs to raised. First hand experience, a few percent increase in tax never curtailed hiring, if you need to add employees you do, it's that simple. Say a small business has 300k in profits, 50k over the 250k mark, a few % raise on 50, 000 is only an extra $2000. As I understand a tax raise would only be on the overage. Anyone who thinks that an extra $2000 would force a company not to hire any extra help if needed is a person who has never owned a business. Even at a million it's only an extra 30K, pocket change for company with that kind of profit, the owner probably spends close to that on his Cohibas. Hopefully an employee pays for themself in more productivity, if not the questions was is the employee needed in the first place, the tax is almost irrelevant.

[Jigfishn10]

Well S&P dropped the U.S credit rating to AA+. We should be in for a good ride! Oh Man, this is what I feared and the original meaning of this topic. This isn't good!

[J Francho]

No one sees any connection with 2008 and S&P's recent downgrade?

[Catt]

Debt ceiling up…credit rating down…stock markets around the world dropping like flies…fixed that problem real good!

[Grey Wolf]

Debt ceiling up…credit rating down…stock markets around the world dropping like flies…fixed that problem real good!

EXACTLY !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[J Francho]

It's only the S&P that downgraded our credit status. The other agencies haven't. Perhaps the S&P has an axe to grind?

[Jigfishn10]

I heard that the S&P's decision based on the way Washington handled the situation and pushed it to the 11th hour. They warned our government months ago, but I guess it wasn't as "HOT" of an issue back then.

Hopefully the peeps running our country will learn from this in the future.

[J Francho]

Hopefully the peeps running our country will learn from this in the future.

That one financial services company can send the nation into a panic if they don't do what they want?

[Root beer]

Am I the only one that don't have a problem with it? It just like individuals get a credit downgrade they struggle to get a loan, maybe this would actually motivate Washington to fix their budget and spending problems......Unfortunately, the Treasury department are saying it a mistake rather than trying to solve the situations..Wishful thinking I guess...

[Jigfishn10]

That one financial services company can send the nation into a panic if they don't do what they want?

Looks like they did. Seems like any bad news is rattling the markets these days. I understand your point of view and you're right, only 1 out of the 3 downgraded, but I guess we'll have to wait and see what's up next? Hopefully S&P is just trying to send a message with this. In my opinion, it's a darn good message.

[J Francho]

What message is that? Don't ever treat us like you did in 2008. It's retaliation. Sure, they justify it all they want, but in the end that's what it is. They were irresponsible then, and are now.

[roadwarrior]

Today was a disaster ending at the lows...Tomorrow may be worse.

Capitulation will take us back to March 2009 (6547). The next

time around may be catastrophic. The situation in Europe is

probably key. I believe we (USA) can work our way out. However,

the situation abroad will have a dramatic impact on the worldwide

economy.

[Glenn]

I'd be buying stock in the next day or two. You will NEVER do well in the stock market if you only play when it's "safe".

[Jigfishn10]

What message is that? Don't ever treat us like you did in 2008. It's retaliation. Sure, they justify it all they want, but in the end that's what it is. They were irresponsible then, and are now.

I totally agree with that statement somewhat. In '08 S&P either knew about the banking industries practices on mortgage backed securities and covered it up or flat out fell asleep at the wheel. My guess is they fell asleep at the wheel. Just a week or 2 before Lehmann went under, S&P gave them a triple A rating.

Now you say retaliation on S&P's part and you're probably right, the very people who pointed fingers to share blame are the same people who asked them to be vigilant moving forward and got slapped with a downgrade.

I'd say, let's stop looking in the rearview mirror and keep trucking forward. We can't fix the mess looking in the past and looking to blame the results on anyone one entity. It seems like blaming and pointing fingers is the norm these days and action takes a backseat.

[J Francho]

I'd say, let's stop looking in the rearview mirror and keep trucking forward.

I can only fix my own mess. My point was, it takes more than Chicken Little to convince me that the sky is falling. Anyway, got some sweet deals yesterday, LOL.

[Siebert Outdoors]

I'd be buying stock in the next day or two. You will NEVER do well in the stock market if you only play when it's "safe".

Same here. I'm waiting for a couple of my good stocks to get all beat up then I'm buying in.

[Glenn]

Market is up 200 points this morning. So much for all the naysayers.

[J Francho]

Dow is up 400 now.

[roadwarrior]

Today's trading was unprecedented...

Take this opportunity to sell every equity you own.

Bonds and guaranteed products rule. The probability

of another downturn in the world economy is significant.

Risks are extremely high.

As a side note: The market moved 852 DOW points in

1 hr 42 minutes yesterday. Finishing up strongly is

not the whole story.

[J Francho]

OK, I don't understand......why sell low? I learned to buy low and sell high. Selling at a loss doesn't make sense to me. When a stock slips below what I bought in at, I generally buy more of it. To me, that's an opportunity, not a reason to panic and get out. Maybe I'm weird?

[Root beer]

OK, I don't understand......why sell low? I learned to buy low and sell high. Selling at a loss doesn't make sense to me. When a stock slips below what I bought in at, I generally buy more of it. To me, that's an opportunity, not a reason to panic and get out. Maybe I'm weird?

Tax purpose. Some people already have quite a gain for the year, so some will sell off poor performing stock and use it as a tax benefit for the next few years depending on how big the loss is. Some of the people selling off is trying to raise cash because they have position in other securities and in event those fail they got all cash from the equity, regardless if it a loss and gain. When the bond market was collapsing couple years ago, the reason equity crash was all the hedge funds, and institutional traders were selling off a lot of equity to raise cash. Some people are just fearful and uneducated at what's going on..

And Roadwarrior, screw the bond market. Treasury securities yield are so low that the risk of inflation is higher than the yield. Who would buy that?!? Corporate bonds aren't that attractive either. It's too cheap to borrow and risk of inflation are pretty high and interest rate doesn't reflect it. Unless you buy TIPS then your only concern is U.S. government failing to cooperate with one another. Price index has gone up this year compare to last.

[J Francho]

Odd, I'm in it to make money, if I have to pay taxes, so be it.

[Catt]