401 K

In the governments ongoing plan to redistribute income they have recently discovered the trillions in 401K plans. Since half the people do not pay income tax there is no tax advantage to them to participate in a 401 plan. Upon further investigation experts find that 60% of the money in these plans is owned by one percent of the participants and thus a pool of higher income people are getting most of the tax brakes. There is talk in congress of eliminating the tax deduction for these plans and some say the next step is to tax the money for the second time when it is withdrawn. They already started double taxation of social security benefits for higher income people so this would be the next logical step. Congress says this money will be used to pay down the deficit but most realize it will just be used for existing programs or perhaps start new programs, things like solar power plants.

California pension

The California public education system is in trouble and is symptomatic of other states. For years instead of putting the proper amount into the teacher’s retirement plan they just assumed a higher rate of return on their investment. These higher rates did not materialize and thus the shortfall. Governor Brown has proposed an income tax on millionaires and an increase in the state sales tax. The money to be used for education and herein lies a little secret. The money will be used for education but it will all go to fund the teacher’s pension plan. This is a smart idea financially speaking but it is deceiving the way it is being presented. The finances work like this. Each year the pension fund remains underfunded the cost to fix it increases dramatically and estimated to double every nine years. This is unsustainable and must be fixed. This means that the best use of the money is to fund the pension but this is a very poor way to sell the idea of tax increases so it is not explained to the public. The experts feel it is too complicated to explain and so they just let people think the money is for schools. I guess we are just too dumb to understand and so we need to be misled to get things done. Coming soon to your state!

Tax the rich

The income tax system is complex and difficult to understand and can be easily misrepresented to give a false impression. In order to simplify matters consider the example of ten men going into a restaurant to eat where dinners cost ten dollars. After they finish the waiter brings the bill of $100 to the table. The men decide to pay the bill using the same method that taxes are paid. The first guy pays $70 and the next four split the remaining $30 and the last five pay nothing. As they get ready to leave the waiter comes over and gives one of the guys who paid nothing a one dollar refund. This one dollar is called Earned Income Credit and goes to people who pay no income tax. Now I am all for taxing rich people but I can’t say it’s about fairness. I will be honest and say it’s all about getting those mean ole rich guys.

Europe

In the past those who did not believe Obama was a socialist, and I am one of them, said he wants us to be more like the European Democratic Socialist form of government. This is about to change with the upcoming French election. The European countries have, since the post war era, drifted toward more government control of their economies and recently they have had to cut back on government benefits, much to the dismay of the populous. We have seen the riots and demonstrations in Greece, Spain and Italy and the people revolting against the attempts to reduce their benefits and this combined with the elimination of many government jobs has sent their economies into decline. Now France is on the verge of electing a full blown Socialist Francois Hollande as President. He has promised to reverse the trend toward reducing government benefits and reinstating many that have been reduced or eliminated. This puts France in direct conflict with the German position of continuing the austerity programs instituted in the past two years. Since all the money to keep these countries afloat comes from Germany the whole concept of the Euro is at stake. Germany will be forced to return to the Deutsch Mark and that will be the end of the Euro and many of these countries will go into default. This is referred to in the news as a contagion meaning it will act like a disease and infect the rest of the world including the US who relies heavily on exports to Europe.

Gulf Oil spill

On the news this week there appeared an environmental expert regarding the Gulf Oil spill. In answer to the question as to where the oil went she responded that the entire Gulf was affected because the oil had spread throughout the Gulf. When I hear statements like that, my math antenna sticks up and I start calculating. The total amount of oil that escaped from the BP well was 200 million gallons and the amount of water in the Gulf is 643 quadrillion gallons. This comes out to be one-third part per trillion. As a way of comparison if you filled the New Orleans Super Dome with water it would take 1.2 billion gallons and if we added the equivalent amount of oil to match the Gulf spill we would add less than a quart. If what this lady says is true I am hard pressed to believe that the spill is affecting commerce in the Gulf States. I wonder if there is some financial incentive in the form of aid to business or grants for research.

Auto ins

For some time now I have expressed concern about the financial stability of auto insurance companies. They are all begging people to change policies every six months and this is very costly for them. I mentioned that it is difficult for them to reduce benefits as many are set by law but most have other lines of casualty insurance and one of the main ones is home owners. Last week I got a letter from GMAC who has my home owner’s policy letting me know that they were reducing my benefits and yesterday I got my renewal and the price went from $917 to $1,378. I will be changing companies since a 50% increase is a little much. The Net is filled with stories about GMA|C’s problems. When you have to raise premiums that fast I think the company is going broke but just hasn’t figured it out yet.

Stimulus

The American Recovery and Reinvestment Act, known as Stimulus one was passed in Feb of 2009 included 825 billion dollars almost all of which has been spent. A report from the government came out this week saying that it created somewhere between 500,000 and 3.3 million jobs. If we use the 3.3 million figure and do the math we find this is $225,000 per job. I don’t even want to calculate the cost for 500,000 jobs. The CBO report provided a broad range of the estimated number of full-time jobs created because of the stimulus — from a low of 500,000 to a high of 3.3 million jobs