September 3, 2014
- How to slash your taxes, even if you’re stuck in a high-tax state
- Mom and Pop return to the stock market
- Why uranium is staging a comeback that’s just getting started
- Another financial curse on the millennial generation
- The goggles that tanked Apple shares… the dumbest PR move all year… the corporate income tax debate, continued… and more!
“I was astounded. And very skeptical. Politicians have a knack for taking things out of context,” said our income specialist Neil George.
Neil watches a bit more TV than your editor… or at least he watches more programming that exposes him to the barrage of political ads that assaults Americans every two years. So he was telling us about one of the ads here in Maryland this fall. It’s from the Republican candidate for governor. It has an eye-popping claim: Given the chance to move elsewhere, nearly half of everyone in the Free State would do so.
“So I did some digging,” Neil explained. Turns out the claim is accurate. “Gallup — a nonbiased organization — discovered that 47% of the Marylanders it surveyed would love to flee their home state.”
What’s more, “several states have large swaths of people who would move if given the chance. No. 1 was Illinois at 50%, followed by Connecticut at 49%. Below Maryland was Rhode Island at 42%, with New York, New Jersey and Massachusetts each logging 41% of surveyed people who were willing but unable to flee their state.”
On this map, the darker the shade of green, the higher the percentage of people expressing a desire to move…
“It’s probably no surprise to learn that those highest-ranked states have something in common,” Neil went on.
“The Tax Foundation actively keeps track of how much the states tax their citizens. So I did some cross-checking, and sure enough, the states with the greatest percentage of disgruntled citizens are also the states with the greatest effective tax rates.
“New York and New Jersey are right at the top in terms of tax burdens, with Maryland, Illinois, Connecticut and Massachusetts — which is still called ‘Taxachusetts’ — in the top percentiles.
“Not surprisingly, the opposite is true as well. According to Gallup, the states with the lowest number of people who wish to move are Montana, New Hampshire, Texas, Colorado, South Dakota and Wyoming. And guess what — the Tax Foundation cites those same states as among the lowest taxed in the nation by its annual rankings.”
Of course, people say they want to move, but families, jobs and such are bigger considerations than taxes. And woe to anyone who puts faith in a politician to lower his or her tax burden.
“If you’re in a high-tax state and can’t escape — and you know there’s little relief to be had from the ballot box — there are ways to lessen the tax sting,” says Neil.
One of his favorite methods is as close to IRS-proof as you can get. Imagine yields of 6.2%… 6.7%… and 7.2%… tax-free. Imagine you can get access to these tax-free yields with any discount brokerage account. And imagine in addition to those yields, you pull down capital gains of 20.4%. That’s how this method has performed in the past year.
“Ghost income” he calls this method… for reasons that will become clear when you follow this link.
The S&P 500 is inching back into record territory this morning. As we write, the index sits a shade below 2,005.
Indeed, all the major indexes are up a skootch, except the Nasdaq, dragged down by Apple. AAPL is taking a hit after Samsung unveiled virtual-reality goggles you can use to strap a Galaxy Note 4 smartphone to your head and play 3-D video games. [Huh? Once again, Douglas Adams’ remark rings true, about how any technology introduced after you turn 35 is “against the natural order of things.”]
After sitting out the bull market for the last 5½ years, individual investors appear to be getting back in.
Spooked by the Panic of 2008, the retail investor has been content to sit in bonds and cash. But research from Deutsche Bank spotted by money manager and blogger Barry Ritholtz indicates that started to change decisively in early 2013; the increase from 2009-11 is mostly a function of stock prices starting to rise again…
Typically, a bull market goes in three stages, and this applies to any asset…
- The disbelief stage, when only curmudgeonly contrarians are buyers…
- The wall-of-worry stage, when professionals are buyers even as they fret over everything from “fiscal cliffs” to foreign elections…
- The mania stage, when ordinary people finally catch on.
Is the mania underway?
Note that’s a very different question from “Is the mania over?”
In the commodity complex, gold has leveled off after yesterday’s whacking at $1,267. Crude, which sank below $93 briefly yesterday, is back above $94.
After being left for dead, uranium is coming back to life. “Take a look at the spot price for uranium yellowcake,” says our resident rockhound Byron King.
“Note that rebound from the $28 level in the past month,” says Byron. “Is this a harbinger of better days ahead for yellowcake producers? I’m inclined to say yes.
“Here’s the background. Finally, after more than three years offline, post-Fukushima, Japan is bringing two nuclear reactors back into service in October, with more reactors planned for restart next year, in 2015.”
Look for knock-on effects, too: “With nuclear power kicking back into the Japan grid,” Byron explains, “one key source of demand for imported oil and liquefied natural gas (LNG) will soon disappear from global markets. That is, Japanese demand for oil and LNG, to generate electricity, will go away. Looking ahead, I expect that the Japan nuclear turn-on will add downward pressure on international oil and LNG prices.”
Byron has two uranium plays in the Outstanding Investments portfolio, both trading at or near five-year lows…
The United States is slowly reclaiming its luster among the world’s elites as a good place to do business.
Each year, the World Economic Forum — the hoity-toity crowd that parties it down every winter in Davos, Switzerland — issues its annual Global Competitiveness Index.
Only six years ago, the WEF ranked the United States as the best place to do business on the globe. Then an alarming slide began, all the way to No. 7 by 2012. Last year, the U.S. recovered to No. 5… and this year, No. 3.
China, if you’re curious, moved up a spot, to No. 28.
Global elites might like America again, but for entrepreneurs here at home, the slog keeps getting tougher.
Over the summer, we chronicled how the number of startups in the United States has all but collapsed since the Panic of 2008.
This morning, we see Bloomberg is playing catch-up, assembling even more grim figures. They show new businesses are hiring fewer people than they used to. According to the Labor Department, the typical new business created nearly five jobs in 2003. Last year, only 3.6.
That’s bad news for the already strapped millennial generation. “Young people benefit when there are lots of new firms where they can get positions quite easily,” says Gary Burtless of the Brookings Institution, “and in a new firm, you don’t have to worry about the hierarchy — there’s no old geezers.”
But not if there are fewer of those firms, and the ones that do exist are hiring fewer people…
Epic fail, public relations edition: We suspect a handful of PR professionals are filing for unemployment this morning after a — well, “gaffe” doesn’t begin to describe it.
The TV series Sleepy Hollow came out on DVD yesterday. The geniuses at a PR firm called ThinkJam thought it would be just swell to declare yesterday a “National Beheading Day” — with the blessing of the geniuses at Twentieth Century Fox Home Entertainment. The press release went out almost simultaneously with word from the Middle East that the berserkers from ISIS had beheaded the journalist Steven Sotloff…
Both Fox and the PR firm issued pro forma apologies. “Had we have known this information prior,” said ThinkJam, “we would have never released the alert and realize it’s in poor taste.”
As if they were unaware ISIS beheaded another journalist, James Foley, two weeks ago? Uh-huh…
“I see that the focus of this discussion is about corporate income taxes and inversions…
[Our corporate income tax mailbag is still fairly bulging today.]
“… and even at the state level (I live in the high tax state of NJ, but not for long), the discussion is about the state seeking to increase its tax receipts (I refuse to call it tax revenue).
“This is a great diversion from the real topic: GOVERNMENT SPENDING. As long as we are caught up in corporate inversion, or tax breaks to corporations relocating to a state, we miss the point that at almost all levels of government, SPENDING IS THE REAL ISSUE.
“We must starve the beast of government and cut off the sources of tax receipts.
“Corporate inversions are good business practices for those businesses, and I applaud the fact that they can take advantage of the tax code.”
“A simple explanation,” a reader writes, “is that the U.S. is the only country to collect taxes on income no matter where it is earned. A foreign domiciled corporation will pay U.S. taxes for sales in the U.S. and local taxes for sales elsewhere.
“Inversion does not lower taxes on a corporation’s U.S. sales, only on its foreign earnings (which currently are double taxed). An inversion allows a corporation to bring back foreign-held earnings to the U.S. without tax penalty, ergo a plus for the U.S. economy. Politicians are just morons. The way to solve this is to lower U.S. taxes to compete, or to change the global taxation nonsense.”
“Your reader’s statement on Friday — ‘It seems to me that either the shareholders pay because of smaller earnings or consumers pay due to higher prices’ — points out the problem he’s missing.
“Corporations are loath to reduce earnings to owners, so their only option is to raise prices, reducing competitive advantage. Taxes are an administrative expense, and any good corporate finance department tries to use prudent techniques to reduce them, just as they would for marketing expenses or IT costs.”
“As Canadians, my wife and I both find it amusing that U.S. corporations want to leave the U.S. and domicile in Canada (e.g., Burger King) because of the more advantageous tax structure.
“Twenty some years ago, you could not have imagined that to be the case — it would have seemed so unlikely. Canada with lower taxes — that’s unpossible (to quote Ralph Wiggum from The Simpsons).
“Add to that the more militarized police, higher incarceration rate, ‘go-everywhere’ foreign policy and it’s hard to believe that a couple of decades ago that moving to the U.S. would have been going to a smaller government. (Yes, I know Canada is hardly a libertarian bastion, but it seems Canada is less… egregious, for lack of a better word.)”
The 5: Hmmm… Seems as if your prime minister is eager enough to follow Washington off the go-everywhere cliff…
“Yes!” a reader replies enthusiastically.
Let’s back up a moment. Last week, someone wrote in supporting lower corporate income taxes on the grounds it would create so much prosperity that government revenue — or receipts, as it were — would rise. We replied with our customary snark: “You really want more money in the hands of Washington, D.C.?”
Which brings us back to this reader’s emphatic “Yes!
“That means a ROBUST economy, and I can afford to pay the tax. It would be a yes to accountability of the government to get its books in order along with the increase.”
The 5: Accountability?
It’s at this moment P.J. O’Rourke’s line comes to mind: “Giving money and power to government is like giving whiskey and car keys to teenage boys.”
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Speaking of government revenue, the feds have pulled in a substantial $9.2 billion since 2009 using a little-known investment you can easily buy for your own portfolio… and generate five times the usual returns from a typical stock.
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