Ellen Goodman has Plans for Your Money
Money. The government taxes when you earn it, taxes you when you save it, taxes you when you invest it, taxes you when you spend it, and, when you die, they tax what’s left over.
Talk about thorough.
In effect, the federal government punishes education and hard work (which leads to higher income taxes), punishes saving (which leads to taxes on interest), punishes successful investing (which leads to taxes on dividends and capital gains), and punishes you for managing your affairs prudently (which often leads to a taxable estate).
Your elected “misrepresentatives” in Washington rarely see a spending bill or crackpot scheme that isn’t deserving of your money. Why? Recently, when a spending bill contained a last-minute amendment that sent a contract to his home district for an aircraft carrier that the military said it didn’t want and didn’t need, Senator Trent Lott feigned outrage at a press conference and pled that it was only “one boat.” Sending money back to the home district is how politicians keep their congressional seats warm – with their own fannies.
Ellen Goodman: Turning in their Graves
In 1776, Thomas Paine argued in his revolutionary pamphlet “Common Sense” that if the king asked for half the colonists’ income in taxes, we wouldn’t pay it. But now many of us are asked for half our incomes…and we do pay. That tract help incite the colonists to take up arms against what they felt was an oppressive government; a thought that is all but unimaginable today.
But if the nation’s founding fathers knew how many Americans forfeit half their annual incomes in federal, state and local taxes, social security taxes and Medicare taxes, they’d be turning in their graves like pigs on a spit. Some of us, vainly it seems, still cling to the quaint notion that the U.S. was founded on self-reliance and freedom from excessive taxation.
Not the syndicated columnist Ellen Goodman…a do-gooder if I ever saw one. In a recent column, Goodman, an income redistributionist to the core, predictably railed against the new Bush tax proposal: “The Bush administration figures that the couple earning $40,000 who get a $1,333 tax cut won’t begrudge a $10,244 tax cut to the couple earning $500,000. More to the point, they won’t figure what they’ll lose in federal programs.”
Ms. Goodman and her Congressional sympathizers, like Dick Gephardt (a far greater threat to the future of this country than Osama bin Laden, in my view), complain that the well-to-do are still not “paying their fair share.” Goodman’s philosophy is straightforward. The well-off can afford to pay, ergo they should pay.
Makes you wonder if she bothered to take time away from envying what other people have – and worrying that they pay in taxes – to actually look at the government figures. The government’s own reports testify that the top one half of one percent (0.5%) of taxpayers pay 28% of all personal income taxes. The top 5% pay a whopping 56% of all personal income taxes.
The average American earns many times the average annual income of most folks around the world. Some of these people are starving, many of them children. This is truly deplorable. But is Ellen Goodman in favor of the middle class being taxed at the rate of the “well-to-do” in order to eliminate this disparity?
Of course not.
Ellen Goodman: Ted Turner, Larry Ellison, Open Your Wallets
Goodman wants Ted Turner and Larry Ellison to pay for it. And for the great bulk of middle-class entitlements, too. Ms. Goodman bemoans what a couple earning $40,000 might lose in federal benefits if high-income earners get tax relief. What am I missing here? Are the couples earning $40,000 in your community lining up at soup kitchens and suffering for lack of medical attention?
This is a new twist on the Robin Hood scheme. Rob from the rich and give to the middle class. If you make ten times as much, you should pay ten times as much. But not 30 or 40 times as much. The progressive tax code already targets the top 5%. But that’s what the herd always does. In most of the Western world, “Democracy” has amounted to two wolves and a sheep voting on what to have for dinner.
But that’s only the beginning. Goodman wants you to want it all…even after the greedy rich are dead. “Did you wonder about the popularity of repealing the estate tax?” Goodman asks in disbelief, “even though only 2% of estates fall in the taxable range.”
Contrary to Ms. Goodman’s assumption, there are still a handful of people who believe it’s wrong – in principle – to take the wealth that a person has accumulated over a lifetime and fork it over to build unwanted aircraft carriers. As if the loss of a loved one isn’t enough to bear, the families now must deal with the loss of its primary source of income. And for many families, that means selling their farms or family-owned businesses just to cover the tax due on the estate.
Goodman is so emphatic about soaking-the-rich she must either assume her readers are ignorant of the facts. Or just stupid.
Ellen Goodman: Wealth Is Not an Apple Pie
“Why would we oppose the death tax,” Goodman complains, “even though 1% of us owns 40% of the wealth”?
Here’s why. If wealth were an apple pie and 1% of us ate 40% of it, that would be an injustice. (And perhaps unmannerly as well.) But wealth is not an apple pie. It doesn’t exist as a fixed, finite quantity. Wealth is created every day through innovation, hard work and risk- taking. Yet Ms. Goodman feels that if the Rockefellers have more, she somehow has less.
It’s true that Bill Gates has a net worth $43 billion, a fact that apparently keeps Ms. Goodman up at night. But she conveniently overlooks the fact that he earned it. It’s his. I’m not “entitled” to one nickel of it. Apparently, Ms. Goodman is…by editorial decree.
Likewise, Warren Buffett is worth an estimated $36 billion. How much less does Ms. Goodman have as a result? The problem is not that she has less because Buffett has more. The problem is she has less if the mob doesn’t take it away from him at the point of a gun.
For The Daily Reckoning
January 16, 2003
Editor’s note: C. Alexander Green is the investment director for the Oxford Club. In addition to writing on global investing for Wall Street Week’s Louis Rukeyser, he has been a writer or contributor to several financial publications including Global Insights, Short Alert, Insider Alert, Momentum Stock Alert, The Financial Sentinel, World Market Perspective, and the US edition of The Fleet Street Letter.
Inflation ahead? Or, Deflation?
We have the answer, dear reader…and we’re sure we’re right. The answer is ‘Yes.’
Commodity prices – notably including gold – are inflating. Goods, notably those coming from China, are getting cheaper. Not including food and energy, says the Bureau of Labor Statistics, prices paid to producers fell 0.4% in 2002. That’s the biggest drop since they began keeping track in 1973.
Uh…stocks may get cheaper too. Real estate? Who knows?
On the one hand, inflation levels seem to be declining worldwide…to the point where Japan is in outright deflation, and Germany possibly too. The collapse of asset prices, slowing economies, aging populations, increasing savings rates, thriftier consumers – all point towards deflation.
On the other hand, the Greenspan-Bernanke Fed has made clear its intention to do all in its power to inflate the currency – even if it kills us.
(On the one hand this…on the other hand that…”Get me a damned one-armed economist,” said President Truman.)
Bernanke’s recent speech is now famous. “We have a technology called the printing press,” said he. Intending to reassure, he alarmed instead. Since his speech on Nov. 21, 2002, the price of gold has risen 11% – up $35. And the euro rose 7%, an enormous increase in the currency markets.
The dollar has lost about 20% against the euro in the last 12 months. And even the Canadian loonie rose above 65 cents yesterday. But even this news is greeted with equanimity. A weaker dollar won’t be so bad, says an article in the Seattle Times: “It makes U.S. goods less expensive abroad.”
True enough. But America is a consumer-led import economy, not an export economy. It depends on consumer spending financed by overseas cash. Switching to a different model will take time…and tears. It is the end of the world, after all. More below…
Eric Fry in New York…
– The Dow Jones Industrial Average retreated 119 points yesterday to 8,723, and the Nasdaq dropped 22 points to 1,439. Intel triggered the sell-off with a disappointing earnings announcement. The giant semiconductor manufacturer managed to generate earnings that were slightly better than “expectations.” But the “guidance” provided by Intel CFO Andy Bryant was well below expectations. Specifically, Bryant admitted to seeing “no underlying economic growth” in the semiconductor industry. That’s not what the bulls wanted to hear. And they really didn’t want to hear Bryant say that Intel will slash its capital-spending budget in 2003 to a range of $3.5 billion and $3.9 billion, down from $4.7 billion last year.
– If big companies like Intel are cutting back on capital expenditures, who’s going to do the spending and investing necessary to grow our economy?…Neither corporations nor consumers are volunteering…
– Despite the rough day on Wall Street yesterday, the dollar managed to recoup a bit of its recent losses. But the dollar’s downward trend continues. The greenback’s value is shrinking faster than the polar ice caps. And as huge chunks of dollar value crumble and cascade into the monetary seas, gold’s value steadily rises. A shrinking dollar is the yellow metal’s best friend.
– But the prospect of a millennial bull market in gold does not rely solely on the eroding value of the dollar, says Joseph M. Foster, manager of the Van Eck International Investors Gold Fund. It also derives from the dwindling supply of the precious metal itself. As Foster explained in a recent interview with Barron’s, gold production has begun to decline for the first time in 20 years.
– Foster cites a recent survey by Toronto-based Beacon Group showing that worldwide gold production in 2010 could be nearly 30% lower than in 2001. Of course, if the gold price continues heading higher, you can bet that somebody somewhere will figure out a way to pull more of the stuff out of the ground. But even if gold were to trade up to $1,000 an ounce tomorrow, gold production would not increase significantly for several years. That’s because the precious metal doesn’t grow on trees; it comes out of big, environmentally unfriendly holes in the ground.
– “Gold-mining companies cannot increase supply very easily,” Bill Fleckenstein observes. “Once a potential new property is found, it takes time (measured in years) to ‘prove it up,’ get the financing, and bring it into production. If it happens to be in America, you have the EPA to deal with, which takes even more time. So, new production cannot be brought on easily.” Furthermore, the low gold prices of the last few years discouraged new exploration and mine-development. So the gold mine pipeline is fairly empty at the moment, which is good news for gold investors.
– The capacity-constrained gold mining industry is unique in the post-bubble US economy. Most industries are suffering under the exact opposite situation: excess capacity. “The world’s auto industry can now produce two million more cars than consumers can buy,” the Chicago Tribune observes. “Cisco Systems Inc. built six buildings to expand its presence at the high-tech Research Triangle Park in North Carolina when the dot.com business was sizzling. All six are empty…In the ivory towers of academia, economists call the phenomenon overcapacity.” For the record, down here in the dingy corridors of journalism, we non-economists also call this phenomenon overcapacity.
– Testifying to the capacity glut, US manufacturing capacity utilization has tumbled to well below the average of 80.9% in 1967-2001. Even during the 1990-91 recession, factories managed to use 77% of their capacity. “The capacity glut exists on a scale that this country and many others haven’t seen for decades,” the Tribune continues. “Supply has simply outstripped demand. When that happens, production slows, equipment sits idle, costs go up, workers are laid off and investments are postponed.” We non- economists call this phenomenon a “recession.”
– Let it be noted however, that most professional economists believe recessions to be an extinct macro- economic species, thanks to Alan Greenspan’s magic interest rate. We non-economists are dubious. We suspect that there might be a procreating pair of recessions nesting in a secluded habitat somewhere, where they are busily re- propagating the species. America’s vast capacity glut provides an ideal environment in which to nurture baby recessions to maturity.
– “So far, the trusted economic stimulus tools of tax cuts and low interest rates haven’t done much good,” the Tribune observes. “Despite 12 reductions in interest rates by the Federal Reserve since January 2001 – and Bush’s $1.3 trillion tax cut – the economy is limping along.”
– When big American companies announce that they will be spending less money this year on capital investment than they spent last year, you can expect the economy’s limp will get a lot worse before it gets better.
Back in Paris…
*** Here in Paris, the rise of the euro hits Americans like a brewery strike. Our cost of living rose last year by about 20%. Of course, the Daily Reckoning was expecting it.
“We knew it was going to happen,” your editor prefaced his question to his colleagues with a statement of fact, “but did any of you guys take precautions?”
“We’re not currency speculators…” came the answer.
“No, we’re idiots…”
*** A new book hit the Paris streets recently. “After the Empire,” by Emmanuel Todd, describes itself as “An essay on the decomposition of the American system.”
Mr. Todd spotted the crack in America’s consumer capitalism – it is financed by foreigners. He sees the money as though it were a kind of imperial tribute – like the sums paid to Rome by its conquered states. The trouble, he says, is that the tribute is fragile; the foreigners can stop paying whenever they want.
Relative to the rest of the world, the American decline is inevitable, says Todd. The economic gap between the U.S. and the French, Germans and Japanese has been closing ever since the ’60s. It is likely to continue to disappear – because Americans cannot maintain their present living standards without foreign subsidies.
America’s military campaigns against insignificant foreign countries merely hasten the process; they drain money away from capital investment which might actually make people wealthier…and direct it towards wasteful government spending, while increasing the reliance on foreign financing.
“The world is too big, too diverse, too dynamic to accept the dominion of a single power,” he concludes.
*** We celebrated Maria’s 17th birthday with an excursion to the Opera Comique last night. The piece was a musical parody of the Beauty and the Beast, in which the beast was portrayed as a dwarf dressed up as a hedgehog. The first 10 minutes were interesting. The dancing girls were interesting too – dressed in costumes that that might have come from Les Follies Bergères. Otherwise, the production’s best feature was its brevity. We were out by 10PM and could cross the street to Funtz’s for a champagne toast and a good meal. It may be the end of the world – but we’re doing our best to enjoy it.