Thursday, June 5, 2008

Good times are here again!!

Right on schedule the clueless MSM reports on the 'unexpected' rise in retail sales for May. Gee I wonder what could have caused that to happen. Hmm what even occured in May this year that didn't happen last year? Oh I know. The government sent people $1200 checks, that's what. And what do you know? Retailers saw higher sales in May. Absolutely shcoking!

And right on cue stocks are up in a frenzy over the news. However as any 1st year econ student will tell you a one time shot like this does not matter in the long run. And the present value of stocks is the discounted future value. So since this one time shot will have no effect on the future value, it is silly to bid up the price of a share today. Not that the MSM would even try to provide this kind of analysis. Just go on autopilot and report what the government feeds you. Good times are here once again.

On a completely unrelated note, foreclosures set yet a new record. Continental is laying off 3000 employees. And all this as the 4 week moving average for 1st time unemployment benefits continues a downward trend.

But why let pesky facts like that get in the way of an uplifting day on Wall St?

3 comments:

Back in OC in 2012 said...

Ed,

I hate to tell you this, but you are waaaayyyy off on the tax calculator. Factor in the gradual rate structure, add exemptions, itemized or standard deduction then rerun. It looks like you are using the highest marginal rate w/o the above considerations. I ran the deal and my tax was overstaed by about $30K.

Regardless of who the next prez is going to be, taxes will go up. What we need to do is cut govt. spending. Be cool.

Back in OC in 2012

Ed said...

The calculator is based on AGI which takes all that into account. Or at least most of it. And my number included current SS and medicare taxes as well. Up to $102,000 you're paying 15.3% of your gross income for those taxes alone. And over $102,000 it's 2.9% of gross. So I've actually understaned the hit from FICA taxes since this based on AGI and not gross income. But since I didn;t feel like spending 10 days writing this thing, it's close enough.

If Obama gets in, the $102K cap is gone and so you will pay 12.4% on 100% of income in addition to 2.9% on 100% of income for medicare.

And on top of that, the rates will recert back to 2000 rates (pre Bush 2001 and 2003 tax cuts). That is his pledge "get rid of the tax cuts". Getting rid of the tax cuts means the marginal rates go back to 2000.

And yes it may seem like an insane amount of difference but it is what you will pay extra with St. Obama in the White House.

And even if you only pay 1/2 of FICA taxes, you are still paying the whole amount. For every extra $1 your employer will have to pay to SS, that's $1 less you will see in pay raises, added benefits etc.

Back in OC in 2012 said...

Hi Ed,

Regarding the FICA limit, I believe you that Osama will remove the cap (like Medicare). However, people (self-employed specifically) just have their accountants take care of that for them. In a nutshell a business owner will continue to draw a minimal salary using an "S" Corporation and take out the rest of the money as a distribution. Granted he is still paying ordinary rates on the pass-through income from the S Corp, but he will not pay the FICA because it is not considered/being drawn out as salary. I have seen it done and would not recommend it. The simple question (if I was an IRS auditor) would be along these lines, "So tell me Mr. X, if you were an employee of a similar company with your level of expertise, experience and time committed to work, what would you accept, from an employer, as a reasonable salary?"

Mr. X, "Uhhhhh . . . . but I leverage my employees and they do all of the work."

To simplify, how many doctors, lawyers and CPA's are making $30,000 as an annual salary? You would be surprised if you saw their W-2's. Compare W-2 to K-1 income and distributions and you would shit your pants.

Anyway, enough griping on my part, take care.

Back in OC in 2012