Taxman Cometh Up Short
Only about half of U.S. states met their forecasts for withheld taxes in February after taxpayers made last-minute financial moves in 2012 for fear of having to pay higher federal tax rates in 2013 that befuddled politicians. Tax revenues rose about 5.7% during the last quarter as people took profits and companies moved forward bonuses all to avoid the higher Obama tax rate milking the so called rich in 2013. Politicians are just dumb. They constantly think whatever trend in motion stays in motion and fail to comprehend their shenanigans cause changes in behavior.
Part of the rise in the Dow is re-entering positions that were liquidated in the last quarter of 2012. If you had profits, you took them, and jump back in after January 1st. This is simply the way capital moves. For years, the difference in tax rates on dividends in French stock led to the sale of French shares for 24 hours when dividends would be paid and the stock went to Britain for an overnight stay.
The growth in futures in the late 1970s was aided by the tax straddles. You sold December gold and bought Feb gold taking a loss in the current year pushing income into the next year. That lasted until the IRS figured out what people were doing.
The only way to get steady revenue is to stop fooling around with the tax rates. No matter what study you do, people like Obama will still just raise taxes no matter what the proof it will only drive capital out, cause it to hoard, and reduce investment lowering economic growth.
The Real Backdrop to Deflation
There is a backdrop to the whole deflationary mode that is not really being discussed. Household income has declined by almost 5% from the high in 2007. With the rise in payroll taxes and Obamacare, this should decline at least another 5% in 2013. Meanwhile, banks and insurance companies continue to downsize shifting back office jobs overseas. In discussion I personally had with a major insurance company, their take on this has been rather stark. For every $50,000 they pay an employee in the USA, I was told their actual costs are $125,000. This has led many to shift jobs to the Philippines (reason for its upgrade), India, and believe it or not – POLAND!
Consequently, staff in the USA are being replace with low level people far less educated and this is reflected in many areas. This is contributing to the STAGFLATION that is underway. The Fed is conflicted by this data contrasted against the rising Dow. They are confused to say the least. This is a major contributing factor to the rise in corporate profits, yet the lower unemployment is not reflecting the decline in income. One reader from the Insurance Industry wrote:
“My dad was actually a “pioneer” in the group business back in the early 50s starting out with NY Life. Anyway, I just wanted to tell you that I’m seeing major changes in this business. A pronounced SHIFT in sentiment and the most ALARMING change is in the QUALITY of personnel I’m seeing. Also a lack of CUSTOMER SERVICE and basic people skills among insurance co. personnel.
Back in the mid 1990s we had “quality people,” real professionals who you could tell were college educated and conscientious and knew their business. Today what I deal with are mostly ORDER TAKERS. Their education level is lower. In fact, at this very minute I’m on ON HOLD with an insurance company and have been for about 1/2 hour! The bureaucracy has also increased exponentially since 1995.
Insurance companies have completely lost touch with their customers – both the agents and the “patients.” My outlook is bearish for the whole industry including LIFE insurance. (How will the big insurance companies survive the coming bond market implosion?). People are confused and now I see companies DROPPING their group coverage. PANIC has set in. It’s getting to the point where people don’t care anymore. They’re willing to go uninsured and this is a MAJOR shift in thinking which I haven’t seen before. It’s panic and desperation caused by increasing premiums and not knowing what else to do. Suicidal type thinking in my opinion.”