- In December 2009, I wrote, “High growth opportunities will still be found in emerging markets especially in Brazil, China and Vietnam, but it will likely be very volatile in 2010 – hold on to your hat”. I still believe this to be true especially for Brazil. But the harsh downdraft in the past few weeks was particularly brutal for emerging markets. Be prudent.
- According to Martin Sullivan on Tax.com the rich pay higher taxes than the super-rich. Those earning $1 million to $1.5 million a year pay (2007) an effective rate of 24.1%, while those earning more than $10 million a year pay 19.4%. The reason is because the super-rich have more capital gains income which is taxed at 15%. The 19.4% effective tax rate is nearly the same as those with income in $500 thousand to $1 million range. I guess the super-rich have much better lobbyists – who says Congress can’t be bought.
- I have always questioned the need for lower tax rates on capital gains income. I could never understand the rational for the lower rates. During the Reagan era (Tax Reform Act of 1986) all income, including capital gains, was taxed at the same rate. Ironically, that 1986 tax legislation decreased the highest rate from 50% to 28% and the lowest rate increased from 11% to 15%. This would be the only time in the history of the U.S. income tax (which dates back to the passage of the Revenue Act of 1862) that the top rate was reduced and the bottom rate increased at the same time.
- Most middle class investors have most of their money invested within a 401k or an IRA, which interestingly at retirement are mostly long term capital gains. Yet, withdrawals are taxed at normal income tax rates not at the capital gains rates – Go Figure!!
- At full retirement age individuals are permitted to have unlimited earned income without reduction of Social Security benefits yet that earned income is still subject to FICA and Medicare taxes – Really!! At some point you would have thought a retired individual has paid enough into the government retirement plan. Since many baby boomers are going to need some earned income in retirement, some changes might be in order.
- Laurence J. Kotlikoff, a professor of economics at Boston College University, has suggested that if Americans had to publicly disclose their tax return filed with the IRS, there would be far greater income tax reporting transparency (personal information such as Social Security numbers would be safeguarded). Sounds radical. Actually at various times in our history, individual and business tax returns were part of the public record. Maybe it is time again for full disclosure.
- Factoid – According to the New York Times, China at the end of 2000 had a $28 billion trade surplus. During the same time period the U.S. had $422 billion trade deficit. In 2008, China had a $267 billion trade surplus an increase of 841%. In the U.S. during 2008 the trade deficit increased to $842 billion or 102%. One begins to wonder how much longer that can continue.
The opinions stated in this column are the sole responsibility of Richard Jacobs and should not be contrued as investment advice.