California Income Tax Rate Proposition 30

Bob Brinker's comments on California Taxes and Tax Rates.

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year. 

The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

CALIFORNIA INCOME TAX

Caller: This caller is seeing businesses pulling out of California in droves. 

Bob said one of the reasons you are seeing that is Jerry Brown’s proposition 30. You already have a 10.5% maximum state income tax rate in California. Jerry Brown wants to raise it and if you make over $1 million the income tax rate will go up to 13%. 

If you take the federal income rate for the highest earners it is supposed to go to 39.6% in January.  When you add the 13% California state tax, the uncapped Medicare tax to 3.8% all of a sudden you are in the 60% tax rate for top earners in California if the Proposition passes. 

The caller said it is 64%. Bob said when a tax rate gets that high, and you are taking most of the money someone makes and people will say that’s too much, I am out of here. Bob noted that in France they just passed a new top rate of 75% and there are a lot of one-way tickets leaving France by the well-to-do. You can run the rates as much as you want and as high as you want, but people will run away and leave.

EC (David Korn): : An article out this weekend entitled, “Would Prop. 30 really drive millionaires out of California” can be found at this url: http://tinyurl.com/8b3rxza

It's refreshing, therefore, to see some hard data on the issue, and illuminating to learn what it tells us, which is: Not so.

The 2005 increase did not boost out-migration among the $1-million-plus population — in fact, the rate of millionaire out-migration declined after the hike. The 1996 tax cut didn't increase the flow of millionaires into California, either.  

Kirk's Comment:  Bob has it wrong.  The really rich stay after giving themselves pay raises to make up for higher taxes. 

The truth is the rich stay but they move jobs for those who work for them out of CA so they can lower their overall costs and make up for the higher taxes.  They save a ton by not having to pay extra for workers to move to CA where costs and taxes are very high.  A worker making $100,000 in Texas might need to make $150,000 to move to CA to afford a mortgage on a much more expensive home and offset the higher taxes.    Jobs have been leaving California since the 1970s!  

When I graduated from UC Berkeley in 1979 with a degree in Electrical Engineering and Computer Science, I went to work in the Silicon Valley designing semiconductors for communications, what was to become the internet.  I actually started as a summer intern in 1978.  What struck me then was  HP was ALREADY starting to move jobs out of California to lower cost states and countries.  California has a business property tax which I believe drove out most of the semiconductor industry.  The managers stay in CA since they can just give themselves a bigger raise to pay to live here. 

Back in 1978, Intel, HP, and many other companies built semiconductors in the Silicon Valley.  Today almost all the plants are gone.  New plants cost about $5 billion to build. Why would anyone sane build a $5B plant in a state that charges 1% a year tax on that plant?  Other states and countries like Singapore gave HP and Intel "tax holidays" to build new plants so they would have highly paid workers whom they could tax.  Also, the workers would spend their paychecks near the new factories making new jobs.

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The above commentary is courtesy of my writing partner, David Korn: 

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

More from David Korn:

• June 10: Review of Bob Brinker's Five (5) Root Causes of a Bear Market

If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Will US Pay Off National Debt? Budget Deficit & Bob Brinker's GDP Estimate

Bob Brinker's comments "Will the US ever Pay Off Its National Debt?" 

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show

The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year. 

DEBTS AND DEFICITS

Caller: At some point, the Federal Government will start to have to pay off the national debt. The caller said he thinks it seems like an unsustainable situation that will either be addressed by cutting spending or raising taxes. Or the government could start printing more money which could lead to inflation or hyper-inflation. How likely is it that we would see inflation or hyper-inflation and is there anything the average investor can do to hedge against this possibility?

"Witnessing the Republicans and the Democrats bicker over the U.S. debt is like watching two drunks argue over a bar bill on the Titanic."   Kirk Lindstrom

 Bob said there are essentially no cases in the history of the world where the country has paid off its national debt and we will probably never even make a serious down payment on paying off the $16 trillion national debt. We will pay the interest on the national debt as long as we can afford to do so. As far as the national deficit, that is in play and must be addressed and that is a big deal. Hopefully, Congress will get to work on the annual deficits which at the current pace is not sustainable.

EC (David Korn): Our $16 trillion dollar national debt amounts to $51,484 for every man, woman and child in our country. Check out this interesting article entitled, “Breaking down the national debt” at the following url: http://tinyurl.com/8p9vy5u

Kirk's Comment:  I don't think enough attention goes to just how large the deficit is and how much borrowing occurs for every dollar spent.  I like how Bob Brinker has warned about excessive spending for years and I'm doing my part to spread the word.  Read my Seeking Alpha article:

 U.S. Borrowed 31 Cents Of Each $1 Spent In Fiscal 2012:
Final Deficit Is $1.1 Trillion

Kirk's Comment:  Can you imagine asking anyone for a loan, home equity or a refinance of a home loan, if you knew you would never pay it back?

The above commentary is courtesy of my writing partner, David Korn: 

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

More from David Korn:

• June 10: Review of Bob Brinker's Five (5) Root Causes of a Bear Market

If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Bob Brinker on Economic Stimulus and Growth Effects

Bob Brinker's comments on the economic stimulus packages and their effects on economic growth. 

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show

The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

ECONOMIC GROWTH

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year.

Bob said he is keeping a close eye on the economy because of its slow growth. In fact, the world economy is growing slowly. China is slowing down. Europe has been in the doldrums, with some countries in a recession and some worse, like Greece. In the United States, we are adding jobs, but not fast enough to get the unemployment rate down below 6% which is where the Federal Reserve would like to see it.

EC (David Korn):  In the second quarter, real GDP increased 1.3%. The 2% figure for the third quarter is the advance estimate that is based on source data that is incomplete or subject to further revision. The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2012. Read the GDP report at this url: http://tinyurl.com/2d5zdv

ECONOMIC STIMULUS

Brinker Comment: Every year that goes by, our country is becoming a more mature economy. And we are dealing with a much more competitive world than we used to. Our exports compete with China, Europe and emerging markets. Bob said in his opinion one of the most stunning things about our economy is that despite al of the things that have been done in the last few years to try and grow the economy, we still are only growing at 1.8% in 2012. Bob pointed out that there have been seven major initiatives since 2008 taken in an effort to stimulate the economy:

1. First, the Federal Reserve brought the fed funds rate down to basically zero. It has been at 0-0.25% since then. And that was one of the most powerful tools the Fed has to stimulate economic growth.
2. Then we had quantitative easing (now known as QE1) which resolved the liquidity crises by flooding the system with a ton of money.
3. Then we had the stimulus package which amounted to roughly $800 billion. And there were some good parts of that such as the tax cuts which put money back into consumer’s pockets.
4. Then we had QE2.
5. The fifth measure was the second stimulus package. This came at the end of 2010 to be effective in 2011. You may recall this involved a 2% tax holiday on the payroll tax. That was the big part of the stimulus package.
6. Then we had operation twist which sold short-term federal reserve holdings to buy longer term maturities. This helped lower long term rates and is one of the reasons you are seeing historic lows in the mortgage market.
7. Finally, we had QE3 which was announced a few weeks ago.

EC: That’s a lot of stimulus. One wonders where we would be without all of the actions by the Fed and Congress. Check out this article entitled, “Without Stimulus Economy Would Collapse” at this url: http://tinyurl.com/8p6tvqg

Brinker Comment: These seven things, two of which were by the federal government and five by the Federal Reserve, were all measures aimed at improving the economy. And here we are at the end of October 2012, and we still have a slow growth economy with real GDP growing at less than 2%. What does this tell us? It tells us there has not been enough demand in the economy to push the growth rate up. And that is why you have seen an unemployment rate that is too high. It is all about demand. Without increased demand, you go nowhere. You can muddle along around 2%, but that cannot produce enough new jobs to get the unemployment rate down and so the wheels keep spinning without the economy going anywhere.

Bob acknowledged that the unemployment rate has come down from 10.1% to 7.8%, but that’s now low enough for the Federal Reserve which has a mandate from Congress to stimulate the economy to get employment maximized, consistent with low inflation. We have low inflation, but we have not been able to get GDP moving such that it would move unemployment to where it would be and create the demand needed.

Bob noted that some of these same problems have happened in Europe and their prescription to deal with it has been “austerity.” How has that worked? Well, in Greece they have come up with an austerity program to stay in the euro and they are essentially in a depression. Although we see Greek citizens rioting in the streets over the austerity program, the reality is if they leave the euro those same people who might receive a pension or other government check will be so sorry if the country is out the euro because their purchasing power could be devalued by as much as 70% on whatever new currency the country is forced to adopt.

Austerity programs are not easy. Just look at Spain’s program. They have an unemployment rate of 25%. That was our unemployment rate during the Great Depression in the 1930s. Austerity is not a recipe for growth. Anyone who tells you otherwise is a clown. If people who want austerity in our country get their way, we will not get growth — we will get contraction in the economy.

EC: I think Bob might have brought this topic up in light of an article in Forbes out this weekend entitled, “Austerity Didn’t Work in ‘37...What about Now?” which you can read at the following url: http://tinyurl.com/9mkw9f2

Kirk's Comment:  I don't think enough attention goes to just how large the deficit is and how much borrowing occurs for every dollar spent.  I like how Bob Brinker has warned about excessive spending for years and I'm doing my part to spread the word.  Read my Seeking Alpha article:

 U.S. Borrowed 31 Cents Of Each $1 Spent In Fiscal 2012:
Final Deficit Is $1.1 Trillion

Caller: If the country wants to bring down unemployment, why not hire tons of people to work on public works projects? The caller said he thought that would be a lot cheaper than raising taxes and it would give people jobs and fix our country’s infrastructure.

Bob said that would require another stimulus package and right now, the word “stimulus” has become a dirty word in Washington. Bob said based on his reading of the political environment in our country right now, there is so much backlash against the idea of another stimulus that it is pretty much a non-starter.

The above commentary is courtesy of my writing partner, David Korn: 

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

More from David Korn:

• June 10: Review of Bob Brinker's Five (5) Root Causes of a Bear Market

If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Brinker's Current Advice + October Reading

BOB BRINKER’S CURRENT STOCK MARKET ADVICE

Caller:  This caller read Bob’s latest Marketimer newsletter where Bob recommended that for new money to "dollar cost average during market weakness" and wanted clarification on why he said that.

Bob said when the market goes up...... more

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Larry Elder, Jack Welch and Bob Brinker On Jobs Report

Larry Elder spoke with Bob Brinker, Host of Money Talk, about Jack Welch's claim that the recent employment numbers in the September Jobs Report were cooked to make President Obama look good.  

The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries.

You can listen to the interview on Larry's website here:

Larry Elder Interview with Bob Brinker - October 08, 2012

Bob pointed out Jack Welch, the former CEO of GE, is not a politician so "I don't think it is his calling to do something like that and I am disappointed in him."

Brinker said the US needs about 150,000 new jobs each month just to absorb new workers.

Brinker doesn't believe the president of the US is responsible for the growth rate of GDP.

Larry Elder tried on several occasions to get Brinker to comment on President Obama's economic record and Bob showed he was better than the politicians at not answering the question.

When pressed, Brinker said he feels President Obama's debate performance was "so pathetic that at this point I don't know what to think about the president." 

Note this requires a FLASH player.  

Beer and Tax Cuts Explained

Suppose that every day, ten men go out for a beer and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

• The first four men (the poorest) would pay nothing.
• The fifth would pay $1.00
• The sixth would pay $3.00
• The seventh would pay $7.00
• The eighth would pay $12.00
• The ninth would pay $18.00
• The tenth man (the richest) would pay $59.00

So that's what they decided to do. The men drank in the bar every day and seemed quite happy with the arrangement, until one day the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20.00."

Drinks for the ten men now cost just $80.00.

The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get their "fair share?"

They realized that $20.00 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

• The fifth man, like the first four, now paid nothing (100% savings).
• The sixth now paid $2 instead of $3 (33% savings).
• The seventh now paid $5 instead of $7 (28% savings).
• The eighth now paid $9 instead of 12 (25% savings).
• The ninth now paid $14 instead of $18 (22% savings).
• The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before! And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20" declared the sixth man. He pointed to the tenth man, "But he got $10!"

"Yeah, that's right," shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't I get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.