When Will The Government Shutdown And Furlough End?

Waiting for the storm to clear, Cabos As an investor, I’ve thought about this question a fair bit recently. It seemed clear in September that no agreement would be made in Washington DC, which is why I sold equities and raised my stake in bonds as indicated in my quarterly private newsletter. The 10-year yield at 2.8%-2.91% was relatively attractive in light of everything.

Now that the government has shutdown, the 10-year yield is at ~2.64%, and the broader markets have sold off by 3-4%. The question is what’s next? I think the simple focus has to be on making an assumption of when the government starts up again. By figuring out when, we can potentially make more profitable bets or at least save ourselves from blowing up.


Implications Of A US Government Shutdown

Government Shutdown BoarFor the first time since 1995, the US Government has finally shut down thanks to no agreement between the Democratic controlled Senate and the Republican controlled House in passing any federal spending bills for 2014. The key point of contention was the Republican party’s desire to prevent the Affordable Care Act (Obamacare) from happening.

As a result of the 1995 shutdown, Republicans became public enemy #1 and President Bill Clinton got reelected in 1996. Newt Gingrich became a newt and America didn’t see a Republican president again until the Bush years. I’d like to share with everybody some brief thoughts about the implications of a partial US government shutdown that may be too sensitive to discuss elsewhere.


Should We Still Be Spending Money And Having Fun While Deep In Consumer Debt?

Anthony Weiner Speaking At Rally In NYC

Anthony Weiner too stubborn to quit. NYC 2013.

During the depths of the financial crisis, one of the proposals I sent to the Obama administration was to institute spending curbs based on high school or college grade point averages. It didn’t matter whether you went to Community College or UC Berkeley since everybody’s circumstances are different. What matters is how well you did in school to justify want based spending as opposed to need based spending.

For example, if you were a D+ student (sub 2.0 GPA out of 4.0) you are only allowed to buy generic clothing and ride public transportation to work for the rest of your life. No car or lollipops for you. If you were a B student, then suddenly that new $20,000 Honda Civic is available to you after the dealer scans your ID to check the government GPA database. If you are an A student, then you are free to buy whatever you want because logic dictates that if you are smart enough to study hard in school then you are smart enough to practice good financial habits.

I was shocked Obama never acknowledged my letter because my proposal would only help the government expand their authority (think PRISM) over the people of this great nation. We voted for Big Government and I wanted to support the cause as much as possible as I figured out a way to go John Galt. Although Washington DC stayed silent, fellow patriotic Americans voiced their opinions in the comments section of the post, Tax Rates Based On Work Ethic Shall Fix The World. It’s all about creating incentives.

Just imagine a world where everything is rational. Imagine everybody reading their mortgage contracts before signing so that they are aware of their financial obligations instead of blaming others when they can’t pay. Imagine if everybody adopted the attitude of not deserving something until worked for? Now imagine a country where everybody is middle class and pitches in to support our country. There would be no socioeconomic warfare, just equality. We can always dream right?


How To Avoid An Audit Based On Discrimination By The IRS

IRS pick pockets your moneyIt should come as NO surprise to long time Financial Samurai readers that the IRS admitted to targeting conservative groups since Obama became President. The government already discriminates against those who make over a certain amount by charging higher taxes even though they already pay for the majority of all taxes. Meanwhile, the deductions and credits you get for things such as education and children get eliminated if you make over an absurdly low amount. Conducting body cavity searches to shake more tax dollars out of Republicans is business as usual.

Make no mistake that if a Republican was President, liberal groups would also be targeted by the IRS. Everybody naturally discriminates against everybody. Sometimes the discrimination is overt and evil, other times the discrimination is covertly done out of convenience until discovered as is the case with the IRS.

The bottom line is that people have a strong proclivity to take care of their own, no matter what. In this article I’d like to discuss ways in which people can significantly reduce their chances of getting audited by the most powerful organization in America.


“Why Work If We’ve Got Obama?” Said My Rich Friend….

A retired man overlooking the fog over the Golden Gate Bridge.

Jaabir, one of the poorest richest friends I know, decided to take a vacation from not working by driving down to Indian Wells, California to watch the BNP Tennis Open last month. The tennis tournament is considered “The Mecca” for tennis fans everywhere given the terrific turnout of the world’s top pros and the intimate setting.

Before Jaabir left for the seven hour drive south, he urged me to go down with him for a week. I wanted to go, but I couldn’t because I had an interview lined up with a promising new company. I also wanted to be on standby just in case I got word from another potential employer. In other words, I was a dog on a leash. Woof.

To make myself feel better for not going, I started pressuring him to stay so he could do his duty as team captain by recruiting more ringers to help us defend our city championship. Why should he have all the fun right? I learned this strategy from so many who try and bring folks down if they can’t succeed themselves.

As usual, Jaabir brushed off my wishes because he’s free. “Sam, don’t worry! I’ve got everything under control. You are rich, why not live it up a little? Why do you not come with me to Indian Wells? Why work if we’ve got Obama, babay!?

Hmm, what the hell Jaabir! America ain’t no welfare country!” I retorted. But then I got to thinking about my own situation. Maybe Jaabir is right. Even though I was smarting for not being able to join Jaabir to tennis Mecca, I decided to write this post as a way to better understand his viewpoint.


Cyprus Reminds The World To Diversify Our Assets And Never Trust The Government

Funny Bathroom SignImagine diligently saving $100,000 over 10 years only to wake up the next day to see $93,250 in your account. Now imagine having to fork over $99,000 of your $1,000,000 nest egg right before you plan to retire. The Cyprus president has basically negotiated a 6.75% tax on all deposits under €100,000 and a 9.9% tax above this amount in order to receive bailout money from the EU!

There are so many things wrong with this scenario:

* Trust of the government is now completely broken.

* The government is asking savers to foot the bill instead of spenders.

* The policy promotes moral hazard as any reasonable person will simply spend everything they have and wait to get bailed out by more fiscally responsible citizens.

* The media will capture images of bank run frenzies, causing more panic to spread to anybody who has access to a TV or internet connection.

* Citizens of weak EU countries like Portugal, Italy, and Greece may start withdrawing cash further hurting their economies.

* Equity risk premium rises causing a sell-off in stock markets overall which dampens returns, earnings, and corporate enthusiasm for spending and hiring.


The Solution To Social Security Problems: Die Young & Stay Single

Presidio Golf Course In RetirementImagine working for 40 years, each year paying Social Security taxes and dying at the age of 62 with no spouse to bequeath. The Government is going to secretly laugh at you because they now get to keep the hundreds of thousands of dollars you paid into the system for free, baby!

Meanwhile, if you get married the Government will make sure to tax you at a higher rate (marriage penalty tax) to ensure they get more of your money and perhaps even deter you from getting married so they can pay out less in Social Security benefits. Makes you think, doesn’t it?

Why else do you think the income threshold for a 35% income tax rate stays at $400,000 and jumps to only $450,000 for a married couple instead of $800,000? Not sticking to the $200,000/$250,000 income threshold for tax increases helps thousands of people living in expensive areas survive. Ironically, the $200,000/$250,000 income threshold was more fair since $50,000 divided by $200,000 = 25%. Now, $50,000 divided by $400,000 is just 12.5%. The Government is sexist and wants one spouse to just stay at home or make less money if they get married. Absurd!

The maximum taxable earnings amount for Social Security (OASDI) taxes is roughly $113,700. There is no limitation on taxable earnings for Medicare’s Hospital Insurance (HI) taxes.

The Social Security tax for 2013 reverts back to its normal rates. The tax rate for 2013 is:

  • Employee-portion: 6.2% of wage earnings, up to the maximum wage base of $113,700;
  • Employer-portion: 6.2% of wage earnings, up to the maximum wage base of $113,700;
  • Self-employed persons: 12.4% of net self-employment income, up to $113,700.

For 2011-2012, the employee-portion of the Social Security tax was reduced from 6.2% to 4.2%. Self-employed persons also received the same reduction from 12.4% to 10.4%.


Financial Moves To Make Before And After The Fiscal Cliff

fiscal-cliff-santoriniI never thought we’d go over the fiscal cliff, but it turns out the chances are now over 50% after Boehner’s Plan B can’t even get enough Republican support. Raising the absurdly low income threshold for tax increases from $250,000 per couple to $1 million per couple sounds like a fantastic compromise.

Nobody making over $1 million will ever publicly complain about their taxes going up unless they want to face the mob. Those making less than $1 million a year will get their moral victory of sticking it to the real rich, who are the millionaires and billionaires of America, not the couple making $350,000 living in San Francisco with two kids. They are well to do, but they aren’t rich when it costs $1.5 million for a starter home!

Since Obama proposed a $400,000 income level before taxes will go up, and Republicans can’t even agree on a $1 million income level until taxes go up, it’ll come to no surprise if a deal doesn’t happen before year end. I was really hoping for something in between $400,000 and $1 million so they could move on with the real issue, which is overspending! It’s baffling why the government can’t take steps to spend within its means.

It doesn’t sit well with me that our politicians went home for the holidays with such a huge issue still unresolved. We pay their salaries and huge pensions! I still have some hope for at least a “Fiscal Patch,” but just in case, here are some things to consider.


How Tax Collectors Like The IRS Cleverly Rob You Of Your Money

Action Figure In HKEvery IRS person I’ve spoken to has curiously been kind. Yet, despite their kindness, I still feel my heart drop every time I get a letter from them. I’m not sure whether it’s because the movies always portrays the IRS agent as a bad man in a rain jacket, looking to shake down individuals for all they are worth. Or, perhaps it’s the fact it’s little ‘ol you vs. the omnipotent government that presents a no way out scenario. Whatever the case may be, dealing with the IRS sucks.

Those who work at the IRS or State Tax Collectors agencies are actually on your side. Sure, some have mandates from higher ups to milk you dry. However, most are willing to help you resolve your issues because they know how complicated taxes are in America. Perhaps this is one of the reasons why so many citizens have decided to just call it quits and not work!

One acquaintance I know worked for the IRS so of course I peppered him with questions to extract all the juicy details. I am against anybody paying more taxes than they need to. It’s just not right for the government to tax more than a typical person saves a year. If the government could show they can efficiently spend our money, then fine. But, they can’t even come up with a darn budget so forget it!

For all you conspiracy theorists out there, I think you’ll really enjoy this post.


Solutions To The Fiscal Cliff: Time To Start Investing?

Fiscal Cliff Of Santorini, GreeceEverybody is worried about a fiscal cliff, so what the hell is it? In a nut shell, Bernanke coined the term in Feb 2012 as a way to describe massive spending cuts and tax hikes in January 2013 if there is no budget deal in Washington DC. Because the House is still controlled by the Republicans, and the Senate is still controlled by the Democrats, there is worry no legislation will pass given what happened during the debt ceiling debacle.

If no budget resolution passes, here’s what happens: 1) Federal income tax rates increase for those in the 33% and 35% tax brackets as the Bush tax cuts expire, 2) the payroll tax holiday disappears, 3) federal unemployment benefits completely vanish, 4) reimbursements get reduced to Medicare doctors, and 5) the debt ceiling stays the same, which forces across-the-board government spending cuts, including slashes in defense spending.

The fiscal cliff could amount to some $7 trillion worth of tax increases and spending cuts over a decade. This would do wonders to balance the budget to the dismay of free-spending politicians everywhere. The problem with such budget balance awesomeness is the abruptness by which policies are implemented. Even though ALL of us have known about the fiscal cliff for years, no policitian is willing to do anything until the last moment…. or more importantly, until they win the November 2012 elections to ensure power for the next four years!

I know I sound cynical about politicians, but open your eyes already! We work for the politicians, not the other way around. It’s our job to work as much as possible to keep our politicians in power so they can live great lifestyles and make lots of money while telling people what to do. Every single politician has told me, “Screw pension reform, because that’s my money!” Sweet.

Let’s address some key bickering points.