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Sunday, April 06, 2008

 

Tax Time Musings

UGH!! Last night, after more than sufficient procrastination, I began the annual tortuous process of compiling federal and state tax returns. For me, this is a very well defined and structured process, involving sorting the year's receipts (including purging those no longer necessary), listing the income items in a format easily compared to last year's (to make sure nothing is omitted), listing the deduction items in their own format, and only then dealing with the forms. I now use a printed listing of capital gains and losses (not many losses this year) to attach to Schedule D and that's a major time saver - the printed report comes from Microsoft Money, which I studiously maintain throughout the year.

Even with these time savers, the process takes FOREVER, a disgrace for a country with such a successful self enforced compliance regime (unlike France, where tax evasion is a national sport). Ronald Reagan, Steve Forbes and others have pointed the way to true tax reform, where most of the population could complete their taxes on a 1 page form.

Today, in order to advance the redistribution goals of the Left, we have an endless series of calculations and worksheets to complete, in order to reduce or eliminate the deductions we are otherwise entitled to. Then comes the ultimate indignity - the AMT calculation, where you lose the rest of your deductions and offset the Bush tax cuts. That's why the idea of letting the tax cuts expire is not much feared by upper income taxpayers who understand their tax calculations, since they are really on the 28% AMT rate anyway (without deductions). Removing the Bush cuts will not expand revenues nearly as much as Democrats would have you believe, and to the extent they do, the main victims will be middle class taxpayers (that's where the money is), not upper income. I wonder if Senator McCain will point that out during the campaign. Of course, the GOP has been slow to point it out since that might cause the Dems to switch to a policy proposal that might actually be more effective in causing the redistribution they seek.

Ironically, putting everyone on the AMT is the simplest approach to reform we could take, and would also simultaneously take all lower income people off the rolls.

The one set of Bush cuts that will matter relates to taxes on capital gains and dividends. Raising those rates will hurt the stock market, reduce gains realizations, and extend the economic downturn, in other words, it will have the typical attributes of Democratic "tax reforms." If you are a NY state resident, you pay a 7% state tax on capital gains (with no federal offset assuming you are on the AMT - a virtual guarantee for upper income New Yorkers) which brings your overall rate for long term gains to 22%. If the Dems let the federal rate creep up to 20%, as Hillary wants, that makes the overall rate 27%. If it goes to 25% as Obama wants, that takes the overall rate to 32% meaning that almost one-third of your profits are confiscated in taxes. For very long term gains (as most of mine are), you are being taxed largely on inflation gains, not real gains. So at those rates, it makes sense to just keep your profitable positions until you die, leaving the stocks to your kids with a stepped up basis (erasing the gains for tax purposes). That's why when capital gains tax rates go up, federal gains revenues go down, and vice versa. But they never learn in Washington, at least the stubborn donkeys don't.

No matter - the task at hand is to get the return done and write the checks. We've got to fund this government if we want to keep those earmarks coming.

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Counting Crows new album, Saturday Nights & Sunday Mornings, debuted on the Billboard chart at #3. I bought it yesterday, but haven't had a chance to play it yet so there will be no review today. Meanwhile, more concerts on their tour are being scheduled, including one nearby this summer in New Jersey.
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How Orlando got to be a business conference city, given the mediocrity of the food, the lack of anything but kids entertainment, and the overall unattractiveness of its highway sprawl, continues to mystify me. I guess when you build all those hotels to accommodate the parks, they are going to try to obtain convention business, whether the infrastructure supports it or not. So they try to appeal to businessmen to bring their families along, but it just doesn't work. Most business meetings these days are work activity filled, running on tight schedules with little free time for family activity. In fact, it is not smart to go on these trips and not use the occasion to socialize with the other attendees, paying attention to building those relationships.

Anyway, I've now been to Orlando twice in the last six months on business, and while I didn't have an awful time on either occasion, I certainly preferred Vegas, Nashville and even (gasp) Houston. So meeting planners, pay heed, let's take a vacation FROM Orlando for a while, OK?

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The Sunday Morning news shows have started boosting Secretary of State Rice for the GOP VP slot, and it certainly would not be the worst choice. Apparently, Governor Sanford has worn out his welcome with the McCain folks, so that opens the way for Rice. Governor Romney also lurks in the picture. I guess a fusion ticket involving Senator Lieberman is improbable.

Republicans have a bigger problem and that involves recruiting good Congressional candidates. If you are a Republican, your natural inclination is to work in the private sector, and since the prospect of Democratic majorities continuing for quite a while seems inevitable, being a Republican Senator or Congressman is not an attractive position right now. The result of recruitment issues will be to exacerbate Democratic gains in both houses, even if McCain is competitive at the top of the ticket. Republicans need to worry about maintaining a 40 seat filibuster saving minority in the Senate, or President McCain will be in a very weak negotiating position with the Democrats in Congress.
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Nice to get the occasional e-mail from new readers who trip over the musings blog randomly, as they explore the blogosphere. Nothing wrong with making comments or suggesting topics for future entries.
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The bear market rally has been very bracing for the musings stock portfolio. We are now up slightly for the year, after dividends. That's right, UP. On March 26, we sold 100 shares of Axsys Technologies (AXYS) out of the IRA for 49.93 (originally purchased on 4/17/06 for 16.90). We'll take a near triple within two years. On
4/2, we bought 20 more shares of Precision Castpasts (PCP) for 108, a "zero buy." On 4/4, we sold 200 shares of Petroquest (PQ) at 18.68, (purchased on 7/28/04 for 4.93). The quarterly disclaimer - Neither redwavemusings nor its author are investment advisors, and the stocks mentioned here may not be suitable for readers (or even for me).

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