political economy

Elections’ Influence On Investments

    Yesterday’s elections imply the political situation is moving away from a pro-business tax cutting era to a more of a slow growth, centerist era. Over the next two years I expect the liberals and centerists to grow stronger, resulting in a less business friendly climate, including higher taxes. Perhaps political compromises will enable a hidden back door of tax increases. The situation is likely to lead to a lower degree of deficit supplied stimulus and thus the federal deficit may grow at a slightly slower pace. Rising taxes would act to dampen inflation and growth, making yields go down. Taxes could be increased by closing loopholes (like ending excessive depreciation deductions that only businesses would notice) or raising tariffs

2018-11-07T16:42:28-08:00November 7th, 2018|mayflowercapital blog|Comments Off on Elections’ Influence On Investments

Free and Fair Trade: Does it Result in Loss of Jobs?

   The argument in favor of free trade is that as people in EM countries get jobs that used to be in the Developed world these people will use their new paychecks to buy things made in America, including luxuries that they could now afford thanks to their new job. Thus, in theory there would be no global loss of jobs. This would be true if a U.S. factory moved to Canada, but it is less likely to be true if a U.S. factory moved to very insulated and poor country that didn’t cooperate with the principles of free trade. If EM based employers keep too much profit instead of paying a living wage to employees then their employees can’t

2018-03-22T13:19:33-07:00March 22nd, 2018|mayflowercapital blog|Comments Off on Free and Fair Trade: Does it Result in Loss of Jobs?

Rising Deficits: Will Yields Explode?

       The uninhibited boost of the deficit by Trump and members of both parties in Congress on Feb. 9th may trigger fears of Banana Republic-style out of control deficits. The preponderance of evidence is that growing debt loads are not yet morphing into an inflationary Banana Republic. Some people are frustrated that Tea party Republicans were eager to oppose scary huge deficits during the crisis era in 2008 when TARP and the AIG bailout were needed to prevent a depression and now these same politicians appear to have abandoned their anti-deficit principles. However, it is a mistake to assume that, because of this change, to leap to the conclusion that Republicans have morphed into a party of Zimbabwe-style fiscal policy.

2018-02-14T13:38:17-08:00February 14th, 2018|mayflowercapital blog|Comments Off on Rising Deficits: Will Yields Explode?

New Tax Law’s Stock Market Damaging Shock

          What is truly a huge item about the new tax law is something just the opposite of what the law’s authors intended. They sought to create a tax cut for corporations to make them globally competitive. Currently the SP500 companies are 75% of the U.S. economy. They are big enough they have been able to afford to set up offshore tax advantaged subsidiaries that benefited from the old law where they could get a zero tax rate in some cases. Now in 2018 they have to pay a minimum of 12.5% on offshore profits (actually a range of 10.75% to 15% depending on details). Thus for the SP500, which is 75% of the economy, they will

2017-12-29T15:24:02-08:00December 29th, 2017|mayflowercapital blog|Comments Off on New Tax Law’s Stock Market Damaging Shock

New Tax Law: Will It Stimulate The Economy?

   The stimulus effect for the tax cut for business owners with pass-thorough entities like an “S” corporation might amount to a $10,000 deduction if single, or $20,000, if married, for small service businesses. It could be a lot more for large non-service business like manufacturers. Suppose a self-employed single person makes a salary of $100,000 and a corporate profit of $50,000 and has no other income. Then the $50,000 corporate profit would be multiplied by 20% to get a $10,000 deduction; assuming the taxpayer was in the 24% bracket then he would save $2,400 in taxes a year.    Assuming a new Congress repeals this in three years then the taxpayer will save $7,200 cumulative over three years. That

2017-12-20T16:30:27-08:00December 20th, 2017|mayflowercapital blog|Comments Off on New Tax Law: Will It Stimulate The Economy?

New Tax Bill’s Affect On The Economy

The new tax bill may make recessions deeper and sharper. When an affluent person making $300,000 maxes out their ability to buy a home with a mortgage and property tax and then suffers a deep cut in income during a recession then in the proposed new tax bill they get a smaller tax deduction for mortgage interest and property tax than under the current law. If a self-employed person benefits from this law using the pass through rate and then during a recession he has to close his business and get a job then he would be in a higher tax bracket! The new law waters down AMT tax so even if it takes away some mortgage and property tax

2017-12-15T19:10:59-08:00December 15th, 2017|mayflowercapital blog|Comments Off on New Tax Bill’s Affect On The Economy

Deflationary Aspects of the Proposed Tax Bill

The new tax bill won’t cut taxes (using a discounted model of future behavior by Congress). Currently the average corporation pays a 13% rate (another study claimed they pay 26%). The problem with the tax bill is that it permanently takes away a corporation’s ability to have a foreign subsidiary that is immune from U.S. tax law and instead imposes a modest tax rate of 12% on foreign subsidiaries (supposedly a one-time tax) on foreign earnings regardless of whether earnings are firewalled off and kept offshore or are imported to the parent company. The risk for corporations is that each year, assuming a change in Congress, tax rates can gradually be raised on this, thus whittling away any benefit. Discounting

2017-12-14T11:52:23-08:00December 14th, 2017|mayflowercapital blog|Comments Off on Deflationary Aspects of the Proposed Tax Bill

Political Events Imply Continuation of Status Quo of Low Yields

    The proposed tax cuts offered today in Congress are not a huge game changer that will stimulate the economy and trigger inflation. Regardless of which party is in power, the problem is a bipartisan problem, that the country’s excessive debt and government spending commitments mean the government is trapped and can’t afford a serious tax cut. When people or a government have too much debt then they become debt slaves and are unable to engage in increasing consumption and instead have to labor long hours just to keep their credit score from crashing. The appointment of Jerome Powell to be Federal Reserve chief is an affirmation of a continuation of traditional Federal Reserve moderate bubble making policies. He will

2017-11-02T13:29:16-07:00November 2nd, 2017|mayflowercapital blog|Comments Off on Political Events Imply Continuation of Status Quo of Low Yields

Reducing 401k Limits: Tax Planning For Investors

  What would happen if Congress cut annual 401k contributions from $24,000 (for those over age 50, or $18,000 under age 50) to $2,400? This would mainly affect affluent upper-middle class people, since moderate income people can’t afford to save that much. However, if people responded to this by increasing their savings in a taxable account then future capital gains would be taxed at the lower capital gains rate or even result in no tax if the taxpayer died before selling an asset. Also, the benefits of using a taxable account instead of a retirement account is that one could invest in tax exempt Muni bonds or buy rental real estate and get depreciation deductions and tax-deferred “1031” rollovers of

2017-10-26T12:58:31-07:00October 26th, 2017|mayflowercapital blog|Comments Off on Reducing 401k Limits: Tax Planning For Investors

Tax Cut To Increase Inflation And Hurt Bonds?

  Interest rates rose because of news reports that Congress might finally be able to pass tax cut legislation. The 10 year Treasury Note, now at 2.38%, has the highest yield since March 20, 2017. Fundamentally Congress is unlikely to pass a true net tax cut because the deficit is so huge and growing. Thus the “cut” will simply move money around from one taxpayer to another. For example, they could offer a cut but then raise “effective” taxes by reducing the annual contribution to a 401k from $18,000 to $2,400, thus costing some people about $5,000 in extra federal taxes and more in state taxes, since states usually conform to federal tax rules.  Congress could cut taxes on high

2017-10-20T14:05:18-07:00October 20th, 2017|mayflowercapital blog|Comments Off on Tax Cut To Increase Inflation And Hurt Bonds?