political economy

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

2017-11-02T13:29:16-07:00 November 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

2017-10-26T12:58:31-07:00 October 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

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

Market Won’t Be Stimulated By Tax Cut

  The administration’s proposed new tax law may not actually end taxation of offshore subsidiaries, according to an article in the FT. In my opinion the items that are likeliest to have the biggest tax cuts and biggest source of stimulus are these items, and the possibility of a special low rate for pass through entities. However, these would be seen by moderates as unfair (especially a lower rate for elitist privately held pass-through entities) and not helpful in terms of a goal of not increasing the budget deficit. Thus these items may be unlikely to pass Congress, based on the administration’s difficulty getting other bills passed. If Congress truly ends taxation of U.S. based companies’ foreign earnings that may

2017-09-28T14:17:26-07:00 September 28th, 2017|mayflowercapital blog|Comments Off on Market Won’t Be Stimulated By Tax Cut

Bonds To Be Damaged by New Tax Law?

    The administration proposed new tax laws today, which may increase deficit spending, thus leading to inflation and higher interest rates. The ten year Treasury bond yield went up 8 basis points from 2.23% to 2.31%, making the bond’s price drop 0.7%. The increased debt would mean 8% higher U.S. Treasury debt balances over ten years or an increase of 0.7% in debt balances a year, which is less than inflation. Thus in real terms the debt balances won’t increase.         There is only a modest chance that Congress will make any big changes to tax laws. If the law is passed it will not threaten tax-free Municipal bonds, but will end the deduction of state income tax from

2017-09-27T13:57:37-07:00 September 27th, 2017|mayflowercapital blog|Comments Off on Bonds To Be Damaged by New Tax Law?

Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Getting tax cuts, which will then result in stimulation of the economy, is unlikely to happen. The Republicans, over decades, have been eager to offer increased spending programs to compete with Democrats for votes. The total uncontrollable, mandatory spending on social welfare programs is so deeply entrenched and growing that there is no room to cut taxes. The source of huge future deficits will be from the government’s cost of health care programs and this can’t be changed due to demographic patterns. With the 60 vote Senate filibuster limit it takes a considerable consensus to make major changes, one that is unlikely to be achieved in an era where the president was elected by the Electoral College despite getting 3

2017-09-21T14:51:29-07:00 September 21st, 2017|mayflowercapital blog|Comments Off on Congress Unlikely To Create Tax Cut Stimulus Thus Increasing Risks of a Crash

Political Situation Reinforces Low Rates

   Recent political developments regarding Trump’s repositioning his policies away from Republicans and towards Democrats implies that the administration will end up being a meaningless one with minimal policy changes or new tax laws enacted, etc. over four years. It may end up being a ceremonial photo-op administration nominally leading the country that is actually run by a narrowly divided Congress. By that I mean that after adjusting for the independent nature of Senators and the filibuster that effectively it is impossible for Trump to get anything out of the Senate and thus Congress is pseudo-gridlocked. By repositioning himself Trump may incur the wrath of the House Freedom Caucus thus fracturing the Republican control over the House. It is truly

2017-09-14T15:08:19-07:00 September 14th, 2017|mayflowercapital blog|Comments Off on Political Situation Reinforces Low Rates

Will Politicians Increase Inflation?

            Recently some comments from House of Representatives members of the House Freedom Caucus (somewhat similar to the Tea Party except the Freedom Caucus membership is limited to members of the House) implied they would tolerate an increased budget deficit to help some of Trump’s stimulus goals. Since this sector of House members usually are Hard Money types rather than the type that would advocate inflationary policies this is a shock.  If the defenders of a strong currency change policies 180 degrees towards an inflation causing increase in the federal deficit then this would lead to an increase in inflation. For this to happen spending plans need to be approved by both houses of Congress. The Senate has the filibuster

2017-06-07T16:32:21-07:00 June 7th, 2017|mayflowercapital blog|Comments Off on Will Politicians Increase Inflation?

Will Your Portfolio Be Impeached?

     If 21 of the 238 Republican members of the House of Representatives sided with the Democrats on an impeachment vote then an impeachment trial would commence in the Senate. That’s less than 10% of House Republicans that would need to change their position. About that many voted against the Trump administration’s proposed Health Care law. About that many took a tough and highly risky stand in favor of threatening a debt default rather than allow the deficit to get bigger in the July, 2011 deficit dispute. 22 House Republicans voted against Speaker Boehner‘s debt limit plan in July 29, 2011 even though failure to compromise could have ruined the government’s credit rating by a debt default. Already a House

2017-05-17T15:52:57-07:00 May 17th, 2017|mayflowercapital blog|Comments Off on Will Your Portfolio Be Impeached?

Trump Move Towards Establishment: Reduced Risk of Triggering Inflation

The Trump administration continues to show that it is moving towards the center and towards a somewhat establishment or consensus type of policies. They are hemmed in by the moderate Republicans in Congress who won’t dare cut the existing welfare state benefits such as the ACA, etc. because they would lose their seats, and are also boxed in by the Freedom Coalition members who that hate growing deficits. Trump will not be able to engage in massive deficit fueled stimulus nor will he be able to cut costs and use the savings to finance a tax cut, thus depriving taxpayers of stimulus because they won’t get real net tax cuts. The administration seems to be moving towards recruiting more professional

2017-04-10T12:27:41-07:00 April 10th, 2017|mayflowercapital blog|Comments Off on Trump Move Towards Establishment: Reduced Risk of Triggering Inflation