Today, it’s time for a two-fer. I follow political cartoons during the week and try to choose the one that’s not too partisan. I lean towards one that speaks more about finance or the economy. But this week, I can’t choose between the final two. The gap between rich and poor is growing. It’s more and more clear we are losing our middle class. I’m not suggesting a revolution is around the corner, only that when people have nothing left to lose, the results can be tragic. I’ve been paying attention to the economy for over 30 years, and I don’t recall such an awful jobless recovery.
The tax code is complicated, and unfortunately, there are few changes that simplify the code. Instead, every change brings with it a series of unintended consequences. One of the changes in the tax code that will come under a Republican administration is the capping of the itemized deduction. For the most part, the itemized deductions include Mortgage Interest, Property Tax, Investment Interest, State Income Tax, and Charitable Donations. Before we continue, let me share the average itemized deduction across different income groups.
The proposal is to cap itemized deductions at $17,000. You can see, this won’t impact those with adjusted gross incomes under $60,000, which is certainly a good thing, but even those who are in the $60K-$200K family income range will get hit. The whole tax plan isn’t out yet, but it’s rumored to include an across the board rate cut. It remains to be seen what this combination will do to the tax bills overall. Aside from these specifics, we have no hint what the fate of the AMT will be or whether the taxation of Social Security will be adjusted to a more reasonable phase-in or even eliminated altogether. No judgement here, the plan may actually be a good thing, we just don’t have the full story yet.
Above graphic courtesy of The Tax Foundation.
I saw a few minutes of a speech President Obama recently gave. Here’s the paragraph that seems to be getting the focus:
“If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business. you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.”
While that was what was what the news liked to show, the speech continued:
“The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.
So we say to ourselves, ever since the founding of this country, you know what, there are some things we do better together. That’s how we funded the GI Bill. That’s how we created the middle class. That’s how we built the Golden Gate Bridge or the Hoover Dam. That’s how we invented the Internet. That’s how we sent a man to the moon. We rise or fall together as one nation and as one people, and that’s the reason I’m running for president – because I still believe in that idea. You’re not on your own, we’re in this together.”
All in all, this sounded like “we’re all in this together, and even those who are successful had the opportunity and the work of those before them which helped their success.” If you take a step back, this isn’t an insult, it’s a fact. Warren Buffet was a student of Benjamin Graham. Graham authored the bible of investing titled Security Analysis. He also wrote the more easily read The Intelligent Investor. Is Buffet not a self-made man? Of course he is, but he’ll be the first to pay homage to his mentor, Ben Graham. Bill Gates founded Microsoft, but you knew that. A software company can’t exist without hardware, the processor it runs on. Gates is no less a success for this fact, it’s just a truism, he built on what came before him, and he did so very, very successfully. I think it’s fair to say that anyone who is successful would be happy to point to a teacher, a mentor, someone they look up to as a positive influence. The US is a land of opportunity, and to suggest that there was someone before you who literally paved the road so people could drive to your business or bridge so your town is accessible takes nothing away from that success.
Back to the President’s speech. This is the soundbite the media has latched onto – “If you’ve got a business. you didn’t build that. Somebody else made that happen.” A WTF moment. Parse out the sentence, “You didn’t build that.” “That” refers to the roads and bridges from the prior sentence.
Now, Romney, instead of ignoring an ignorant out of context clip, hops on the bandwagon, “to suggest that Steve Jobs didn’t build Apple……”
Mr Romney, I’d expect more from you, sir. I’d expect you to read the whole Obama speech, understand his message, and not hop on the ignorance train. Because you’ve already stepped on your own feet. You’re not concerned about the poor, but no context changes that. That particular speech you gave made it clear. That speech showed that you are very disconnected from the population you wish to govern. Larry Kudlow (CNBC program host) – I’m surprised at you as well, repeating the out of context few words and ignoring the spirit of the speech.