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This is a publication by Scott Anderson Financial. Scott K. Anderson, CPA, CFP®, EA is a Registered Investment Advisor in Newport Beach, California.
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Scott Anderson Financial

In This Issue

Monthly Riddle

Where does the US Government make the coins and paper money which circulates throughout the country and the world?​

Click here for the answer.

Quote

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." - Thomas Jefferson

Plucking the Goose

"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers, with the smallest possible amount of hissing." — Jean-Baptiste Colbert, Minister of Finances of France from 1665 to 1683 under the rule of King Louis XIV.

During the Presidential “debate” (aka food fight) on September 26th, a concrete policy proposal inadvertently slipped through.  Secretary Clinton said that she would take the high ground and tax the rich who were not paying their “fair share.”  She then postulated that the primary reason Donald Trump would not release his tax returns because he had not paid any Federal income tax.

Cue the Political Correctness police to break out their riot truncheons. People should pay taxes just because the government needs the money. 

Donald Trump, on the other hand, said that he would lower both corporate and individual income taxes to get the economy growing and to create jobs.  As far as he was concerned, the fact that he had not paid income taxes was “smart” because, among other things, the government wastes too much money.

As to the question of “fair share”:

The IRS has just begun releasing the preliminary data for taxes collected by various cross tabs for 2014.  However, the data for 2013 is complete.  The Nation Taxpayers Union published the following table for 2013: 



AGI (Adjusted Gross Income) is the bottom line on the first page of Form 1040 that most taxpayers file.  Think of it broadly as “cash in” from all sources.

The Top 5% of all individual taxpayers paid about 58.6% of all individual income taxes.  The Middle 45% (Top 50% minus the Top 5%) paid 97.2%. 97.2% (Middle 45%) minus 58.6% (Top 5%) = 38.7%. 58.6% (Top 5%) divided by 38.7% is 51.4%. That is the Top 5% paid 51.4% more in taxes than the Middle 45%. The rich are not paying their “fair share”?  I don’t think so.

“Fair” really is a unit of emotional measure which the Political Correctness police reinforce at every turn. Like all politically correct arguments, the argument sounds good but “where’s the beef?”  If significant increases in tax revenues are to be had, the Middle 45% will have to share in the heist because significant tax increases on the “rich” will be too detrimental to long-term savings and investment.

As for Donald Trump commenting that not paying taxes was “smart”:

Consider one of the basic early tenants of income tax as set forth in 1947 by US Court Appeals Justice Learned Hand:  “Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” And that from a Harvard guy no less.

I wish I could help my tax clients pay no taxes. If I could, they would certainly call me “smart.” My tax clients don’t come to me for ways to pay more taxes. No one thanks me when I tell them how much they have to pay.  When Oliver Twist cried plaintively, “More, sir? May I have some more, sir?”- he was not talking about taxes. 

If Trump did not pay taxes after taking a billion dollar write off: a) he had to lose a billion dollars in cold hard cash to get that write-off, and b) it is perfectly legal - large but legal.  Hillary famously took a charitable deduction for donating Bill Clinton’s underwear -  small but legal. It would seem that paying the least amount of taxes is an attitude which infects us all. 

As for Trump’s plan for reducing taxes to promote growth:

John Kennedy did it. Ronald Reagan did it. George W. Bush did it. The British did it. Every student who studies the supply and demand curves of microeconomics can demonstrate this simple truth:  taxes raise the price which thus reduces the demand for everything.   Why is the economy growing so slowly?  Could it be taxes on everything are slowing things down like barnacles on a ship hull? Want the ship to go faster? Clean off the barnacles.

The election is Tuesday, November 8th.  If nothing else, you should honor our veterans by voting - Colin Kaepernick notwithstanding.

Who to vote for?  

As I suggested in my September newsletter, there are really only two candidates: Trump and Clinton. To not vote, to vote for a third party candidate, or to leave the presidential choice blank is to vote for Trump or Clinton – whoever eventually wins.

Ignore the peccadillos of both candidates.  There are too many to list. For every tit, there is a tat. 
As for me, I am voting for the candidate who will hurt me the least.

Come on Riley, let’s go for a walk, that is still tax-free…for now anyway.  

All the best,
Scott K Anderson Jr., CPA, CFP®, EA
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It's Your Money Workshop

The Fall 2016 schedule for the It’s Your Money! Workshop Series is now available. We hope that you will take advantage of this opportunity.  To find out more go to Financial Empowerment & Estate Literacy website or see the Workshop Series schedule here.
Julie will be presenting 
Fixed Income Investing 
October 24th at 1:30 pm
Lakeview Senior Center
Scott will be presenting 
Fixed Income Investing 
November 4th at 10:00 am
Orange Coast Community College

By The Numbers

Click Here For The Monthly Economic Update
By The Numbers: Q3

Yield Curve: Interest Rate on US Treasury Securities versus Time to Maturity 

Thick Dark Line – October 7, 2016; Thin Dark Line – One Month Ago; Light Line – One Year Ago;
The Yield Curve is a graph of the interest rate on US Government securities based on maturity. All interest rates use the US Government yield curve as the reference as the US Government rates are considered riskless which means there is no chance of bankruptcy – the US Government  can simply print money to meet its obligations.

Analysis: 

This is a “normal” yield curve – upward sloping – longer maturities command higher rates than shorter maturities reflecting (among other things) the higher risk of inflation in the meantime. 

Shorter term rates (two years or less) continue to be higher than a year ago due to Fed’s efforts to lever the entire yield curve up (increase interest rates) by moving up the left end of the curve. 

Longer term rates continue lower than a year ago reflecting (among other things) the tremendous number of investors (particularly foreigners) seeking to own US Government securities because US Government securities are considered the safest investment in the world. 

Nonetheless, there appears to be some upward movement in the longer maturities from one month ago. It is too soon to tell if this is a real movement or just a transitory byproduct of the Fed’s off-again-on-again discussion on interest rates.

As noted in previous newsletters, the dilemma for the Fed is that if they try to push up the yields on the shortest maturities to try to lever the whole yield curve up, the demand for longer-term US Government securities as a safe haven may have the effect of keeping longer-term rates lower and the whole yield curve could accidently flatten out.  A flat yield curve offers investors (and businesses) no incentive to invest for the long term which will slow down the economy.

Look for Janet Yellen to continue to waffle until she is willing to sit down and tell Congress that unless Congress gets fiscal policy (tax and spending) under control, there is nothing more the Fed can do.  

Source: http://news.morningstar.com/TreasuryYield/bonds.aspx
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Trivia Answer:
Coins are produced in one of four US Government mints: Philadelphia since 1793, Denver since 1863, San Francisco since 1854, and West Point, New York since 1988.

Paper currency is printed at the US Bureau of Engraving and Printing plants in Washington DC and Fort Worth, Texas. It is estimated that  between one-half and two-thirds of the value of US currency in circulation is held outside the US.
IRS Circular 230 Disclosure: if this newsletter contains any type of tax advice, please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to the matter.
Copyright © 2016 Scott Anderson Financial, All rights reserved.​

P.O. Box 7463 | Newport Beach, CA 92658 ​| (949) 200-7111


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