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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

Trivia

When did “In God We Trust” start appearing on US currency and coins?​

Click here for the answer.

Quote

Don't expect to build up the weak by pulling down the strong." -- Calvin Coolidge,
30th US president

2017 – When the Circus Comes to Town

Each year as part of the introduction to the use of a financial calculator, I have my students calculate the growth in GDP (Gross Domestic Product) during the tenure of each president going back to President Carter. GDP is the sum of the goods and services produced in the domestic economy. Increases in GDP are what we see as “growth” in the economy. To put both Bush and Obama in the best possible light respectively, calculations are also done omitting the years 2008 and 2009. Even in the best case scenario, President Obama comes in with the lowest growth.
 
2016 data is not yet available.

So I voted for “change” with a change being specifically defined as getting back to 3%+ economic (GDP) growth.

Of principle interest to me is reform of the US Tax Code - particularly tax rates.  If deductions have to be thrown out to get tax rates down, give me a bucket.  

Consider the income statement (aka “P & L” – profit and loss statement) for a company.  The revenue has to cover all expenses just to break even, much less to make a profit.  When taxes are raised, prices must be raised to increase the revenue to cover the taxes. 

Some suggest that somehow the stockholders will bear the brunt of higher taxes by taking lower returns. Not so. If the stockholders cannot get an acceptable return on their investment for the risk they believe they are taking, they will sell their stock and go away or not invest at all.  That is not a pro-growth strategy.

Thus, consumers pay the corporate income tax – revenue must exceed all expenses. That being the case, lowering taxes will lower prices. When prices come down, more goods and services are sold.  When more goods and services are sold, GDP grows. It is that simple.  

Getting there will not be fun or pretty.  Change is very messy. Otto von Bismark famously quipped, “Laws are like sausages, it is better not to see them being made”.

Donald Trump has his ideas.  Paul Ryan has his ideas.  The Republican Party has its ideas. Chuck Schumer has his ideas. Nanci Pelosi has her ideas. The Democrats have their ideas. The Mainstream Media has its ideas. Fox News has its ideas. The unions have their ideas.  The bureaucracy has its ideas. The American people have their ideas although fractured along several lines.    
 
Picture all these interests standing around an operating table with various surgical instruments.  On the table is the US Tax Code. The mind boggles. Where are Dr. Carson and Dr. Kildare when we need them? 
 
I asked Riley, the Golden Retriever with whom I share my office, what she is planning to do over the next several months while the tax code is under the knife. She got up and went and stood outside the closet where her leash is kept.  Ah, the universal solution to everything in a dog’s life: go for a walk and look for squirrels. You are so right, Riley.  Just go out and enjoy the world.  

To use an expression of my students, I plan to take a “chill pill.” I will simply watch the circus as it comes to town.  I will see all sorts of enchanting things in the three rings under the big top.  There will be all kinds of strange animals the politicians will introduce and lead through various fabulously orchestrated routines.  There will be proposals the politicians will conjure up out of thin air to the wonderment of all. There will be marvelous feats of logic and death-defying legal hair splitting. There will be pretzels like contortions made about previous public positions. Clowns will be everywhere to distract and entertain the gullible, the ignorant, and the Politically Correct. But in the end, it is just a circus. For all the excitement and thrills, the sword swallower does not get hurt, and the lion tamer does not get eaten. 

Meanwhile in a tent at the back of the lot far from the eyes of the distracted public, the real work of tax overhaul is being done.  We won’t see it being done.  It will be roped off from the other tents, the cotton candy and all the other carnival barkers. There will be compromises, agreements, and disappointments. There will be winners and losers. It will be messy because Democracy is messy – by design. The rich will inevitably and appropriately get a bigger share of the tax reductions because they pay the biggest share of the taxes. It will be a negotiation. But it will get done. It has to get done.

Once all the tents have come down, and the circus has moved on, we can see where things are and can then plan accordingly. 

If we are to get significant economic growth back, we need the circus to come to town – I just hope it is a 3%+ circus.
All the best,
Scott K Anderson Jr., CPA, CFP®, EA
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IRS Warns Taxpayers of Numerous Tax Scams Nationwide

IRS Warns Taxpayers of Numerous Tax Scams NationwideWASHINGTON — As tax season approaches, the Internal Revenue Service, the states and the tax industry reminded taxpayers to be on the lookout for an array of evolving tax scams related to identity theft and refund fraud.

Every tax season, there is an increase in schemes that target innocent taxpayers by email, by phone and on-line. The IRS and Security Summit partners remind taxpayers and tax professionals to be on the lookout for these deceptive schemes.

“Whether it's during the holidays or the approach of tax season, scam artists look for ways to use tax agencies and the tax industry to trick and confuse people,” said IRS Commissioner John Koskinen. “There are warning signs to these scams people should watch out for, and simple steps to avoid being duped into giving these criminals money, sensitive financial information or access to computers."

This marks the fourth reminder to taxpayers during the “National Tax Security Awareness Week.” This week, the IRS, the states and the tax community are sending out a series of reminders to taxpayers and tax professionals as part of the ongoing Security Summit effort.

Some of the most prevalent IRS impersonation scams include...
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By The Numbers

Economic Update
By The Numbers

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

Thick Line – January 6, 2017; 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. 

Current rates across all maturities are now higher than a year ago.  This is a significant change from the last several months were rates for longer maturities were below the prior year. 

With the Fed rate hike in December, markets now perceive that the Fed will be more aggressive in raising rates to head off perceived inflation and have begun to demand higher rates in anticipation.  The Fed must be happy.  The eternal question is, however, is the Fed correct?
Source: http://news.morningstar.com/TreasuryYield/bonds.aspx
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Answer: The motto, tweaked from the original "In God is our Trust," first appeared on the two-cent coin in 1864. A year later, an act of Congress declared that the motto should be placed on all gold and silver coins. "In God We Trust," showed up on paper money in 1957, when it was printed on the one-dollar silver certificate.
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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