August 5, 2011

A Tax for All!


Let's admit it! Roughly half of the countries population pays no income tax. When pollsters ask, "Are you in favor of raising income tax rates to bring down the deficit?" they answer, "Yes.” But what they are really saying is, "I have no problem with other people paying more taxes to pay for my benefits.” Everyone that receives benefits from the government wants to keep getting them.


Here’s a question. Since almost everyone gets something from government, are we all willing to pay for what we get? If so, I propose a simple 1% sales tax. This way, every citizen reaches into their pocket. And I propose that the money raised only be used to lower the deficit. I further propose that it be written into law that the sales tax expires when the deficit turns to surplus, or that the sales tax increases if spending increases.

What do you think the chances are that American voters would vote for a 1% sales tax on themselves? That such a tax on all voters has never even been considered, answers that question eloquently. And the fact that Obama no longer wants to let the tax rates expire on all tax payers show the ulterior motives of his administration: redistribution of the wealth of this country, from the rich to the poor and middle class.


A fair tax would tax everyone receiving benefits and would rise or fall along with those shared benefits. Everyone would have some “skin in the game.” Yet, using many people’s philosophy; the only “fair” taxes are levied on the rich, who are already paying 70% of all taxes collected.


No More Mr. Nice Guy

I have always given Barak Obama a certain amount of respect, and have offered him the benefit of the doubt—until now. In a prime time message to America, one where no news was offered, Obama spent the first part of his allotted time to reach Americans blaming George Bush for our debt crisis. He failed to mention that the debt has increased by more under his Presidency in just two years than it did during the entire Bush presidency.


Next he attacked the “fat cats” who make a lot of money. A requirement for any budget compromise was Obama's insistence that the rich be taxed. If Obama got all he wanted, the total tax receipts raised would only amount to one half of one percent of the deficit over ten years. In other words, it would do nothing to reduce the deficit. Yet this is essential to Obama. Why? If this would come nowhere near solving our problems, why is it so important?


It’s time to take off the kid gloves. There can be only one motive for preaching this kind of economic non-solution to a nation on prime time…the promotion of class warfare. Obama wants the people of this country to rise up against the rich. He talks about the rich people and their unwillingness to “contribute.” Contribution is voluntary. Obama isn’t asking. Instead he is soliciting approval from the American voter to take the money from those who have it, and put it into the hands of his administration. He wants to make this a precedent; that the money oil companies, jet users, hedge fund managers, millionaires, and billionaires possess is not their money. Realize that according to Obama’s philosophy, these citizens wealth is actually public property which he wants to confiscate.

Only a tax on the rich fits Obama’s definition of “balanced.” Yet only a broad based tax will raise the serious money needed. That is how we will achieve balance, not by taxing a handful of people the result of which will change little.


The motive for using his prime time speech, not on any news, but on his philosophy of taking from the rich and giving (or “investing”) to new government programs, can only be to pitch this philosophy directly to the people. The fact that this tactic was voted down by Republicans, is just a glimpse of what is to come in the future political year.
Obama says he will fight for the principle of “fairness” in the months ahead. After the Senate completed the vote to raise the debt ceiling, Obama came out in front of cameras, and in his signing speech, reiterated his talking points. He did not offer an olive branch, or compliment the Congress for a job well done. He harangued business and called for higher taxes on them. He did not talk about tax reform; instead he again used his TV time to tell America that the rich must pay their fair share.

Fair tax reform would be not raising tax rates on the rich. Eliminate all corporate welfare, subsidies, and loopholes across the board—for everyone! Not just a few selected targets. The other critical reason we need to reduce tax rates on everyone is so that we are more competitive in today’s world, which in turn would result in higher revenues to the government as it has before. Obama’s plan to tax the rich will not only raise taxes, it will discourage production and ultimately reduce revenue.


Obama's philosophy is painfully clear: the money is here, we need it for our government programs, so let’s take it. The fact that it doesn’t belong to them is irrelevant. Mr. Obama need’s to heed the remarks of Margret Thatcher, "The problem with socialism is eventually you run out of other people's money.”


Shared Sacrifice


Whenever someone calls for shared sacrifice, they want something. Guaranteed, they aren’t talking about giving something. When you hear someone call for more compromise, they mean that someone else needs to give more. If you stand for freedom and against slavery you are labeled an “extremist” by those sharing Obama’s philosophy. How unreasonable for you to refuse to give up at least a little freedom, and accept just a little slavery. The Tea Party doesn’t want the government to spend more money than it takes in, so they too are “extremists.”


Have you noticed that it is always sacrifice which is moral, and self-interest that is immoral? Sticking to principle is radical, and extreme, while “compromise” is the right thing to do. In her brilliant book, “The Virtue of Selfishness,” Ayn Rand made a passionate and logical case for the opposite. It is self-interest which is moral, and “sacrifice” that is immoral. She put in philosophic and moral terms why the old Chinese proverb, “Give a man a fish and he eats for a day; teach him to fish and he will eat for the rest of his life,” is both a moral and practical proposition.

When people exchange in a free market economy, they offer value and receive value in return. There is no sacrifice, or compromise needed. Sacrifice and compromise always result in a loss to someone.


In psychological terms, shared sacrifice amounts to a choice between being either a sadist or a masochist. The call for such sacrifice sets up class warfare and promotes a fight over whom takes what. The founding fathers rejected such a system. They wanted a system where every American was protected equally under the law. They did not believe the rich were exempted from this protection—or the poor. The system wasn’t concerned with who had what, but rather protecting what each had.


Barack Obama argues that the rich should be held to a separate standard. We fought a war to end that kind of thinking. It was called the American Revolution. We rejected England’s class warfare and centralized planning only to have our current President push to re-instate it. We also fought a war to make all individuals equal under one law. It was called the Civil War, and the law thereafter applied to rich and poor equally.


Barack Obama wants to reverse the outcome of those wars. Our job is to deprive him of that opportunity in November of 2012.


Philosophic Gibberish


And finally, let’s end with absurdity. Many on the left have used various phrases to describe those that opposed raising the debt ceiling and who did not want to compromise and raise taxes. They were called “vigilantes” who were holding “a gun to our heads” said liberals. It was claimed Congress was full of “radicals and terrorists” who relied on “blackmail” to get their way.


Notice the irony? All these terms denote the use of force. To the leftist, it is an act of force to advocate a balanced budget. It is an act of force to oppose tax increases. Yet tax increases require the use of government force. To prevent this use of force is called “taking the government hostage” by the left. Such is the absurdity of the rhetoric on the Left.


Laws that allow the confiscation of personal property are more than fair according to the left. They label this theft “compromise” and when they use force to take the money they call it “asking.” Those who under force comply with this coercion are “contributing.” In a truly free society, the initiation of force is barred. Force is to be the monopoly of government, but only to be used in defense of its citizen’s right of life, liberty and property. The exact opposite of what the left is preaching today.


In any debate, the more consistent argument wins. It is no surprise to me that the Tea Party movement, a fraction of government made up of amateur freshmen, just rolled the establishment. Their message was clear, consistent, and based in reality. They didn’t waiver, lie, or deceive. They just told the truth and stuck to their principles. And in so doing they changed the direction of Washington making history in the process.


Market Update:


The recessionary/disinflationary bias that asserted itself in May has finally been identified by the market this week. It fell over 10% on recession fears. While I recognize the possibility of a recession, the odds are lower than the odds that we will flatten out at low rates of growth. Even if we did have a recession, it could be mild.  The fact that US companies were able to run record profits in a 1% growth economy says volumes about US economic potential.


Structural damage to the financial system, or a nasty deflation, or hyper-inflation, is much more serious threats to the economy; but the odds of those occurring are even lower than a technical recession. Europe, which is in far worse shape than we are here is aggravating fears of recession, hence the four trillion dollar market plunge in just a couple of weeks.


While everyone is looking for a possible move by the Fed or US Government to re-stimulate, I'm hoping officials will stand aside and let the market handle this. Falling gas prices and falling food prices are on the way, and will act as a huge tax cut to the economy. An extension of the payroll tax cut will help along with passage of the three free trade bills sitting in Congress, but even more helpful would be if everyone in Washington just went on vacation and shut up. The economy is strong enough to weather this storm, but only if allowed to do so.


The GDP of the US was revised from 1.8% to .04% in the first quarter which shocked the world. That is as much responsible for this sell off as anything. All analysts, plus the Fed and the Treasury, are in the process of revising their yearly forecast downward to a growth rate of 2% or lower. I consider the .4% number an aberration and would not be surprised to see it revised upward in a few months.


Even if it is accurate, don't forget that the second quarter was 1.3%, a full three times stronger than the first. If you assume that Japan is ready to restock inventories, and the consumer will begin to snap up some low priced bargains in the next few months, it is not a reach to project 2 to 3% growth rates in the second half of the year.


Meanwhile, even if gold goes to 1500 dollars an ounce, it allows for plenty of profits to miners. RBY looks particularly good to me now that AEM has stepped in to add capital and expertise to what may be a huge future gold mine. It now represents my largest holding, other than my cash position, which is over 50% of my portfolio.


Friday brought what can only be considered a bit of panic. I was stopped out of NSU and ended up buying it back at a nice discount.  Because of "black box volatility,” I decided to take off stop positions on most stocks.  I finally picked up Copper Fox again, a stock I have hoped to repurchase for some time.  The stock market looked to be in free fall, even after a better than expected unemployment report.  News from Europe that they are going to possibly follow in America's footsteps and embark on their first round of quantitative easing caused a massive short covering rally.


One thing to keep in mind as we hear warnings of a return to a 2008 type year, the current financial landscape is dramatically different.  Banks have more capital on hand than since 1934 and are well capitalized and prepared for tough times.  Most of the giant financial institutions are cash rich with leverage at historically low levels.  So, a financial panic is unlikely.


If a worldwide recession should occur it will hurt everyone—no doubt about that. Investors will not be immune, which is one reason I have turned conservative with over 50% of my portfolio in cash and high yielding REIT's.  While I am a speculator and trader of resource companies, I also respect the times we live in. And in times like these my cash and gold position allow me to sleep just a little bit better.





Cash and cash equivalents, CXS, MFA, & TWO - (Average yields are about 12.8%)

Rubicon Minerals

Verde Potash


Nevsun Resources 

US Silver Corp 

Copper Fox