Author Topic: Re: Klarman worried about political divide  (Read 14600 times)

LC

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Re: Klarman worried about political divide
« Reply #130 on: January 24, 2019, 03:49:41 PM »
Mark,

So a few things:

According to this article:
https://www.fool.com/retirement/2018/05/20/did-congress-really-steal-from-social-security.aspx

Congress does the following:
The truth is that the Social Security Administration takes this extra cash, which would be earning nothing if it were sitting around in a trust, and invests it in various special-issue bonds, and to a lesser extent certificates of indebtedness, with staggered maturity dates ranging from a year to perhaps longer than a decade from now. By placing this excess cash -- which has been built up since 1983 as a result of Social Security being a cash-flow positive program -- into special-issue bonds and certificates of indebtedness, it earns interest. In 2016, $88.4 billion of the $957.5 billion in revenue that was generated came from interest income earned on its bonds and certificates of indebtedness.

Does the federal government use the cash that's invested in these bonds, as well as non-special-issue bonds, for regular revenue items? Absolutely! Selling Treasury notes is a common way Congress raises money to pay the bills. The thing is, these bonds are backed by the full faith of the U.S. government, and the federal government is legally obligated to honor both the interest payments and maturities as they come along. Every single interest payment on Social Security's special-issue bonds has been paid, and every last maturity has been met with a full repayment.


So Congress funds spending using excess SSA fund as an asset base.

I pay SSA $1. Congress takes that dollar, securitizes it, and uses proceeds to pay for roads bridges tunnels etc. And then Congress promises to pay back the SSA and in essence myself, $1.25 in 30 years. This seems closer to the "tax" side of things.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Cigarbutt

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Re: Klarman worried about political divide
« Reply #131 on: January 24, 2019, 04:11:33 PM »
A way to evaluate the tax effect on the different quintiles over time is to look at the following CBO publication (pages 4,15 and 21):
https://www.cbo.gov/system/files?file=2018-11/54646-Distribution_of_Household_Income_2015_0.pdf
-Specifically comparing the income before taxes and transfers with income after taxes and transfers, one can infer some conclusions including the evolution of the net impact of federal taxes over time (1979-2015).

                                                                                      CUMULATIVE GROWTH (baseline=0)
                                                     income before taxes and transfers                income after taxes and transfers
top 1%                                                               233                                                          242
top quintile                                                         101                                                          103
top quintile without 1%                                        74                                                             78
middle 3 quintiles                                                32                                                             46
lowest quintile                                                     32                                                             79

Conclusions (CBO methodology)
-income before items has risen in an unequal way with a high skew to higher earners
-taxes and transfers changes from 1979 to 2015 resulted in close to a neutral effect on the top 1% and the top quintile
-taxes and transfers changes from 1979 to 2015 resulted in a "progressive" effect on the middle 3 quintiles
-taxes and transfers changes from 1979 to 2015 resulted in a significant "progressive" effect on the lowest quintile
-during that time frame, the essential reason for a rising share of income tax paid on an absolute basis by the top 1% (and top 20%) per total tax paid by all is not related to changes in the "progressivity" of taxes but mainly because of much higher relative growth of pre-tax income.

Discussions for higher taxation at higher levels of income can be discussed, but not on the basis of the lower quintiles having paid more taxes to compensate the higher quintile paying less in the last 40 years.

MarkS

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Re: Klarman worried about political divide
« Reply #132 on: January 24, 2019, 04:22:18 PM »
Mark,

So a few things:

According to this article:
https://www.fool.com/retirement/2018/05/20/did-congress-really-steal-from-social-security.aspx

Congress does the following:
The truth is that the Social Security Administration takes this extra cash, which would be earning nothing if it were sitting around in a trust, and invests it in various special-issue bonds, and to a lesser extent certificates of indebtedness, with staggered maturity dates ranging from a year to perhaps longer than a decade from now. By placing this excess cash -- which has been built up since 1983 as a result of Social Security being a cash-flow positive program -- into special-issue bonds and certificates of indebtedness, it earns interest. In 2016, $88.4 billion of the $957.5 billion in revenue that was generated came from interest income earned on its bonds and certificates of indebtedness.

Does the federal government use the cash that's invested in these bonds, as well as non-special-issue bonds, for regular revenue items? Absolutely! Selling Treasury notes is a common way Congress raises money to pay the bills. The thing is, these bonds are backed by the full faith of the U.S. government, and the federal government is legally obligated to honor both the interest payments and maturities as they come along. Every single interest payment on Social Security's special-issue bonds has been paid, and every last maturity has been met with a full repayment.


So Congress funds spending using excess SSA fund as an asset base.

I pay SSA $1. Congress takes that dollar, securitizes it, and uses proceeds to pay for roads bridges tunnels etc. And then Congress promises to pay back the SSA and in essence myself, $1.25 in 30 years. This seems closer to the "tax" side of things.

LOL  -   the government takes the money from the trust fund and buys treasury bonds (or other government securities) from the treasury so the money can go into the general fund.  The interest owed on the bonds are owed by the Federal government to the Federal government.  The only way that the money will be paid back is by raising taxes or issuing even more bonds (more debt).   Actually it does not strike me as a tax scheme at all (Ponzi scheme? Maybe?)

Moreover, as stated previously, about half of taxpayers only pay FICA taxes to the US government.  So if you try to reduce the amount of FICA taxes the bottom half pay in order to reduce their tax burden you will effectively reduce the number of workers supporting retirees well below 2 to 1.  In other words you will implode Medicare and Socia! Security.  You're probably better off looking at reducing the burden of state and local taxes especially in high tax jurisdictions like New York and California.


LC

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Re: Klarman worried about political divide
« Reply #133 on: January 24, 2019, 06:45:56 PM »
Jefferson on the matter:

I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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MarkS

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Re: Klarman worried about political divide
« Reply #134 on: January 25, 2019, 04:53:23 AM »
Jefferson on the matter:

I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.

So you're aligning yourself with Jefferson, a slave holder.  How interesting.

Castanza

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Re: Klarman worried about political divide
« Reply #135 on: January 25, 2019, 05:51:20 AM »
Let’s break a few things down about some of the arguments I’m seeing here.

I don’t think it’s very surprising AOC won her district. A lot of people on here are very alarmed. Let’s break down the demographics.
-   Only 100k people voted in the district. (pop is 700k)
-   49% Hispanic, 11% black, 16% Asian, 18% white
-   47% foreign born (67% speak language other than English)
-   27% have bachelor degrees
-   75% have HS diploma. Much lower than the 90% Nat average
-   Average income 58k (27k per capita) both lower than Nat avg. and NY avg.
-   Average age 38 (pretty similar to NY
-   1.8% of population are veterans

It’s really not difficult to see why she won based on demographics. Add in her fiery personality, her minority status (appeals to voters in district) and the fact the she is a woman (appeals to current societal climate).

She has a degree in economics. One using education as a point of authority for debate is ignorant. Anyone can get a degree in economics. Doesn’t mean you’re an expert. There are plenty of highly educated idiots out there. Two she isn’t a very honest person. She was not poor growing up and this has been proven time and time again. She is now rich and sitting at the top. So before you get on the band wagon (with any politician cough cough Bernie and your multiple houses/yacht) ask yourself this. Are they really “in the trenches” with you?

Long story short. Her victory is not impressive at all. Her grasp of economics is not very good and she continually lies to her voting base. She is overly confident and driven to be in power (people who seek power often don’t deserve it)

Lincoln – “Most any man can handle adversity. If you want to test a man’s character give him power.”

Frederic Bastiat - “If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organizers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?”

_________________________________________________

Taxes

-   Less than 10k households qualified for the 91% tax rate in the 50’s. The requirement was income of 200k+
-   The top 1% actually only paid about 42% tax in the 50’s
   - This number takes into consideration taxes levied by Federal, State, Local, govt’s including income, payroll, corporate excise, property, and estate taxes
   - So in actuality they really only paid about 16.9% in income tax.
-   Studies show that as marginal tax rates rise, income reported by taxpayers goes down. In other words. Rich people pay to find ways to avoid taxes. See NJ as 5700
        Millionaires left in 2017 (I believe).
-   The current top 1% of taxpayers are paying around 40% income tax.

Taxing the rich won’t do anything but cause them to leave or find ways to avoid the taxes. That’s not a solution. It’s a band aid (and a poor one at that)

______________________________________________

A lot of people look at the US debt and think that it is insurmountable. How will we ever pay this off? Dare I say our hockey loving allies north of the border might have a solution?!
   
It all starts in 1896 with Wilfrid Laurier former prime minister. He has a simple vision of spending restraint, low taxes, free trade, and civil liberties. Very much mimicked the Founding Fathers vision for America. Well as history shows us Government always has a way for growing. And By the 60’s Canada became left leaning country with increasing amounts of spending and social programs added for the next 16 years. Increased income tax, capital gains tax and social welfare programs. (However they did not yet have a central bank like the US)
   
If you look at the size of the Canada pop and economy during the 60’s. The debt that was accumulated was very similar to what we have in the US currently. Canada really began to have issues with inflation in the 70’s and 80’s. Needless to say it was looking Grim. Low and behold in the 90’s they finally got their stuff together (mind you short term) IN 1994 Paul martin the Finance Minister began to cut the budget. They mad huge budget cuts and cut many government programs people in the US would deem “necessary.” Some were unnecessary government agencies, public transportation, unemployment insurance, business subsidies, aid to foreign governments, social program bloat. Spending was cut from 22% - 15% from 1995-2006.
   
In Canada tax spending is 38% federal and 62% local where the US is the opposite 71% F 29% local. Certain provinces in Canada were not required to balance budgets every year. I believe it was Ontario that single handedly ran up 37% (for the province). They continued to tighten the belt on this and the huge issue of social health care. And Canada was making great progress.
But then came the economic slowdown of the mid 2000’s. New leadership was elected and politicians preyed on the fears of people during this time period. Since then spending has ramped up. Canada increased individual income tax to mid-40%. Increased welfare and healthcare spending as well as reenacted multiple regulations previously removed. It has now become too difficult to have economic reform because of the demographics of their leadership. Too far left. This same thing is happening in the US. Although not a mirror image (other issues persist), the US has a lot of thinking to do. From a historical perspective it is very clear what works and what doesn’t. It’s really very simple.

US has a corporate/government tie issue. The closer gov’t and companies get the more corrupt they are. Look at China. We need to stop subsidizing companies, reduce lobbying, add term limits to congress.

Less government is better. More control on the local level. Less social programs.
« Last Edit: January 25, 2019, 05:55:35 AM by Castanza »

Cigarbutt

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Re: Klarman worried about political divide
« Reply #136 on: January 25, 2019, 06:45:33 AM »
...
Taxing the rich wonít do anything but cause them to leave or find ways to avoid the taxes. Thatís not a solution. Itís a band aid (and a poor one at that)
Ö
______________________________________________

A lot of people look at the US debt and think that it is insurmountable. How will we ever pay this off?
...
Welcome Castanza.
What are your investing style and interests?

The topic is political divide and the Canadian fiscal turnaround story that you describe was due in large part to Mr. Martin, a leader who had a vision, used tactical political skills in a responsible and constructive manner and was able to express that vision in a moderating way. But he benefitted from a good economy which made a significant difference in the turnaround.
 
I would not underestimate the "traction" that a certain political current is getting in the US as the pendulum may swing to an extent, given various economic scenarios, that unexpected outcomes should be considered.

I agree that adding another layer of taxation can be discussed but represents the easy way to extend and pretend.
I have a feeling the solution will come from the grass-roots level.

Cardboard

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Re: Klarman worried about political divide
« Reply #137 on: January 25, 2019, 06:45:58 AM »
Hi Castanza and excellent first post!

Personally, I am not alarmed that AOC won in her district but, I am alarmed that a majority of people may listen to what she says and feel that her proposals may make their lives better.

Like you, I have looked at history to see what happens when a country goes down the direction being proposed and overtime it gets really ugly. Especially, when the leaders of that direction are solidly entrenched (Cuba, Nazi Germany, USSR Venezuela).

Somehow, many have heard the siren songs of a few European country (tiny ones really) who apparently have the happiest people on Earth and abundance for everyone due to socialism. Unfortunately, when one digs just a little bit to find out if this is true at all or where it comes from, then the dream falls quickly apart.

Cardboard

wachtwoord

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Re: Klarman worried about political divide
« Reply #138 on: January 25, 2019, 08:31:42 AM »
Less government is better. More control on the local level. Less social programs.

You have my vote!
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

Castanza

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Re: Klarman worried about political divide
« Reply #139 on: January 25, 2019, 08:44:24 AM »
Thanks for the warm welcomes!

I've been a lurker for the better part of two years. I have to say I am very impressed with the in-depth analysis conducted by individuals on this forum. It's really best in class (at least seems that way to me.)

I will say I am a younger investor and primarily I am focused on index funds or well diversified companies (Brk.b). I don't particularly like trendy stocks and I try to find "boring" areas to invest.

When looking for value I try to find mid-cap and smaller companies with potential to grow or possible buyout targets. However, I really limit my portfolio percentage dedicated to "value plays" as I'm new and still learning a lot!

The majority of my portfolio is help in a total market index fund.

Other positions:
- Brk.b
- BAM
- LPT

Not so much value plays but stocks I feel confident in that I hold small position in:
- BA
- LMT
- WM
- MSG

Companies recently entered:
- ASC (I think they are well positioned to be a primary carrier/shipper of low sulfur fuel. In low 4's)
- NNA (similar to ASC, however I like ASC better, in low 4's)
- MITK (potential buyout target, good growth, good cash flow, niche market, in at 9ish)
- MO (in low 44)
- WFC (in low 44

Companies I'm eyeing
- GRBK
- MKC
- UPS
- FDX


Also, sorry my first post was a political one! I feel kind of bad, seeing as this is a investment forum. Regardless, I will for sure be doing more reading than posting but I am excited to try and put together some "analysis" of stocks I am eyeing. Glad I finally pulled the trigger on subscription.