politics

Taxing stock transactions: the same weary story from Democrats.

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The Democrats have the same weary narrative that the growth of government and pressure on the private sector is how to solve the woes of the world.  Now they want to add a 0.125 % tax on each side of a stock purchase.  Dean Baker writes an opinion column at Forbes, “Make Speculators Pay“, promoting this stupid idea.  This would kill the day trading industry. Which means that TD Ameritrade and other discount brokerages would have far fewer commission and less revenue from this industry, resulting in less tax dollars for the US government.  It will dissuade the activity of day trading, but it is extremely unlikely to solve any problems.  It will just squeeze the private sector even more and lead to even more unemployment.

In my opinion day traders pay an important role in greasing the stock market.  They put added liquidity in the market and it helps to keep the machine flowing.  I don’t think day traders can be credibly blamed for any of the current economic conditions that we are experiencing.  The sudden credit crisis caused by the meltdown in the sub-prime mortgage market was caused by a combination of government regulation (Community Reinvestment Act) and the sale of bad loans as investment products by lenders.  It is also caused by too much leverage (Bear Sterns, Lehman Brothers, consumer debt).  Now, the pressure that the Obama government is putting on the private sector is exasperating the situation and leading to massive unemployment.  Taxing investors is clearly unnecessary and counter productive–it is unnecessary because they already pay income taxes on whatever they earn.  Instead, Congress should be seeking to encourage people to speculate in the US, not just day traders but speculative investors; the best way to encourage investment is by lowering taxes, but instead, they only want to penalize speculation.  Well, my money is not going into the US market any time soon.  So I guess the Dems have managed to get rid of one speculator right off the bat.

The New Berlin Wall: Heroes Earnings Assistance and Relief Tax Act 2008

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Yesterday I sent my application for Canadian citizenship via registered mail to the Sydney, Ontario, Processing Centre.  An American citizen from birth, I’ve lived outside the USA, first as a student then as a permanent resident of Canada, since 1986.  I’ve never really felt that I needed Canadian citizenship.  My reason for applying now is that it is inconvenient being an American living in Canada.  So before my citizenship ceremony in a year or so, I will be renouncing my US citizenship.  Likely, for a few days while awaiting the ceremony, I will be a stateless person. [actually, I became a Canadian on February 28, 2011, and informed the US Consulate in Toronto of my relinquishment on April 7, 2011]

The United States is the only country in the world that requires that all its residents and all its citizens, even if living abroad, pay tax, though there is an earned income exemption of $70,000 [over 90,000 today] and foreign tax, dollar per dollar, credit.  The threshold for filing is ridiculously low.  As a married person filing a separate return, I must file if I make more than $2000; this despite the knowledge that as a resident of Canada, it is difficult to imagine very many scenarios where I might be liable for tax, since the rate here is higher than in the USA, particularly for lower income earners.  But it is a hassle to file every year, and it creates a lot of anxiety for me.  Last year, my accountant forgot a certain form and he was sick when I was required to send the amendment, and so I had to do it myself and that created a huge headache.

So I am not going to renounce my citizenship because I owe tax.  I am liable to the IRS for nothing.  I am doing it first of all because I am tired of filing a frivolous return to the IRS each year; frivolous because I owe nothing, and cannot possibly owe anything living here in Canada.

But there is another even more important reason which I call the “New Berlin Wall”.  Since 2008, the US has placed particular restrictions on wealthy people who wish to expatriate.  If I were to own 2 million in assets or if my average net income tax liability over the last five years were $139,000 , I would be a “covered expatriate” upon renouncing my citizenship.  The law penalizes these individuals with exorbitant expatriation tax that boggles the mind.  Why?  To keep them in the USA.  So it is a Berlin Wall designed to keep people from leaving the US.

I am long way from being a covered expatriate.  But with the devaluation of the dollar due to hyperinflation, I foresee being there soon.  Therefore, I’ve decided to leave before the law applies to me; because it was much easier to leave East Berlin before the Wall was built.

Oh and by the way, Go Canada Go!!!

[corrections, 20 April 2011]

Paranoid fear of government

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Craig Carter wrote an insightful post at his blog, “Applying the hermeneutic of suspicion to the state.”  Liberals, he says, are afraid of big business but trust the state.  He shows that such trust is utterly unfounded.  In my view there is insufficient fear of government.  Consider if you were a car manufacturer.  Now you are competing with Obama Motors (GM, Chrysler) and the US government is your competitor.  Wouldn’t it be frightening if all of a sudden your company was being investigated because of floor mats? I mean it isn’t as if everything in my GM cars works all the time.

Lord Conrad Black is in a federal prison today because he received non-compete payments which are perfectly acceptable in Canada. The Canadian media was urging the confinement of this Canadian because he is rich and a conservative.  But if you are terrorist in Guantanamo or subject to extraordinary rendition, or if you are on death row, the Canadian media gets out the handkerchiefs and begins weeping for you.  But with Lord Black, it was, “Throw him in prison and lose the key!”  Black’s conviction has put a huge dampening effect on my desire to do business in the United States.  In fact, forget it.  I told my brother on Saturday that I wanted to settle my 19% interest in our limited partnership in Austin, Texas, before the end of 2010.  It is too much hassle for me to conform to all the tax regulation.  I have enough problems worrying about what the CRA is going to do to me.  I want to stay out of US federal prison.  But I assure you, dear Reader, that the US federal government already has the power under the current federal law to throw me in prison for a very long time–not for substantial crimes but for procedural errors.  Not that the Feds would want to throw me in jail–there are bigger fish to fry–but the very existence of such powers makes me afraid, very afraid.

We test drove a RAV4 last week.  We made an offer and hopefully our new vehicle (for my wife) will be delivered by Saturday.  It was built here in Ontario.  It is our first “foreign” car (before we were married I owned a Mitsubishi pickup).  Currently we drive a Chevy Malibu and Pontiac Montana (which I’m keeping).  The 2002 Malibu has an appraisal value of $900 CDN from the original price of $28,000.  The A/C and heat don’t work, the ABS brakes are faulty, and the electrical system diagnostic light is malfunctioning.  Apparently, our new car is much more likely to maintain its value over the long haul.  As consumers, we are voting against government owned car companies and we believe that it is incorrect for the government to harass the competition. Therefore, we are using our own funds to support a NGCC (non-governmental car company).  We believe that the government should not have the power to eliminate their competition through unfriendly regulation and harassment.

C. Edmond Wright, shrugging entrepreneur

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C. Edmond Wright has become one of my favorite writers at the American Thinker.  He is an entrepreneur who closed his business on the day that President Obama was elected.  He explains today why he considers that to have been the right choice.  In his article today, “Dear Mr. President: Why We Are Not Hiring” he trys to explain to Mr. Obama about risk [italics his]:

And since you clearly do not understand business at all, let me give you a short primer:

Any business idea, from the first day it is hatched, is nothing more than a series of cost-benefit analyses that the idea-holder either acts on or passes on. Sometimes the first decision is to forget the idea. Sometimes the first decision is to move ahead and invest some cash.

Perhaps a few million cost-benefit analyses later, you might have Microsoft or Home Depot or ESPN. Or you might have Bill’s Plumbing or Johnson’s Quality Homes or a café or an electrical wholesaler, and so on. And those businesses still operate on a constant stream of risk-reward decisions. In the business world, there is no neutral gear.

(There: Now you have more useful information than Jamie Gorelick or Franklin Raines got from Harvard.)

Thus, each time a risk factor is changed, the small business man has to determine whether he is going to hire, retain or layoff employees.  One huge risk factor in the US is the promise to raise tax on people making over 250K (or was it 100K? the number keeps changing).  Many limited partnerships and sole proprietorships are thus exposed to the full brunt of such taxes. Thus, the risk response will be to lower the number of employees and make less than that threshold where the extraordinary taxes kick in.  It is a promise based upon class envy and populism, and it is a real job killer.  The small business owner will not risk great amounts of capital unless the reward is also great.  Therefore, most will simply downsize their businesses to the point where they have few or no employees, or they will just simply shut their business down completely.  Now, the Bush tax cuts are expiring and there will be across the board tax increases on everyone.  This will obviously not help the employment situation in the US either.

Mr. Wright also mentioned how the environmental movement has sabotaged energy production in the USA and has increased the risk to business by raising the cost of energy.  Yet much of the current environmental pressure is focused on AGW (anthropogenic global warming), which is a hoax and based on counterfeit science.

Well, Mr. Wright, I for one have greatly benefited from this energy crisis because I’ve invested in Canada’s mid-cap (e.g., cpg, erf, nae.un) and junior oil and gas companies (mel, cta, psx, mox).  Now that Obama has announced further plans to remove tax cuts from oil drilling in the US, we can expect the whole Canadian oil industry to take off, as long as nothing stupid is done on the levels of our provincial or federal governments here in Canada, such as cap and trade or carbon tax.  (Perhaps the Luddites of the environmental movement want us to live as poor primitive peoples–but I’ve been to place where people live like that and I don’t know a single sane person who would ever choose to live like that.)

This is my comment on Mr. Wrights article at American Thinker:

Posted by: pwdunn Feb 12, 06:52 AM

Mr Wright: I found your article riveting; I too have decided to shrug for 12 years now for two reasons: (1) Taxes in Canada are so high that my wife already works for all levels of government until June 11th  or something like that [**actually June 17], and so why would I want to work for 6 months of the year for government as well? (2) I could teach at University level but I am neither black nor a woman, nor any other under-represented minority (actually I belong to an over-represented minority)–thought about changing my name to something Yupik, and I’d get a job in minute–but then who wants to be involved in higher education when the profs are hired on the basis of their gender or skin color. Not me.

More articles like this from business people would be greatly appreciate. Thank you American Thinker!

The Destruction of the US Dollar

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A debate is waging between the deflationists and inflationists.  It will come as no surprise to those who’ve read my previous posts on the subject that I fall into the latter camp.  I have indicated numerous times that I’ve put my money where my mouth is.  In January, I was so convinced that there would be inflation, that I eventually decided to implement a strategy of holding little cash but rather oil and gas and gold mining stocks.  I’ve also shorted the US dollar.  This strategy is paying off handsomely so far.   Besides the inflationists have many decades of contemporary monetary history to back their point of view, and the knowledge that government deficits generally feed inflation.  The current Obama deficit is profligate and never seen in the US before Obama. In Bloomberg, David Reilly asks whose face should go on the $1,000,000 bill, but never suggests Obama, apparently because he is afraid to be put on the President’s enemy list.

It is true that the credit bubble was popped last Autumn, and this caused deflation.  But this has been reversed.  Consumers don’t see it yet because consumer goods haven’t increased in price yet.  But rising prices is not the definition of inflation.  One mustn’t confuse the symptom with the cause.  Inflation is caused by an expansion of the money supply without a corresponding growth in real wealth (i.e., goods and services).  When the supply of money is inflated, prices will rise to accommodate it.  This is what is already happening to gold, oil, and the stock market.  In Canada, there is an increase in real estate prices.  Next, consumer prices will catch up and everyone will feel the pain when their pay cheque won’t go as far.  Witness that oil is already back above $80 per barrel, gold is above 1050, and the Canadian dollar is almost en par with the dollar.  These are all symptomatic of the re-inflation of the US money supply.  Meanwhile, the Koreans are buying Harvest Energy Trust, a sign that the Asian, creditor nations are abandoning the dollar for hard assets in commodity interests around the world, including Africa.

Irwin Seltzer writes in a his column, “The Dethroning of King Dollar?“:

Which puts the ball right back in the Fed’s court. Unless Bernanke drains liquidity from the financial system, and shrinks the Fed’s balance sheet by winding down $2 trillion in support programs — and does so precisely when the recovery takes hold so as not to cause a relapse by moving too early — the dollar’s decline will accelerate, shattering confidence in its long-term value. One well-respected expert tells me that in two-to-five years the dollar will no longer be considered safe enough to be the currency in which the world does business. Its replacement: separate deals in local currencies — the Chinese paying for Brazil’s oil in renminbi, which the Brazilians use to purchase stuff made in China — and the International Monetary Fund’s drawing rights, bits of paper backed by a basket of currencies, including but not limited to the dollar. That would mark the end of an era that has seen world trade flourish and millions emerge from poverty. Sad.