“The problems are now spreading to state and local government in America. So far, at least, the backlash against US federal government spending is political, not financial. The US government can still borrow at 3%, or less, for ten years. But Americans are looking around the world, and at their own state budgets, and seeing the eventual problems to come,” continue reading here.

Via Roland Manarin

“If broke people are making fun of your financial plan, you’re on track.” – Dave Ramsey

People have different views on tax refunds.  On one hand some will say that by receiving a refund you overpaid the government this year and you should have given them less of your money.  And there are those who view a tax refund as a special windfall.

If you do receive a refund this year we hope you put it to good use with a little financial common sense.  Afterall, you did work for this money – it came out of your paycheck, so why not make it work hard for you?

Some quick ideas:

Restock Your Emergency Fund  An economic downturn can be much less painful if a few months of expenses are stashed away on the side and readily available.   How much is enough?  Whatever gives you the most peace of mind. 

Reduce Any Bad Debt  To us a mortgage or a student loan is still debt but they’re not always bad debt since the home value has an opportunity to appreciate and a student loan will hopefully provide more earning potential.  Any other high interest consumer debt should be aggressively paid down. 

Invest in Your Future  Have you addressed the first two points?  Great, then consider taking the funds from your refund and investing in a retirement account.  Each of us is responsible for funding our own retirement so anything that you can save away today will grow over time and pay off later on.

If you do have funds left over from your tax refund to invest, our vote is to be an owner if it is money you know you won’t touch for 10+ years.  Common stocks have historically given investors the highest rate of return over the long run but our word of caution is always diversify, diversify, diversify. 

 Here is the investment model that we often recommend.

As the April 15th deadline approaches are you finding yourself frustrated with getting your tax return filed?  Or are you simply one of the many who is fed up with our existing tax code?  Wouldn’t it be nice if all we had to complete each year was a four page document and then our taxes would be done?

That’s what the above image represents.  Actually it’s page 1 of 4 of the Form 1040 used in 1913.  No joke – you can check out the full document yourself here. 

“But Roland,” you say.  “The thought of a simple tax filing process like the one used in 1913 in today’s world is absurd.  We live in a different age now – things are much more complex.  If we went that route we’d be taking a step backwards in the advancement in our society.”    

Ok, so maybe YOU didn’t say that but the arrogant elitists running the show in Washington sure are saying it and they’re doing everything in their power to make you believe it. 

If you have friends falling for this government tomfoolery, have them watch this quick video from the Center for Freedom and Prosperity Foundation with the CATO Institute’s Dan Mitchell explaining the flat tax:

This will show in concise terms how the flat tax would benefit them, their families and their businesses while at the same time eliminate corrupt special interest rewards. 

My favorite quote from the video:  “This [flat tax] post card is so simple that a 3rd grader or even a politician could easily file a family tax return in about five minutes.”

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Come visit us at Manarin.com!

This is must see viewing from the CATO Institute:

“…for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” – Winston Churchill

From Monday’s Wall Street Journal:

Here’s the problem for states that want to pry more money out of the wallets of rich people.  It never works because people, investment capital and businesses are mobile:  They can leave tax-unfriendly states and move to tax-friendly states.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas.  We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

We believe there are three unintended consequences from states raising tax rates on the rich.  First, some rich residents sell their homes and leave the state; second, those who stay in the state report less taxable income on their tax returns; and third, some rich people choose not to locate in a high-tax state.  Since many rich people also tend to be successful business owners, jobs leave with them or they never arrive in the first place.  This is why high income-tax states have such a tough time creating net new jobs for low-income residents and college graduates.

Soak the Rich, Lose the Rich by Arthur Laffer and Stephen Moore

HT:  Carpe Diem

(Via MoreNewMath.com)

Many folks have called me this year worried about paying higher taxes in the future and have asked about “tax havens.” 

Below is an excellent report about that by Dan Mitchell at the CATO Institute on behalf of the Center for Freedom and Prosperity.

Dr. Mark Perry and Brian Wesbury are both very good economists that I like.  This past week the two have been going back and forth on the concerns of inflation. 

On Tuesday Brian wrote this editorial in the Wall Street Journal.  Here are a few highlights:

Today’s problems began seven years ago in 2001, when the Federal Reserve overreacted to the deflationary mistake it made in the late 1990s.  The Fed vigorously pumped money into the economy in order to drive interest rates down rapidly. 

As is so often the case, after the Fed has acted, but before the typical lag in monetary policy has fully played out, conventional wisdom argues that the Fed has become impotent.

. . .

One of the reasons that monetary policy is so loose today is that our economy is addicted once again to easy money and low interest rates.  We hear over and over that the Fed cannot tighten because the housing market and the economy are vulnerable.  This was the same argument made in the pre-Volcker 1970s, when the U.S. bounced from one economic crisis to the next.

Shortly after, Mark countered with this post on his blog and then he added another post to address Brian’s comments.        

My Thoughts:  Both arguments have validity, hence, in the short term, I can argue either way.  In the long term, politicians will be politicians, and as long as there is no restraint (such as a gold standard) there WILL be inflation because it’s a hidden tax, and politicians will take advantage of it. 

According to the “Wall Street Journal,” Washington is teeing up “the rich” for a big tax hike next year, as a way to make them “pay their fair share.”  Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it’s going to be hard for the rich to pay any more than they already do.  The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.

The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years.  The top 10% in income, those earning more than $108,904, paid 71%.  Barack Obama says he’s going to cut taxes for those at the bottom, but that’s also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%.  Perhaps he thinks half the country should pay all the taxes to support the other half.   

Aha, we are told: The rich paid more taxes because they made a greater share of the money.  That is true.  The top 1% earned 22% of all reported income.  But they also paid a share of taxes not far from double their share of income.  In other words, the tax code is already steeply progressive. 

My Thoughts:  The average American today works from January 1 to July 16 just to pay for government before they begin working for themselves.  Isn’t it ironic that just a few weeks ago we celebrated the Fourth of July, a national holiday that honors early Americans who rejected an oppressive tax system?