Archive for category Economics
I saw an article last week on the TODAY show website: Charitable giving continues to be a victim of recession.
The idea, of course, is that the reason for the continued deflated levels of charitable giving is entirely because of the recession of 2008/9. The key premise is offered up by an expert:
Patrick Rooney, the associate dean of Indiana University’s school of philanthropy, said he thinks Americans still value giving to charity as much as in the past – but they just may not have as much to give.
Professor Rooney goes on:
It’s common for overall giving to decline in a recession, but Rooney said it usually only takes a couple of years for giving to return to pre-recession levels. This time around, he said it could take another six or seven years to get back to the levels seen in 2007.
The issue, then, is not that charitable giving went down (that happens in recessions), but that it has still not recovered. The article presumes that the reason it has not recovered is because this recession has just been particularly nasty. I think there are other reasons for the lackluster recovery in charitable contributions. Taxes.
From my personal experience, I lost two key tax deductions as a result of Obamacare, and another that I do not know where the law was changed.
- Flexible Spending Accounts – Obamacare reduced the maximum amount a person could put in the tax free accounts from $5,000 per year to a mere $2,500 per year. For a middle class family that means a $700 increase in federal taxes. That’s $700 less available for giving to charity.
- Medical Expenses – Also in Obamacare, the deduction in medical expenses do not kick in until they reach a threshold of 10% of income. Prior to Obamacare, that threshold was 7.5%. For family earning $100,000 per year, that is another $700 being paid in taxes, taken away from charitable contributions.
- Rental Real Estate – I learned an important lesson about rental real estate, there is an income threshold, that should you exceed it, the federal government does not allow you to deduct expenses related to that rental from income. The amount can vary, but let’s call it another $1,600 paid in taxes. That’s $1,600 that does not go to charity.
So charitable contributions are struggling to rebound. I’m sure part of it is due to the fact that many families have not yet recovered from the Great Recession, but a big drag on the recovery of charitable contributions is also because of the tax code. For the TODAY show reporter, that may be a little too difficult to understand.
The financial markets are rigged. This is not some conspiracy theory, it is conspiracy fact. The recently revealed scandals:
- Libor - interest rates (link)
- ISDAfix - swaps (link)
- Platts - oil prices (link)
- WM/Reuters - FX (link)
- High-Frequency Trading - equities (link)
So predicting the markets is no longer one of understanding the traditional economic indicators, but we can be assured that the manipulators cannot keep the markets out of equilibrium for the long term.
So let’s look at the tea leaves.
The Hindenburg Omen occurred in the necessary cluster for it to be in effect during the first week of June. SOURCE: Zero Hedge
Margin debt in the United States — money borrowed against securities in brokerage accounts — has risen to its highest level ever, at $384 billion, surpassing the previous peak of $381 billion set in July 2007. Historically, rising levels of margin debt have been seen as a sign of speculation. Relative to the size of the economy, margin debt is far from setting a record, but it has climbed to levels seen only twice before during the past half century. In each previous case the increase came during bull markets that ended with rapid falls in share prices. – SOURCE: New York Times
Since last fall the Federal Reserve Bank has been infusing about $85 billion per month into the markets. The result has been a meteoric rise in the DJIA and the S&P 500. While QE∞ is still in operation, its effects are starting to taper. Money supply growth as a result of QE∞ peaked at 11.4% annualized growth and has recently settled in just below 4%. In other words, there is not as much money flowing into the markets. – SOURCE – Economic Policy Journal
Bernanke on the way out?
President Obama wouldn’t say this week whether he would re-appoint Ben Bernanke to a third term as chairman of the Federal Reserve — but he did talk about Bernanke in the past tense.
“I think Ben Bernanke’s done an outstanding job,” Obama told Charlie Rose of PBS.
He added: “Ben Bernanke’s a little bit like Bob Mueller, the head of the FBI, where he’s already stayed a lot longer than he wanted or he was supposed to.” – SOURCE – USA Today
Bond markets haven’t fared well during the last couple of Fed Chairman exits, and have preceded a market crash.
Add to these four indicators, the State Health Exchanges going online (along with all the publicity about the bugs in the system because there will invariably be bugs), and we have a recipe for a bombastic market reaction. My guess is that it will happen in September or early October, like so many other crashes.
My financial planner has been forewarned.
Obamacare is a bad law for any number of reasons related to your health care and your health insurance, but it is also a bad law from a macroeconomic standpoint, too. The law has written into it several provisions that target a particular industry. Here are a couple examples.
The Tanning Salon Tax
One of the first taxes to take effect under Obamacare was a 10% tax on indoor tanning salons.
Indoor tanning services have been subject to the excise tax since July of 2010. It was designed to help offset the sweeping healthcare bill’s cost by raising an estimated $2.7 billion in revenue.
SOURCE: The Hill
Like any other business group there is an association for indoor tanning salons, appropriately named the Indoor Tanning Association.
In 2011, the Indoor Tanning Association estimated the tax could hit as many as 18,000 tanning businesses across the country. The group said more than 3,000 businesses had already been shuttered, leading to 24,000 job losses.
According to that same article, the tanning bed tax has been converted from a temporary one to a permanent tax.
Obamacare has a requirement for health insurers, physicians and other care providers to adopt an Electronic Health Record protocol for all patients. Theoretically, this is to reduce duplicative services, thereby saving money. Without getting into a value judgement on the program to reduce costs and improve health care delivery efficiency, the requirement has resulted in an Health IT boom, in reference to the 2013 America’s Health Insurance Plans Annual Meeting:
For insurance company executives, the driving question now is, “How will we connect with the PPACA exchanges by Oct. 1 and meet PPACA goals for improving the quality of care and reducing the cost, given that PPACA is supposed to slash spending on administration, and no one can actually tell us much about how exactly PPACA will work?”
Companies hawking hardware, software, data analysis tools and consulting services aimed at harried insurance company PPACA implementers are dominating the top levels of the 2013 meeting sponsors, exhibitors, and providers of speakers.
Obamacare provides dozens of examples of the government choosing winners and losers. We can make lemonade out of this lemon of a law, though; you can probably get a good deal on a used tanning bed.