Thursday, April 28, 2011

Best of Cappy Cap - A Tutorial on Obamanomics

Figured this would be a good repeat from over 2 years ago;

As the market ebbs and flows 400 points here, 500 points there, I am often asked by friends:

"When is the market going to bottom?"

And I find it interesting that people are even buying right now, because as far as I'm concerned there's absolutely no reason to buy stocks until after the presidential election. When I tell my friends this, they say,

"Well why wait till then? Couldn't stock prices have gone up by then and you missed out of a great buying opportunity?"

Which indicates to me we all need a basic lesson in "Barack Economics."



You see, there are two things that drive the price of a stock; the profits the corporation makes and the capital gain one receives when they sell the stock.



First, let's start with profits. Profits are nothing more than what a company or corporation has left over when it pays for all of its expenses. Profits typically make people happy because that's how we not only enrich ourselves, but, frankly, live.



But hold on there now! You don't get to keep all of those profits. No no no. You see, since you own part of a corporation, the corporation has to pay on average a 40% tax rate in the US (though the effective rate for some is around 32%). This is taken out of your profits (pre-tax profits) before sending them along to you.



But with Obamanomuks this tax rate will go up. Nobody knows for sure how much, but 50%, 70%, maybe even 90%. Regardless, when it's all said and done, there won't be a lot of your profits left;



What profits do remain, however, can be passed along to you in the form of dividends.

But, UH OH!!! That was a transaction, and even though you own part of the corporation, since it is a separate legal entity, you get to pay taxes on the DIVIDENDS, typically between 5-15%. This is called "double taxation." It may not make you happy, but it makes lots of government freeloaders happy.



I know you may be upset that you get to pay taxes twice, but with the cutting edge of Barackian Economics, you will get to pay an even higher dividend tax! Don't worry, according to Joe Biden it's patriotic to pay more in taxes leaving you with even less.



Well how does this affect the stock market and stock prices? Well, it's very simple. Although if you go to any major corporation's web site and they make it seem like pursuing green policies is what gives them value, in reality they're just doing that so you are foolish enough to buy their products without guilt. No, the truth is what really gives stocks value is the underlying profits those firm generate. You see, if a firm doesn't make a profit, why would anybody forfeit their money to invest in it? I don't invest in stocks so they can sell green products or be socially responsible. I invest in a corporation so it makes money. And the less money I see after all the expenses and taxes are taken out, the less value that firm has to me and thus the lower the stock price.


But profits are not the only thing that drive the value of the stock (well, technically they are, but we won't go into that right now). There is also a "capital gains" ie-how much money you make when you sell the stock. Say you buy a stock for $10, and it goes up to $100. Why, that's an impressive profit of $90, and you are happy!



But hold on there little buckaroo! Uncle Sam wants some of that and you get to pay a capital gains "tax" on it. This tax can be anywhere from 0-35%.



But with Obamanomuks this rate will go up even more, leaving you with even less.




The relationship between the amount you get to keep and the value of the stock is the same. If you get to keep more, then the value of the stock is worth more and therefore prices go up. But if capital gains are increased, then the value of those stocks go down.



"But isn't it the rich that only own stock? And shouldn't we hate the rich by the fact they're rich, even though they may have actually worked for it and have never done anything to us?"

Although a common misconception, it's not just the rich that own stock in the US. Most everybody in the US, rich, poor, short or tall, own stock in one way or another. Most commonly this is done through our 401k, 403b and other retirement programs. We buy mutual funds which are nothing more than groups of stock which we hold in these retirement accounts. Also, pensions pay for your retirement by investing in stocks and mutual funds. So if you have a pension or you have a retirement program, YOU OWN STOCK!



Ergo, it is profits that drive the value of stocks which in turn determines the wealth of the people of the entire nation.



But with Obamanomuks there will be no profit, and therefore no stocks, and therefore no retirement.



All you'll be left with is;



And that's why the Captain is waiting to see if Barack Obama and the democrats take a supermajority in Washington before he invests his money in the stock market.



OH! AND REMEMBER TO BUY MY BOOK!

31 comments:

Nate said...

I think you've been sticking your crayons too far up your nose. Might want to get a CAT scan.

Robert Miller said...

I fell off my chair laughing when I saw the hammer and sickle pointing at California.

dtrum said...

Absolutely hilarious! Well done, Captain.

I can already imagine you teaching some MBA bankers and brokers Economics & Finance 101 with this wonderful set of lecture notes.

RW said...

Powerful explication, Captain.

Tom Blogical said...

Love it. Keep it up, I've added your site feed to my browser. L8r.

Chris (R-NY) said...

I can haz tax hik

notidle said...

Fantastic illustrations! Love the flag!

And thanks for the economics lesson. I learn something from each of your posts ... way better than an economics class.

bryan said...

Maybe this will be easy enough to understand that even Obama supporters will be swayed by it ; )

Anonymous said...

Aaron - that's a hoot! Am passing this link on to my distribution list.

Folks, this is what happens when you give an economist a new set of crayons!

CapitalBabs said...

ok, that was excellent, Capt! did you do your own artwork or employ some youthful junior exec to do your illustrations and thus contribute (again) to the economy?

da wolfe said...

Love the commie California on the American map : ) I noticed in the first debate that Obama got a blank look when McCain argued that cutting taxes could improve economic growth for everyone. What, never thought of that before? I'm convinced that its more important to the liberals to take the Rich! down some pegs than help the poor. It really comes out when it comes to outsourcing. They're so concerned with the evil western corparation getting rich off of the helpless ethnics of faraway places that they never think about it from the perspective of the people whose jobs they are trying to destroy. I remember the moment I think I became an economic "conservative". I was thinking that it was awful that rich western kids get their Nikes for less because people elsewhere work hard 12 hour shifts for pennies to make them. My feeling was that this should be stopped. Then the crucial thing happened - I continued to think. Where would those jobs go? They go to rich westerners, say to the kids who end up wearing them. Kids whose allowances are probably already more than the third world employees were getting from those jobs. Well that's a hell of a lot worse isn't it? At least from the perspective of the people who want and need those jobs. But if your first concern is with the moral well being of the western capitalists whom you beleive are making obscene profits off of those people and with the feelings of guilt getting less expensive goods from people who were just born in a different country causes in the rich westerner, well - then you're a liberal.

Brad in Waterloo said...

Finally! An explanation I can understand!

auh2ogirl said...

Beautiful.

Jim said...

Gotta say, this is the best post I've read. Even my socialist friends should get this :)

I did notice, however, that excrement seemed to be the end result of these processes in Obamanomuks, when it should actually be... yep... change (pennies and nickels, etc).

Anonymous said...

"I think you've been sticking your crayons too far up your nose."

Hey look, the Obama campaing posted here with their usual trenchant logic!

Brian from Canada said...

Ironic that as we are slowly but surely steering the Canadian ship of state to the right (and with huge effort required) our friends and allies to the south seem to be drifting slowly but surely to the left. Yuck! This is your wake-up call - don't emulate Canada's lefty ways - you won't be happy with the result. Take it from an overtaxed Cdn economist. Excellent blog Aaron.

snarkolepsy said...

Well, I love to call my neighbors pinko commies. But, you have to give credit where credit is due. Arnie pulled off a decidedly non communist move. Instead of the government bail-out he was trying for (or raising taxes), he manned up and sold the equivalent of war bonds. And - it was hugely successful. No welfare here. YET. There are another 25 states that might try that before shaking down their taxpayers. Perhaps you could put a few hammer and sickles by their states.

P.S. I feel dirty - I defended California. But, the fact that he solved a problem without the governments help, isn't getting any play at all. And - it does deserve a nod.

Captain Capitalism said...

Snarks,

I don't know why you just don't move out of that god-forsaken state. Your judicial system is corrupt, the plebecite is socialist, they will only take you for your money. Get out now.

Captain Capitalism said...

Dtrum

Haven't heard much about your alma mater in Switzerland. How are they holding up?

Anonymous said...

The capitalist system just got bailed out by----socialism!@ ho ho ho

Captain Capitalism said...

Yeah, and look how great that bail out is working! ho ho ho!

Dumbass.

Anonymous said...

Very amusing. Kind of cute. But mostly fiction. 40% Corporate tax rates, PLEASE!!!! That number is pure BS. Where do you get these figures. You seem like a pretty bright guy, and I agree with some of the things I've seen here. Why spread lies and untruth? It casts a shadow of doubt over the rest of your stuff that has substance. One of the biggest problems our country has is that we are stuffed to the gills with lazy morons who will take as gospel anything the media feeds them, be it FOX news or CBS. Too engrossed in Fantasy Football or reality TV to pay attention to what is going on around them. We need the intelligent people, you are seemingly among them, to not add to the garbage pile of half truths and propaganda. Sure we can have differences, but lets discuss them intelligently. I haven’t read Obamas tax policy, but I’m pretty sure raising corporate taxes to 70, 80, 90 % is not part of it. For what seems like a fairly “balanced” comparison of the two candidates tax proposals, try this:
http://www.taxpolicycenter.org/taxtopics/election_issues_matrix.cfm
By the way, I am not voting for either candidate for President.
Truthseeker

dtrum said...

Very amusing. Kind of cute. But mostly fiction. 40% Corporate tax rates, PLEASE!!!! That number is pure BS. Where do you get these figures.

Why don't you search for the numbers? Start with Wikipedia, that should already be difficult enough for you. And If you think that companys can somehow defy laws, then look for the income statements and balance sheets of major US corporations (e.g., the evil Exxon Mobil). But I doubt you'll be able to read those.

wormlynn said...

I loved the whole thing, laughed out loud at your "california" picture. I'm not the brightest so these explainations really help. I think you should try your hand at water colors or pastels! I am sure you can make another work of art with them.

Adam said...

"I haven’t read Obamas tax policy, but I’m pretty sure raising corporate taxes to 70, 80, 90 % is not part of it."

So.. you're chiding him supposedly for posting information without citation, and then making a statement indicating a belief in one clause and an admission to not having looked into at all in another?

What are you - stupid?

Anonymous said...

@Truthseeker...

Maybe re-read the article.. he didn't say raise the taxes TO 90%, but BY some amount (with 90% being the highest)... If you don't know the difference, then you really shouldn't be commenting about it.. (for non math lovers, an easy example.. if a current rate of 10% is raised by 90%, the new rate would be 19%, much different than saying the new rate would be 90%)
MathLover

Capitalist Pig said...

To be fair, Obama has "claimed" that he will not increase capital gians or dividend taxes on anyone making under $250K. He originally said he supported increasing it flat-out, but then modified it to "only those makin over $250K." Same with the Bush tax cuts. First he supported letting them expire, then "only letting them expire for those making at least $250K."

With Obama, Reid, and Pelosi at the helm, with a Democratic supermajority however, I doubt this will be the case. If the Democrats will remove the tax deduction for 401(k)s...DUM DEE DUM DUM DUM...

hitfan said...

Here in Canada, the Corporate tax rate is 18 percent or so. There is an election right now.

The Conservatives (incumbent) want to lower it to 16%.

The Liberals (main opposition) want to keep it at 18%.

The NDP (the true left pro-labor party) wants to bring it back up to 19.5% (in order to pay for social programs).

I know it's easy to slag corporations for not paying their fair share of taxes, but in this increasingly globalized world, various governments will be competing with each other in order to attract corporations to create jobs. Maybe we can get the United Nations to impose a uniform global corporate tax rate to prevent corporations to relocate to those countries with favorable taxes, but until then, countries will be promising goodies to the "evil" corporations in order to get them to close shop in high tax countries, vote with their feet, and move.

Anonymous said...

Your spelling is atrocious. Don't you realize the correct spelling of profits is "evil".

S. Harvey said...

In Canada the corporate tax rate that the federal level is already below 18% for the current tax year, the liberals will have to increase it back to the 2010 level if they win, they call it a roll back, when they mean increase to a previous level. Be very afraid of the NDP get to decide corporate tax rates...

Plus add provincial taxes on-top of that. US states are a complete quagmire of tax policies, some states have no income taxes, some have higher sales taxes, luxury taxes, capital taxes, land taxes, blah blah blah. Canadian tax systems are more uniform just the rates change.


End of the day there is only 1 type of taxpayer: the consumer. Taxing the companies they use makes the products more expenses, taxing their income means they have to work more for the stuff they want, taxing their investments mean they have to save more. Consumers own the stocks of the corporations directly or via their savings.

Anonymous said...

In keeping with “enjoy the decline” how can working stiffs “ride the decline”. This means dealing with 401(k)s steering them into stocks. Suppose the juicy employer match is irresistible but 401(k) options are stocks, bonds, and go home?

For those skittish about stocks, expect inflation (bonds?), and “forced” into a 401(k)...now what? How does one get the match yet keep it away from stocks? Has anyone explored dumping cash in a 401(k) but then taking a 'loan' back out for non-stock investments?

That begs the question; where could a working stiff park & ignore retirement money for a few decades?

Forewarned is forearmed and desperation leads to innovation. These conditions have been building for decades so why not figure out how to use them? How about flinging some ideas for 401(k) “prisoners” who agree with dour stock futures?

P.S. Making fun of Obama means you're a racist...the New York Times says so.