Monday, March 16, 2015

Might Want to Hold Off On Going Galt

Economists with souls and normal people with brains would look at the twice elected Obama and the people who put him into office and say,

"This country is not going back to the greatness it came from and is permanently headed towards a more common, and uninspiring European socialist model.  Ergo, the great American Experiment is over, democracy with its idiot masses are forever here to stay, and it's now time to buy up silver and go Galt."

And you'd be right.

True to form Obama and a more-or-less democrat congress voted in the highest levels of peace-time spending in the country, ran the highest levels of peace-time deficits, resulting in the highest peace-time national debt (which is about to eclipse our all time record war-time debt during WWII).  Throw in Obamacare and a couple extra trillion in crony-owned Solyndras and lord knows what else in socialist pork, and you have a political and economic environment where the rational and logic thing to do would be to scale down, work less, and go Galt.

Except for one thing - deficit spending.

While our politicians obey the idiot masses and just spend spend spend, they also want to be re-elected.  So the last thing they do is force the true cost of these social programs on the population.  Instead they keep taxes artificially low and borrow the money to finance these vote-bribing programs, resulting in huge deficits and a huge national debt.

But what this means for you and any other American who is thinking about going Galt is that the true tax rate has merely been deferred into the future.  Our tax rate TODAY (disagreeable as you may find it) is actually quite low.  Unsustainably low.  And at some point in time in the future, it's going to have to go up (especially given this doesn't even account for $127 trillion in unfunded liabilities).

So what's a young aspiring "Galtist" to do?

Work your ass off and build up some cash if you can.

The reasons are multi-fold.

First, as mentioned before, the current tax rate is artificially low.  Take advantage of it.  If you can make money today, do so, because you're unlikely to keep this high a percentage of your income for the rest of your life.

Second, you'll have time.  Not just because our deficit is decreasing ("only" 5% of GDP today), but more importantly because we have the world's reserve currency - the dollar.  I've explained it before, but in having the world's reserve currency we can keep borrowing for quite some time no matter how many socialists we elect and no matter how poor our nation's finances.  This reserve currency status will essentially allow us to keep overall taxes lower than they need to be, effectively forcing other nations to pay for our spending.

And finally, third, assets are harder to tax than income.  Your income has to go through your employer.  Your employer has to report this to the IRS.  And matter of fact, forget reporting, they just take out the taxes before you see it.  However, if you were to work up the cash now at these lower tax rates and purchase assets to be saved into the future, it becomes a little harder for Uncle Sam to come in and take those assets.

What if you just misplaced that gun collection you had?
What if all that cash was blown on strippers and booze?
Shucks howdy, I slipped, fell and ended up living in Singapore with an asset protection trust! 

Oh sure, they can confiscate your house and jack up property taxes, but there are other valuable assets you can store your money in today to avoid the sure-as-hell-guaranteed taxes that are coming tomorrow. 

Regardless, the point is that tax rates today are very low not relative to history, but relative to what is likely coming in the future.  And while it may put great distaste into your mouth to work hard today, it's likely your best move because the distaste tomorrow is going to be on par with tax rates averaging around 60%.

Enjoy the decline!


JK Brown said...

One of the most powerful preparations for a collapse is to invest in tools (non-power) and how to use them.

In the light of this analysis Carlyle's rhapsody on tools becomes a prosaic fact, and his conclusion—that man without tools is nothing, with tools all—points the way to the discovery of the philosopher's stone in education. For if man without tools is nothing, to be unable to use tools is to be destitute of power; and if with tools he is all, to be able to use tools is to be all-powerful. And this power in the concrete, the power to do some useful thing for man—this is the last analysis of educational truth.
—Charles H. Ham, Mind and Hand: manual training, the chief factor in education (1900)

grey enlightenment said...

I doubt taxes will go up soon. raising taxes is politically very unpopular and America's reserve currency status means it isn't necessary.

'Reality' Doug said...

A disturbingly astute evaluation of our current position in The Decline.

Richard Blaine said...

perhaps you guys haven't been following our reserve currency status. We're losing it. It was no surprise when BRICS was formed, there's lots of reason why other countries don't want to deal with the U.S. the big surprise was England's application to be a primary on BRICS (Brazil,Russia,India,China,South Africa)
So you have a reserve currency being backed by the largest economy in the world (China). and by the 1,2,5,9th most populace countries in the world. And they've now invaded Europe. BRICS surpassed the $ in world share of GDP back around 07.

Yeah I know China's economy has hit the wall but so has ours. I wouldn't count on being the default reserve currency for a whole lot longer - maybe but my bet is not much, if they put Hillary in, I'd give it about 2 years.
(then again, I'm a pessimist when it comes to this stuff)

Mark said...

The make money and spend it on strippers and booze strategy appeals to me. I can make extra money pretty easily because I work in a good paying computer field where lots of overtime is on offer. I'm making the money now while I can and spending it. I work for the military and I can see the day coming when we won't be able to afford being the policeman of the world anymore and there will be huge defense cutbacks and all the overtime dries up.

Anonymous said...

taxes have gone way up since Bush Left. First the tax rates jumped if you made over $150K a year (which is a lot if you live in the boonies, not so much in urban regions). Second state and local taxes when up. Especally property taxes after he wave of foreclosures cut local revenues. Third Obamacare, Not health insurance, but a tax. Overnight premiums doubled and deductibles increased by four times.

If you think taxes are low, what about when Bush was in office? That was the time to stash cash. Today, not so much, also consider than interest rates are at Zero (may go negative later this year) and the stock market is poised for a swan dive now that QE is on hold, Fed talks about a hike, and Corporate buybacks are beginning to fizzle.