[AskUncleBill] Sometimes You Have To Put Up With The Bad To Learn Something–Annuities

divpWhat I mean is that this article, which I stole off MarketMinder.com which they got from Money magazine, is pretty boring but useful so try and read it.nbsp; Read it so when you get a call from an insurance salesmen pitching these things two red lights will go off in your brain–high fees and taxes.nbsp; Then say no./p pPay attention to the last couple of paragraphs where the guy has some alternatives, alternatives which Uncle Bill tells you all the time.nbsp; Have a good weekend./p h1 class=storyheadlineEarly nest egg: Say no to annuities/h1 h2 class=storysubheadIf you’re still building up your retirement, steer clear of annuities. They have a function, but not quite yet, says Walter Updegrave./h2 div id=storyLogoa rel=nofollowimg class=img01paddingR height=40 alt=Money Magazine hspace=0 src=http://i.l.cnn.net/money/.element/img/1.0/logos/money_logo.gif width=180 align=right border=0//a/div div class=storybylineBy a rel=nofollow target=_blank href=mailto:asktheexpert@turner.comspan style=color:#003399;Walter Updegrave/span/a, Money Magazine senior editor/div div class=storytimestampOctober 11 2007: 9:23 AM EDT/div div class=NLsignupa rel=nofollow class=boxlinkstrongspan style=color:#003399;Sign up for the Ask the Expert e-mail newsletter/span/strong/a/div div class=storytextpNEW YORK (Money) — strongQuestion:/strong I’m 44, and after maxing out my 401(k) and Roth IRA, I still have about $400 a month I’d like to invest outside these accounts for early retirement. Would you suggest I invest this money in an annuity? – Angie Tyrie, Hinton, West Virginia /p pstrongAnswer:/strong The short answer is no, I wouldn’t recommend you invest your extra savings in an annuity. Although I do believe a type of annuity known as an immediate, or payout, annuity can in certain circumstances play a valid role in a retiree’s portfolio (for details, a rel=nofollowspan style=color:#003399;click here/span/a), for reasons I’ll get into shortly, I don’t think annuities are a particularly good way to build a retirement nest egg, particularly if you plan on tapping that money for early retirement. /p div id=IEContainerRdiv class=IErowimg height=161 alt=walter_updegrave_new.03.jpg src=http://i.l.cnn.net/money/2007/10/10/pf/expert/expert.moneymag/walter_updegrave_new.03.jpg width=215 border=0//div div id=NestedBoxdiv id=magStoryIEdiv id=TopStoriesBoxtable class=topstoriesTable cellspacing=0 cellpadding=0 border=0tbodytr class=headerRowtd class=headerCella rel=nofollow class=relatedboxstrongspan style=color:#000000;More from Money Magazine/span/strong/a/td/tr tr class=contentRowtddiv class=storyLinka rel=nofollowspan style=color:#003399;Harvest a rich 401(k)/span/a /div div class=storyLinka rel=nofollowspan style=color:#003399;Retire Rich: 13 myths/span/a /div div class=storyLinka rel=nofollowspan style=color:#003399;Do it now: Get on track for retirement/span/a /div/td/tr/tbody/table/div div id=TopStoriesBoxtable class=PermaLinksTable cellspacing=0 cellpadding=0 border=0tbodytr class=contentRowtddiv class=storyLinka rel=nofollowspan style=color:#003399;Best Places to Live/span/a /div div class=storyLinka rel=nofollowspan style=color:#003399;Current Issue/span/a /div div class=storyLinka rel=nofollow target=_blank href=http://subs.timeinc.net/CampaignHandler/MOcc5?source_id=37span style=color:#003399;Subscribe to Money/span/a /div/td/tr/tbody/table/div/div/div div class=IErowimg height=24 alt=FIX YOUR MIX src=http://i.cnn.net/money/.element/img/1.0/sections/tools/calc_head_fixmix_220.gif width=220 border=0/br /table cellspacing=0 cellpadding=0 width=220 bgcolor=#dbdee5 border=0 style=BORDER-RIGHT:#7b8598 1px solid;BORDER-TOP:#7b8598 1px solid;BORDER-LEFT:#7b8598 1px solid;BORDER-BOTTOM:#7b8598 1px solid;tbodytr valign=middletd width=14 rowspan=2/td form target=_blank action=http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.htmllt;gt;plt;gt;/p pinput type=hidden name=assetclass/ input type=hidden name=_tpl/ /plt;/gt;td class=headersmTLS style=PADDING-BOTTOM:5px;PADDING-TOP:7px;When do you need the money?br /select class=textTLS name=timehorizon style=VISIBILITY:visible;WIDTH:130px; option value=3-53 – 5 years/optionoption value=5-105 – 10 years/optionoption value=10plus10+ years/option/select/td td width=14 rowspan=2/td/form/tr tr valign=middletd class=headersmTLS style=BORDER-TOP:#7b8598 1px dotted;PADDING-BOTTOM:7px;PADDING-TOP:5px;How much risk can you handle?br /select class=textTLS name=risktolerance style=VISIBILITY:visible;WIDTH:130px; option value=lowNot much at all/optionoption value=mediumA reasonable amount/optionoption value=highAs much as possible/option/select/td/tr/tbody/table table cellspacing=0 cellpadding=0 width=220 bgcolor=#dbdee5 border=0 style=BORDER-RIGHT:#7b8598 1px solid;BORDER-TOP:medium none;BORDER-LEFT:#7b8598 1px solid;BORDER-BOTTOM:#7b8598 1px solid;tbodytr valign=middletd width=14 rowspan=3/td td class=headersmTLS style=PADDING-BOTTOM:5px;PADDING-TOP:7px;BORDER-BOTTOM:#7b8598 1px dotted;How flexible are you?br /span class=textTLSinput type=radio checked name=wiggleroom/ If I miss my goal by a year or two, I’ll still be okay.br /input type=radio name=wiggleroom/ I can’t afford to miss my target.br //span/td td width=14 rowspan=3/td/tr tr valign=middletd class=headersmTLS style=PADDING-BOTTOM:5px;PADDING-TOP:7px;BORDER-BOTTOM:#7b8598 1px dotted;During market sell-offs, do youbr /span class=textTLSinput type=radio checked name=downdraftaction/ See an opportunity to buy more stocksbr /input type=radio name=downdraftaction/ Sell stocks thinking things will only get worsebr /input type=radio name=downdraftaction/ Do nothingbr //span/td/tr tr valign=middletd align=right style=PADDING-RIGHT:50px;input type=image alt=Calculate src=http://i.cnn.net/money/.element/img/1.0/sections/tools/calculate.gif name=submit//td/tr/tbody/table/div div class=IErow/div div class=IErowdiv id=videoIEContainerdiv id=IEheadingContainerdiv class=IEboxHeadingVideo/div div class=linkDiva rel=nofollowspan style=color:#003399;More video/span/a/div/div divtable cellspacing=0 cellpadding=0 align=center border=0tbodytrtd class=videoImagea rel=nofollowspan style=color:#003399;img height=164 alt=Get a retirement check-up hspace=0 src=http://i.l.cnn.net/money/video/moneymag/2007/10/01/do.it.now.cnnmoney.216×164.jpg width=216 border=0 valign=top//span/a/td/tr trtd class=videoBlurbMoney Magazine’s Walter Updegrave gives advice on things you can do right now to ensure you are saving enough for retirement. diva rel=nofollow class=Text1span style=color:#003399;Play video/span/a /div/td/tr/tbody/table/div/div/div div id=quigo220div id=ad-906322 align=center style=BORDER-RIGHT:0px;PADDING-RIGHT:0px;BORDER-TOP:0px;PADDING-LEFT:0px;PADDING-BOTTOM:0px;MARGIN:0px;BORDER-LEFT:0px;PADDING-TOP:0px;BORDER-BOTTOM:0px; /div/div/div pI should add, though, that you’ll get a very different answer from people who sell annuities. They typically portray annuities – and especially variable annuities, which allow you to invest in mutual fund-like portfolios – as an excellent place to stash money once you’ve maxed out your 401(k), IRA and similar plans. /p pIndeed, based on the emails I get from individual investors, it’s clear that some advisers also apparently steer people who haven’t contributed all they can to 401(k)s and the like into annuities, a practice that, in my mind at least, can border on financial malpractice. /p pOne selling point is the old standby that the money you invest in a variable annuity (which is the type most often pitched to someone in your position) grows without the drag of taxes until you withdraw the funds. But there’s a new sales mantra from the annuity industry these days. /p pToday, the killer app, so to speak, goes by the name living benefits. Essentially, this refers to various riders and options you can tack onto the annuity. The one often pitched to someone your age is the guaranteed minimum income benefit, a feature that promises you’ll receive a certain amount of income in the future even if the investments within the annuity perform abysmally. /p div class=inStoryHeadinga rel=nofollowspan style=color:#003399;Harvest a rich 401(k)/span/a /div pAnother type of living benefit, geared more toward people in or closer to retirement, is the guaranteed withdrawal benefit for life, which assures that you’ll be able to withdraw a given amount of money as long as you live. But as tantalizing as all these features may seem, I don’t think an annuity makes sense for someone like yourself who is still accumulating money for a retirement nest egg. /p pOne reason is that most annuities come with onerous fees. In the case of variable annuities, there are several layers: an annual insurance charge that can run 1.25 percent or more; the annual investment management fees, which range anywhere from 0.5 percent to more than 2 percent; and, the fees for the various riders, which can add another 0.6 percent or more. Add them up, and you can be paying between 2 percent and 3 percent a year, if not more. /p pThe fee extravaganza doesn’t stop there. Most annuities also have surrender fees that can dock you 6 percent to 10 percent (and in some cases much more) if you decide to withdraw your money soon after investing it. /p pUnfortunately, many people who end up in annuities – or at the receiving end of a sales spiel about them – don’t realize just how expensive they can be, which is why in a recent a rel=nofollowspan style=color:#003399;Long View column/span/a I recommended a simple form for disclosing the various charges. These fees alone are enough to make most annuities a lousy bet. /p pAnd, as I’ve written before, I don’t think the highly marketed living benefits (which, by the way, are also used as a rationale to induce people to invest in a tax-deferred variable annuity within an already tax-deferred IRA) are worthwhile when you understand what you’re actually getting and what you’re paying for them. (For more on that issue, a rel=nofollowspan style=color:#003399;click here/span/a and a rel=nofollowspan style=color:#003399;here/span/a.) /p pBut even if you manage to get around the fee hurdle – and, in fairness, I should note that there are some annuity providers who charge much less than the industry averages – I still don’t think annuities are a good choice for someone like you. /p pWhy? Well, one reason is the way your gains are taxed when you withdraw them. You pay ordinary income tax on investment earnings regardless of whether those earnings are interest income, dividends, short- or long-term capital gains. If you’re investing for growth – as someone your age should be – you’ll likely have the bulk of your money in investment options within the annuity that generate long-term capital gains. /p div class=inStoryHeadinga rel=nofollowspan style=color:#003399;Money for life: The hidden costs/span/a /div pBut instead of paying tax on those gains at the long-term capital gains rate, which maxes out at 15 percent – as you would in a mutual fund held in a taxable account – with an annuity you pay tax at ordinary income rates that can go as high as 35 percent. /p pAnd if you withdraw your money before age 59 1/2, you’ll not only have to pay ordinary income taxes on your gains, but you may also face a 10 percent IRS early withdrawal penalty. (This is separate from any surrender fee the annuity provider might charge.) /p pSo given the fees and the way your gains are taxed, I don’t find annuities a very appealing investment for someone looking to build a retirement nest egg. Throw in the possibility of a 10 percent early-withdrawal hit, and I think the case for them is even more underwhelming if you think you’ll retire early. /p pSo where should you put your extra savings? My suggestion would be a tax-efficient investment like a tax-managed mutual fund or a broadly diversified index fund that generates most of its gains in the form of share-price appreciation. /p pUntil you sell, you’ll pay no tax on the rising share value. And as long as you hold this investment longer than a year, any gain you realize from the appreciation in the value of your shares will be taxed at the long-term capital gains rate, as opposed to ordinary income rates with the annuity. (For more on how tax-managed and index funds help keep your tax bill down, a rel=nofollowspan style=color:#003399;click here/span/a.) /p pTo sum up, I think you can do a lot better than an annuity with your $400 a month. At some point after you’re actually retired, you may want to consider investing some of your money in an immediate annuity to assure yourself an income you won’t outlive. /p pBut in the meantime, if someone wants to sell you an annuity, just say no.nbsp; a rel=nofollow href=#TOPimg height=7 alt=Top of page src=http://i.cnn.net/money/images/bug.gif width=7 border=0//a/p div class=cnnEndOfStorydiv class=cnnEndOfStoryContenta rel=nofollowspan style=color:#003399;About to retire? It’s all about the ’safe money’/span/a /div/div div style=CLEAR:both;/div div id=quigo628div id=ad-754911 align=center style=BORDER-RIGHT:0px;PADDING-RIGHT:0px;BORDER-TOP:0px;PADDING-LEFT:0px;PADDING-BOTTOM:0px;MARGIN:0px;BORDER-LEFT:0px;PADDING-TOP:0px;BORDER-BOTTOM:0px; /div/div/div/div

[AskUncleBill] Gotta Quit Singing The Blues

divpThe market hits an all time high but most people think the world is coming to an end.nbsp; In addition, lots of people say ’so what?’ because the market is getting a bit ahead of where it was seven years ago.nbsp; Number wise, yes but economically no.nbsp; Seven years ago we had the dot.com nonsense with PEs so out of whack that the bottom had to fall out and it did.nbsp; /p pCheck out this MarketMinder.com article on the new high.nbsp; It has one line that should be imprinted on your investing eyeballs so you see it every day which is—strongPessimism and undue worry are the stuff of bull markets; euphoria is the bane.nbsp; /strong/p pRemember that and read on./p pspan class=bio_contentnbsp;/span/p h1Happy Anniversary!/h1 p10/10/2007/p div /div divuStory Notes:/u/div divu/u /divu/uulliYesterday the bull market celebrated its fifth anniversary, but you’d never know it by reading financial headlines over the same period /li liFears about stocks gaining “too much too fast” and “too many years of an up market” aren’t based in reality or logic /li liStrong economic and market fundamentals supporting stocks’ climb are still in place—making the immediate future look bright/li/ul pMarketMinder doesn’t like to dwell on the past because it can’t tell you much of anything about the future. But we feel it’s incumbent upon us to highlight a scarcely recognized fact: The bull market for global stocks is five years old. Here’s one of the few acknowledgements we found:/p divstrongHappy Birthday, Bull/strongbr /By David Landis, Kiplingerbr /a rel=nofollow target=_blank href=http://www.kiplinger.com/features/archives/2007/10/bullmarket.htmlspan style=color:#0000ff;http://www.kiplinger.com/features/archives/2007/10/bullmarket.html/span/a/div div /div divFive years ago yesterday, the Samp;P 500 closed at 776.76. Today, it sits around 1560…over a 100% recovery in five years. Good times!/div div /div divAccording to Standard amp; Poor’s, in those five years Energy stocks were the winner, gaining over 236%. Other economically sensitive sectors also flourished, including Materials with 157%, Industrials with 124%, and Technology’s 144% gain. Traditionally defensive sectors like Consumer Staples and Health Care lagged, each with about 40% gains. An outlier was Utilities, which racked up a whopping 168% rise in the period. On balance, that’s very close to what you might expect from an economy experiencing sustained expansion and high demand. And these are merely US returns—foreign stocks fared even better./div div /div divPerversely, such a big recovery scares many—they proclaim it’s been “too much too fast.” But history tells us this recovery wasn’t all that big. The current bull is actually the second emweakest /emof seven post-World War II bull markets that lasted five years or more, according to Standard amp; Poor’s./div div /div divThe “aging bull” argument doesn’t fly either. It’s a strange thing to believe stocks should go down just because they’ve been going up. This is a perversion of the mean reversion theory, which simply doesn’t pertain to stocks. There’s no mathematical, economic or financial law that says earnings, economic growth, or stock prices must revert back to any kind of average. Trends can last as long as underlying fundamentals support them. (See our past commentary “Vector Investing” 9/27/07 for more.)/div div /div divTo wit, the fundamental drivers propelling this bull remain intact: Better than expected corporate earnings and global GDP, high Mamp;A and share buyback activity, and relatively dour sentiment (among many other positives out there) are all very much a reality today./div div /div divYep, it’s been a good five years. We hope you enjoyed the ride, but we suspect most didn’t. Thinking back, folks fretted over everything from dollar doldrums, energy prices, terrorism, trade and budget deficits, carry trades, credit crunches, inflation, and consumer spending (to name a few). At one time or another each was hailed as the Apocalypse, yet NONE had the potency to slay the bull. We think that’s a great thing: Pessimism and undue worry are the stuff of bull markets; euphoria is the bane./div div /div divToday’s real risks (yes, there are always risks) are minimal and well contained. Deleterious government regulation, protectionism against free trade, and monetary or fiscal policy errors are remote. (For more, see yesterday’s commentary, “The Real Risks.”)/div div /div divLooking back, it’s apparent stocks reflected reality—not media hype—over the past five years. And while it’s crucial to remain vigilant, don’t forget to step back once in awhile and appreciate the positives of this dynamic and wealth-creating global economy. More gains are just ahead./div div /div/div

[AskUncleBill] The Stock Market–What To Watch Out For

divpUncle Bill is always looking out for your well being and as the credit crunch heads west and out of sight, I think, there are some real things to worry about and they are—/p p1) politicians/p p2) the Supreme Court/p p3) the Fed/p pAs the guys over at MarketMinder.com (full disclosure–I am a client) are often more articulate than emmoi, /emI’ll let them do the talking–I’ve got a house to get built./p pspan class=bio_contentnbsp;/span/p h1The Real Risks/h1 p10/9/2007/p div /div divuStory Outline/u/div div /divu/uulli“Credit crisis” headlines are being replaced by economically insignificant headlines, signaling a lack of legitimate negatives to report. /li liLegitimate market risks are few, and unlikely to impact the market much at this point. The risks for aggressive legislation and a major monetary policy error remain low. /li liPositive fundamentals currently far outweigh potential market negatives./li/ul pAnyone else notice the “credit crunch” headlines are starting to go away? They’re still out there, but no longer occupy top billing, chased off by Britney’s child custody saga, Pamela’s quickie Vegas nuptials, and harrumphing over stores gearing up for Christmas in October. This is front page stuff from allegedly “legitimate” news sources! Very bullish. (For more, read MarketMinder commentary “What a Week,” 10/05/2007.)/p divWe spill barrels of virtual ink at MarketMinder underscoring why now’s a great time to be bullish and pointing out glaring flaws in popular bearish views. As we’ve covered here, popular concerns such as the credit crisis, a weak dollar, allegedly slowing US growth, trade deficits, debt, and even terrorism don’t have the market impact folks think. (For more, you can refer to our commentary archive.) But that doesn’t mean we’re blindly bullish. Rather, we see that legitimate risks are unlikely to develop into major market negatives right now and are far outweighed by positive fundamentals./div div /div divFor example, we’d view an aggressive legislative reaction to perceived subprime problems as a legitimate risk. Our senators vow to “solve” subprime by forcing banks to tighten lending standards in order to protect the “little guy.” (Pardon us, but who is going to protect the “little guy” from the Senate?)/div div /div divIn our view, any attempt to limit credit access could have negative economic and market consequences—perhaps serious. Is it time to pack it in, go to cash, and safely watch the political melee from the sidelines? Not at all. As we’ve discussed here in the past (“Veto Power”—10/04/2007, “A Political Punch”—05/31/2007) third and fourth years of presidents’ terms are famously feckless. We nearly always see the president’s party lose relative power in the mid-terms—donkeys and elephants alike—setting up the perfect recipe for political gridlock. The political furor over subprime is likely to devolve into nothing more than inane investigations and name-calling—a very good thing if you’re a fan of rising stock prices./div div /div divThe same goes for rising protectionism—another legitimate market risk. Though congressional cries to “save American jobs” may increase political contributions in the near term, efforts to hinder globalization will likely have an ugly economic outcome. But for now, third- and fourth-year politics should keep ill-considered protectionist legislation to a minimum./div div /div divWhat about a case the Supreme Court is hearing today—being called the emRoe v. Wade /emof securities law (i.e., unique in its far-reaching significance)? In emStoneRidge Investment Partners v. Scientific-Atlanta/em, the plaintiffs argue investors have the right to sue third parties—accounting firms, investment banks, consultants, vendors—if a public company commits fraud. If the plaintiffs succeed, it could mean open season on big business and an exponential increase in frivolous lawsuits. (Great news for plaintiff’s attorneys! Bad news for pretty much everyone else.) Imagine what companies would have to do to protect themselves from litigation. CEOs would become prohibitively risk averse—which would likely reflect in lackluster earnings growth and stock prices./div div /div divstrongStoneRidge: Don’t Look For a Landmark Ruling/strongbr /By Brian Wingfield, Forbesbr /a rel=nofollow target=_blank href=http://www.forbes.com/home/businessinthebeltway/2007/10/08/stoneridge-lawsuits-supreme-court-biz-wash-cx_bw_1009scotus.htmlspan style=color:#0000ff;http://www.forbes.com/home/businessinthebeltway/2007/10/08/stoneridge-lawsuits-supreme-court-biz-wash-cx_bw_1009scotus.html/span/a/div div /div divHowever, we agree with this article’s assessment that the Supreme Court is highly unlikely to rule in favor of the plaintiffs. A 1994 precedent and two recent lower court decisions make it easy for the Supreme Court to rule against the plaintiffs and in favor of capitalism. Another risk moderated. (Though we’ll watch the Court carefully on this.)/div div /div divAnother risk we see is a massive monetary error—like the Fed aggressively tightening or even dropping rates dramatically. We view this risk as slightly higher now, though still unlikely. Mr. Bernanke will be the first Fed head up for reappointment in the first year of a president’s term, as opposed to the fourth year (thanks to term limits imposed on Mr. Greenspan). Ben’s recent cut might have been a signal to presidential candidates, “Hey! I can be accommodative! You want to get reelected to a second term? You need a pleasant economy in the first—and I’m your guy!” If he is indeed auditioning, he may very well cut rates again. But, we still don’t see a few rate cuts as a major deal. First, they take a long time to be felt. Second, inflation has actually been dropping over the last two years. We can’t see how another cut or two will ignite inflation radically from here. File “major monetary policy error” under “still highly unlikely.”/div div /div divNone of these seem likely to flare into major market conflagrations at this point. And they pale in comparison with healthy fundamentals like a growing global economy, strong corporate earnings, and attractive equity valuations. Add to the mix a historically unique positive gap between earnings yields and bond yields globally—which contributes to shrinking stock supply—and a lack of economically significant headlines, and the bears don’t stand a chance. Neither does Britney’s custody case, by the way, but as long as she hogs headlines and fundamentals remain positive, we’ve got a nice ride ahead of us./div /div

[AskUncleBill] California–A Nice Place To Visit But I Wouldn’t Want To Live There

divpWent out to the Bay Area for my niece’s wedding.nbsp; Great trip, had fun, glad to be home given the price of houses and a wee bit of overcrowding.nbsp; Seems that I am not the only one glad to be out as outlined in this article at MarketMinder.com.nbsp; Enjoy–if you can./p h1California Hates the Poor/h1 p10/5/2007 | br class=long//p divCalifornia hates the poor. At least the Golden State certainly seems to act that way, given the way it treats its lower-income residents./div div /div divBut wait—isn’t California known as one of the most socially progressive states, spending billions of dollars on social programs and public assistance for low-income residents each year?nbsp; Indeed! Yet Californian legislators uphold a policy choking off precious dollars that could go to residents needing it most. That wacky policy is the Golden State’s tax structure./div divnbsp; /div divCalifornia boasts the most punitive state income tax system in the entire Union. (Not so fast New Jersey, Hawaii, Iowa, and Oregon! Though you’re all nearly as bad.) With so much wealth in the state, you might not feel much immediate sympathy for those paying the lion’s share of the state taxes.nbsp; After all, California’s got Hollywood movie stars, celebutants, and Dot-Com-mega-billionaires! Make them pay! Folks tend to forget California has millions of souls—the vast majority are Average Joes./div div /div divLet’s examine the current tax structure. California income taxes kick in at a modest 1% rate for annual income up to $6,622. Not too bad—$6,622 seems a small amount to hit up for income tax, but 1% isn’t that much. But, California’s highest tax bracket of 9.3% (the highest in the nation) begins at the affluent, wallet-busting, Bentley-driving sum of $43,468./div div /div divI’ll repeat that. emCalifornia imposes the nation’s highest state income tax level of 9.3% on residents earning more than $43,468/em. Some perspective: In 2004, the US Census reported California’s median income was $51,185—higher than America’s median income of $44,648.nbsp; Translation: If you’re “middle class,” California wants 9.3% of your income. It’s a shakedown for your lunch money. /div div /div divMeanwhile, nearby states Washington, Nevada, and Texas charge no state income tax at all. Arizona starts its highest tax bracket at $150,000 where residents pay 4.57%—less than half California’s top rate. It’s hardly surprising these states are some of America’s fastest growing states. In 2006, Arizona’s and Nevada’s populations swelled over 4 times faster than California’s./div div /div divIf you’re a Californian with a nice retirement savings, where would you retire?nbsp; California wants a hefty portion of your retirement income every year, whereas nearby Washington and Nevada want none. Add to the equation the far lower cost of living in those states, and relocating seems like a no brainer. So, folks leave and California ends up with none of their income, property, or sales tax revenue./div div /div divThose poor souls remaining in California end up with less money to fund public schools, build new roads, pay for social programs and so on.nbsp; All thanks to politicians ignoring fundamental economic principles and placing too heavy a burden on its working residents and businesses./div divnbsp; /div divWhen a state places too heavy a tax burden on its citizens or businesses, the government stifles consumer spending, business investment, and actually ends up collecting far less tax revenue. A government can maximize its tax revenue at an optimal point. Tax too much and folks don’t see much of a reason to get out of bed in the morning.nbsp; Mrs. Entrepreneur fails to see the upside in launching her cutting-edge new business idea. Less business activity means less tax revenue. The Laffer Curve (shown here a rel=nofollow target=_blank href=http://upload.wikimedia.org/wikipedia/commons/4/47/Laffer_Curve.pngspan style=color:#0000ff;http://upload.wikimedia.org/wikipedia/commons/4/47/Laffer_Curve.png/span/aspan style=color:#0000ff;)/span demonstrates the concept./div div /div divIf prohibitive taxation makes a difference between US states, one could also apply the concept to countries. When a nation imposes high hurdles for new business development and wealth creation, the prospect of strong economic growth becomes increasingly remote. Conversely, if a country slashes corporate tax rates to spur economic activity, all other factors remaining constant, that’s bullish for growth./div divnbsp; /div divTake Ireland for example.nbsp; The Emerald Isle slashed its corporate tax rate to 12.5%—one of the lowest rates in the developed world./div div /div divuSelected Corporate Tax Rates by Country/u/div div /div div dir=ltr align=leftstrongIrelandnbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; 12.5% /strongbr /Netherlandsnbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;25.5% br /United Kingdomnbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp; 30.0% br /Chinanbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;33.0% br /Belgiumnbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;33.9% br /Francenbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; 34.4% br /Germanynbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp; 38.6% br /strongUSAnbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; 39.5% /strongbr /Japannbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp;nbsp; nbsp; 39.5%/div divMuch to the chagrin of France and other EU heavyweights, economic growth in Ireland is soaring! After all, entrepreneurs and existing businesses only need two very simple elements to justify a venture: profit and human capital. Ireland has an educated, English-speaking work force and a corporate tax rate low enough to entice entrepreneurs from around the globe.nbsp; Ireland will likely attract business activity, people, and tax revenue other countries will miss out on.nbsp; It shouldn’t be much surprise, then, that Irish GDP growth is expected to more than double the EU’s average.nbsp; emErin go bragh!/em/div divem/em /div divEastern Bloc countries are also joining the low-tax party.nbsp; Estonia, Latvia, Russia, Ukraine, Slovakia, Romania, Georgia, and Macedonia all successfully introduced low flat tax structures in recent years.nbsp; These moves now pressure Western European countries to either become more competitive with their business climates or face a hemorrhaging economic growth towards their neighbors with cheap labor and more welcoming tax structures./div divnbsp; /div divWith one of the largest gross domestic products in the world, one could only dream of the economic boom resulting from slashed California tax rates (not to mention falling federal tax rates). With the Irelands and Nevadas out there, Uncle Sam and the Golden State better act fast. Their poor depend on it. /div /div

[AskUncleBill] Getting A Bit Worried

divpThe stock market is doing great and I’m a big bull but I’m getting a bit concerned.nbsp; As we enter another silly season of presidential politics the Dems are making noises about taxes.nbsp; Bush’s tax cuts disappear in 2010 if nothing is done to make them permanent and the Dems, sorry to say this, rarely show much sense when it comes to taxes and the economy.nbsp; /p pIf the tax cuts disappear, you can probably bet on a recession.nbsp; The stock market will smell this out before the fact and the market could tank, big time, in 2008 or 2009.nbsp; /p pNever happen?nbsp; Maybe but let’s look at some tax facts courtesy of Investors Business Daily.nbsp; Tax cuts are fairly far and few between–Coolidge in the 1920s, Kennedy in the 1960s, Reagan in the 1980s and Bush in 2003./p pHere are the facts–since the Bush tax cut in May, 2003, real GDP has grown 13%, about 3.2% a year.nbsp; Pretty good.nbsp; Compare that to Clinton’s last year in office-1.5%.nbsp; /p pBut not just Bushie.nbsp; After Coolidge cut taxes, real GDP rose 59% from 1920 to 1929.nbsp; After the Kennedy tax cut, real GDP rose 42% from 1961 to 1968.nbsp; Real GDP rose 31% during the Reagan boom./p pOther factors?nbsp; Of course.nbsp; But tax cuts work and tax increases don’t.nbsp; So all the rumblings on the campaign trail are starting to make me a bit nervous. /p /div