Need welfare? Elect Obama

As talk of the economy and taxes dominate the political pundits, and the Presidential candidates stump speeches, I again wanted to take a look at the reality of the Obama tax plan. In searching for those more intelligent than myself to evaluate the tax plan I came across the Wall Street Journal. Considering the daily focus on money and economics I doubt anyone could call them an unqualified source.

And while this article may be a bit dated I find it accurate. In fact since it was written the only real change ahs been the fact that Obama has promised, and virtually guaranteed, that he will give away even more money. Suffice to say that in total the Obama tax plan is really a welfare system.

“Moreover, the tax credits would mostly go to those who pay little or nothing in federal income taxes. His trick is to make the tax credits "refundable." Thus, if the tax credit is for $1,000, but the taxpayer would otherwise only pay $200 in taxes, the government would write a check to the taxpayer for $800. If the taxpayer pays nothing in federal income taxes, the government would pay him the whole $1,000.”

Giving people money that they have not earned and is not theirs is welfare. That is the core of his “share the wealth” redistribution of income he proposes as a tax plan. That is anything but the American way. It is far closer to a socialistic Government.

“Mr. Obama proposes a fully refundable Making Work Pay Tax Credit, which would have the government pay out $500 to each worker and $1,000 to couples -- reminiscent of George McGovern's 1972 election proposal for the government to send a $1,000 check to everyone.

His American Opportunity Tax Credit would provide a $4,000, fully refundable tax credit for college tuition expenses. His Mortgage Interest Tax Credit would provide a 10% credit -- refundable -- to offset mortgage interest payments for lower- and middle-income families. His Health Care Tax Credits, which the campaign says "will ensure that health insurance is available and affordable for all families," include "a new refundable 50 percent health tax credit on employee premiums paid by employers.

The Child and Dependent Care Tax Credit would be made refundable and expanded to allow "low-income families to receive up to a 50 percent credit on the first $6,000 of child care expenses.”

This may all sound great, except it forgets something important. All that money being given to low income people and families has to come from somewhere. And that somewhere is feeling the crunch of credit and the slow down in the economy as well.

“The latest Congressional Budget Office data shows the bottom 40% of income earners already pays no income taxes. Indeed, they receive a net payment from the federal income tax system -- meaning from the taxpayers -- equal to 3.8% of all federal income taxes, because of the refundable tax credits under current law. The middle 20% of income earners, the true middle class, pays 4.4% of federal income taxes.”

So while those in the lowest income brackets make the most money, it’s all money that is undeserved. You might be saying, “I don’t care. That’s money coming to me and not out of my pocket.”

But that would be a lie. In fact that is the exact thought the Obama campaign and Democrats hope you think. Because money does not grow on trees, and deficit spending that the Government does so well must be paid off at some point.

The money comes from business, at least they hope. By increasing corporate taxes and that of those making over $250,000 the Government hopes to cover the costs of the ‘welfare’ and the bigger government Obama promises (costing $800 billion dollars on it’s own).

But those in the top income bracket have no reason to invest in or create small businesses. The capital gains tax means that investing is not worthwhile. Unless you can legally find a way to make 45% on investments in a down market (that would cover the 20% tax, 10% broker fee, and leave 15% which would be further hit by personal taxes – and for the record at the top of the internet bubble the average investment made 35% profit and this is far from that exuberant market).

And business will pass the cost onto consumers, while firing employees to make up the difference. Kind of like what Yahoo just did. And you can expect more of that from more companies if Obama is elected.

Welfare is not a bad thing in itself. Most of us need help at one point in our lives. But that is not the same as handing out someone else’s money simply because of envy that they worked hard and made more money. It’s not the same as the Government arbitrarily capping how much money you can make in your chosen field of work. It’s not the same as essentially working for the Government when you had struggled to be able to work for yourself.

The repercussions of the ‘welfare’ or effectively higher taxes, and higher unemployment that is the Obama plan are severe. And in a Democratic Congress that is more focused on placing blame on anyone else while spending money that does not exist those problems become more extreme.

Senator Obama is a good American, and his high hopes are laudable. But America cannot afford his socialist leaning views.

Creating wealth in the stock market - ideas

From time to time I am asked questions about the stock market, investing, owning a business, and other questions relating to generating and maintaining wealth. Most often the question for those without a high personal net worth is how to create wealth, and for those already on the path how to accelerate their growth. These are not simple questions and each has several different answers. There is no single blueprint that leads to wealth or a higher personal net worth.

Perhaps one thing I’ve noted is that anyone can create a net worth if they are willing to commit the time to it. Another universal fact, in my opinion, is that creating and growing net worth is based on time perhaps more than any other factor. I have virtually never seen anyone have a net worth that has not worked for it and spent time cultivating it. Those that have, either through an inheritance or a lottery win, generally have thrown away their wealth within 5 years because they have not built up the foundation for the funds they received.

One of the best rules of success, I feel, is something I learned from Napoleon Hill’s Think and Grow Rich. The principle is simple – Do what you do as well as you can, never worry about the money, and the money will come. It seems odd to some, but in my life I would say it has always worked. If you are not doing your best, you will never be paid as well and thus you will never have enough money or wealth for what you want. If you use your energy and time worrying about the bills or what is in your pocket, you have none left to generate the funds you need or want. Of course that is not to say that you don’t have a plan for your money, just not an obsession about that plan.

More directly I would generalize that for those looking to enter the stock market there are a couple of things you should do. Read the Wall Street Journal (or similar daily economic newspaper of high regard) for a year, ask for and read several (a dozen or more) mutual fund prospectuses, and get a stock broker you are comfortable with. While all that is happening, set a budget that takes 5-10% of your discretionary income (at least, more if it’s affordable) and set it aside in a separate savings account.

Now I say read the Journal because there is a terminology used in investing that is not used anywhere else. One of the biggest hurdles I hear is that people are unfamiliar with the terms used and thus are unnerved by investing. In reading the Journal daily you get a familiarity in learning those terms. (Don’t be embarrassed to have a dictionary at hand to define difficult terms, I did it and so have many – whether they admitted they started like this or not) In addition it will help you get a feel of the market and the cycle that occurs.

I recall that when I was a new stockbroker, I had a gentleman ask me if I had spent a cycle in the market. I had no idea what he meant, to which he laughed. He meant that I had been a broker for a year at least, and had seen the overall cycle of earnings reports, forecasts, reactions and other events moving the market.

Understanding the timing of the market is as important as understanding the terminology. You don’t want to buy stocks in the short-term to start with, but if you know that say the travel industry in the U.S. is weaker in the spring than say the fall or winter, you may get a better purchase price to start with. Another thing the reading will provide is the reactions that the market has to events. Whether it is a disaster, political unrest, missed earnings, or an unforeseen event companies have immediate reactions. While each reaction is individual it helps to know that missed earnings can lead to a drop in stock price for a short while, but does not mean that company is a bad investment long-term. A disaster could hit the market, but not affect long-term returns. And when a company is in trouble you can learn some of that wording as well. It’s not fool-proof, but it will help you sleep at night while others panic over something that could be minor. Trust me that I have seen this.

As you get familiar with the general market cycle and terminology read the mutual fund prospectuses. This will tell you about the goals of the mutual fund, the historical returns, the administrator of the fund, and the stocks that are – or can be – in the fund.

There are big differences in mutual funds. Some only buy bonds, some only large corporation stocks, or just banks, or just eco-friendly companies and so on. Some only look to preserve your money, some seek to grow at all costs, others are more balanced. There are funds that can buy penny stocks – considered the most speculative equity investment – others buy junk bonds – the most speculative debt investment – and some can use options – highly leveraged investments. There are funds that started on a great year for market returns (like during a market bubble) and therefore have great historical returns, improving the performance in bad years in their average, and others have been around for decades showing a more realistic return over time. Some advisors are hotshots taking huge fees for their names, others are unknowns starting out, and many are just working hard. All of this is important, to varying degrees on how well you can sleep at night and what performance you wish to have.

The last step is to get a broker. After spending time learning the terminology of Wall Street, and the reactions, and mutual funds that you are comfortable with, you now have a means to evaluate what kind of broker you want. Some are newbie’s and desperate to show performance and take risk. Some are seasoned pro’s but with huge numbers of clients. Some like to spend time talking to clients, some don’t. Some are better with a specific area in the market, like banking or biotech. What you are comfortable with will help reach your long-term goals.

And I believe a broker is necessary. The market is a constant, changing, gut-driven industry. A good broker can hear the unspoken words in an earnings report and be cautious, or have an eye for something the market will want in the future. They aren’t always right and it does cost money, but this is what they do everyday all day. It’s not a 9-5 job, and not everyone can do it. In my experience a broker may be wrong 40% of the time, but investors on their own tend to be wrong 70% or more of the time. And when you compare wins, investors on their own just don’t match up. But that is what I have seen with a good broker, which only you can decide for your self.

And I do emphasize starting to grow your wealth with mutual funds. The risk is lower and cost to invest is as well. It’s easier to add to a mutual fund position, and cost effective. The fee to a broker is not prohibitive, in my opinion. And it allows you time to see results and plan for future growth. You may not agree, but it’s one way to create a net worth and grow it.

Now this is just one suggestion for growing your worth. In the future I will mention others. They are all based on my experiences and those of friends and family. There is no guarantee they will be the key for you. I always advise speaking with a trusted professional in the field I speak about.

Hopefully this is the first step in helping you attain the worth you desire and deserve. If you have more suggestions or experiences to share, please comment. But always do what you do best; I believe that if you do that the money will come.