Is Apple Un-American?

Last Monday evening, Senators Carl Levin and John McCain slammed Apple (Nasdaq: AAPL) and seemed to imply the company was un-American in alleged tax avoidance. The Senate Permanent Subcommittee on Investigations published a statement Monday night along with a 40-page memorandum with its findings and recommendations. A hearing followed on Tuesday, with Apple CEO Tim Cook and other executives facing a barrage of questions that attempted to find fault with Apple. The Senate is alleging that Apple has actively sought to avoid paying taxes. That very well may be true, but it is only excessive taxes that Apple is avoiding, and that does not make Apple un-American. After all, doesn’t every American seek to pay as few dollars in taxes as is legally possible? After my own study of the situation, I’ve concluded that Apple has done absolutely nothing wrong. Furthermore, I assess that Apple has no unfair advantage over smaller competitors in the United States because of the construct of its holding companies, as Senator McCain suggested it might. Finally, Apple CEO Tim Cook scored highly in the defense of his company, and so Apple should remain a favorite of patriotic Americans.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Apple Un-American?

The taxes in question are on monies earned overseas, which have already been taxed in the nations within which they have been earned. Apple (Nasdaq: AAPL) is simply choosing to keep capital in one overseas location, Ireland, instead of within many individual nations. And it is not sending excess cash home, due to the unreasonable 35% tax rate it would be forced to pay for simply repatriating the capital. So Apple (AAPL) is basically saving money for its shareholders with smart tax planning. It’s a two-pronged strategy. Apple is avoiding paying excess taxes to Ireland, first and foremost. Secondarily, it is not costing its shareholders unnecessarily by sending excess cash back to the U.S. for extra taxation. However, Apple does pay taxes on the income it earns on the investment of its money in Ireland.

What bothers regulators most is that it appears to them that Apple has gamed the tax laws of the United States and Ireland in order to exempt itself from paying taxes to either nation. In effect, it has placed three subsidiaries in a sort of state of tax limbo, with no nation having legal right to any taxes on hundreds of billions of what could have unnecessarily become taxable income if Apple sent the money home.

The details of the game work like this. Because Apple’s subsidiaries, Apple Operations International (AOI) and Apple Sales International (ASI), are incorporated in Ireland, they are free of the legal reach of the U.S. tax authority. And because these subsidiaries are managed and controlled (an Irish tax concept) by the parent company, which is located outside of Ireland, they are exempt of legal tax obligation to Ireland as well. A third subsidiary with no legal tax residency status, Apple Operations Europe (AOE), has reportedly helped the company to save some more money. According to the Senators, from 2009 to 2012, the company’s tax haven constructs have allowed it to save approximately $44 billion in taxes. Senator Levin seemed to imply that the holding companies are merely for show, set up as tax havens, by asking Apple’s somewhat shaken Tax Operations Head, Phillip Bullock, where the operations were truly “managed and controlled” from. Bullock and Cook fended him off well though, because they made both legal and logical sense. The companies are operated out of Ireland, but of course, the final say and direction comes from California.

Now, no matter how badly the United States could use these funds today, they are not really due to our nation. After all, these are monies earned on overseas sales, and so fall under the jurisdiction of other nations, and taxes are paid to those nations. Senator Levin of Michigan said Apple sought the “Holy Grail of tax avoidance,” by levering tax loopholes to avoid paying any taxes anywhere. Senator McCain said, “The proper place for the bulk of Apple’s creative energy ought to go into its innovative products and services, not in its tax department.” He also noted that even though Apple brags about being one of America’s most important corporate tax payers, it is also one of its greatest tax avoiders. With all due respect to Senator Levin, whom I’m glad is serving our nation and in the role he is serving, because of his shrewd legal sense, I have determined that these allegations are exaggerations of reality. Also, in my view, Senator McCain was not fully committed to fighting this battle yet, and open to discussion.

According to the Senate’s inquiries, Apple along with many other large corporations like Microsoft (Nasdaq: MSFT), Hewlett-Packard (NYSE: HPQ) and others have avoided paying taxes. Yes, I agree that Apple has avoided paying them to Ireland, thanks to Irish tax law, and that Apple has returned value to its shareholders instead. Many if not most of those equity stakeholders are found on American soil and have benefited from those saved dollars or euros. Unfortunately, in the end, what the government may actually accomplish is to embolden and empower the EU to flex its muscle against these important American companies. Recently, at one of its meetings, G7 members agreed to target tax evasion, and look what the Irish Times published last week. Are we now handing them Apple on a stick?

Because of the importance of these companies, they have leveraged their influence to gain favorable tax deals in exchange for placing stakes into the ground of nations like Ireland, who are willing and welcome to them. In return, the company employs people in those nations and makes those nations more marketable to other companies. It also encourages domestic businessmen to stay home when incorporating. So, it is not just a matter of taking; Apple and others also return something of value to nations like Ireland. Also, I gleaned from the inquiry that Apple does pay something on the order of 2% to Ireland by contract negotiated between the nation and the company. It seems that Apple has managed to leverage some of its own strength to bless Ireland with its presence. Plus, it employs roughly 4,000 Irishmen.

In this case, I think the government is wrong in its implication of wrongdoing. Furthermore, John McCain’s suggestion that Apple has a special and unfair ability in its tax construct that smaller businesses cannot match is wrong. There is nothing to stop American companies doing business overseas from setting up similar arrangements, but it is true that they may not get the same deal with Ireland. The world is not a fair place though, and some economies of scale are hard earned and gained through cunning and skill. That is capitalism and a reality of the competitive environment, not illegal activity.

If Congress wants to squeeze some more juice out of our most fruitful oranges to pay for our debts, then it should find other means to do so. Tim Cook expressed a willingness to bear some increased cost if our government would reform corporate tax law. The cost of repatriating capital back to the United States is excessive, and corporate tax rates are the highest in the world. Cook said that Apple would repatriate at a fair tax rate, but the current level of corporate rates and the rules regarding repatriation put American companies at disadvantage globally.

I conclude that not only is Apple not un-American, but in fact Apple exemplifies what is American in that it pays its due taxes and operates smartly under our capitalist scheme. It does what is most value creating and value preserving for its shareholders and so maximizes its value. Finally, I want to also note something about Tim Cook. In my previous article I said that this would be a defining moment for Tim Cook, one that he would be remembered for. I said he could be seen as a winner or a loser depending on how events unfolded. Well, he came out of this inquiry not only as a winner, but he preserved the Apple brand in the process and defended its image in the eyes of patriots. Apple’s competitors should garner nothing from this day, as long as those telling the story understood what unfolded. At least this author did, and so I hope you are reading this clear reflection of reality.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Today’s Republican Disconnect with America

I sat up late the other night watching the C-SPAN coverage of the House of Representatives debate on the payroll tax break and unemployment benefit extensions. I was appalled by the Republican positions, and the recurring tone I keep hearing from the party I use to call my own and whose conservative values I continue to agree with. I’m now an independent due to the perversions that have eroded each party’s core message. Economically speaking, I see neither current version of the Republican nor Democratic Party as holding the perfect cure to what ails us. While another article might discuss my concern with the Democratic Party’s embrace and promotion of immoral practices for the sake of personal liberation, this article is focused on the Republican disconnect with America or the great poverty stricken segment of America. This broken rail was once again evidenced in the latest legislative lunacy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Today's Republican Disconnect with America

In case you’ve been caught up in holiday shopping or catching up with work before your holiday vacation, our Congress is currently entangled in a messy legislative debate over the future of the payroll tax cut and unemployment insurance benefits. Basically, last year’s program extensions need to be renewed again this year, or those temporary benefits will expire. If that happens, Americans will face new burdens at a still vulnerable time for our economy.

The Payroll Tax break against Social Security payments would lift that rate back up to 6.2% from its current 4.2% break rate. Your shock is well-founded, as those tax cuts are shorting the same Social Security program that is already handicapped if not doomed. And yes, we are underfunding it even worse than usual today as part of an effort to stimulate spending and the economy. There is, however, a new budget-minded focus within Congress that is seeking ways to fund these cuts. For instance, the savings from the Iraq troop withdrawal have been put forth as one potential source. The Democrats would like to bank those savings against the budget deficit and instead institute a new surtax on those Americans with incomes of more than $1 million. As you may have guessed, the Republican Party opposes any tax increase, even if it be upon those who can afford to offer a helping hand now.

This legislative issue weighs for Americans who are already earning a steady income, though it is surely critical to part-timers with a shortage of fund flows. Another issue at hand could more significantly affect America, as it supports Americans who have no other source of income currently. It is what keeps people housed and from committing crimes of necessity; it is what keeps hope alive.

Unemployment benefits have proven inadequate for the massive pool of long-term unemployed Americans displaced by this deep economic recession and sluggish follow through. With the unemployment rate last listed at 8.6%, though arguably closer to 8.8%, given the drop in workforce count in November, it is clearly not yet time to cut off the unemployment benefit extension program (which takes insured unemployment to 99 weeks). The House Republicans are seeking to pass legislation that will ease coverage to 59 weeks after January 1. Of course, the percentage level of the unemployed more importantly represents about 13.3 million Americans, not including the disenchanted and desperate. Furthermore, the Republican version of aid would reportedly leave more than 3 million Americans high and dry immediately, with no other source of income to make mortgage or rent payments, or basically to survive.

Believe it or not, that’s not where the disconnect ends. You see, Republicans also want to make it harder for those people, who would still qualify, to qualify for unemployment insurance benefits. This obstacle to the critical aid that pays the rent for many who are jobless through little fault of their own would present itself via mandatory drug tests. The argument posed on the floor of the House for this was “to ensure benefit recipients are employable,” because if they are on drugs then they are likely to lose their next job. In other words, they are deemed to have a more important problem that should be addressed first, before our fellow Americans are awarded the insurance benefits they paid for through regular cuts from their weekly pay checks. Don’t forget that we pay directly for unemployment insurance; it’s not an unfunded social program. Next, I suppose, Republicans would ask seniors to pass a drug test to determine whether they should receive their hard-earned social security checks. This is obscene!

However, that’s still not where the lunacy ends. The bill passed by House Republicans, which was doomed to fail in the Senate or by the President’s pen, also calls for the building of the Keystone XL Pipeline, which, oh by the way, I support. As you might have guessed though, that was not in last year’s legislation. Rather, it’s the effort of the GOP to stick an energy action into an employment bill under the premise that it is a job creator. Clearly, the construction of a pipeline would create jobs, whether the tens of thousands or the 100K to 280K long-term total touted by some in the Republican Party, or about 20,000 or so that is more likely immediately. But it is misplaced within this bill. In fact, each particle of this legislation should be independent of one another, for the purpose of clarity and the sake of the American people.

The President and the Democrats were terrified that the House Republicans would pass this bill and then leave town (before the Senate could pass its own version), thus leaving the onus of unemployment benefits on the shoulders of the President and his party. Americans wouldn’t remember the pipeline or the drug test if the Senate voted the bill down or if the President vetoed it as promised. Rather, they would remember that “the Democrats and President Obama killed a critical bill, and thus left unemployed Americans helpless while raising taxes on the rest of us.” So, the Democrats held up the 2012 budget through political means, threatening to shut down the government and probably incite a sovereign rating downgrade, “because the Republicans went home for the holidays and left the nation’s business undone.”

One thing remains clear. The nation’s capitol is still disjointed and has not learned the lesson it should have by the hands of Standard & Poor’s (NYSE: MHP). We cannot afford to leave our fate now in the hands of Fitch or Moody’s (NYSE: MCO), who with S&P, have the power to drive paradigm shift in global confidence in American treasuries and the dollar. It’s about time the rhetoric ended in Washington and our elected representatives quit the political games and got some important work done. Break these bills apart and vote on them individually as they deserve, or at least resolve to form a best fit and get Americans what they need now. Remember, first do no harm!

Please share your opinion via the comment tab below. And let’s have some fun: please use this opportunity to guess who I favor for President in 2012.

This article should interest investors in The New York Times (NYSE: NYT), Gannett Co. (NYSE: GCI), A.H. Belo (NYSE: AHC), Daily Journal (NYSE: DJCO), Journal Communications (NYSE: JRN), Lee Enterprises (NYSE: LEE), Media General (NYSE: MEG), E.W. Scripps (NYSE: SSP), McClatchy Co. (NYSE: MNI), The Washington Post (NYSE: WPO), Dex One (Nasdaq: DEXO), Martha Stewart Living (NYSE: MSO), Meredith (NYSE: MDP), Private Media (Nasdaq: PRVT), Reed Elsevier (NYSE: ENL), Reed Elsevier Plc (NYSE: RUK), Dolan Co. (NYSE: DN), Disney (NYSE: DIS), DreamWorks Animation (NYSE: DWA), Cinemark Holdings (NYSE: CNK), Regal Entertainment (NYSE: RGC), RealD (NYSE: RLD), Lions Gate Entertainment (NYSE: LGF), Rentrak (Nasdaq: RENT), Carmike Cinemas (Nasdaq: CKEC), LYFE Communications (OTC: LYFE.OB), New Frontier Media (Nasdaq: NOOF), Public Media Works (OTC: PUBM.OB), Independent Film Development (OTC: IFLM.OB), Point 360 (Nasdaq: PTSX), Seven Arts Pictures (Nasdaq: SAPX), Affinity Medianetworks (OTC: AFFW.OB), Time Warner (NYSE: TWX), News Corp. (Nasdaq: NWSA), Vivendi (Paris: VIV.PA), Liberty Starz Group (Nasdaq: LSTZA), McGraw-Hill (NYSE: MHP), Pearson Plc (NYSE: PSO), John Wiley & Sons (NYSE: JW-A, NYSE: JW-B), Scholastic (Nasdaq: SCHL), Courier (Nasdaq: CRRC), Noah Education (NYSE: NED), Peoples Educational Holdings (Nasdaq: PEDH), Barnes & Noble (NYSE: BKS), Amazon.com (Nasdaq: AMZN) and Books-A-Million (Nasdaq: BAMM).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Taxes and the Deficit Seed of Corruption

The President presented his plan to trim the deficit Monday, and inspired this article in the process. President Obama has been attempting to find revenues for the nation’s balance budgeting effort, and the easy score would be from taxes, or rather the killing of “temporary” tax breaks for higher earning Americans. Those are the so-called Bush tax cuts, which accompanied the silly $300 checks the short-sighted economic crash test dummies in DC cooked up before President Bush left office.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Taxes and the Deficit Seed of Corruption

Relative tickers include NYSE: XOM, NYSE: CVX, NYSE: COP, NYSE: HAL, NYSE: AET, NYSE: NBR, NYSE: NE, NYSE: RIG, NYSE: BHI, NYSE: MCO, NYSE: MHP, NYSE: MRK, NYSE: PFE, NYSE: UNH, NYSE: WLP, NYSE: CAH, NYSE: MHS, NYSE: HUM, NYSE: GSK, NYSE: BMY, Nasdaq: ESRX, NYSE: WPO, NYSE: NYT, NYSE: BRK-A, NYSE: BRK-B.

You’ll recall that those tax cuts were supposed to last for just a short time, but Republicans are saying they are still needed. Democrats have determined that they have hardly been useful to date, and that higher earning Americans can afford to help the nation balance its budget by simply going back to old standard rates. The typical Republican rebuttal to this is that these taxes also impact small businessmen and kill hiring. In his latest proposal, the President shown light on this debate, discussing the so-called “class warfare” commentary his revenue targeting has inspired. But the President notes the uber-wealthy have tax savvy (read expensive accountants), which leads to effective tax rates that are often less than the menial staff they employ. Famed billionaire and Chairman of Berkshire Hathaway (NYSE: BRK-B) Warren Buffet verified this argument in his disclosure that his secretary has a higher effective tax rate than he does (NYSE: BRK-A).

I’m on the President’s side on this one. I agree that it makes more sense for the richest Americans to support the budget balancing effort than it does for social security-check dependent senior citizens to. It is certainly not a black and white issue, though, and contributions can be found elsewhere, bit by bit, including from killing unnecessary and purported unethical projects like abortion support. But, I also want to see the oil companies like Exxon Mobil (NYSE: XOM) lose their unnecessary and unethical subsidies. If you are going to call for doing what’s right, like the president did today and like his opponents will rebut, then do what’s right.

However, keep in mind that the more items included in any legislation, only increase the difficulty in getting its passage. And the two items just mentioned, and always reported by the popular press, offer only a tiny real capital raising opportunity. For this reason, it seems clear entitlements cannot go completely unharmed. But the harm can be limited and targeted in ways that might even make more sense for today’s world. However, the President (and I) cannot justify current tax rates for higher earning Americans while snipping away at welfare and social security, especially in times like these!

Let’s see compromise and comprehensive spending reform, but while avoiding damage to economic growth and without putting our seniors on the street. It’s a challenging task, but somehow, I suspect there’s enough fat in that budget to allow for it. We can find a way to keep the effort from impacting small businessmen operating on the fringe; it would only take a little creative thought and design. Once a Reagan Republican, I’m not a fan of taxes, but let’s call a spade a spade. If you want to balance the budget at a time when the economy needs support, something I said very clearly we shouldn’t do time and again, then we have to look at this honestly. Now that we’ve given Standard & Poor’s (NYSE: MHP) the seed of corruption to play with, we have to find the monies to pay with.

The broader indexes were lower before the President spoke and are down sharply at this hour, with the Dow off 1.6%. Still, energy and health care, which would be more sensitive to the President’s speech, are down a bit more:

Relative Stocks	Monday’s % Change
(Prices measured at 2:10 PM ET)
Exxon Mobil (NYSE: XOM)	-2.4%
Chevron (NYSE: CVX)	-2.3%
Halliburton (NYSE: HAL)	-4.0%
ConocoPhillips (NYSE: COP)	-2.0%
Transocean (NYSE: RIG)	-2.7%
Noble (NYSE: NE)	-3.1%
Nabors (NYSE: NBR)	-6.0%
Baker Hughes (NYSE: BHI)	-3.3%
Aetna (NYSE: AET)	-1.5%
Moody’s (NYSE: MCO)	-1.3%
McGraw-Hill (NYSE: MHP)	-0.7%
Merck (NYSE: MRK)	-2.2%
Pfizer (NYSE: PFE)	-0.9%
MedcoHealth (NYSE: MHS)	-0.3%
Humana (NYSE: HUM)	-0.8%
Cardinal Health (NYSE: CAH)	-0.7%
GlaxoSmithKline (NYSE: GSK)	-0.5%
Bristol-Myers Squibb (NYSE: BMY)	+0.2%
UnitedHealth (NYSE: UNH)	-1.9%
WellPoint (NYSE: WLP)	-1.9%
Express Scripts (Nasdaq: ESRX)	-0.3%
Washington Post (NYSE: WPO)	-2.7%
New York Times (NYSE: NYT)	-4.8%

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Stocks Rally for All the Wrong Reasons

Hype and Profiteering Driving Stocks!

Stocks have been on an upswing of late, but for all the wrong reasons. As signs pointed toward the passing of unemployment insurance extensions and the renewal of tax breaks for the rich, investors grew enthused and sent shares higher. Then this week offered a better than expected retail sales report, and traders feigned excitement. But, dear readers, be careful who you listen to, because this information is not as inspiring as the hyped up media and temptation toting traders make it sound.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Stocks Rally for All the Wrong Reasons

Stocks are on the rise, but the chart for the Dow is deceiving. It illustrates rally through midday each day this week, but late day moves lower, including today (12/15). Thus, it depicts a market short on confidence, but looking for profits. The Dow is only up about a percentage point in reality since the December announcement of the Obama Administration, through which it declared a dastardly agreement with the GOP. The secret meeting would renew tax breaks for all Americans, including those making more than $250K, who the Democrats wanted to leave out this time around. The deal would also speed the extension of unemployment insurance, and offer the Republicans the subliminal coercive idea that a cooperative relationship might be possible between the White House and Congress over the next two years.

So, the market grew enthused, not because of robust economic growth or an improving labor market, but rather because politicians would avoid making the disastrous mistake of cutting off 2 million Americans from their sustaining government supports (unemployment checks). Also, the Dow was determined, not because of a budget balancing endeavor, but because of a budget breaking continuation of tax cuts to the rich, who are notorious for keeping the winnings to themselves. Now, one might argue that the rich reinvest and make capital available to American enterprise, but let's face it, there's no tangible reason for the rise in stocks. We all know there's no way the GOP was going to go down in history, especially ahead of Christmas, as a holdout on unemployment insurance extensions.

Tuesday's Retail Sales Report for the month of November showed activity increased 0.8%, which was a slower rate of growth than October's pace. However, the market was overjoyed that October's data was revised up to 1.7%, from the 1.2% initially reported. The popular press also focused on the fact that the result exceeded the economists' consensus view, which was set at 0.6%, even after the prior month revision (which raised the bar). Also enthusing, were the sales when excluding autos, as those figures increased 1.2% in November, against economists' expectations for 0.7%.

However, wise readers, you will recall why there has been such robust early sales activity from your reading of recent scribbling on these pages. It is because there are a ton more desperate bargain seekers out there this tired year trying to get the best bang for their Christmas buck. So, early sales activity might not offer the great news for the full season that stock investors seem to imply they expect. As this becomes apparent, expect those tricky traders to pull the rug out and run, and then the press will remember that Black Friday does not a holiday shopping season make. Investors should also be reminded that discounted goods make for a lower dollar sales tally and tighter profit margin at Macy's (NYSE: M) and friends.



This article should prove interesting to investors in NYSE: PIR, NYSE: ETH, Nasdaq: HOFT, NYSE: HD, NYSE: LOW, Nasdaq: AAPL, NYSE: BBY, NYSE: LTD, NYSE: CHS, NYSE: ANN, NYSE: GPS, NYSE: M, NYSE: JCP, NYSE: JWN, NYSE: TJX, NYSE: KSS, Nasdaq: COST, NYSE: TGT, NYSE: WMT, Nasdaq: WTSLA, Nasdaq: HOTT, NYSE: AEO, NYSE: ARO, NYSE: ANF, NYSE: SAK, NYSE: TIF, NYSE: TLB, NYSE: LL, Nasdaq: BLDR, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: LZB, Nasdaq: SCSS, NYSE: ZZ, NYSE: FBN, NYSE: NTZ, Nasdaq: SHLD, NYSE: DDS, Nasdaq: BONT, Nasdaq: CPWM, Nasdaq: BKRS, Nasdaq: BEBE, NYSE: BKE, Nasdaq: CACH, Nasdaq: CMRG, Nasdaq: CATO, NYSE: CBK, Nasdaq: CTRN, NYSE: PSS, Nasdaq: DEST, Nasdaq: DBRN, NYSE: DSW, Nasdaq: FINL, NYSE: FL, Nasdaq: GYMB, NYSE: GES, NYSE: JCG, NYSE: JNY, Nasdaq: JOSB, NYSE: NWY, NYSE: JWN, NYSE: MW, Nasdaq: SYMS, Nasdaq: PLCE, NYSE: RHI, NYSE: KFY, NYSE: MAN, NYSE: MWW, Nasdaq: KELYA, Nasdaq: JOBS, NYSE: JOB, Nasdaq: CECO, Nasdaq: PAYX, NYSE: ASF, Nasdaq: KFRC, NYSE: TBI, NYSE: DHX, NYSE: SFN, NYSE: CDI, Nasdaq: CCRN, Nasdaq: ASGN, NYSE: AHS, Nasdaq: BBSI, Nasdaq: HHGP, NYSE: SRT, Nasdaq: RCMT, Nasdaq: VSCP.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Is the Estate Tax Fair?

Topic of Debate

We just published an article on the logic of the estate tax, which we suggest for your reading. It is our theory that a great majority of Americans would view (and vote) estate taxes unfair if they applied to all. However, they only apply to estates of $1 million or more, and so relative bias comes to play. The deal reached by President Obama with Congressional Republicans proposes the estate tax exemption threshold be raised to wealth of $5 million. What is your opinion on the taxable threshold?

At a 55% rate, how do you feel about the prospect of paying estate taxes on your wealth, which you likely worked hard to establish and to maintain through your life? We expect most of us intend to leave a legacy to our heirs, for their better lives. Is the new 35% proposed estate tax rate fair, or do you think there should be no estate tax whatsoever, as in 2010? Perhaps you feel like I do that these taxes should not apply to immediate family, or at a lower rate than 55% if so (perhaps a tiered rate based on family relationship). Please let your voice be heard, as we are curious about the general view on this topic:

Is the Estate Tax Fair?

DEBATE TOPIC ARCHIVE

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Estate Tax Logic

On the eve of the revival of the estate tax, proposed by the President to be set at 35% in 2010, up sharply from the tax free status that the friends of the freshly perished enjoyed this year (though well off the 55% rate that robbed riches before the recent temporary freeze), we thought we might explore an aspect of the estate tax that has remained relatively undiscussed in the popular press – Estate Tax Logic.

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Estate Tax Logic

The divide with regard to the estate tax is clear. The rich, who are burdened by it stand mostly against it, barring a few uber wealthy emperors without heirs, or with disowned pesks. The less fortunate among us stand of course for the estate tax and the redistribution of wealth that it drives. However, logically speaking, we suggest both groups and those in between should view the subject similarly, as an unfair duplicate taxation and a means for government to add to its coffers. That said, perhaps it is a necessary evil when taken in moderation.

The factors that have allowed for the estate tax are complex, and only through the understanding of them can one justify the law at all. After all, we are taxed all of our lives on our income and on our purchases, and also on some of our assets, especially real estate. Therefore, taxing the paper that survived through the shredder of government construct upon the tragic death of its creator is paradoxical. This is especially true when the beneficiary is a close blood relative or group of relatives.

We might agree that the distribution of the wealth should be counted as taxable income for an unrelated party beneficiary, but old world rules and customs dictate that family legacy is earned reward (or burden), and oftentimes the sole purpose of the wealth creator. Is it not the goal of most to make the lives of our children an easier go than our own? Thus, to tax such wealth distribution at a 55% rate seems criminal from that perspective. I would go so far as to say we are robbing history when we tax it at such a rate. So why and how does it occur then?

You might think that the wealthy minority is simply overrun by the greater citizen representation that resides below the class line. However, if we stopped our thought so prematurely we would be neglecting the power of the pools of wealth lobbying for the interests of the industrial slaves to the affluent. Wall Street and other penny counters across the globe have a lot of pull in Washington, despite the small numbers of the elite, and so they act as important advocate. After all, they earn a percentage of that pot of gold when they represent it as agent. So then if the power of money has a strong say, then why does estate taxation occur?

Well, contrary to popular belief, every once in a while a few fortunate folks decide they have enough money. Not every rich man seeks to enter the race to richest. If a heart or two still exists then on the diamond studded hills of gated communities and island mansions, we can see why there is often a willingness among the rich, or even a need, to give back. Warren Buffet, as he often has in his life, provides yet another model to follow here as well. In 2006, Mr. Buffet, then the world's richest man, pledged to give the Gates Foundation, founded by Bill Gates and his wife, shares of stock worth approximately $30 billion dollars at the time – that's billion with a B.

One of the positive results of estate taxes is the push it gives to philanthropy. Now I'm not saying rich people wouldn't give to charity otherwise, but I am relatively confident they would give a whole lot less without the tax benefits of gift giving. You see wealthy people tend to detest the government taking their money and putting it to bad use, or perhaps into corrupt pockets. So instead, cancer research, overseas orphanages, and homeless shelters find ample flows of capital. Looking at the tax from this perspective makes it a bit more palatable, wouldn't you say? Not every Scrooge has the fortune of midnight hour visits from the ghosts of Christmas Past, Present and Future, so perhaps many curmudgeons have the tax man instead to thank for their detour to heaven.

Thus, in the end we see that a major issue of debate is not as black and white as it seems to the various parties of argument. Once again, like so many times before, the answer is somewhere in the middle, where it grays from the influence of both sides. President Obama's working plan with the Republicans is scheduled to bring the estate tax back next year at a 35% maximum rate, versus the 55% level that tore at the hearts of wealthy families in the past. The middle-rich, or those with wealth tied to a single asset like real estate (or farm) will like that the threshold for exemption to estate taxes is planned to increase to $5 million, up from $1 million. In the past, a Manhattan brownstone owner with property worth a hypothetical $5 million, whose mother passed on, might have had to sell his property in 9 months time (distressed sale) just to pay the estate taxes. Thank you Mr. President for considering the gray matter and thinking outside the box, thereby finding a way for all of us. Thank democracy as well.

A close friend of mine, Staz Tsiavos, a guy with a heart about as big as his bear hugs, has arranged for an estate planning seminar this evening (and TBA in January) at 7:00 PM at Kellari Parea at 36 East 20th Street in New York City. He tells me dinner will be served, and you might attend if you have a net worth of a measly $4 million or so; because that's about the point of wealth where you will benefit from the insights of the professor and lawyer invited to speak on the subject. You will want to find the private room downstairs or ask for the event at the door. Staz should be reached first for RSVP purposes, or to answer other estate and retirement questions, at 917-815-0416.



Article should interest investors in: H&R Block (NYSE: HRB), Intuit (Nasdaq: INTU), Jackson Hewitt Tax Services (NYSE: JTX), NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE, Nasdaq: SERAX, Nasdaq: SERBX, Nasdaq: SERCX, Nasdaq: SERNX, Nasdaq: FEUFX, Nasdaq: FEEEX, Nasdaq: FAEAX, Nasdaq: FBEAX, Nasdaq: FIEUX, Nasdaq: FECAX, Nasdaq: IERAX, Nasdaq: XRNEX, Nasdaq: PBEUX, Nasdaq: UEPIX, Nasdaq: UEPSX, Nasdaq: PEUGX, Nasdaq: RYAEX, NYSE: CEE, NYSE: RNE, NYSE: PEF, NYSE: GUR, NYSE: EPV, NYSE: VEA, NYSE: DFE, NYSE: DEB, NYSE: IEV, Nasdaq: ANEFX, Nasdaq: CNGAX, Nasdaq: HNEAX, NYSE: BAC, NYSE: GS, NYSE: AIG, NYSE: WFC, NYSE: MS, NYSE: C, NYSE: DB, NYSE: CS, NYSE: UBS, NYSE: MCG, NYSE: MCO, NYSE: TD, NYSE: PNC, NYSE: STD, AMEX: GLE, NYSE: BCS, NYSE: GLD, NYSE: XLE, NYSE: XLF, NYSE: BJV, NYSE: SZI, NYSE: BPD, NYSE: IEL, NYSE: PBN, NYSE: CGW, NYSE: LVL, NYSE: FRI, NYSE: PBP, NYSE: RSU, NYSE: RMM, NYSE: REA, NYSE: RFL, NYSE: RHM, NYSE: RTG, NYSE: RSW, NYSE: RMS, NYSE: REC, Nasdaq: PDOWX, Nasdaq: XDPOX, Nasdaq: XDPDX, Nasdaq: NDUAX, Nasdaq: NDUBX, Nasdaq: IDJAX, Nasdaq: NJCRX, Nasdaq: UDPIX, Nasdaq: UDPSX, Nasdaq: UWPIX, Nasdaq: RYLDX, Nasdaq: RYIDX, Nasdaq: RYCWX, Nasdaq: ONEQ, Nasdaq: QCLN, Nasdaq: QQEW, Nasdaq: QQXT, Nasdaq: QTEC, Nasdaq: NASDX, Nasdaq: NDXKX, Nasdaq: POTCX, Nasdaq: DXQSX, Nasdaq: DXQLX, Nasdaq: FNCMX, Nasdaq: INQAX, Nasdaq: MOTAX, Nasdaq: XQQQX.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.