Not Making the Income You Want? Maybe You’re Being Selfish.

MushroomsSomehow people who do well in a free enterprise system have been made out to be greedy and selfish people.  We have images of Ebenezer Scrooge, Mr. Burns, JR Ewing, and Gordon Gekko when we think of Capitalists.  We’re always told that corporations are greedy and anything big is bad.  Small businesses are good, unless they do well and then suddenly they’re bad.  The person who makes a good salary or runs a successful business is bad while the minimum wage employee or the guitarist who pays for donations on the street is good.  People who are wealthy should pay high taxes because they are somehow evil, while people who do nothing and make no income should be supported because they are virtuous.

In the area of art, an artist who paints things that appeal to people is considered a sell-out.  A singer who sings popular songs likewise is a sell-out.  Every artist wants to “be true to themselves” and “be true to their art” and complains that people don’t appreciate (and buy) the things they want to produce.  In proclaiming how wonderful Obamacare would be, then-Speaker Nancy Pelosi talked about how it would free people to chase their dreams like play the guitar instead of going to a job each day that provided their health insurance.  Their happiness in what they were doing was more important than spending the day doing something that benefitted other people.

There’s an odd thing about free enterprise, however, that many people miss.  People who are the most successful are not the ones who are greedy, or selfish, or cheaters, or swindlers.  It is the people who are the most selfless,  The ones who give the most of themselves to help others and meet their needs.  It is those who treat others fairly and provide their customers more in value than they receive in payment.  It is the guy who gets up at 6 AM and works until nine or ten at night building a business to take care of some need.  The restaurant that is open nights and weekends when people want to eat.  The drug store that is open 24 hours so that people who are sick at 2 AM can get the medicines they need.

The same goes for employees.  Employees who are always watching the clock and running home right at the end of their shift don’t tend to do as well as those who stay to get the job done.  The ones who “set their hourly rate” by slacking off and wasting time don’t do as well as those who get as much done as they can.  The employees who are cheerful and helpful to customers do better than those who treat customers like a nuisance.

The same is true for artists.  There is no difference between an artist who “paints what they want” and someone who sits and watches football games on TV all day or spends all day fishing or spends all day gardening.  If you are doing things that you like for yourself, you are spending your time on a hobby.  Just as you would not expect someone to be paid for watching football all day (unless they are a sports announcer or a sports writer and thereby do something that someone else wants), you shouldn’t expect to get paid for producing art that no one else wants just because you like to make it.  If you can paint a painting that others like, and maybe matches the couch or fits the room of your customer, you can make some money.  If you are a great musician who can play songs other want to listen to, you can make money.  To make money you need to do something for someone else.  Not just for yourself.

So if you are not making the money you want, think about what you do all day.  Are you being selfish, doing things for yourself, or are you being giving, doing things for other people?  Are you working a shift to get a check, or are you providing your employer with your best efforts to meet her needs?  Are you spending your time doing what you want to do and getting a check from the government in the mail, or are you out meeting the needs of other people?

Be giving of yourself and your time, and wealth will follow.  Your income is in direct proportion to how many people you help during any given day.  The person who provides for the needs of others gets rewarded.  The person who meets the more pressing needs makes more.  The person who meets the needs of a lot of people gets rich.  The person who meets the most pressing needs of the most people gets ultra-wealthy.

Contact me at, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Don’t Let Taxes Drive Your Financial Decisions

It is really odd how people let taxes have such a massive impact on their financial decisions.  People will flock to the stores for a sales tax holiday even though they are only saving about 10%, while a 20% off sale won’t draw much interest.  Some stores have caught onto this, saying that they’ll “pay the tax” for purchases knowing that people would think they were getting a great deal.

Shopping just because it is tax-free isn’t the worst financial mistake people make, however.  Here are some other boneheaded decisions many people make to avoid taxes you should avoid.

1.  Keeping the home mortgage to get the tax deduction.  First of all, this only works if you itemize, and for many people the standard deduction is the better deal economically (not to mention the time and hassle it saves when filling out your taxes).  Secondly, most people are only saving 15 to 25 cents on the dollar.  This means you’re paying $10,000 in interest each year to save $1500 to $2500.  If you  think this is a great idea, feel free to just pay off your mortgage and then send $10,000 to me each year.  I’ll happily send back a check for $2500.  Note you could get the same tax break sending $10,000 to charity each year instead of to the bank.

2.  Limiting retirement investments based on IRA and 401K limits.   If you are starting at age 20, putting away money up to the limits on an IRA will provide more than enough income in retirement, let alone maxing out your 401k account contributions.  If you are starting at 45 or 55, however, it may not be enough.  Figure out how much you’ll need in retirement based on your income needs, figure out how much you need to invest to get there using an investment calculator, and then put away extra money in a taxable account once you max out your IRA and 401k contributions if needed.  A good rule-or-thumb is that you’ll need at least 25 times your expected yearly income requirements, plus a half million dollars for medical expenses.  For a $50,000 per year income, that’s $1.75 M to $2 M.  Put away $3 M and you’ll be able to take more risks and increase your income to buy some luxuries.

 3.  Buying municipal bonds for the tax savings.  Sometimes it does make sense for some individuals to buy municipal bonds.  For example, if you are in the top tax bracket and are buying bonds for interest income, you might do better after taxes with municipal bonds than you will with corporate bonds, even with the lower interest payments.  If you don’t need the income, however, it is foolish to buy municipal bonds when they are tax-free instead of buying equities (stocks) since over long periods of time you’ll make five times the rate of return with equities than you will from municipal bonds, even with the tax savings.

So don’t always look for the tax break.  Sometimes it is worth paying the taxes.

Contact me at, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Things You Wouldn’t Need to Do with the Fair Tax

OLYMPUS DIGITAL CAMERAPromoters of the Fair Tax point to things like the ability to collect your entire paycheck instead of having a portion withdrawn for taxes before you see it.  They also talk about how under-the-counter businesses would pay their fair share, instead of getting money tax-free as they do now, since they would be buying things too.  Even drug dealers and prostitutes would be contributing to the tax base, lowering taxes for everyone.   Still interest has been limited, largely I believe because people don’t realize just how much of a timesaver it would be for everyone.

In a nutshell, the Fair Tax is a sales tax on new goods that would replace the income tax, Social Security Taxes, and all other Federal taxes.  You would still see state income taxes if you are foolish enough to live in a state that has them (I’m talking about you, California), but there would be no federal taxes.  There would also be no corporate income taxes, which means that groups like Burger King would not be fleeing the country for places with lower taxes like Canada.  Instead, businesses would be flocking here because they would not need to waste lots of money on tax planning and tax avoidance.

To prevent being regressive, meaning that poor people wouldn’t end up paying a greater percentage of their income than rich people, there would be a prebate where everyone would get a check from the government to cover a portion of the taxes.  For example, give a $10,000 per year prebate out to everyone with a 20% Fair Tax and no one who makes less than $50,000 per year would pay any taxes, even if they spent their entire paycheck on stuff that was subject to the Fair Tax.

A lot of the advantages of the Fair Tax go beyond getting your whole paycheck each month.  The Fair Tax greatly simplifies accounting and record keeping since you would not need to prove to the IRS what you made and what you spent on deductible items.  What would you not need to do if there were a Fair Tax instead of an Income Tax?  Let me list them:

1.  You would not need to give you Social Security number for a job, a bank account, or any other purpose, because there would be no Social Security numbers.  Credit card companies would actually need to do their jobs and verify your identity instead of relying on a number.

2.  You would not need to turn in a W-4 listing dependants, because there would be no withholding of taxes from your paycheck.

3.  You would not need to keep a receipt from the doctor’s office, because there would be no need to prove medical deductions.  You could throw them out.

4.  There would be no need to keep charitable donation receipts, because you would not need to claim them on your taxes.  Worried about losing the deduction?  Don’t be – you’ll be taking home more money, leaving you free to give or keep as you desire.  Your “charity” would not even need to be  officially recognized by the IRS.

5.  Conservative and Liberal groups would not need to submit any paperwork to the IRS for approval, because there would be no taxes on any contributions they received.

6.   You would not need to fill out paperwork for home energy improvements to get a tax deduction.  Politicians would just make such items exempt from the Fair Tax or reduce the Fair Tax on them if they wanted to keep using the tax system to drive behaviors.

7.  Seniors wouldn’t need to worry about paying income taxes on the Social Security benefits if they made too much money before retirement age and were taking benefits early, because there would be no income taxes.

8.  You would not need to fill out tax forms in April, because there would be no income tax and the IRS would never bother you unless you ran a business that collected the Fair Tax.  The IRS could be cut by 95% or more.  There go the Star Trek skits.

9.  You would not need to worry about contributing to medical savings accounts, retirement accounts, and college savings accounts before a certain date each year. You could start whatever accounts you wanted and fund them as you wish, because there would be no income taxes on the earnings.  You could also withdraw the money as needed because there would be no penalties to pay.

10.  You could give as much money as you wanted to your children or whomever else you wanted at any time because you would not need to pay estate or gift taxes.

So, what will you do with all of the time you’ll be saving by not needing to fill out tax forms, not needing to fill out  employment forms, and not needing to keep and organize receipts?

Follow on Twitter to get news about new articles. @SmallIvy_SI. Email me at or leave a comment.

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

The Fair Tax Would Solve the Problems at the IRS

Janet Novack writes of the funding shortfalls at the IRS that are leading to reduced enforcement, poor customer service, and a low chance of getting through to get answers to even easy questions in her piece, There’s A Crisis At The IRS And It’s Not What You Think.  One might think the agency was awash in money, given the IRS’s ability to go to lavish conferences and produce ridiculous videos such as the ludicrous Star Trek and employee line dancing videos, both produced at taxpayer expense, and the agency’s ability to pay bonuses even to employees who cheated on their own taxes and were guilty of other offenses.  Still, Ms. Novack says the agency needs more money to do its job properly.  Probably the most serious issue that needs to be addressed is the large amount of identity fraud due to people stealing tax returns filed electronically and the filing of false returns by thieves to steal refunds directly. 

There is way to address the issue, however, that would not cost more money – in fact it would cost far less and yet bring in the same amount of money to the government, or possibly even significantly more.  This solution would drastically reduce the amount of work the IRS has rather than increase the amount of funding, allowing them to actually cut staff.  Note that this would also go a long way to solve the issue of taxpayer money being wasted for silly purposes since a smaller overall budget generally results in less waste since each dollar counts so much more.  This solution would be to enact the Fair Tax.

With the Fair Tax, taxes would be collected by retailers when new products or services were sold.  Instead of paying in estimated taxes and having paycheck withholding, citizens would receive a check each month from the government to “prefund” a portion of the taxes they pay.  This is how the system avoids being regressive (i.e., this keeps people with lower incomes from paying a higher portion of their incomes in taxes).  Individuals would receive their entire paycheck, have no need to report their incomes or track expenses, and only pay taxes when they chose to spend their money on new goods or services.

So how would this cut the work at the IRS?  Instead of needing to go through the tax returns of millions of citizens, they would only need to audit the books of thousands of businesses.  And the audit would be simple – how much money did you collect in revenue during the last period and did you multiply it by the correct percentage?  This is something that anyone could check very quickly and any retail establishment could easily get right.  We should be able to cut the size of the IRS by 90% or more, freeing these employees to do something more productive than audit tax returns.

Another advantage of the Fair Tax, which may be more important than the simplification of the tax system and the reduction in the size of the IRS, is the removal of the power held by the IRS and along with it the potential for this power to be abused.  It should send shivers through the spine of any American, regardless of their political persuasion, that the audit power of the IRS was clearly levied against only Conservative groups before the last election and that senior IRS officials are pleading the fifth when asked about the illegal activities.  While this power may have allegedly been used to benefit Democrats during the last election, there is nothing to stop the power from being used to benefit Republicans should they come into power again and be able to appoint IRS officials.  No one should live in fear of harassment over their taxes due to a speech they give, a talk show they host, or a letter they write to a newspaper.

What are your thoughts?  Wouldn’t it be nice to collect the money the government needs without all of the paperwork?  Please leave a comment and let me know.

Tax Day Again. Ready for the Fair Tax Yet?

So today is tax day in America yet again.  Sometime in the last few months you probably had to gather your receipts, W-2 forms, and 1099’s.  You had to buy some tax software or set up a meeting with an accountant.  Either way, you were out at least $100 because the forms are too complicated to someone to just fill out.  You then spent several hours away from your family filling in information.  You probably also had to call various places for receipts, send money or letters of authorization to transfer money into IRAs and HSAs before the deadline.  You then needed to go to the post office and stand in line to send in your forms, or sent them in electronically despite warnings from the IRS that many tax returns are being stolen each year when filed electronically and the information used for identity theft.  You do all this because the law says you need to in order to pay your taxes.

If you’re like most people, you probably also got a big refund check back.  You may look forward to receiving that check, and maybe you use it to pay down a credit card bill or just blow it on something, but realize that is your money that the government had all year long without paying you a dime of interest.  Maybe you paid credit card interest all year because Uncle Sam was holding onto that money.  At 15% per year, that’s $600 per year you are losing if your refund is $4,000.  Even at $2000 per year, that’s $300 you are losing.

There is a better way and it’s called the Fair Tax.    With the Fair Tax you would receive your entire paycheck each month with no deductions taken out so your paycheck would be at least 20% bigger.  You wouldn’t pay a dime in taxes until you bought a new item, at which point you would pay a sales tax.  That would be the end of your obligation as far as taxes went.  You wouldn’t need to save any receipts.  You wouldn’t need to file anything.  You would pay at the cash register and then go on with your life.

One argument against a sales tax is that it is regressive since people who make less spend a higher percentage of their income.  This is also addressed in the Fair Tax with a prefund.  Each year (or each month) everyone who works would get a deposit in their accounts from the government to cover a portion of the sales tax they pay.  Fo example, if the Fair Tax is 20% and you wanted to make sure no one who made less that $30,000 paid anything in taxes, you would issue a prefund of $600 per year to everyone.  Then the prefund would cover the taxes on the first $30,000 you spent.  Only those spending more than $30,000 per year would then be paying taxes.  You could set the prefund as high or as low as you wished depending on how much you needed to collect in taxes and at what income threshold you wished people to start paying taxes.

Another argument is that people don’t want to be paying a 20% sales tax (an estimate for the sales tax that would be needed to raise the same amount of money as is currently raised through the payroll taxes and income tax).  Realize first of all that you are already paying 12% or more of your income out before you get your check.  Including the employer match for Social Security and Medicare, you are paying around 20%.  This is not just on the money you spend, but also on the money you save.  It is also expected that because retailers will no longer need to spend as much money on tax planning, and because they would no longer pay income tax on their earnings, that prices would fall, perhaps by enough to cover most, if not all, of the sales tax.  It is very likely that the government will be raising the same amount in taxes while you are paying a lower percentage of your (increased) income in taxes.

If this sounds great to you, go to learn more, and learn how you can help get the Fair Tax passed.  Let’s have 2013 be the last year you need to spend time away from your family filling out forms.

To ask a question, email or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Time to Get Your Taxes In

The deadline for filing your state and federal income taxes is looming.  Sure it’s spring and you need to do some spring cleaning, plant your garden, paint your windows, break out your yard furniture, and do a thousand other things, but you’ll face a big penalty if you don’t spend several hours in a dark room in front of a computer filling in minutia of your finances into TurboTax.  At least the advertisements for the software make it seem exciting, like your writing an autobiography of your life instead of doing mind-numbing fill-in-the-blank for hours on end.

It doesn’t have to be this way next year.  If we were to pass the Fair Tax, there would be no need to fill in any forms.  You would just pay a sales tax when you bought a new item to the store you bought it from.  You wouldn’t need to keep any receipts.  You wouldn’t need to remember to send a check to an IRA or an HSA before December 31 or April 15th.  You wouldn’t need to calculate your income, figure out if you could deduct a child or a home improvement, or segregate a part of your home as a home office.  April 15th would just be another beautiful spring day.

Better yet, you would get a check from the government instead of sending a check to the government.  You see, the Fair Tax, in order to prevent it from being regressive, meaning to prevent people at low-income levels from paying a greater portion of their income in taxes than wealthy individuals, would include a provision by which everyone would receive checks from the government, probably once a month, to cover a portion of the taxes paid at the register.  If everyone received $10,000 per year and the tax rate were 20%, no one making less than $50,000 per year would be paying a dime of taxes even if they spent their whole income.

And don’t let that 20% number scare you.  Remember that you would receive your whole paycheck, instead of the portion that is left over after FICA and Federal withholding, so your check would be bigger to start with.  Stores would also not need to spend a lot of time doing tax accounting and tax planning, so they could lower their prices.  Some predictions are that the entire 20% would be erased since prices would fall by 20% due to the savings.

The Fair Tax would also encourage saving.  If you spent less than $50,000 per year, you would get to pocket a portion of that $10,000 the government sent you.  Compare this with current tax policies that encourage people to overspend on houses so they can deduct the interest or buy new windows and electric cars so they can get a tax deductions.  Wouldn’t it be better if people were saving so they would have money available to take care of themselves when they lose a job or need to go to the hospital instead of these costs falling on society since everyone spends every dime they get?

Want to make it even better?  How about collecting the Fair Tax at the state level and then having the states decide what functions they want the Federal Government to do and what functions they want to do for themselves.  If they decide they’d like the Federal Government to take care of interstates, they’d send a portion of their money to the Feds.  If they found the feds were wasting the money, they could hold back and do the roads themselves instead.  If the Federal Government had less money, and if they had state legislatures, who are made up of people you can actually find at the grocery store and question about a dubious vote, you wouldn’t see these pork barrel projects in individual states to buy votes or spending hundreds of millions of dollars on vacations for senior government officials.  Of course the states could decide this is needed and send the money for it, but I’m thinking they would be inclined to hold onto it instead of sending the President and 100 of his closest friends to Europe.

If this sounds good to you, contact your Congressman and your Senators and tell them you want the Fair Tax.

To ask a question, email or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Why Don’t People Want the Fair Tax?

Since posting this entry, I’ve had a couple of people rate the entry as “poor” instead of leaving a comment.  I’m thinking they’re actually rating the Fair Tax as poor rather than the post and I’d love to know why.  Please leave a comment and let me know why you don’t like the Fair Tax if this is the case.  If you can’t express a reason, maybe you need to rethink your stance.

I’ve made a few posts in the past about the Fair Tax.  In a nutshell, the Fair Tax would replace all of the existing Federal income taxes, including the Federal Income Tax itself, Social Security Taxes, and Medicare Taxes.  It would be a consumption tax on new goods and services (meaning your yard sale items wouldn’t be taxed, nor would your used car).  It is estimated that the tax rate would be about 20% if tax revenue levels were left the same.  Compare this with income taxes, which are around 10% for those in the middle class, Social Security taxes, which are 6.5% for the employee and the employer, meaning about 13% total, and Medicare taxes, which are about 4% between the employee and employer.  This means your paycheck would increase by about 27% in exchange for paying a 20% sales tax.  Sounds good to me.

But wait, there’s more.  Because businesses would no longer be paying corporate income taxes, and because they would no longer need to maintain a huge staff to handle payroll deductions, tax deferred accounts like 401k accounts, and planning to avoid corporate income taxes, their costs would go down.  This might increase profits a little for the shareholders if the company retains some of this savings, but most of that savings in the cost of providing goods and services would go to lowering their prices and raising salaries.  It is estimated that most of the 20% sales tax would be offset by the reduction in the prices of goods, meaning that the actual price you pay may be about the same, even including the sales tax.

Having less of a paperwork burden would also make it easier for people to open businesses.  If all you had to do was hire people and hand them a paycheck, rather than needing to have an elaborate accounting system to figure out tax withholding and all of the other corporate taxes, more people would be willing to start a business.  This would mean more competition for both customers and workers, meaning more selection, lower prices, and higher wages.

The tax is also not regressive because there is a prefund.  With the prefund every American would receive an electronic deposit from the government at the start of the year or the start of each month to cover part of the sales taxes.  For example, if you wanted the first $20,000 of spending to be tax-free to help low-income earners and the Fair Tax was 20%, you would send a prefund of $4,000 per year to each citizen.  This means that even if a person at the low end of the income spectrum spent their whole paycheck, they would not be paying any taxes.  If they saved a bit they would be getting a supplement to their income.

I’ve created posts on the Fair Tax before, but have gotten few responses.  I also am not seeing the activity needed to get one enacted.  Understand that politicians like the current income tax because it both gives them some control over their constituents and allows them to give special favors to big donors, which in turn helps get them re-elected.  If they want you to buy special windows or certain cars, they can create a tax deduction for those items.  Likewise, they can create special exemptions for coal companies, farmers, or sugar importers and in exchange get donations from those groups who want to keep the special tax break in place.  They even use Social Security to control seniors since all incumbents need to do to defeat a challenger that might restore some fiscal sanity to federal budgets is say she will cut Social Security or Medicare and get the seniors out in mass against her.  To replace the income tax with the Fair Tax, which would take all of the power away from the politicians and take away all of the ability of the IRS to stoke fear in the hearts of taxpayers, would take an enormous ground-swell of people demanding it be enacted.  It might also require some incumbents who enjoy the power they weild and wealth they gain with the existing tax system be replaced.

So my question is, why so little interest?  Do you like paying $100 to buy TurboTax each year or $300 to hire an accountant to help with your taxes?  Do you like to live in fear of an audit?  Do you like to save all of your receipts for business expenses, medical expenses, and write down the mileage from your car odometer after each business trip?  Do you like to keep seven years’ worth of tax returns just in case you get a call wanting you to prove your home office expenses from 2008?

I think it would be wonderful to get my whole paycheck rather than what is left after all of the taxes are removed.  I think it would be great to just throw out those receipts and not worry about what price I paid for a stock back in 1982.  I would love to not need to worry about making deposits to an IRA account before a certain date or worry about the limits for deposits to an HSA.  So what am I missing?

Please leave a comment with your reasons for not wanting the Fair Tax if there is something I’m missing.  If you support a Fair Tax, how about leaving a comment saying that so others could see this is not some crazy idea.  And if you do want the Fair Tax, how about writing a quick email to your Representative and Senators (just search for the US House of Representatives and the US Senate in Google and you’ll get the contact information in a few seconds).  And when politicians come calling or the political parties come asking for a donation, how about expressing your desire for a Fair Tax to them.  Maybe 2014 could be the last year where you’ll need to file income taxes.

Contact me at, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.