By: Edward Leone Jr. CFP RFC MBA DMD
Contact Information: 303-478-6793 edleonedds@gmail.com
The issue of tax reform and the variety of suggestions posted by Presidential Candidates has become a topic of inspection and speculation. It is important to take a calculated look at this subject. For the year 2014, US GDP was $16 trillion (sum total of all goods and services produced) and Federal Spending was $3.5 trillion. Federal spending represented 22% of GDP. This has been an issue as it regards the growth of government costs to the economy. Can these expenses be reduced? I believe so, but where and how needs to be a matter of serious discussion and not just political rhetoric or actions taken by politicians based on there motive to satisfy the desires of contributors who have bought and paid for these individuals. Once the size of government is determined and services to be provided are identified, a tax system which meets budget needs and promotes economic growth needs to be developed. The simpler the better! This is a tremendous challenge which may happen in a partial effort in my opinion. Tax issues which may function to stimulate personal or business economic activity will be a challenge to address. Would you buy a house if the mortgage interest was no longer a deductible item? How much would your current home be worth in the market place if this change was made in the tax code? Would you engage in a business activity if taxes were accessed on gross revenue instead of net revenue? So you can see just how positive or damaging these kinds of decisions may be in the universe of economic activity. After seeing just how the Congress and the White House came together on a budget deal which covers the period from 10/31/2015 to 03/2017, it is clear that the Presidential Election year of 2016 will be a wait time regarding any of theses tax and spending issues.
It is very clear that low oil prices are hurting economies which count on oil exports such as Nigeria, Venezuela, Iran and Russia. OPEC is exerting global pressure on this market since its cost of production is so low in order to regain the influence it had on this global market before technology and additional exploration of resource brought competition into this market. Oil prices are influencing our stock market since for many industries cost if production and transportation are lower due to low fuel prices; however, many investors are concerned about the staying power of our US oil industry participants. It will be interesting to see how long this market takes to return to the norm. We know that markets swing like a pendulum to the high and then the low. Petroleum products are the most important commodities in global markets. I wonder how the President’s decision on the Keystone Pipe Line will be a factor in all of this.
Retirement savings is also becoming a matter if great concern given the status of our economy as it impacts employer offerings of retirement savings vehicles and workers ability to save and participate in these plans. Almost half of U S workers did not have an employer sponsored retirement plan in 2013. 58% of these workers were employed by entities with less than 100 employees. Only 45% of these employers with 100 or less employees have a 401K plan. It is the observation that many employers don’t feel this effort is worth the trouble and administrative burdens involve. Many employers can’t afford the costs in compliance and match strategies. Employees are not able to defer adequate compensation to these retirement saving plans to make them effective in later years due to the concerns over current economic conditions. According to the IRS, only 8% of those eligible, made a contribution to an IRA or 401K plan in 2010. This is a serious matter since the retired cannot live on Social Security benefits alone!
FOR THE RECORD:
DJIA 17,910.33
NASDAQ 5,147.12
S&P 500 2,099.20
SUGGESTED READING: “The Great American Bank Robbery” by Paul Sperry
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