As is usually the case, the holiday season has caused our bi-weekly schedule to be slightly off. You could probably even say that the frequency at which we get these podcasts published during the holidays is somewhat “uncertain” (you will see how clever this statement is as you read on… : -)
In today’s show, we touch on a subject that EVERYONE in this country can relate to right now… uncertainty!
- Will tax rates go up?
- Will the tax cuts expire?
- What will the death tax be?
- How much is a taxable estate?
- What is going to happen to capital gains?
- How do I invest?
- Should I stay in equities and “ride the roller coaster”?
- Should I move to cash for the safety but earn nothing?
- Is there really going to be a bond bubble?
These are just a few questions that are circulating up in Washington, in the media, and even at the water cooler. Oddly enough, right now the answer to all of them is the same: who knows? Well, when you have these “who knows” type of questions, how do you plan for the future? To start off the show, we share a listener email that expresses this exact concern and we give you the Preston & Cleveland rationale of how (from an investment stand point) you should think about this current market environment.
We go on in the show to share a little case study experiment we conducted. Because I have a background in accounting and I am a CPA by training, I still do a handful of tax returns each year (about 52 to be exact). I thought it would be very interesting to break out those 52 returns by Adjusted Gross Income and then take a look at each group’s effective tax rate (in an attempt to see if there is any weight to the “rich people don’t pay taxes” theory). I then determined which of these clients were business owners and even took that a step farther to see how many individuals they employ (to see if small business owners really are employing that many people). Here are my results:
- Of the 52 returns, 19 had AGIs under $100k, 25 between $100k and $250k, and 8 clients over $250k.
- The average AGI of clients below $100k was $50,700 and their effective tax rate was 9.6%
- The average AGI of clients between $100k and $250k was $150,600 and their effective tax rate was 18.4%
- The average AGI of clients above $250k was $615,000 and their effective tax rate was 26.2%
What this says to me is that high income earners pay more in taxes (in percentage terms) than lower income earners. I found the following statistics even more compelling:
- Of the 19 individuals below $100k AGI, 2 of them were business owners and they collectively employed 16 people.
- Of the 25 individuals between $100k and $250k AGI, 3 of them were business owners and collectively employed 8 people.
- Of the 8 individuals over $250k, 5 of them were business owners and employed 112 people.
To me (at least for my small sample of the American population) this says that there is some truth to the fact that business owners making over $250k really do employ a lot of people. As you listen, we will go even deeper into these numbers and explain some other conclusions we were able to draw from this very simple analysis.