The Laffer Curve Revisited

So I read in the news that the Senior Senator from New York has an idea.  Senator Schumer is backing an idea that would allow US corporations to repatriate their overseas profits at a lower-than-usual tax rate.  You see most industrialized nations use a territorial tax system where companies with operations abroad pay only taxes imposed on their profits by the host country.  This allows those companies to ship their profits back home (read China for instance) with little or no extra tax imposed.  Here in the US however, any profits that are repatriated back to The Land of The Free are then taxed again at existing US corporate (and state) tax rates.  Remember that the US corporate tax rate currently at 35% is the second highest in the world.  Also remember that these repatriated profits could be used by the corporation to do such things as pay dividends, buy back common stock, or invest in domestic expansion. 

Anyway, Senator Schumer proposes giving corporations a one-year break by reducing the US corporate tax rate for repatriated profits to 5.25%.  Economists estimate that there are north of $1 trillion in profits abroad that could be repatriated.  Under this scenario this could net the US Treasury $525 billion in tax receipt revenues.    This is not the first time that such a proposal was tried.  In 2004, a similar one-year break was put in effect.  According to the IRS more than 800 firms repatriated over $360 billion in profits and delivered a windfall of $18 billion in federal tax revenue.  Could it be that the Laffer Curve is once again validated, and a decrease in a tax rate could result in an increase in tax revenue?

More Government Statistics

I have to admit that Government economic statistics are often amazing to me.  This is the first week of May 2011, and the Administration is touting that the 244,000 jobs were created this month in the US economy.  It was front page news.  On page two of the Wall Street Journal today (May 6, 2011) there was another story relating another set of statistics from the Government that stated that first-time jobless claims surged last week to their highest level since last summer; also that the reported unemployment rate actually rose from 8.8% to9.0%.  Furthermore, in the Government’s reporting, I see where the number of unemployed is calculated at 13.7 million Americans, and the number of Americans who are working part-time but are looking for full-time work is 8.6 million.  This totals 22.3 million Americans.  Now let’s consider the size of the US civilian labor force.  In April of 2009 (two years ago) it was estimated to be 154.7 million.  If there were not additions (people getting to employment age, graduating from school, immigrating to the US), and no deletions (people retiring, becoming totally disabled, or dying), and using the 154.7 as the denominator, the unemployed rate comes out to 8.86%.  So nobody died or grew up over the past two years.  If you consider that the part-timers really want to work full-time, then the percentage is 14.41%.  And again, this assumes that nobody died and no one grew up over the past two years.  I guess that would apply if you were only considering members of Congress.

The Recovery - Round 1

The government reported on March 4^th, 2011, that the economy created 192,000 new jobs in February.  As a result the official unemployment rate dropped below the 9% mark. This is improved news for all of us.   However, the statistics are still a little shy of the whole truth.  The US Bureau of Statistics also publishes a thing called the “Labor Participation Rate” each month as well.  The labor force is defined as all people 16 years and older who are employed, or are actively seeking employment.  It does not include students, retirees, those with unreported income, or those who have given up trying to find jobs.  From this data the BLS calculates a participation rate.  This compares all who are working with all those who really are in the labor participation pool.  That rate is currently 64.2% percent when seasonally adjusted, and 63.9 % when not.  This was the same level as it was in January. Both of those percentages are currently running at 27-year lows, meaning the percentage of Americans not working or even trying to join the work force is at a near three-decade high. The last time the participation rate was above 66 percent — the 10-year average — was in August 2008. If we only look at the unemployment rate without considering the shrinkage that has taken place in the workforce we will continue to delude ourselves about the strength of the recovery.  And don’t forget,  in June we will have a whole new crop of potential workers graduating and entering the pool of available workers looking for jobs.

Customer Service?

I have to tell you this story.  Upon receiving my last credit card bill I discovered that my card numbers had been stolen and that several thousand dollars worth of illegal charges had been made.   I immediately called and their security department handled the entire situation promptly and courteously.  Hooray!  I asked about three bills that were regularly debited to that card and what I should do.  The representative said that I would have to contact them and give them the number of my new replacement card once I received and activated it. 

Today I received my new card and activated it as directed.  I then attempted to notify two of the three organizations that charge their monthly bills to it.  They made the changes practically instantaneously.  Then I tried to do the same for the monthly Sprint bill for our “family plan.”  I must note that my wife – that named account holder – and two of my children are no longer on the plan.  They have all found providers they prefer and have gone elsewhere.  Primarily out of laziness I suppose, my son and I still have cell phone service with Sprint.  Not having the requisite usernames and passwords to do it on line, I called customer service.  I explained my situation and asked that the bill now go to my new credit card since the old one would reject the charges for Sprint service.  No one could help me the account was not in my name and I did not know the PIN.   I explained the circumstances and offered all other means of identification.  I repeatedly stated that I just wanted to arrange for Sprint to be paid as before, but with the new card- all to no avail. 

I was told that Sprint could send me a form through the US mail and that I could fill it out and that it would take effect in thirty to sixty days. I noted to the Sprint representative that the thief who had stolen my earlier card numbers managed to acquire five Cricket accounts and one T-Mobile account all in the space of a few hours.  I also pointed out that I could go into a Sprint store today, close the current account, walk across the mall and open a new account in less time than I had been kept on hold for that phone call.  This only resulted in me being escalated to a higher level in the Sprint customer service food chain, but with a representative who had a nicer voice.  The same scenario was then repeated.  I was then sent up another rung in the customer service ladder – again a nicer voice, but with the same result.  I finally made it to the fourth level.  Apparently that is where Sprint keeps it most solicitous and sweet-voiced representatives.  That being said, the same scenario played out as at the other three levels.  I can only surmise that Sprint’s method of dealing with dissatisfied customers is to offer ever-increasingly dulcet tones of non-cooperation.

The result is that I am paying off the outstanding Sprint bill directly, and am sharing this experience with you in the hope that you will share it with others.  Maybe if Sprint loses enough customers they will actually start trying to do right by them.  Oh, by the way, I am switching cell phone carriers.  Any suggestions?

My Portfolio Update - January 2011

Well here’s an update on my stock portfolio now that we have actually ventured into 2011.  First off, I sold my Bank of America (BAC) stock on January 3^rd at 13.81/share for a net gain of 8.1% since my purchase on 10/15/10 (that’s 80 days for an annualized rate of 37.2%).  I later sold off a portion of my Ford Motor Company (F) stock on 1/12/11 at 18.50, for a net gain of 57.4% since I bought it on 8/23/10 (that’s 142 days for an annualized rate of 147.7%). I sold off enough to recover all of my initial investment and still retain a sizeable chunk of shares.  So what did I do with the proceeds?  First, on January 4^th, I bought Best Buy (BBY) for a retail play (not for the long term), and Yamana Gold Inc. (AUY) a gold mining stock for the longer term (a year or so).  The first because I believe that it was underpriced and will post good 1^st quarter results and get a bump in share value.  The second as my nod to the gold bug that is still alive and well.

I still believe that the government is understating the real inflation rate, and that commodities of many varieties will be generating some significant returns again this year.   Have you been to the gas pump or grocery store lately?    As a result I have placed orders for the following two additional purchases.  First is Schlumberger NV, (SLB) an international company that pretty much leads the world in oil exploration technology.  The second is a very small Canadian company that recently acquired the sole license to one of the largest rare earth element mines outside of China functioning in the world.  It concurrently acquired the license to operate the co-located refining operation.  These are located in Kyrgyzstan, one of the former republics of the Soviet Union.    This one is a bit risky and I limited my exposure because it could all go down the toilet in that turbulent region.  That said, the potential size of the reward is comparable to the potential risk.  Mitigating the risk is the change in government there over the past year, its continuation of a lease to the US for an airbase there, and relative strong balance sheet of the Canadian company.  Once again, it is a small cap high risk stock, and not for the squeamish. It is Stans Energy Corporation (STZYF).   So I am making one conservative play and one aggressive one.  I’ll keep you informed as the year goes by.