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Investing and Economics Blog

General Air Travel Taxes Subsidizing Private Plane Airports

This is the kind of stuff that makes so many people so cynical about how those with the gold make the rules. Somehow unless enough people pay enough attention to stop every single boondogel the politicians seem to keep throwing money at their rich friends. Then those rich friends give a reward the politician’s re-election campaigns for the taxpayer money they received. Traveler taxes awarded to small airports:

The federal government has taken billions of dollars from the taxes and fees paid by airline passengers every time they fly and awarded it to small airports used mainly by private pilots and globe-trotting corporate executives.
…
Passengers pay as many as six separate taxes and fees on a single airline ticket, adding up to more than $104 billion since 1997, the AP found. Yet these assessments often are overlooked by the millions who click the “buy” button to purchase tickets online, even though they can exceed 25 percent of the total airfare.
…
Congress will decide later this year whether to curtail the huge public subsidy for small airports, while pilots’ associations, airport managers and other interested groups are fighting to keep it.

Any guess on what they will do? I would guess fund their friends and themselves. It is true if the public actually pays attention then I believe they would stop until they think the public won’t notice and then slip the millionaire subsidies back in.

J.T. Wilson Field in Somerset, Ky. got more than $12 million since 2001, much of it through the influence of local Rep. Hal Rogers, a longtime Republican member of the House Appropriations Committee who uses the airfield for trips home. Wilson Field is home base to 26 small planes and one jet. Despite millions in improvements, including a passenger terminal, the airport has yet to see scheduled commercial service.

The article includes many more examples.

April 16th, 2007 by John Hunter | 1 Comment | Tags: Economics, Taxes

Held Hostage By Health Care

Held Hostage By Health Care:

Workers, he says, are increasingly shackled to their jobs for no reason other than to cling to their employers’ health insurance coverage. These are people, he says, “who don’t leave a job even though they’re unhappy and would be more productive somewhere else.”

This is one of the many problems with the existing health care system in the USA. That system now costs 16% of USA GDP – the highest cost anywhere.

After a decade of working in a job she wanted to leave, Holmes Johnson found the courage to move on. “Starting my own thing was too overwhelming, and my husband’s plan did not offer the coverage to make us feel secure,” she says. A few months ago, she landed a public-relations position with a comparable salary at Washington law firm Sterne Kessler Goldstein Fox. After checking the firm’s formula for prescription-drug coverage, she made the jump. In what other country, she wonders, would that be the deciding factor?

The USA economy has strengths and weaknesses. The strengths have allowed the health care system to function poorly and still be tolerated. It has reached a point where it cannot be tolerated in its current form.

Related: Starbucks: Respect for Workers and Health Care – Health Care Crisis

April 7th, 2007 by John Hunter | 2 Comments | Tags: Economics, Personal finance

Democratising Commerce

C.K. Prahalad on Democratising Commerce: The Challenge for the 21st Century – audio – pdf:

Just the four carriers of cell phone services in India have created a market capitalisation of $75 billion plus in the last five years. So there is a huge opportunity to create economic value for the companies and at the same time getting people to be connected. This connectivity has changed the lives of ordinary people, from taxi drivers to small corner shops, road-side shops, to people who are plumbers and carpenters. All of their business models have changed. Now they can use the cell phone to increase their yields, increase their productivity.
…
we cannot have in the 21st century a society which does not pay attention to five billion or 80 per cent of people who do not get the ability to participate in the benefits of globalisation. If we just leave them alone and do not pay attention to them I think it is very hard to maintain both peace and some form of law and order.

Listen to more podcasts from the Times: Ten of the world’s leading business thinkers provide the latest thinking in economics, management, finance, strategy and marketing.

April 1st, 2007 by John Hunter | 1 Comment | Tags: Economics

Alternative Minimum Tax

Congressional Budget Office on the Alternative Minimum Tax (AMT):

Until 2000, less than 1 percent of taxpayers paid the AMT in any year. Under current law, however, the number of taxpayers affected by the AMT will grow from just over 1 million in 2001 to nearly 30 million in 2010 before falling back to about 23 million in 2014 after the expiration of the 2001 and 2003 tax cuts. Twenty percent of all taxpayers–and 40 percent of married couples–will owe AMT in 2010. AMT receipts in 2010 will total about $90 billion, roughly 7 percent of total individual income tax revenue.

The Looming Challenge of the Alternative Minimum Tax, Alan D. Viard, Federal Reserve Bank of Dallas:

While the AMT applied to 200,000 taxpayers in 1990, roughly 4 million will pay it this year, according to the Urban-Brookings Tax Policy Center. But that is only the beginning. Under current law, the AMT rolls will explode to 22 million in 2007. The AMT’s revenue yield follows a similar pattern, having risen from $2 billion in 1990 to $22 billion this year. It’s projected to nearly triple to $65 billion in 2007.

Related: Families Face Alternative Minimum Tax, NPR – Brookings Institution article on the AMT – Preparation Softens Blow of Alternative Minimum Tax – IRS on the AMT

March 30th, 2007 by John Hunter | 1 Comment | Tags: Economics, Personal finance, Taxes, quote

The Great Risk Shift

The Great Risk Shift by Jacob Hacker presents some interesting data. I don’t always agree with his conclusions but I think the information he presents is interesting.

The most interesting piece of data to me: The chance of a 50% drop in income in 1970 was 7% for any person. By 2002 it had grown to 16%. While this seems to include some questionable “data” such as divorces, retirees… Still the fairly steady climb (see chart page 31) from 1970 to 2002 shows this is one factor that should be a consideration in saving and spending plans. Don’t assume you will earn more and more every year. You will likely have some fairly large drops in income during your lifetime. Plan for it.

Some more interesting data in 1992 7.9% of 25-34 year olds in the USA had debt payments over 40% of their income. In 2001 that rose to 13.3%. In 1984 median wealth for families with a head of household 55-64 was 4 1/2 times as wealth as those of 25-34 year olds, in 2003 it was 13 1/2 times as great. (page 99)

While the average 401(k) balance is $47,000 the median balance is $13,000 (a relatively few large balances skew the average to make it much higher).

Overall I tend to look at the data he presents and think people better consider these realities and plan knowing them. Jacob Hacker seems to more often say that this is unreasonable and show the hardships faced by those that either could not plan better (it was out of there hands which I would agree is part of the problem and requires some public policy changes) or who choose not to (which I would find the case more often than he would). Well worth reading in my opinion.

March 27th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Investing, Personal finance

The Real Threat Is Decreased Productivity

The Real Threat Isn’t Housing by Michael Mandel:

In short, the productivity acceleration of the past 10 years has created a total of $6.4 trillion in extra output since 1995, measured in 2006 dollars. That helps explain why American households, taken together, are so much richer than they were: Household nonhousing net worth, adjusted for inflation and federal debt, has soared by almost $14 trillion over the same period, despite the dot-com debacle that crashed the market.

The massive amount of additional production is a key reason why the U.S. has not faced upward pressure on prices. And good productivity gains gave the economy enough momentum to fight off the disasters of 2001–the terrorist attacks, the stock market crash, the collapse of Enron–with only a minimal recession.

But the bonanza starts to disappear if productivity growth drops much further below its current level. Such a decline is a lot more possible than most economists realize or are willing to accept.

Related: Manufacturing Productivity – Be Thankful for Lean Thinking – Manufacturing Jobs Data: USA and China

March 11th, 2007 by John Hunter | 1 Comment | Tags: Economics, Financial Literacy, Investing

USA Job Growth

Job growth weakest in two years:

The economy created 97,000 jobs last month, the Labor Department said, down from a revised 146,000 gain in January, which was 35,000 more than the original estimate.

The unemployment rate fell 4.5 percent from 4.6 percent in January. The consensus among economists was that the unemployment rate would stay at 4.6 percent, although a bit more than 20 percent of those surveyed by Reuters had been looking for a rise to 4.7 percent. Few had forecast a decline.

Wages are now up 4.1 percent from a year earlier, and kept worker pay ahead of price increases. There was a 2.1 percent increase in prices over the 12 months ending in January

The recent history is that the initial estimates have been revised up consistently – which means the accuracy of the initial read is less reliable recently that it had been previously.

Employers downshift out of hire gear:

After Labor Department readings showing that employers added an average of 187,000 jobs a month throughout 2006…
it is natural and perhaps overdue that hiring should slow down, given the below-trend economic growth that the U.S. economy started showing with the second quarter of 2006. “Employment is a lagging indicator,” he said.
March 9th, 2007 by John Hunter | 1 Comment | Tags: Economics

Bernanke Calls for Stronger Regulation of Mortgages

Bernanke Calls for Stronger Regulation of Fannie, Freddie

Federal Reserve Chairman Ben S. Bernanke said yesterday that the scale of Fannie Mae’s and Freddie Mac’s mortgage investments could pose risks to the financial system, and he called for them to limit their holdings almost exclusively to loans for affordable housing.
…
His solution: “Tying the portfolios to a purpose that provides measurable benefits to the public would help to ensure that society in general — not just GSE shareholders — receives a meaningful return in exchange for accepting the risks inherent in the portfolios,” Bernanke said in the text of remarks prepared for delivery by satellite to a gathering of community bankers in Hawaii.
March 6th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Real Estate

Buffett’s Newest Letter to Shareholders

Buffett’s letter to shareholders. Always a required read for investors.

We’ve come close to eliminating our direct foreign-exchange position, from which we realized about $186 million in pre-tax profits in 2006 (earnings that were included in the Finance and Financial Products table shown earlier). That brought our total gain since inception of this position in 2002 to $2.2 billion.

Interesting. The following (and more in the letter – page 15) is extremely important.

As our U.S. trade problems worsen, the probability that the dollar will weaken over time continues to be high. I fervently believe in real trade – the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year – imports for which we exchanged no goods or services. (Ponder, for a moment, how commentators
would describe the situation if our imports were $.76 trillion – a full 6% of GDP – and we had no exports.) Making these purchases that weren’t reciprocated by sales, the U.S. necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced.

Related: On Warren Buffett – 2004 Annual Report by Buffett

March 2nd, 2007 by John Hunter | 3 Comments | Tags: Economics, Investing, Stocks

China Economy Report by the World Bank

Highly recommended: the World Bank’s latest China Quarterly by Brad Setser:

Most likely because more and more components are made in China. Stage one involves shifting final assembly to China. But once the one-off cost savings from that shift have been realized, getting more cost savings requires shifting parts production. Stage two consequently involves shifting component production to China. The development of an internal Chinese supply chain for its final assembly plants is, I suspect, a bit reason why China’s trade surplus has increased so dramatically recently.

Brad’s blog is one of those in our blogroll for a reason: when he highly recommends a report that is a good indication of value. Enjoy reading the report.

Related: Top 10 Manufacturing Countries – Manufacturing Data – Accuracy Questions – Manufacturing Jobs Data: USA and China

February 17th, 2007 by John Hunter | Leave a Comment | Tags: Economics

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