The Debt Problem

We are all aware of the debt problem that we have in the United States. The debt is currently over 16.2 trillion dollars and increasing. This represents a debt of approximately $51,600 per citizen and $141,700 per taxpayer. The debt represents a major problem with no easy solutions.

The debt and deficit can be compared to a leak in a boat. The faster the water comes in (deficit) the more total water (debt) the ship holds. At some point that ship will not be able to take on any more water and will sink. Hopefully if we bail fast enough (increase taxes and/or reduce spending), it won’t sink. But at this point, it may be inevitable without taking drastic measures. When the ship we call the United States sinks, all of the other ships will feel the waves like never before.

I believe it is probable that our government will “print” money to alleviate the problem. I also beleive that at some point, our government will have to balance the budget. If we were to balance the budget today we would remove 1.1 trillion in spending from the world economy in which the bulk of this spending occurs in the United States. I don’t believe our economy could take such a hit without going into another recession. If our government balances the budget slowly, we will end up with even greater debt to GDP ratios and will be faced with even greater deficit reduction down the road.

This leaves the inflation option.

The Fisher Hypothesis tells us that all things being equal, a rise in a country’s expected inflation rate will eventually cause an equal rise in the interest rate.

Current lenders now face the risk of rising inflation. If inflation does rise and increased interest rates follow, this represents a significant risk of loss to lenders represented by discounts in debt securities. This, in turn, produces the risk of decreased asset values and recession.

Any way I spin the issue; it always ends up in recession. Any arguement to the contrary would be appreciated so I could sleep a little more easy tonight.

Debt timebomb

Becoming an accountant

Career choices can be challenging.  I was faced with this challenge some years ago.  After considering many different ideas, I decided to be an accountant.

I knew that I wanted to do something in business from an early age.  After graduating high school I took a few classes at the local community college, but I quickly learned I wasn’t yet ready for college.

A few years passed along with a few different jobs.  I tried my hand at retail, window washing, construction, and automotive parts.  Although each job offered a great learning experience, none of them were the career I was looking for.

One day while having a conversation with my manager at that time, I told him that I was thinking about going to school for business.  He suggested that I should look into getting a degree in accounting.

After that conversation, a recent experience attempting to complete a tax return by hand and a little research, I came to a decision.  I found a rewarding career that I felt could help others.

The next 5 1/2 years were a challenging time for me.  Most of the time I worked full time while attending school at night.  I didn’t have much free time in my life, and during my fourth year of school, I somehow fit a wedding and a honeymoon into my spring break.

During my last year of school, I went on multiple interviews to find my job.  My focus was public accounting.  In my opinion, public accounting was the pinnacle of accounting. It was the specific job that the accounting classes best prepared me for.

Along with getting a couple of internships before I graduated, I was able to land a job at a well respected public accounting firm in my community.  I was scheduled to start right after school.

Graduation came and went.  With it, I had accomplished the toughest challenge of my life.  It was an accomplishment that I never imagined myself capable of and yet it felt like it came and went with relative ease.

I began working about three weeks after graduation.  In between graduating and starting work, my wife Danielle and I had our first child, Caitlyn.

I spent the next few years learning accounting and learning to be father.  They both had their challenges, but I could say that each may have prepared me for the other.

A few years has passed since that time and life has grown a bit more calm.  A new house, another baby, a CPA license and memories that will last forever.  If I had to do it all over, I wouldn’t change a thing.  I have a career that I enjoy and a wonderful family that I love.  If I had any advice to give, it would be to pick a career first then focus on the path that will get you there.  For me, it was becoming an accountant.

The Olney Family

Barack Obama wins?

It appears that Barack Obama just won the election according to Fox News….but wait. Karl Rove is now changing the tone about Ohio. Changing the channel to MSNBC and Obama is proclaimed the winner. I think Romney would have to flop a pair of aces to take the win in this election. It could be interesting. Hopefully this doesn’t turn out to be recounts like 2000.

Coastal mountains in North San Diego County

Earlier today we took a drive to North San Diego county to visit my wife’s brother. I thought I would upload a picture of the highway we were driving on. North county is known for its avocado production and we saw a plenty of avocado trees while diving through. Hass avocados were going 20 for $5 at a roadside stand. I always like driving through the coastal mountains in North San Diego County as it another great place in Southern California.

The 3 Jeeps

Mitt Romney’s Tax Plan (Part 2)

With the election coming up next Tuesday, I wanted to research some of Mitt Romney’s tax plan.

According to, Mitt Romney will push to:
• Make permanent, across-the-board 20 percent cut in marginal rates
• Maintain current tax rates on interest, dividends, and capital gains
• Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
• Eliminate the Death Tax
• Repeal the Alternative Minimum Tax (AMT)

Yesterday I looked at making permanent, across-the-board 20% cut in marginal rates and found some inconsistencies. Today I want to look at maintaining current tax rates on interest, dividends, and capital gains.

The expiration in the Bush tax cuts slated for two months from now would increase the maximum long-term capital gain rate from 15% to 20%; and increase in the maximum rate applicable to qualified dividends from 15% to 39.6%. Interest would also increase with ordinary income tax rates.

A capital gain is the amount by which an asset’s selling price exceeds its initial purchase price in which a tax is assessed. I don’t think the increase in capital gains from 15% to 20% would have many ripples throughout the economy. I believe the biggest effect has already been realized due assets already being sold in anticipation of the increase in capital gains tax. Sale of Lucasfilms and 100’s of millions of savings anyone?

Dividends are a taxable payment declared by a company’s board of directors and given to its shareholders out of the company’s current or retained earnings, usually quarterly. They are divided into two categories for taxation: Qualified and Ordinary. Qualified dividends are dividends from domestic corporations and certain qualified foreign corporations which are currently taxed the special rate of 15%. Qualified dividends incentivize individuals and businesses to invest in the U.S. Ordinary dividends are all other dividends currently taxed at ordinary rates of between 0-35% depending on other factors.

Dividends are unique because they are generally profits of C-Corporation that have already been taxed up to a marginal rate of 39% or possibly 35% overall. Once they are received as a dividend by the individual, they are again taxed by at least 15% at 2012 levels. This means that $1 of profit is chopped to possibly .61 cents at the corporate level and then chopped to between .52 and .40 cents at the personal level. If our government increases tax on dividends even more, I think it only hurts what is in my opinion as the already limited incentive that exists.

All in all, I don’t see an increase in capital gains and interest as the end of the world. What I do think is that an increase in qualified capital gains from 15% to a maximum of 39.6% could be devastating to our economy and job creation. Because of what I have explained, I strongly support Mitt Romney’s Tax Plan to maintain current tax rates dividends, both ordinary and qualified.

Romney and Ryan