Entries Tagged 'Economy' ↓

The Silicon Valley is a fairly liberal place that has generally supported many of the Obama Administration’s moves, but yesterday  many in the tech industry do not seem happy about Obama’s proposal to effectively raise taxes on foreign income by billions of dollars.

Currently, U.S. based companies can defer corporate taxes on foreign income as long as they keep the income in another country.  Additionally, U.S. companies can deduct the foreign taxes and costs  they already paid against their income.  The Obama administration argues that this ships jobs overseas.  The problem with that argument  is that many U.S. based companies actually make more than 50% of their income from citizens of other countries.  Imagine if you are selling 1000000 units of something here in the United States, and you are selling 1000000 units of the same thing to the rest of the world, then you would absolutely need staff and offices in the rest of the world.  There is a Walmart in my hometown in China, and sure, it is staffed by Chinese people, but it also earns money from Chinese people.  Does the Obama administration think that taxing this Walmart more will bring those jobs to America?  That is absolutely ridiculous.  What it will do is that it would cut the profit margin of the Walmart in China, and the Chinese will have to suffer higher prices and they will probably just shop elsewhere.  This will reduce the competitiveness of American companies in other countries because other stores have to pay only the local taxes.

I really think this plan to enact protectionism via the tax code is really short sighted.  America has 5% of the world’s population, and a lot of the large multinational corporations have little room to expand in this country.  Just think of how many iPods and McDonalds you see everyday and you would understand that the United States is absolutely saturated with a lot of products and services and the growth rate for a company that stayed exclusively in the United States would not be as large as a company that sells to the rest of the world.  So why would the United States government punish corporations for making money from the rest of the 95% of the world?

Another consequence of this initiative that was not mentioned by the administration is that this will affect the stock prices of the bluest blue chips.  When you see those earnings per share numbers, they do include foreign earnings.  For example, Johnson and Johnson is a company that gets more than 50% of its earnings from foreign countries.  So imagine that half of its earnings suddenly had a tax of 30% compared to 2% the year before.  This will cut into the earnings per share significantly.  The result would be lower stock prices, and the further erosion of 401ks and pension funds.  What a great way to destroy more retirements.

The worst consequence is that large corporations could just pack up and leave the United States completely.  Just imagine all of the Silicon Valley greats like Oracle, Google, and Cisco reincorporating in another country with more favorable corporate tax systems and taking away tens of thousands of jobs permanently.  That would be a huge blow to the United States economy, and it may be irreparable.

So far, the reception to this plan has been somewhat hostile from many industry groups and foreign nations.  The Register in the UK states that “Obama declares war on Ireland” for its low business taxes.  In some ways, that is true.  U.S. based companies employ millions of people in foreign countries, and if the administration specifically targets foreign taxes, it is essentially targeting the livelihoods of these people.  It is also ridiculous to think that laying off foreign workers is good for America, because as the living standards of everyone else improves, they also purchase American goods.  If you take away those good paying jobs around the world, it is really worse for everyone.  The plan will supposedly raise $210 billion for the Treasury in the next decade, but at what cost to the global economy and America?

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I admit it. I watch a lot of TV, and this year I have had the unpleasant experience of turning on the tube to find President Obama when I expected some funny or smart show to come on. This has happened repeatedly in the last few months and it is scheduled to happen again on 4/29.

Because of Obama I had to watch Valentine’s Day episodes of popular comedies in the middle of March. I am sorry but it just feels out of context to see a bunch of hearts on St. Patrick’s Day and every show was just a little less funny. Next, I now no longer know which day some shows are on because several networks changed airing dates to accommodate Obama. Some shows are also trying to catch up by showing multiple episodes in the same week and that is just plain confusing.

I have no problem with President Obama being on TV. After all, he has important things to say, but is it really necessary to preempt prime time television every few weeks on every single network channel? What is wrong with a 6pm news conference when news is usually shown on TV? It is possible to communicate to the public on cable news, the internet, or radio so I think all of these prime time conferences are done at least in part due to Obama’s enormous ego.

So what does this rant have to do with finance or business? Well, the TV networks are definitely losing millions of dollars with each prime time intrusion by President Obama. These two upcoming weeks are especially important because it is what’s known as May sweeps. This means that many shows are having their season finales so advertising is generally more expensive. Also, the sweeps ratings are important to every show since they are used to determine advertising rates for the next season. These prime time interruptions are really hurting the major networks and the shows they are airing. It also hurts the local network affiliates in every city and town in America who receive ad revenue from the shows they air. Most of all, the revenue loss will hurt the workers at these broadcasters and shows. If a company is forced to lose millions of dollars every few weeks they are bound to cut some personnel. Also, many of the new shows that are trying to establish themselves are hurt by the constantly shuffling scheduling, and every cancellation of a show is equivalent to the cancellation of hundreds of jobs.  So believe it or not, Obama’s decision to schedule his news conferences during prime time instead of say 4pm or 6pm is truly hurting people.  I think one of these networks should just stand up to the White House and say no and I am sure that network will get more viewers than the rest because they would be showing something different.

By now I can already predict what Obama is going to say on the news conference because he generally says the same thing over and over. First, he will say something to the effect that we are in a difficult economic crisis and everyone needs to work together. Then he will say that he has cut taxes for 95% of Americans and he is cracking down on the greedy bankers. Finally he will end up with the cliche that there is hope for America. Basically, Obama is continuing his campaign and since he is president now he has the power to get primo prime time coverage for free!

I am definitely not the only one mad about these prime time TV interruptions. It may seem silly that I care about TV so much, but it is my leisure time that Obama is sacrificing for his own ego. After working 8 to 10 hour days, I think millions of Americans deserve to be shown something that makes them happy for 20 minutes to an hour. Millions of people want to escape from the reality of this horrible economy and real life just for a little while, and Obama is taking that away when he can choose not to. So I don’t think it’s stupid to say that if your President really cared about your well being he or she would leave your favorite shows alone. News conferences belong on news channels, and not during Chuck or Bones.

Here is an idea, if Obama seriously wants to be on TV on prime time so often then he should just get his own reality show. I am sure that will have great ratings and actually add to the coffers of the network that snags it. At least that would stimulate the economy instead of taking money away from broadcasters.

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Some readers have said that I should write more about personal finance, and less about the politics of the United States, but I think the two topics are inherently related because the government is a very large part of our everyday lives and it affects financial decisions we make in so many ways.  Some commenters have said that they were surprised I am so much of a “conservative” considering that I am from such a liberal part of the country and seem to be fairly intelligent.  I thought about this, and I realized that most frugal personal finance writers would be politically conservatives whether they realize it or not.

First of all, being frugal is all about being fiscally conservative with your own finances.   So if you are pinching pennies by using coupons and sales, then why would you want your government to spend your tax dollars without any concern to the pricetag of things?  I imagine that most frugal people want a frugal government that looks for the best price in every purchase.  Unfortunately, this is not happening at all under the current regime, and that is disconcerting.

Second, being frugal is about being responsible for what you have been given in terms of income.  Nearly every personal finance blog I have read do not support the housing bailout and other bailouts that have been happening lately because these bloggers including myself think of the bailouts as rewarding the irresponsible.  So logically, these frugal bloggers would have voted with the Republicans against the new stimulus bills and bailouts and be labeled as “conservatives”.

Next, a lot of frugal bloggers write about getting rid of debt.  This is once again another fiscally conservative ideal.  Right now the United States is in $11 trillion dollars of debt, and the new administration wants to increase it by 27%.  Granted, the 8 years of Bush was not very conservative, either, and many people believe that George Bush is not a true conservative.   For the most part I think most frugal people want the government to get rid of its mounting debt, and again, being frugal is the same as being conservative.

I think it is sad that people think of conservatism as a bad word, but I guess just a few years ago frugality was not very popular, either.   Hopefully as frugality and fiscal responsibility becomes more accepted Americans will realize that they cannot afford to have big spenders in their government.  After all, more taxes means less savings, and letting the government take more of your own ability to be financially independent is equivalent to giving up your life, liberty, and the pursuit of happiness.

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A reader of Wise Bread named Vlatro left the best comment I have ever read in two years of blogging on my article about the AIG bonuses.  Here is how it begins:

People seem to be missing the bigger issue. The tax code is now being used to punish people without giving them the benefit of a fair trial. The bonuses may be considered by some as unethical, I’m not going to waste time debating that. Has the law, as it is currently written, been broken? I don’t see indictments, trials or convictions. We just skipped the whole process and went straight to punishment. There are AIG employees receiving death threats and having their homes swarmed by angry protesters. Many of them were not the recipients of any bonuses. A Federally funded organization (i.e. supported by YOUR tax money) is providing tour buses to these people’s homes, doing every thing it can to throw more fuel into this fire. Not to mention that it was CONGRESS who authorized these bonuses, as a provision of the bail-out funds for the company.

Where is the public outrage against congress? Why aren’t their homes being stormed by angry mobs? We didn’t vote for any AIG members, but the elected officials who continue to be the beneficiaries of your tax money have betrayed to you. If you’re against the bonuses, they have played an equal part in robbing you. We’re throwing away the constitution to squelch an emotional need to act, even when the full facts aren’t available to the public.

I really suggest that you read the whole comment at Wise Bread because I don’t want to copy the whole thing.  It ends with this:

I would spend the money to mail out millions of copies of the US constitution. The government will make their end on the deal in the form of postage, and a few people might actually wake up and realize what’s happening here.

Awesome comment or manifesto if you will.

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Today I randomly stumbled onto a blog called My Wife Quit Her Job.  It is written by a guy named Steve.  He happens to be a fellow startup engineer  in the Silicon Valley who started an online store with his wife.  On his site he writes about how he and his wife worked on replacing her considerable income while she was pregnant so that she could quit her job for good to be a stay at home mom.

What this couple did was to start an online store that sells wedding linens with optional personalized embroidery, and they are now having revenues in the six figures.   The blog covers many topics including driving traffic to their store, their motivation for starting the store, and how they learned from their mistakes.  They also have a collection of funny customer stories.

I sat here and read this site for hours, and it kind of made me want to resurrect my retail “businesses” again.  In the past I have sold used books and jewelry to varying degrees of success.  I could definitely identify with some of the things Steve wrote.  Basically, you cannot just sit on your butt and hope for money to roll in with a business with actual inventory.  Also, customers can be quite demanding and and unreasonable sometimes.

I could easily start selling used books again, but it takes quite a bit of time, and the income is not passive because I have to list each individual book and ship them when they sell.  The profit margins were quite decent, but I gave it up because it just took too much time.  Right now, I am seriously pursuing writing as a side business

I would definitely quit my job if I could replace my income.  I am taking it slow and I am nowhere as successful as some bloggers who have expanded their blogs very quickly in a short amount of time, but I consider myself a plodder and I am happy with the progress I have achieved.

A little over a year ago I wrote this post detailing how much I am earning by blogging, and the grand total for January 2008 was $161.  I am happy to report that for February 2009 I have a grand total of $1016 for the month from all of my blogs and this is about 6.3 times my earning last year.  This is nowhere near my job income, but I am hoping that I could get there eventually.  I have added new streams of income including eHow and affiliate links and every little bit adds up.

I highly doubt that next February I would be earning 6.3 times of $1016 a month from writing alone, but maybe one day I will also be a wife that quit her job.

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