A Third Of The Poor – Aren’t

Robert E. Rector of the Heritage Foundation has released his latest research on poverty in the US. The numbers on many of the 37 Million “poor” are surprising. Before jumping into Rector’s work let’s define poverty. The US Census Bureau uses the Office of Management and Budget’s Statistical Policy Directive 14. In 2005 the OMB defined the Poverty Thresholds at $9,367 – $43,254 depending on family size. (U.S. Census Bureau Report)

Does the high end of that spectrum seem, well, high? It should, the same report lists the median household income in the US for 2005 at $46,326. But it gets better because “The official poverty definition uses money income before taxes and does not include capital gains or noncash benefits (such as public housing, Medicaid, and food stamps).” – Appendix B. Which means if you have a large family and are using food stamps you can actually be both poor AND above the median household income. But that could be an extreme case, right? So let’s take a look at the top third of the poor and see just how nice “poverty” can be.

The Top One Third of the “Poor” in the US:

  • Own a 3 bedroom 1 1/2 bath home worth $95,276 and have more living space than a European (Poor Americans have 439 sq ft per person while the average, not poor, European has 396 sq ft per person).
  • Own two cars.
  • Own two or more TVs – and most (75%) own a big screen. (Which you need to get the full enjoyment out of your cable or satellite feed)
  • Own a computer
  • Own a cel phone & a land line
  • Own a stereo, dishwasher, microwave, DVD player & have air conditioning

When it comes to food – obesity, not malnutrition, is the greatest risk for today’s poor. But thankfully everyone in this group is able to get “important medical care” for such problems. Now this is not to discount what we must apparently dub “extreme poverty”. The bottom 10% of the poor don’t own a phone while 7% of the poor live in “over crowded conditions” (defined as more than one person per room). Extreme poverty is something that needs to be addressed, but remember the above numbers the next time a politician wants to raise taxes on the “rich” (middle class tax hikes) to help the “poor”.

When you think about poverty what comes to mind is homelessness and hunger – not big screens, houses, and cars. It seems to me that charities not the government are really fighting the war on poverty. If we want to help the truly poor, we should stop taxing the mid-middle, and upper-middle class to give nicer stuff to the lower-middle class. Gutting such misguided government programs will free up cash to go to soup kitchens and homeless shelters. No one wants someone else to go hungry, but also, no one wants to buy someone else a big screen. The sooner we make the politicians honest about the real problem, the sooner we can actually start fixing it.

Bill To Increase Cigar Tax 20,000%

Stunned? You’re not the only one:

“I thought there was a typo. I thought they meant 10 cents per cigar, not $10 per cigar. I was stunned like everyone else,” Sharp said.

Currently the tobacco tax is 4.8 cents per cigar and 39 cents per pack of cigarettes (1.95 cents each). The latest bill will raise those to $1/pack for cigs and $10/cigar. The increase of 150% on cigarettes is ridiculous but the cigar tax is off the scale.

The average aficionado smokes about three cigars a week at about $3 to $5 apiece, according to the cigar association.

The tax would mean that relaxing past time would go to $13 to $15 for the exact same cigars! Of course the true tragedy is that (as always) the poorest cigar smokers will be the hardest hit. For those that can’t afford the sweet nectar of a hand rolled smoke, machine made cigars typically run between 50 cents and a dollar apiece. So a poor man’s cigar relaxation costs about as much as everyday acceleration found in a Coke. Imagine paying $11 for a 16oz bottle of Coke.

With the tax the country’s cheapest cigars will instantly cost as much as the nicest your local humidor has to offer (which will then cost $20 instead of $10). In essence, taking cigar smoking away from the poor and allowing only on the rich to enjoy it. I thought the Democrats were supposed to give things to the poor.

And what about the tobacco worker’s (we always seem concerned about the tobacco farmers in this country) jobs? Hav-A-Tampa alone employs 900 workers in the Tampa area and doesn’t make a bad smoke. I coincidentally enjoyed their wares just last night (research for this article of course). I believe Eric Newman, who runs the Tampa business founded by his grandfather Julius Caesar Newman and employs many people in his small cigar factory said it pretty well:

“Why don’t we just go out of business?” Newman said. “Here, you can run our company, Mr. Government.”

Now what could possess such a flagrant taxation bill? Well the poor, sick, dying children – or so they would have you believe. This tobacco tax has been dubbed to help the children, but that’s a bit of slick marketing. This bill defines children as anyone 25 years of age and under.

Let me say that again: ANYONE 25 years of age and under. So if you are a 25 year old male that makes $82,000/year with a house wife of 23 and two small children, guess which of you are eligible for this coverage? All four of you. This bill is not helping “children”, or the “poor”, or the “uninsurable”. This is an end-run to get Universal Government Health Care covering the bottom fourth of the human age range. A few more bills like this and we will have Hillary-Care without the panic inducing name.

Thankfully, for tax payers and cigar smokers Bush has said he will veto the bill. But what happens after ’08 is anyone’s guess.

Welcome To The World, Here’s $500

California is looking to pass a law that would give EVERY baby a $500 savings account. And they do mean every baby, since it will be "regardless of their parents’ income or immigration status." I’m sorry, what? Come to America to have your baby illegals!! Not only will we allow your babies birth create an "anchor" for your immigration status – we’ll throw in $500 cash. Has the government gone completely mad?

Sadly, it gets much worse when you actually think about this proposal. Setting the illegals question aside lets look at the math behind this "encourage savings" project that will only cost California tax payers $285,000,000 each year. The article states that "If families added $50 a month to the state’s initial contribution, the savings account would grow to nearly $17,500 at 5 percent interest over 18 years." ACTUALLY, if you know how to use a financial calculator (and set it to monthly payments of $50 instead of yearly payments of $600), the account will really grow to $18,687 (though you are supposed to give back the initial $500 at that point so $18,187). What it fails to point out is that if families saved the $50/month WITHOUT the governments $500 it would grow to $17,460. Well suddenly all that growth doesn’t look quite as impressive does it?

Beyond that, you can simply visit your local bank to discover that a 5% savings account is a tad optimistic. I called my broker and found my current money market rate to be 4.875% – which is actually up with rising interest rates. So really 3-4% is a more realistic CD/savings account rate. Change the ROI to 3.5% and the governments magic $500’s interest drops from the already low $727 to a mere $438.

But wait, there’s more! When you take into account inflation the money is worth even less. Inflation in this country is typically 2-3%, so we’ll use 2.5%. This means $438 of free government interest in 18 years will be worth the equivolent of $98 in today’s money. Everyone give the governement a standing "O" – they came up with a way to give everyone $98 for college, and it only costs $285 MILLION dollars a year

Now I hate to beat a dead horse, but there are a few more glaring problems with this great idea. First of all, undoubtedly the program’s cost stated in the article only accounts for the actual $500 of savings multiplied by the number of babies born. On top of that you will also have the efficient government administration of millions of tiny savings accounts. Think social security. And speaking of social security, we all know what happend to the money being saved for the good of the people. That’s right all the money was raided and replaced with a thick stack of IOUs. Don’t think it won’t happen here.

If the government wants to encourage savings it should try teaching math in school. I mean practical math. Financial math. Barring that, it could run community service announcement ads extolling the virtues of savings. This would in the end prove less expensive and more effective than this bill.

What the government should really try to increase is INVESTING not savings. Let’s take our earlier example of $50/month for 18 years and instead of saving it at 3 or 5% lets invest it. A good mutual fund will average around 12% over the long run. Invested, that $50/month payment would grow to $37,893. Adjusted for inflation your looking at the buying power of $28,369. And since the government didn’t give you the wooping $500 head start, you can spend that money on anything you want – free of government restrictions. Oh but the government will take 15% of your gain in taxes to help them pay for programs that encourage illegal immigration -oh- I mean savings.

Housing Boom Levels Off

Another article about "the end of irrational exuberance" in the housing market. This one is more rational with less gloom and doom and more reality check. Not only for the excited home owners, but also the 250,000 new realtors wanting to cash in on the boom.

During the boom’s peak from 2002 to 2004, the National Association of Realtors (NAR) saw memberships soar 26 percent. Today, over 1.2 million Americans call themselves Realtors.

While many thought a real estate license would be an easy way to make money – most are learning the opposite. Like any commission job, there is more to sales than showing up. And even with the right sales techniques, it can take a while to buildup your sales pipeline.

The NAR reported in 2005 that those who have been in the business for two years or less had an average income of only $12,850 a year. Long-time brokers – those with at least 26 years of experience – had an average of $92,600.

Thanks Dre

Retirement… Now!

So I’ve been thinking about retirement a lot lately… aren’t we all right? Of course the more fun question regarding retirement is not how, but WHEN can I finally kick this job to the curb and live the good life?

I decided to find out. A few things had to be established before we could jump into the math. First of all we will assume that the investments are in the stock market which is the easiest and most common way to save for retirement. The stock market averages 12-12.5% return and inflation runs 2-2.5% so we will assume a real return of 10%. We will compute money invested on a percentage of income basis so that it can be applied to anyone weither you make $20k/yr or $200k/yr. Most people will make more money later in life than they do now. The equations will still hold – the amount you retire with will be a function of your average income during your career.

One last thing had to be decided. How much money do you need to retire? Well the experts claim that you can live off of an amount substantially less than your income due to lower taxes, no kids, (hopefully) no debt ect. Many say 60% – we’re going to assume extreme frugality and say that you can squeek by on 50% of you income and actually retire at that point. We have also setup to less painful levels of retirement. Retirement at your income level – which seems to be working for you now so it should in the future. And finally the good life of retiring to double you current income level. Nice. The results are below:


The Number Of Years Of Investing To Reach Retirement Income

(% Pre-Retirement of Income)