Posted on | October 23, 2011 | No Comments
This week Doug Andrew discussed the following:
Upcoming Free Webinar
Attend our free 90-minute webinar live over the Internet this coming Tuesday, October 25th at 11:00 a.m. pacific (12:00 p.m. mountain, 1:00 p.m. central, 2:00 p.m. eastern), and again at 6:30 p.m. pacific (7:30 mountain, 8:30 central, 9:30 eastern). The topic is “True Asset and Wealth Optimization.” You’ll learn how to choose the right investments for liquidity, safety, rate of return and tax benefits.
All attendees receive a bonus hardcover copy of Last Chance Millionaire, Doug Andrew’s New York Times best-selling book.
Contrast and Comparison
One of the most simple and compelling lessons in economics can be drawn from the experience of two neighboring states and their respective experiences with taxes and unemployment.
Both states were facing budget shortfalls. Both states needed increased revenues to meet their financial obligations. Both sought to turn the tide toward economic recovery, but there’s a dramatic difference in the approach taken by each state and a corresponding difference in the results they got.
Anytime government suffers for lack of tax revenue to pay its employees and programs, it has the option of raising taxes to bring in more revenue, or lowering taxes to increase the revenue being taxed. It can either increase regulation of employees and the associated costs of doing business or it can deregulate and create certainty and confidence among employers so they’ll hire more workers.
In January of this year, Illinois chose to raise taxes to address it’s budgetary concerns. The results were swift and sure. But they weren’t the results Illinois was banking on receiving.
From an article in Business Insider:
“[I]n addition to the worst bond rating in the country, the state lost the most jobs of any state last month. The Illinois Policy Institute reported the grim news that “Illinois lost more jobs during the month of July than any other state in the nation, according to the most recent Bureau of Labor Statistics report.
After losing 7,200 jobs in June, Illinois lost an additional 24,900 non-farm payroll jobs in July. The report also said Illinois’s unemployment rate climbed to 9.5 percent. This marks the third consecutive month of increases in the unemployment rate.”
There is a clear correlation between the January tax increase and the subsequent drop in employment numbers. It’s a powerful illustration of the futility of trying to conceal the results of runaway spending by imposing punitive taxes on producers rather than reducing the spending.
If you were a business owner in Illinois, would the prospect of higher taxes motivate you to grow your business?
Faced with a similar budgetary shortfall, Wisconsin Governor Scott Walker asked employers why they weren’t hiring people. Business leaders told him they were feeling uncertainty about whether taxes were about to go up or not. So Wisconsin chose to lower taxes and to deregulate in order to provide the certainty and confidence that job creators were seeking.
The results were astounding.
Wisconsin saw jobs increase dramatically with 39,000 new private sector jobs were created with 14,100 jobs in manufacturing. Wisconsin’s non-farm growth is now two times the national average. One other happy note: the state also managed to turn a $3.6 billion deficit into a surplus in that same time thanks to the increased revenues.
Two states facing similar challenges, took radically difference approaches and got radically different results. The lesson in this for all of us is that economic growth and prosperity only occur where job creators are operating in a climate of certainty and confidence.
This is worth remembering whenever government leaders propose policies that create uncertainty and less confidence by seeking to raise revenue by increasing taxes and regulation.
Principles of Wealth Accumulation
If you’re seeking greater certainty and confidence in your personal financial future, you’ll need to incorporate proven strategies based upon sound principles. Here are two principles that can give you an edge.
The first is the miracle of compound interest. It’s a principle Einstein said was one of the least understood phenomena on the planet.
A single dollar, doubling every period for 20 periods, will grow to $1,048,000 if that growth is tax free.
If you have to pay tax on every gain your money makes, that dollar being doubled every period is instead being eaten up by federal or state income taxes. If you’re in a 25% tax bracket that means you’ll actually only have $72,000 to show after 20 doublings. In a 33% tax bracket it will only grow to $27,000.
This is why tax-deferred or taxed-as-earned investments should be avoided in favor of strategies that allow your money to actually grow through compound interest.
The second principle is that of tax-free accumulation. Most Americans accumulate their money in the worst possible place by paying tax on their income as they earn it. Then they place that money in taxed-as-earned investments and pay tax on any of the gains they make. Finally, they pay more tax when that money is transferred to their heirs.
As a result, what should have been a sizable nest egg is quickly consumed by taxes and ultimately ends up as a fraction of what it could have been.
It’s like crawling towards the finish line of financial independence when they could be running or flying. Is it any wonder why so many Americans are dependent upon Social Security and Medicare?
A better choice would be a vehicle that allows your money to accumulate tax-free now and in the future, thanks to sections 72E, 7702 and 101A of the IRS code. Not only does your money remain safely yours, but you can access it and ultimately transfer it to your heirs tax free. That’s the power of choosing wisely.
These are just two key principles of wealth accumulation. Missed Fortune strategies incorporate these and many other principles that enable you to enjoy certainty and confidence in your financial future.
Learn more by meeting with a Missed Fortune advisor.
Bonus Missed Fortune E-Book: Baby Boomer Blunders The average Baby Boomer has less than $50,000 accumulated for retirement (which means many have less than that), primarily due to bad habits and having money invested in the wrong places where economic downturns can diminish their nest egg. Download this e-book now at www.babyboomerblunders.com.