Once in a while a concept emerges in the mainstream of public thought which strikes me as totally foreign, literally and figuratively. Recently one of those arrived in my digital mailbox, and I found myself shaking my head at the mention. Universal Basic Income, or UBI is back, and being tried in a pilot program in California.

Studying for a minute, I saw that it was in the city of Stockton, California, and that name triggered a thought. A quick search later I remembered why. In 2012, Stockton filed Chapter 9 bankruptcy, having gotten themselves into financial trouble before and during the Great Recession. Today, pension obligations are underfunded to a degree that threatens every other aspect of the budget.

The UBI test project will give several families $500 per month for doing absolutely nothing. At this time, the project is being funded with private funds, most likely to circumvent a taxpayer revolt. The spending habits of these families will be monitored, as well as the impact on the families’ (are ready for this?) self-esteem!

Stockton has a huge problem, along with California in general. One in four Stockton residents lives below the poverty line, home prices are rising, and wages are stagnant. Homelessness is everywhere. The argument that “something needs to be done” is undeniable. What should be done is, of course, where the disagreements begin.

Many people believe that UBI will encourage people not to work, but some people believe the opposite is true. Hence the UBI experiment. Here it gets more interesting:

  • Many Tech CEOs favor the proposal, as they worry about rapid automation replacing a large percentage of the workforce
  • “People without Borders” advocates deny that illegal immigration is the cause of stagnating or shrinking wages, so UBI is no problem
  • Various well-known economists and politicians have been supporters of UBI, including Milton Friedman (usually my Economics role model) and the late New York Senator Daniel Moynihan
  • Others argue that funds from existing welfare programs would be diverted to families who don’t need the money, exacerbating all-too common class warfare arguments

Oakland is starting a similar trial, but with $1,500 being the monthly stipend. Most people probably remember that Oakland is in the news lately for helping illegal immigrants avoid the law. This program simply fits the pattern of mismanagement that we have come to expect in some California cities.

It will be interesting to see the interpretation of the UBI experiments. I am not holding out any optimism that UBI will prove to be the “silver bullet” in restoring fiscal sanity to California’s troubles. Soon, I fear, we will all be ponying up the bailout funds for the bankruptcy of the so-called “Golden State.”

Van Wie Financial is fee-only. For a reason.

For many families, the annual trek to Orlando is the event they look forward to all year long. Did you know that the average cost for a family of four to visit Disney World for four days can now reach almost $5,000? Imagine what a whole week would cost! The costs break down as follows (roughly):

  • Hotel: $1746 (on site)
  • Admission: $1660
  • Food: $1154
  • Souvenirs & Extras: $400

This come out to over $300 per person, per day.  It is actually amazing how many people can afford to do this type of trip.  But what if you can’t afford it?  Is there any way to save money on a Disney trip? There is, so keep reading to find out how.

  • Visit on a ‘Value Day’ –Disney crowd calendars like this one can save you approximately 15% on tickets.
  • Get tickets in advance (and not from Disney) – Plenty of places offer ticket sales at a discount; AAA, Costco, ParkSavers, Undercover Tourist, etc. Be sure to do your research to avoid online scams.
  • Go all week – This is not an actual cost savings, as the total may be more expensive, but the per day cost is cheaper. For example, a day pass is around $102 but for a 3-day pass it’s $160. There is always some sort of deal going on when you spend more days at the parks.
  • Skip the Park Hopper – These passes allow you can to attend multiple parks in one day. Pick a park and stick with it for the day.
  • Book on offsite hotel – Some say that parking will offset the cost of staying at a cheap hotel, but Orlando has thousands of hotel rooms that are cheaper than the onsite properties at Disney, especially if there is not a big convention in town.
  • Consider Camping – Fort Wilderness is a great way to add a second vacation into your trip if your family is a fan of the outdoors.
  • Pack meals – You can bring food into the park (as long as it follows the guidelines), rent a locker near the picnic area and keep sandwich making supplies
  • Amazon Prime – Have pantry items delivered to your hotel room the day you arrive, no premium to buy food, like eating at home
  • Buy your Disney-branded items before your visit – The sales people in Orlando aren’t stupid, so even something for sale offsite can be at a major premium compared to what you would spend in your hometown or online.
  • Give your kids a budget – You have a budget, so why not your kids? Allow for souvenirs, but give the kids a budget of $25 each that they can spend on snacks, toys, etc.
  • Dine out for less – Split meals or order smaller portions, does anyone ever finish an entire meal from Cheesecake Factory? “They’ll always sell you more food, but they wont refund you food you didn’t eat.”
  • Apps – The Disney World Mobile App shows wait times for rides, show times, where the characters are, how to find the restrooms, and will even link up with your GPS and direct you exactly where you want to go.
  • PLAN YOUR TRIP – Look over the maps, see what shows you want to watch and times, plan how you will move around the park and when you’ll eat. You’ll avoid those I’m bored moments with the kids when it’s tempting to spend extra money.

I am ambivalent regarding being old enough to have lived my formative years in the ‘50s and ‘60s, but on balance I believe that what I am today was significantly affected by the experiences in high school and college. How many of you have wonderful recollections of growing up in a “Beaver Cleaver” middle-American household? The Cleavers live in Mayfield, which was Likely to be representative of Ohio, whereas I grew up in Wisconsin, “around the corner,” as we’d describe it.

Small town 1950s Wisconsin was pretty much like the mythical Mayfield, or perhaps even Mayberry, where doors were unlocked, and Deputy Fife kept his single bullet in his shirt pocket, “just in case.” Depending on the season, in the trunk of my car was either a set of golf clubs or a hunting rifle. In the ignition (where it belonged) was the key.

We feared the disappointment of any teacher, principal, or parent, should we mess up in school. President Eisenhower was a war hero (we won – again) who recognized the need for an Interstate Highway System to accommodate the burgeoning economy. Times were good. The country was strong and safe. Our public educational system was the best.

In the 1950s, a number of wonderful innovations were happening:

  • 1950 – the first credit card appeared, and Snoopy was born, as Peanuts was first published
  • 1951 brought the first color TV
  • 1954 – in Brown vs. Board of Education, the Supreme Court ruled segregation illegal (really, it took that long?)
  • 1955 brought Disneyland
  • 1056 produced Elvis Presley, and America’s parents were outraged; their children weren’t
  • 1957 saw us slip to second place in the Space Race, as the Soviets launched Sputnik, which produced a surge in American national pride, with a corresponding desire to regain the lead
  • Then, in 1959, Fidel Castro rose to power, and, in my opinion, the country started the slide we now call the “Sixties”

Why am I taking this stroll down Memory Lane with you? The (perhaps not-so-obvious) answer is the Trump Presidency. If that seems like a stretch, stay with me.

Following the Revolutionary War, Andrew Jackson eliminated the nation debt. However, following WWII, when the debt stood at $285 Billion, that debt was not repaid, despite a thriving economy. Right about then, politicians began looking at re-election to public office as a career. Many who were first elected in the Fifties, Sixties and Seventies stayed for decades (we allowed that to happen, sorry to say).

What have these long-tenured elected officials accomplished? Are they proud of their record? Is the country better off? Is our public education system the best in the world? Have they been good stewards of the finances, the culture, and/or our safety? I can only speak for myself, but in my opinion, they should hang their heads in shame.

Apparently, however, I am not alone, as became evident in the election of 2016, when voters opted to elect a Washington outsider. Most of us are excited that things are actually being accomplished, and promises are being kept. We are, unfortunately, not supported by Wall Street, the Mainstream Media, or elected officials. Despite our debt, now in excess of $21 Trillion, current Administration policy seems anathema to those groups. Record trade imbalances are met with opposition to Trump’s attempts for change. “Resist” seems to be the attitude. When obstructionism is the order of the day, our problems are virtually impossible to solve.

Wake up, America. No tariffs have been imposed, negotiations are ongoing, and changes are imminent. Embrace the changes we so badly need. When the only situation that is intolerable is the status quo, do something!

And, by the way, you longstanding elected obstructionist political swamp-dwellers, JOHNNY CAN’T READ!

Van Wie Financial is fee-only. For a reason.

Every so often a new cry emerges to change the way we assess civil fines for breaking speed limits and other “offenses” against our society. Some vocal people (often elected officials looking to generate revenue for their communities) want to implement a system of penalty fines that is variable according to the income of the offender. Class envy is nothing new, but class hatred and animus are growing daily, all across the planet. Unlike some European countries, variable fine proposals have not gained traction with the majority of voters in the US. Income inequality is NOT a problem; it is an opportunity.

Variable fines represent a form of class warfare. Perhaps the most fundamental form of class discrimination lies in the U.S. Income Tax Code. The so-called progressive income tax has produced the current system of disincentives, in which there are 7 tax rates, escalating with the increasing income of the taxpayer. We should note that today’s top marginal rate of 37%, while too high in my opinion, is down sharply from the 94% rate reached in 1944.

Thankfully, most items are not subject to income-based pricing, and yet wealthier people generally pay more than the less-well off, based solely on purchasing preferences. Higher-income people generally buy larger houses, more expensive cars, take more exotic vacations, and so on, but they do so voluntarily. No one holds a millionaire at gunpoint and makes him or her buy a Lexus rather than a Chevrolet. Further, once they own the car, the gasoline they put in the car costs the same (per octane content) as the minimum wage worker. Choices. That is pure American.

Growing up in rural Wisconsin, I had ambition and incentive to achieve a better lifestyle. We all knew that if we studied, worked hard, and took some chances, the better life we desired was available. After all, it was America, the Land of Opportunity. No caste system, purely a results-driven economic reality.

Among the tenets of Americanism is our desire and ability to keep our personal information private. Although we have surrendered too much information already, the desire and ability to not share our personal economics involuntarily is indigenous. Surrendering this information to a traffic court judge is anathema to our American way of life.

Speeding fines should be proscribed by state and local law, variable only by the severity of the offense. While we are on the topic, you might enjoy some speeding ticket trivia (thanks to the website joetaxpayer.com):

  • The first known speeding ticket went to the wife of the Canadian Prime Minister, who was driving 10-over the limit (in 1910!)
  • An average traffic cop earns $75k and generates $200k in fine revenue
  • 65 speeding tickets are written (on average) every minute in the US alone
  • In 18 states, judges can add jail time to the fine
  • The average speeding ticket will add $300 annually to the cost of insurance for the driver – the gift that keeps on taking
  • The fastest ticket in the US was issued in Texas in 2003 to a driver going 242 in a 75 zone (in a Koenigsegg CC8S sports car)
  • Fighting your ticket is generally 1% successful, and hiring an attorney can raise your odds to 5%, for a price generating $27 Million in annual legal fees)
  • Germany has variable fines, and the highest speeding ticket fine can exceed $15 million, based on the ability to pay (see my point about “progressive fines?”)

Van Wie Financial is fee-only. For a reason.

This week I was reminded of one of my favorite sayings, A good business deal is one where everyone walks out smiling; a good political deal is one where no one walks out smiling.

I have read and heard many descriptions of this past week’s market action as representing a “Perfect Storm,” which is probably a reference to the very intense movie by the same name in the year 2000. During the week, we saw the FED raise interest rates, Facebook get caught not properly protecting personal information, and President Trump implementing tariffs on some imports.

Unlike the crowd, I believe this week to be a colossal “Imperfect Storm.” Why? Because there was a political deal in which at least one side came out smiling. When Democrats smile and jump in front of cameras to claim victory, hang on to your wallets! Better yet, tell your children and grandchildren to hang on to theirs. This one is a doozie.

Herbert Stein (Ben’s father) was the formulator of “Stein’s Law,” which stated that, “If something cannot go on forever, it will stop.” Borrowing a Trillion Dollars a year is unsustainable. Do the math – the implications are not good for America.

In a world searching for sustainability, we are being led by elected officials who seemingly cannot comprehend the unsustainability of gigantic annual deficits and the resultant mountain of debt. Perhaps worse yet, I believe that Congressional leaders are not interested in supporting the President and his agenda. What happened to the promises made by Trump and elected Republicans in 2016? The public expressed their enthusiasm, but no one, it appears, was listening.

We must return to doing the will of the people, support the Trump agenda, and restore some fiscal sanity in this country. Your livelihood depends on it, both before and during retirement. In the words of then-candidate Donald Trump, “What do you have to lose?”

As has happened too often in recent decades, the Republican majority in both Houses of Congress, coupled with a Republican President, has imploded. Seemingly incapable of leadership, they will likely be relegated to minority status by uninspired voters come November. Party suicide by leadership. And a sad day for America, as it will most likely hasten the bankruptcy of America.

Investors should take heart that with all the new money being spent, coupled with tax rates being reduced, profits in the coming quarter should drive the market higher. Since we are unable to control the politics, let’s hope we all benefit through our investments. Make hay while the sun shines.

Van Wie Financial is fee-only – for a reason.

The Irish Rovers, in their Shel Silverstein-written hit “The Unicorn Song,” described early unicorns as playing, and loving the rain so much that they missed the boat when Noah sailed away in the ark. To this day, the song goes, “You’re never gonna see no unicorn.” Or are we?

President Trump is a unicorn in Washington, D.C. He is the one president in recent history that systematically does what he promised, unless Congress holds him back, such as when Senator McCain shot down the repeal of ObamaCare. Keeping one’s word is simply not done in politics, with the major exception of raising taxes, which is easily done by big government-loving politicians. To show his resolve, Trump actually cut taxes, as promised. Now, he is talking about doing it again, and I am enthused that “President Unicorn” may get it done.

The “Swamp,” as Washington, D.C. has rightly become known, is unaccustomed to such behavior, because “we’ve always done it this way.” How has that worked, given our $21 Trillion+ national debt, gigantic annual deficits, and loss of companies, industries, and jobs over the past few decades? The election of 2016 was about “Draining the Swamp,” and the Swamp doesn’t like it. Make no mistake about one thing – Wall Street is an appendage of the Swamp. And the Swamp hates change. Americans should embrace the changes.

Due to inane Senate rules, recent individual tax cuts (for an estimated 91% of taxpayers) were neither permanent nor significant enough to stimulate wealthier taxpayers into more action and investment. “Round 2” of tax cuts are being proposed to rectify the shortcomings of the Tax Cuts and Jobs Act. The highest marginal rates, which were lowered relatively insignificantly, need to come down again, this time by a large percentage. All personal rate cuts then need to be made permanent. I would then propose a rule change that would require a supermajority of both houses of Congress to raise taxes, except in time of declared war.

Americans are bombarded with lies about tax cuts being “only for Corporations and the wealthiest taxpayers.” The liberal media and most young people have no historical perspective from which to evaluate their opinions. Those of us who experienced tax cutting efforts from the past (John F. Kennedy, Ronald Reagan and George W. Bush) remember the positive effect they produced in terms of added revenue and prosperity. Effects of the recent tax changes are already showing up in our booming economy, and should accelerate.

Following the prosperity of post-World War II America, Congress and several presidents have spent our way into a mess. We have gone from the world’s largest creditor to the world’s largest debtor. The decline in our prosperity and civility is shameful and needs to be reversed. It was inevitable that a Trump-like character would emerge and reveal to so many of us what should have been apparent all along. When and who it would be were unknown, but it was a virtual certainty. So, Trump happened. We should give him a chance. After all, failure is unacceptable; success isn’t automatic. A unicorn is just what we needed. I’ll take Unicorn Spit over Swamp Water any time of any day.

Van Wie Financial is fee-only. For a reason.

Everyone who had money in the stock market in 2007 remembers the painful 18 months that began on October 9, 2007. Most of us would rather forget, but learning from history should help us avoid mistakes made in the past. Did most of us miss something back then?

As a general rule, not over-reacting to stock market swings is a fundamental key to long-term success. Yet hindsight tells us that “buy and hold” was excruciating during those 18 months, during which the S&P 500 Index lost about 55%. Should we all have done something different?

In order to answer that question, we should first look at Friday’s 9th birthday of the current Bull Market. On that day (March 9, 2018) the S&P 500 Index closed at 2,786.57, up from 676.53 in those 9 years. That’s an astounding 312% gain. Even better are the NASDAQ gains of 496%. Would you have wanted to miss out on those remarkable numbers?

During these past nine years there have been some very scary times in this Bull Market. The summer months of 2015, the first six weeks of 2016, and the first several days in February, 2018, were painful and frightening periods. Yet we held, and on Friday the market was already approaching its January, 2018 highs (the NASDAQ actually set a record high Friday). Should anyone have sold during these three rough periods?

Have you noticed that every paragraph so far has ended in a question? This purposeful style is meant to reflect the simple fact that there is no absolute answer. Looking back is easy, so the “right thing to do” is readily apparent. Obviously, we did the right thing by staying put. So why did it hurt so much to watch the two 1,000+ point down days on the DJIA?

While the standard answer to these questions is that long-term investing pays off, we do like to consider the economic conditions driving the markets. It should come as no surprise that the economy is excellent. Job creation, tame inflation, and more money in our pockets from tax cuts, all have contributed to the recent strong market performance. Should we be surprised?

Looking back 10-1/2 years ago, and asking the same question, would the answer be the same? Money market funds faced danger of “breaking the buck,” mortgages were failing in record numbers, large investment firms were going under and/or seeking bailouts, oil, gold and silver prices were skyrocketing, and job losses were a daily occurrence. Enough questions – those were economic bad times, and that is an understatement.

“Staying the course” is made much easier by understanding and acknowledging economic conditions at the time. Markets don’t operate in a vacuum, and politically-biased opinions are ubiquitous and should be ignored. The purpose of the Van Wie Financial Hour is to help listeners understand the conditions influencing the markets at any time. When the markets are acting sensibly, we say so, and vice versa. Knowledge is power, as the saying goes. We couldn’t agree more. Enjoy the ride, even if it gets bumpy. Bull rides are like that.

Van Wie Financial is fee-only. For a reason.

The need to be protected from escalating costs for long-term nursing care as we get older is well documented. About 70% of Americans are expected to need these services in our lifetimes. Traditional Long-Term Care insurance (LTCi) is expensive, and new underwriting standards are tightening, making it more difficult than ever to purchase LTCi at all.

How to cover the cost of actual long-term care is a dilemma for many people. When a traditional LTCi policy is purchased, the premiums are generally based on age at purchase. Premiums remain steady for life, subject only to possible across-the-board increases for the entire policyholder class. Premiums are usually waived during any period in which benefits are being paid under the policy. That’s the first good news. Also in the good news department is the tax deductibility of some premiums.

Rules for tax deductibility of LTCi premiums vary according to age and policy ownership. Here are a few of the possibilities:

  • First, the only LTCi policies that have deductible premiums are called tax-qualified plans, so ask the carrier before purchasing if the policy is tax-qualified
  • Almost all recent plans are tax-qualified
  • If premiums are deductible, there are limits on the amount of the deduction, depending on age and ownership, so be sure to check the IRS guidelines, which are reasonably generous, particularly for people over 60
  • Rules are different (usually better) when a business is involved
  • If an employer pays the premiums, that employer can deduct the cost, without adding that cost to the employee’s income
  • Be careful if you are the business owner, as the rules for you will probably be more restrictive
  • For sole proprietors, premiums are deductible, subject to age limit restrictions, but not subject to the Above-10% of Adjusted Gross Income (AGI) limitation
  • Partnerships, as well as LLCs taxed as partnerships, can pay the premiums, but the partners will have their premiums added to their partnership taxable income shares
  • Sub-S businesses are similar to partnerships, assuming the owner has more than 2% of total company ownership (stock owned by immediate family members counts as ownership to you)
  • C-Corps are treated more traditionally, as the premiums are simply treated as tax-free benefits when paid by the company directly to the insurance carrier
  • Premiums paid through a Cafeteria Plan are added to the employee’s W-2 income, and can then be deducted personally on tax returns
  • For people with HSA accounts, premiums can be paid tax-free from the HSA, up to the deductible limits by age

Traditional LTCi is expensive, because long-term nursing care is expensive. Whatever tax breaks are available to you will increase affordability of a traditional LTCi policy. Our concern is that the government is working its way out of helping taxpayers afford the cost by eliminating the entire medical deduction in 2020. Our sincere hope is that Congress comes to its senses and restores the status of the medical deduction permanently. Stay tuned.

Van Wie Financial is fee-only. For a reason.

What is a Tariff? According to Investopedia, a Tariff is simply a tax that adds to the cost of imported goods. Last week, President Trump’s talk of implementing steel and aluminum tariffs sent the market on a downward slope. Was it justified? Probably not, as even if everything that the President outlined in this plan happened, there is little to no chance that any average person would notice. However, if America continued to implement tariffs on more industries, eventually it would hit us all in the place that it hurts the most, our wallets.

There is little doubt that tariffs lead to higher costs. I don’t think there is a valid argument against that. So why would any country want to put a tariff on anything? There are a variety of reason, from politics, to government revenue, to national pride, to employment.

From a political perspective, putting tariffs on a certain industry can make a politician very popular in certain parts of the country. For instance, putting a tariff on imported coal would probably garner votes in West Virginia. Tariffs lower sales of imports and increase domestic production, leading to job (and sometimes) wage growth where that product is produced.

Sometimes tariffs are simply the best way for certain governments to raise revenue. In Costa Rica, the import tax on automobiles is astronomical. For a vehicle less than three years old, the tax is 52.29%, but if it is older than 6 years, you will pay a tax of 79.03% on the value of that car! Needless to say, cars in Costa Rica cost a lot more than they do here in the United States, and people tend to drive their cars for a lot longer. In the Bahamas, 60 percent of government revenue comes from tariffs. The basic tariff imposed on most goods is 35%.

In some instances, entire industries are protected by tariffs simply because the country places a value on their heritage of producing that product. For instance, the peanut industry in the United States is protected by huge tariffs. These run from 131% to 163.8% depending on the status of the peanut. What is the net result of this? We pay way more for peanuts than just about anywhere else in the world.

Employment is another reason that politicians sometimes support tariffs. One of the largest tariffs in US history was enacted in 1930 to increase employment during the Great Depression. The Tariff Act of 1930, or the Smoot-Hawley Tariff, raised tariffs on over 20,000 imported goods. Many economists think this act contributed to the length of the Great Depression rather than lessening it.

In the case of the steel and aluminum tariffs that Trump has imposed, we see it as mainly a negotiating tool. This wasn’t highlighted in our list because it is an unusual strategy. The main driver of this seems to be fair trade, with the benefit being employment in the manufacturing industry, but we don’t expect these tariffs to last long. We believe that Trump will leverage these tariffs to strengthen his negotiating position, get what he wants, and then remove the tariffs. It is an unconventional method of negotiating, but I hardly think anyone would argue that Trump is an unconventional President.

This week, I was listening to a Planet Money Podcast, and they said that America borrowed $80 million from its own people to finance the Revolutionary War. Obviously, that turned out to be a pretty good deal for everyone involved. This got me wondering how much we actually paid for America. It turns out, we got a really good deal.

We looked up all the major events that took place that involved land expansion in exchange for compensation and/or war in United States history. The Revolutionary war got it all started, and the total price of that one was $151 million in 1776 dollars. In today’s dollars, that is $2.7 billion, or roughly what we spend on our defense budget in the US today in about a day and a half! Our defense budget today is almost $650 billion dollars, just for reference.

The next major addition was the Louisiana Purchase in 1803. This massive land grab covered about 830,000 square miles in the center of our country. France sold us this land for $15 million dollars, which today would be worth somewhere around $250 million. This works out to about $300 per acre at today’s prices, which as it turns out, is pretty cheap. Undeveloped land in the US is estimated to be worth about $6500 per acre, or about 22 times what we paid to France.

The next one really hits home, because in 1819, Spain ceded Florida to the USA. In reality, they could no longer afford to support Florida, and wanted to get rid of it. In exchange, we gave back some land out west, and paid them $5,000,000. In today’s dollars, that is about $81 million dollars, or roughly the revenue generated by Disney in about 2 days in 2017. No, I’m not making this up.

In 1853, the Gadsden Purchase sent $18.25 million to Mexico in exchange for parts of southern Arizona and New Mexico. The real reason for this was that it contained land that was better suited to building a Southern east-west railway line, which was completed in 1883. In today’s dollars, that equates to $546 million, or about 2% of the GDP of the city of Tuscon, the largest city that falls within the boundaries of the purchase.

The last major land purchase was completed in 1867, when the US paid a whopping 2 cents an acre, or $7.2 million, for Alaska. In today’s dollars, that is $128 million. Alaska now pays out about 10 times that, or $1.3 billion, annually to its residents from its oil royalty fund.

All in all, it cost about $196.5 million dollars to buy the United States, or $3.7 billion in today’s dollars. Considering that the US economy generates about $33 million per minute in income, it would take just under 2 hours, or 112 minutes, to generate enough money to purchase the entire USA. I would say we made a very good investment, wouldn’t you?