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Jeffrey Waks

Accounting Professional

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Jeffrey Waks

US Tax Policy A Flash Discussion

Jeffrey Waks · Feb 10, 2020 · Leave a Comment

Tax policy in the United States is in a current state of confusion.  For there to be coherent US tax policy there must be a level of agreed upon government spending.  During the period of 1998 to 2009 state revenue was on the decline since tax policy law is latent.  As the shift of retail sales became more prevalent on the internet state sales tax revenue declined.  As of 2019 many states now tax online internet sales; this enactment has decreased state budget deficits or led to state budget surpluses from 2010 to 2019. In the early 1970’s the administration enacted revenue sharing laws for all states with the Federal government.  The revenue sharing program contributed to state shortfalls in revenue during the 1998 to 2009 period, although this is not the only reason for decreased tax receipts as a percentage of GDP in nominal terms.

At the present time state sales tax revenue has recovered.  However, budget deficits remain at the Federal level due to multiple tax cuts without the proper spending cuts.  It appears that society does not want a reduction in the level of government spending.  As a result of the tax reductions we are left with soaring deficits.  If society deems the level of government should be where it currently is at, then tax cuts do not make for good tax policy unless spending is reduced.  The last time the Federal budget was balanced was in the latter half of the 1990’s.  It does appear that government spending must be in a relevant range of around $3.25 trillion dollars per fiscal year.  Current tax revenue is around $3.25 trillion dollars per year.  Although current spending is $3.25 trillion plus the $1.0 trillion deficit, or $4.25 trillion.  However, there seems to be no way to cut $1 trillion from domestic spending.  Keep in mind that we are running $1 trillion-dollar deficits in 2019/2020.  Also, note that social security and Medicare do not contribute to the Federal deficit because they are self-funded and not included in domestic spending; never mind the fact that the OASDI program is not taking in enough money to cover outlays in the out years, that is a separate issue.  As per the data published by the Bureau of Economic Analysis the average historical percentage of GDP for tax receipts is about 17.5%.

Until there is the political will, trust and understanding among the Executive and Legislative branches of government the budget will not be balanced.  Consequently, there is a point where our currency value, interest rates and foreign and domestic policy will no longer serve the constituency; folks we are there now!  In conclusion, voters must educate themselves on this important matter, otherwise we will all suffer the consequences; not to mention the suffering that lies ahead for our children.  Below is my analysis of the numbers taken from the Bureau of Economic Analysis www.bea.gov

2018 Tax Revenue $3.25 Trillion.

2018 GDP  $20.580 Trillion

Percentage of tax revenue to GDP:  3.25/20.58 = 15.79% of GDP

2018 Tax revenue $3.25 Trillion

2019 Budget Deficit $1 Trillion

Tax Receipts plus deficit is the current collection needed ($1 plus $3.25=$4.25), so $4.25/$20.58 = 20.7% receipts required as a percentage of GDP.  The current deficit is $1/$20.58 = 4.6% of GDP.  This is too high for our economy since we are running a deficit.  Conclusion:  15.79% may be too low and 20.7% too high for tax revenue as a percentage of GDP.  If the optimum tax revenue is approximately 17.5% of GDP for an acceptable level of government in historical context, then we need some combination of spending cuts and tax increases.

Source:  Bureau of Economic Analysis:  https://www.bea.gov/

By Jeffrey Waks, Accountant and Financial Analyst

October 8, 2018

Accounting Staff and Senior Staff Support Positions

Jeffrey Waks · Feb 8, 2020 · Leave a Comment

Accounting Staff and Senior Staff Support Positions

Accountants in mid-level staff support positions must continue to reinvent themselves in order to provide meaningful data analysis to the management they support.  As software systems have evolved, many companies found themselves investing in software over a decade ago with the advent of Y2K.  As a result of competitive cost pressures, organizations may not have the opportunity to keep pace with the investing cycle.  Consequently, these companies are unable to take advantage of new economies of scale from the latest software features.

However mid-level staff must play an important role to enable the organizations to keep pace with competition.  Mid-level staff can do this by utilizing data mining tools such as Excel, Access, Domo, Crystal Reports and other report writing and data mining tools.  By utilizing data mining tools staff can come up with advanced ways to look at complex data outside of the accounting system when these accounting systems do not provide the data in the format required by management.  Staff can set up queries, pivots, VLOOKUP’s, If then, and sumif equation’s in  order to accommodate analysis for decision making that moves beyond the confinements of the organizations accounting software system.  This becomes especially true if nomenclature of master file level data changes and cannot accommodate analysis by your traditional accounting system.  There may also be industry, customer and vendor changes in requirements that cause companies to work outside their accounting software systems.  For these reasons it is very wise for staff accounting personnel to keep pace with the innovative data mining tools and methodologies available in the market place, in order to provide meaningful data analysis to top level and mid-level management.

This process of educating mid-level staff is also very important to Management.  Management must make sure its workforce is well trained, aware of these issues, and how to deal with them.  Solutions for such outcomes are simple education, mentoring and collaboration.  Knowledge workers must share and be encouraged to share capabilities with each other in order to raise the knowledge level of all staff.  Corporate Human Resources and Executive level staff must engage in this process in order to achieve their desired results to remain competitive in today’s ever changing business environment.

By Jeffrey Waks, Accountant and Financial Analyst

March 2, 2016

Technology Trends In Accounting and Financial Analysis

Jeffrey Waks · Feb 8, 2020 · 46 Comments

Technology Trends in Accounting and Financial Analysis

Current trends in the Accounting and Finance profession are affecting organizations and professionals alike.  With the evolution of technology in software, artificial intelligence, storage and cloud computing a skills gap is possible to experience.

Organizations must be progressive in pursuit of technology that helps experience economies of scale there by reducing costs in order to remain competitive.  Accounting and Finance professionals must adapt to developing data mining, analysis and reporting techniques.  Software tools such as Alteryx, Access, Excel, Report Writers and SQL applications are used extensively in organizations today.  Accounting and Finance professionals who can utilize these tools will continue to add the value to organizations that will give them career opportunity and increasing wages.  Data storage has enabled organizations to harness data banks with more and more detail.  This data must be synthesized and analyzed in order to be utilized effectively.  As a result, Accounting and Finance professionals are called upon to work with large data sets.  Skills in analyzing large data sets are very valuable, allowing companies to make more informed decisions at a faster pace.  Artificial Intelligence applications are allowing organizations to reduce head count.  Accounting and Finance professionals can take advantage of this opportunity by understanding artificial intelligence applications and figuring out how to utilize and help implement these applications.

With the advent of software as a service, data storage; cloud computing has become the norm.  Accounting and Finance professionals must educate themselves in cloud computing and analytics applications such as accounting ERP systems, Microsoft Office 365, and Google Applications in order to remain competitive and increase earnings potential.  Many Accounting and Finance professionals are obtaining certifications in Financial Analysis, in order to take advantage of big data, software, storage and cloud computing technological advances.

By:  Jeffrey Waks, Accountant and Financial Analyst

October 16, 2019

Social Security Solutions Made Simple

Jeffrey Waks · Feb 7, 2020 · Leave a Comment

Social Security or the (OASDI) Old Aged Survivor Disability Insurance is comprised of two taxing components.  The first tax component is the old aged portion which is a tax on wages of 6.2% on wages up to $137,700 in 2020.  The second is Medicare which is a tax on wages of 1.45% with no wage limit.  An additional 0.9% in Medicare taxes applies to individuals with annual earned income of more than $200,000, and $250,000 for married couples filing jointly.  The employer matches these contributions at the exact same rate. 

Do not let the government fool you; this program is funded by the US citizens tax paid and is NOT included in the annual Federal Budget Deficit.  The Social Security trust fund is currently in deficit yet will receive enough general revenue transfers (financed annually by your taxes) to pay full benefits until 2034.  Medicare’s trust fund will go belly up in 2026.  By law, Social Security cannot contribute to the federal deficit, because it is required to pay benefits only from its trust funds. Those, in turn, are funded through the dedicated payroll tax of 12.4 percent of income, split evenly between employees and employers, levied on income.  The program’s revenue and expenses are accounted for through two federal trust funds that have operated with large and growing surpluses in recent years, and they finished fiscal 2018 with an estimated $2.89 trillion. By law, Social Security must invest these surplus funds only in special-issue U.S. Treasury notes, which have the same full faith and credit guarantee as any other federal bond.  The trust fund surplus will be drawn down as an aging population claims benefits, and as the U.S. fertility rate continues to decline, which means fewer workers are coming along to pay taxes into the system.

A second argument that Social Security contributes to deficits is related to the longer-run outlook of the program. The trust funds are projected to be exhausted in 2034; at that point, incoming revenue would be enough to continue paying only about 75 percent of promised benefits.  We might or might not reach that point – we could eliminate much of this long-range shortfall by gradually increasing payroll taxes and raising the cap on covered income. I do not advocate the reduction of benefits by further increasing the full retirement.

The solutions to this regressive tax law are to reduce the tax rate from 6.2% to 2.2% and remove the cap on taxable wages of $137,700 to unlimited.  Next is to increase the Medicare tax to a flat 1.75% with no limit and omit the .9% tax altogether.  In addition, income from capital gains and dividends should be taxed at 1% for social security and 1% for Medicare up to gains of one million dollars indexed to the Chained CPI.  Also, the government should include income from royalties in excess of one million dollars and tax the amount over at 1% each year.  The effect on taxes of all US citizens would be a reduction in tax of up to $5,921 per year (6.2-2.2+.3+.9).  In all likely hood, due to the regressive nature of the tax burden on those earning up to $137,700 per year is that this money would be spent in the economy.  Due to the increase spending the multiplier principal would manifest itself by increasing GDP by some factor up to and greater than $5,921 per wage earner per year.  The increase in consumer spending as compared to the stagnate return of surplus funds invested in special-issue U.S. Treasury notes which stays invested and therefore not spent would further increase GDP.  As a result, the Social Security System and Medicare would be solvent for as far as the eye can fathom.

By transferring the money tied up in government investments at low returns to consumer spending would be a GDP increase that is completely factual.  The increase GDP can be proven by taking the wage base and multiplying it by the tax rate as compared to the current tax revenue and rates found on the US Government web sites for Social Security and Medicare.  Next all the individuals who do not have W2 wages who do not pay this tax would do so because capital gains and royalties would be taxed at 1%, a small price to pay for the systems solvency.  Transferring this money to the consumer spending side is multiplier positive and economically expansionary monetarism, monetizing this pool of money.  The increase in GDP would increase the wealth of all US citizens in all classes of income and assure Social Security and Medicare to all without placing a burden on those who make up to $137,700 per year.  Those who earn more than $137,700 per year would have a tax decrease of the $5,921 offset by a small marginal increase in tax by taxing capital gains and royalties along with all wages over $137,700 per year.  There would be a reduction in taxes to employers who mostly pay taxes on wages of less than $137,700 per year which is a new pool of money entering the economy.  The business owner would then use the savings as desired further increasing the GDP due to spending and the multiplier principal, again monetizing the tax reduction.

In conclusion, this type of policy would satisfy the aristocracy and common house holds who are kept at bay by the aristocracy.  This policy can be tested by using the numbers from the web sites of the Federal Reserve, Bureau of Economic Analysis, Social Security, Treasury Department and Bureau of Labor and Statistics.  Feel free to do the math and test my conclusions on the following web sites:

https://www.federalreserve.gov/
https://www.bea.gov/
https://www.usa.gov/federal-agencies/social-security-administration
https://home.treasury.gov/
https://www.bls.gov/

By:  Jeffrey Waks

Accountant and Financial Analyst

February 7, 2020

What Does The Federal Reserve Really Do?

Jeffrey Waks · Feb 3, 2020 · Leave a Comment

The Federal Reserve is the central banker in the United States.  The Federal Reserve is responsible for banking regulation, money supply, reserve requirements placed on banks, printing money and interest rate policy.  What the Fed really does is expand the monetary base in the economy.  What this truly means is a fascinating concept in the economics of money supply that is terribly misunderstood and misused.  Let’s Begin!

First to understand the Fed one must understand the multiplier principle and the concept of new money.  The multiplier principle simply stated is what a dollar spent in the market creates.  In other words when you spend a dollar, how many times does it turn over in the economy, or what factor does the dollar create.  If a dollar spent means another dollar spent, then the factor is two times; this concept is also known as the velocity of money.  Second is the idea of new money.  Equity is not new money.  Equity is normally just a transference mechanism.  In other words, a dollar invested by a person already had is a dollar sitting idle in a regular common equity share.  Investment dollars are normally not spent but sit idle until a dividend is perhaps paid.  This dividend was someone else’s money, often is reinvested, and therefore never really expands.  However, when options are attached to an equity share, if the call is covered, then these dollars will mean new money entering the system.  Options on equity shares are a fancy and tricky way of issuing debt in the equity market disguised as equity.  On the other hand, when the Fed prints money never circulated, and then loans it out, if it is repaid it is expanding the monetary base because it is new money injected into the system.  The Fed was designed to issue debt, and subsidize the governments demand for money, hence we the people.

Many people think debt is bad.  Debt for the common household is not a good idea unless there is more than enough cash flow to service the debt.  Government debt can always be serviced by printing new money and issuing public debt if the public, or a government is willing to purchase the debt instrument.  Government debt is new money entering the system expanding the monetary base.  This new money is turned over in the economy and has a multiplier effect.  As a result, government debt is the only real way an economy can expend outside of productivity increases and consumer activity.  Back in the 1980’s and early 1990’s the common thought by supply side economists was that too much government debt would eventually bring down the economy as Ross Perot, the presidential candidate in 1992 tried to convince the voter; well after 30 years this never happened.  Why?  The reason the economy never came to some cataclysmic failure was because government debt was still purchased and serviced.

In the 2008, the markets were in poor financial shape since the banking system was not supported by debt service, mostly from the housing markets poor quality of debt under the Federal Reserve chairman Alan Greenspan’s idea of deregulation along with the Congress.  What happened then?  The Federal Reserve embarked on a very aggressive monetary easing policy initiated by Ben Bernanke post 2008.  The expansion of the money supply led to the longest economic expansion in the United States history that is still going on from 2010 to now.  All the while government budget deficits increased, national debt increased, and wages did not keep pace with real inflation.

Currently the national debt is $23 Trillion, and people and governments are still willing to purchase it.  The idea that debt will bring the US economy down is a fallacy of great proportions, and at best a lie to keep the common voter confused by the aristocracy.  Had Ben Bernanke and the Federal Reserve not acted, the US economy would have gone into a downward spiral.

Consequently, debt that is good debt, serviced by the borrower, is new money entering the markets that expands the monetary base; this is known as the modern monetarism theory, not to be confused with supply side economics debunked trickledown theory, which is just a game to feed the power of the aristocracy.  To understand this more clearly one must also understand the governments published inflation rate; for it too is a fallacy founded to help the power of the aristocracy.

The US government reports inflation as a percentage of price level changes.  This inflation rate calculation is extremely complex and considers some very misunderstood concepts about product and service utility that raises price, then lowers the published inflation rate; in addition to other methods that skew this number. A person might ask how that could be.  Remember your wage cost of living raise is calculated based on the governments reported inflation rate.  This is the main reason wages do not keep pace with inflation.

First let’s discuss utility, and features of products and services relative to the inflation rate calculation.  Utility is the benefit a buyer receives from a new feature of a product. For example, if a TV or cell phone contains a new feature that you do, or do not use, the price goes up regardless.  Due to the utility factor, the inflation rate of the item can decrease due to the benefit the government calculates from the utility they feel the consumer derives.  This means many times the inflation rate decreases for that product because of the calculated benefit.  This is both complex and misunderstood, many people do not benefit from the utility theory if the feature does not create real productivity increases.

Next is the concept of stripping out volatile energy and food prices.  Consumer’s use energy and food daily.  This means the inflation and deflation these categories of goods produce directly impacts a family’s personal inflation rate and non-discretionary spending.  Consumers use energy and food more than any other type of product.

Next is the inclusion of items that most consumers purchase once in their lifetime, or very seldom.  A house is purchased rarely, sometimes once in a lifetime.  Cars, appliances, roofs, air-conditioning and many other items are purchased every 5-20 years.  As a result, these less frequently purchased items only affect non-discretionary prices when the purchase is made.  This is a technique that further blurs the real inflation rate increasing the power of the aristocracy.

Consequently, inflation rates result in calculations that are higher or lower than most family’s experience.  This causes inaccurate wage increases because companies normally give cost of living increased based on the consumer price index which is the inflation rate calculated. 

Normally these indexes result in lower rates of inflation than the family, or consumer experience which contributes to wages not keeping pace with real inflation.  These calculations the government publishes are not developed by political parties and bear no relationship to the parties in office.  Calculations from the government are based on governmental regulations set forth that affect these entities methodologies of calculation.  These calculations and regulations are derived from economic advisors’ discussions with legislators, cabinet leaders and agency leaders and Bureau of Economics and Labor.  Remember inflation rates can be different depending on geographic location.  Consumers should make decisions based on their own personal inflation rates to reduce financial risks to their family.  So now I ask the question who is fooling who here?

By Jeffrey Waks, Accountant and Financial Analyst

January 14, 2020

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