23 Financial Reasons Americans Don’t Want to Work




Restaurants, hotels, retailers, trucking companies, and so many other businesses are desperate for workers. Many have doubled starting pay from only a few years ago, yet they still can’t find staff. Despite all the job openings & pay increases, a significant percentage of Americans are working fewer hours, some none at all. So, what gives?

While there are many reasons for the labor shortage, probably the biggest reason is that we have a tax & benefit system that punishes working and incentivizes NOT working. In other words, it’s not simply laziness. There are financial tradeoffs people make. When the effective take-home pay of working additional hours is insignificant, why do it? In our ass-backwards welfare/benefit/tax system, you could even lose money by working more.

Government benefits are almost always means-tested. As your income increases, your eligibility can be phased out or eliminated altogether. Conversely, our tax system increases rates and phases out deductions & credits as you earn more. So, many Americans walk a fine line between the two. For example, people may gladly work a $25/hour job, but if it earns them too much, they may lose the earned income tax credit or make them ineligible for Obamacare. Thus, their effective take-home pay may be less than half of the $25, and that doesn’t even cover the cost of a babysitter. On the other hand, for the upper income workers, the ever increasing tax brackets take away their incentive to work full-time or overtime. A plumber may make $60/hour, but if he gets into a high enough tax bracket, that may drop to $30/hour. If he has his own business, it could even drop to $20/hour. So, he may decide to stop at 30-40 hours per week, whereas he might be willing and able to work 50-60 hours if his marginal pay didn’t plummet. In totality, that means less plumber availability. See where all this is going?

Here’s a partial list of the benefits that are reduced or eliminated as you earn more:

  1. Federal health benefits (Medicaid, Obamacare subsidies, Children’s Health Insurance Program (CHIP), Medicare premium subsidies)
  2. State health care benefits
  3. Supplemental Nutritional Assistance Program (SNAP), EBT, food stamps
  4. Student loan “forgiveness”
  5. College financial aid (grants, scholarships, subsidized loans, etc.)
  6. Public & low-income housing
  7. Job training & continuing education assistance
  8. Miscellaneous subsidized loan programs (housing, business startup, credit repayment plans, etc.)
  9. Subsidized legal services
  10. Local school tuition, supplies, and hot lunch assistance
  11. Daycare & babysitting subsidies
  12. Federal & state energy/heating assistance
  13. Social security benefits started before full-retirement age

Here’s a partial list of tax-related items where your effective tax rate increases as you meet certain income thresholds (either through higher brackets or phased-out deductions & credits):

  1. Federal, state, local, Obamacare surcharge tax rate brackets
  2. Earned Income Tax Credit
  3. Child Tax Credit
  4. Retirement Savings Contribution Credit
  5. American Opportunity Tax Credit
  6. Lifelong Learning Tax Credit
  7. Social Security income subject to tax
  8. Student loan interest deduction
  9. Eligibility to contribute to Roth & other tax-free or tax-deferred accounts
  10. Adoption Tax Credit

Visit state & federal benefit websites. Talk to a tax advisor. Both lists go on and on. These are only government-related items. We could add in many income-tested private charity benefits, and unfortunately, there’s a large segment of society that unscrupulously milks every dollar they can from benefits meant for the needy. However, as you see, even hard-working, honorable people can look at the lists above and conclude it just doesn’t make sense to work more, if at all. A lot of middle class Americans may shake their heads in disgust but believe this system doesn’t really affect them much, but remember: by far the biggest component of costs in the vast majority of goods & services is labor. Lack of workers means more than just poor service & longer wait times. It means higher wages & forced automation, all of which cascade to exploding consumer price inflation. Anyone notice any of that lately? 🤔

Perhaps the most fundamental concept of human behavior is a term used in psychology called operant conditioning, which essentially says that behavior that is rewarded tends to increase in frequency, while behavior that is punished tends to diminish. Of course, you don’t need a course in psychology to understand common sense…at least those outside of government & politics don’t. But politicians haven’t figured out the incredibly complex concept of [Expenses – Revenues = Deficit], so why should we expect anything else? 🙄

Much of our tax/benefit system was created with the best of intentions. Almost all of us want to help the poor & needy. And yes, richer Americans can no doubt afford to pay more. These concepts sound especially good on the campaign trail. Unfortunately, human beings will always adjust their behavior. There will always be unintended consequences. Despite the obvious failures, leftist politicians are only doubling-down with more “freebies” and punishment of hard work & success. To fix the problem, we need to do a complete 180-degree turn. Reward work, investment, and success. And as for government benefits & charity, EVERYTHING should be time-limited and capped. In other words, a hand-up, not a hand-out.


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Written by: Joe Messerli
Last Modified: 06/06/2024

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7 Reasons Why Stock Buybacks Are Awesome and Are Better Than Dividends




One of the most misunderstood topics in investing is stock buybacks, where corporations use cash to buy back, or retire, their own shares. To the average observer, this seems like simply wasting money that could be reinvested or given to shareholders as dividends. However, nothing could be further from the truth. Buybacks are simply an alternate method to distribute cash to stockholders, and they actually have greater benefits than a dividend. Let’s examine the reasons.

Buybacks Benefit Shareholders

When you own shares, you’re entitled to a certain percentage of future earnings and cash flow. When stock is repurchased, the number of shares outstanding decreases, meaning the Earnings Per Share (EPS) increases. Market price of a stock is determined by two primary factors: 1) Earning Per Share and a 2) Price Multiplier. The Multiplier varies by company and is determined by a number of factors, such as risk and growth.  Market Price = EPS * Multiplier. Let’s look at a simplified example.

Assume a company earns $5000 and has 1000 shares outstanding. EPS = $5000/1000 = $5. if the Multiplier is 20, the Market Price of the stock would be $100. Assume the company wants to distribute all $5 of it’s earnings to shareholders. If this is as a dividend, the stock price and EPS remain the same; thus, the shareholder takes home $5. If, however, the company uses that $5 of earnings to buy back stock, the new EPS would be $5.26 since only 950 shares remain. Assuming the Multiplier remains constant, the new Market Price would be $105.26. In other words, shareholders make more money with a buyback than a dividend. In this example, the stock is now worth $5.26 more, or 26 cents better than the $5 distrubuted in dividends:

stockbuyback dividend example spreadsheet

Also, because gains aren’t realized until you sell, the investor controls the timing of tax consequences. Dividends usually occur on a regular basis, so you’re taxed as you go year-to-year. With buybacks, the investor can defer the tax on profits, indefinitely if you hold a stock forever. Therefore, instead of flushing cash annually by paying taxes, it is reinvested in the business, compounding the returns. Plus, you can time your sale based on your other income & deduction amounts. In other words, with savvy planning, the investor can reduce the total tax amount paid.

Buybacks Benefit Companies

Once a company starts paying a dividend, they’re expected to pay the same amount or more every year on regular, recurring intervals. This takes away some of the control of their cash deployment. A temporary dip in cash flow may force some unwanted borrowing or the deferral of investment opportunities. Buybacks give companies control over the exact timing of cash deployment. Every quarter they can determine what is the optimal use of the cash. If a great money-making opportunity presents itself, they have the cash to go forward. If not, they can use the cash to pay down debt or buy back their stock. Also, the buybacks provide stock price stability. If their stock price dips, they can buy it back cheaper, which pushes the price back up. If the stock price gets too high, they can hold off on buybacks, which helps bring the price back down to a reasonable level. In other words, the buybacks flatten stock price variances.

Buybacks Benefit Society

As mentioned, with buybacks, companies control the timing, so they have better flexibility in investing. Generally, companies only invest in new projects when the expected return outweighs the weighted cost of capital, which is a fancy way of saying they’ll only invest in a new project if it will earn more than what individual investors can make on their own. Thus, if the company isn’t creating value, they’re better off distributing the cash to owners. And those individual investors can pick’n’choose exactly which investments make the most sense outside that company. Therefore, in an efficient market, societal capital is deployed to the most productive, value-generating opportunities. This is why a low-growth company like Coca-Cola distributes most of its cash to shareholders. The investment opportunities simply aren’t there. On the flipside, fast-growing companies like Nvidia distribute very little of their earnings. In recent years, many investors took money they earned from Coca-Cola buybacks/dividends and bought Nvidia. So, billions were invested in AI technology rather than new soda flavors.

Who Doesn’t Benefit: Government

Tax deferral and timing-optimized selling means less revenue for the politicians, which is why leftists and their media lapdogs are so vocally attacking stock buybacks & unrealized gains. Buybacks help keep cash deployed in the private sector, rather than be wasted by government. In other words, capital is better deployed to sustain & grow the economy rather than have it flushed on useless wars, campaign contributor kickbacks, inefficient bureaucracies, and other wasteful spending we see year in  and year out.

Conclusion

No system is perfect. Companies sometimes do a poor job on their buyback timing. No one can perfectly predict the future of the economy or stock price levels. Buybacks simply give companies the flexibility to optimize the profits and economic benefits. Banning or overtaxing them simply decreases overall efficiency of the economy and shifts money away from the private sector (where people are rewarded for doing well and punished for doing poorly) to government (where politicians suffer no consequences for their bad decisions and can waste money indefinity). Mathematics and logic tell us buybacks are awesome!

Warren Buffett: Stock buyback critics “either economic illiterate or silver-tongued demagogue”

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How to Make Big-Government Liberals Stop and Think

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Crime, recession, bad weather, poor educational performance, inflation,….whatever the problem, for most liberals, the ONLY solution is bigger, more powerful government. Centuries of disasters & tyranny caused by big government won’t dissuade them. No matter how many reasons you tick off why government is less efficient than the private sector, nor how much economic data you show pointing out such facts as why increasing tax rates usually lowers total revenue , they usually won’t budge in their thinking.

I’m going to give you two methods for opening their minds a bit. They probably won’t change their minds entirely, but at least these should make them pause and think a little.

1. Ask “If you won a million dollars in a contest, tax-free, would you give any of it away — to friends, relatives, or charity?” Almost no virtue-signaling liberal is going to say they wouldn’t give at least some of the money away–for cancer research, scholarship funds, suffering family members, or whatever. Follow up by asking, “Why not just give it all to the government? Aren’t they the most honorable, fair, equitable allocaters of capital?” You could ask, “What if Trump and a Republican-controlled Congress is in charge of spending that money?.” You could also point out that if you gave all $1 million dollars to the government along with 100,000 other people doing the same thing, it wouldn’t even cover America’s military spending in Ukraine the past two years. The full million would only be about .000016% of the federal spending this year alone. Close with, “Now imagine if, instead of winning that million, you worked your ass off your entire life, spending little and saving regularly, to accumulate it. Then, how would you feel giving that money to the government to spend? After all, aren’t ‘millionaires and billionaires’ evil while government good? 🤔

2.Ask the following questions:

* Would you want Trump making health care decisions for you such as the what medications & treatments you MUST take, or even if you have access to certain care?
* Would you want him deciding which countries to go to war with without Congressional approval?
* Would you want him setting the curriculum that must be taught in public schools?
* Would you like to give him the right to restrict or allow certain reproductive rights?
* Is it ok if he has the ability to give trillions of dollars to whatever voter block he sees fit without going through the usual budgetary process?
* Would you care if he had the ability with the stroke of a pen to solely change any law related to guns, health care, education, climate, immigration, and taxes?
* Would you want to give Trump the ability to add more Supreme Court justices and completely control the Department of Justice, destroying any system of checks’n’balances which might prevent corruption and ensure his actions don’t exceed Constitutional authority?

This list goes on and on. The point is that whenever you give more power to the government, eventually that power is going to be in the hands of someone you don’t like or trust, who may abuse it in ways you never thought possible. And even when you have someone in power who you support, who is unilaterally making policy decisions you want, it only sets a precedent for another leader to unilaterally do the opposite. Thoughout world history, the formula for the crumbling of nations is always the same — give the government more and more power to “fix” problems and build a perceived Utopian society, followed by the unintended consequences and the inevitable transition of power to evil or incompetent individuals who ensure the final downfall. Unless their is a libertarian backlash against the Ruling Class soon, the United States is destined to join that trash heap of history.

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Written by: Joe Messerli
Last Modified: 8/14/2023