This is a 1958 Corvette, and when it came out of the factory, people paid higher income taxes than they do now. Image from Wikimedia Commons.

Tax Day has just passed by, and there has been customary grumbling in some circles about how awful income taxes are in the United States. However, most of the data on taxes indicate that Americans are actually paying the least they have in decades. The tax burden is lighter on nearly every segment of society.

Politicians wonder how we wound up with a deficit

The 1950s were an ideal decade to a lot of people. Wholesome and clean television shows like “Howdy Doody” and “Leave it to Beaver” ruled the airwaves; people pursued the American Dream with gusto and patriotism; and they paid more in income tax — before Medicare and Medicaid ever existed, according to USA Today. Average Americans devoted about 27 percent of their gross income to taxes from the 1950s until the 1990s, when the tax rate began to trail off. In 2010, it was down to 23.6 percent of gross income. Were taxes to be raised back to 1950s levels of taxation, it would raise approximately $500 billion. According to MSN, the Internal Revenue Service estimates that it issues more than $328 billion in tax refunds every year.

The beneficiaries

The people who have benefited, at least in some way, from lower income taxes and some generous tax breaks are poorer households, according to CNN. It was widely reported that the Tax Policy Center found that 45 percent of households did not or would not have to pay a dime in income taxes. Not having to pay taxes does sound attractive, but 68 percent of those people earned $50,000 per year or less. For people who earned $500,000 to $1 million per year, only 1.6 percent didn’t owe or have to pay any taxes, and only 1 percent of people who earned $1 million or more didn’t owe or have to pay. Still, the tax burden placed on the wealthiest seems disproportionate even to the wealthy. Charles Munger, right hand man to none other than Warren Buffet, said at a recent Berkshire-Hathaway conference that hedge fund managers paying lower tax rates than “professors of physics or cab drivers” was “demented,” according to the Motley Fool.

IRS not immune to fraud

The Internal Revenue Service is collecting less and paying more these days. The IRS wound up paying more than $12 million to dead people in a tax scam ring, according to MSN. More than 5,000 returns were filed fraudulently using the names and Social Security numbers of deceased individuals in the hopes of fooling the IRS into cutting a check to someone who wasn’t alivet. A man in Florida was ordered to apply for an Electronic Filing Identification Number, which was used by others after he received it to find recently deceased people and electronically filing tax returns using their identities. The IRS has recovered more than $800,000 from Bank of America accounts and more than $700,000 in Chase accounts used for this purpose.

Sources

USA Today

CNN

Motley Fool

MSN

Americans are still keeping a tight hold on their cash.

Warren Buffet seems to believe that, despite what other experts are saying, consumers won’t find debt relief any time in the near future.

“Everything I see about the economy is that we have had no bounce,” says Buffet. “There were a lot of excesses to be wrung out and that process is still underway and it looks to me that it will be underway for quite a while. In the annual report I said that that economy would be in shambles this year and probably well beyond, and I think that is true.”

Buffet claims the biggest contributor to the lagging economy will be unemployment. Buffet believes that this unemployment spike will continue to “depress consumer demand for everything from energy to cars and homes.” Unfortunately, much of the economy’s turnaround is dependent on consumers getting back into spending. The signs are showing that this is unlikely to happen.

The economic turnaround

Ben Bernanke, chairman of the Federal Reserve, has cited nascent signs of economic recovery abounding throughout the market. He has been a strong proponent of consumer anticipation of better times on the horizon. However, Buffet’s argument is based on some telling facts about the market. The decline in home building dashed many hopes that the economy and credit industry turned around enough to once again push people to start buying big ticket items.

Buffet claims that debt relief for the masses is a long way off because of the seemingly unstoppable unemployment rate. “It looks like we’re going to need more medicine, not less,” he stated recently, implying that the country will need a second stimulus if it is ever to recover.

Cautions for the future

Despite some changes and government intercession, Buffet claims that more is needed. He also believes that the stimulus and programs the government has already introduced will impact the economy in adverse ways. “We have done things that raise the probability of high rates of inflation at some point,” he added. He stated that some of the government’s movements have been necessary, but could push the value of cash to record lows.

People’s futures

So people are left to wait it out and see what results the stimulus really will bring. Many people have seen the fall of large corporations and bankruptcy filings by huge companies. They take this as signs that they must continue to be cautious about their own finances and make due, rather than go out and start buying again. However, everyone agrees that consumer buying is key to true economic resurgence. Without some confidence in the market, however, that buying seems to be an impossibility. Consumers are opting to do without rather than stretch their budgets in an unknown economy.

Despite Buffet’s words

Despite what Warren Buffet is professing to the public, people are going to have to make their own judgments on what their future holds. They will have to be vigilant with their finances to find debt relief and still be able to save for retirement, college and emergencies. In the end, only time will tell how well the economy will bounce back and what state it will be in once it does.

New York Stock Exchange (photo: flickr.com)

It has often been said that if you want to get good at something find someone who’s already doing it, and do what they do. If you can learn to think like they do, that’s even better. If your area of interest is investing and wealth building, there’s no better person to model after than Warren Buffet.

Warren Buffet is by far the most successful individual investor in the history of investing. So, how do you gain access to the man, his mind, and his method? You can find a number of good books online, but here are some highlights.

Think of investing as your job

Many people approach investing in stocks as a hobby or a scheme. But the key, according to Buffet, is to investing as seriously as if it were your main job. You wouldn’t take dangerous risks with your main source of income, so don’t do it when you invest, either.

Too many investors want to get in, get rich, and get out quickly.  This leads to mistakes and unnecessary gambles. Act as though you are the owner of a business or as though your investing decisions are your main source of income.  This will lead to longer-term and more profitable investments.

Concentrate on the best

With businesses falling off big board left and right, it’s tempting to spread your investments out against the perceived risk, using mutual funds to diversify and protect yourself from the losses of any one company.  According to Buffet, this can be a big mistake. His approach is to focus on the interaction between you and the companies you invest in.

If you have done your homework, you will have a gut feeling for the companies you are comfortable with and those you aren’t. Stick with the companies that are best for you rather than investing your dollars into companies that are your 10th, 20th, or 100th choices. You’ll be better off in the long run.  And by the way, Warren Buffet never invests in mutual funds.

Keep your eye on the prize

This bit of advice might seem contrary to doing your homework, but Buffet suggests never listening to market forecasts. What he’s talking about are generalized forecasts that make sweeping predictions about the overall stock-market.  These generic forecasts tend to be useless. Choose the particular targets that are right for you. When the time and price are right for you, strike no matter what the forecasters are saying.

The bottom line is drawn by you

The pattern for success is easy to follow. Find someone who is doing what you want to do and then learn to act and think like they do. You need to have confidence in yourself to take your investment activities seriously. You have to concentrate on what you think are the right targets for you. Finally, trusting your own hard work and research, you have to strike when you think the time is right. Only you can establish the bottom line for your success. But when in doubt, it’s still okay to ask yourself this question: “What would Warren Buffet do?”