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Join the forum discussion on this post - (1) Posts In recent years, many economists have been attracted by the possibility of obtaining better knowledge using randomised
Jim Manzi has a great article on the difficulties of obtaining knowledge about social science questions. He tells the story of a field –
I am all for more quasi-experimental econometrics applied to large datasets, to tease out better knowledge by exploiting natural experiments. By using large panel datasets, with treatments spread across space and time, I feel we gain greater external validity. And, there is very high bang for the buck in putting resources into creating large datasets which are used by the entire research community, with a framework of replication and competition between multiple researchers working on the same dataset. You might like to see a column in the Financial Express which I wrote a few months ago, with the story of an  At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales. At 8:30 AM EDT, the Productivity and Costs report for the second quarter of 2010 will be released. The consensus is that non-farm productivity was unchanged in the last quarter and labor unit costs increased 1.5%. At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending. At 10:00 AM EDT, the Wholesale Trade report will be released for June, showing inventory levels for wholesalers in the United States. At 2:15 PM EDT, the FOMC Meeting Announcement will be made, which will provide insight into how long the Federal Reserve plans to keep rates at 0%. It is assumed that there will be no immediate change in the Fed funds target rate, but any hint that rates could rise in the future could have an impact on the bond market and stock market. Join the forum discussion on this post - (1) PostsLeBron James’ state income tax attorney might have saved LeBron millions of dollars a year by employing one of the best state income tax strategies around. Lets take a peek at the King James playbook of state income tax strategies. CHOICE OF STATE INCOME TAX STRATEGIES
Like LeBron James and others you can likely better play the game of state income tax strategies.
As a free agent, LeBron had options. He could go wherever he thought he could win a title, get the most money in endorsements, where he could enjoy the best Cuban food and beach lifestyle, and maybe all three. After being courted by half a dozen teams, he had some really nice offers and some potentially lucrative deals. The biggest players were Cleveland, the New Jersey Nets, New York Knicks, maybe even the Bulls or the Clippers and of course Miami. LeBron finally picked Miami. Miami could arguably offer a lot, but I wouldn’t doubt that his state income tax attorney whispered a few sweet words into his ear about income tax strategies, like “$2-5 million a year,” that may have influenced his Decision. HOW STATE INCOME TAXES ARE CALCULATED
In fact, in the clip above from the Decision, LeBron said one little thing that might cost him over $2 million a year.
States all calculate their state income tax slightly differently but in general, the state where you have your tax domicile will collect income tax on all of your income. If you earn income while in some other state, you may have to pay income tax to that state for the amount earned there. So for NBA players like LeBron, he pays state income tax on his salary for 41 home games to his home state, and state income tax to the various states where he plays 41 away games. His endorsement income is probably taxed by his state of domicile. So what does LeBron make? On average, about $32 million a year in endorsements. This might go up if he wins a championship or might go down if he is caught with his pants down like some other athletes, but we will assume it stays the same. His contract with Miami was for about $110 million for 5 years. Of course there are bonuses, different options, buy outs etc., but we will assume a simple average of $22 million each year in salary, 1/2 of which will be played on his home court. So, if you are keeping score at home, that is about $44 million a year that will be taxable in LeBron’s state of domicile. COMPARISON OF STATE INCOME TAX STRATEGIESWhat would LeBron’s income tax strategies have cost him if he picked one of the other teams? Cavaliers – (Ohio) 6% state income tax rate – $2.6 million per year in state income taxes. Bulls – (Illinois) 3% of Federal AGI – $1.65 million per year in state income taxes. Knicks – (New York) 7% state income tax rate – over $3 million per year in state income taxes. Clippers – (California) 10.5% state income tax rate – $4.6 million per year in state income taxes. Nets – (New Jersey) 11% state income tax rate – over $4.8 million per year in state income taxes. So what is his state income tax bill in Florida as a Miami Heat? Z-E-R-O. That means that by simply playing for a team based in a state with no income tax he will be saving anywhere from $1.65-$4.8 million per year! SCORE! Over the course of his 5 year contract he could be saving anywhere from $10 – $22 million without considering compounding interest.
This is of course assuming that LeBron properly changes his tax domicile to Florida. Ohio will not be a gracious loser of more than $2 million a year in tax revenues. You can bet that they will pressure King James to make sure his state income tax attorney crossed the t’s and dotted the lower case j’s to be domiciled in Florida rather than Ohio. In fact, in the clip above from the Decision, LeBron said one little thing that might cost him over $2 million a year. So much for clutch play. I don’t want to tip off the state of Ohio so I will let you discuss what that was with your income tax attorney. OTHERS EMPLOYING STATE INCOME TAX STRATEGIESLeBron isn’t the only person to change domicile to save a ton in taxes. Tiger Woods moved his tax domicile from California to Florida very early in his career. He is estimated to have earned about $1 billion over the course of his career so far, a savings of about $100 million. He might want to use that $100 million to buy a giant “I’m sorry” diamond for his wife, or maybe an “I’m sorry” island. Lots of wealthy New Jersey-ans have also “vanished” from New Jersey. HOW CAN REGULAR FOLKS USE THESE STATE INCOME TAX STRATEGIES?So what if these guys are saving millions of dollars a year. Most people don’t even make as much as those guys are saving, so why bother? You may not make $54 million a year, or even $4 million a year but it is likely that you are making closer to the NBA league minimum of $475,000 a year. If you earn that much being domiciled in Ohio you might be spending about $28,500 a year in state income tax, in New York $33,250, in California, even in a lower tax bracket of 9.55%, you would owe about $45,000, and in New Jersey $52,250. Still not worth your trouble to think about where you are domiciled? CONCLUSIONLike LeBron James and others you can likely better play the game of state income tax strategies. Your tax domicile can mean thousands of dollars more in your pocket each year. But states hate losing milk when their cows escape from the pen. Talk to your state income tax attorney to make sure you correctly and legally change your domicile. Market fear continues to subside drastically following a peak six weeks ago. Fear about the insolvency of European banks — which was a basic staple of bear analysts has now proven itself to be grossly overblown. And as the fear about Europe has subsided so has the VIX S&P Volality Index  (chart source: Yahoo! Finance) The index — which appeared to be on its way to 50 at the height of the European Crisis — now appears to be headed for the teens again. And there were plenty of signs this week that August news will continue to calm the markets. 1. The Institute for Supply Management released 2 reports this past week. Pointed to continued growth in both the manufacturing and non-manufacturing service sectors. 2. Construction spending — which was forecast to decrease — actually increased during the June reporting period. 3. Domestic motor vehicle sales for July came in stronger than most economists had predicted. 4. According to the most reliable retail indexes, the retail sector (which accounts for nearly three quarters of the US GDP) continues to growth at a healthy rate between three and four percent year over year. 5. The mortgage purchase index for the purchase of new homes has now been up for three weeks in a row. Refinancing and purchase interest rates continue to fall. 6. Although jobs creation is always the last sign of a healthy recovery, the private sector is now clearly beginning to add jobs — ADP reports + 42,000 private sector additions and the U.S. government calculated 71,000 additions in July. The return to jobs growth can be argued as the quickest return to growth from a recession than at any point in modern U.S. history. 7. It is now clear — as evidenced by earnings calls and transcripts — that the majority of U.S. businesses have returned to profitability. Not only have the majority report Q2 results better than expected, but the majority now forecast continued growth and profitability into the end of the year. And investors are finally starting to agree with the positive business assessment. Not only is the VIX index on a steady decline, but stock markets finished the first week of August up nearly 2 percent for the week and over 6 percentage points year to date. Join the forum discussion on this post - (1) Posts
Join the forum discussion on this post - (1) PostsTeam Macro Man has a nice perspective on what deflation might mean in the OECD context and it is difficult to disagree with the underlying rationale.
I remain inclined to believe that the biggest problem for most OECD economies in the coming decades will be deflation (and the subsequent increase in the value of real debt) rather than inflation. But there is a world outside OECD too and especially commodities could very well be a source of inflation and thus in some sense stagflation (with the added spice that our relative wage in the West may fall at the same time) – If you like me are prone to the occasional what the h’ck is going here mantle; this rap up by Gwen Robinson at FT Alphaville provides a good overview of the recent flurry. Highly recommended as the first read this Friday morning or as weekend lecture. – Jean Tirole is professor in Economics at Toulouse University and back in September 2009 he penned a very interesting article on illiquidity and what it means for a balance sheet (of a bank) to be liquid and illiquid.
The best academic read I have a had in a long time. – Eliana Marino takes a look a migration in the Baltics and tells one of the great unsung stories of this crisis and what it means when you lose your working age people to net migration;
I need to write a paper on this! At 8:30 AM EDT the Employment Situation report for July will be announced, and the consensus for non-farm payrolls is an decrease of 70,000 jobs compared to a loss of 125,000 in June due to the end of 225,000 Census jobs, the consensus for private payrolls is an increase of 100,000 jobs compared to a gain of 83,000 in June, the consensus for the unemployment rate is that it will increase by 0.1% to 9.6%, the consensus average hourly earnings rate is an increase of 0.2%, and the consensus for the average workweek is 34.2 hours. The decrease in non-farm payrolls is being attributed to the end of 334,000 temporary jobs created by the Census that were not terminated in June. At 3:00 PM EDT, the Consumer Credit report for June will be released. The consensus estimate is that there will be an decrease of $5 billion in the consumer credit available from May to June, after a decreases of $9.1 billion in May and $14.9 billion in April. Join the forum discussion on this post - (1) Posts Milan Kumar Biswas, General Manager of Keggfarms Pvt. Ltd. knows something about inflation. In a note addressed to his customers, stuffed in a box of eggs, he announced an increase in the unit price of his eggs. P = (1+markup) MC. To justify the change in P, of course not due to his own greed (the “markup”), Mr. Kumar blames various “exogenous” factors for the price increase, all bunched in what economists call “marginal cost”. He tells us about the components of his marginal cost:
This points to something more than just food inflation. Mr Kumar, just like our RBI Governor, seems to suggest that price pressures are indeed quite generalised. On 1), we knew about food inflation from the the WPI and the CPI. What is novel is the information on the pass-through to processed food items from unprocessed ones. It is a clear example of the cascading effects of input costs into prices downstream from the production chain. On 2), unfortunately we have no direct and timely statistical evidence about wages in India. Hence, we, alongside our Central Bank, are left grasping for evidence from anecdotal and piecemeal information. If true, it would be indeed bad news. A input cost increase passed onto wages, i.e. the famous “second round effects”. This puts us into something like that classic story of mishandled inflation, the oil shock of the 1970s. On 3), we unfortunately have no clue what are the developments in services prices. Hopefully CSO will soon release a new CPI so we can start seeing some of this. Last, but not the least, can we also trust Mr. Kumar that he will not raise his markup in a period of ongoing recovery of demand? Economists have long disagreed on this question. See the seminal papers by Rotemberg and Woodford, and, more recently, Ramey and Nekarda.  Further to my blog on the Cooper Review into Super and the recommendations on Self Managed Super Funds, see the 4 August 2010 press release below from ANDA:
Announcement of Government guidelines for SMSF numismatic investments ‘a relief’ says ANDA The Australasian Numismatic Dealer’s Association (ANDA) says the announcement by the Federal Government that Self Managed Super Funds can continue investing in numismatics, as long as certain guidelines are followed, comes as a relief to many thousands of SMSF Trustees nationwide. Mr Robert Jackman, Vice President of ANDA says: ‘I’ve been inundated with phone calls since the announcement was made last Friday. The reality is that many thousands of people would have been adversely affected if the Cooper recommendations on numismatics had been implemented. The vast majority of SMSF Trustees only invest in numismatics because they deliver reliable and attractive investment returns. ‘What’s more, the majority of investors already abide by most of the guidelines which ANDA has formally developed with the assistance of the Self-Managed Super Fund Professionals’ Assocation (SPAA). Those who don’t will be forced to adopt better prudential practices, which can only be to the benefit of the industry as a whole.’ ANDA has worked closely with SPAA during recent months, and expects to continue a consultation process on SMSF guidelines which ever party is elected to Federal Government. All three main parties have rejected the Cooper Review recommendations on collectibles for SMSFs.  |
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