April 11, 2001 Stocks Are Undervalued It took a yearlong decline and a 20% drop in the S & P 500 Index for a widely watched gauge to signal the stock market is slightly undervalued for the first time since November, 1998. The gauge is informally called the Fed stock valuation model. Measures that show whether the market is undervalued or overvalued can tell you that a big change in direction will eventually occur. But they cannot tell you when. An overvalued market can keep going up for months or even years, getting even more overvalued, witness the 1999 market; and a market that’s undervalued can still go down. Model may be too fancy a name. It’s based on the idea that the earnings yield of the S & P 500 (the inverse of the price earnings ratio) should not get too far out of line with the 10-year Treasury Note yield. Generally, investors have a choice of buying stocks or buying bonds. The model can help you determine which to buy and sell. Investors Business Daily 4/9/01. Report News or Advocate Views Think the TV networks are not biased? Think they provide balanced coverage of issues such as tax cuts? Think again. Since President Bush took office the Big 3 have consistently trashed his plan. A study recently proved it. In a study of 93 tax stories since January 20, the Media Research Center found that TV networks gave 500% more airtime to critics who charged the Bush tax cut was “massive” or “huge”. Complaints from tax-cut opponents that the tax cut is unfairly skewed in the favor of the wealthy were relayed to network audiences twice as often (31 times) as the contrary point of view (15 times). None of the networks told viewers the top 5% of earners pay over 50% of taxes while the top 1% pay greater than 33 1/3% of taxes. Investors Business Daily 4/11/01. Half of the Public Wants Tax Cuts The Associated Press found most people are sure of one thing-their own taxes are too high, but they do not agree on what to do. 48% support President Bush’s plan while 32% oppose it, 20% said they do not yet know what they think. More likely to favor the plan were men, those with higher incomes, those with more education and Republicans who favor the plan by an 8-1 margin. Democrats oppose it by 2-1. When the plan is finalized we will write exactly how it will affect you. But my guess is, because of democrat opposition and the need for compromise, it will be overly complex with multi-year phase ins and probably back-end loaded. Investors Business Daily 4/11/01. Bush Tax Plan Discriminates Against Northeast Sadly lacking from this tax plan is a provision to repeal or reduce the Alternative Minimum Tax. This is the tax that was supposed to only tax millionaires. Trouble is, over the years it was raised from a 10% minimum tax to a 24% minimum tax. That 14% spread is enough to catch persons who have large itemized deductions, specifically, taxes and miscellaneous deductions. It kicks in for anyone who has large unreimbursed employee business expenses (law enforcement officers, outside salesmen, NYC school custodians, etc.) and a large tax burden. New York is the most heavily taxed state and most of the Northeast, including New Jersey, is right behind. Additional factors causing the AMT to appear is filing separately from your spouse and claiming many dependents. The AMT will kick in as the new lower Bush tax rates also kick in, thereby nullifying most of the benefit. So why isn’t the AMT being repealed? Could it be that the Northeast was blue in the last election, solidly for Gore? Is this politics at it’s worst, a law meant to punish a whole section of the U.S.? And where are the Democrats? Why aren’t they fighting for you and me? Call your Congressmen! Opposing Forces A coalition titled Fair Taxes For All is fighting the tax cut. They say it is too big and Unfair to those who do not pay taxes. They include, but are not limited, to the following: AFLCIO American Federation of Teachers AFSCME National Urban League NAACP National Council of Churches Sierra Club Children’s Defense Fund NOW League Defense Fund People For the American Way YWCA of the USA Jewish Labor Committee National PTA League of Women Voters of the USA Common Cause Investors Business Daily 4/9/01. Am I Too Political? In case you are wondering about where I stand, I stand with and for my clients. My average client is a family with both spouses being members of a union; they can be expected to save approximately $1,500 - $2,500 per year under the plan. I wonder if the above organizations have their best interests at heart. African American Reparations Slavery Scam The IRS has cautioned African-Americans not to be misled by anyone offering to help them file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Those who pay to have reparations-related tax claims are being deceived. Because there is no law providing for such reparations, the IRS rejects those claims. Taxpayers who repeatedly file them after receiving a denial notice may be subject to a $500 penalty for filing a frivolous tax return. People hearing about these tax benefits that sound “too good to be true” should check them out with a trusted tax professional or the IRS before getting involved. The IRS toll free help line is 1-800-829-1040. IRS Tax Notes, December 2000.