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What happens to the stock market matters to you even if you don’t own one share of stock

The attacks on corporate America and its earnings by some politicians is dangerously misguided.

When you mention this, left leaning supporters often note that most Americans don’t own stock. That’s somewhat true. Most studies (surveys) indicate 50% to 53% own stocks including in retirement accounts, but generally those percentages do not include those who participate in a defined benefit pension plan where trust assets are invested in the stock market. According to the Pension Rights Center about 31 million workers are in a defined benefit pension plan (not counting already retired workers). 80% of all public employees have a traditional pension plan.

Here’s the thing, every state has at least one retirement plan; most including a defined benefit pension. And, most are poorly funded, that is, not meeting the 80% funding of liabilities standard, some like Illinois and NJ are only funded around 30% +- of liabilities.

Now, if you live in any state in the US you have a stake in the stock market. A good portion of your taxes, especially your property taxes, go toward funding these pensions.

Funding has two parts; contributions and the earnings on the investments. Each plan assumes its investments will earn a certain return each year, say 6-7%. If that doesn’t happen more tax money must be invested; higher taxes or often that means taking money from other government services. Or, in the case of some states ignoring the funding and creating a future fiscal crisis. Either way, you as a taxpayer are in the hook.

So when you hear the rhetoric to have corporate America pay more in taxes, share more of their earnings or any other idea that affects its stock value, remember you too are affected by the consequences.

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2 replies »

  1. I have to laugh every time Vermont Sen. Bernie Sanders or some other left wingnut says corporations need to pay their fair share. But, B.S. takes every tax deduction and pays just what is required by the tax law, not a penney more in taxes. Good old B.S. is one big idiot, if you raise taxes on corporations, they will just pass the cost on to consumers of their goods and services. I am begining to think B. S. are the right initials for his Bull Shit!

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  2. When the politicians start talking about removing the tax exemption for municipal bonds, the end is near. If the politicians scare away the investors, then how are the states going to finance their debt and projects? If they take away the tax advantage of the muni bonds then their projects financing might become more expensive for all its citizens who are paying back the bonds with their tax or toll money. But then again since ETF bond funds are also part of many 401K and IRAs and are traded on the stock markets, the resulting higher interest rates might make them more attractive to investors.

    There are several Warner Brothers cartoons from the about 1950’s that explained credit, loans, and the stock market. These 10 minutes cartoons have taught me more and have remain true since I first saw them in the 1980s then the bias articles that I have read over the years. Maybe the economically educated politicians like AOC and my state investment banker turned governor should see them. They might explain things on their level.

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