Community College Can Provide the Best Education (2006-04-24)

Community College Can Provide the Best Education

(2006-04-24) by David John Marotta

So what if you didn’t get into the college or university at the top of your list. If you still want to go, consider entering through the back door. If you are a Virginia resident, the options are more attractive than ever – options which guarantee you entrance to some of the top-ranked colleges and universities at a price you can afford. Sound too good to be true?

The University of Virginia announced a new partnership with the Virginia Community College System effective March 31, 2006. The program offers the Commonwealth’s community college students guaranteed admission to the University of Virginia’s College of Arts and Sciences.

News of the guaranteed admission program comes just after the University of Virginia posted its lowest acceptance rate in seven years, having turned away thousands of top-flight students. Through the guaranteed admission program, many aspiring Virginian’s can use the back-door entrance to the school, beating out thousands of students contending for a seat in the classroom.

"This new agreement will encourage more community college students to transfer to the University of Virginia," remarked UVa’s President John T. Casteen, III.

To be eligible for the program, students must receive a two-year Associate’s degree from a Virginia community college within the two-year period preceding application, and they must have a minimum 3.4 GPA. Students who do not meet the minimum GPA requirements will still be considered but are not guaranteed admission. All applicants may apply for University housing and financial aid.

The University of Virginia is not the first to participate in a guaranteed admission program. Colleges and universities around the Commonwealth have signed similar deals with the VCCS. Participating universities include Virginia Commonwealth University, Longwood University, Sweet Briar College and Virginia Tech.

Although each college’s eligibility requirements for the guaranteed admission program differ slightly, the bottom line is you can ensure your admission at any participating Virginia college or university and save a bundle of cash doing it.

It is no secret that a two-year community college degree offers one of the best deals for students on a budget. According to the CollegeBoard, average tuition costs for community colleges in 2005-2006 were $2,191 per year, a drop in the bucket compared to the average tuition cost of $5,491 at public universities and $21,235 for private.

Instead of paying the four-year university price for a diploma, by completing your Associate’s degree at a community college and then transferring, you could easily avoid mountains of student debt while guaranteeing yourself the prestige of graduating from a top-rate school. The transfer option offers the best of both worlds.

If you are still unsure about going the community college route and earning a two-year degree, think again. Dollar for dollar, the investment in earning an Associate’s pays off. Students who complete an Associate’s degree saw the highest net increase in their wages over students with only a high school diploma.

Combine your Associate’s with two more years of study at one of the Commonwealth’s universities and you will not only save yourself a bundle of cash but earn a Bachelor’s degree at one of America’s finest universities. Here again, the investment pays a nice return, not only in making you smarter but by increasing your wage-earning opportunities.

A 2002 study by the US Census Bureau analyzed the correlation between the level of educational attainment and the annual earnings for workers in the US. Its findings concluded that college graduates doubled their earnings potential, grossing an estimated $1 million more in their lifetime than workers who held just a high school diploma.

Education is an investment in you. Make every effort to enhance your most valuable asset: you. Big deal you weren’t accepted to your first choice this year. You can still get in through the back-door. Take advantage of this golden opportunity to graduate from one of Virginia’s fine universities while saving yourself a great deal of money doing it. More information on the terms of the agreement is available at www.virginia.edu/undergradadmission/index.html.

from http://www.emarotta.com/article.php?ID=175

Tax Freedom Day Arrives on April 26th, 2006 (2006-04-17)

Tax Freedom Day Arrives on April 26th, 2006

(2006-04-17) by David John Marotta

Tax Freedom Day arrives on Wednesday, April 26th this year. That’s when we stop working for the government and start working for ourselves. For the average worker, all of the earnings of the first 116 days go to pay taxes to the federal, state and local governments. Starting April 27th, we are free -- at last -- to take care of our own family’s needs.

The 2006 report, published this month by the non-partisan Tax Foundation of Washington, D.C., chronicles America's tax burden. According to the report, the federal tax burden has been reduced by seven days since the end of the Clinton administration when Tax Freedom Day did not arrive until May 3rd. During the Clinton years (1992-2000), the tax burden grew sharply by 12 days despite Clinton’s promise that "the era of big government is over."

However, Tax Freedom Day falls three days later than it did last year and ten days later than in 2004, even with the absence of tax increases. Our progressive tax system drives more and more Americans into higher tax brackets each year. Strong economic growth, posted at 6.5 percent from 2004-2005 produced more wealth for Americans, and with that, more taxes for Uncle Sam.

Taxes still take nearly 32 percent of a worker’s gross income – 21 percent for federal taxes and 11 percent for state and local. Only since 1992 have Americans paid more for government programs than they spend on food, clothing, and medical care combined. For the amount of money we pay in taxes, government should already be able to provide universal health coverage and feed and clothe us as well.

For every eight hour day we work, 2 hours and 32 minutes of our work goes to pay taxes. About 41 of those minutes go to pay for Social Security and Medicare. In contrast, the savings of the average American is reflected by a value of negative two minutes of work.

At the state level, tax freedom day varies from state to state. California has the 9th highest taxes with Tax Freedom delayed until April 30th. Virginia places 20th in the race for the highest tax rate even though Tax Freedom day arrives on April 24th, two days before the national average.

From the birth of the nation in 1776 until the early 1930s, government spending at the federal level never exceeded three percent of national income except during times of war. In 1913, when the Sixteenth Amendment allowed the federal government to tax income directly on individuals, tax freedom day arrived as early as January 20th!

The total effective tax rate did not permanently surpass 10 percent until FDR’s New Deal legislation in 1930. Total taxes passed 25 percent during the Great Society Programs during the 1960’s. The effective tax rate is currently at 30 percent. Put another way, in 1900, taxes took $1 of every $12 of earnings from American workers; in 1950, taxes took $1 of every $4; today they take $1 of every $3.

If you add the costs of complying with regulations, the cost of government to society is over 50 percent. Imagine the economic boom if the other half of worker’s labor were set free!

Economist Arthur Laffer recognized the law of diminishing returns applies to tax rates as well. According to Laffer, there comes a point beyond which increased taxation actually yields fewer tax dollars being collected. For example, a 100 percent tax rate would drive commerce into the ground, resulting in zero taxes being collected.

Many economists believe we are already well beyond that point for the most Americans. In other words, tax cuts would actually result in increased economic growth and more taxes being collected.

Presidents Kennedy and Reagan understood the Laffer Curve well. The 1964, Kennedy tax cuts reduced the top tax rate from 91 percent to 70 percent and to the surprise of many, tax revenues increased. Seventeen years later, Reagan tax cuts reduced the top marginal rate from 70 percent to 50 percent. Revenues soared again. Between 1980 and 1997 the share of federal income taxes paid by the top one percent rose from 19 percent to 33 percent. The share of tax paid by the top 25 percent of taxpayers increased their share from 73 percent to 82 percent.

The Laffer Curve works. Give the wealthy a tax break and they end up shouldering an even greater share of the tax burden.

In addition to federal, state and local taxes, the current deficit spending policy is a hidden force taxing wealth by devaluing the dollar. In our deficit spending government, money is constantly being printed to fulfill the government’s debt obligations. However, printing money devalues all existing savings stored in dollars. Dollars become less valuable. Over time, the purchasing power of the dollar decreases in direct proportion to the number of dollars created to fund the federal deficit. This in itself is a form of taxation.

Due to our progressive tax system, Uncle Sam actually collects more taxes as inflation rises. If your pay is adjusted each year to keep up with inflation, the dollar figure you make increases, but your net purchasing power remains unchanged. However, inflation may actually drive you into a higher tax bracket despite the fact that your buying power has not increased!

The amount of value that the dollar has lost can only be measured using something else, which is assumed to have held its value constant. Since the beginning of 2002, the U.S. Dollar has dropped 25 percent against a broad index of foreign currencies. Currencies are subject to fluctuations of their own, but gold and silver are not. Since 2002, the dollar has dropped 48 percent against gold. That’s a 48 percent tax in less than three years, and it has been a tax on total wealth stored in dollars, not simply on income.

The good news is your financial freedom does not depend on any one politician’s successes or failures. Since the government has its own financial troubles, it is more important that you begin by getting your personal financial house in order. The decisions under your control have the greatest impact on your financial well-being.

Government solutions for individual problems never work well. You can best help government by not contributing to a culture of entitlement. Demanding that Uncle Sam pay for your college education, health care, prescription drug coverage, and retirement income will only cost you more. The price for big government solutions is ever-distant tax freedom day and half-baked results.

France’s finance minister under Louis XIV said it best, "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing." We joke about taxes to relieve our stress, but there are serious issues at stake. We need to watch the erosion of personal freedoms. We need to ask what limits our country can support without cooking the goose that laid the golden egg of our economy.

from http://www.emarotta.com/article.php?ID=174

Donald Mortlock - Making a Free Market (2006-04-10)

Donald Mortlock - Making a Free Market

(2006-04-10) by David John Marotta

Most investors in the stock market know what a stock is but don’t understand how the "market" itself works. Understanding how a market works is helpful to appreciate both how and why prices fluctuate.

I mentioned last week that my grandfather, Donald Mortlock, worked on Wall Street during and after the 1929 crash. The firm he worked for was a "market maker," a company which helped to literally "make a market" in several stocks. One such stock was the American Can Company which thought it could actually make money selling food packaged in a can!

A market maker is a firm that stands ready to buy or sell a particular stock on a regular and continuous basis at a publicly quoted price. Market makers still exist today and play a key role in keeping a stock exchange —just that— an exchange.

Take for example the company General Electric (the only original component of the Dow still in the index). A market maker for GE stock is required to buy shares of GE from investors wishing to cash in on their shares. They also have to sell shares of GE at a slight markup as necessary during the trading day.

Imagine if everyone in the country who owned GE stock had to list a price at which they would be willing to sell their stock. Some people would list a very high price and others would list a more reasonable value. Now, imagine everyone in the country also had to list a price at which they would be willing to buy GE stock. Some people might only be willing to accept GE stock for free, while others would list a more reasonable value.

Without a market maker, buying the stock would be similar to shopping on eBay. If you wanted to purchase shares of GE stock, you would first have to find a seller with an ask price you thought was reasonable. Then, you would have to ensure that buyer could offer you enough shares to fulfill your order. Who knows, at the last minute, another investor could come along and make a better offer. Worse yet, there may be no GE stock to buy!

As you know, investors are not required to list their buy or sell prices for the stock they own. If we relied solely on individuals, some stocks could not be bought at any price and some stocks could not be sold at any price. This is why every stock on a stock exchange has to have a market maker. By always being ready to buy or sell, the market maker ensures that when you get ready to dump your stock, you can sell immediately. Conversely, when you get ready to buy stock, you can quickly find stock to buy. As such, they "make" the market possible.

The difference between the buy (or "bid") price and the sell (or "ask") price is called the "spread." A market maker earns money on account of the spread. Normally if an equal number of people want to buy and sell, the market maker makes money on the spread (the difference between their bid and ask prices). Historically, a spread was one eighth of a dollar (twelve and a half cents), the smallest change that a stock could make. With the change in recent times to digital pricing spreads have become very small and additional companies compete as additional market makers.

With a market maker, if more people want to buy the stock than are willing to sell the stock, the market maker sells some of their holdings in order to create a market. Every time someone buys at the asking price the market maker can move the bid and ask prices up slightly. Gradually as the price moves up, less people want to buy the stock and the market maker ensures it won’t run out of stock.

Similarly, sometimes there are more people who want to sell a stock than buy it. Every time someone sells, the market maker must buy it. Once they do, they can also move the bid and ask prices down slightly. As the price the market maker is willing to pay for a stock goes down, fewer and fewer people are willing to sell at the lowered price. Thus, the market maker will not need to spend piles of cash buying up unwanted stock.

Market makers have to buy stock as long as people want to sell it. They also have to be able to sell stock as long as investors want to buy it. Their ability to move the price provides the negative feedback to allow them to make the market, no matter how many buyers and sellers there are.

By moving the price up as more people want to buy, they also ensure that they won’t run out of stock prematurely. As they move the price up, fewer and fewer people want to buy and more people are willing to sell. Similarly if they move the price low enough, it will induce people to buy the stock again.

In addition to making money off the spread, market makers often make money from a stock’s volatility. Stock prices can move wildly even with very little trading, if the all the volume goes in one direction. If the only trading in GE stock is from investors buying the stock, all GE stock will likely rise in value, thus driving up the value of the GE shares the market maker holds in inventory.

Because market makers have to buy when no one else wants to and sell when everyone else is buying, they are the perfect contrarians. In other words, they buy when the stock is low and sell when the stock is high.

My grandfather was working on Wall Street during the 1929 crash and several years afterwards before losing his job. What is really amazing about the crash is that the markets worked. Because they were free markets they were able to successfully negotiate a tremendous price correction. Market makers provide a valuable service to investors by guaranteeing there will be a market for the stock you want to buy or sell.

from http://www.emarotta.com/article.php?ID=173