Tales & Trails of a Traveling Wiseguy

President Trump's idiotic tariff trade war could start tanking the economy soon. I mean, there is already damage being done as chaotic changes drive down business confidence. There's a real dynamic of "expectations drive reality" as mixed expectations for the future, lead to companies throttling back investments now, which leads to economic contraction and job loss (i.e, recession or even depression) in the near future. But there's more to it than just expectations driving reality. There's also reality driving reality.

In the past week I've written about the impact of Trump's new tariffs vis-a-vis price increases and shortages in the US. Friends and acquaintances are doing everything from stockpiling food to moving up purchases of major electronics. But there's more than just the impact to us as buyers.

I mentioned the fact that container deliveries are down 25%+ year over year at major US ports. Markedly less trade at ports means less work for port workers. That job loss will extend downstream to trucking and rail work, too. Oh, and if/when it gets to the point that shelves in stores are bare, stores will lay off workers. And as port workers, truckers, railroad operators, and everyone involved in the retail supply chains start to lose jobs, everything in the economy that serves workers with jobs— restaurants, stores, car dealers, the travel and leisure industry, etc.— will see reductions, too.

But wait, there's more.

Exports are suffering under reciprocal tariffs. You thought China was going to knuckle under just because we slapped a 125% tariff on them? No! Even an idiot— except a big orange one and his sycophants— could have predicted they'd say, "Ha ha, fuck you, here's a 125% tariff for you!" And that's exactly what they did.

The thing about a 125% tariff is it's essentially a killer. It kills trade, it kills exports on affected products, because there are few cases where consumers are going to pay that much more.

I heard a story in that vein on the radio a few days ago. Journalists were interviewing a man who owns a pig farm. He ships most of his pork to China, and the Chinese are canceling their orders now. He wasn't optimistic about being able to find buyers in other countries to replace all that business.

I did a bit of research since hearing that story on the radio. Pork production in the US is a 28+ billion dollar a year industry. Over 30% of it exports. (Source: National Pork Board 2024 statistics.) China is the second largest export market. Exports to China may drop essentially to zero as prices to Chinese consumers increase to unsustainable levels. Exports to other countries may drop off substantially, too, as they contend with lesser tariffs (less than 125%, anyway) that still drive major drops in demand.

So there you have it. The impending tariff disaster is not just, "Oh, no, I can't buy a cheap TV anymore!" but job losses across all industries, including and down to manufacturing and agriculture.

Yesterday I wrote about people anticipating shortages due to the new tariff regime. The focus some of my friends were putting on it was food shortages/price spikes. I get that as thing to focus on; food is a necessity. But because it's a necessity it's demand inelastic, so while I expect there will be price increases I don't expect there will be bare shelves in stores as producers shut down and supply chains grind to a halt.

I believe some supply chains will grind to a halt; it just won't be in food. Or at least it won't be widespread in food. I think it will be widespread in consumer electronics— much of which does come from China nowadays, but also Japan, Taiwan, and Thailand, too. In fact I believe the start of the supply chain shutdown is already appearing. When I visited Costco over the weekend I browsed their computers and peripherals department and found it greatly downsized.

What's visible today is just the start of something bigger. It takes a while because of the realities of international supply chains. It takes about 3 weeks to ship electronics from Asia to the western US via container ships. Producers and shippers plan their loads in advance. Already US ports like Long Beach estimate a 25% drop y/y in container traffic in May. Once deliveries at ports dry up, all that's left is what's already in the channel stateside, and that's not a huge supply anymore. So I believe the shelves at electronics retails are going to shrink a lot more in the next few weeks.

This isn't news, of course. A lot of people started anticipating higher prices in electronics from the start of the tariff trade war four weeks ago. If you think you need new electronics, a few weeks ago was probably the right time to buy. If you didn't do it then, now might be the last chance before price increases really bite. Major manufacturers like Sony are already announcing that there will be price increases.

Two weeks ago I wrote about filing my taxes and remarked that my effective federal tax rate for 2024 was 19%. I noted that's a lot lower than many people think their taxes are— not because my rate is low, but because most people way overestimate their tax rate because they don't understand how income tax works. And I don't mean misunderstanding the intricacies of complex tax situations; I'm talking about completely failing to understand the basics of how tax brackets work. And that includes a lot of people I've met in school and through work—intelligent people, people who attended highly competitive schools, people who've earned STEM degrees, people who are professionally employed and well paid.

Let me illustrate this through an example or two. Let's say Alice earns a gross pay of $120,000 a year. That's reasonably good money, BTW. It's just over twice the 2024 US median individual income of $59,228 (per the Bureau of Labor Statistics).

So, what's Alice's tax rate? Well, let's start by looking at the tax brackets for 2024:



This table is straight from the IRS, at Federal income tax rates and brackets.

You might look at the table and say, "Ah, Alice's tax rate is 24%"— because her $120k/yr is in the 24% tax bracket. If that's your conclusion, you're wrong— twice.

Of course, it could be worse. You could be like a professional colleague, "Brian", who complained to me that his federal tax rate is 50%. He didn't even look at an actual chart like this; he just repeated a bullshit number from a political bellyacher who tells lies on his radio program/podcast every day. 🙄

Okay, but why is Alice's "I pay 24%" estimate wrong? Twice?

First, it's wrong because tax brackets are graduated. If you're "in" in the 24% bracket, you're not paying 24% on everything, just on the portion of your income over the threshold for the 24% bracket. Parts of your income are taxed at the lower bracket rates of 22%, 12%, and 10%.

Second, Alice doesn't actually pay 24% on anything— because she's not actually in the 24% bracket! That's because there's an effective bracket of zero percent that's not indicated in the table above. Pay careful attention that the table is indexing taxable income— and taxable is not the same as gross. Two common deductions ordinary taxpayers enjoy are the standard deduction and a 401(k) deduction. For 2024 the standard deduction was $14,600. And let's say Alice put a modest 6% of her gross income, or $7,200, into her 401(k). Together these reduce her taxable income to $98,200. Alice is in the 22% tax bracket!

Now that we have Alice's taxable income, $98,200, we can figure her tax. No, it's not $98,200 x 0.22 = $21,604. Remember, the rates are graduated. She pays 10% on the first $11,600 out of $98,200, 12% on the next $35,550, etc. Alice's tax bill on her $98,200 taxable income works out to $16,657.

Alice's tax bill is $16,657. On a gross income of $120k. Thus her overall federal income tax rate is 13.9%.


There are other taxes, of course. Assuming Alice's income is all from wages, it's subject to Social Security and Medicare taxes. Those would tally $9,180 in this example. Combining that with her federal income tax brings her total tax paid to Uncle Sam to 21.5%. But even that is less than half of Brian thinks she's paying.

I finished my taxes today. As I have for the past several years I used TurboTax again. I've remarked in the past that it's an abusive relationship— and it still is, but after 12 years what else am I going to do?



I stick around because, at this point, I've learned to live with it. I know that TT will never have an adult conversation with me about how the Passive Activity Loss Limit or Foreign Tax Credit works; I've just got to accept its answers. I've learned to roll with its punches.

Now, just because I've finished my taxes doesn't mean I've paid them. At Hawk's request we'll wait until April to file and pay. Why? Because in 2025 our money basically goes straight to Elon.

It's been an eleven day workweek. After a regular week of work last week I worked through the weekend at a trade show then rolled straight into another week of work this week. And ugh, there were a few early mornings involved. But now I've got a three day weekend. I'm taking Friday off as comp time. I'll take another Friday off later this month.

What's on tap for thsi weekend? Surely there's an exciting trip, but travel is what I do anytime I get a long weekend, right? Alas, no. The weather sucks almost everywhere I could travel this weekend, and airfares are pretty expensive right now, to boot. So I'm staying around home.

I've fretted that tomorrow, my day off, will be just like a work day except with less work. By that I mean I'll sit around all day in my home office, except sitting in front of my personal computer instead of my work computer, and maybe taking a long lunch. Well, I'm probably not going to figure out anything 180° around from that but I am thinking I could:

• Sleep in a bit
• Soak in the hot tub in the morning
• Do a shopping run to Costco
• Finish my taxes

Yes, finish my taxes. That's my plan for how to spend my day off— doing taxes.

Yay?

It's that time of year again: tax time. In popular parlance tax day isn't until April 15, the day taxes are due. But you're not going to prepare your taxes on the 15th... or even at 11pm on the 14th. I mean, some people try to jam it in at the last minute, but that's not the responsible way to do it. The last many years I've picked a weekend in late February to get mine (at least mostly) done. This is that weekend.



Most people think of doing taxes as stressful. I don't. I'm actually somewhat eager to do them.... To get them done. And instead of feeling overwhelmed by them I not only carve out time for them, I make sure to combine my tax weekend with doing things that are enjoyable. For example, I started this morning with a dip in the hot tub!



Hawk and I ended up staying out here for an hour this morning. Heck, I'd do some of my taxes out here, but my computer doesn't float. 😂

Normally I'd be doing taxes this weekend. As I've looked back across my records from the past several years, usually it's the last weekend of February and/or the first weekend of March that I set aside time to finish my tax forms and submit them. But not this time.



Have I found some way to avoid taxes? Hardly. Some way to streamline the work? Nope. Have I done them already? Also nope.

The fact is I'm not doing them right now because I can't. I'm still waiting on a form, a 1099, from one of my banks. It's a big one. I got part of my taxes done 2-3 weeks ago, but until I get this final form I can't get to the hardest bits.

The form should have been here by now. By law banks are supposed to get us out 1099s by mid-February. But by law banks can also file for an extension on that. Mine apparently has. They're saying "check back" late this coming week to see if it's ready.

So maybe— just maybe— I'll get to do my taxes next weekend. Yay? At least the 10 day weather forecast is showing partly crummy weather next weekend. Crummy weather will make it easier to spend a day indoors, doing taxes.

I've seen a lot of articles in my news feed recently with breathless headlines about taxes. "TAXES ARE ALMOST DUE BUT IT'S NOT TOO LATE TO SAVE!!1!1!" screams a typical headline. (Okay, typically they don't mix exclamation marks and ones. 🤣)

At first I was like, "LOLWUT, taxes? A tax deadline?" Then I was like, "Oh, right, the tax deadline." US tax filings are due April 18. I'd forgotten about that— because I completed mine a month and a half ago. For 7 weeks now I've switching to thinking about 2023 taxes. Y'know, the ones that aren't due for... checks date... approximately 12 months. 😇

It's interesting that if I still needed to file, my filing deadline has been pushed to Oct 16. Mine, along with almost everyone in California! Parts of California that were affected by weather related disasters the past few months, such as flooding that knocked out roads and bridges in neighboring counties were granted a 6 month filing extension. The thing is, after a whopping 17 atmospheric rivers— though I think now the count is, like, 20— nearly all of California's 58 counties have been declared disaster areas.

Understand, BTW, that doesn't mean "most of California is a disaster." It means small disasters have struck in many places around the state. In my county of Santa Clara, for example, flooding problems impacted a few thousand people. Disaster declarations are made at the county level, though. That's kind of a thing based on political districting in eastern and midwestern states where many counties only have, like, 10,000 residents. Here in Santa Clara County all 2 million of us get the "Disaster Area" label. And so it is with most of the state. 🙄

So, how did my "Taxing and Relaxing" weekend go? Well, other than that soak in the hot tub Saturday morning I posted about, there wasn't anything special in the relaxing category. I did take it easy around the house. That's a valid form of relaxation after 6 busy days of travel ending last Monday night.

In terms of taxing I finished my 2022 taxes. They took less time than I thought. That's because (a) I didn't have any new forms or situations this year so I was already familiar with all the gotchas I'd have to watch out for, and (b) I continue to settle in to the relationship my partner, TurboTax, allows with me.



I also started on my 2023 taxes. I've quipped before that one of the reasons tax time isn't so onerous for me is that I start 12 months early. What does that mean? Well, it doesn't mean that I'm pre-filling in forms a year in advance. I can't! Not only won't I know any of the numbers for another 12 months, but the forms won't even be published for probably 10 more months.

What I am doing is forecasting what my taxes will be. I've built a spreadsheet to estimate income, deductions, withholdings, and taxes due. I use the spreadsheet throughout the year to ensure that my withholdings are in line with what I'll ultimately owe in taxes. That lets me avoid the shocker of owing several thousands of dollars on tax day or the disappointment of finding that I've given the government a huge interest-free loan in the form of a massive tax refund.

A few days ago I wrote a blog, Wealth vs. Income. I employed the analogy of a faucet pouring into a bucket of water to compare and contrast the two terms. The amount the faucet is pouring into the bucket is income; the amount in the bucket is wealth. At the end I hinted a third element of the analogy: a hole at the bottom of the bucket. In this simple analogy that hole is expenditure. (It's also losses, but let's keep it simple.) At the end of the blog I promised that understanding wealth vs. income helps explain a variety of real-world situations that many people are confused about. Here are Five Things:

"Tax the Rich"

Possibly the biggest misunderstanding of wealth vs. income in in popular expectations of who pays tax and how much. "Tax the rich!" you'll hear as a political slogan. "A tax on the wealthy!" Remember that what's being talked about in these discussions is income tax. It's right there in the name— it's a tax on income, not wealth. The wealthy do tend to have more income, though that's only a tendency. High income taxes also affect high earners, whether or not they're wealthy. That's the upper middle class tax squeeze.

Is there such a thing as a wealth tax? Yes, but it's not as common as income tax. In many states in the US there are property taxes. These assess a tax burden on the value of real estate. Not all states have such taxes, though. And many that do have loopholes the wealthy can afford the accountants and lawyers to exploit to reduce their taxes. Of course, real estate is hardly the only form of wealth. There's no tax in the US on stock ownership. Among the 38 OECD countries only a few have a wealth tax that applies to more than real estate.

Who's the 1%? Two Definitions

Alongside sociopolitical discussions about taxation is the term The 1%. The top 1 percent of what? Income and wealth are two different measures. A variety of articles you can find easily online will tell you that the threshold for top 1% by income is about $600,000. If you make that much or more annually, you're in the top 1% by income. That number includes some dual-professional income families, not all of whom would describe themselves as absurdly rich. While an income of $600k certainly isn't poor (or even middle class) it disappears pretty quickly when 35+% of it disappears to income and payroll taxes, then to a big mortgage and all the costs of supporting a family in a high-cost area (see below).

Contrast that to the top 1% by wealth. The threshold there is $10 million. Having wealth of that magnitude puts one in a very different situations from the $600k earner. Yes, earning $600k enables you to build wealth over time— especially if you're able to save and invest a lot of that annual income— but even so it can take years, decades really, to save and invest your way to $10 million. Thus when talking about "The 1%" as a label for the very rich, we should be talking about the 1% by wealth, not 1% by income.

Living Richly vs. Being Wealthy

Another way in which wealth is commonly misunderstood is via the appearance of wealth. Many people earn good income and spend it all— on big houses, fancy cars, trendy fashion, elite schools for the kids, Instagram-worthy vacations, and always having the latest gadgets and toys. To be sure, people who can afford this kind of lifestyle are living richly. But they may not be wealthy. They're the high income earners who are still living paycheck to paycheck. They may even have negative wealth— more debt on home loans, auto loans, and credit cards than assets.

Do you know Henry?

Sometimes a person with an objectively high income may not be wealthy or even have the money to spend on the appearance of being wealthy. Meet HENRY— High Earner Not Rich Yet.

Most Henrys are well employed young professionals. They're earning salaries that put them among, say, the top 10% of earners, but they're struggling to pay bills— and it's not necessarily because they're living extravagantly as in the previous example. Part of that is because Henrys tend to live in high cost of living cities. That's because the high paying jobs are mostly in expensive cities.

I was in this situation myself years ago. Like many young professionals just starting out, I had student loans to repay in addition to other costs of getting started in adult life, such as furnishing one's own house or buying a car. I had a good starting salary but I was also starting from nothing. ...Actually less than nothing; I had thousands in debt.

First I paid off my debts, which took several months in addition to living frugally. Then I started upgrading my lifestyle, a bit at a time so as always to be under-spending my income. It would still be 20 years before I achieved anything I'd recognize as wealthy. And by many standards I'm not wealthy yet. I certainly don't have the $10 million entry fee for the 1%. I don't even have a fancy car or a big house. The most Hawk or I ever spent on a set of wheels was about $35k, and we still live in a two-bedroom townhouse.

The House-Poor

So far I've mostly talked about people who have good income but not (yet) significant wealth. On the flip side of that tradeoff are those with lots of wealth but poor income. One relatable life situation in this category is the senior citizen who has a lot of value tied up in their house and little income. One of my grandparents was in this situation. The value of her house put her not in the top 1% but, say, in the top 5%. Other than living in a huge and well furnished house, though, she had little wealth. The income she drew from Social Security and from dividends on a small investment portfolio were enough to afford a modest lifestyle.