Where Are We, How Did We get Here, and Where Are We Going?

1. Where Are We, How Did We get Here, and Where Are We Going? Estate Planning Forum Roger P Bey January 8, 2013

2. Where Are We Fiscal Cliff Debt – $16.5 trillion Deficit -- $1.3 trillion Tax Reform Personal income Corporate income Estate Property

3. Market Conditions 2012 equity markets -- 16% return 10 yr. bond yields -- 1.91% 30 yr. mortgages –- 3.25% Junk bonds – 6% Home Foreclosures 30% (16M) mortgages underwater 2M in foreclosure Where Are We con’t

4. Unemployment – 7.8% Health Care $2.8 trillion 17% of GDP Energy Fossil Fuel – 82% Other sources – 18% Where Are We con’t

5. Where Are Wecon’t Education Costs Funding Ability & number of graduates Corporate governance Financial regulation Collapse of the financial markets Dysfunctional government

6. Income distribution Top 1% 8% of total income Top 10% 41% of total income Forbes 400 $200+ million average income Wealth distribution Top 1% 35% of total wealth Top 10% 88% of total wealth Forbes 400 1.7T; $4.2B each Will Rogers Where Are We con’t

7. New England 1700’s Saw mills, grist mills, iron mills, pulling mills, salt works, and glassworks Infrastructure – roads, bridges, inns, and ferries; provinces and towns subsidized foregoing New occupations for women – weaving, teaching, and tailoring How Did We Get Here

8. American Revolution 1775-1783 No available funding Refused to tax Volunteer army with promise of land grants Issued $400 million in paper money $242 million repaid 1791 at 1 cent on the dollar Debt -- $37 million national; $114 million state How Did We Get Here con’t

9. New Nation 1787 Constitution – no internal tariffs or taxes on interstate commerce 1791-1811 Hamilton – 1st national bank Hamilton – Jefferson conflict Hamilton – Burr 1816-1836 2nd national bank Jackson – let bank charter expire, opposed paper money, & demanded government be paid in gold and silver How Did We Get Here con’t

10. Panic of 1837 stopped growth for 3 years Railroad projects & homesteading grants opposed Civil War 1861-1865 Railroad expansion 30 yr. government bonds Land grants 1850 – 9,000 miles of track 1890 – 130,000 1862 Morrill Land Grant Act How Did We Get Here con’t

11. Costs - $3.1 billion New taxes (excise-value added) & bonds First income tax, only on the wealthy 3% - $600; 5% - $5,000; 10% -$10,000 Repealed at end of the war Lincoln – “Radical Republicans demeaned harsher treatment of the South. War Democrats desired more compromise. Copperheads despised him, and irreconcilable secessionists plotted his death.” How Did We Get Here con’t

12. How Did We Get Here con’t 1865-1900 Gilded Age Greatest period of economic growth 1873-1879 Long Depression NYSE closed for 10 days 89 of 364 railroads bankrupt 14% unemployment 18,000 business failures 1880’s 500% increase capital investment; capital formation doubled 1890 passed Britain in manufacturing output

13. 1900-1945 Mass production Wilson, Roosevelt, Taft 1916 16th Amendment 1917-18 World War I First real U.S. world leadership 1919 19th Amendment 1920’s ended wartime taxes, raised tariffs, reduced debt by one third How Did We Get Here con’t

14. 1929 stock market crash PE – 15 Gov. bonds 3.4% Corp. bonds 5.1% 9% drop in October 90% by 1932 Bank holiday Gold standard Social Security 1935 How Did We Get Here con’t

15. Depression data How Did We Get Here con’t

16. World War II 1941-1945 Price controls Rationing 12 million men drafted 6 million women enter the work force Costs $4.1 trillion Marshall plan How Did We Get Here con’t

17. 1945-1973 Postwar Prosperity Pent-up demand $200 billion in war bonds matured GI Bill 2.2 million college 6.6 million other training Baby boom 1946-1964 66 million babies Income tax reduction from 94% 1944 to 70% 1965 How Did We Get Here con’t

18. 1975 – 2012 Globalization 1990’s 18%/yr. equity return IPO bubble crash – 50-75% drop Long Term Capital Equity $4.72 billion Debt $125 billion Off balance sheet $1.25 trillion 1998 collapse How Did We Get Here con’t

19. 2008 Perfect storm – housing bubble & financial markets Market dropped 40% AIG $170 billion bailout $165 million in bonuses TARP $700 billion General Motors & Chrysler Stimulus $787 billion Unemployment 10.2% Oct. 2009 How Did We Get Here con’t

20. Historical Tax Rates

21. Federal Spending, Deficit, Debt and GDP Billions of Dollars

22. Federal Spending, Deficit, Debt and GDP Billions of Dollars

23. Federal Spending, Deficit, Debt and GDP Billions of Dollars

24. Federal Spending, Deficit, Debt and GDP Billions of Dollars

25. Cost of War2011 Dollars

26. Federal Budget Major SectorsBillions of Dollars

27. Where Are We Going 2013 Financial Market Outlook Equities Up Individuals $600B in withdrawals Corporate cash $2T High bond prices to go down Housing market recovery continues Mortgage will increase a little Bank lending will ease Frozen by fear of uncertainty

28. Where Are We Going con’t 2013 Labor markets Small declines in unemployment Structural realignment required Demand for skilled labor – machinists, welders, etc. Reshoring but a new generation of manufacturing Maybe Mexico and Brazil

29. 2013 Energy Natural gas – high production U.S. $3.25MCF World $12.00MCF Crude oil U.S. $90.00/barrel expect to decline High production Increase in pipelines Coal Cost advantage declining Clean air/global warming Other Where Are We Going con’t

30. World markets Largest GDP 2011 Trillions/2013 Growth Where Are We Going con’t

31. Who to watch Mexico 1960 GDP $13B 1990 GDP $262B 2011 GDP $1.16T Exports – 4th in autos; 1st in big screen TVs NAFTA Where Are We Going con’t

32. Age Middle East – good luck Where Are We Going con’t

33. What can/should we do? Dysfunctional government Avoid electing the extremes – cancerous Term limits Electoral college Voting privilege or requirements Ranked voting Balance budget amendment Public financing of elections Citizens United What Can/Should We Do?

34. Tax/Spending Reform Government spends $31,000 per household Government collects $19,000 per household Tax breaks or expenditures $10,000 per household What Can/Should We Do? Con’t

35. $1 expenditure for $1 of revenue Revenue 2012-2016 Health insurance $200B/yr. Mortgage interest $120B/yr. Step-up capital gains $70B/yr. 401K $70B/yr. State & local taxes $60B Employee pensions $50B Charity $50B Capital gains on houses $44B Increase Social Security cap to $150K = $75 - $100B Wealth tax -- $70T @1% = $700B Value added tax – national sales tax 1% of GDP = $150B What Can/Should We Do? Con’t

36. What Can/Should We Do? Con’t What can we cut? Suggestions Homeland Security 2013 budget $59B; $3.4B for 40 buildings 14,000 employees; 200,000 employees in total War on drugs $40B/yr. for 30 years Cocaine 74% cheaper 1.6 million inmates $63B costs

37. What Can/Should We Do? Con’t Defense budget $900B 50% of the world China $150B Russia $75B Greater than requested

38. Healthcare Administrative costs 15% ($450B) ; France 5% Obesity 7% $190B; more than smoking Frist – 30% of Medicare on last few months of life Another report – 25% of Medicare for 5% of recipient's in last year of life Expected life 51st -78.9yrs.; Japan 3rd 83.9;Canada, Italy, Spain, Greece all ahead of us Infant morality 34th right behind Cuba Maternal deaths 47th just ahead of Chile and Lebanon What Can/Should We Do? Con’t

39. Debt interest – must reduce debt There must be more What Can/Should We Do? Con’t

40. Education Problems Noncompetitive work force 14th in terms of per capita graduates; had been 1st Costs increasing faster than health care Administrative and facility costs Public education is a misnomer OU 15-20% state funded Penn State, Michigan less than 10% Student loans $1T What Can/Should We Do? Con’t

41. Quality Majors Haven’t found a way to be scalable Athletics What Can/Should We Do? Con’t

42. Suggestions Educational disruption Kahn Institute; MOOC’s No direct entry from high school Major support for 2 year vocational schools Science, computer science, engineering, Higher expectations Growth thru public/private partnership Corporate taxes What Can Should We Do? Con’t

43. World is most peaceful in hundreds of years Richest countries are not in geopolitical competition Fewest people dying from war, civil war, & terrorism in at least 100 years Why Should We Be Optimistic?

44. Global economy growth 10-20 percent faster than previous decade 60 percent faster than decade before 5 times as fast as three decades ago Poverty UN estimates reduced more in last 50 years than previous 500 Chinese – 10 times richer than 50 years ago, live 25 years longer Why Should We Be Optimistic?con’t

45. College graduates globally last 40 years Men 4 fold Women 7 fold Implications for U.S. A rising tide lifts all boats, i.e., opportunities We have Dynamic economy Dominate age of technology Deepest capital markets Home for world’s greatest companies Most of the worlds greatest universities Why Should We Be Optimistic?con’t

46. Thank You