Free Money Finance

Owners of Second Homes: Beware of New Tax Laws

The following is a guest post from Marotta Asset Management.

If you own two homes, sell the one you are living in and move into your second home as soon as possible. Tax changes taking effect on January 1 will make owning a second home much less attractive in 2009. As a result, the already depressed market for vacation homes will deflate even more.

Previously, any capital gains on your primary residence were excluded up to $250,000 for singles and $500,000 for couples. A primary residence was defined as any home you had lived in for two of the previous five years. The "prior rule" gave seniors moving to a new residence three years to make the move permanent. During that time they could still sell their original residence and take advantage of the exclusion.

It also allowed seniors who had a vacation home to move there and sell their primary residence. After two years their vacation home qualified as their primary residence. Young grandparents approaching retirement could buy a retirement home as a vacation destination while they were still working. After retirement they had time to sell their original home and in two years gain a full exclusion for their new residence.

With the new rule, primary residence is not something you can qualify for. Rather it is just a percentage of the time you live there.

The new law eliminates the capital gains exclusion, prorated on the amount of time a home was not your primary residence. After January 1, every day you aren't living in a home starts adding to the percentage of capital gains tax you will ultimately be obliged to pay.

Also, capital gains are no longer waived on a primary residence unless it has always been your primary residence. Starting in 2009, the percentage of time a home is not your primary residence will be the same number used to calculate the amount of capital gains that won't be waived. For example, if you own a house for ten years and have only lived in it for five, you will have to pay taxes on half of the capital gains when you sell it.

These are the same capital gains that President-elect Obama promised during his campaign to raise from 15% to 28% on the most productive citizens. Some states (e.g., California) tax capital gains at ordinary income tax rates, adding an additional 9.3%. So people who make significant contributions to society could easily be facing taxes of 37.3% on gains that are mostly inflation.

This isn't just a problem for the wealthy. You can be pushed into the top 1% of income tax payments simply by selling a house in California. Middle-class couples routinely get hit with unexpected taxes selling a home with capital gains well over the $500,000 exclusion. Because it is not a onetime exclusion, couples who have stayed in the same house for 40 years get socked with the tax, whereas couples who move every decade have multiple chances to realize smaller gains that are under the limits. People who move frequently shouldn't be rewarded with a tax break.

Here's another factor to consider: Home appreciation is mostly inflation. Taxing government-created inflation as so-called gains isn't fair. Even according to the official inflation numbers reported by the government, the equivalent of a million-dollar home today was a $179,154 home in 1970. Calling the $820,846 inflation a capital "gain" is ludicrous.

Class envy is equally mindless. Capital gains on real estate affect your finances even if you don't own a second home. The housing market isn't segmented into primary and secondary residences. What depresses the values on second houses depresses the value of all homes.

The second-house class is the very group that could have helped shore up today's slumping housing market. Speculators who would have bought real estate at the current depressed prices will find this option far less attractive in 2009. Instead the new law will encourage them to sell their current residence (taking the full deduction) and move into their second home. Then their second home will become their sole and primary residence, and they won't have to deal with future nonexempt capital gains taxes. Ask your financial advisor about the potential costs of continuing to own two homes. If you delay, you may be holding an unused vacation home until you die just to avoid this new tax burden. And as a result, your heirs will inherit the house with a step-up in cost basis.

Because of the law, thousands of additional homes will be added to the market, softening the demand for housing even further. It is as though a shortage of people are buying real estate and we've passed a one-per-customer tax incentive law. There is no reason to discourage what no one is willing to buy. The new legislation will probably push home values to new lows during 2009.

Why the law was changed is unclear. The old law was difficult to abuse. Those who were rapidly turning over real estate could not take advantage of the law. If someone tried to flip 25 homes, it would take 50 years. The new law doesn't make any sense, but if it did make sense, it probably would not be Congress.

The new law won't bring in much additional revenue either. But it will complicate record keeping and tax returns for anyone selling a home they have not lived in continuously. As a result of these disincentives, buying or selling vacation homes will become less desirable.

This legislation graphically illustrates the deadweight costs of taxation. Rarely is the concept so clear. The law will remove much of the value of vacation homes from the economy without collecting much additional tax revenue. All pain, no gain. It teaches us a sad lesson about the destructive power of taxation.

Vacation homes represent an expense that can easily be let go in challenging economic times. Many families own a vacation home during the season of children or young grandchildren. After that, the travails of maintenance and repairs outweigh their pleasure in the home. Management companies remove much of the headache but make the economics even more problematic.

In times of rising home values, the investment in a home at least kept up with inflation, but with the new laws the government will tax you on that inflation. As a result of these changes, consider simply renting a vacation home and letting someone else pay the capital gains tax.

When It's Good for Couples to File Taxes Separately

The Wall Street Journal says that in most cases it's better for married couples to file joint federal income tax returns. But they do list some situations when it may be better to file separately. A couple examples:

• A two-income couple where one spouse has large medical expenses and the other has little or none. Medical expenses typically are deductible only to the extent they exceed 7.5% of adjusted gross income. Thus, this couple might save taxes by filing separately, because one spouse's big medical expenses might be deductible on a separately filed return but could be reduced, or even eliminated, on a joint return.

• Consider filing separately if your marriage is on the rocks or if you fear your spouse may be cheating on taxes -- such as hiding taxable income or claiming phony deductions. If you file separately, you won't be held liable for your spouse's wrongdoing.

They go on to suggest you crunch the numbers both ways to see which the better option for you is. Or, if you're like me, you have someone crunch the numbers for you. :-)

Six Myths about the Big Three

As part of our on-going conversation about a potentail bailout for the big three automakers, US News offers six myths about these companies. Their list:

• They don't build small cars.
• They don't build any desirable cars.
• The same guys asking for handouts are the ones who caused the problems.
• The CEOs should fly coach.
• It's all the unions' fault.
• They've done nothing to help themselves.

Interesting read.

A Note on the Big Three Bailout from a Michigan Senator

Got this email today from Senator Carl Levin, the second worst senator in the Senate after our other senator (is it any wonder my state is in such a mess with the people we keep electing?) Anyway, here's what Levin has to say about the big three bailout. Thought you all might like to see it since we discussed the topic yesterday.

Immediate support is needed to shore up our automotive manufacturing sector and to preserve the more than 2.5 million jobs directly and indirectly linked to the U.S. auto industry. This morning, I testified in front of the House Financial Services Committee to emphasize the need for Congress to take swift action on behalf of our nation’s automakers. Standing idly by as the financial crisis decimates our domestic manufacturing capabilities and pulls our fragile economy further into recession is unacceptable.

Throughout the world, the dire financial crisis continues to spur governments to provide assistance to their manufacturing industries, which are not able to obtain the credit they so vitally need to continue operations. Both Germany and the European Union are studying the possibility of providing support for their automotive industries. Australia has provided more than $4 billion in funding for its vehicle manufacturers. Automotive manufacturers in China are already voicing their expectation of financial assistance from their government as well. “The Chinese government will undoubtedly support us,” says She Cairong, general manager of JAC Motors, a Chinese automobile manufacturer. This quote appeared in a New York Times article this morning, highlighting China’s consideration of a plan to provide assistance to its domestic automobile companies.

The spotlight is now focused on Congress, which is considering the possibility of rescuing the industry from an economic downturn not of its own making. President-elect Obama has called the U.S. auto industry “the backbone of American manufacturing” and said that the failure of our domestic automakers would be “a disaster” for our economy. President Bush, Speaker Pelosi, and both the Majority and Minority Leaders of the Senate agree that bridge loans for our domestic automakers are necessary at this time. I will continue to work with my colleagues in the Senate and the Congressional Leadership to come up with a plan that would provide auto manufacturers with the bridge loans they need to weather this financial storm.

You can read the transcript of my testimony before the House Financial Services Committee. During these difficult times, I am doing everything within my power to convince the Congress to provide the bridge loans for the domestic auto industry that the President, the President-elect and the leaders from both houses of Congress support.

Your Money: Bailout American Auto Manufacturers?

Lots of talk today about whether or not the government should or shouldn't bail out the big 3 automakers with our tax money. A few articles for consideration:

• Let Detroit Go Bankrupt 

• How Many Jobs Depend on the Big Three?

• How Bankruptcy Would Benefit GM

Here's my solution: the government should take the money it's thinking of using to bail out the big three and buy stock in Toyota or Honda instead. Seems like a better investment. ;-)

Seriously, I haven't decided what I think of an auto bailout other than it's likely to be pouring money down a drain. If anything, maybe we should save one or two of the big three at most?

What do you think?

The Bailout and You

Here's a guest post from Free Money Finance reader Kevin McCoy.

Think the recently passed bailout legislation didn’t affect you?  Think again.  There are several income tax-related provisions that could save you some money if you know how to prepare.

There are actually three sections to the bailout legislation.  The “Emergency Economic Stabilization Act of 2008” deals with the terms for financial institutions to receive bailout help.  Next, the “Energy Improvement and Extension Act” acts as a one year extension of various energy related provisions.  Finally, the “Alternative Minimum Tax and Extenders Tax Relief Act” has many deduction extensions, AMT relief, etc.  This discussion will deal with the latter 2 acts.

Provisions for Homeowners:

1) IRS-speak - Exclusion of debt relief on qualified principle residence extended through 2012.

In English -  in a nutshell, this is a bailout for homeowners that lose their home via short sale, foreclosure, etc.  Previously, the homeowner would have paid tax on the debt forgiven.

2) IRS-speak - Additional $500 (single)/$1000 (married, filing joint) standard deduction for real estate taxes paid. 

In English - If you don’t itemize deductions, you can still deduct the lesser of $500/$1,000 or actual real estate tax paid along with your regular standard deduction.

Alternative Minimum Tax (AMT) provisions:

The AMT is increasingly hitting middle class taxpayers, in addition to the high income earners it was originally designed to bite.  The most common items that would subject someone to AMT are: a high number of personal exemptions (lots of kids), high state and local income taxes/sales taxes, exercise of incentive stock options, including others.  These provisions add some relief.

1) IRS-speak -  Higher Alternative Minimum Taxable Income (AMTI) exemption amounts - $69,950 for married, filing joint (vs. $45,000 in 2007); $46,200 for single ($33,750) and $34,975 for married, filing single ($22,500).

In English – basically, if your AMTI (adjusted gross income with some adjustments) is lower than these amounts, you won’t be subject to AMT.

2) IRS-speak – Non-refundable credits can now offset AMT

In English – Several “regular tax” credits were previously not allowed to be used against AMT, but now are allowed.  They include the dependent care, elderly & disabled, child, home mortgage interest, Hope & Lifetime Learning, retirement savings, non-business energy, residential energy efficient property, among others.

Other Individual provisions (extended through 2009):

1) IRS-speak – IRA transfers to charities excluded from income

In English – Individuals can donate up to $100,000 using an IRA withdrawal and not be taxed on the withdrawal (however, the deduction cannot be taken on Schedule A).

2) Elective state and local sales tax deduction extended for 2009 – good for those who live in no state income tax states such as Texas, Florida, Washington, etc. or those who buy big ticket items and pay substantial sales tax (cars, boats, etc.)

3) Qualified tuition and fees deduction – up to $4,000 (with limits of course)

4) $250 educator’s expense deduction – teachers can deduct up to $250 of their supplies expense as an adjustment to income (the balance can be taken on Schedule A as a miscellaneous deduction).

Energy related provisions:

1) $500 max residential energy credit reinstated for 2009 and expanded – applies to qualified energy efficiency improvements (windows, doors, insulation, some metal roofs) and residential energy property expenditures (certain HVAC systems and water heaters)

2) Residential alternative energy credit extended through 2016 – applies to solar, wind, geothermal expenditures.  Taxpayers can generally receive a credit for 30% of the expenses up to $2,000.  For 2009, there is no $2,000 cap on the solar portion.

Note:  There are several other energy related tax credits geared more towards businesses that probably don’t apply to most people. 

In summary, the above represent the most common tax provisions of the new bailout legislation.  There are many, many other provisions that could affect you, so please consult your tax advisor or read up on the full bills here:

• The Energy Improvement and Extension Act of 2008 (pdf)

• The Alternative Minimum Tax and Extenders Tax Relief Act of 2008 (pdf)

Please feel free to pose questions in the comments and I’ll do my best to check back and answer.

Three Tax Tips from TurboTax

Just received the following via email today.

Given the current state of the economy it is even more important for taxpayers to do everything they can to slash their tax bill.  Bob Meighan, CPA and vice president at TurboTax says there’s still time for taxpayers to take advantage of some easy, year-end tax tips: 

• Sell losing investments – Taking a loss this year may help taxpayers offset tax from other gains or income, but that loss is limited to $3,000. Any amount in excess of that must be carried over to their 2009 tax return.

• Donate to Charity – Donating clothes, toys, household goods and other items to charity before Dec. 31 may help taxpayers who itemize claim bigger refunds while helping someone else.  Using software like TurboTax helps taxpayers accurately value donations in accordance with IRS guidelines so there’s no need to guess at an item’s fair market value.

• Prepay some bills: Taxpayers can prepay a few of their 2009 bills in 2008, and get to write them off on this year’s tax return. This includes mortgage payments and predictable medical expenses, like braces for the kids.

One other thing to remember: taxpayers that did not qualify for an economic stimulus payment in 2007 are getting a second chance. People who had financial or other life changes in 2008, like a lost job or a new baby, and now meet the requirements may be eligible to receive a rebate in 2009.

Can Obama Save Michigan?

I am praying like mad that Obama saves the state of Michigan by ridding us of our governor. Maybe he can give her some sort of hard-to-do-damage-from political post (maybe Ambassador to Nowhere?) At least then our state would have the chance of recovery.

Then again, I've heard the Lt. Governor is worse than JG -- which is hard to believe.

Anyway, there's so much wrong in my state now (high taxes, foreclosures, businesses failing, etc.) that people are feeling a big, big financial pinch.

How about where you are living? Are you/those you know starting to be impacted by the economy? In what ways?

Ten Ways to Prepare for Higher Taxes

Here's a list of ten ways to prepare for higher taxes from the Wall Street Journal. Whether you'll have higher taxes simply because taxes go up or because you start earning more (good for you!), this is a useful list:

1. Invest in municipal bonds.
2. Sell your Apple stock now (and then buy it back straight away).
3. Get ready to maximize contributions to your 401(k), up to the $15,500 annual limit.
4. Don't overlook the other tax shelters your employer may offer including Health Savings Accounts and Flexible Spending Accounts.
5. Open a low-cost variable annuity, like the ones offered by Fidelity, Vanguard or Schwab.
6. Invest in your home.
7. Borrow against your home!
8. Open up 529 plans for any children, or grandchildren, who are hoping to go to college.
9. If you are self-employed, or you have self-employed income, set up a solo 401(k) or SEP-IRA.
10. Don't forget to harvest your tax losses this year.

I'm always looking for ways to lower my taxes, and I've done many of these already. Here's where I stand on each of them:

1. Not yet, but I do have some tax-exempt bonds in a Vanguard mutual fund.

2. Don't have Apple or any other stock at this point (my money is in index funds.)

3. I've maxed out 401k donations for years now.

4. We have a HSA and I put the max amount in it.

5. A potentially costly option, but if costs are low enough (through Vanguard, for example) and the tax savings high enough, it may be a good option. I'm in the process of investigating options.

6. Looking at this (some enhancements), but I won't borrow to do it.

7. No!

8. I have 529s and Coverdells for both kids.

9. I do contribute annually to a SEP.

10. Unfortunately, I'll have losses to claim for years to come. :-(

Jane Bryant Quinn Hates Gold Investing

Here's an interesting piece on investing in gold where the author (famed personal finance writer Jane Bryant Quinn) says there's no reason to invest in physical gold (coins, bars, etc.). A summary:

Owning 20 or 30 coins is nice but won't protect your standard of living in a world where dollars are dust. Gold isn't even a reliable hedge against inflation. It reached $850 an ounce in January 1980, a price not seen again until January 2008. During those intervening 28 years, gold plunged and reared but lost more than half of its purchasing power. For a 1980 investor to break even after inflation, gold would have to reach $2,200. It might, but how long did you plan to wait?

Ok, so you can't buy enough of it to protect you in case of a collapse and it doesn't outpace inflation -- so what's the use of buying physical coins? Her point exactly!

Now she does offer some alternatives to buying physical gold including the following:

A cheaper way of buying gold is through an exchange traded fund. The most widely traded fund, SPDR Gold Shares, costs 0.4 percent a year in fees, plus your brokerage commission. You don't own the gold directly. A trust holds large gold bars (warehoused principally in London) and sells shares against them, which are traded on the open market.

It costs even less to buy bullion in a pool account, such as the ones offered by Kitco. Like an ETF, a pool account sells shares in a large bar of warehoused gold. You pay just a hair over the spot gold price, and sell it back to Kitco for just a hair under. There are no annual expenses. For a fee, you can redeem in gold itself. As with ETFs, you depend on the pool's trustee to support its guarantee.

Then again, she doesn't detail why buying these are or aren't a good investment -- she just tells us about them. This leads me to believe she's not a big fan of investing in gold no matter where or how you buy it.

Finally, she lists a couple tax-related issues associated with gold that I found interesting:

• Dealers have to report to the Internal Revenue Service if you sell 25 or more Maples or Krugerrands. They're not required to report your sales of American Eagles and some other coins, although some may do so.

• Gold, by the way, is taxed as a collectible -- whether you buy it in the form of coins, ETF shares or an interest in a pool account. Your tax rate on long-term capital gains would be 28 percent, compared with 15 percent on other assets. Only a significant price gain (or currency collapse) redeems your bet.

Yikes! That last one is a killer!

Anyone out there have any sizeable amounts of gold? How are you holding it (physical, ETF, pool account)? Why?

Deducting Investment Losses Off Your Taxes

This topic seems well-timed. It's on when and how much you can deduct from investment losses on your taxes. The summary:

First, you can use your capital losses to soak up your capital gains, with no dollar limit. For example, suppose you sold a stock earlier this year for a $25,000 gain. Now you sell another stock for a $25,000 loss. Put those two together, and your loss erases your entire gain. Thus, you don't owe any capital-gains tax on that $25,000 gain.

Now suppose your capital losses are bigger than your gains, or that you have no gains at all. In that case, you can deduct as much as $3,000 of net capital losses (or as much as $1,500 if you're married and filing separately from your spouse) each year from your wages and other ordinary income. Additional amounts get carried over into future years.

I think I'll have amounts to carry over for a few years (if you need details on what I'm talking about, see my Wednesday post on selling my mutual funds.)

Do You Write off Your Charitable Contributions on Your Taxes?

I recently received this comment while discussing what politicians give to charitable organizations (as seen on the public tax forms they have to release):

Lots of people I know don't list their tithe for taxes, since they don't want to receive an earthly reward for their giving. Paul made it pretty clear that we shouldn't be giving our money to the church for earthly status - something that a politician can't do if they are reporting their giving. It’s also something people should keep in mind when examining the records public officials.

I've heard this argument before, especially from Christians. They say they don't deduct their giving from their taxes because "they want a heavenly reward, not an earthly one." My response has always been to suggest that if they feel that way and they want to be the best stewards possible, why don't they claim the deductions on their taxes, get some money back, and give that money away too? Seems like a good way to maximize their giving, doesn't it?

Politicians have a different issue -- they may want to hide the fact that they're giving to a specific organization. So maybe they just don't claim it on their taxes. If it's not on their taxes, then no one knows, right?

As for me, I write off everything that's permitted to be written off. My thoughts are that I'm playing by the rules of the US government, and if they allow us to get credit for certain actions, then I'm going to get credit for them. Then again, no one is looking at my records either.

How about you? Anyone out there not deduct their giving on their taxes for one reason or another (other than you don’t give enough to claim)?

Why I Sold My Mutual Funds

In my post titled Six Investment Pitfalls I commented:

Yep, I've done all of these in my lifetime. Early on in my investing career, when I knew little about the subject and thought I could pick killer stocks better than anyone on the planet, I did all of these -- several times. Then, when I learned a bit more, I became somewhat smarter, but didn't quite get all the facts right again. Now I have some mutual funds that I should have never been in (and want to get out of) but yet have huge capital gains tax implications if I sell them. Making bad decisions early on can certainly have long-term consequences. Hopefully, someone can learn from my mistakes.

Let me add a bit more detail to this.

After I figured out that I wasn't a stock-picking pro (10 to 15 years ago), I decided that I'd invest in mutual funds instead. But I 1) didn't have a strategy and 2) didn't know how important it was to control investing costs. So I picked a NUMBER of funds here and there in various accounts -- taxable accounts, IRA for my wife, and an IRA for me (rolled over from a 401k). In fact, I never met a mutual fund I didn't like. I ended up with somewhere around 40 different funds in three accounts.

I eventually realized that this was foolhardy (investing without a strategy) and I studied the topic a bit more. That's when I decided index funds were for me and I developed a strategy around investing in them. That was several years ago and since that time index funds have become the mainstay of my portfolio.

But I still had the other 40 funds. When I moved over to index fund investing, I simply started new funds -- I didn't sell the old ones. So I ended up with money in a wide number of funds I didn't really want. So I could have simply sold them, right? Not unless I wanted a big capital gains tax hit. After all those years, the funds had made some decent gains, so if I sold them all at once, I'd have a hefty tax bill.

Of course I could have sold them when I sold loser funds/stocks (then the gains would be offset by other investment losses), but I didn't have any losers because I was never selling. So I ended up with a huge number of funds that were difficult to track and manage.

That's when a reader suggested that I give away my appreciated mutual funds. If I gave them directly to a charitable organization, I could avoid the capital gains tax altogether (for more info on this, see How Shrewd Investors Save on Taxes.) So this is what I did in 2007 and the first half of 2008. I gave mutual fund shares directly to my favorite charities. I then took the amount I would have given in cash during normal times and invested that in index funds. This got rid of several funds in a couple years, but I still had a long road to go (BTW, in case you're interested, I gave a boatload away in early 2008 -- enough to cover my giving for the whole year -- so I got a good amount of value from some of these funds before the market tanked.)

Then the market crashed big-time. In the span of a few weeks, my capital gains were eroded and I had losses. Now I didn't need to wait to sell all the funds I owned, so I sold them all and invested the proceeds into the following index funds:

• Vanguard Total Stock Market Index (VTSMX)
• Vanguard Total Bond Market Index (VBMFX)
• Vanguard Total International Stock Index (VGTSX)

Of course I would have preferred that the market stayed high and I would have gotten myself out of the funds as originally planned, but I'm trying to make lemonade out of lemons here. At least my investments will be much simpler to manage in the future and will reflect the strategy I want them too. Then again, they'll be easier to manage because they're a lot lower in value too. :-(

For additional perspective, check out this piece from the Wall Street Journal on getting a portfolio do-over.

Our Tax Dollars Hard at Work

From MSNBC:

The government sent out more than $1 billion in fraudulent refunds last year and offered this explanation Thursday for the bad checks in the mail: The Internal Revenue Service has too few resources to pursue every tax fraud case.

IRS investigators never even looked at an estimated $742 million in fraudulent refunds, according to a report by the Treasury Department office that monitors the agency. When they did identify an additional $264 million in bad refunds, it was too late to stop them from being issued.

Yep. A billion here, a billion there. After awhile, it adds up to real money.

Privatization Could Fix Social Security

The following is a guest post from Marotta Asset Management. The combination of a controversial topic and the "popularity" of the Marotta articles made me think twice about running this piece. But if the numbers on the returns offered by Social Security are even close to being true, then I think the article makes some very compelling arguments that deserve consideration and debate.

Between 2037 and 2075, the Social Security program is projected to run deficits totaling $30 trillion. And annual shortfalls could be a problem as soon as 2017.

Privatizing the system could break the political deadlock between cutting future benefits and raising payroll taxes. We can have both our benefits and lower taxes if we finally admit that socializing retirement was a mistake and once again trust in the power of free markets.

For some people, the current volatility and decline in the stock market makes the best case against privatizing Social Security. Why would we want to inflict market shocks on every American's retirement? Isn't Social Security at least secure? Unfortunately, it is not.

Computing a return on Social Security as though it were an investment is difficult but not impossible. For example, my average annual return is about negative 7%. It is so poor for three reasons. First, average lifetime annual incomes above $60,000 produce miserable returns. Second, because I fall at the end of the baby boomers, my Social Security withholdings are at the current high rate of 12.4% rather than the lower rates that might have produced a better return. Finally, for those born my year (1960) or later, the age to receive full Social Security retirement benefits was raised from 65 to 67, further lowering returns.

A negative 7% return is huge. That's like investing $100 and 30 years later getting back $11, or investing $100 a year over 30 years and getting back $1,177 of your $3,000 investment. If recent shocks in the stock market seem difficult, imagine losing 60% of value over 30 years of investing!

Not everyone's return on Social Security will be as bad as mine. On average, Social Security provides a return of about 1.2%. If you don't work and therefore haven't paid into the system, your return is a complete gift.

As a comparison, the S&P 500 closed at a low on October 10, 2008, at 899.22. It closed exactly 30 years earlier on October 10, 1978, at 104.46. Even with the recent losses, investments in the S&P 500 have gone up 8.61 times, reflecting an average annualized return of 7.44%. Bond investments show a similar return with much less volatility. In fact, nearly any kind of investing has done better than the return within Social Security.

Proponents of the system view the redistribution of wealth from workers to retirees as positive. They believe we should pay whatever it takes to preserve the program in its current form. That the system destroys wealth and property rights is ignored because the system impoverishes the elderly more equally.

The proposal for privatizing Social Security is simple but elegant. Allow younger workers to deposit part of their Social Security taxes into a private account. If it produces a better retirement than Social Security, they can refuse Social Security and keep the private account. Otherwise they can take Social Security. Given my expected rates of return, putting just a tiny fraction of my withholding into a private account will do better than getting a negative rate of return in Social Security, even using the poor rate of return to where the market bottomed.

For more typical people who might receive the equivalent of a 1.2% return on their Social Security, they would get just as much benefit earning 7.44% on a third of the contributions. Thus 4.1% invested privately could do the job that 12.4% in Social Security can't seem to do without massive deficits. The proposals for privatization suggest allowing younger workers to invest 5% on their own. The other 7.4% would continue to be confiscated to pay aging early baby boomers the normal Social Security entitlement. A few years of deficit spending will be necessary before private accounts begin to relieve the deficit. But ultimately, private accounts will yield a greater benefit than Social Security ever provided. And when the baby boomers are off the Social Security dole, tax rates could be reduced to 5%.

Rather than relieving the problem, raising taxes exacerbates the inequities of Social Security and sends the average returns negative. Additionally, no matter where they are found, the higher taxes required to bail out Social Security would stifle economic growth. Most of the solutions that propose raising taxes result in top margin rate increases of over 15%. This level of curtailing freedom would kill economic growth and innovation.

Of course, cutting benefits is hardly a more attractive option.

Interestingly, either increasing taxes or reducing benefits sets the bar lower for private accounts to beat by any comparison. Privatization simply eliminates benefits for all the workers who can do better with 5% of their payroll taxes than the government does with the entire 12.4%.

Some people like the idea of using the growth engine of private accounts. But they suggest the government maintain control of the money. They would allow the government to invest retirement accounts directly in the private markets. So the government supposedly would protect citizens from their own ineptitude.

Others suggest that governmental involvement and oversight in the financial markets would bring a welcome measure of accountability to corporate America. They favor the so-called good intentions of politicians over the greedy motivations of the financial world.

Although tempting, this idea would be disastrous for freedom and for free markets. Even Alan Greenspan, former chair of the Federal Reserve, warned that governmental investing would "have very far reaching potential dangers for a free American economy and a free American society."

With private Social Security accounts, millions of workers would make independent investment decisions. But if the government took it on, the impact would be unified and rigid. And concentrating that power in a single government entity would magnify its effect. Having a Social Security trust buying and selling in the markets would be like turning on every electrical appliance in your house at the same time. The government retirement monopoly would short-circuit the free markets.

Overnight the government would have a controlling interest in virtually every major company in America. We should have learned from the scandal of political appointments to Fannie Mae and Freddie Mac that political power breeds political corruption.

The federal system would become swamped with feel-good laws requiring investments designed to stimulate the economy, create jobs or develop alternative energy sources. Federal advisors would shun investments that did not pass the litmus test of political correctness.

Some have suggested limiting the government's investments to passive index funds. But that leaves unanswered the question of which indexes will be used and in what percentages. Would all the investments be in U.S. stocks and bonds? If so, the resulting asset allocation would only use two of the six asset categories we recommend.

Ironically, the goals of collectivism are best achieved by respecting individual liberties. When well-intentioned bureaucrats force choices on workers, the incentive for innovation and risk vanishes. As a result, society hardens into a rigid structure that cannot easily align itself with changing market conditions.

Collectivism starts with the premise that the common people cannot be trusted to make their own choices. Once you have accepted that premise, you will take whatever you need and give whatever you want without regard for individuals who would have done otherwise.

Acting on behalf of a collective often justifies imposing our priorities on individuals. For example, if the few in charge believe that foreign investing costs American jobs, they will not allow us to invest overseas. Or if they believe that companies who develop alternative energy sources are a good investment, they will force us to invest in them.

We certainly know by now that not even smart people can force the markets to behave in a certain way. You might as well pass laws outlawing hurricanes.

These are some of the socialistic assumptions that caused the current Social Security system to fail. Privatized accounts could turn that around. It would be a shame to make the same mistake a second time and destroy the engine of capitalism in the process.

Privatization uses the strength of America's capitalist engine to solve the weakness of socialized retirement. Do your part by asking your senators and representative to support privatizing a portion of Social Security. And then assure your own retirement by saving 15% of your take-home pay regardless of what happens in Washington, D.C.

Amazing Financial Facts

This piece from MSN Money has a ton of interesting money-related facts about who earns what in the US and who pays taxes. Here is the information along with some of my comments:

The highest-earning 1% of taxpayers in America make 22.06% of all income reported to the government. That's almost twice the 12.51% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers claim 22% of income earned while 68 million share just 12.5%.

Ok, no surprise here -- the cream of the crop earns a boatload of money. Not a shock at all.

When it comes to taxes paid, an even wider discrepancy shows itself, in reverse. Those earners in the top 1% pay 39.89% of all federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes.

To note, these are only federal income taxes, but still the bottom 50% number is amazing to me. Half the working population pays only 3% of income taxes? That's almost unbelievable. No wonder so many in our country want the government to take over more and more services (like healthcare). If I was paying a sliver and getting full benefits, I'd probably want the same.

In 1986, the top 1% of earners reported 11% of all income and paid 26% of the income taxes; the lower-earning 50% made 17% of the income and paid 6% of the nation's individual income-tax bill.

The rich are getting richer and paying more of the bill. The poor/middle class are making less relatively and paying less in taxes.

An income of $31,988 or more puts you in the top half of taxpayers. Earning a bit more than twice that much -- $64,703 -- places you among the top 25% of all wage earners. You crack the elite top 10% if you earn $108,905 or more. And $388,807 buys top bragging rights: Earn that much or more, and you're among the top 1% of all American earners.

Really? Really? $32k per year puts you in the top half of all taxpayers? Holy cow, I would have guessed it was more like $50k. Now wonder the lower half pays so little in taxes -- they barely make anything. Then again, they get just as many benefits from the government, don't they? So shouldn't they pay the same? It's a difficult set of ideas to balance for sure.

I guess this is the debate we see playing out in front of us in the presidential election -- and why both candidates have a different view of what "middle class" means. The most interesting point to me is that 50% of the people basically pay nothing in federal income taxes, yet they have enough size to elect whoever they like and end up paying even less! That's a scary place to be for any country IMO.

Are "Taxes" and "Giving" the Same Thing?

On my post titled What Politicians Give, one reader left a particularly interesting comment. Here's the part of it I'd like to focus on:

The top 5% of wage earners pay 57% of taxes. (IRS 2004) Old info, but I'm running with it. I use this information because I feel that those mentioned in your post are in or close to the top 5%, if not, then they're probably in the top 10% and paid 68% of taxes.

Now, the last time I checked there are numerous organizations that receive this money with the sole purpose of giving and taking care of those that are less fortunate. There are food stamps, education funding, money to fight world poverty through the U.N., AIDS, environmental crisis, employment help, Medicare, Medicaid, just to name a few. There are additional grants for non-profit organizations that help more focused groups of people. By this information, doesn't paying taxes make you a charitable giver? Not to mention more so for the high earners you mention since they pay more taxes than the rest. Why should they have to give another 10% of their income to be considered a "good person.”

The issue I'd like us to discuss is whether or not paying taxes is the same as giving. I've had several people comment along the lines of "I pay X% in taxes to help out others -- that's my giving."

In part, I can see their point. If a huge chunk of their income is taken away to help others, why should they add more to it? Don't they already give by default?

Here's my take on the situation:

1. Personally it doesn't matter to me whether you give or not. I do think it's our responsibility to help others, I do advocate giving both time and money, and I do so personally. That said, I don't think you're a "bad" person for not giving.

2. Paying taxes and giving are not the same thing. The key difference -- one is voluntary and the other isn't. Dictionary.com defines "giving" as follows: to present voluntarily and without expecting compensation. When was the last time taxes were voluntary?

3. Now, combining thoughts #1 and #2, while I don't think the non-giver is "bad", I do think they are not generous. Trying to hide behind the "I'm a generous person because I 'give' taxes" is a huge cop-out to me. Why not just say "I don't want to give?" That's the truth, isn't it? Why try to pretend to be generous when you're giving nothing? (again, taxes are taken/paid, not given)

So, what's your take on the issue? Is paying taxes a substitute for giving or is there a difference? I'm interested in hearing your thoughts.

Why You Need to Know About Taxes Even If Someone Else Does Your Taxes

From the Wall Street Journal:

In a limited study of tax returns completed by unlicensed paid preparers, 17 out of 28 -- or 61% -- were prepared incorrectly, including one that showed the taxpayer owing $4,903 more than he really did, according to a study by the Treasury Inspector General for Tax Administration (TIGTA), which provides independent oversight of IRS activities.

While most of the mistakes resulted in an underpayment of taxes or a too-big refund, sometimes it was the taxpayer, not the government, who would have paid for the mistake, according to the study in which TIGTA auditors posed as regular taxpayers and visited tax preparation offices in a single metropolitan area.

Given the study's small sample size, the findings cannot be generalized to all paid preparers.

Ok, so it's not scientific, but this piece does illustrate a key point: you need to know about taxes even if you have someone prepare your taxes for you. Why? Because preparers make mistakes. Or (more common) you don't give them all the facts they need to lower your taxes like they can. Why would you not give them needed facts? Many fail to provide adequate information because they simply don't know it's needed/valuable information.

I use a CPA to do my taxes, but I still keep on top of the tax laws so I know what information to give her, how to check her work once she's done, etc. This paid off for me big-time this year when I caught a mistake my CPA made (which was eventually resolved.) Because I was educated on the issues, I didn't over-pay my taxes. If I had looked the return over and didn't see the mistake because I didn't understand the issues, I would have lost a good amount of money.

One other tip if you use a preparer: get one that asks some questions upfront. My CPA sends me a three-page questionnaire each year that helps me identify tax issues I'm not aware of. This in itself is a great educational tool that helps me keep on top of the latest tax changes.

So even if you use a planner you still need to be up-to-date on current tax laws. You also need to keep good records, but that's for a different post. ;-)

For those of you looking for more information on this topic, see these posts:

• When to Hire a Tax Professional

• How to Hire a Good Tax Professional

• How to Get More Out of Your Accountant

Maybe Social Security Isn't the Issue

After sharing my thoughts on Wednesday about how I think we need to fix Social Security, it turns out that maybe SS isn't the issue we need to address. Instead, maybe it's healthcare (what a shocker, huh?) A summary from CNN Money:

Social Security is actually a relatively small and fixable piece of the entitlement puzzle. Medicare for the old and Medicaid for the poor are the programs that really threaten to swallow up the budget.

The federal deficit, not counting interest payments, could eat up 9% of GDP by 2050 if business continues as usual. According to Brookings Institution economist Henry Aaron, the two big federal health programs account for nearly all of the gap.

The main problem is not the demographic bulge of baby boomers, says Aaron. It's that health-care costs overall, for private payers as well as in Medicare, are growing about 2.5 percentage points faster than the economy every year. New drugs, procedures and technologies keep upping the ante, even when we aren't sure if they work better than what came before.

If we could get a grip on runaway cost growth throughout the system - not just for old folks - we'd solve much of the budget problem. And we could even afford to cover everybody. As a practical matter, Aaron argues, the two reforms must go together.

The piece goes on to say that both Obama and McCain don't really have a workable solution at this point. I wonder if we'll ever get a workable solution. After all, it's a huge issue with trillions of dollars at stake and many special interests involved. To get a good solution, we'd need our politicians to make tough choices in the best interest of the country (not their own best interests) -- something that's virtually impossible to do. If they ever do address the issue (which will likely occur only when it gets so bad that there's no other choice), we're likely to end up with an everybody-gets-his-own-special-interest-into-the-program sort of plan that makes the cure worse than the disease.

As you can tell, I'm not optimistic.

Looks like I'm going to be right about healthcare and retirement.

Social Security Age Inflation

As many of you know, I'm not the biggest fan of how the government spends our money. It's been shown to be wasteful in many different ways and I don't think it's the best money manager out there. And while this post isn't about waste per se, it is about how the government uses a ton of our money through Social Security.

In Politics and Your Money, I said I favored the following as a way of adjusting the Social Security system to make it more financially solid:

Raise the age at which benefits are received. It's in alignment with the original intent of the program, but politically I don't think it will happen.

At that point, I didn't have specifics, but now I do. Consumer Reports has listed the eligibility ages for various Social Security benefits if they had been adjusted since these programs began. The details:

• Social Security early retirement age (currently 62) would have been 65.6 to 67
• Social Security normal retirement age (currently 66 to 67): 73 to 81.8
• Social Security delayed retirement age (currently maxes out at 72): 76 to 78.6
• Medicare eligibility (currently 65): 70 to 72
• Penalty-free IRA withdrawals (currently 59.5): 63.8 to 66

These look like good/fair numbers to me (though I would like to get my own IRA money sooner) -- after all, the average lifespan has risen dramatically since the inception of the program, so why hasn't the age that benefits are available risen? Sure, there needs to be some sort of phase-in process to make this happen, but I certainly prefer this option to increased Social Security taxes. Why? Because I think the government is a poor manager of our money and I'd rather put the responsibility for my retirement in my own hands rather than those of the Congress.

That said, I'm not counting on anything from Social Security as part of my retirement number. Who knows where the program will be by the time I retire -- or if it will even be around. So I'm counting on it as "gravy" over and above what I plan to save for myself. This is another reason I'm not too excited about putting money into the system -- who knows what I'll get back (if anything.)

Obama versus McCain on Taxes

For those of you interested, here's some good information on Obama's tax proposal versus McCain's. Don't put too much stock in this though -- I'm sure things will change a LOT no matter who's elected (as they always do.) That said, at least this lets you know what each candidate is thinking.

My Kids Tell Me Why We Pay Taxes

Since we live in Michigan, an important presidential battleground state, we see a commercial for McCain or Obama about every ten minutes. I was watching TV with my kids a week ago (can't remember if it was the Olympics or some other show) when an ad for one of the candidates came on and started telling how great the (assumed) party nominee was.

My son said over the commercial:

"He's not that great. All he wants to do is raise taxes."

I was surprised at this comment since we haven't discussed what one candidate thinks versus the other when it comes to taxes. I was even more surprised since I didn't think my son knew what taxes were (we've taught our kids how to earn, save, and give, but nothing as "high level" as taxes yet.)

So I asked him:

"What are taxes?"

He responded without a blink:

"Taxes are money we pay to the government so they can buy the president a big screen TV. Then at lunch they watch popular movies."

Obviously, there was a problem with this interpretation -- and my daughter chimed in immediately:

"That's not right. Taxes are money we pay to the government -- half goes to stuff like roads and libraries and they keep the other half for themselves."

I didn't know whether to correct her or congratulate her on a relatively accurate assessment of the situation. ;-)

My Issue with How Tax Money is Spent

Here's a comment left on my post titled The Other America that struck a note with me. Recall that the post was about a CBS video series on people who are barely making it (if making it at all) due to the high food prices and "lack" of government assistance. One reader said the following:

I watched the segment. I saw meat, meat, meat, fruit loops, frozen waffles. A local newspaper article here said a family of 4 gets $550 in SUPPLEMENTAL (i.e. add your own money to it) food stamps. I could feed my family of 4 on that and not need to supplement! It also said people on food stamps overbuy on convenience and prepackaged foods. How about oatmeal, dried beans, rice, peanut butter, using coupons??? I didn't see one coupon being handed over. Also everyone was well dressed and overweight. It's easier to complain about food stamps not being enough than to be frugal and put more effort into the grocery shopping.

This point illustrates several of my beefs with how our tax money is spent. Specifically, I take issue with the size of the "assistance" (my family too could easily feed ourselves for less than $550 per month), the lack of "helping yourself" effort that many of these people seem to show (for example, not really "shopping" for the best deals like the rest of us do) and the fact that many of these people are better dressed/have luxuries that people who aren't on assistance can't afford. It just seems so wasteful on so many fronts.

As I've said before, I'm all for helping the poor (that's why I give to charitable causes) and would even be willing to pay MORE in taxes if I thought the government wasn't wasting or mis-allocating a good portion of it. But I find it hard to support a system that's so out of whack that examples like the one above seem more like the rule than the exception. It frustrates me to no end.

Am I reading this the wrong way? Maybe there's a point of view I haven't considered? Thoughts?

When to Hire a Tax Professional

Here's a piece I originally wrote for a national magazine.

Believe it or not, there once was a time when preparing and filing your own tax return wasn’t that difficult. But over time, the tax law has grown and become more complicated, leading many Americans to seek help on tax matters. Here are some instances when you might benefit from hiring a tax professional:

• You’re not familiar with tax law. According to the U.S. Treasury Inspector General for Tax Administration, in 2007 Americans forfeited some $4 billion in phone tax refunds, in part because they didn’t know the refund existed. Tax professionals are up to date on current laws, and often find deductions that can offset the cost of paying to have your taxes prepared.

• Your taxes are complicated. Have you moved out of state recently? Do you own your own business? Buy and sell investments? The more complex your taxes, the more paperwork that’s required, and the more likely it is that a tax professional would be a worthwhile investment.

• You have better things to do. The IRS estimates it takes an average taxpayer 13 hours to complete a tax return. If your time is worth $10 an hour, that $130 could help pay for someone else to do your taxes.

• You want help in an audit. If you’re audited, most tax preparers will represent you if they prepared your return.

• You want a quick return. Tax professionals usually file returns electronically rather than by mail; that means if you’re due a refund, it will arrive sooner and can be deposited directly into your bank account.

If your taxes are relatively simple, or if you enjoy preparing your own return and feel capable of completing it, then go for it. But the more of these categories that apply to you, the more you’ll want to consider hiring a professional.

For more thoughts on taxes, see these posts:

• How to Hire a Good Tax Professional

• How to Get More Out of Your Accountant

Determining the Proper Withholding

I've noted previously that none of us should be giving the government an interest-free loan by having too much tax withheld from our paychecks. Instead, we should adjust our withholding so that we pay a bit more than we expect to owe (maybe $100 or so), bit not much more.

This begs the question: how do we set our withholding to get to this amount? Well, Bankrate has some good thoughts on this subject:

One withholding allowance is generally equivalent to a personal exemption. In 2008, a withholding allowance is equivalent to $3,500. An individual can estimate the total amount of their tax deductions, such as interest on a large mortgage for a small New York apartment, and translate the deductions into equivalent withholding allowances. For example, $35,000 in mortgage interest would be equivalent to 10 withholding allowances.

But if this isn't clear enough, you can also visit the Federal Withholding Tax Calculator for a bit more direction.

I basically fill out a pro-forma tax return to see where I think I'll end up for the year, then set my withholding accordingly. Anyone else do it differently?

How to Hire a Good Tax Professional

Here's a reminder that if you hire a poor tax return preparer, it's not him/her who's on the hook if the return is wrong -- it's you:

Unfortunately, [the preparer] is not the one on the hook should the IRS examine her tax return. In fact, she'll be left owing the IRS the back taxes, interest and possibly penalties if her return is selected for examination.

This is why it's important to be sure and get a tax preparer you can trust.

I use a CPA and have for several years. Here's the advice I can offer you for finding a good one and making sure your return is done correctly:

• Ask people you know, trust, and respect for references -- ask them who does their taxes, how long he's done them, etc. I got my referral from the CFO at my former company. he was a very successful and frugal businessman and I knew he'd point me in the right direction.

• Once you have a recommendation, interview the potential advisor. You can do this over the phone, but I prefer a face-to-face meeting. I had mine in the CPA's office (so I could check out the set-up as well as talk to the guy directly.)

• Ask for references from current clients. Call them up and ask what sort of service they've received, what they like and dislike about the preparer, etc.

• Once the preparer is hired, be sure you do your part. Give him the right information, summarized appropriately, and in a timely manner. Also be sure to communicate the events in your life that may impact your tax return.

• Be sure you know the tax law yourself (at least at a basic level) and review every page of your return. Yes, the preparer is a professional, but even they make mistakes. Looking over my return with a fine-tooth comb saved me a ton of money this year.

Anything I missed?

More on Economics and Taxes from the Candidates

As a follow-up to my post Politics and Your Money, here's a Yahoo piece on each of the presidential candidates and what they'll likely do once elected. The summary:

Obama, the Democrat, seemingly has a traditional liberal outlook of taxing the rich more while having the government help people of more modest means through tax breaks. McCain, the Republican, advocates a classic conservative vision of cutting taxes — many geared toward businesses — to promote competition within a free-market system.

Neither plan is cheap.

All I can say is "heaven help us." Where's the low taxes, low spending, pay off the debt candidate?

Taxes Killing Michigan

Not sure how I missed this, but if you live in (like I do) or near Michigan this should interest you. The Wall Street Journal tells how higher taxes are killing the state:

Officials in Lansing reported this month that the state faces a revenue shortfall between $350 million and $550 million next budget year. This is a major embarrassment for Governor Jennifer Granholm, the second-term Democrat who shut down the state government last year until the Legislature approved Michigan's biggest tax hike in a generation. Her tax plan raised the state income tax rate to 4.35% from 3.9%, and increased the state's tax on gross business receipts by 22%. Ms. Granholm argued that these new taxes would raise some $1.3 billion in new revenue that could be "invested" in social spending and new businesses and lead to a Michigan renaissance.

Not quite. Six months later one-third of the expected revenues have vanished as the state's economy continues to struggle. Income tax collections are falling behind estimates, as are property tax receipts and those from the state's transaction tax on home sales.

Michigan is now in the 18th month of a state-wide recession, and the unemployment rate of 6.9% remains far above the national rate of 5%. Ms. Granholm blames the nationwide mortgage meltdown and higher energy prices for the job losses and disappearing revenues, but this Great Lakes state is in its own unique hole. Nearby Illinois (5.4% jobless rate) and even Ohio (5.6%) are doing better.

Needless to say, Jenny wasn't too thrilled with the assessment of the WSJ. Her thoughts and the WSJ rebuttal can be found here. The highlights:

Ms. Granholm was not pleased, going so far as to denounce the op-ed as "treasonous for the state of Michigan." The authors' high crime? Exposing Michigan as a high tax state and criticizing Ms. Granholm for wanting to raise taxes. Her choice of words was no inadvertent slip of the tongue, by the way--a Howard Dean-like temporary loss of sanity. The Governor has used the "t" word repeatedly and has even suggested that Mr. Baxter "should be removed from office."

Ha! Hard to face the facts, huh, Jenny?

But the WSJ isn't moved:

Sorry to say, the facts laid out in Messrs. Baxter and Wolfram's column and in our previous editorial are well-established. When it comes to high taxes, the Wolverine State ranks fifth both in per-capita terms and as a share of personal income. Michigan also has the nation's highest unemployment rate. There is no shortage of studies that have linked these two phenomena.

More troubling about Ms. Granholm's recent combustion is that she seems to believe that the problem is that the rest of the world will find out about Michigan's high taxes, not the high taxes themselves. But Michigan's inhospitable tax climate is hardly a state secret, especially to the state residents and businesses who have to endure it.

It certainly isn't a secret to me. 100 inches of snow this year.

But really, I told you she was taking the state down.

Politics and Your Money

I plan to remain neutral on this blog during the upcoming election because I think most of you don't care who I'm voting for. That said, I need to qualify my neutrality -- I'm going to be neutral on the candidates, but NOT neutral on the issues. Why? Because several issues impacting our personal finances are up for debate this election year. The two I'll talk about the most: the economy (which impacts your biggest financial asset) and taxes (including how your money is both paid to the government as well as spent by them -- it's probably the biggest expense most of us have.) I'll let you know where I stand on the issues and you can then either agree or disagree. Should be fun, huh? ;-)

For starters, here's a piece from CNN that outlines both McCain's and Obama's (I'm listing them in alphabetical order, BTW) positions on the key issues. It's a starting point as far as I'm concerned. I expect both of them to "fine tune" their plans over the next several months. Furthermore, I expect what they actually do once one of them is president to be very different than any of the things said here because being president is very different from being a candidate for president -- what a person promises very rarely happens exactly as they've predicted. I think history has shown us that. I especially like this quote at the end of the CNN piece:

Despite the candidates' promises, experts are skeptical that either candidates' economic proposals when taken as a whole could be fiscally sound.

;-)

For now, here's a very brief summary of my positions on the various economic topics the candidates are addressing:

• Taxes -- I'd like to keep taxes as low as possible. I think doing so helps both individuals and the economy as a whole. And given that the government is about the least efficient entity in the world, I don't relish the idea of paying more money only to have a huge part of it spent on administration, waste, and various programs of dubious impact.

• Spending -- I think as a nation we can cut a good amount of spending simply by eliminating unneeded programs and by being more efficient. One idea: turn the post office over to a private business and I'd bet they'd find a way to make it profitable.

• Debt -- The above said, I would be willing to pay more in taxes if the incremental portion went to debt retirement. I think we're walking a fine line in our borrowing.

• Social Security -- Raise the age at which benefits are received. It's in alignment with the original intent of the program, but politically I don't think it will happen.

• Healthcare -- I shudder at thinking of the government running our healthcare system. That said, I do think they should guide/encourage/enact laws to get the private sector moving towards decreasing healthcare costs. We need to get costs under control asap!

• Homeowners -- I wouldn't give them any help. Let the free market work, even if it's painful.

• Energy -- Need to do something here -- encourage development of alternatives to oil. Give the private sector a financial incentive to do this and companies will jump on it. Let's not let this issue pass us by as we did in the 1970's.

So, that's where I am currently. Of course, it's subject to change if someone comes up with a new idea I like.

What about you? What's your take on the various economic issues our country faces?

Obama is a Tax-Cutting Machine

I found this piece interesting. It starts with Democratic presidential candidate Barak Obama calling for