What will the economy be like? What will be the “mood” of Americans? Monetary policy has been used up, and only fiscal policy tools remain. A major fiscal tool is tax policy.

The present tax law is set to expire on December 31, 2012. Will politicians kick the can down the road again? Everyone knows that there are a few major changes that need to be done to have the U.S. economy thrust forward with dynamic vigor. One aspect that must be noted: Any tax policy change must be cemented in place for at least five years. Any prudent individual or business cannot do any worthwhile planning or changing behavior with any shorter time period.

Here are a few changes that will transpire when the extended “Bush tax cuts” expire. Remember, it was the largest tax cut in history when first implemented and got us out of the 911-tech stock implosion of 2000-2003. Consequently, if it is not extended…it will be the largest tax increase in history. Here are just a “FEW” of the changes:

• All tax rates basically go up around 5%. The 10% bracket is eliminated and will be at 15%.
• Dividend rates will go from the present 15% rate to your ordinary tax rates.
• Capital gains rates go from the present 15% rates to rates of 25%. (Gee, I wonder what this will do to your stock market investments? DUH!)
• Elimination of the tax credit for having children. (This will hurt the unwed parents and illegal immigrant parents.)
• The marriage penalty tax will go back into effect. (This will encourage married people to not stay married.)

Since it is obvious that you will be taxed more in every area of your life, doesn’t it make sense to develop a plan to place your monies into programs that will never be taxed? We are here to help at any time.

Come November 2012 it may be beneficial to heed the words of the former Mayor Daly of Chicago, “Vote early and vote often.”

It is a Texas-based group with the slogan, “Pros preventing cons.”

The site has blog articles to inform individuals and businesses on how to reduce their risk of fraud.

Check it out and sign up. I think it will be very helpful.

She recently had the test done. When the bill came in, it stated…“the test costs are no longer covered under “Obama Care. You will have to pay the bill in full.”

So look at this convoluted Government thinking…. If she cannot pay for the test out of her own pocket, then, she will not find out if she has cancer. Now the treatment will be covered if cancer is detected, but if she does not pay for the tests, she will never know if she has cancer. Looks like the old Abbott and Costello routine, “Who’s on First?”

Do you see this sleight of hand? They laughed at Sarah Palin when she said the plan has “death panels.” The way these new rules are set up…sure looks like “death panels.”

There are so many wonderful options that could be instituted to cover people with health insurance at a lower cost but the Government won’t allow it. You have seen how all Government programs like AmTrack, the Post Office, Social Security, Medicare, and Medicaid work. They are all losing money and are insolvent. This program is in the same league and will follow the same route. It is slated to go before the Supreme Court. Contact your representatives to let them know how you feel.

I bring this to your attention to help you (1) plan for increased costs for your insurance when you retire, and (2) better plan in your budget to help pay big money for your parents’ health insurance retirement needs.

Medicare provides open-ended, unfunded promises to pay benefits, bank-rolled partly by a dedicated payroll tax and mostly by general-fund taxes and borrowing.

In contrast, insurance companies employ actuaries and underwriters to estimate future expenses and charge appropriate premiums to ensure that money is available to provide the benefits promised.

But in Medicare, the insurers are the taxpayers, with the government administering the program. Medicare has no assets other than future obligations of taxpayers. Medicare’s trustees report that the program faces $38 trillion in unfunded future liabilities ($330,000 per U.S. household).

Medicare’s dire financial condition is due to its design and operation. Medicare payroll taxes are far too low to fund the benefits promised. And fraudulent claims account for 20% to 30% of Medicare expenditures. Medicare’s payment methods allow abuse by way of repeated charges for unnecessary procedures and supplies. Private insurance companies experience far lower losses from fraud and abuse.

Cutting payments to hospitals and physicians is no solution for the financial woes of Medicare. The program already pays less than the costs of hospitals and many physicians — who then try to shift the unreimbursed costs to privately insured patients. That is one of the major causes for the alarming escalation in the price of private insurance, which has been rising 12% a year. Many physicians refuse to accept new patients if they are on Medicare. Cutting payments to physicians will further limit access to their services.

Medicare specifies 467 medical conditions for which it will pay. Unfortunately, Medicare doesn’t allow much payment for a primary-care physician spending quality time with a patient to evaluate his condition, decide on treatment, or make appropriate referrals to specialists.

Insurance companies and Medicaid follow Medicare’s lead. Consequently, primary-care physicians earn about half the average for other physicians, and they work about 80 hours a week. No wonder the number of primary-care physicians is shrinking, as they leave that field in order to retrain in a specialty or to retire early….

According to advice to the U.S. government from the International Monetary Fund, Medicare benefits cannot be paid over the long-term future unless benefits are cut in half or taxes are doubled. Such benefit cuts would greatly damage health care for senior citizens and such a tax increase would thrust an unsupportable burden on younger people.
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Better prepare to pay substantially more healthcare costs out-of-pocket for yourself and your parents.

The Tax Foundation does an annual survey of all 50 states and ranks them according to the degree of tax burdens placed on people within that state.

The northeastern states have the highest burdens. According to the 2009 reports, Connecticut has the worst burden per capita; then New Jersey, New York, Massachusetts, Maryland, and California.

States with the least burden in 2010 were South Dakota, then Alaska, Wyoming, Nevada and Florida.

The “facts and figures” guidebook is available online at www.taxfoundation.org\publications\show\2181.html.

Remember, these taxes are over and above the Federal fees and taxes.

The Treasury wants to widen the pool of potential purchasers of Treasury debt. This will include impossible mandates (where they can do such things) and huge offering incentives (where they cannot get what they want). The rumblings do NOT look good for common folks like you and me.

One proposal is to require 401(k)s to hold a certain percentage of their assets in Treasuries at a risk of losing their tax free status. Another is encouraging pension plans to increase their portfolios with more Treasuries. Here is another… allowing companies with overseas cash to bring it home under a “tax holiday” as long as the majority goes into Treasury debt.

Under such plans (1) your 401(k) returns would be less over the long term, and (2) pension plans would need to increase their holdings from the present 6% to 16%, which would force companies to contribute more, costing companies more and forcing them to cut other costs (jobs).

Thus, Uncle Sam is trying to create demand for Treasury debt via the carrot and the stick. The good part… (hmmm) the U.S. is borrowing money from its citizens to stimulate the economy, so these same citizens will pay themselves back with higher taxes. This becomes an Abbott and Costello routine or a chicken and egg game.

As stated in this blog countless times, get out of your 401(k)s, or, stop contributing at least. Get into a non-qualified program that will grow tax free (not deferred); you take it out tax free and, when you die, it transfers income tax free.

The other evening I almost lost one of my home TVs because I threw my shoe at the set because of what was said. One of the administration’s strategists said, and I paraphrase…

“The government has put money into the economy via the stimulus and created jobs.” (As if the government was an entity. No it is merely taking our money and transferring to another person. The government does not create anything and has never created a job.) “It is now up to business to put money into the economy and go out and hire people.” How dumb! What is a business to do… create jobs by hiring people when there is no demand (work), so all the new hires will get paid for sitting around doing nothing! Duh! Boy, if that isn’t socialist government thinking, I do not know what is. See, the spokesperson was thinking like the government and applying it to business. It is not the government’s money, it is ours. They throw it out and hope something happens. They have no responsibility or accountability to anyone. A business owner, has responsibility to their shareholder’s, the lenders, their employees, the community and their families. Business owners cannot just throw money out, and if they need more, they cannot tax their employees, or go print money. Am I making my point to anyone? If any business owner ran a business like the government, they would be sharing a cell next to Bernie Madoff for breach of fiduciary duty.

Look at the recent employment numbers. They are terrible. Business owners are holding on to their cash and not hiring because:

• Obama care will cripple them financially if they add on employees.
• They cannot borrow money to expand or stay afloat due to the suffocating Dodd-Frank regulations on the banking industry.
• We are two plus years into an economic recovery and the present level of employment is lower than in March 2000. With fewer employees, that leads to less demand, which leads to lower sales and thus no need to hire.
• The present administration’s statements and policies are all anti business. Plus the threat to raise taxes further on business pushes a business to lower costs by laying off more employees and moving jobs overseas.
• At this point in the business cycle, employment should be making new cyclical highs. Barely 20% of the 2008 recession losses in employment have been recovered to date.
• The economy is in the tank because of excessive non-corporate debt, excessive housing inventories, excessive reliance on imported oil and excessive labor market supply.

Remember the old expression… one who does not study history will be doomed to the same errors.

The present administration’s fiscal policies have been used many times in the past 100+ years and have failed every time. There are proven successful policies that have worked time and again, but, they will not use them.

Didn’t anyone but me go to economics class or were they all out protesting something? Hmmm.

1. Work hard.

The wealthy work harder –and sleep less – than other people. They are more likely to mix work with their own downtime, sacrificing personal time for professional success. But because they tend to be passionate about what they do, it’s less likely that they see it as a chore.

2. Save habitually.

Wealthy people certainly have the funds to be crazy spenders, but most are not. In fact, some seven out of 10 say that saving more money has been an absolutely essential financial goal as an adult. They typically pay off their full credit card balance each month.

3. Invest soundly and aggressively.

The wealthy are more likely to invest in stocks and mutual funds. They understand the need to take risks in the market in order to make their money work as hard as they do. They are also more likely to invest in real estate (above and beyond owning their own homes).

4. Give back.

The wealthy are grateful, and they show it by giving back to their communities, to organizations they believe in and to people they care about.

In my 40 years of working with individuals in personal finance, I could not agree with these habits more.

“A man is rich according to what he is, not according to what he has.”

Many boxers have been hit with two jabs, a right hook and find themselves on the matt looking up. You need to prepare for two jabs coming at you: Increasing inflation and more stock market volatility. The right hook to you will be increasing taxes. You need to prepare for all three. There are ways to protect yourself. One way is not by burying your head in the sand. Yes, I have written many times how most Americans are procrastinators (that is why 97% fail financially). They are also very naïve and unaware of what is taking place around them.

My point is that taxes will need to go up dramatically to fund the massive deficits and debt our country now faces. The Bush tax cut extensions expire in about 18 months. The majority of Americans will wait until 30 days before the expiration date and then try to do some planning. You need to act now. See your advisor for help. I have attached a link to an article from the Heritage Foundation.

http://www.heritage.org/Research/Reports/2011/04/Tax-Day-2011-Deficit-Spending-Hides-Future-Tax-Hikes?query=Tax+Day+2011:+Deficit+Spending+Hides+Future+Tax+Hikes

This organization has a fantastic reputation in all the research they do. I suggest you read it carefully and then make your plans. Even if Congress tries to cut back expenses in order to “save our ship”, it will be massive cutbacks and it will affect you and your families. Americans claim they want austere cuts, but, they want the other person’s programs cut; not there’s. So, even if they put cuts in place, expect higher taxes, since cuts alone cannot solve the problems.

Like the person that eats a quart of ice cream each night, puts on 50 pounds and expects to lose it all in days without pain, well, that person has another thing coming. We, as Americans, let the politicians add government programs since the 1930’s (ice cream). We have never stopped the politicians from adding more programs (eating more ice cream). We have allowed them to tax us to death to pay for the programs. So, to get back in shape, we need severe cuts (stop eating ice cream) and tough exercise (more taxes).

“Contentment isn’t getting what we want but being satisfied with what we have.”

He had a unique philosophy and attention to detail. (Like teaching his college players how to properly put on their socks. If done incorrectly, it would lead to blisters and make them unable to play).

He followed a creed for happiness. One of his principles was in a poem:

Making the Most of Oneself

Be true to yourself.
Make each day your masterpiece.
Help others.
Drink deeply from good books.
Make friendship a fine art.
Build shelter against a rainy day.
Pray for guidance and give thanks for your blessings every day.

He had high ideals for excellence and a code of conduct to find happiness. He said happiness comes from making and keeping nine promises:

1. Promise yourself that you will talk health, happiness and prosperity as often as possible.

2. Promise yourself to make all your friends know there is something in them that is special that you value.

3. Promise to think only of the best, to work only for the best and to expect only the best in yourself and others.

4. Promise to be just as enthusiastic about the success of others as you are about your own.

5. Promise yourself to be so strong that nothing can disturb your peace of mind.

6. Promise to forget the mistakes of the past and press on to greater achievements in the future.

7. Promise to wear a cheerful appearance at all times and give every person you meet a smile.

8. Promise to give so much time improving yourself that you have no time to criticize others.

9. Promise to be too large for worry, too noble for anger, too strong for fear and too happy to permit trouble to press on you.

John suggested everyone should recite these every day and he believed that you will have lifetime happiness. John is now deceased but I can still say…Thanks, Coach.

“You cannot win if you do not begin.”