Paul Ferraresi

In less than 11 months from now a new Congress will be elected. In addition, you may have the same or a new administration in the White House.

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.”

I experienced this with a close friend. We will call her, “Marg.” She is 72 years old and had a double mastectomy done about 20 years ago. She has recovered wonderfully and lives a full life. Every two years she goes in for a special test to determine if any cancer cells have developed in her body. The test costs about $2800 to $3000 per exam. Medicare usually covers the majority of the expense except for her office visit costs and a deductible.

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.

YOUR STATE TAXES

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 Fed stopped the QE2 program on June 30, 2011. The whole purpose was to provide liquidity to the Treasury market and to appease the Chinese who hold the greatest amount of Treasury debt. The Chinese were concerned that no one would buy their holdings.

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.

Watching some of the pundits on TV and the present administration’s policies, it is evident that they do have a clue how a business operates, how to get business to hire people, how the economy really works, or else they all got a D- in economics.

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.