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.”

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.

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.

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.”

According to the IRS, during 2008, those in the top tax bracket earned around $1.2 trillion. The Federal deficit for 2009 and 2010 were $1.4 trillion and $1.3 trillion, respectively, and fiscal 2011 deficit is set to be $1.5 trillion. So, the recent deficits are all greater than all the taxable income earned by the rich. How about charging a 100% tax rate on the wealthy? It would not cover any of the three year’s deficit. That is, take 100% of their income. You may get away with it for 1 year. But, by next year, they will all move away and there will not be any taxes collected from the rich!! Most of the richest people in the U.S. are the one’s creating the jobs. So, if they move, there will be no jobs for everyone else. Thus, no jobs, no income, so, no taxes. Put out the sign on the U.S. borders…”Closed, out of business”.

I hate when people say about government handouts…”Oh, the government will pay for it”. The government is not a person. The government does not pay for anything. It takes from one person to give to another. Let’s change the statement to…”Oh, my neighbors, family and friends will pay for all my benefits.” Change the statement, and it will wake people up to what is really happening.

We are all at crossroads in the U.S.…it is approaching a point where 50% of the people are paying taxes, so, the other 50% of people, who do not pay taxes, are getting the benefits.

Here’s an idea…Why not tax everyone, yes, I mean everyone, even those on Welfare. It can be a very small percentage rate on the very poor. If everyone is paying some tax, they will be contributing and feeling like part of the “American Family”. They also may vote differently, since they are not getting a free ride. Hmmm…the fair tax or a consumption tax.

“Patience is the ability to keep your motor running when you feel like stripping your gears.”

(1) The Community Reinvestment Act of 1978 and further promoted in 1997, whereby banks were forced, by the Federal Government, to issue loans to people who had no chance to pay them back.

(2) Fannie Mae and Freddie Mac, the government mortgage companies.

(3) Senator Dodd and Congressman Frank that continually stated that Fannie and Freddie were strong and no reason to investigate.

In January 2011, a 47,000 word mini book was published, entitled…Dissent from the Majority Report of the Financial Crisis Inquiry Commission.

In this book, Author Peter Wallison dissents the findings of the Commission. His account boldly shows the key factors that brought the U.S. economy to the brink.

You can buy it at amazon.com or download it for free from the AEI website (American Enterprise Institute).

In it, Wallison states…”The housing bubble of 1997-2007 wouldn’t have reached its dizzying heights or lasted as long, nor would the financial crisis of 2008 have ensued, but for the role played by the housing policies of the U.S. government over the course of two administrations.” In other words, says Wallison, “had this massive bipartisan intervention into the housing market not occurred, the economic history of the past few years would have been very different.”

When money flows easily, most people let it run through their hands like water. They rarely measure “how much and what” did that spending really cost me.

No – no, I am not asking you to be a skin-flint miser with your money. Instead, about the only time people “think” of changing their spending habits is when things in their lives are tough.

Over the past two years, my business has exploded with new growth (I am blessed.) As the economy and stock market have gone into a tailspin, new clients are now seeking our direction. All I hear when I give them direction and solutions is “Gee, I wish I came to you years ago. I would be set financially for life.” Ah, yes, the proverbial closing the barn door after the horse leaves.

I become sad as I look at 50-60 year olds with absolutely nothing (I mean $10,000 or less) set aside for retirement and anywhere from $10,000 to $90,000 of credit card debt. I wonder if our government’s “you are not responsible for your actions” is really the cause of their financial failure. Or, is it….”I want to have fun now and not think about it until tomorrow” (Ah, whispers of Gone with the Wind.)

What do they think they can retire on?? People scream at our government for overspending, yet they have done the exact same thing.

Total up your household earnings from the day you got out of school until today. What do you have to show for it??? Remember, an average of $50,000 of earnings over 20 years is $1 million. So what would you do with a windfall of $1 million today? No….you would do exactly what you have done over the past 20 years. That is why poor people are poor and rich people are rich.

True, most Americans live for today and do not think about tomorrow. The Baby Boomers have grown up in an environment of “Oh, the government will bail me out….I am not responsible for my actions and someone else will take care of me (entitlements.)”
BE CAREFUL OF THOSE WHO WANT TO TAKE CARE OF YOU….FOR YOUR CARETAKER MAY SOON BECOME YOUR JAILER!!

The first step to “financial salvation” is to determine between “need” and “want.” Yes, you can justify every purchase in your life as a “need.”

Again, I am not telling you to live on bread and water, but look at these examples and see if you “get it.”

• A newly married couple in their twenties may buy $15,000 worth of furniture (in cash,) but when they retire, that $15,000 will have cost them $250,000 in lost retirement assets.

• Giving up a $3 latte a day over 50 years would build a $2.4 million retirement portfolio, even with the poor investment returns over the past decade.

• Taking your lunch to work will save you over $50 per week….$2,500 per year. Now calculate that over a working career and it amounts to over $1.1 million.

I could go on and on….but do you get it??

As always, discipline or regret!!

Some benefits under the new regulations….Banks cannot automatically sign you up for something you may not use, like overdraft protection. To make up for these lost fees, big banks will push new charges at you.

Do not just accept them. Fight back. Look for better deals, like online banks, community banks, or credit unions. Also, look at online brokers that may provide free checking and online bill paying. Some of these alternatives even pay interest on checking accounts without minimum balances.

Here are a few sites you can try out to find some better deals:

http://www.findabetterbank.com/

https://www.checkingfinder.com/

http://www.bankrate.com/

Also, take a look at Everbank’s money market that pays interest on checking accounts of 1.00% to 2.25%.

Watch for changes at your present bank, like higher minimum balances or additional conditions and restrictions on all accounts. Don’t let them nickel and dime you to death with these other fees. Be proactive and save money.

One last point….check out http://www.lowcards.com/to find the best rates on credit cards.