Paul Ferraresi

Many in Washington and around the country believe that the solution to the deficit problem is to add more taxes to upper income Americans. I completely disagree. I remember, as a child, when top tax rates were at 91%. It took a lot of fun out of earning money. Consequently, many people, back then, invested in stupid “tax shelters” or moved overseas to reduce taxes. Remember, anything you tax…you will get less of…The more you tax the rich…the more they will move away and you will have less tax income going to Washington.

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.”

Many people are still looking for answers to why the housing meltdown took place. Immediate reaction points the finger at…

(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.”

During times of economic hardship, people finally look at their excess spending and evaluate the cost-benefit relationship of each purchase.

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!!

There are new bank fees coming your way just like the higher credit card costs that came after Congress did a credit card fix two years ago.

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.

Every workshop I conduct often leads me to ask the participants: “In the future, do you think tax rates will be going lower, staying the same, or going higher?” Without question, 99% of the people vote higher.

One does not need to be a tax attorney to know what is ahead for all Americans. Here is why rates are going higher:

• Congress moves rates from high to low and back to high. You have been in a “low” period.

• Effective 12/31/2010, the Bush tax cuts will expire, so rates go back up to pre-Bush. This means an average of 3-5% higher for every bracket.

• The war on terrorism will continue for another generation and will require increasing amounts of money.

• Social Security and Medicare are broke. The Baby Boomers are just starting to lean on these programs, so both programs will need increasing amounts of money.

• We have a financial crisis not seen in two generations – a stimulus and mortgage bailout program were failures and thus, will require more monies to pay back these borrowed funds.

• The present administration is designing programs so that 45% of American taxpayers (the payers) will provide for 55% of American non-taxpayers (the takers). Thus, the payers (producers) will be required to ante up more for the takers (non-producers).

Now, all the hype has been…”tax the rich.” Be careful what you wish for…you will become part of the rich very soon, according to the present administration’s plan.

• A report from the IRS for the 2008 tax returns filed, only 256,000 returns out of 142 million returns filed, which is the top 2%, had an adjusted gross of over $250,000 (what some may think is rich). This top 2% paid 45% of all federal taxes collected even though they only earned 25% of all income. Hmmm…. I thought the system was to be fair…you know, top 10% pays 10%, top 50% pays 50%, and so forth. Right now, 50% of all those that earn income pays NO TAX!!

• Even if they confiscated 100% of the income of the top 2%, it would not touch the deficit. Do the math yourself.

• They asked Willy Sutton…“why do you rob banks?” He said…“cuz that is where the money is.” Look for Congressional Revenuers to come looking for more money… “where is the money” – the middle class.

To make my point, let’s look at a few new taxes that have come into effect due to the new health care law:

1) Medicare taxes will increase by 0.9% on joint household wages above $250,000 (on 1/1/2013). Thus, if a couple had $400,000 in wages, they would have a new tax of $1,350 ($150,000 x 0.9%). This amount is not indexed for inflation. So, in the future more people will creep into this area. Also, as with every tax they place on high income earners, it eventually goes down to the middle class.

2) The same upper-income couple above will be subject to a 3.8% new tax on unearned income (interest, dividends, royalties, rents, and capital gains). Say our couple earns $50,000 in interest from their bank accounts. This would produce a new $1,900 tax bill for them (sources: House of Representatives and CBO). This will have a dramatic negative effect on savings and the stock market. In all cases, see your tax advisor for details.

3) As you sell your home in the future, there will be a 4% tax on the gross sales proceeds for everyone. (Hmmm…I thought no new taxes on those earning less than $250,000 – then, they said only on those above $200,000, then they said on those above $150,000.)

You know Congress does all its tax planning based on the “static” approach. That is, they assume everything will stay static and no one will do anything to avoid taxes. In our example above, our couple will incur over $3,000 in taxes and they will do whatever it takes to lower or reduce the taxes. This avoidance will lead to less economic growth, fewer jobs, less tax revenue coming in, then they will have to raise taxes somewhere else and…well, you connect the dots. Just cut spending. Stop this madness!!

Now, I have just covered a few of the new taxes. Rather than waiting for the sword to cut you, I am demanding you take action now…or forever hold your peace.

I have been advocating for years to get your money into programs that will allow your money to grow tax-free. You can have access to the money tax-free at any time and when you die, it transfers income tax-free. This strategy is a layup with a ladder, or a stolen base on a wild pitch.

Please contact us at (713) 871-5919 or at conswella@fgmci.com to take action now. If you wait until the rates go up, it will be too late.

Ah yes….discipline or regret.