If we were to craft a commercial for the slippery concept of "fiduciary standards," perhaps we should look to these fine examples of refined marketing excellence: http://www.metacafe.com/watch/2221825/best_of_5_worst_local_tv_holiday_commercials_ever/.
Chances are you missed the announcement, buried on page C7 of the January 24, 2012 issue of the Wall Street Journal, but it caused a stir in the financial planning world. The Securities and Exchange Commission has put off implementing a key part of the Dodd-Frank Act: creating a fiduciary standard for all who give investment advice, whether they be brokers or SEC-registered registered investment advisors.
Anybody who saw Fabrice "Fabulous Fab" Tourre boast about his prowess selling complex toxic securities to his unsuspecting customers, or watched Goldman Sachs CEO Lloyd Blankfein testifying uncomfortably to Congress that his firm had no duty whatsoever to protect the interests of his customers in these transactions, quickly realized that Wall Street is not totally about creating vast wealth for the people who receive brokerage advice. This was further underscored when Smith Barney traders chortled in their internal e-mails that betting against some of the toxic mortgage pools they had sold their customers was "the best short ever."
Dodd-Frank was supposed to change all that, by asking the SEC to require that brokers who made investment recommendations be held to a fiduciary standard "at least as stringent" as the standard that investment advisors are held to. Under heavy lobbying pressure from Wall Street, the SEC has dragged its feet on this issue so effectively you might think it was wearing shoes made of cement. And for most investors, this stalled effort at reform has sailed totally under the radar.
What does it mean to act as a fiduciary? The fiduciary concept is actually pretty simple, and can be found in the very first written legal code, the Code of Hammurabi (roughly 1770 BC) and in Cicero's orations during the Roman Republic around 50 BC. In the ancient world, a trader would take his caravan (or sailing ship) to some distant land to trade Mesopotamian clay pots or bronze artifacts for furs, tin or copper. Since the trader would be gone for months or sometimes years, somebody had to make basic business and financial decisions on that person's behalf while he was on the road. And it was important that this person make decisions that were in the trader's interest, not his own. When somebody came to offer the merchant a great business opportunity, he wouldn't want somebody who would jump in and buy it for his own profit instead, or buy it and then sell it back to the merchant's account at a fat markup.
As Cicero put it:
“…in cases where we ourselves cannot be present, the vicarious faith of friends is substituted; and he who impairs that confidence, attacks the common bulwark of all men, and as far as another depends on him, disturbs the bonds of society.”
(Oration for Sextus Roscius of America; Cicero 106 – 43 BC)
So the basic idea of a fiduciary is a simple standard of behavior. You are watching out for and protecting the interests of someone who has given you their trust. You are making decisions and recommendations that will benefit that other person. You would, under this simple standard, have to avoid triumphantly selling at a markup the same securities that your colleagues are confidently betting will blow up and leave your customers with frightening losses--while generating outsized gains that will flow into the Wall Street bonus pool. With this in mind, it becomes a lot easier to see why Wall Street has lobbied so hard to stall being held to this standard.
You might start to hear the next round of arguments about this part of Dodd-Frank either prior to or after the general election. The Wall Street lobbyists and trade organization have argued that instead of being prohibited from acting on conflicts of interest and engaging in self-dealing, brokers should be allowed to "disclose" them to their customers. The lobbyists on the side of consumers and fiduciary advisors think it's possible that the SEC will bow to Wall Street's heavyhanded lobbying tactics, and create a new, watered-down version of the ancient fiduciary concept. By this time next year, it is possible that representatives of Merrill Lynch, Smith Barney or UBS will be able to behave like Fabulous Fab and still hold themselves out as fiduciaries, so long as their brokerage agreement says somewhere on page 14 that they might be working harder to generate profits for their brokerage employer than looking out for the interests of the person who receives their advice. Cicero and the Mesopotamian trader would have seen through this ruse in a heartbeat. Today's regulators are a lot easier to fool, and not always totally focused on protecting consumers. (Just ask Bernie Madoff.)
SEC-registered Registered Investment Advisors have been living under a fiduciary standard--the one referenced in Dodd-Frank--since 1940. It's true; you don't see RIA firms routinely handing out seven-figure bonuses to their brokers and sales agents. But many advisors who live under this business model make a good, honest living--and, most importantly, they don't have to squirm uncomfortably when somebody asks them to explain their recommendations.
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Wednesday, February 1, 2012
Monday, January 30, 2012
RATES AND POLITICS
If you're curious abut the political implications of the Romney tax returns, this cartoon pretty much says it all: http://news.yahoo.com/comics/mike-luckovich-slideshow/. Or, for many Americans, this: http://news.yahoo.com/comics/pat-oliphant-slideshow/.
The recent release of Republican presidential candidate Willard "Mitt" Romney's 2010 and 2011 tax records--all 500 pages of them--has generated a lot of buzz among financial types and mainstream voters. Indeed, people who work with financial planners might be wondering: "why the heck can't my advisor get my federal taxes down to a 14% rate? Couldn't I be parking money in Bermuda (page 52 of the 2011 return) Switzerland (position sold in 2010 after the Swiss bank UBS came under federal investigation for facilitating tax fraud) and the Cayman Islands (called "various countries" on the return) if my advisor were just a little more creative?"
You can see the estimated 2011 return for yourself here: http://mittromney.com/learn/mitt/tax-return/2011/wmr-adr-return, although the home address and the Social Security numbers for Willard M. and Ann D. Romney have been blacked out. What you DO see is a little over $4 million in taxable interest, a little over $3 million in dividends, $10.7 million in capital gains, $2.8 million in income from rental real estate, $110,500 as a member of (the listed profession) "independent artists, writers, performers" and zero for wages or salaries. The estimated tax bill: $3,226,623--about 14% of the nearly $21 million in total income.
This percentage could go down between now and the next filing date. Page 11 of the return says that the Romneys expect to receive a foreign tax credit, which is not yet factored into the tax payment. Pages 30, 31, 32, 33, 34 and 35 note that the K-1 tax information on various partnerships (one called "Rob Rom Enterprises, LLC") is also unavailable, and the tax calculation "may change significantly when the final 2011 K-1 is received."
If you're feeling envious of the low rates, and the fact that much of it was exempt from Social Security payroll taxes, you aren't alone; according to one report, Romney's secretary paid taxes at a higher marginal rate.
There are several ways to look the situation. One is that Romney actually paid MORE than his fair share--in fact, you could argue that he paid much more.
How? The argument goes something like this: if you walked into the grocery story to buy a loaf of bread, would the cost be dependent on your income? If it was, the average American would be paying roughly $2.00 while Mr. Romney's cost would be closer to $300. If we all receive the same basic package of services from the government, and the total cost is about $6 trillion, then each of the 300 million people who live in America would owe about $20,000. Mr. Romney, by paying about $3 million a year, might be considered to be overpaying for his share of those governmental services.
Another way to look at it is that people who have more income or assets have more to protect, and therefore need those government services more than most. A progressive tax system that is capped at the top forces wealthier people to pay proportionately more, but they also get to keep a majority of what they earn. If you buy this philosophy, then the question becomes: how do you decide what is fair for everybody, the high earners as well as the low earners?
One traditional answer is that everybody should pay something. You hear a lot about low-income wage earners paying no income taxes, but in fact they are all required to pay Social Security payroll taxes, which are actually higher than income taxes for the majority of Americans. On the other end of the wealth spectrum, there are so many nuances to the tax code, so many deductions and loopholes, that it was possible for General Electric to largely escape corporate taxes. That isn't possible for individuals, ever since, in 1969, the U.S. Treasury Department disclosed that 155 high-income households had paid no income taxes. In the ensuing uproar, Congress passed the alternative minimum tax--and has been trying to fix it ever since.
There were two reasons why candidate Romney was able to escape the highest tax rate. The first is that his "job" at Bain Capital Management was to--as Warren Buffett has recently described it--"move money around." Specifically, he was investing his own and others' money into companies and then restructuring them. People on Wall Street and in Silicon Valley will tell you that this is real work, hard work, but all too often the result is to shift money from the company to the pockets of the investors. For this sort of work, the tax code applies the same tax rate as the taxes on dividends and capital gains--15% at the high end--rather than the maximum 35% rate that a corporate employee earning similar compensation would have to pay. Even somebody who sweeps the floors or answers the phone at Bain's offices, who earns more than $35,000, would pay taxes at a 25% rate.
The second--lesser--reason why candidate Romney's taxes were so low is that he voluntarily gave $2.6 million a year to his church and a total of more than $4 million in total to charities (Schedule A and page 68). One could argue that his actual financial contribution to society--to his church, to the Bush presidential library, to other charities and the federal government--was actually $7 million a year. That amount would equal roughly a 33% tax rate.
If nothing else, those voluminous tax returns, detailing offshore accounts, capital gains taxes for the same kind of work that corporate executives do and charitable donations, will create a new awareness of the implications of different candidates' positions on tax reform. The New York Times recently noted that candidate Romney's own tax reform proposals would require him to pay less than he does now, suggesting that he supports the idea that he's paying more than his fair share. The Newt Gingrich tax proposal would, if passed, essentially eliminate candidate Romney's tax burden altogether. Interestingly, Mr. Romney has labeled this "irresponsible."
One additional note: the Romney tax return checked the boxes to donate $3 for each spouse to support the Presidential Election Campaign.
Romney taxes: http://news.yahoo.com/blogs/ticket/mitt-romney-tax-returns-show-more-43-million-135129751.html
http://mittromney.com/learn/mitt/tax-return/main
http://money.cnn.com/2012/01/26/news/economy/romney_tax_returns/
http://news.yahoo.com/mitt-romney-reveals-tax-records-paid-3m-taxes-221209778--abc-news.html
NY Times: http://www.nytimes.com/2012/01/25/us/politics/romneys-tax-returns-show-21-6-million-income-in-10.html?pagewanted=2&_r=1
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
The recent release of Republican presidential candidate Willard "Mitt" Romney's 2010 and 2011 tax records--all 500 pages of them--has generated a lot of buzz among financial types and mainstream voters. Indeed, people who work with financial planners might be wondering: "why the heck can't my advisor get my federal taxes down to a 14% rate? Couldn't I be parking money in Bermuda (page 52 of the 2011 return) Switzerland (position sold in 2010 after the Swiss bank UBS came under federal investigation for facilitating tax fraud) and the Cayman Islands (called "various countries" on the return) if my advisor were just a little more creative?"
You can see the estimated 2011 return for yourself here: http://mittromney.com/learn/mitt/tax-return/2011/wmr-adr-return, although the home address and the Social Security numbers for Willard M. and Ann D. Romney have been blacked out. What you DO see is a little over $4 million in taxable interest, a little over $3 million in dividends, $10.7 million in capital gains, $2.8 million in income from rental real estate, $110,500 as a member of (the listed profession) "independent artists, writers, performers" and zero for wages or salaries. The estimated tax bill: $3,226,623--about 14% of the nearly $21 million in total income.
This percentage could go down between now and the next filing date. Page 11 of the return says that the Romneys expect to receive a foreign tax credit, which is not yet factored into the tax payment. Pages 30, 31, 32, 33, 34 and 35 note that the K-1 tax information on various partnerships (one called "Rob Rom Enterprises, LLC") is also unavailable, and the tax calculation "may change significantly when the final 2011 K-1 is received."
If you're feeling envious of the low rates, and the fact that much of it was exempt from Social Security payroll taxes, you aren't alone; according to one report, Romney's secretary paid taxes at a higher marginal rate.
There are several ways to look the situation. One is that Romney actually paid MORE than his fair share--in fact, you could argue that he paid much more.
How? The argument goes something like this: if you walked into the grocery story to buy a loaf of bread, would the cost be dependent on your income? If it was, the average American would be paying roughly $2.00 while Mr. Romney's cost would be closer to $300. If we all receive the same basic package of services from the government, and the total cost is about $6 trillion, then each of the 300 million people who live in America would owe about $20,000. Mr. Romney, by paying about $3 million a year, might be considered to be overpaying for his share of those governmental services.
Another way to look at it is that people who have more income or assets have more to protect, and therefore need those government services more than most. A progressive tax system that is capped at the top forces wealthier people to pay proportionately more, but they also get to keep a majority of what they earn. If you buy this philosophy, then the question becomes: how do you decide what is fair for everybody, the high earners as well as the low earners?
One traditional answer is that everybody should pay something. You hear a lot about low-income wage earners paying no income taxes, but in fact they are all required to pay Social Security payroll taxes, which are actually higher than income taxes for the majority of Americans. On the other end of the wealth spectrum, there are so many nuances to the tax code, so many deductions and loopholes, that it was possible for General Electric to largely escape corporate taxes. That isn't possible for individuals, ever since, in 1969, the U.S. Treasury Department disclosed that 155 high-income households had paid no income taxes. In the ensuing uproar, Congress passed the alternative minimum tax--and has been trying to fix it ever since.
There were two reasons why candidate Romney was able to escape the highest tax rate. The first is that his "job" at Bain Capital Management was to--as Warren Buffett has recently described it--"move money around." Specifically, he was investing his own and others' money into companies and then restructuring them. People on Wall Street and in Silicon Valley will tell you that this is real work, hard work, but all too often the result is to shift money from the company to the pockets of the investors. For this sort of work, the tax code applies the same tax rate as the taxes on dividends and capital gains--15% at the high end--rather than the maximum 35% rate that a corporate employee earning similar compensation would have to pay. Even somebody who sweeps the floors or answers the phone at Bain's offices, who earns more than $35,000, would pay taxes at a 25% rate.
The second--lesser--reason why candidate Romney's taxes were so low is that he voluntarily gave $2.6 million a year to his church and a total of more than $4 million in total to charities (Schedule A and page 68). One could argue that his actual financial contribution to society--to his church, to the Bush presidential library, to other charities and the federal government--was actually $7 million a year. That amount would equal roughly a 33% tax rate.
If nothing else, those voluminous tax returns, detailing offshore accounts, capital gains taxes for the same kind of work that corporate executives do and charitable donations, will create a new awareness of the implications of different candidates' positions on tax reform. The New York Times recently noted that candidate Romney's own tax reform proposals would require him to pay less than he does now, suggesting that he supports the idea that he's paying more than his fair share. The Newt Gingrich tax proposal would, if passed, essentially eliminate candidate Romney's tax burden altogether. Interestingly, Mr. Romney has labeled this "irresponsible."
One additional note: the Romney tax return checked the boxes to donate $3 for each spouse to support the Presidential Election Campaign.
Romney taxes: http://news.yahoo.com/blogs/ticket/mitt-romney-tax-returns-show-more-43-million-135129751.html
http://mittromney.com/learn/mitt/tax-return/main
http://money.cnn.com/2012/01/26/news/economy/romney_tax_returns/
http://news.yahoo.com/mitt-romney-reveals-tax-records-paid-3m-taxes-221209778--abc-news.html
NY Times: http://www.nytimes.com/2012/01/25/us/politics/romneys-tax-returns-show-21-6-million-income-in-10.html?pagewanted=2&_r=1
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Thursday, January 12, 2012
HOSTAGES IN THE DEBT NEGOTIATIONS
Everybody knows that the Greek government has issued more debt than it can possibly repay, which explains why you can buy its government bonds at pennies on the dollar. Today's secondary markets are pricing Greek 10-year issues at prices that give buyers a jaw-dropping 35% yearly coupon return. By comparison, comparable Treasury securities issued by the U.S. government (which are NOT expected to default) are yielding less than 2%. Germany recently issued bonds at rates even lower.
The discounts have the certainty of default priced into them, and, indeed, the Bloomberg news organization reports that the Greek government has been quietly asking its creditors to accept a 60% reduction in interest payments--which would still keep rates around the 14% level. Meanwhile, the German and French governments have persuaded European banks to exchange their Greek bonds for new securities with longer maturities and lower coupon rates.
The effort to put the Greek debt crisis safely behind us has recently hit a snag, under circumstances that might interest the Occupy Wall Street crowd. According to the New York Times, a small group of hedge funds have been aggressively buying up Greek debt at pennies on the dollar, and now are refusing to negotiate any kind of a haircut. They're betting that the European governments will eventually have to pay them the full face value of the bonds they bought at huge discounts--giving them big windfall profits at a time when everybody else is accepting losses for the sake of long-term Euro stability.
It may work. If Greece is forced to break off negotiations, formally default and unilaterally impose the 60% haircut, that default legally becomes a so-called "credit event." A credit event would trigger the payment provisions of untold numbers of derivative contracts, which are basically private insurance policies called credit default swaps. The issuers of those contracts--chiefly those same European banks--would suddenly have to pay face value for the Greek bonds that everybody else is buying at a discount. But only if there is a credit event.
Nobody outside the European Central Bank knows exactly how many of these derivatives are held by European lending institutions, but it is clear from the nature of the negotiations that all parties are carefully avoiding this trigger event. The hedge funds, by demanding either full payment or a credit event, seem to have figured out a way to hold the entire European banking system hostage to their demands for outsized profits.
The story offers a rare view inside the negotiating rooms where the European sovereign debt crisis is being managed, and suggests that responsible parties are, behind the scenes, working to resolve the European Sovereign debt crisis without a lot of the fanfare you see in breathless headlines. As the bank negotiations move forward, the "crisis" might not be as dire as the headlines make it out to be. There is even a chance that the hedge funds' greedy stand could backfire. The ECB is now inserting what are called "collective actions clauses" in their agreements with banks, which would let the lenders impose the concessions they had to make on all bondholders if a majority of holders agree to it. The hedge funds would either have to acquire a majority of Greek debt or lose their leverage--and most of their hoped-for windfall.
Greek bond rates: http://www.bloomberg.com/quote/GGGB10YR:IND/chart
Proposed haircut on Greek debt: http://blogs.wsj.com/eurocrisis/2012/01/09/2012-kicks-off-in-a-bad-way-for-euro/
Hedge fund blackmail: http://www.businessweek.com/news/2012-01-11/hedge-funds-trying-to-profit-from-greece-as-banks-face-losses.html
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
The discounts have the certainty of default priced into them, and, indeed, the Bloomberg news organization reports that the Greek government has been quietly asking its creditors to accept a 60% reduction in interest payments--which would still keep rates around the 14% level. Meanwhile, the German and French governments have persuaded European banks to exchange their Greek bonds for new securities with longer maturities and lower coupon rates.
The effort to put the Greek debt crisis safely behind us has recently hit a snag, under circumstances that might interest the Occupy Wall Street crowd. According to the New York Times, a small group of hedge funds have been aggressively buying up Greek debt at pennies on the dollar, and now are refusing to negotiate any kind of a haircut. They're betting that the European governments will eventually have to pay them the full face value of the bonds they bought at huge discounts--giving them big windfall profits at a time when everybody else is accepting losses for the sake of long-term Euro stability.
It may work. If Greece is forced to break off negotiations, formally default and unilaterally impose the 60% haircut, that default legally becomes a so-called "credit event." A credit event would trigger the payment provisions of untold numbers of derivative contracts, which are basically private insurance policies called credit default swaps. The issuers of those contracts--chiefly those same European banks--would suddenly have to pay face value for the Greek bonds that everybody else is buying at a discount. But only if there is a credit event.
Nobody outside the European Central Bank knows exactly how many of these derivatives are held by European lending institutions, but it is clear from the nature of the negotiations that all parties are carefully avoiding this trigger event. The hedge funds, by demanding either full payment or a credit event, seem to have figured out a way to hold the entire European banking system hostage to their demands for outsized profits.
The story offers a rare view inside the negotiating rooms where the European sovereign debt crisis is being managed, and suggests that responsible parties are, behind the scenes, working to resolve the European Sovereign debt crisis without a lot of the fanfare you see in breathless headlines. As the bank negotiations move forward, the "crisis" might not be as dire as the headlines make it out to be. There is even a chance that the hedge funds' greedy stand could backfire. The ECB is now inserting what are called "collective actions clauses" in their agreements with banks, which would let the lenders impose the concessions they had to make on all bondholders if a majority of holders agree to it. The hedge funds would either have to acquire a majority of Greek debt or lose their leverage--and most of their hoped-for windfall.
Greek bond rates: http://www.bloomberg.com/quote/GGGB10YR:IND/chart
Proposed haircut on Greek debt: http://blogs.wsj.com/eurocrisis/2012/01/09/2012-kicks-off-in-a-bad-way-for-euro/
Hedge fund blackmail: http://www.businessweek.com/news/2012-01-11/hedge-funds-trying-to-profit-from-greece-as-banks-face-losses.html
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, January 10, 2012
GETTING OFF ON THE RIGHT FOOT IN 2012
GETTING OFF ON THE RIGHT FOOT IN 2012
A look at some financial changes & the opportunities they may present.
Every year brings some financial change, so here are some relevant changes relating to investment, tax and estate planning for 2012.
Retirement plans. 401(k), 403(b) and 457 plan annual contribution limits rise slightly to $17,000, and you can contribute an additional $5,500 to these accounts if you are 50 or older this year. IRA contribution levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you will be 50 or older in 2012.1
As you strive to contribute as much as you comfortably can to these accounts this year, you will probably notice some changes with the retirement plan at your workplace. In 2012, retirement plan sponsors (i.e., employers) will have to note all of the fees and expenses linked to the funds in the plan to plan participants. So if you have a 401(k) or 403(b), you may notice some differences in the disclosures on your statements and you will probably notice more information coming your way about fees. There is also a push in Washington, D.C. to have financial companies provide lifetime income illustrations on retirement plan account statements, projections of your expected monthly benefit at retirement age.2
Income taxes. Wealthy Americans are set to face greater income tax burdens in 2013, so 2012 may be the last year to take advantage of certain factors. For example, the top tax bracket in 2013 is slated to be at 39.6% instead of the current 35%. This year, capital gains and dividends will be taxed at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets. In 2013, the qualified capital gains tax rate is scheduled to rise to 20% and qualified dividends will be taxed as ordinary income. So taking a little more income in 2012 could be smart.3
In 2013, the wealthiest Americans are supposed to be hit with new Medicare taxes: a new 3.8% levy on unearned income (such as capital gains, income from real estate, dividends and interest) and a new 0.9% tax or earned income. So next year, the truly wealthy could effectively face in the neighborhood of 45% federal taxes.3
Additionally, the IRS is planning to limit itemized deductions for upper-income taxpayers in 2013. A phase-out will also apply for the personal exemption deduction.3
Estate & gift taxes. At the end of 2012, some very nice estate tax breaks could sunset. Barring action by Congress, 2013 could see a 20% leap in the federal estate tax rate from 35% to 55%. The individual estate tax exclusion (currently $5.12 million) is scheduled to be reduced to $1 million.3
As we have unified gift and estate tax rates, those numbers and percentages also apply to gift taxes. That is, from 2012 to 2013 top federal gift tax rate is set to go from 35% to 55% and the lifetime gift tax exemption amount is scheduled to fall $4,120,000 per individual to $1 million. The annual gift tax exemption is $13,000 per recipient in 2012; there is an exemption limit for qualifying educational and medical payments. If you want to gift relatives or friends, you may want to avoid procrastinating for another very good reason: when you make such a gift early in a year, the recipient will gain both the principal and any appreciation tied to the gifted asset in that year.3,4
Speaking of gifts, we said goodbye to charitable IRA gifts in 2011. The IRA charitable rollover, a boon to non-profits and a handy tax deduction option for taxpayers older than age 70½, was not extended into 2012, not even temporarily as a sweetener to the payroll tax extension bill. There is hope it will be back. Two bills have been introduced in Congress with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen. Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR). The proposed legislation would let IRA owners start making charitable IRA gifts at age 59½ and remove the $100,000 limit on the rollovers.5
The limits on the generation-skipping transfer tax could change, too: assuming the Bush-era tax cuts do sunset, the GSTT rate would jump from 35% this year to 55% in 2013, with the GSTT exemption falling from $5,120,000 per person this year to roughly $1.3 million per person next year.3
So given all these changes, it might be wise to meet with the financial professional you know and trust early in 2012 as you strive to start the year off on the right foot. You have until April 17 to file your federal return, but you can plan now.
Citations.
1 - www.irs.gov/retirement/article/0,,id=96461,00.html [10/20/11]
2 - www.marketwatch.com/story/retirement-plan-changes-coming-in-2012-2011-12-29 [12/29/11]
3 - www.sbnonline.com/2012/01/how-to-approach-tax-and-estate-planning-opportunities-for-2012/?full=1 [1/3/12]
4 - advisorone.com/2012/01/06/10-tax-tips-for-advisors-in-2012 [1/6/12]
5 - www.northjersey.com/news/business/business_opinion/136217658_Payroll_tax_cut_benefits_charities.html [12/25/11]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
A look at some financial changes & the opportunities they may present.
Every year brings some financial change, so here are some relevant changes relating to investment, tax and estate planning for 2012.
Retirement plans. 401(k), 403(b) and 457 plan annual contribution limits rise slightly to $17,000, and you can contribute an additional $5,500 to these accounts if you are 50 or older this year. IRA contribution levels are unchanged from 2011: the ceiling is $5,000, $6,000 if you will be 50 or older in 2012.1
As you strive to contribute as much as you comfortably can to these accounts this year, you will probably notice some changes with the retirement plan at your workplace. In 2012, retirement plan sponsors (i.e., employers) will have to note all of the fees and expenses linked to the funds in the plan to plan participants. So if you have a 401(k) or 403(b), you may notice some differences in the disclosures on your statements and you will probably notice more information coming your way about fees. There is also a push in Washington, D.C. to have financial companies provide lifetime income illustrations on retirement plan account statements, projections of your expected monthly benefit at retirement age.2
Income taxes. Wealthy Americans are set to face greater income tax burdens in 2013, so 2012 may be the last year to take advantage of certain factors. For example, the top tax bracket in 2013 is slated to be at 39.6% instead of the current 35%. This year, capital gains and dividends will be taxed at 15% or less for everyone, 0% for those in the 10% and 15% tax brackets. In 2013, the qualified capital gains tax rate is scheduled to rise to 20% and qualified dividends will be taxed as ordinary income. So taking a little more income in 2012 could be smart.3
In 2013, the wealthiest Americans are supposed to be hit with new Medicare taxes: a new 3.8% levy on unearned income (such as capital gains, income from real estate, dividends and interest) and a new 0.9% tax or earned income. So next year, the truly wealthy could effectively face in the neighborhood of 45% federal taxes.3
Additionally, the IRS is planning to limit itemized deductions for upper-income taxpayers in 2013. A phase-out will also apply for the personal exemption deduction.3
Estate & gift taxes. At the end of 2012, some very nice estate tax breaks could sunset. Barring action by Congress, 2013 could see a 20% leap in the federal estate tax rate from 35% to 55%. The individual estate tax exclusion (currently $5.12 million) is scheduled to be reduced to $1 million.3
As we have unified gift and estate tax rates, those numbers and percentages also apply to gift taxes. That is, from 2012 to 2013 top federal gift tax rate is set to go from 35% to 55% and the lifetime gift tax exemption amount is scheduled to fall $4,120,000 per individual to $1 million. The annual gift tax exemption is $13,000 per recipient in 2012; there is an exemption limit for qualifying educational and medical payments. If you want to gift relatives or friends, you may want to avoid procrastinating for another very good reason: when you make such a gift early in a year, the recipient will gain both the principal and any appreciation tied to the gifted asset in that year.3,4
Speaking of gifts, we said goodbye to charitable IRA gifts in 2011. The IRA charitable rollover, a boon to non-profits and a handy tax deduction option for taxpayers older than age 70½, was not extended into 2012, not even temporarily as a sweetener to the payroll tax extension bill. There is hope it will be back. Two bills have been introduced in Congress with that goal, one sponsored by Sen. Olympia Snowe (R-ME) and Sen. Charles Schumer (D-NY) and another by Rep. Wally Herger (R-CA) and Rep. Earl Blumenauer (D-OR). The proposed legislation would let IRA owners start making charitable IRA gifts at age 59½ and remove the $100,000 limit on the rollovers.5
The limits on the generation-skipping transfer tax could change, too: assuming the Bush-era tax cuts do sunset, the GSTT rate would jump from 35% this year to 55% in 2013, with the GSTT exemption falling from $5,120,000 per person this year to roughly $1.3 million per person next year.3
So given all these changes, it might be wise to meet with the financial professional you know and trust early in 2012 as you strive to start the year off on the right foot. You have until April 17 to file your federal return, but you can plan now.
Citations.
1 - www.irs.gov/retirement/article/0,,id=96461,00.html [10/20/11]
2 - www.marketwatch.com/story/retirement-plan-changes-coming-in-2012-2011-12-29 [12/29/11]
3 - www.sbnonline.com/2012/01/how-to-approach-tax-and-estate-planning-opportunities-for-2012/?full=1 [1/3/12]
4 - advisorone.com/2012/01/06/10-tax-tips-for-advisors-in-2012 [1/6/12]
5 - www.northjersey.com/news/business/business_opinion/136217658_Payroll_tax_cut_benefits_charities.html [12/25/11]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Wednesday, December 28, 2011
PAYROLL TAX CUT EXTENDED TWO MONTHS
Paychecks won’t shrink; long-term jobless benefits will continue.
A last-minute gift to 160 million Americans. On December 23, Congress approved a 2-month extension of the payroll tax holiday that President Obama quickly signed into law. So we will not see shrunken paychecks come January. The new law also extends long-term unemployment benefits through February 29 and authorizes a 2-month reprieve on pay cuts to doctors by Medicare.1
• Prior to 2011, wage-earners were paying 6.2% in Social Security taxes. If Congress agrees to lengthen the payroll tax holiday across 2012, workers will merely pay 4.2% on the first $110,100 of wages next year.
• The latest extension in jobless benefits means that about 1.8 million Americans out of the workforce will keep getting unemployment checks averaging about $296 per week.
• Medicare payments to physicians will not diminish by 27% come January.1
The stopgap measure is both a relief and a prelude to much more debate. In total, the new legislation is projected to cost the federal government about $33 billion.1
Who will pay for these extensions? The direct answer: Fannie Mae and Freddie Mac. The indirect answer: American homeowners and homebuyers.
Title IV of the new law (“Mortgage Fees and Premiums”) notes that Fannie and Freddie will be boosting guarantee fees on new loans next year. If the payroll tax holiday is approved for all of 2012, anyone who buys or refinances next year will end up giving back about 20% of the approximately $1,000 tax break.2
Instead of collecting from borrowers directly with a fee hike, the twin GSEs will increase fees for banks and other lending institutions starting in January. The Congressional Budget Office projects that this will raise $35.7 billion across 2012-2021, with the revenue going to the Treasury rather than to Fannie and Freddie.2
Comparatively speaking, this means that mortgage costs will be about $17 a month higher for someone purchasing a $200,000 home next year.2
What about that pipeline? Yes, the proposed 1,700-mile Keystone oil pipeline that would run from Alberta to the Gulf of Mexico. House Republicans had wanted it as a sweetener to the bill, contending that it would create tens of thousands of jobs.
The newly passed legislation requires President Obama to either approve or kill the controversial project by March 1. The State Department says it can’t manage a required environmental review by March 1 and therefore won’t be able to recommend the project; citing White House sources, the New York Times says the President will abide by the State Department’s guidance. However, that doesn’t prohibit TransCanada (the company behind the pipeline) or any other energy company from introducing a similar idea.3
The new agreement is effectively a postponement. When Congress returns to Capitol Hill next month, the debate over the yearlong extension of the payroll tax reduction should intensify. There will be three points of contention:
• How to pay for the full-year extension. Democrats wanted a new tax on millionaires, while House Republicans preferred a federal pay freeze. The projected cost of the yearlong payroll tax cut is $112 billion.
• Rethinking long-term jobless benefits. House Republicans have talked about ending benefits at 59 weeks, something Democrats do not favor.
• Consideration for the health of the Social Security trust fund. If Americans do end up paying 2% less in Social Security taxes for all of 2012, how does the trust fund make up the slack? Some legislators want the Treasury to take care of the shortfall; others worry that the payroll tax will be permanently set at the current level and open the door to reduced Social Security benefits in the future.4,5
Payroll taxes are reduced through February; in terms of the drama surrounding his issue, it’s only an intermission.
Citations.
1 - money.cnn.com/2011/12/23/news/economy/payroll_tax_cut_deal/ [12/23/11]
2 - blogs.ajc.com/jamie-dupree-washington-insider/2011/12/18/paying-for-the-payroll-tax-cut-extension/ [12/18/11]
3 - www.nytimes.com/2011/12/24/us/provision-may-halt-keystone-pipeline-but-oil-is-still-likely-to-flow.html [12/23/11]
4 - www.kansascity.com/2011/12/23/3335510/congress-approves-payroll-tax.html [12/23/11]
5 - montoyaregistry.com/Financial-Market.aspx?financial-market=tax-loss-harvesting&category=31 [12/23/11]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Paychecks won’t shrink; long-term jobless benefits will continue.
A last-minute gift to 160 million Americans. On December 23, Congress approved a 2-month extension of the payroll tax holiday that President Obama quickly signed into law. So we will not see shrunken paychecks come January. The new law also extends long-term unemployment benefits through February 29 and authorizes a 2-month reprieve on pay cuts to doctors by Medicare.1
• Prior to 2011, wage-earners were paying 6.2% in Social Security taxes. If Congress agrees to lengthen the payroll tax holiday across 2012, workers will merely pay 4.2% on the first $110,100 of wages next year.
• The latest extension in jobless benefits means that about 1.8 million Americans out of the workforce will keep getting unemployment checks averaging about $296 per week.
• Medicare payments to physicians will not diminish by 27% come January.1
The stopgap measure is both a relief and a prelude to much more debate. In total, the new legislation is projected to cost the federal government about $33 billion.1
Who will pay for these extensions? The direct answer: Fannie Mae and Freddie Mac. The indirect answer: American homeowners and homebuyers.
Title IV of the new law (“Mortgage Fees and Premiums”) notes that Fannie and Freddie will be boosting guarantee fees on new loans next year. If the payroll tax holiday is approved for all of 2012, anyone who buys or refinances next year will end up giving back about 20% of the approximately $1,000 tax break.2
Instead of collecting from borrowers directly with a fee hike, the twin GSEs will increase fees for banks and other lending institutions starting in January. The Congressional Budget Office projects that this will raise $35.7 billion across 2012-2021, with the revenue going to the Treasury rather than to Fannie and Freddie.2
Comparatively speaking, this means that mortgage costs will be about $17 a month higher for someone purchasing a $200,000 home next year.2
What about that pipeline? Yes, the proposed 1,700-mile Keystone oil pipeline that would run from Alberta to the Gulf of Mexico. House Republicans had wanted it as a sweetener to the bill, contending that it would create tens of thousands of jobs.
The newly passed legislation requires President Obama to either approve or kill the controversial project by March 1. The State Department says it can’t manage a required environmental review by March 1 and therefore won’t be able to recommend the project; citing White House sources, the New York Times says the President will abide by the State Department’s guidance. However, that doesn’t prohibit TransCanada (the company behind the pipeline) or any other energy company from introducing a similar idea.3
The new agreement is effectively a postponement. When Congress returns to Capitol Hill next month, the debate over the yearlong extension of the payroll tax reduction should intensify. There will be three points of contention:
• How to pay for the full-year extension. Democrats wanted a new tax on millionaires, while House Republicans preferred a federal pay freeze. The projected cost of the yearlong payroll tax cut is $112 billion.
• Rethinking long-term jobless benefits. House Republicans have talked about ending benefits at 59 weeks, something Democrats do not favor.
• Consideration for the health of the Social Security trust fund. If Americans do end up paying 2% less in Social Security taxes for all of 2012, how does the trust fund make up the slack? Some legislators want the Treasury to take care of the shortfall; others worry that the payroll tax will be permanently set at the current level and open the door to reduced Social Security benefits in the future.4,5
Payroll taxes are reduced through February; in terms of the drama surrounding his issue, it’s only an intermission.
Citations.
1 - money.cnn.com/2011/12/23/news/economy/payroll_tax_cut_deal/ [12/23/11]
2 - blogs.ajc.com/jamie-dupree-washington-insider/2011/12/18/paying-for-the-payroll-tax-cut-extension/ [12/18/11]
3 - www.nytimes.com/2011/12/24/us/provision-may-halt-keystone-pipeline-but-oil-is-still-likely-to-flow.html [12/23/11]
4 - www.kansascity.com/2011/12/23/3335510/congress-approves-payroll-tax.html [12/23/11]
5 - montoyaregistry.com/Financial-Market.aspx?financial-market=tax-loss-harvesting&category=31 [12/23/11]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Thursday, December 22, 2011
WRANGLING OVER THE PHANTOM STIMULUS
The headlines are screaming again, this time about the Capitol Hill controversy over payroll tax cuts. And, as usual, there is more to the story than what you're reading.
First the good news. Earlier reports said that a stalemate on the tax cut would shut down the government, but before the Senate went home for the holidays, it passed a separate bill that finances the government through next September.
Better news: by all reports, Republicans and Democrats were--and are--in general agreement that there should be some kind of stimulus to the still-recovering economy, and the biggest, least-stimulated sector is consumer spending. The Republicans argued for more tax relief for the wealthiest Americans, and want to reduce pollution controls and force the President to approve the proposed Keystone XL pipeline, which would deliver oil from tar sands in Alberta, Canada to refineries in Texas. Meanwhile, the Democrats wanted a broad-based stimulus measure that would put spending money in the hands of more mainstream American consumers. And they supported environmentalist opposition to the pipeline and the pollution proposals.
Naturally, the two sides couldn't agree on a compromise, so the Senate, by an overwhelming majority, kicked the can down the road for two months by agreeing to continue the reduction in Social Security taxes from 6.2% to 4.2% until Congress could get back in session early next year.
It seems clear that the Senators expected their colleagues in the House of Representatives to follow this simple solution. But nothing is simple in this partisan political atmosphere, and the House (for now, at least) has rejected the measure.
There are several interesting complexities here that should have gotten more attention. One of them is the problems that this wrangling has created for employers, who will have to scramble at the last minute to change their payroll systems to reflect either the 6.2% rate or the 4.2% rate. Which will it be? Who knows? All anybody knows for sure is that the withholding amount will need to be correct starting January 1, and the National Payroll Reporting Consortium has already said that, as a result of the brinkmanship, there is now not enough notice to accommodate any changes that quickly.
Of course, if and when the whole issue is taken up at the end of the proposed two-month extension, companies would face exactly the same dilemma. Chalk this up to a Congress that is oblivious to the consequences of its actions on the business community--especially small businesses.
Behind the scenes, there are other dramas. One involves the very complicated way that the Social Security tax reduction is structured. Reducing the payroll tax would obviously reduce the flow of money into the Social Security trust fund, which is famously experiencing solvency troubles of its own. Neither side wanted to be seen as making the entitlement mess any worse, so the stopgap bill would have had the U.S. Treasury pick up the payments--a sideways accounting move has no real substance. The bill also prevents doctors who accept Medicare payments from receiving a 27% reduction in reimbursement payments, which would weaken the financial stability of another entitlement program, so the Treasury will pay that out of its pocket as well.
But the surprising thing here is that this is actually a revenue-neutral piece of legislation. The Treasury coffers would be replenished through a side door that nobody seems to have noticed. Title IV, entitled "Mortgage Fees and Premiums," would have raised the amount that Fannie Mae and Freddie Mac--the organizations that back a majority of home loans in the U.S.--would collect in mortgage fees after January 2012. In all, the raised mortgage fees--which would increase the cost of home ownership at a time when the housing market is staggering--would pay for the two month extension of the payroll tax cut (estimated at $20 billion) plus two months of additional jobless benefits for 2.5 million out-of-work Americans (an estimated $8.4 billion) and two months of added Medicare reimbursements to doctors (an estimated $6.6 billion).
Can we call this a stimulus, when money comes out of the pockets of home buyers and put in the pockets of payroll workers, the unemployed and doctors? Since the bill seems to be stuck in partisan wrangling, maybe the question is moot anyway.
Sources:
Payroll tax issues, and Treasury funding of Social Security:
http://www.nytimes.com/2011/12/20/us/politics/house-set-to-vote-down-payroll-tax-cut-extension.html?pagewanted=all
Fannie and Freddie: http://blogs.ajc.com/jamie-dupree-washington-insider/2011/12/18/paying-for-the-payroll-tax-cut-extension/
Pipeline and pollution aspects of the legislation: http://www.msnbc.msn.com/id/45707185/ns/politics/t/senate-oks-payroll-tax-cut-extension-house-gop-irked/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
First the good news. Earlier reports said that a stalemate on the tax cut would shut down the government, but before the Senate went home for the holidays, it passed a separate bill that finances the government through next September.
Better news: by all reports, Republicans and Democrats were--and are--in general agreement that there should be some kind of stimulus to the still-recovering economy, and the biggest, least-stimulated sector is consumer spending. The Republicans argued for more tax relief for the wealthiest Americans, and want to reduce pollution controls and force the President to approve the proposed Keystone XL pipeline, which would deliver oil from tar sands in Alberta, Canada to refineries in Texas. Meanwhile, the Democrats wanted a broad-based stimulus measure that would put spending money in the hands of more mainstream American consumers. And they supported environmentalist opposition to the pipeline and the pollution proposals.
Naturally, the two sides couldn't agree on a compromise, so the Senate, by an overwhelming majority, kicked the can down the road for two months by agreeing to continue the reduction in Social Security taxes from 6.2% to 4.2% until Congress could get back in session early next year.
It seems clear that the Senators expected their colleagues in the House of Representatives to follow this simple solution. But nothing is simple in this partisan political atmosphere, and the House (for now, at least) has rejected the measure.
There are several interesting complexities here that should have gotten more attention. One of them is the problems that this wrangling has created for employers, who will have to scramble at the last minute to change their payroll systems to reflect either the 6.2% rate or the 4.2% rate. Which will it be? Who knows? All anybody knows for sure is that the withholding amount will need to be correct starting January 1, and the National Payroll Reporting Consortium has already said that, as a result of the brinkmanship, there is now not enough notice to accommodate any changes that quickly.
Of course, if and when the whole issue is taken up at the end of the proposed two-month extension, companies would face exactly the same dilemma. Chalk this up to a Congress that is oblivious to the consequences of its actions on the business community--especially small businesses.
Behind the scenes, there are other dramas. One involves the very complicated way that the Social Security tax reduction is structured. Reducing the payroll tax would obviously reduce the flow of money into the Social Security trust fund, which is famously experiencing solvency troubles of its own. Neither side wanted to be seen as making the entitlement mess any worse, so the stopgap bill would have had the U.S. Treasury pick up the payments--a sideways accounting move has no real substance. The bill also prevents doctors who accept Medicare payments from receiving a 27% reduction in reimbursement payments, which would weaken the financial stability of another entitlement program, so the Treasury will pay that out of its pocket as well.
But the surprising thing here is that this is actually a revenue-neutral piece of legislation. The Treasury coffers would be replenished through a side door that nobody seems to have noticed. Title IV, entitled "Mortgage Fees and Premiums," would have raised the amount that Fannie Mae and Freddie Mac--the organizations that back a majority of home loans in the U.S.--would collect in mortgage fees after January 2012. In all, the raised mortgage fees--which would increase the cost of home ownership at a time when the housing market is staggering--would pay for the two month extension of the payroll tax cut (estimated at $20 billion) plus two months of additional jobless benefits for 2.5 million out-of-work Americans (an estimated $8.4 billion) and two months of added Medicare reimbursements to doctors (an estimated $6.6 billion).
Can we call this a stimulus, when money comes out of the pockets of home buyers and put in the pockets of payroll workers, the unemployed and doctors? Since the bill seems to be stuck in partisan wrangling, maybe the question is moot anyway.
Sources:
Payroll tax issues, and Treasury funding of Social Security:
http://www.nytimes.com/2011/12/20/us/politics/house-set-to-vote-down-payroll-tax-cut-extension.html?pagewanted=all
Fannie and Freddie: http://blogs.ajc.com/jamie-dupree-washington-insider/2011/12/18/paying-for-the-payroll-tax-cut-extension/
Pipeline and pollution aspects of the legislation: http://www.msnbc.msn.com/id/45707185/ns/politics/t/senate-oks-payroll-tax-cut-extension-house-gop-irked/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, December 20, 2011
BUDGETING FOR RETIREMENT
It only makes sense – yet many retirees live without one.
You won’t be able to withdraw an unlimited amount of money in retirement. So a retirement budget is a necessity. Some retirees forego one, only to regret it later.
Run the numbers before you retire. Often people need about 70-80% of their end salaries in retirement, but this can vary. So years before you leave work, sit down for an hour or so (perhaps with the financial professional you know and trust) and take a look at your probable monthly expenses. Online calculators can help.1
The closer you get to your retirement date, the more exact you will need to be about your income needs. You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you can potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.
While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, through reducing your investment fees, and getting your phone, internet and TV services from one provider.
If you have just retired or are about to, you will enter 2012 with some financial breaks. Social Security benefits will increase by 3.6% next year, Medicare Part B premiums will only rise $3.50 instead of the $10 that Medicare projected, and the Part B deductible will be $22 cheaper in 2012 ($140).2
Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.
• Supporting your kids, grandkids or relatives with gifts or loans.
• Withdrawing more than your portfolio can easily return.
• Dragging big debts into retirement that will nibble at your savings.
Budget well & live wisely. These are times of low interest rates and modest Wall Street gains. Given those factors, creating a retirement budget makes a lot of sense. A budget – and the discipline to stick with it – may make a financial difference.
Citations.
1 - www.smartmoney.com/retirement/planning/how-to-set-a-retirement-budget-1304908718392/ [5/12/11]
2 - online.wsj.com/article/SB10001424052970203716204577015673565194532.html [11/6/11]
Sincerely,
William T. Morrissey, CFP®
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commerical St., Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA
You won’t be able to withdraw an unlimited amount of money in retirement. So a retirement budget is a necessity. Some retirees forego one, only to regret it later.
Run the numbers before you retire. Often people need about 70-80% of their end salaries in retirement, but this can vary. So years before you leave work, sit down for an hour or so (perhaps with the financial professional you know and trust) and take a look at your probable monthly expenses. Online calculators can help.1
The closer you get to your retirement date, the more exact you will need to be about your income needs. You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you can potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.
While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, through reducing your investment fees, and getting your phone, internet and TV services from one provider.
If you have just retired or are about to, you will enter 2012 with some financial breaks. Social Security benefits will increase by 3.6% next year, Medicare Part B premiums will only rise $3.50 instead of the $10 that Medicare projected, and the Part B deductible will be $22 cheaper in 2012 ($140).2
Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.
• Supporting your kids, grandkids or relatives with gifts or loans.
• Withdrawing more than your portfolio can easily return.
• Dragging big debts into retirement that will nibble at your savings.
Budget well & live wisely. These are times of low interest rates and modest Wall Street gains. Given those factors, creating a retirement budget makes a lot of sense. A budget – and the discipline to stick with it – may make a financial difference.
Citations.
1 - www.smartmoney.com/retirement/planning/how-to-set-a-retirement-budget-1304908718392/ [5/12/11]
2 - online.wsj.com/article/SB10001424052970203716204577015673565194532.html [11/6/11]
Sincerely,
William T. Morrissey, CFP®
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commerical St., Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA
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