The Burbank Tribune (Grandpa White's newspaper in the 1920's)

Fear and the Fiscal Cliff | January 1, 2013

W.C. Fields was an expert at juggling, however, I don’t think our legislatures ever took any lessons and even care to?
Seriously, maybe this is a large “Ponzi Scheme”?
The “Total” US debt as shown on the U.S. National Debt Clock is somewhere in the vicinity of 58 Billion.. And I have heard as high as 94 Billion Dollars.. Keep that in mind as our legislature persons, worry about less than a 16 Billion and continue to try and spend more, 330 Billion..
Question… Shouldn’t we at this point take the credit card away from them? Or possibly we no longer have control or power?
Debt Held by the Public – Foreign governments and investors hold 48% of the nation’s public debt. The next largest part (21%) is held by other governmental entities, like the Federal Reserve and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest (16%) is held by businesses, like banks, and insurance companies and a mish-mash of trusts, businesses and investors. Here’s the breakout:
  • Foreign – $5.135 trillion
  • Federal Reserve – $1.6 trillion
  • State and Local Government, including their pension funds – $624 billion
  • Mutual Funds – $854 billion
  • Private Pension Funds – $595.9 billion
  • Banks – $307.2 billion
  • Insurance Companies – $254.1 billion
  • U.S. Savings Bonds – $184.8 billion
  • Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) – $1.23 trillion. (As of December 2011. Source: Treasury Bulletin, Ownership of Federal Securities, Table OFS-2)

This debt is not only Treasury bills, notes, and bonds but also TIPS, Savings Bonds, and State and Local Government Series securities.

As you can see, if you add up debt held by Social Security, and all the retirement and pension funds, a large part of the U.S. Treasury debt (30%) is held in trust for people’s retirements. If theoretically the U.S. were to default, foreign investors would be angry, but the greatest harm would befall the average U.S. citizen.

Deficit ‘fiscal cliff’ bill actually spends $330 billion more

Fiscal cliff fears

By Kay Bell ·
Thursday, November 22, 2012
Posted: 6 am ET
  • 1
Are you worried about what might happen if Congress and the president can’t avoid the fiscal cliff? You are not alone.
Most Americans, 62 percent, fear that the automatic spending cuts and tax increases scheduled to take effect in January will have a major effect on the U.S. economy than on their own finances, according to a recent survey by Pew Research Center for the People & the Press and The Washington Post.
Almost as many of those surveyed (60 percent) the week after the presidential election also worry that fiscal cliff implications would negatively affect their own personal financial situations.
And most think the financial damage is imminent.
About half of those questioned — 51 percent — don’t think that President Barack Obama and congressional Republicans will reach an agreement by the end of the year to avoid going off the fiscal cliff.
If that happens, look out, Republicans. Fifty-three percent of those surveyed say that in that case they would blame congressional Republicans more than President Obama for the failure.
Even though Democrats might get more political mileage out of a fiscal cliff failure, people who are members of that party are more optimistic than Republicans that a deal will be struck.
Right now, it looks like the positive thinkers have the edge.
Republicans, apparently a bit chastened by their Nov. 6 losses, are talking as tough about taxes as in previous financial standoffs.
House Speaker John Boehner, R-Ohio, who almost negotiated a grand financial bargain involving tax cuts during the 2011 debt ceiling debate, has said he is open to revenue raisers.
This isn’t exactly caving to Obama’s demand for higher income tax rates for top earners; Boehner means his party is willing to look at eliminating some tax deductions in order to get more money for the U.S. Treasury.
It’s a small step, but given Congress’ tendency to deadlock, any movement is welcome.
The next task is for Representatives and Senators to change those steps into a steady run so they can complete a fiscal cliff resolution by the end of the year.
Do you think lawmakers will find a way to avoid falling off the fiscal cliff? Who do think will get the better deal, Democrats or Republicans?
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Retirement hangs on fiscal cliff

By Jennie L. Phipps ·
Monday, November 12, 2012
Posted: 1 pm ET
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If we fall off the fiscal cliff, retirees could face a 17 percent increase in their 2013 income taxes, predicts CFP professional Leon LaBrecque, a lawyer and certified public accountant.
LaBrecque weighed the impact of eight unpleasant financial problems he believes retirees — and those on the brink of retirement — are most likely to encounter as a result of the nation sliding over the cliff. He estimates the dollar impact and predicts the likelihood of Congress passing a solution.
He says that for retirees and those doing retirement planning, “The most dangerous one of all is the expiration of the Bush tax cuts because it changes everything.”
Here’s his list:
  1. Expiration of the Bush income and estate taxes ($246 billion impact). This will hit everyone who pays income taxes and anyone whose estate is over $1 million. The fix: Extend all or some tax brackets and extend the current estate tax limits. Probability of Congress taking this step: very high.
  2. Alternative minimum tax, or AMT, patch ($50 billion impact). This law was designed to extract money from millionaires who wiggled out of paying taxes. The AMT isn’t indexed for inflation, so now it is hitting some people who make as little as $40,000. The fix: another patch. Probability of it passing Congress: very high.
  3. Sequestration ($109 billion impact). These federal spending cuts were mandated by Congress last year as part of a deal to raise the nation’s debt ceiling. Social Security and Medicaid aren’t affected, but Medicare Part D could get a 2 percent haircut, pushing up what Medicare recipients pay. The fix: new budget cuts. Probability of these passing: slightly above zero.
  4. Expiration of the payroll tax holiday ($115 billion impact). President Barack Obama cut payroll taxes by 2 percentage points to stimulate the economy. The fix: Extend the cuts. Probability of passage: slight.
  5. Unearned income Medicare contribution tax ($24 billion impact). This affects singles with incomes greater than $200,000 and couples with incomes greater than $250,000. The fix: Repeal the Affordable Care Act. Probability: subzero.
  6. Expiration of the debt ceiling ($300 billion impact). The whole world would feel the pain if the U.S. couldn’t borrow. The fix: Raise the debt ceiling. Probability of passage: good.
  7. Doc fix ($15 billion to $22 billion impact). Physicians who treat Medicare patients will take a sharp pay cut. The fix: Adjust Medicare pay guidelines. Probability of passage: maybe. (Docs can afford good lobbyists.)
  8. Small-business and stimulus tax breaks ($27 billion impact). This involves a host of small tax breaks, including the individual retirement account charitable rollover, which allows people older than 70½ to make mandatory IRA withdrawals by sending the money directly to a charity. These donations aren’t tax-deductible, but neither do they count as income, which could result in higher taxes on Social Security or higher Medicare premiums. The law expired last year, but some are still hoping it will be extended retroactively. Likelihood of passage: 50-50.

‘Fiscal cliff’ to sock CDs?

By Claes Bell ·
Tuesday, December 4, 2012
Posted: 10 am ET
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One of the big issues facing the country these days is whether Congress and President Barack Obama can strike a deal to avoid the sudden expiration of the Bush tax cuts coupled with a sharp decrease in federal spending — what’s known as the “fiscal cliff.”
If the two sides don’t reach a deal, there could be a surprising casualty: savings rates.
An analysis by Market Rates Insight finds that the growth of consumer deposits was nearly twice as fast in the nine years following the Bush tax cuts as it was in the nine years preceding.
The analysis examined two time periods, pre- and post-tax cuts. The first time period was from June 1992 to June 2001, prior to the enactment of the initial tax cuts measure, the Economic Growth and Tax Relief Reconciliation Act  of 2001 (EGTRRA). During this nine-year period, total deposits in FDIC-insured institutions increased by $1.5 trillion, or 42 percent. However, during the nine years after the tax cuts took effect, total deposits increased by $4.1 trillion, or 82 percent, which is nearly double the rate of growth compared to the first period.
Dan Geller, executive vice president at Market Rates Insight, says skinnier bank accounts are a predictable result of higher taxes.
“People will have less money because the average household will pay an extra $2,500 a year in federal income tax,” he says.
I asked Geller if that slowing growth might actually benefit savers by forcing banks to offer higher CD rates to attract new deposits.
“There are a few scenarios to declining deposits,” Geller says. “If demand for loans increases and deposit level decreases, interest rates on deposits will go up as well as loan rates. If demand for loans remains the same, and deposits levels decrease, banks that need to increase liquidity will pay higher interest rates on deposits, but will be at higher risk due to the additional expense.”
What do you think? Would you save less if tax rates went back to Clinton-era levels?

Fiscal cliff’s costly prospects

By Kay Bell ·
Tuesday, October 2, 2012
Posted: 3 pm ET
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Congress doesn’t plan to be back in Washington, D.C., for votes on any legislation until Nov. 13. That gives lawmakers six and a half weeks to find a way to keep the country from falling off the fiscal cliff.
Good luck with that.
Not to sound too pessimistic, but I am pessimistic. This current batch of senators and representatives deserves its horrid reputation as the do-nothing Congress. I’m not convinced they’ll overcome that perception after the election.
Sure, a small group of some senators is meeting unofficially to come up with alternatives to sequestration, the automatic across-the-board spending cuts facing federal programs in January 2013 if legislators can’t come up with another plan to which all of Washington, D.C., will agree.
I repeat, good luck with that.
If Mitt Romney wins and the Republicans control or at least have decent numbers in both the House and Senate, the GOP won’t do anything in the lame duck session. They’ll just wait until the new president takes the oath of office in January and then push through at least some of the tax and spending changes they’ve been wanting to enact for years.
If President Barack Obama keeps his job, don’t be surprised to see the partisanship on Capitol Hill continue. This will be especially evident if Republicans make gains in both legislative chambers. With no election to worry about, the president can hold firm to his principles as he looks to shape his administration’s legacy in its last four years. And the GOP lawmakers could see short-term voter pain, even if it threatens their electability, as an eventual longer-term win for the party and its fiscal goals.
So what happens to all of us outside the D.C. beltway if no agreement is reached? On the spending side, defense and domestic budgets will be slashed, meaning fewer services.
As for taxes, the Bush tax cuts expire and the payroll tax reduction disappears, meaning less pay with the year’s very first check. The estate tax will affect many more families. Education tax breaks will end or be reduced.
And tax extenders that already ended Dec. 31, 2011, won’t be renewed. Among many other things, this means the popular $1,000 child tax credit will be halved, more married couples will again face the marriage tax penalty, and the deduction for state and local sales taxes can no longer be claimed.
It’s not a pretty picture.
The Tax Policy Center, a progressive tax think tank in the nation’s capital, has put a cold hard cash face on the fiscal cliff prospect. As noted in just the few examples I cited, almost every taxpayer would see a spike in his or her tax bill.
Nearly 90 percent of Americans would pay more tax in 2013, according to the Center’s report Toppling off the Fiscal Cliff: Whose Taxes Rise and How Much?
Overall, taxes would increase by more than $500 billion that year alone.
While the exact financial effect depends, of course, on a person’s income, the Tax Policy Center says the tax increase would average out to almost $3,500 per household.
Breaking out the effects further, the Center says a typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year.
And low-income households would pay more due to expiration of tax credits in the 2009 stimulus.
High-income households also would be hit hard by higher tax rates on ordinary income, capital gains and dividends and by new health reform taxes that kick in next year.
As for the country as a whole, the rising marginal tax rates would potentially affect every economic decision.
Is the Tax Policy Center being a Chicken Little or a Cassandra that we ignore at our own risk?
Not to give the tax policy group too much credit or blame, but I vote for it being a visionary prophet more than just a frantic doomsayer.
Let’s hope Congress is listening and has given itself enough time to act accordingly.
Want the latest tax news, deadlines, alerts and tax-saving tips? Subscribe to Bankrate’s free Weekly Tax Tip newsletter.

And we thought “The Exorcist” was scary?


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