http://www.newsweek.com/id/215070
Doing the math on the Obama plan.
By Robert Samuelson
When he addresses Congress tonight, one of President Obama's central tasks will be to convince Americans that he’s serious about controlling health costs. Of course, the president already claims that he is. He's repeatedly emphasized the need to rein in runaway health spending, which he rightly portrays as increasing federal budget deficits and depressing workers' take-home pay. The trouble: many, if not most, experts don't believe him. Aside from rhetoric, they don't find much in Congress's various bills that would reduce the torrid pace of health spending.
Obama's task won't be made easier by a new report concluding that H.R. 3200—the main “reform” bill in the House—would increase government and private health spending over the next two decades. Here's what the study finds:
* The bill would reduce the number of Americans without health insurance by more than half, from an estimated 49 million in 2011 to 19.5 million.
* However, health spending would rise from an estimated 17 percent of gross domestic product (GDP)—the economy's total output—in 2010 to 28 percent in 2029 (that's actually slightly higher than what's predicted if no changes are made to the current system).
* Initially, higher taxes would cover higher government health spending, with budget deficits rising only slightly ($39 billion from 2010 to 2019), but after that, extra health spending would overwhelm new taxes, pushing up deficits by about $1 trillion from 2010 to 2029.
The study was conducted by the Lewin Group, a consulting firm that is owned by one of the nation’s largest health-care insurers, UnitedHealth Group, and was commissioned by the Peter G. Peterson Foundation, an organization focused on budget deficits and rising federal entitlement spending for the elderly. "For health-care reform to be fiscally responsible, it must not just pay for itself over 10 years and beyond," said David Walker, former head of the Government Accountability Office and now president of the foundation. "It should also result in a significant reduction in the tens of trillions of dollars in the federal government's unfunded health-care promises."
All this highlights a dilemma for Obama. To much of his Democratic base, health-care reform means achieving the longstanding liberal goal of universal health insurance, or something close to it. But that costs more money. Meanwhile, many Americans want to spend less money on health care, because they fear higher premiums, out-of-pocket expense,s or taxes. In a recent opinion survey by the Kaiser Family Foundation, 51 percent of respondents said that health-care reform should expand insurance, and 49 percent favored tougher cost control. (People could choose more than one answer.)
Until now, Obama has tried to navigate around the dilemma by condemning high health costs but backing congressional proposals that mainly provide more coverage. Under H.R. 3200, the government would require most Americans to have health insurance and most businesses to provide it or pay a special tax, equal to 8 percent of payroll. Poorer Americans would either qualify for coverage under an expansion of Medicaid or, if they didn't receive insurance directly from their employers, could buy it on an "exchange" where competing plans—including a so-called public plan managed by the government—would be offered. People entitled to use the exchange could qualify for diminishing federal subsidies until their incomes reached four times the government's poverty line (or $88,000 for a family of four). Companies could also pay for their workers to buy insurance on the exchange.
It's these subsidies, plus the expansion of Medicaid—the federal-state insurance program for the poor—that constitute the program's major costs, estimated by Lewin at $4.6 trillion over two decades. Almost $1 trillion would be paid for by modest cutbacks in the existing Medicare and Medicaid programs, while slightly less than $1 trillion would come the new payroll tax. The biggest source of new funds would be a new tax on the rich: 1 percent on incomes from $350,000 to $500,000; 1.5 percent from $500,000 to $1 million; and 5.4 percent on incomes over $1 million. That would raise about $1.7 trillion over two decades, reckons Lewin.
Still, when all the program's various costs and revenues are totaled, the remaining gap is about $1 trillion, according to Lewin's math. The main reason, says John Sheils, a Lewin vice president and the study's main author, is that "there's nothing in the bill that slows health spending in the under-65 population." The modest cuts in the existing Medicare and Medicaid programs (mainly lower reimbursement rates for hospitals, drug companies, and medical-device manufacturers) don't come close to offsetting the costs of the new insurance coverage. The result is that the government's health costs, plus overall health spending, continue to increase as a share of GDP.
It's this grim math that frames Obama's political task tonight: to make proposals that will tame health spending—or, at any rate, to make people think he has.
© 2009
Wednesday, September 9, 2009
Interest only loans
http://www.nytimes.com/2009/09/09/business/09loans.html
As an Exotic Mortgage Resets, Payments Skyrocket
By DAVID STREITFELD
Published: September 8, 2009
Edward and Maria Moller are worried about losing their house — not now, but in 2013.
That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.
Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.
It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.
With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.
The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.
“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”
Keith Gumbinger, an analyst with HSH Associates, said: “This is going to be the source of tomorrow’s troubles. The borrowers might have thought these were safe loans, but it turns out they bet the house.”
After three brutal years, evidence is growing that the housing market has turned a corner. Sales in July were the highest in a year, and August gives signs of having been even better. In nearly all major cities, home prices are now rising.
Celebration, however, might be premature. The plight of the Mollers and many others in a similar position is likely to weigh on any possible recovery for years to come.
Experts predict a steady drumbeat of defaults over much of the next decade as these interest-only loans mature. Auctioned off at low prices, those foreclosed houses could help brake any revival in home prices.
Interest-only loans are not the only type of exotic mortgage hanging over the housing market. Another big problem is homeowners with “pay option” loans; in many of these loans, principal balances are actually increasing over time.
Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.
The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset.
John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way: “You’re heading straight for a big wall and you can’t put the brakes on.”
The greater the length of the interest-only period, the more years the owners have to hope for a recovery, government help, or a miracle. But a long interest-only period works against them, too. A loan that is interest-only for its first 10 years means the entire house has to be paid off in the next 20 rather than the more typical 30 years.
One possible solution: start paying extra each month now to pay down the principal before the loans reset. But many homeowners took out the maximum they qualified for, and don’t have the means to pay more, or at least not enough to make a sizeable dent in the principal.
A decade ago, interest-only loans were rare. But as the boom heated up and desperate buyers sought any leverage they could, these loans became ubiquitous. They were especially popular in Florida, Nevada and above all California. In 2004, nearly half of all buyers in the state got one.
The Mollers bought in 2005, paying $460,000 for their three-bedroom, thousand-square-foot house. A quick refinance a few months later supplied cash to pay debts. Now the house is worth perhaps $310,000. After their interest-only period is up, they expect their monthly payments to increase 20 percent if not more.
“Everyone out here always preached to me, ‘Buy real estate. It’s the best investment you’ll ever have,’ ” said Mr. Moller, who grew up in Iowa. “Then all this stuff started crumbling and I was like, ‘You’re kidding me.’ ”
While default may be a long way off, the prospect is already dampening the couple’s spending habits. They are postponing the new windows the house needs. They recently bought a 2005 Nissan Murano instead of a new car, and they have put off buying a flat-screen TV.
Mark Goldman, a San Diego mortgage broker, said many interest-only buyers thought they would be in control when the loans reset. “They expected to move or refinance,” he said. “But you can’t do either when you’re under water.”
Among the people Mr. Goldman put into interest-only loans was himself. He refinanced five years ago to shrink his payments so he and his wife, Julie, could put their two sons through college. When the interest-only period expired a few months ago, their payments went up by 40 percent.
The Goldmans have been in their house for 20 years, which means they still have some equity. Still, they are unhappy to find themselves in “a world different than we planned for,” said Mr. Goldman, a lecturer in real estate finance at San Diego State. “If you purchased your home with an interest-only loan between 2003 and 2006, you’re cooked.”
The federal government, through the finance company Fannie Mae, increased the scope of a program this summer that might help some interest-only borrowers by letting them refinance. But it will not help many in coastal California. Only loans owned by Fannie Mae are eligible, and during the boom Fannie had a limit of $417,000 — not enough to buy a home at the peak in a middle-class community.
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
“I understand I took a risk,” Mr. Janis said. “But I did not anticipate that the real estate market would go down 30 percent.” He talked with Wells Fargo about his options, and the lender said he had none.
Homeowners with interest-only loans have a much greater likelihood of default, the First American CoreLogic figures indicate. Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent. In California, the level is even higher: 21 percent, a rate exceeded only in the other bubble states of Florida and Nevada.
“The bailout is not trickling through to help many of us who have worked hard, under very difficult circumstances, to keep paying our bills,” Mr. Janis said. “I am stuck with nowhere to go — absent trashing my credit and defaulting.”
As an Exotic Mortgage Resets, Payments Skyrocket
By DAVID STREITFELD
Published: September 8, 2009
Edward and Maria Moller are worried about losing their house — not now, but in 2013.
That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.
Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.
It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.
With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.
The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.
“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”
Keith Gumbinger, an analyst with HSH Associates, said: “This is going to be the source of tomorrow’s troubles. The borrowers might have thought these were safe loans, but it turns out they bet the house.”
After three brutal years, evidence is growing that the housing market has turned a corner. Sales in July were the highest in a year, and August gives signs of having been even better. In nearly all major cities, home prices are now rising.
Celebration, however, might be premature. The plight of the Mollers and many others in a similar position is likely to weigh on any possible recovery for years to come.
Experts predict a steady drumbeat of defaults over much of the next decade as these interest-only loans mature. Auctioned off at low prices, those foreclosed houses could help brake any revival in home prices.
Interest-only loans are not the only type of exotic mortgage hanging over the housing market. Another big problem is homeowners with “pay option” loans; in many of these loans, principal balances are actually increasing over time.
Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.
The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset.
John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way: “You’re heading straight for a big wall and you can’t put the brakes on.”
The greater the length of the interest-only period, the more years the owners have to hope for a recovery, government help, or a miracle. But a long interest-only period works against them, too. A loan that is interest-only for its first 10 years means the entire house has to be paid off in the next 20 rather than the more typical 30 years.
One possible solution: start paying extra each month now to pay down the principal before the loans reset. But many homeowners took out the maximum they qualified for, and don’t have the means to pay more, or at least not enough to make a sizeable dent in the principal.
A decade ago, interest-only loans were rare. But as the boom heated up and desperate buyers sought any leverage they could, these loans became ubiquitous. They were especially popular in Florida, Nevada and above all California. In 2004, nearly half of all buyers in the state got one.
The Mollers bought in 2005, paying $460,000 for their three-bedroom, thousand-square-foot house. A quick refinance a few months later supplied cash to pay debts. Now the house is worth perhaps $310,000. After their interest-only period is up, they expect their monthly payments to increase 20 percent if not more.
“Everyone out here always preached to me, ‘Buy real estate. It’s the best investment you’ll ever have,’ ” said Mr. Moller, who grew up in Iowa. “Then all this stuff started crumbling and I was like, ‘You’re kidding me.’ ”
While default may be a long way off, the prospect is already dampening the couple’s spending habits. They are postponing the new windows the house needs. They recently bought a 2005 Nissan Murano instead of a new car, and they have put off buying a flat-screen TV.
Mark Goldman, a San Diego mortgage broker, said many interest-only buyers thought they would be in control when the loans reset. “They expected to move or refinance,” he said. “But you can’t do either when you’re under water.”
Among the people Mr. Goldman put into interest-only loans was himself. He refinanced five years ago to shrink his payments so he and his wife, Julie, could put their two sons through college. When the interest-only period expired a few months ago, their payments went up by 40 percent.
The Goldmans have been in their house for 20 years, which means they still have some equity. Still, they are unhappy to find themselves in “a world different than we planned for,” said Mr. Goldman, a lecturer in real estate finance at San Diego State. “If you purchased your home with an interest-only loan between 2003 and 2006, you’re cooked.”
The federal government, through the finance company Fannie Mae, increased the scope of a program this summer that might help some interest-only borrowers by letting them refinance. But it will not help many in coastal California. Only loans owned by Fannie Mae are eligible, and during the boom Fannie had a limit of $417,000 — not enough to buy a home at the peak in a middle-class community.
Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.
“I understand I took a risk,” Mr. Janis said. “But I did not anticipate that the real estate market would go down 30 percent.” He talked with Wells Fargo about his options, and the lender said he had none.
Homeowners with interest-only loans have a much greater likelihood of default, the First American CoreLogic figures indicate. Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent. In California, the level is even higher: 21 percent, a rate exceeded only in the other bubble states of Florida and Nevada.
“The bailout is not trickling through to help many of us who have worked hard, under very difficult circumstances, to keep paying our bills,” Mr. Janis said. “I am stuck with nowhere to go — absent trashing my credit and defaulting.”
CA no longer accepts new home tax credit
http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml
See the link above from the CA Franchise Tax Board that all $100 million budgeted for new home purchasers have been used.
However, the Sacramento Bee (see http://www.sacbee.com/topstories/story/2168638.html) reported on September 9, 2009 that a plan to extend the state tax credit to another 4,285 buyers of new, unoccupied homes in California is in the making.
See the link above from the CA Franchise Tax Board that all $100 million budgeted for new home purchasers have been used.
However, the Sacramento Bee (see http://www.sacbee.com/topstories/story/2168638.html) reported on September 9, 2009 that a plan to extend the state tax credit to another 4,285 buyers of new, unoccupied homes in California is in the making.
Thursday, September 3, 2009
Crazy math of health-care reform
http://money.cnn.com/2009/09/03/news/economy/health_care_class_act.fortune/index.htm
A new program for long-term care is billed as a money saver. In fact, it does just the opposite.
By Shawn Tully, editor at large
September 3, 2009: 10:16 AM ET
NEW YORK (Fortune) -- This is the sixth installment in a series of health-care columns by Fortune's Shawn Tully.
Embedded in the health-care plan moving forward is a truly gravity-defying new device: a costly entitlement program portrayed as a way to save money. So how can you raise billions with a program that can't even pay for itself? Only by using the crazy math that governs in the world of health-care reform.
The gimmick was hatched on July 15 when the Senate Committee on Health, Education, Labor & Pensions approved a federal insurance plan for long-term care called the Community Living Assistance Services and Supports Act, or CLASS Act.
The plan, which would provide modest benefits to people who can't perform such simple daily tasks as bathing or feeding themselves, was one of Sen. Ted Kennedy's last crusades. It quickly became a favorite among Democrats, who are now adding the CLASS Act to the leading proposal in the House, H.R. 3200, passed by the Energy & Commerce Committee.
While no one doubts the bill's humane intentions, its ardent champions have another motive as well. A budget gimmick allows them to claim that CLASS Act helps pay for health-care reform.
The Democrats are promising a "deficit neutral" plan, which means that according to rules set by the Congressional Budget Office, they need to find about $1 trillion in new taxes and savings over the next ten years. Right how, the House legislation stands around $250 billion short.
The CLASS Act looks like a gift: It brings in $58 billion in net tax revenues by 2019, lowering the deficit by an equivalent amount because only minor costs will be booked during that period. Under the CBO rules, the CLASS Act technically covers one-quarter of the $250 billion shortfall in funds needed to pay for health-care reform.
The gimmick lies in looking only at the CBO's ten-year budget window. The extra revenues are an illusion because of the disaster lurking just beyond that horizon.
In fact, none of the $58 billion is available to pay for the House bill. The CLASS Act is so poorly designed that the $58 billion reserve and all future premiums won't come close to covering the generous benefits it's promising.
Here's why the mechanics of the CLASS Act assure its eventual collapse.
Under the bill, all working Americans would have the option of contributing a payroll tax averaging $65 a month for long-term care. The eventual benefit for most recipients would be $75 a day or $27,000 a year.
It could be used towards nursing-home expenses, but the main goal is to allow infirm Americans to get the care the need from aides or therapists in their own homes so they're not forced into nursing homes.
But the CLASS Act's premiums aren't remotely high enough to cover a likely deluge of claims. "It's a microcosm of many of the weaknesses in the health-care reform bills," says Steve Schoonveld of the American Academy of Actuaries (AAA), which did an excellent analysis of the CLASS Act.
The plan's main problem is that it encourages what's known as "adverse selection" -- it will attract an extremely high proportion of people who are sick and near retirement, and a relatively small share of the young and healthy needed to create a sound insurance plan.
One big weakness is that the CLASS Act doesn't screen for medical problems, or even require information about them. Hence, workers or their spouses can sign up even if they're already ill. By contrast, private plans require strict testing.
Participants in the CLASS program can also start collecting benefits after just five years, a period the AAA deems far too short. Workers and their spouses can also stop paying premiums, then rejoin when they get sick with no penalty.
As a result, the AAA expects that the plan will be swamped by people who know they have medical problems when they sign up, and demand benefits right after they've paid for five years.
The AAA says that the plan would become insolvent by 2021 -- just beyond the CBO's budget window -- and would have to raise its premiums to $180 a month to meet its costs, a 177% increase.
That would put the CLASS Act into a death spiral, since virtually all younger and even moderately healthy participants would drop out. It would become a program exclusively for the old and sick, driving premiums still higher.
The most likely outcome is that we'll never get to the $180 premiums needed to fund the plan. Congress will be forced to pay enormous subsidies to keep the premiums low enough to encourage young and healthy people to sign up. Pressure will also be intense to raise the benefits to pay for more nursing-home expenses.
Instead of funding the shortfall in the House bill, the CLASS Act will create a giant budget shortfall of its own. Unfortunately, gimmickry like this is the kind of thing that has fanned public fears about health-care reform doing more harm than good.
Read Shawn Tully's other installments in this series:
White House drug deal won't save money
4 hidden costs of health care
Obamacare could cost you $4,000 a year
Don't like Obamacare? Here's an alternative
Designing the ideal health care system
A new program for long-term care is billed as a money saver. In fact, it does just the opposite.
By Shawn Tully, editor at large
September 3, 2009: 10:16 AM ET
NEW YORK (Fortune) -- This is the sixth installment in a series of health-care columns by Fortune's Shawn Tully.
Embedded in the health-care plan moving forward is a truly gravity-defying new device: a costly entitlement program portrayed as a way to save money. So how can you raise billions with a program that can't even pay for itself? Only by using the crazy math that governs in the world of health-care reform.
The gimmick was hatched on July 15 when the Senate Committee on Health, Education, Labor & Pensions approved a federal insurance plan for long-term care called the Community Living Assistance Services and Supports Act, or CLASS Act.
The plan, which would provide modest benefits to people who can't perform such simple daily tasks as bathing or feeding themselves, was one of Sen. Ted Kennedy's last crusades. It quickly became a favorite among Democrats, who are now adding the CLASS Act to the leading proposal in the House, H.R. 3200, passed by the Energy & Commerce Committee.
While no one doubts the bill's humane intentions, its ardent champions have another motive as well. A budget gimmick allows them to claim that CLASS Act helps pay for health-care reform.
The Democrats are promising a "deficit neutral" plan, which means that according to rules set by the Congressional Budget Office, they need to find about $1 trillion in new taxes and savings over the next ten years. Right how, the House legislation stands around $250 billion short.
The CLASS Act looks like a gift: It brings in $58 billion in net tax revenues by 2019, lowering the deficit by an equivalent amount because only minor costs will be booked during that period. Under the CBO rules, the CLASS Act technically covers one-quarter of the $250 billion shortfall in funds needed to pay for health-care reform.
The gimmick lies in looking only at the CBO's ten-year budget window. The extra revenues are an illusion because of the disaster lurking just beyond that horizon.
In fact, none of the $58 billion is available to pay for the House bill. The CLASS Act is so poorly designed that the $58 billion reserve and all future premiums won't come close to covering the generous benefits it's promising.
Here's why the mechanics of the CLASS Act assure its eventual collapse.
Under the bill, all working Americans would have the option of contributing a payroll tax averaging $65 a month for long-term care. The eventual benefit for most recipients would be $75 a day or $27,000 a year.
It could be used towards nursing-home expenses, but the main goal is to allow infirm Americans to get the care the need from aides or therapists in their own homes so they're not forced into nursing homes.
But the CLASS Act's premiums aren't remotely high enough to cover a likely deluge of claims. "It's a microcosm of many of the weaknesses in the health-care reform bills," says Steve Schoonveld of the American Academy of Actuaries (AAA), which did an excellent analysis of the CLASS Act.
The plan's main problem is that it encourages what's known as "adverse selection" -- it will attract an extremely high proportion of people who are sick and near retirement, and a relatively small share of the young and healthy needed to create a sound insurance plan.
One big weakness is that the CLASS Act doesn't screen for medical problems, or even require information about them. Hence, workers or their spouses can sign up even if they're already ill. By contrast, private plans require strict testing.
Participants in the CLASS program can also start collecting benefits after just five years, a period the AAA deems far too short. Workers and their spouses can also stop paying premiums, then rejoin when they get sick with no penalty.
As a result, the AAA expects that the plan will be swamped by people who know they have medical problems when they sign up, and demand benefits right after they've paid for five years.
The AAA says that the plan would become insolvent by 2021 -- just beyond the CBO's budget window -- and would have to raise its premiums to $180 a month to meet its costs, a 177% increase.
That would put the CLASS Act into a death spiral, since virtually all younger and even moderately healthy participants would drop out. It would become a program exclusively for the old and sick, driving premiums still higher.
The most likely outcome is that we'll never get to the $180 premiums needed to fund the plan. Congress will be forced to pay enormous subsidies to keep the premiums low enough to encourage young and healthy people to sign up. Pressure will also be intense to raise the benefits to pay for more nursing-home expenses.
Instead of funding the shortfall in the House bill, the CLASS Act will create a giant budget shortfall of its own. Unfortunately, gimmickry like this is the kind of thing that has fanned public fears about health-care reform doing more harm than good.
Read Shawn Tully's other installments in this series:
White House drug deal won't save money
4 hidden costs of health care
Obamacare could cost you $4,000 a year
Don't like Obamacare? Here's an alternative
Designing the ideal health care system
Wednesday, September 2, 2009
IRS to Assign Corporate Auditors to Swiss Bank Cases
This is not just about UBS customers. Anyone with bank and brokerage accounts overseas should check and see if they are in compliance with the law. If not, they should file the "voluntary disclosure" by September 23, 2009. Go to www.irs.gov and search for FBAR, which stands for Foreign Bank Accounts Reporting. This reduced penalty offer from the IRS does not include illegal income source.
http://www.webcpa.com/news/IRS-Assigns-Corporate-Auditors-Swiss-Bank-Cases-51542-1.html
By WebCPA Staff
The Internal Revenue Service plans to reassign many of the auditors from its corporate division to a newly created office that will deal with wealthy tax evaders, including those with UBS bank accounts.
The new office will be part of the IRS’s Large and Mid-size Business Division and is expected to handle many of the 4,450 U.S.-based bank accounts that the Swiss government has agreed to hand over from UBS, according to a report by Bloomberg.com.
The IRS is expecting a flood of 10,000 cases from former UBS account holders, including those who are coming forward voluntarily before a special reduced-penalty program expires on Sept. 23.
In addition to the office dedicated to high-net-worth tax evaders, the LMSB division will also house five other special offices to deal with the IRS’s stepped-up enforcement efforts, divided into various industry segments: financial services; retail, food, pharmaceuticals and health care; natural resources and construction; communications, technology and media; and heavy manufacturing and transportation, according to Bloomberg.
To deal with the extra workload, the IRS is trying to hire 784 new full-time workers. Among those new employees, 109 would be assigned to investigate U.S. taxpayers with offshore holdings, and 113 would audit smaller multinational companies. The IRS has also posted an internal job listing seeking existing employees to work for the new high-wealth office.
http://www.webcpa.com/news/IRS-Assigns-Corporate-Auditors-Swiss-Bank-Cases-51542-1.html
By WebCPA Staff
The Internal Revenue Service plans to reassign many of the auditors from its corporate division to a newly created office that will deal with wealthy tax evaders, including those with UBS bank accounts.
The new office will be part of the IRS’s Large and Mid-size Business Division and is expected to handle many of the 4,450 U.S.-based bank accounts that the Swiss government has agreed to hand over from UBS, according to a report by Bloomberg.com.
The IRS is expecting a flood of 10,000 cases from former UBS account holders, including those who are coming forward voluntarily before a special reduced-penalty program expires on Sept. 23.
In addition to the office dedicated to high-net-worth tax evaders, the LMSB division will also house five other special offices to deal with the IRS’s stepped-up enforcement efforts, divided into various industry segments: financial services; retail, food, pharmaceuticals and health care; natural resources and construction; communications, technology and media; and heavy manufacturing and transportation, according to Bloomberg.
To deal with the extra workload, the IRS is trying to hire 784 new full-time workers. Among those new employees, 109 would be assigned to investigate U.S. taxpayers with offshore holdings, and 113 would audit smaller multinational companies. The IRS has also posted an internal job listing seeking existing employees to work for the new high-wealth office.
Tuesday, September 1, 2009
Cash for Clunkers - CA rules
Here is a clarification from the CA Franchise Tax Board, see http://www.ftb.ca.gov/professionals/taxnews/2009/September/Article_1.shtml>
Clarification of the “Cash for Clunkers” Tax Rules
The federal “Cash for Clunkers” program has generated a lot of interest among consumers and
we have received many inquires about the tax implications of this popular program. As a result,
we are clarifying state tax rules for people who trade in their used vehicle under the “Cash for
Clunkers” program.
The “Cash for Clunkers” program, Federal law, H.R. 2346, The Consumer Assistance to
Recycle and Save Program, allows qualifying consumers to receive a $3,500 or $4,500 voucher
from the federal government when they trade in qualifying old vehicles and purchase or lease a
new one. This federal law provides the value of the voucher received by the consumer is not
considered as gross income of the purchaser for purposes of the federal income tax.
California law does not conform to H.R. 2346. For state income tax purposes trade-ins are
treated as normal sales or exchanges, and in some cases the value of the voucher received
may be subject to state tax. That is to say, the person subtracts his or her basis (generally the
cost of the used vehicle) of the car traded-in from the amount realized (the applicable voucher
amount, plus any other salvage value the dealer offers as part of the exchange) to determine
whether a gain or loss was realized on the disposition of the used vehicle. For example, if the
family car was originally purchased for $19,500 and traded in for a $4,500 discount under the
“Cash for Clunkers” program, there is no taxable gain. The $15,000 difference is a personal loss
under tax law and may not be deducted for tax purposes. However, if the family car was
purchased for $3,000 and it was traded in for a $3,500 discount, the $500 difference needs to
be reported as income for state tax purposes.
Different tax rules apply for vehicles used in a person’s trade or business. For example, when a
person trades in the old company truck for a new company truck, under the “Cash for Clunkers”
program, the gain or loss could be postponed for tax purposes under the “like-kind
exchange” rules.
Any scrap value received by the consumer for the trade-ins is also used in computing the gain
or loss from these sales or exchange transactions.
We will provide instructions about how to report taxable gains for the “Cash for Clunkers”
program in its tax return instructions when the 2009 tax forms are published later this year.
Taxpayers and practitioners can check FTB’s website at ftb.ca.gov for tax forms and other
helpful information.
Clarification of the “Cash for Clunkers” Tax Rules
The federal “Cash for Clunkers” program has generated a lot of interest among consumers and
we have received many inquires about the tax implications of this popular program. As a result,
we are clarifying state tax rules for people who trade in their used vehicle under the “Cash for
Clunkers” program.
The “Cash for Clunkers” program, Federal law, H.R. 2346, The Consumer Assistance to
Recycle and Save Program, allows qualifying consumers to receive a $3,500 or $4,500 voucher
from the federal government when they trade in qualifying old vehicles and purchase or lease a
new one. This federal law provides the value of the voucher received by the consumer is not
considered as gross income of the purchaser for purposes of the federal income tax.
California law does not conform to H.R. 2346. For state income tax purposes trade-ins are
treated as normal sales or exchanges, and in some cases the value of the voucher received
may be subject to state tax. That is to say, the person subtracts his or her basis (generally the
cost of the used vehicle) of the car traded-in from the amount realized (the applicable voucher
amount, plus any other salvage value the dealer offers as part of the exchange) to determine
whether a gain or loss was realized on the disposition of the used vehicle. For example, if the
family car was originally purchased for $19,500 and traded in for a $4,500 discount under the
“Cash for Clunkers” program, there is no taxable gain. The $15,000 difference is a personal loss
under tax law and may not be deducted for tax purposes. However, if the family car was
purchased for $3,000 and it was traded in for a $3,500 discount, the $500 difference needs to
be reported as income for state tax purposes.
Different tax rules apply for vehicles used in a person’s trade or business. For example, when a
person trades in the old company truck for a new company truck, under the “Cash for Clunkers”
program, the gain or loss could be postponed for tax purposes under the “like-kind
exchange” rules.
Any scrap value received by the consumer for the trade-ins is also used in computing the gain
or loss from these sales or exchange transactions.
We will provide instructions about how to report taxable gains for the “Cash for Clunkers”
program in its tax return instructions when the 2009 tax forms are published later this year.
Taxpayers and practitioners can check FTB’s website at ftb.ca.gov for tax forms and other
helpful information.
Monday, August 31, 2009
The 7 Most Overrated Businesses
http://smallbusinessanswers.yahoo.com/overrated
By Kelly K. Spors and Kevin Salwen
With roughly 6.7 million jobs lost since the start of the recession, it's tempting - and often a great idea - to launch your own business. That way, of course, you can take matters into your own hands. No more rolling your eyes at the boss; it's your show.
But many people do a lousy job of picking businesses they can realistically turn into a profitable operation.
"There's this very sad pattern about how people start businesses," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland, Ohio. "People are most likely to start businesses in industries where start-ups are most likely to fail."
The problem: Many would-be entrepreneurs are drawn to businesses they like to patronize or the ones that are cheapest and easiest to start. Instead, experts argue, aspiring entrepreneurs should create firms in which they have professional experience so they have a competitive advantage in the market.
So, what are most overrated businesses out there? We spoke with small business experts to find out. Here are seven you might want to think twice about - and then maybe twice more.
1. Restaurants. Dining out and cooking are among Americans' favorite pastimes. But "restaurants are among the toughest businesses to run," says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Va.
Far too many people assume their culinary abilities will lead to success in the restaurant business. Instead, about 60% of restaurants close in the first three years, according to a 2003 study at Ohio State University. That's quite a bit higher than the roughly half of all start-ups that close in the first five years.
The reason: Restaurants typically have low profit margins and need strong managers who can run an ultra-tight ship through seasonal fluctuations and other struggles. Most people don't have that kind of intense managerial ability to pull it off. By the way, the pitfalls are quite similar for restaurants' cousin – the catering business. In other words, Chef Emptor.
2. Direct Sales. It's a tempting pitch: Work from home and earn commissions by selling cosmetics, kitchen knives or cleaning products. But companies that recruit independent sales reps tend to attract new team members by pointing to the success of their highest earners.
A harder look shows that those high earners are making big money in large part by recruiting new reps into the organization and getting bonuses or a cut of their recruits' commissions, says Ken Yancey, chief executive of SCORE, a Herndon, Va., organization of current and retired business executives who volunteer time counseling entrepreneurs. The new reps then have a much harder job because they need to recruit more people on top of selling product even though the number of reps out there is increasing.
The result, Yancey says: "Most of them wind up with a bunch of jewelry or kitchen equipment sitting in their basement that they can't sell."
3. Online Retail. By far, one of the easiest businesses to start is selling items through online marketplaces such as eBay or Amazon. But as online commerce ages and these sites fill up with more established retailers, it's much harder for new, small sellers to compete for attention and generate a viable income.
"A lot of people are thinking it's the Web of five or 10 years ago and you stand out simply because you're on the Web," says Rieva Lesonsky, chief executive of GrowBiz Media, a content and consulting company for small businesses based in Irvine, Calif.
Instead, successful online retailers today must have a handle on sourcing their products at a low enough price, then layering on clever online marketing and fine-tuned logistics. These businesses won't generate much income if they can't be easily found in searches, maintain a good reputation among buyers or add enough value so that sellers can build profit margins high enough to take on bigger players and physical stores.
4. High-End Retail. Many people dream of opening a day spa, luxury jewelry store or designer clothing boutique – businesses they feel good patronizing. But specialty retail businesses close at higher rates than non-specialty stores, according to the Small Business Administration's Office of Advocacy, and are even riskier now that consumer discretionary spending has dried up and people are no longer spending money on little luxuries.
"It's going to be a long time before we return to the days of conspicuous consumption," says Ms. Lesonsky of GrowBiz Media. High-end retailers often suffer from poor locations and lack of understanding of how to source and market their products in an effective way. In today's economy and in coming years, she says, retail entrepreneurs should be looking to sell non-discretionary consumer goods or offer items at a value rather than high-end products.
5. Independent Consulting. Common advice for aspiring entrepreneurs is to stick with industries they know. So, for many looking to escape the corporate treadmill that means turning their professional expertise into a one-person consulting firm.
It seems practical – more companies are indeed relying on independent contractors and freelancers these days – but it's not as easy to pull off as many imagine, says Dennis Ceru, an entrepreneurship professor at Babson College in Babson Park, Mass. Many consultants struggle with time management problems, spending so much time scouting work that it's very difficult to earn steady income. "The difficulty many face is they go through peaks and valleys of having work," says Prof. Ceru. "When the engagement ends, they are frantically looking for work," which may take weeks or months.
A possible solution: "A successful consulting firm needs people to find the work, grind out the work and mind the work. Unless you know you can do all three yourself, you potentially expose your business to great risk."
6. Franchise Ownership. The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business from scratch is understandably alluring. But too many people don't understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations, says SCORE's Yancey.
Some franchisors, for instance, allow franchisees to open stores too close together, oversaturating the market. Or they simply require their franchisees pay so much in royalties and fees or other operational costs that it's very difficult to be profitable. Beyond that, when a franchisee fails, a franchisor may make it extremely difficult and costly to get out of its contract.
It's a myth that franchises are far more successful than independent businesses. A 1995 study by a researcher at Wayne State University found that 62% of franchises were open for business after four years, compared with 68% of independent businesses. And franchises were also found to be less profitable in those early years.
7. Traffic-Driven Web Sites. Everybody has witnessed the success of social-networking sites like Facebook and popular blogs that generate all their revenue off advertising. But as the Internet ages, that's much harder to accomplish, says Martin Zwilling, a start-up consultant in Fountain Hills, Ariz., who specializes in helping entrepreneurs find angel investors.
Zwilling says he hears pitches for new social-networking sites about once a week, but actively deters people from starting them. "I say, skip it," he says. "You need to invest $50 million to get any presence" in the social-networking space right now and it's very difficult to get people to leave established sites. What's more, he says, the amount of traffic needed to build a lucrative traffic-driven Web site is far more than most new Web entrepreneurs realize: "Until you get to the point where you have a million page views a day, you're nowhere."
By Kelly K. Spors and Kevin Salwen
With roughly 6.7 million jobs lost since the start of the recession, it's tempting - and often a great idea - to launch your own business. That way, of course, you can take matters into your own hands. No more rolling your eyes at the boss; it's your show.
But many people do a lousy job of picking businesses they can realistically turn into a profitable operation.
"There's this very sad pattern about how people start businesses," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland, Ohio. "People are most likely to start businesses in industries where start-ups are most likely to fail."
The problem: Many would-be entrepreneurs are drawn to businesses they like to patronize or the ones that are cheapest and easiest to start. Instead, experts argue, aspiring entrepreneurs should create firms in which they have professional experience so they have a competitive advantage in the market.
So, what are most overrated businesses out there? We spoke with small business experts to find out. Here are seven you might want to think twice about - and then maybe twice more.
1. Restaurants. Dining out and cooking are among Americans' favorite pastimes. But "restaurants are among the toughest businesses to run," says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Va.
Far too many people assume their culinary abilities will lead to success in the restaurant business. Instead, about 60% of restaurants close in the first three years, according to a 2003 study at Ohio State University. That's quite a bit higher than the roughly half of all start-ups that close in the first five years.
The reason: Restaurants typically have low profit margins and need strong managers who can run an ultra-tight ship through seasonal fluctuations and other struggles. Most people don't have that kind of intense managerial ability to pull it off. By the way, the pitfalls are quite similar for restaurants' cousin – the catering business. In other words, Chef Emptor.
2. Direct Sales. It's a tempting pitch: Work from home and earn commissions by selling cosmetics, kitchen knives or cleaning products. But companies that recruit independent sales reps tend to attract new team members by pointing to the success of their highest earners.
A harder look shows that those high earners are making big money in large part by recruiting new reps into the organization and getting bonuses or a cut of their recruits' commissions, says Ken Yancey, chief executive of SCORE, a Herndon, Va., organization of current and retired business executives who volunteer time counseling entrepreneurs. The new reps then have a much harder job because they need to recruit more people on top of selling product even though the number of reps out there is increasing.
The result, Yancey says: "Most of them wind up with a bunch of jewelry or kitchen equipment sitting in their basement that they can't sell."
3. Online Retail. By far, one of the easiest businesses to start is selling items through online marketplaces such as eBay or Amazon. But as online commerce ages and these sites fill up with more established retailers, it's much harder for new, small sellers to compete for attention and generate a viable income.
"A lot of people are thinking it's the Web of five or 10 years ago and you stand out simply because you're on the Web," says Rieva Lesonsky, chief executive of GrowBiz Media, a content and consulting company for small businesses based in Irvine, Calif.
Instead, successful online retailers today must have a handle on sourcing their products at a low enough price, then layering on clever online marketing and fine-tuned logistics. These businesses won't generate much income if they can't be easily found in searches, maintain a good reputation among buyers or add enough value so that sellers can build profit margins high enough to take on bigger players and physical stores.
4. High-End Retail. Many people dream of opening a day spa, luxury jewelry store or designer clothing boutique – businesses they feel good patronizing. But specialty retail businesses close at higher rates than non-specialty stores, according to the Small Business Administration's Office of Advocacy, and are even riskier now that consumer discretionary spending has dried up and people are no longer spending money on little luxuries.
"It's going to be a long time before we return to the days of conspicuous consumption," says Ms. Lesonsky of GrowBiz Media. High-end retailers often suffer from poor locations and lack of understanding of how to source and market their products in an effective way. In today's economy and in coming years, she says, retail entrepreneurs should be looking to sell non-discretionary consumer goods or offer items at a value rather than high-end products.
5. Independent Consulting. Common advice for aspiring entrepreneurs is to stick with industries they know. So, for many looking to escape the corporate treadmill that means turning their professional expertise into a one-person consulting firm.
It seems practical – more companies are indeed relying on independent contractors and freelancers these days – but it's not as easy to pull off as many imagine, says Dennis Ceru, an entrepreneurship professor at Babson College in Babson Park, Mass. Many consultants struggle with time management problems, spending so much time scouting work that it's very difficult to earn steady income. "The difficulty many face is they go through peaks and valleys of having work," says Prof. Ceru. "When the engagement ends, they are frantically looking for work," which may take weeks or months.
A possible solution: "A successful consulting firm needs people to find the work, grind out the work and mind the work. Unless you know you can do all three yourself, you potentially expose your business to great risk."
6. Franchise Ownership. The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business from scratch is understandably alluring. But too many people don't understand the risks associated with franchising and sign restrictive franchise agreements without thoroughly researching their franchisor and their contractual obligations, says SCORE's Yancey.
Some franchisors, for instance, allow franchisees to open stores too close together, oversaturating the market. Or they simply require their franchisees pay so much in royalties and fees or other operational costs that it's very difficult to be profitable. Beyond that, when a franchisee fails, a franchisor may make it extremely difficult and costly to get out of its contract.
It's a myth that franchises are far more successful than independent businesses. A 1995 study by a researcher at Wayne State University found that 62% of franchises were open for business after four years, compared with 68% of independent businesses. And franchises were also found to be less profitable in those early years.
7. Traffic-Driven Web Sites. Everybody has witnessed the success of social-networking sites like Facebook and popular blogs that generate all their revenue off advertising. But as the Internet ages, that's much harder to accomplish, says Martin Zwilling, a start-up consultant in Fountain Hills, Ariz., who specializes in helping entrepreneurs find angel investors.
Zwilling says he hears pitches for new social-networking sites about once a week, but actively deters people from starting them. "I say, skip it," he says. "You need to invest $50 million to get any presence" in the social-networking space right now and it's very difficult to get people to leave established sites. What's more, he says, the amount of traffic needed to build a lucrative traffic-driven Web site is far more than most new Web entrepreneurs realize: "Until you get to the point where you have a million page views a day, you're nowhere."
Thursday, August 27, 2009
Even higher taxes coming for Californians
http://www.latimes.com/news/local/la-me-taxes27-2009aug27,0,1796963.story
Lower brackets and reduced deductions mean yet higher payments to Sacramento for 2009
By Shane Goldmacher
August 27, 2009
Reporting from Sacramento - While Californians are still feeling the sting of income and sales tax hikes signed into law earlier this year, now comes news that state tax authorities plan to take a little more from their pockets.
For only the second time in 30 years, the tax board is lowering the point where each tax bracket begins, bumping many people into a higher category. At the same time, officials are cutting back some deductions. Everyone will pay more, even people whose bracket or income doesn't change.
The extra sums will total as much as $140 per family, on top of the increases previously enacted.
Officials said the latest adjustments have been triggered by inflation, or rather the lack of it. This year, the state's inflation index was a negative number for the first time since 1983. When the economy takes a deep plunge, so do tax brackets.
The new changes apply to the 2009 tax year. Residents are already paying hundreds -- even thousands -- of additional income tax dollars under the quarter-point rate increase and other tax hikes approved in February as part of a budget deal.
"Everything is going up, up, up," said Othman Rabie, owner of a sandwich shop in downtown Sacramento. "And business is going down."
Back in February, state lawmakers and Gov. Arnold Schwarzenegger approved a slate of temporary tax increases in an effort to balance California's perennially out-of-whack books.
In addition to the income tax rate rising 0.25%, the dependent credit was slashed by more than two-thirds. The vehicle license fee nearly doubled to 1.15% of a car's value. The state sales tax climbed 1%.
This summer, lawmakers and Schwarzenegger decided to withhold 10% more from workers' paychecks starting Nov. 1 -- an accounting scheme to collect taxes faster. Under another bookkeeping maneuver, individuals and businesses that make estimated tax payments will pony up more of that money sooner starting in the first half of next year.
And some local taxes are on the way up. In Los Angeles County, a half-cent-higher sales tax approved by voters took effect in July to fund transportation projects.
Under the latest changes, for a married couple filing jointly, the top tax rate of 9.55% now begins at $92,698, down from $94,110. Combined with the earlier increases, such a couple with two children, earning $100,000, will see their California income tax bill rise by 22.3%, or $716, according to the state Franchise Tax Board. Their tax would go from $3,208 to $3,924, factoring in a $110 drop in the standard deduction for joint returns.
For singles, the top tax threshold has dropped from $47,055 to $46,349. This year, a single filer without children who earned $30,000 in 2008 and 2009 would pay 13.8% more: $617 instead of $542. The standard deduction for sole filers will fall by $55.
The state automatically adjusts its tax brackets. They have moved in taxpayers' favor for the last 25 years, with the amount of earnings required to kick people up a notch continually increasing. But that doesn't salve the pain of the latest changes, said Assemblyman Chuck DeVore, the Republican vice chairman of the Assembly Revenue and Taxation Committee.
"It takes more money out of the taxpaying productive sectors and scoops it into the government coffers at a time when taxpayers are already reeling," DeVore said.
It is unclear how much additional revenue the new brackets will yield for beleaguered state coffers; the state has not computed that yet, said Denise Azimi, spokeswoman for the tax board.
Meanwhile, experts such as Ted Gibson, who was chief state economist under both a Republican and a Democratic governor, remind policymakers even modest tax increases affect the state's financial health because they prompt people to further pinch pennies.
"It will hamper the recovery a little bit," Gibson said.
Some taxpayers say they are worried about their very livelihoods.
Martha Franco, 56, has struggled to keep open her family-run restaurant, Pepe's Tacos in Azusa.
"I average about $6 an hour [in receipts] and I'm open 12 hours a day," she said, sitting in the empty establishment as her son mopped the floor around her. "It already feels like I'm just working to pay my taxes," she said.
Not everyone minds paying more to protect such services as education, healthcare and parks, though.
An extra $100 or so, said Sharon Sugerman, a 59-year-old Sacramento resident who declined to give details about her job, "seems pretty reasonable to me."
shane.goldmacher@latimes.com
Times staff writer Corina Knoll in Los Angeles contributed to this report.
Copyright © 2009, The Los Angeles Times
Lower brackets and reduced deductions mean yet higher payments to Sacramento for 2009
By Shane Goldmacher
August 27, 2009
Reporting from Sacramento - While Californians are still feeling the sting of income and sales tax hikes signed into law earlier this year, now comes news that state tax authorities plan to take a little more from their pockets.
For only the second time in 30 years, the tax board is lowering the point where each tax bracket begins, bumping many people into a higher category. At the same time, officials are cutting back some deductions. Everyone will pay more, even people whose bracket or income doesn't change.
The extra sums will total as much as $140 per family, on top of the increases previously enacted.
Officials said the latest adjustments have been triggered by inflation, or rather the lack of it. This year, the state's inflation index was a negative number for the first time since 1983. When the economy takes a deep plunge, so do tax brackets.
The new changes apply to the 2009 tax year. Residents are already paying hundreds -- even thousands -- of additional income tax dollars under the quarter-point rate increase and other tax hikes approved in February as part of a budget deal.
"Everything is going up, up, up," said Othman Rabie, owner of a sandwich shop in downtown Sacramento. "And business is going down."
Back in February, state lawmakers and Gov. Arnold Schwarzenegger approved a slate of temporary tax increases in an effort to balance California's perennially out-of-whack books.
In addition to the income tax rate rising 0.25%, the dependent credit was slashed by more than two-thirds. The vehicle license fee nearly doubled to 1.15% of a car's value. The state sales tax climbed 1%.
This summer, lawmakers and Schwarzenegger decided to withhold 10% more from workers' paychecks starting Nov. 1 -- an accounting scheme to collect taxes faster. Under another bookkeeping maneuver, individuals and businesses that make estimated tax payments will pony up more of that money sooner starting in the first half of next year.
And some local taxes are on the way up. In Los Angeles County, a half-cent-higher sales tax approved by voters took effect in July to fund transportation projects.
Under the latest changes, for a married couple filing jointly, the top tax rate of 9.55% now begins at $92,698, down from $94,110. Combined with the earlier increases, such a couple with two children, earning $100,000, will see their California income tax bill rise by 22.3%, or $716, according to the state Franchise Tax Board. Their tax would go from $3,208 to $3,924, factoring in a $110 drop in the standard deduction for joint returns.
For singles, the top tax threshold has dropped from $47,055 to $46,349. This year, a single filer without children who earned $30,000 in 2008 and 2009 would pay 13.8% more: $617 instead of $542. The standard deduction for sole filers will fall by $55.
The state automatically adjusts its tax brackets. They have moved in taxpayers' favor for the last 25 years, with the amount of earnings required to kick people up a notch continually increasing. But that doesn't salve the pain of the latest changes, said Assemblyman Chuck DeVore, the Republican vice chairman of the Assembly Revenue and Taxation Committee.
"It takes more money out of the taxpaying productive sectors and scoops it into the government coffers at a time when taxpayers are already reeling," DeVore said.
It is unclear how much additional revenue the new brackets will yield for beleaguered state coffers; the state has not computed that yet, said Denise Azimi, spokeswoman for the tax board.
Meanwhile, experts such as Ted Gibson, who was chief state economist under both a Republican and a Democratic governor, remind policymakers even modest tax increases affect the state's financial health because they prompt people to further pinch pennies.
"It will hamper the recovery a little bit," Gibson said.
Some taxpayers say they are worried about their very livelihoods.
Martha Franco, 56, has struggled to keep open her family-run restaurant, Pepe's Tacos in Azusa.
"I average about $6 an hour [in receipts] and I'm open 12 hours a day," she said, sitting in the empty establishment as her son mopped the floor around her. "It already feels like I'm just working to pay my taxes," she said.
Not everyone minds paying more to protect such services as education, healthcare and parks, though.
An extra $100 or so, said Sharon Sugerman, a 59-year-old Sacramento resident who declined to give details about her job, "seems pretty reasonable to me."
shane.goldmacher@latimes.com
Times staff writer Corina Knoll in Los Angeles contributed to this report.
Copyright © 2009, The Los Angeles Times
Wednesday, August 26, 2009
Deficit fears put Obama’s reforms in jeopardy
http://www.ft.com/cms/s/0/25092270-91af-11de-879d-00144feabdc0.html
By Edward Luce and Sarah O’Connor in Washington
Published: August 25 2009 20:44 | Last updated: August 25 2009 20:44
Tuesday’s sharply upgraded forecasts for growth in US national debt over the ext decade could hardly have come at a worse time for Barack Obama. Shortly after he was elected last November, the president let it be known he preferred the “big bang” approach to domestic reforms.
As Rahm Emanuel, the White House chief of staff put it, you should “never allow a crisis to go to waste”. In other words, the financial meltdown was seen as an opportunity for Mr Obama to enact as many of his key reforms, including healthcare, within the first year of taking office.
But fears of the Great Depression have receded only to be replaced by mounting concern over the country’s long-term creditworthiness. Rather than shoring up the appetite for domestic reform, the rising tide of fiscal panic could threaten large chunks of Mr Obama’s agenda.
In particular, prospects for enacting Mr Obama’s proposed $1,000bn (€700bn, £610bn) 10-year expansion in healthcare coverage this autumn are beginning to look dicey given the projected rise in the national debt of more than $9,000bn in the next decade.
Even though Mr Obama has promised the healthcare reforms will be self-funding, some believe the sharply altered mood in Washington could force the president to reorientate his priorities. Recent polls show the deficit ranking second only to jobs among the public’s chief worries. Healthcare comes a distant third.
“The national debt doubled under George W. Bush and it is set to almost double under Barack Obama,” says David Walker, head of the Peterson Foundation and former head of the General Accountability Office. “Unless we see a dramatic fiscal course correction we are likely to see all sorts of negative consequences, including a reduction in trend growth rates and growing international distaste for holding American debt.”
Mr Walker is among a growing body of observers who believe America’s deteriorating debt position could have consequences for the country’s national security – even compromising its superpower status. Pointing to the UK, which saw it’s triple A credit rating put on negative outlook earlier this year, Mr Walker says the US faces a similar spectre unless it changes course.
“At the moment we have a home team bias [the credit rating agencies are based in New York] and we are benefiting from having the dollar as the international reserve currency,” he says. “But we cannot take the reserve currency status for granted. The Chinese have already made a shot across our bows and these numbers will only reinforce their concerns.”
However, some economists caution against taking the latest forecasts as gospel. On Tuesday the Congressional Budget Office caused as much confusion as clarity when it brought out its own 92-page report alongside the White House’s 74-page document. Back in March the CBO said that if Mr Obama’s policies were implemented, the 10-year deficit would reach $9,300bn. Yesterday the White House seemed to acknowledge the CBO was more or less right. But the CBO had already been at work on new revisions.
To seasoned economists it was a reminder that projections are not always right. “The first thing you learn in doing these projections is to be very humble,” said James Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities. “You know they’re going to be wrong and you know they’re going to be wrong by huge dollar amounts.”
Copyright The Financial Times Limited 2009.
By Edward Luce and Sarah O’Connor in Washington
Published: August 25 2009 20:44 | Last updated: August 25 2009 20:44
Tuesday’s sharply upgraded forecasts for growth in US national debt over the ext decade could hardly have come at a worse time for Barack Obama. Shortly after he was elected last November, the president let it be known he preferred the “big bang” approach to domestic reforms.
As Rahm Emanuel, the White House chief of staff put it, you should “never allow a crisis to go to waste”. In other words, the financial meltdown was seen as an opportunity for Mr Obama to enact as many of his key reforms, including healthcare, within the first year of taking office.
But fears of the Great Depression have receded only to be replaced by mounting concern over the country’s long-term creditworthiness. Rather than shoring up the appetite for domestic reform, the rising tide of fiscal panic could threaten large chunks of Mr Obama’s agenda.
In particular, prospects for enacting Mr Obama’s proposed $1,000bn (€700bn, £610bn) 10-year expansion in healthcare coverage this autumn are beginning to look dicey given the projected rise in the national debt of more than $9,000bn in the next decade.
Even though Mr Obama has promised the healthcare reforms will be self-funding, some believe the sharply altered mood in Washington could force the president to reorientate his priorities. Recent polls show the deficit ranking second only to jobs among the public’s chief worries. Healthcare comes a distant third.
“The national debt doubled under George W. Bush and it is set to almost double under Barack Obama,” says David Walker, head of the Peterson Foundation and former head of the General Accountability Office. “Unless we see a dramatic fiscal course correction we are likely to see all sorts of negative consequences, including a reduction in trend growth rates and growing international distaste for holding American debt.”
Mr Walker is among a growing body of observers who believe America’s deteriorating debt position could have consequences for the country’s national security – even compromising its superpower status. Pointing to the UK, which saw it’s triple A credit rating put on negative outlook earlier this year, Mr Walker says the US faces a similar spectre unless it changes course.
“At the moment we have a home team bias [the credit rating agencies are based in New York] and we are benefiting from having the dollar as the international reserve currency,” he says. “But we cannot take the reserve currency status for granted. The Chinese have already made a shot across our bows and these numbers will only reinforce their concerns.”
However, some economists caution against taking the latest forecasts as gospel. On Tuesday the Congressional Budget Office caused as much confusion as clarity when it brought out its own 92-page report alongside the White House’s 74-page document. Back in March the CBO said that if Mr Obama’s policies were implemented, the 10-year deficit would reach $9,300bn. Yesterday the White House seemed to acknowledge the CBO was more or less right. But the CBO had already been at work on new revisions.
To seasoned economists it was a reminder that projections are not always right. “The first thing you learn in doing these projections is to be very humble,” said James Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities. “You know they’re going to be wrong and you know they’re going to be wrong by huge dollar amounts.”
Copyright The Financial Times Limited 2009.
Sunday, August 23, 2009
New deficit projections pose risks to Obama's agenda
http://news.yahoo.com/s/nm/20090823/pl_nm/us_obama_budget_1
By Jeff Mason Jeff Mason – Sun Aug 23, 8:28 am ET
WASHINGTON (Reuters) – President Barack Obama's domestic policy proposals will face the reality of skyrocketing deficits on Tuesday when officials release two government reports projecting huge budget shortfalls over the next decade.
The White House budget office and the Congressional Budget Office (CBO), a non-partisan arm of Congress, release updated economic forecasts and deficit estimates on Tuesday, providing further fiscal fodder to opponents of Obama's nearly $1 trillion healthcare overhaul plan.
Many of the figures are already known.
The White House has confirmed that its deficit estimate for the 2009 fiscal year, which ends September 30, will inch down to $1.58 trillion from $1.84 trillion after eliminating billions of dollars originally set aside for bank rescues.
Looking forward, an administration official told Reuters the 10-year budget deficit projection will jump by about $2 trillion to roughly $9 trillion from an original forecast of $7.1 trillion.
"One message the numbers will send is that the medium- and long-term deficits need to be addressed," said Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, an analysis and research organization.
Obama has promised to do that. The president, a Democrat, says he will cut the deficit in half by the end of his four-year term, and he sees lowering healthcare costs as a key ingredient toward achieving long-term deficit reduction.
But Republicans charge that his proposals to extend coverage to uninsured Americans and create competition for private insurance providers are too expensive, especially as deficits go up.
UNSUSTAINABLE TRAJECTORY
"We're still on a long-run trajectory that's not sustainable," said Rudolph Penner, a fellow at the Urban Institute and former CBO director from 1983-1987.
"In an ideal world they would be doing a lot more to get health costs under control and, in my view, we wouldn't be talking about expanding coverage right now," said Penner, who describes himself as a moderate Republican.
The CBO had previously forecast that deficits between 2010 and 2019 would total $9.1 trillion, generating heat for the White House, which stuck to its original $7.1 trillion forecast earlier this year. The new number will bring White House projections into line with the CBO, the official said.
In line or not, the political challenges of the updated deficit projections are numerous. With Congressional elections looming next year, Obama will need to show he is serious about cutting costs in order to neutralize an otherwise politically radioactive issue for both political parties.
Many economists think it is unlikely that the government can curtail spending, which means taxes would have to rise to cover the increasing costs of providing retirement benefits and healthcare to older people. That could slow economic growth.
Stanford University economics professor John Taylor, an influential economist, told Reuters Television on Friday the U.S. budget deficit poses a greater risk to the financial system than the collapse in commercial real estate prices.
"If that gets out of control, if interest rates start to rise because people are reluctant to buy all that debt, then that can slow the economy down. So, that's the more systemic concern I have," Taylor said.
(Editing by Eric Walsh)
By Jeff Mason Jeff Mason – Sun Aug 23, 8:28 am ET
WASHINGTON (Reuters) – President Barack Obama's domestic policy proposals will face the reality of skyrocketing deficits on Tuesday when officials release two government reports projecting huge budget shortfalls over the next decade.
The White House budget office and the Congressional Budget Office (CBO), a non-partisan arm of Congress, release updated economic forecasts and deficit estimates on Tuesday, providing further fiscal fodder to opponents of Obama's nearly $1 trillion healthcare overhaul plan.
Many of the figures are already known.
The White House has confirmed that its deficit estimate for the 2009 fiscal year, which ends September 30, will inch down to $1.58 trillion from $1.84 trillion after eliminating billions of dollars originally set aside for bank rescues.
Looking forward, an administration official told Reuters the 10-year budget deficit projection will jump by about $2 trillion to roughly $9 trillion from an original forecast of $7.1 trillion.
"One message the numbers will send is that the medium- and long-term deficits need to be addressed," said Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, an analysis and research organization.
Obama has promised to do that. The president, a Democrat, says he will cut the deficit in half by the end of his four-year term, and he sees lowering healthcare costs as a key ingredient toward achieving long-term deficit reduction.
But Republicans charge that his proposals to extend coverage to uninsured Americans and create competition for private insurance providers are too expensive, especially as deficits go up.
UNSUSTAINABLE TRAJECTORY
"We're still on a long-run trajectory that's not sustainable," said Rudolph Penner, a fellow at the Urban Institute and former CBO director from 1983-1987.
"In an ideal world they would be doing a lot more to get health costs under control and, in my view, we wouldn't be talking about expanding coverage right now," said Penner, who describes himself as a moderate Republican.
The CBO had previously forecast that deficits between 2010 and 2019 would total $9.1 trillion, generating heat for the White House, which stuck to its original $7.1 trillion forecast earlier this year. The new number will bring White House projections into line with the CBO, the official said.
In line or not, the political challenges of the updated deficit projections are numerous. With Congressional elections looming next year, Obama will need to show he is serious about cutting costs in order to neutralize an otherwise politically radioactive issue for both political parties.
Many economists think it is unlikely that the government can curtail spending, which means taxes would have to rise to cover the increasing costs of providing retirement benefits and healthcare to older people. That could slow economic growth.
Stanford University economics professor John Taylor, an influential economist, told Reuters Television on Friday the U.S. budget deficit poses a greater risk to the financial system than the collapse in commercial real estate prices.
"If that gets out of control, if interest rates start to rise because people are reluctant to buy all that debt, then that can slow the economy down. So, that's the more systemic concern I have," Taylor said.
(Editing by Eric Walsh)
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