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Social Security and Defined Contributions

There is a basic concept that when someone works for somebody, they get paid. If part of the pay is eligible for retirement benefits, then that becomes an immediate obligation of the payer. Even though the payments to the employee will not be made until after his retirement, expenses incurred – and funding for that payment originates – at the time it is earned.

Retirement plans are of two types: defined contribution and defined benefit. Both have the same goal; the difference is in the mechanics.  Examples of a defined contribution plan are 401Ks and profit sharing. With these, you put the money aside and the money will grow and be there later.  Defined benefit plans include Social Security, most state and local pensions, and union plans like GM. These are plans in which people get retirement from some formula related to their salary. But whether it is a defined contribution or defined benefit plan, in both cases, the obligation to pay those benefits originates at the time it is earned by the employee and it must be funded at that time. In the world of business, lack of appropriate funding of those promises of retirement benefits can land someone in jail.

What would you think about someone who promised to put retirement funds aside and didn’t? They would be crooks. And not only that, when they issued their financial reports, they hid the fact that they were obligated to make all of these payments in the future.

We need to hold these legislators that continue to perpetrate this fraud accountable.

 

Dick Durbin On Social Security

In another example of reckless rhetoric, Senator Dick Durbin recently stated on Meet the Press  that Social Security does not add one penny to the deficit. Of course, this idea is only technically true in the sense that the payments to fund Social Security are being stolen from present day workers who have every right to believe and expect that the money taken out is set aside for retirement pensions. Only someone who has no contact with economics, accounting or the actuality of funding an organization could be as boldly ignorant as Mr. Durbin has been.

Even worse, Durbin went on to claim that untouched, Social Security will make every promised payment for more than 25 years. What an outrageously incorrect statement. There is no money available from any actuarily sound fund of money from which these payments can be made. Social Security is bankrupt and Mr. Durbin knows it. It is despicable that a Senator can boldly lie to the public without rebuke on such an important topic as Social Security.

Don’t Agonize When It Comes Time To Itemize

 

Itemizing on one’s taxes might take longer than taking the standard deduction, but the extra effort often pays off. NY1’s Money Matters reporter Tara Lynn Wagner filed the following report.

To itemize or not to itemize? That is the question… on line 40 of the 1040 form. Taxpayers get to choose between filing a Schedule A or taking the standard deduction, which is $5,700 for a single person and $11,400 for a married couple filing jointly. The standard deductions sound substantial, but itemizing may come up with more money.

“If your sum total of all your itemized deductions are going to exceed that number, you should itemize your deductions,” says Alan Dlugash, a partner of Marks Paneth & Shron LLP.

While $11,400 might sound high, it is actually a pretty easy threshold to reach. Experts recommend starting with big-ticket deductions like mortgage interest and then keep digging.

“You should have a simple list of the major items, and just do a quick ‘looksie’ to make sure,” says Dlugash.

“Personal taxes, taxes on your automobile, sales taxes are deductible as an option, if they’re bigger than your income taxes, which is also deductible; medical deductions,” says Mark Steber of Jackson Hewitt Tax Service.

One can also itemize charitable contributions, which range from clothes donations to support for a relief effort or contributions to the church collection bin. However, experts warn that those itemizations need proof.

“Anything — $10, $20, $30 — needs to be documented, so either a canceled check or you need to get a letter from the charitable organization showing you made this contribution,” says Vincent Cervone, the principal of VRC & Associates. “If you don’t have this letter, you cannot take this deduction.”

The important thing in general is to keep track of receipts, and there are many strategies for doing so. Those who want to use the least amount of effort can just toss their papers in a shoebox or manila envelope.

Cervone takes it one step further and recommends his clients get fancy supplies, like a notebook and a stapler.

“And each day you have a receipt for some sort of business expense, you staple it onto that page,” says Cervone. “At the end of the year when you come see me, I add all the pages up. I total it at the end of the year, and it’s done. It’s easy.”

It may not be as easy as taking the standard deduction, but experts say the bigger effort will likely mean a bigger refund.

“Standard’s easy. Itemized is hard, but itemized in many cases is much larger,” says Steber.

Click here to watch the video:  http://brooklyn.ny1.com/content/ny1_living/money_matters/136150/don-t-agonize-when-it-comes-time-to-itemize

 

Liberals & Spending

There are a lot of people out there – mainly liberals – saying we should not reduce federal spending now because it would halt the tenuous recovery. This is pure baloney! Even if the most aggressive spending cuts proposed by the most fiscally conservative Republicans were to be enacted, the current year’s budget will still be running a trillion dollar deficit.

This Keynesian approach to the economy is suspect at best. But, even if you believed in it, the remaining trillion dollar deficit reduction through spending cuts would still be an incredibly stimulative program!

We’re Blaming the Wrong Party


The Republicans are proposing substantial tax cuts in the discretionary spending portion of the budget. Meanwhile, the Democrats demagogue the spending cuts as dangerously cutting programs for the sick, elderly, and the poor.

From FY2008 – FY2010, federal spending on projects increased roughly 25%. Such a dramatic enlargement of the budget deficit is bordering on criminal. There was no actual money to do so, and now the Republicans are being vilified for trying to go back to the point at which the Democrats, ignoring all financial reality, substantially overspent taxpayer money.

How can we be blaming those people who are, for the first time, showing us all of the worldly irresponsible actions and promises that have been created over the last two years? The reality is that during that time, the Democrats have made outrageous promises to the sick, elderly, and poor that they had no hope of being able to carry out.

The point is clear. The blame needs to squarely rest upon the tax-and-spend liberals, not the people who are trying to actualize fiscal responsibility by cutting back to previous and more reasonable spending levels. The politicians who enacted reckless legislation with money that was not theirs should be held accountable to the fullest extent.

Giving HAMP the Hook


The WSJ had a nice little piece last month on the failures of HAMP. I concur — we need to cut this program out immediately
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Proposing cuts to housing programs has never been politically popular, so maybe it’s a sign of the times that Ohio’s Jim Jordan and other Republicans are floating a bill to terminate the Obama Administration’s Home Affordable Modification Program, or Hamp. Or maybe, just maybe, this latest waste of taxpayer money is so egregious that the bill’s sponsors figure even Democrats can get on board. Let us hope.

Hamp was launched in 2009 to reward mortgage servicers for modifying contracts and borrowers for staying current on their payments. The goal was to help three to four million homeowners avoid foreclosure. Yet two years later, the number of applications cancelled has exceeded those approved, and some homeowners have been forced into foreclosure while awaiting a decision.

Hamp was flawed from its inception. If the last few decades of public housing policy have taught anything, it’s that programs to keep people in homes they can’t afford is a bad idea—and, in any case, bureaucrats are terrible managers. Treasury administered Hamp but contracted day-to-day oversight to Fannie Mae and Freddie Mac. The launch was rushed and the rules for loan modifications were repeatedly changed.

One year into the program, more than one million borrowers had entered trial modifications, swamping mortgage servicers. Seventy-eight percent of borrowers were already in default before starting the trial, according to Treasury data released last week. Many loans weren’t viable from the beginning and wouldn’t benefit even from the low interest rates facilitated by the Federal Reserve.

The numbers bear that out. According to Treasury data, 792,529 trial and permanent Hamphome loan modifications have been cancelled, compared to 521,630 homeowners who have had their mortgages “permanently modified.” Applications for Hamp modifications are now slowing markedly. The Congressional Oversight Panel estimated last month that on current trendsHamp will prevent at most 700,000 to 800,000 foreclosures.

Meantime, private mortgage servicers—who can price risk more accurately—have outstrippedHamp. The Hope Now coalition estimates that last year non-Hamp modifications totaled about 1.2 million loans. That’s about double what Hamp has done over the same period. Treasury claims that Hamp redefault rates are less than those of the private sector, but that is hard to verify because borrowers who drop out of Hamp in the trial period aren’t counted in the redefault statistics.

The Obama Administration nonetheless keeps hawking Hamp, and last month Treasury’s Timothy Massad told Congress that “helping over 500,000 people enter into permanent modification, people who would otherwise be thrown out of their homes” are “dollars well spent.”Hamp is funded through the Troubled Asset Relief Program and has spent $840 million of the $29.9 billion allocated to the Making Home Affordable Program, most of which is for Hamp.

That’s not persuasive to Neil Barofsky, the special inspector general for Tarp, who last month noted Treasury’s “astonishing silence” and refusal to “provide an estimate, goal, or projection of the total number of permanent modifications it expects to complete and maintain.” It’s hard to know if money is “well spent” if you don’t know what defines success.

If you measure success by the housing market, Hamp has failed miserably. According to RealtyTrac, 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009 and 2.3 million in 2008. The bellwether Case-Shiller home price index is falling again. Hamp is one more artificial prop to a housing market that will recover faster if foreclosures are allowed to proceed more rapidly and the homes are resold. By all means give Hamp the hook.

http://online.wsj.com/article/SB10001424052748703956604576110412700522054.html

Unions and Polls


An interesting piece coming out of the NYTimes today regarding public sentiment on the activity in Wisconsin.

Majority in Poll Back Employees In Public Unions

As labor battles erupt in state capitals around the nation, a majority of Americans say they oppose efforts to weaken the collective bargaining rights of public employee unions and are also against cutting the pay or benefits of public workers to reduce state budget deficits, according to the latest New York Times/CBS News poll.

Labor unions are not exactly popular, though: A third of those surveyed viewed them favorably, a quarter viewed them unfavorably, and the rest said they were either undecided or had not heard enough about them. But the nationwide poll found that embattled public employee unions have the support of most Americans — and most independents — as they fight the efforts of newly elected Republican governors in Wisconsin and Ohio to weaken their bargaining powers, and the attempts of governors from both parties to cut their pay or benefits.

Americans oppose weakening the bargaining rights of public employee unions by a margin of nearly two to one: 60 percent to 33 percent. While a slim majority of Republicans favored taking away some bargaining rights, they were outnumbered by large majorities of Democrats and independents who said they opposed weakening them.

Those surveyed said they opposed, 56 percent to 37 percent, cutting the pay or benefits of public employees to reduce deficits, breaking down along similar party lines. A majority of respondents who have no union members living in their households opposed both cuts in pay or benefits and taking away the collective bargaining rights of public employees.

Governors in both parties have been making the case that public workers are either overpaid or have overly generous health and pension benefits. But 61 percent of those polled — including just over half of Republicans — said they thought the salaries and benefits of most public employees were either “about right” or “too low” for the work they do.

When it came to one of the most debated, and expensive, benefits that many government workers enjoy but private sector workers do not — the ability to retire early, and begin collecting pension checks — Americans were closely divided. Forty-nine percent said police officers and firefighters should be able to retire and begin receiving pension checks even if they are in their 40s or 50s; 44 percent said they should have to be older. There was a similar divide on whether teachers should be able to retire and draw pensions before they are 65.

The nationwide telephone poll was conducted Feb. 24-27 with 984 adults and has a margin of sampling error of plus or minus three percentage points for all adults. Of those surveyed, 20 percent said there was a union member in their household, and 25 percent said there was a public employee in their household.

Tax increases were not as unpopular among those surveyed as they are among many governors, who have vowed to avoid them. Asked how they would choose to reduce their state’s deficits, those polled preferred tax increases over benefit cuts for state workers by nearly two to one. Given a list of options to reduce the deficit, 40 percent said they would increase taxes, 22 percent chose decreasing the benefits of public employees, 20 percent said they would cut financing for roads and 3 percent said they would cut financing for education.

The most contentious issue to emerge in the recent labor battles has been the question of collective bargaining rights. A proposal by Gov. Scott Walker of Wisconsin to weaken them sent Democratic state lawmakers out of state to prevent a vote, flooded the Capitol in Madison with thousands of protesters and sparked a national discussion about unions.

The poll found that an overwhelming 71 percent of Democrats opposed weakening collective bargaining rights. But there was also strong opposition from independents: 62 percent of them said they opposed taking bargaining rights away from public employee unions.

Phil Merritt, 67, a retired property manager from Crossville, Tenn., who identifies himself as an independent, explained in a follow-up interview why he opposed weakening bargaining rights for public workers. “I just feel they do a job that needs to be done, and in our country today if you work hard, then you should be able to have a home, be able to save for retirement and you should be able to send your kids to college,” he said. “Most public employees have to struggle to do those things, and generally both spouses must work.”

The one group that favors weakening those rights, by a slim majority, was Republicans. Warren Lemma, 56, an electrical contractor from Longview, Tex., said states did not have the money to pay for many benefits that state workers enjoy.

“Retirement benefits should not be taken away from those about to retire, but the system should be changed for the people starting to teach just now,” said Mr. Lemma, a Republican. “And the only way the system will change is to do something about unions and their control, and the only way to do that is to take away collective bargaining.”

The poll found that 45 percent of those surveyed said they believed that governors and state lawmakers who are trying to reduce the pay or benefits of public workers were doing so to reduce budget deficits, while 41 percent said they thought they were doing so to weaken unions’ power.

Although cutting the pay or benefits of public workers was opposed by people in all income groups, it had the most support from people earning over $100,000 a year. In that income group, 45 percent said they favored cutting pay or benefits, while 49 percent opposed it. In every other income group, a majority opposed cutting pay or benefits: Among those making between $15,000 and $30,000, for instance, 35 percent said they favored cutting pay or benefits, while 60 percent opposed it.

Labor unions, including private sector labor unions, are seen as less influential now than they were three decades ago. The poll found that 37 percent of those surveyed believe that labor unions have “too much influence” on American life and politics, while 48 percent said they had the “right amount” or “too little” influence. In a 1981 poll, by contrast — soon after President Ronald Reagan fired striking air traffic controllers — 60 percent of those surveyed said unions had “too much influence.” Of course, union membership has declined since then.